Court affirms Assessing Officer's accounting method rejection, adjusts income additions per statutory provisions.

M/s. Haryana Urban Development Authority Versus The Addl. CIT, The DCIT Panchkula Range Panchkula And Vice-Versa.

M/s. Haryana Urban Development Authority Versus The Addl. CIT, The DCIT Panchkula Range Panchkula And Vice-Versa. - TMI Issues Involved:
1. Rejection of Books
2. Addition on account of Indirect Charges of Residential and Commercial Sectors
3. External Development Charges (EDC)
4. Annual Maintenance Charges
5. Forfeiture of Security
6. Sale of Plants
7. Contribution to Industrial Assistance Group (IAG)
8. Payment to Pension and Gratuity Fund
9. Interest to NCR Planning Board
10. Demarcation/Survey Expenses
11. Contribution to Delhi Metro
12. Salary to PF Staff
13. Disallowance of Advertisement on Buses
14. Valuation of Closing Stock
15. Salary of Employees of Department of Urban Estates
16. Town Planning Expenses
17. Disallowance under Section 40(a)(ia)
18. Income from House Property vs. Business Income
19. Dividend Income
20. Office Maintenance and Office Expenses
21. Sales Tax

Detailed Analysis:

1. Rejection of Books
The Assessing Officer (AO) rejected the books of accounts and the method of accounting followed by the assessee, citing defects such as non-recognition of revenue receipts from sold plots and inconsistent application of the accounting method. The AO's decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] and subsequently by the Income Tax Appellate Tribunal (ITAT), which found that the assessee was not following the complete contract method in toto and was not a contractor in the true sense.

2. Addition on account of Indirect Charges of Residential and Commercial Sectors
The AO estimated 30% of the total recoveries from residential sectors and 60% from commercial sectors as income, based on indirect charges. The CIT(A) reduced this to 20% for residential and 45% for commercial sectors, considering that certain charges are statutory and not retained by the assessee. ITAT upheld this decision, noting that the method followed by the assessee did not reflect true profits.

3. External Development Charges (EDC)
The AO treated 30% of EDC as income, arguing that these charges were not spent and were accumulating. The CIT(A) reduced this to 20%, stating that EDC is a statutory fee and must be spent on development. ITAT remanded the issue back to the CIT(A) for a detailed examination, including the statutory provisions and utilization of funds.

4. Annual Maintenance Charges
The AO disallowed 50% of the annual maintenance charges, arguing that these expenses relate to incomplete sectors. The CIT(A) upheld this decision, and ITAT directed the AO to re-examine the issue, emphasizing the need for the assessee to provide a detailed breakup of expenses for completed and incomplete sectors.

5. Forfeiture of Security
The AO added the forfeited security amount to the income, which was upheld by the CIT(A) and ITAT. ITAT noted that the amount was not adjusted in the value of closing stock and was rightly treated as income.

6. Sale of Plants
The AO added income from the sale of plants, grass, and trees, treating it as revenue income. The CIT(A) and ITAT upheld this addition, rejecting the assessee's argument that the income should be considered when the land is sold.

7. Contribution to Industrial Assistance Group (IAG)
The AO disallowed the contribution to IAG, treating it as a non-business expense. The CIT(A) and ITAT upheld this disallowance, noting that the payment was voluntary and did not provide a direct benefit to the assessee.

8. Payment to Pension and Gratuity Fund
The AO disallowed the payment to the Gratuity Fund as it was not recognized during the assessment year. The CIT(A) directed the AO to verify the approval of the fund and allow it accordingly.

9. Interest to NCR Planning Board
The AO disallowed interest paid to NCR Planning Board, treating it as capital expenditure. The CIT(A) upheld this, but ITAT allowed the interest as a revenue expenditure, noting that it was for working capital.

10. Demarcation/Survey Expenses
The AO treated demarcation/survey expenses as capital expenditure. The CIT(A) upheld this decision. ITAT allowed these expenses as revenue expenditure, noting that they are routine and recurring.

11. Contribution to Delhi Metro
The AO disallowed the contribution to Delhi Metro, treating it as a non-business expense. The CIT(A) upheld this decision. ITAT allowed the expenditure, recognizing it as enhancing the business by improving accessibility and facilities.

12. Salary to PF Staff
The AO disallowed the salary paid to PF staff, treating it as non-business expenditure. The CIT(A) upheld this decision. ITAT allowed the expenditure, noting that the staff was working for HUDA.

13. Disallowance of Advertisement on Buses
The AO disallowed the advertisement expenses on buses, treating it as a non-business expense. The CIT(A) upheld this decision. ITAT confirmed the disallowance, noting that the expenditure did not fit the criteria of being wholly and exclusively for business purposes.

14. Valuation of Closing Stock
The AO added an amount to the income, citing an error in closing stock valuation. The CIT(A) upheld this addition. ITAT dismissed the assessee's appeal, noting that the error needed correction in the instant year.

15. Salary of Employees of Department of Urban Estates
The AO disallowed the salary paid to employees of the Department of Urban Estates, treating it as non-business expenditure. The CIT(A) restricted the disallowance to 20%. ITAT allowed the expenditure, noting that the employees were working for HUDA.

16. Town Planning Expenses
The AO treated town planning expenses as capital expenditure. The CIT(A) allowed part of the expenses as revenue and part as capital. ITAT remanded the issue back to the AO for verification of the nature of expenses.

17. Disallowance under Section 40(a)(ia)
The AO disallowed interest payments due to non-deduction of TDS. The CIT(A) confirmed this disallowance. ITAT allowed the appeal, noting that the interest was in the nature of compensation and not subject to TDS.

18. Income from House Property vs. Business Income
The AO treated rental income as business income. The CIT(A) and ITAT upheld the assessee's treatment of rental income as income from house property, following the decision of the Punjab & Haryana High Court.

19. Dividend Income
The AO treated dividend income as business income. The CIT(A) and ITAT upheld the assessee's treatment of dividend income as exempt under Section 10(34), directing the AO to determine the disallowance under Section 14A.

20. Office Maintenance and Office Expenses
The AO disallowed office maintenance expenses, treating them as capital expenditure. The CIT(A) allowed these as revenue expenses. ITAT remanded the issue back to the AO for verification of the nature of expenses.

21. Sales Tax
The AO disallowed 50% of sales tax paid, treating it as capital expenditure. The CIT(A) deleted the addition, noting that sales tax is allowable on a payment basis under Section 43B. ITAT upheld the CIT(A)'s decision.