Income Tax Appellate Tribunal - Chandigarh
Greater Ludhiana Area Development ... vs Assessee on 31 March, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'A' CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND SHRI T.R.SOOD, ACCOUNTANT MEMBER
ITA No. 917/CHD/2014
Assessment Year : 2011-12
Greater Ludhiana Area Vs The ACIT,
Development Authority, Circle VI,
GLADA Complex, Ludhiana.
Ferozepur Road,
Ludhiana.
PAN: AAALG1055F
(Appellant) (Respondent)
Appellant by : Shri Sudhir Sehgal
Respondent by : Smt. Jyoti Kumari
Date of Hearing : 30.03.2015
Date of Pronouncement : 31.03.2015
O R D E R
PER BHAVNESH SAINI,JM This appeal by assessee is directed against the order of Ld. CI T(Appeals) - II, Ludhiana dated 13.10.2014 for assessment year 2011-12.
2. The assessee has raised effectively nine grounds of appeal as explained in ground No. 1. The ld. CIT(Appeals), except on ground No. 4 has followed his order dated 23.10.2013 for assessment year 2010-11 for dismissing grounds of appeal of the assessee.
3. The ld. Representatives of both the parties stated that the appeals of the assessee in assessment year 2009-10 and 2 2010-11 have been decided by ITAT Chandigarh Bench vide order dated 05.02.2015 in ITA 252/CHD/2013, 319/CHD/2013 and 1028/CHD/2013 and all the grounds except ground No. 4 have been disposed off accordingly. The copy of the order of the Tribunal dated 05.02.2015 is placed on record. The synopsis also filed to explain through which para of the order of the Tribunal the issues are covered, was decided by the Tribunal in earlier years.
4. We have heard ld. Representatives of both the parties and perused the impugned orders and also taken into consideration order of ITAT Chandigarh Bench dated 05.02.2015 (supra) for earlier assessment years 2009-10 and 2010-11 for the purpose of disposal of the appeal.
5. On ground No. 1, assessee challenged the addition of Rs.41,20,806/- paid to Northern Railways for construction of Railway Under-bridge near Lodhi Club at Ludhiana. This issue is decided in assessment year 2009-10 in departmental appeal in ITA 319/CHD/2013. Findings in para 11 to 14 of the order dated 05.02.2015 are reproduced as under :
"11. We have considered rival submissions. It is not in dispute that assessee made payments f or construction of Rail way under Bridge in its jurisdiction and area of activity in Ludhiana with the purpose to improve the traff ic situation, specially in the areas which are f alling in and around the colonies developed by the assessee. The ld. counsel for the assessee filed the map of the under Bridge constructed by the assessee to sho w that Rail way under Bridge was constructed to connect the colonies which were located on both sides of rail way track. It was, theref ore, f or the benef it of the business of the assessee only. The ld. CIT(Appeals), therefore, correctly appreciated that the construction of the said bridge would improve the connectivity between Ferozepur Road to Pakho wal Road leading to smooth 3 flow of traff ic and theref ore, would def initely serve the purpose of the assessee in providing better civic amenities in the area of operation. The main object of the assessee authority is to promote and secure better planning and development of any area of the State. The scope of the assessee is not limited to the construction of housing project only but to work for the development and betterment of the State.
12. Bef ore authorities belo w, it was contended that as per Section 28(1) of Punjab Regional and Town Pl anning Development at 1995 reproduced above would provide that assessee can do anything with the prior approval or on the direction of the State Government f or carrying out the purposes of this Act. In the same Act, it is also provided that the funds of the authority shall be applied for such other purposes as the State Government may direct or permit. Though we agree Section 28 may not determine the allowabil ity of expenditure under section 37 of IT Act, ho wever, the amount in question is entirely paid to the Northern Rail way f or construction of under Bridge as per the Minutes duly approved by the authority. The assessee has furnished complete details on the same at pages 21 to 35 of the Paper Book and the relevant copy of the Minutes is filed at page 33 of the Paper Book and further correspondence is filed at page 81 to 83 of IInd Paper Book. The project was approved by assessee authority and execution with its funds. Since the assessee has constructed the Railway under Bridge to overcome the traffic problem in Ludhiana and for creating access of the projects undertaken by the assessee, therefore, the purpose of raising construction of Railway under Bridge was commercial in nature for the purpose of achieving the objects of the assessee authority. This expenditure has also made the marketability of the properties of the assessee authority around the location where under bridge was constructed. The decisions relied before ld. CIT(Appeals) support the findings of ld. CIT(Appeals).
13. The ld. CIT(Appeals), therefore, correctly decided the issue in favour of the assessee holding that the amount is spent for the purpose of business activities of the assessee. There is, therefore, clear nexus between the amounts spent and the business activity of the assessee. We, therefore, do not find any justification to interfere with the order of the ld. CIT(Appeals) in deleting the addition. This ground of departmental appeal is dismissed.
13(i) In the same ground, revenue challenged the deletion of addition of Rs. 1.57 Cr on account of payment made by assessee to Punjab Mandi Board, Ludhiana f or construction of bridge on the Sidhwan Canal at Dugari Road, Ludhiana. The ld. CIT(Appeals) noted that the Assessing Off icer disallo wed these expenditures on the same reason as payments have 4 been made to Northern Rail way. Theref ore, ld. CIT(Appeals) f ollowing his order on the above issue, deleted this addition as well.
14. Both the parties stated that issue is same as have been considered with regard to payment made to Northern Rail way f or construction of Rail way under Bridge. The ld. counsel f or the assessee also f iled copy of the map sho wing the location where the bridge in question has been constructed. It would link the colonies constructed by the assessee authority. Therefore, the issue being same, we f ollo wing the order with regard to payment made to Northern Rail way, dismiss this ground of the revenue as well. In the result, ground No. 1 of the appeal of revenue is dismissed.
6. In assessment year 2010-11 by following the same order, the appeal of the assessee on ground No. 1 was allowed in para 39 of the same order.
7. Following the order for assessment year 2009-10 and 2010-11 above, we set aside the orders of authorities below and delete the addition. Ground No. 1 of the appeal of the assessee is allowed.
8. On ground No. 2, assessee challenged the addition of Rs. 27,66,20,203/- on account of amount paid to Punjab Water Supply and Sewerage Board for pro viding water and sewerage system within the jurisdiction of GLADA in different areas. This issue is decided in assessment year 2010-11 vide order dated 05.02.2015 in favour of the assessee. The findings in para 45 to 46 of this order are reproduced as under :
"45. We have considered rival submissions and material avail able on record. As per Section 28(1) of PRTPD Act under which the assessee authority is constituted, it is specif ically mentioned that assessee authority shall carry out other operations like supply of water, disposal of sewerage, control of pollution 5 and other services. The object of the assessee is to promote and Secure better pl anning and development of the areas of the State of Punjab. The assessee is created by the Government of Punjab under the abovesaid Act for the development of the areas especially the jurisdiction lies with the Ludhiana. Copy of the minutes of Executive Committee of assessee authority is f iled at page 48A in which the Executive Committee has approved payment in question the PWSSB f or construction of sewerage disposal system providing se werage scheme at Ludhiana under JNNURM. PB-49A is the copy of the letter dated 19.05.2010 in which the meeting was convened under the chairmanship of the Chief Minister of Punjab and it was directed that the assessee to pro vide Rs.25 Crores as their contribution to the se werage system through ULB. The letter of PWSSB is f iled at page 50 of the Paper Book f or providing Se werage Scheme, Ludhiana under JNNURM requesting the assessee to make deposit of the amount in question. Theref ore, the amount in question is directly connected with the activities of the assessee to promote and secure better planning and development of the area within the jurisdiction of the assessee and amount is spent as per objectives of the assessee. The copies of the letters of PWSSB Department are f iled at page 194- 195 to certif y that the amount in question have been spent f or construction of sewerage treatment pl ant and se werage system at Ludhiana. The copy of the Notif ication and map is also f iled to sho w that se werage system is l aid out in the areas of Ludhiana. The assessee also explained that since assessee is not expert, theref ore, construction of se werage system was carried out through independent agency controlled by the State Government. Theref ore, there is nothing wrong in the expl anation of the assessee. The expenditure is incurred on the direction of the Governing Body of the assessee authority which is covered under the provisions of PRTPD Act and was allo wable expenditure as per Section 28 of PRTPD Act. The assessee has not capital ized any expenditure in the books of account and se werage system was meant for public at large.
46. The ld. CIT(Appeals) considering the issue in the l ight of Railway under Bridge constructed by assessee and f ollo wing his f indings on that issue, dismissed the appeal of the assessee. Ho wever, on said issue, we have already dismissed the departmental appeal in assessment year 2009-10 and allo wed the appeal of the assessee in this year. Therefore, considering the total ity of the f acts and circumstances and aims and ob jects of the assessee in the l ight of the special Act under which the 6 assessee authority is created, it is clear that amount in question is incurred by assessee f or se werage work within the jurisdiction of the assessee authority. It is, theref ore, clearly the revenue in nature and has to be allo wed as expenditure incurred wholly and exclusively f or the purpose of business activities of the assessee. No capital is generated by assessee authority f or incurring the expenditure on this issue. We, theref ore, set aside the orders of the authorities belo w and delete the addition of Rs. 28 crores. In the resul t, ground No. 2 of appeal of assessee is allo wed."
9. Following the above order, we set aside the orders of authorities below and delete the addition. In the result, ground No. 2 of the appeal of the assessee is allowed.
10. On ground No. 3, assessee challenged the disallowance of Rs. 6 Crores on account of amount spent for pro viding sewerage system at Baga Purana within the jurisdiction of GLADA. It is stated that issue is same as was decided in assessment year 2010-11 on which findings in para 45-46 reproduced above, we set aside the orders of authorities below and delete the addition. Ground No. 3 of appeal of assessee is accordingly, allowed.
11. On ground No. 4, assessee challenged the disallowance of Rs. 1.25 Crores for setting up of Music Academy holding it to be capital expenditure. Brief facts of this issue are that the Assessing Officer noted that assessee had debited an amount of Rs. 1.25 Crores to the Profit & Loss Account as contribution made to Ishmeet Academy. The Assessing Officer asked the assessee to justify the allowability of this expenditure. The assessee submitted that Rs.1.25 Crores had been given to Ishmeet Academy for development and construction of a Music 7 Academy. This expenditure had been incurred after obtaining necessary approval and that the expenditure was within the objects of the assessee. The Assessing Officer held that expenditure incurred was mere application of income and it was a capital expenditure and accordingly disallowed the amount.
12. The ld. CI T(Appeals) found that the amount in question is given to an independent organization for development and construction of a Music Academy. The assessee is not owner of the same and it was merely a grant to independent agency like donation. It was, therefore, held that the amount is not incurred for wholly and exclusively for the purpose of business of assessee and accordingly addition was confirmed.
13. The ld. counsel for the assessee reiterated the submissions made before authorities below and submitted that amount was given as per direction of the State Government. On the other hand, ld. DR relied upon the orders of the authorities below.
14. On consideration of the rival submissions, we do not find any merit in this ground of appeal of the assessee. The amount in question is given to an independent organization for development and construction of Music Academy. It is not aims and objects of the assessee to raise construction of Music Academy. The amount is not incurred wholly and exclusively for the purpose of business of the assessee or to achieve its objects. The amount is in the nature of donation or application of income and as such no such amount is 8 allowable deduction out of the income of the assessee. Ground No. 4 of the assessee is accordingly, dismissed.
15. On ground No. 5, assessee challenged the addition of Rs. 2,58,16,946/- on account of amount paid to Punjab State Development & Welfare Fund as per Notification of the Punjab Government. This issue is decided in assessment year 2009- 10 in the appeal of assessee in I TA 252/CHD/2013 vide orde3r dated 05.02.2015 and in para 32, similar addition has been deleted. The findings in para 32 of this order are reproduced as under :
"32. We have considered the rival submissions and perused the material avail able on record. The assessee has paid the amount in question i.e. Rs. 1.86 Cr to the Government of Punjab as per Notif ication dated 17.03.2008 (PB- 36). When the State Government has directed by way of Notif ication to the assessee to deposit 5% of the bid amount on sale of the properties with the State Government to wards the Punjab State Development Funds in the publ ic account of the State, it is def initely connected with the business activity of the assessee on sale of properties. The assessee authority is bound to f ollo w the directions of the Punjab Government and has to act accordingly. The payment in question is, theref ore not voluntary or gratuitous but as an obl igation and primary charges as per the Notif ication issued by the State Government. The amount of 5% is, theref ore, directly rel ate to the sales activities of the assessee authority. The assessee has f ollo wed the directions of the State Government as per the existing laws and the Notif ication as issued by the State Government. The non-compliance of the directions of the State Government would directly affect the business activities of the assessee authority. Theref ore, the contributions to the welf are f und is in the nature of commercial expediency and has a nexus with the business activity of the assessee. Since the assessee made payment of 5% of the bid amount of the auction on sale of property as per Notif ication eff ective, theref ore the amount is incurred for the purpose of business activities of the assessee. The decisions relied upon by ld. counsel f or the assessee clearly support the submission of ld. counsel f or the assessee. We, theref ore, hold that the amount in question is 9 spent and incurred by assessee wholly and exclusively f or the purpose of business. Therefore, same is allo wable as deduction. We accordingly set aside the orders of the authorities belo w and delete the addition. In the resul t, ground No. 1 of the appeal of the assessee is allo wed."
16. Further in assessment year 2010-11, same order has been followed and similar addition has been deleted in para 58 to 61. Therefore, following the earlier year's order in the case of the same assessee, we set aside the orders of authorities below and delete the addition. Ground No. 5 of the appeal of the assessee is accordingly, allowed.
17. On ground No. 6, assessee challenged the addition of Rs. 2,74,65,568/- on account of amount received as External Development Charges from colonizers. This issue has been decided in appeal of assessee in assessment year 2009-10 in ITA 252/CHD/2013 vide order dated 05.02.2015 (supra) and in paras 24 to 27, it was held as under :
"24. We have considered the rival submissions. The assessee explained that the assessee authority received the External Development Charges from the promoters of private colonies and the charges were deposited by the promoters f or dev elopement work to be carried out at the periphery of the colonies by the Government or local authority. The amounts are collected as per specified rates and were meant to be spent on the external development of the colonies. These charges are f or providing inf rastructure, the f acil ities l ike roads, water supply and civil system etc. The assessee expl ained that these amounts are collected as per Punjab Apartment and Property Regulation Act, 1995 and provisions of the same are also reproduced in the impugned order. The assessee, theref ore, submitted that External Development Charges does not belong to the assessee at all the same is collected as per the direction of the State Government.
25. The ld. counsel for the assessee filed copy of the Notif ication of Government of Punjab dated 23.06.2005 to sho w that Punjab Government has revised policy of External Development Charges with regard to the 10 payment of External Development Charges by the promoters in licensed colonies. The assessee also deposited the amount in question in a separate bank account which is not in dispute. It is, theref ore, clear that the amount in question is received by assessee as per direction of the Government of Punjab. This amount was sho wn as payable in the accounts of the assessee. Therefore, the nature and character of the receipt should have been examined by the authorities belo w as per the relevant provisions of the law and the Notif ication issued by the Government of Punjab in this regard. It appears that authorities belo w have f ailed to consider the relevant provisions of the law and the notif ications issued by the Government of Punjab in this regard which would clearly through light on the nature and character of the receipt of External Development Charges received by the assessee. Because the assessee cl aimed that the amount is received as per direction of the State Government and was to be spent as per the direction of the State Government or specif ied authority. Thus, ho w the said amount could be income of the assessee, is not established by the authorities belo w. The main reason f or the above addition as made by the Assessing Off icer is that the assessee has shown the amount of interest on the bank deposit as income for the year under consideration. Since the principle amount itself is sho wn as liabil ity and the amount is to be spent as per the direction of the State Government, merely sho wing interest as income on such liabil ity by itself is not suff icient to put the entire l iability upon assessee to treat the liabil ity amount as income. The assessee has no right/title or interest in External Development Charges. The assessee is competent/ nodal authority to receive External Development Charges as per provisions of law ref erred above. Therefore, it was liabil ity of assessee to pay back the amount as per direction of State Government or local authority. Ld. CIT(Appeals) admitted that External Development Charges kept pending and not used pending clearance f rom State Govt. would prove it was not money of the assessee. Further, the f acts disclose that assessee may be a custodian of the amount of External Development Charges, theref ore, ho w it could be treated as income of the assessee, is not explained by the authorities belo w. The assessee also in the Paper Book, f iled certain correspondence to sho w that since External Development Charges were lying unutil ized, therefore, due to f inancial constraints, request was made to the State Government to permit the assessee authority to use External Development Charges f or development pro jects in the l arger public interest. This correspondence would reveal that assessee was not entitled even to use this amount of its o wn f or any purpose. It may also be noted here that since the amount in question itself is sho wn as outstanding since long, would prove that the amount did 11 not belong to the assessee and was sho wn as liabil ity in the accounts. The above f acts would clearly disclose that the assessee cannot use the External Development Charges account for any purposes unless it is approved by the State Government. The assessee since ref erred to the provisions of Punjab Apartment and Property Regulation Act, 1995 by which External Development Charges are collected by the assessee and the provisions thereon state that the competent authority shall transf er the funds to the State Government or local authority ( through authority) is competent authority and it did not carry out any development work of its o wn and only acts As Nodal Agency. These provisions have not been properly appreciated by the authorities belo w. The authorities belo w should also ascertain whether the simil ar type of authority l ike the assessee, ho w they have given the treatment of the External Development Charges in their records and what is the stand of the Revenue Department in the cases of the simil ar other authorities. The nature and character of receipt is not examined by authorities belo w.
26. It f urther appears that ld. CIT(Appeals) has not given any f inding on the case l aws relied upon by the assessee bef ore him. Considering the above discussion and the relevant case laws cited bef ore ld. CIT(Appeals) and the Notif ication produced bef ore us clearly disclose that the matter requires re-consideration at the level of the Assessing Officer. The decisions cited by ld. DR in the case of Bazpur Cooperative Sugar Factor Ltd. (supra), the amounts in question were f ound to be deducted in the course of trading operation and in the case of Cho wringhee Sales Bureau P. Ltd. (supra), the sale tax was received by the assessee in its character as an auctioneer, the amount was found to be f orm part of the trading or business receipts. These decisions stated by ld. DR are not applicable to the issue in controversy.
27. From the above discussion, we set aside the orders of the authorities belo w and restore the issue to the f ile of Assessing Off icer with direction to re-decide the issue in the light of the relevant provisions of the law ref erred to by the assessee bef ore the authorities belo w along with the Notif ications issued with regard to External Development Charges. The Assessing Officer shall give reasonable suff icient opportunity of being heard to the assessee. In the result, this ground of appeal of the assessee is allo wed f or statistical purposes.
18. The same order was followed in assessment year 2010-11 in para 62 of the same order and issue was restored to the file 12 of Assessing Officer. Following the orders for assessment year 2009-10 and 2010-11 of the Tribunal, we set aside the orders of authorities below and restore this issue to the file of Assessing Officer with direction to re-decide this issue in the light of the order dated 05.02.2015 (supra). This ground of appeal of the assessee is accordingly allowed for statistical purposes.
19. On ground No. 7, assessee challenged the addition of Rs. 7,59,00,000/- on account of earnest money received from various buyers. The assessee in the synopsis stated that this issue is with regard to the addition of Rs. 6,74,23,665/- out of amount of Rs. 7.59 Cr. as the remaining benefit has been given by the ld. CIT(Appeals). The submission of the assessee is correct as is stated in para 10.7 of the order of ld. CIT(Appeals). It may also be noted here that the ld. CIT(Appeals) has followed his order for assessment year 2010- 11 on the same issue in which he has deleted the similar addition in earlier years. However, he has distinguished the facts in assessment year under appeal for maintaining the addition in question.
20. The ld. counsel for the assessee submitted that the identical issue has been considered by I TAT Chandigarh Bench in the case of the same assessee in assessment year 2010-11 on ground No. 7, 8 & 9 in which the matter has been restored to the file of Assessing Officer with direction to re-decide these grounds considering the factual aspects by giving reasonable sufficient opportunity of being heard. Therefore, following the 13 order of the Tribunal dated 05.02.2015 (supra) for assessment year 2010-11, we set aside the orders of authorities below and restore this issue also to the file of Assessing Officer with direction to re-decide this issue by considering the actual aspects on this issue. In the result, ground No. 7 of the appeal of assessee is allowed for statistical purposes.
21. On ground No. 8, assessee challenged the addition of Rs. 61,41,511/- on account of amount paid by GLADA for contribution of Provident Fund being employees' contribution. The similar issue is decided in assessment year 2010-11 by the Tribunal vide order dated 05.02.2015. The findings in paras 98 to 99 are reproduced as under :
"98. On consideration of the rival submissions, we f ind that issue is no w decided by ITAT Chandigarh Bench in the case of PUDA, Mohali (supra) in which in paras 84 to 86 the issue is decided that assessee is entitled to claim deduction in respect of contributions made to wards PF even if such fund is not recognized. Ho wever, Assessing Off icer was directed to examine this issue clearly and allo w the payment on cash basis. The f indings of the Tribunal in this case in paras 84 to 86 are reproduced as under :
"84 We have heard the rival submissions carefully. First of all we would like to point out that this issue is arising in all the years in which the appeals were heard by us, therefore, the decision in these paras would be applicable in all the years wherein appeals are being adjudicated through this order. The assessee authority was formed in 1995 prior to which this organization was known as "Punjab Housing Development Board" which was stated to h a v e b e e n f o r m e d i n 1 9 7 2 . T h r o u g h a g a ze t t e n o t i f i c a t i o n dated 12th August 1983 (copy placed at paper book at pages 135-136) Government of Punjab made certain rules for Punjab Housing Development Board through GSR No. 7 0 / P A 6 z/ 7 3 / S / 9 8 / 8 3 . R u l e 1 6 o f t h i s N o t i f i c a t i o n r e a d s a s under:
Provident Fund-(1) The State Government shall establish a provident fund for the employees of the Board and such provident fund shall be deemed to be a Government Provident Fund for the purpose of the Provident Fund Act, 1925(Central Act XIV of 1925) and notwithstanding anything contained in section 8 thereof, such fund may be administered by such officers of the State Government or of the Board as the State Government may specify in that behalf.14
The above clearly shows that Government through this notification was mandated to establish a Government provident fund under Provident Fund Act, 1925. Further page 152 of the paper book is copy of another order of the Government of Punjab showing that on constitution of Punjab Urban Planning and Development Authority various terms in Punjab Housing Development Board Rules, 1983 would stand amended by substitution of the words "Punjab Housing Development Board" to "Punjab Urban Planning Development Authority" This shows that same rules which were made for Punjab Housing Development Board were adopted for the assessee authority also. Therefore, it becomes clear that provident fund established by the assessee is governed by the provisions of Provident Fund Act, 1925. Rule (1) of Part "A" to the Fourth Schedule of the Act reads as under:
Application of the part This part was not applied to any provident fund to which the Provident Fund Act, 1925 (19 of 1925) applies.
The above makes it clear that provident fund which are governed by Provident Fund Act, 1925 are not covered by the Rules made under the Fourth schedule. In other words, the provisions regarding recognition of the provident fund would not be application to such funds, therefore, it does not make any difference whether assessee's provident fund is r e c o g n i ze d or not r e c o g n i ze d . Therefore, there is no force in the submissions of the ld. DR for the revenue that the contribution should not be allowed because the assessee h a s n o t g o t i t s f u n d s r e c o g n i ze d o r c o n t r i b u t i o n w a s n o t m a d e t o w a r d s r e c o g n i ze d p r o v i d e n t f u n d . T h i s a l s o l e a d s to the conclusion that section 36(1)(iv) which was for c o n t r i b u t i o n t o w a r d s r e c o g n i ze d p r o v i d e n t f u n d , i s n o t applicable. However, as far as Section 36(1)(va) is concerned, the same is still applicable because Section 36(1)(va) reads as under:
" 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to insection 28--
(i) to (v) - Not relevant [(va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date.
Explanation.--For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise;] The above provision deals with employees share of the contribution. According to the scheme of the Act the 15 employee's share is treated as income when some contribution is received by the assessee and when same is contributed to provident fund then same is allowed as deduction under this provision. At the same time receipt of such contribution is treated as deemed income u/s 2(24)(X) which reads as under:
Any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees ;
In this clause which is part of the definition of income, t h e r e i s n o m e n t i o n o f t h e w o r d " r e c o g n i ze d p r o v i d e n t fund" therefore, any contribution raised from the employee towards any provident fund would form part of the deemed income under this provision. In our opinion, this has been deliberately done by the legislature because as far as employees contribution is concerned, the Parliament wanted that the same should not be used by the business people and should be deposited with the provident fund authorities and or trust at the earliest and that is why no difference has been made between r e c o g n i ze d p r o v i d e n t f u n d o r o t h e r f u n d s . F r o m t h i s i t becomes clear that as far as employee's contribution is concerned, the same is not covered by Section 36(1)(iv). However, at the same time it cannot be denied that the contribution made by the assessee towards provident fund is clearly in the nature of business expenditure and therefore, same is allowable u/s 37 of the Act which is residuary provision. Since the contribution of employer share towards provident fund is in nature of revenue expenditure and not covered by any other provision as explained above, same is covered by Section 37 of the Act. This analysis leads to the conclusion that as far as employer share is concerned, the same is allowable u/s 37 and as far as employee's share is concerned, the same is allowable u/s 36(1)(va). Lot of arguments have been made by both the parties in respect of Section 40A(9) which reads as under:
(9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause (iv) [or clause (iva)] or clause (v) of sub-section (1) of section 36, or as required by or under any other law for the time being in force.
Plain reading of this provisions shows that the contribution made by an assessee as a employer towards various funds for the benefit of the employees are not allowable except for contribution provided in this section itself. Therefore, the ld. DR for the revenue is correct that contribution which are not mentioned in this section cannot be allowed because this provisions starts with non 16 obstante clause which is made clear by starting of Section 40A(1) which reads as under:
40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession".
However, careful reading clearly shows that exception provided in this section are in respect of deduction allowed u/s 36(1)(iv) or 36(1)(iva) or 36(1)(v). There is another exception which reads as under:
"or as required by or under any other law for the time being in force"
Therefore, the ld. counsel of the assessee is correct that since provident fund established by the assessee was in terms of Indian Provident Fund Act, 1925, therefore, this has to be read into the exceptions and accordingly fetter for not allowing the deduction u/s 40A(9) would not be applicable for the funds contributed towards provident fund as the employer share in terms of Indian Provident Fund Act, 1925 which was adopted by the assessee. Therefore, we hold that the assessee is entitled to claim deduction in respect of contributions made towards p r o v i d e n t f u n d e v e n i f s u c h f u n d i s n o t r e c o g n i ze d . 85 The next contention raised is whether deduction can be allowed even if the contribution was paid after the end of the year. The claim of the assessee is that the payments have been made before the due date of filing of return as provided in Section 43B. Relevant portion of Section 43B reads as under:
43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of--
[(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or]
(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, [or] [(c) to (f) - not relevant Shall be allowed (irrespective of the year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him>"
[Provided that nothing contained in this section shall apply in relation to any sum [***] which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.
Careful reading of the above provision show that a fetter has been provided for allowability of certain expenses.17
The expenditure even if is allowable because of the method of accounting followed by he assessee the same is still not allowable unless and until such expenditure is paid. This means that this section provides further restriction on allowability of an expenditure which are otherwise allowable u/s 30 to 44. In other words even if an expenditure is allowable under various provisions under the head "profits and gains of business and profession" the same is not allowable because of Section 43B unless such expenditure is actually paid. In case before us, the assessee is following the cash system of accounting which we have already discussed while adjudicated ground No. 5. Therefore, any expenditure in case of the assessee has to be allowable only if actual cash has been paid during the year. Therefore, if no cash has been paid expenditure is not allowable. No doubt Section 43B has carved out an exception by way of proviso that even if expenditure is paid before due date of filing of return then the same shall be allowed and the Hon'ble Punjab & Haryana High Court in case of CIT V. Nuchem Ltd. in ITA No. 323 of 2009 following the decision of Hon'ble Apex Court in CIT V. Alom Extrusions (2009) 227 CTR 417 has clearly held that if such payments are made before due date of filing of return then the same has to be allowed. However, as observed earlier this benefit could not be given to the assessee because the assessee is following the cash system of accounting and allowability of expenditure itself depends on actual cash payment. However, we would like to observe that at the beginning of this issue we have clearly mentioned that this issue relates to many years, therefore, if the payment for this year was made in next year the same would be clearly allowable in the next year. Therefore, the Assessing Officer should examine this issue clearly and allow the payments on cash basis even if they relate to earlier years. The last dispute raised by the revenue is that the assessee was not maintaining separate bank accounts and or FDRs in the account in respect of provident fund because the same have been shown in the balance sheet. In this regard the ld. DR for the revenue has relied on the decision of CIT Vs. Textool Co. Ltd (supra). In that case the assessee had claimed deduction of Rs. 92,06,978/- as contribution towards approved gratuity fund. A sum of Rs. 50 lakhs was paid as initial contribution and Rs. 5,84,754/- was paid towards annual premium. The balance of Rs. 36,22,224/- was provided for initial contribution. All the sums were paid to LIC.
The question arose whether direct payment to LIC was covered by Section 36(1)(v). In this connection the Hon'ble Supreme Court observed as under:
"Having consideration the matter in the light of the background facts, we are of the opinion that there is no merit in the appeal. True that a fiscal statute is to be constructed strictly and nothing should be added or subtracted to the language employed in the Section, yet a strict construction of a provision does not rule out the application of the principles of reasonable construction to give effect to the purpose and intention of any particular Provision of 18 the Act (See Shri Sajjan Mills Ltd. Vs. CIT, M.P. & Anr (1985) 156 ITR 585). From a bare reading of Section 36(1)(v) ;of the Act, it is manifest that the real intention behind the provision is that the employer should not have any control over the funds of the irrevocable trust created exclusively for the benefit of the employees."
It is clear that intention behind the provisions for various funds for employees is that employer should not have control over the funds which has been contributed by the assessee or the workers. In this regard the ld. counsel of the assessee referred to Section 3 of the Notification which reads as under:
"All moneys belonging to the Fund shall be invested either in securities of the nature specified in clause (a), (b), (c), (d) or (e) of Section 20 of the Indian Trusts Act, 1882 (Central Act 2 of 1882) or in the Post office Savings Bank Accounts or in long term fixed deposits with Scheduled Banks. Post Office National Saving Certificates or kept as a deposit with the State Government beating interest."
Further the assessee also issued office order copy of which is placed at page 70 of the paper book which reads as under:
" In pursuance to Rule 3(1)(2) of the Punjab Housing Development Board (Provident th Fund) Rules 1983 and further adopted PUDA in its meeting held on 17 July 1995 vide Agenda item No. 17 a committee, is hereby constituted to administer and Manage the Contributory Provident Fund of the employees of PUDA.
The committee shall include:
(a) The Chief Administrator as ex-officio Chairman of the Committee or his nominee
(b) Accounts Officer (Pension) as Secretary of the Committee
(c) Administrative Officer (Admin-I)- Member
(d) Sh. Karam Chand, Senior Assistant and Sh. Shishu Pal, Senior Assistant-
Members (representing the employees of PUDA, approved vide item no. 9,10 in the meeting of the Authority held on 29.11.02).
Rakesh Singh Vice Chairman, PUDA Thus it is clear that separate committee has been constituted but it is not clear whether this committee was monitoring the funds of the provident fund. The FDRs have been debited and made in the name of the CPF FDRs which means separate FDRs have been made but how it has clearly been controlled by the managing committee, is not very clear. Therefore, to this extent we set aside the order of the Ld. CIT(A) and direct the AO to examine whether provident fund was independently monitored in the light of the directions issued by Hon'ble Supreme Court in case of Textool Co.Ltd (supra). 86 Another contention was also raised that the funds have not been invested in the long term FDRs. We have seen various notes issued by the committee where FDRs have been made only for one year and justification for the same has been given that presently interest is on lower side and interest is likely to go up therefore, FDR was 19 made for one year. This aspect also need further examination by the Assessing Officer where regularly FDRs have been made for a period of one year or longer period and where no justification for such shorter period is there or not? Therefore, the Assessing Officer should examine this matter further and decide the issue in accordance with law. In the result, this ground is allowed for statistical purposes."
99. In vie w of the above judgement, the Assessing Off icer is directed to f ollo w the order of the Tribunal in the case of PUDA, Mohal i (supra) and pass consequential order accordingly. In the result, ground Nos. 12 and 13 stand disposed off in terms of the order passed by the Tribunal in case of PUDA, Mohali (supra)."
22. In view of the above, Assessing Officer is directed to follow order of the Tribunal above. This ground is accordingly, disposed off.
23. On ground No. 9, assessee challenged the disallowance of amount of Rs. 68,53,79,904/- on account of construction of roads. It is stated that the issue is same as has been decided in assessment year 2010-11 in which in para 52 of the order, it is held as under :
"52. We have considered rival submissions and material on record. This issue is same as is considered on ground No. 1 and 2 in the present appeal as well as ground raised in departmental appeal f or construction of the rail way under pass. The assessee has developed colonies and theref ore, has to provide inf rastructure and other f acil ities as per Section 28 of PRTPD Act. On construction of rail way underpass in the colony developed by the assessee, ld. CIT(Appeals) has allo wed the claim of assessee in assessment year 2009-10 and we have dismissed the departmental appeal. This issue is identical as was considered earlier on ground No.1 & 2 above as well as in departmental appeal on which we have conf irmed the order of the ld. CIT(Appeals). Theref ore, following the orders on these grounds, we set aside the orders of authorities below and delete the 20 addition. In the result, ground No. 3 of the appeal of the assessee is allo wed."
24. By following the same, we set aside the orders of authorities below and delete the addition. In the result, ground No. 9 of appeal of the assessee is allowed.
25. No other point is argued or pressed.
26. In the result, appeal of the assessee is partly allowed.
Order pronounced in the Open Court on 31 s t March,2015.
Sd/- Sd/-
(T.R.SOOD) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 31 s t March,2015.
'Poonam'
Copy to:
The Appellant, The Respondent, The CI T(A), The CI T,DR Assistant Registrar, I TAT Chandigarh