Submission to AO under s.124(3)(a) gives jurisdiction; cash accounting change disallowed, property sale instalments taxable on receipt

ITAT held that the Assessing Officer, Circle 6(1) had valid jurisdiction as the assessee submitted to that Circle and failed to object under s.124(3)(a); the CIT(A) lacked power to entertain the additional jurisdictional ground. Change to cash accounting was not bona fide to shift income to an earlier year, so revenue's view restored. Instalments and hire-purchase receipts received on sale of houses/flats are taxable on receipt (cash system) with corresponding cash expenditures allowable; unreconciled earlier instalments to be considered year-wise. Issues on CPF/ FDR investments remitted for further scrutiny. Interest on FDRs allowed on receipt basis; depreciation and administrative expenses allowed; bad-debt claims disallowed; earnest-money and airport-land contributions remitted/decided largely for revenue.

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Issues Involved:
1. Transfer of Jurisdiction under Section 127 of the Income-tax Act.
2. Change in Method of Accounting.
3. Deletion of Additions on Account of Income from Sale of Houses and Flats.
4. Deletion of Additions on Account of Instalments Received.
5. Deletion of Additions on Account of Contributions to Provident Fund.
6. Deletion of Additions on Account of Interest Income on Fixed Deposits.
7. Deletion of Additions on Account of Administrative Expenses.
8. Deletion of Additions on Account of Bad Debts.
9. Deletion of Additions on Account of Contribution to the Construction of Airport.

Detailed Analysis:

1. Transfer of Jurisdiction under Section 127 of the Income-tax Act:
The issue revolved around the transfer of jurisdiction from one Assessing Officer to another without a valid order under section 127. The Tribunal held that the transfer of jurisdiction was not valid as no proper order was passed under section 127. The assessment order was canceled as the Assistant Commissioner of Income-tax, Circle 6(1), did not have jurisdiction over the assessee in the absence of an order under section 127.

2. Change in Method of Accounting:
The assessee changed its method of accounting from mercantile to cash system. The Tribunal noted that the change in the method of accounting was bona fide and the income should be computed based on the cash system of accounting. The Tribunal emphasized that the assessee had the right to follow either the mercantile system or the cash system of accounting.

3. Deletion of Additions on Account of Income from Sale of Houses and Flats:
The Tribunal found that the assessee had revised its accounts and recognized income from the sale of houses and flats for the assessment year 2002-03. The Tribunal upheld the deletion of the addition of Rs. 2,55,15,406 as the income pertained to the assessment year 2002-03, which was exempt under section 10(20A) of the Act.

4. Deletion of Additions on Account of Instalments Received:
The Tribunal held that the instalments received on the sale of houses and flats under hire purchase agreements were taxable in the year of receipt as the assessee followed the cash system of accounting. However, corresponding expenditure incurred should also be allowed on a matching principle.

5. Deletion of Additions on Account of Contributions to Provident Fund:
The Tribunal noted that the assessee's provident fund was governed by the Provident Funds Act, 1925, and was not required to be recognized under the Income-tax Act. The contributions were allowable under section 37 of the Act, and the employees' share was allowable under section 36(1)(va). The Tribunal remitted the matter to the Assessing Officer to verify whether the provident fund was independently monitored.

6. Deletion of Additions on Account of Interest Income on Fixed Deposits:
The Tribunal upheld the deletion of the addition of Rs. 2,24,44,923 as interest income on fixed deposits, noting that the assessee followed the cash system of accounting, and interest income should be taxed on receipt basis.

7. Deletion of Additions on Account of Administrative Expenses:
The Tribunal allowed the administrative expenses incurred in cash, noting that under the cash system of accounting, all cash outgoings in the revenue field should be allowed as expenditure.

8. Deletion of Additions on Account of Bad Debts:
The Tribunal disallowed the claim of bad debts of Rs. 3,63,74,569, noting that the assessee did not prove that the amount was accounted for while computing the income in earlier years and that the debts from the Government could not be written off.

9. Deletion of Additions on Account of Contribution to the Construction of Airport:
The Tribunal held that the contribution of Rs. 225 crores towards the development of the International Airport at Mohali was not incurred wholly and exclusively for the purpose of the assessee's business and was in the nature of capital expenditure. The expenditure was disallowed under section 37 of the Act.

Conclusion:
The Tribunal's judgment addressed multiple issues related to the transfer of jurisdiction, method of accounting, recognition of income, contributions to provident funds, interest income, administrative expenses, bad debts, and contributions to infrastructure projects. The Tribunal provided a detailed analysis and remitted certain matters to the Assessing Officer for further verification while upholding or disallowing various claims based on the facts and applicable legal provisions.

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