TaxTMI 
TaxTMI 
2015 (3) TMI 681
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....sp; "1. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) vide his order dated May 30, 2007, in Appeal No. 74/P/06-07 has erred in accepting the additional grounds of appeal taken by the assessee with regard to transfer of jurisdiction over the case under section 127 of the Income- tax Act, 1961 and deciding the same in favour of the assessee. While deciding the issue the learned Commissioner of Income-tax (Appeals) has failed to consider the judgment of the jurisdictional High Court in the case of Smt. Jaswinder Kaur Kooner v. CIT (Appeals) [2007] 291 ITR 80 (P&H) decided on November 23, 2006. The learned Commissioner of Income-tax (Appeals) has failed to appreciate the fact that assessee itself has filed revised return for the year under consideration with the Assistant Commissioner of Income-tax, Circle 6(1), Chandigarh, before transfer of original return by the previous Assessing Officer to the present Assessing Officer and return for the next assessment year 2004-05 was also filed with the present Assessing Officer. 2. On the facts and circumstan....
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....p; "On the facts and in the circumstances of the case and law, the learned Commissioner of Income-tax (Appeals) vide his order dated May 30, 2007, in Income-tax Appeal No. 74/P/2006-07 has erred in accepting the additional grounds of appeal taken by the assessee with regard to transfer of jurisdiction over the case under section 127 of the Income-tax Act and deciding the same in favour of the assessee. While deciding the issue the learned Commissioner of Income-tax (Appeals) has failed to consider the judgment of the hon'ble Juris dictional High Court in the case of Smt. Jaswinder Kaur Kooner v. CIT (Appeals) [2007] 291 ITR 80 (P&H) decided on November 23, 2006, and the judgment of the hon'ble Allahabad High Court in the case of CIT v. British India Corporation Ltd. [2011] 337 ITR 64 (All) and the provisions contained in sub-section (3) of section 124." 4. After pursuing the above ground we find that there is hardly any difference and issue sought to be raised by the amended ground, is same as contained in original ground No. 1. During hearing we had asked for objection from learned counsel of the assessee and he also had no objection. Therefore, we hav....
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....t. Hence, the total assessment is bad and the processings thereon are void ab initio." 6. The learned Commissioner of Income-tax (Appeals) examined the issue in detail and was of the opinion that this was a case of transfer and since no valid order has been passed by the concerned Commissioner, the jurisdiction was not properly transferred. In this regard he wrote a letter to the Assessing Officer. Contents of the same are given at pages 70 and 71 which read as under : "The assessee filed the information as called for vide the above noted questionnaires, on different dates. On December 3, 2004, the assessee vide its letter No. 10180, dated December 3, 2004, informed the Deputy Commissioner of Income-tax, Circle-2(1), Chandigarh that M/s. Khurana Vineet and Associates, chartered accountants, have been appointed as statutory auditor for the revision of the balance- sheet for the assessment year 2003-04 and have been directed to complete the job within one month's time. On January 14, 2005, the assessee vide its letter No. 257 dated January 14, 2005, intimated the Deputy Commissioner of Income-tax, Circle-2(1), Chandigar....
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....see lies with Circle 6(1), Chandigarh. The assessee filed its revised return of income for the assessment year 2003-04 in Circle 6(1), filed its advance tax in this circle, filed all its replies at the same time of assessment and never raised any objections regarding the matter of jurisdiction. The assessee also filed its original return for the assess ment year 2004-05 with Circle 6(1). This very clearly points to the fact that the assessee was well aware about the jurisdiction to which it pertained. The assessee was all the time aware that it was under the jurisdiction of Circle 6(1). Regarding the issue of jurisdiction under section 124(3)(a) clearly states that 'no person shall be entitled to call in question the jurisdic tion of an Assessing Officer where he has made a return, under sub- section (1) of section 115WD or under sub-section (1) of section 139, after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 142 or sub-section (2) of section 115WE or sub-section (2) of section 143 or after the completion of the assessment whichever is earlier'. Further, the jurisdictional High Court, i.e., the hon'b....
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....iction over its case lies with Assistant Commissioner of Income-tax, Circle 6(1), Chandigarh. However, the Assistant Commissioner of Income-tax, Circle 6(1), Chandigarh had himself transferred the original and revised return filed by the assessee to the Deputy Commissioner of Income-tax, Circle 2(1), Chandigarh, who had been assessing the assessee for Income-tax in the past and had also issued the notice under section 143(2) in respect of the assessment year 2003-04 which is under consideration. Furthermore, he had also conducted hearing in the assessee's case. During the period of one month up to the expiry of one month from the date of service of notice under sections 142(1) and 143(2), it was the Deputy Commissioner of Income-tax, Circle 2(1), Chandigarh, who was exercising the jurisdiction as he had been doing in the past. The transfer of the case from the Deputy Commissioner of Income-tax, Circle 2(1), Chandigarh, to the Assistant Commissioner of Income-tax, Circle 6(1), Chandigarh, took place after the time period prescribed under section 124(3) as such the assessee had no right to challenge the jurisdiction of the Assistant Commissioner of Income-tax Circle 6(1), Chandig....
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....levant as the onus was on the Assessing Officer to produce the order under section 127 which he had not done so far. In fact there was no order under sec tion 127 on records as it was not served on the assessee. Accordingly, the Assistant Commissioner of Income-tax, Circle 6(1), did not have jurisdiction over the assessee. The assessment order is cancelled as the Assistant Commissioner of Income-tax, Circle 6(1), Chandigarh, did not have jurisdiction over the assessee in absence of order under section 127 transferring the case to him from the Deputy Commissioner of Income-tax, Circle 2(1), Chandigarh." 7. Before us, the learned Departmental representative for the Revenue mainly submitted that the learned Commissioner of Income-tax (Appeals) should not have admitted this ground for adjudication. She referred to the decision of the hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) in which it was clearly held that only legal issues can be admitted by the appellate authority for adjudication and if the facts were not on record then such issues cannot be entertained by the appellate authority. Since issue of jurisdiction also ....
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....ation from the date of filing of the revised return and therefore, if the assessee had any objections, same should have been made before the Assistant Commissioner of Income-tax Circle 6(1). 9. She also contended that the first appellate authority did not appreciate the fact that actual territorial jurisdiction of the assessee under section 120 read with section 124 of the Income-tax Act fell under the Assistant Commissioner of Income-tax, Circle 6(1). In this regard she filed copies of the notification issued by the Chief Commissioner of Income-tax, North West Region fixing the jurisdiction in Circle 6(1). Moreover the assessee had also filed return voluntarily with Circle 6(1) as registered office of the assessee was transferred to Sector 62, Mohali during the relevant period. She also relied on the decision of the hon'ble Punjab and Haryana High Court in the case of Subhash Chander v. CIT [2008] 218 CTR (P&H) 191 (copy of the decision filed in the paper book) where it was clearly held that jurisdiction cannot be called in question into by the assessee after expiry of one month from the date of service of notice. Similar view has been further taken by the hon'ble Allah....
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....ection. The assessee filed even the revised return with Circle 6(1) but the same was again transferred to Circle 2(1) by the assessing authority of Circle 6(1). The Assessing Officer has clearly recorded a finding that the Deputy Commissioner of Income-tax, Circle 2(1) took up the matter for transferring the case to Circle 6(1) and the matter was taken up with the Joint Commissioner of Income-tax, Range VI who finally directed to transfer the case in Circle 2(1) in May 2005. Firstly this transfer was done without any proper order passed under section 127 of the Income-tax Act. in any case the Joint Commissioner of Income-tax has no power to make order of transfer under section 127. Therefore, Circle 6(1) had no jurisdiction to make the assessment. In this regard he relied on the following case law : (i) Lt. Col. Paramjit Singh v. CIT [1996] 220 ITR 446 (P&H) ; (ii) Inderjit Singh and Co. v. State of Punjab Civil Writ Petition No. 3397/1973 (copy of judgment filed at page 59 to 61 of paper book) ; ....
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....er, Circle 6(1) and the proceedings were continued from where they were left by the Assessing Officer, Circle 2(1). 15. It was further submitted that in the enclosure annexed with the written submissions by the Revenue it was stated to be an order passed under section 127 is merely an order for transfer of PAN and cannot be construed an order under section 127. This order does not record any reason and the same was also not served to the assessee which means that the order suffers from serious infirmity. In this regard he relied on the decision of Ajantha Industries v. CBDT [1976] 102 ITR 281 (SC). 16. Learned counsel of the assessee also submitted that normally disputes regarding territorial jurisdiction cannot be appealed before the learned Commissioner of Income-tax (Appeals). However, in the present case the dispute is not regarding territorial jurisdiction but regarding jurisdiction which has been wrongly exercised and once the dispute goes to the root of the matter then the same can be challenged before the appellate authority. In this regard he relied on the decision of the hon'ble Calcutta High Court in the case of West Bengal State Electricity Board v. Deputy CIT....
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....digarh. Later on the office was shifted to PUDA Bhawan, Mohali, therefore, the assessee itself filed the returns for the present years, i.e., 2003-04 with Circle 6(1) declaring income of Rs. 21,15,46,295 on November 28, 2003. It was noticed that since the assessee was regularly assessed by the Assistant Commissioner of Income-tax, Circle 2(1), Chandigarh, the return was transferred to that office. The case was selected for scrutiny by the Assistant Commissioner of Income-tax, Circle 2(1) and a notice under sections 143(2) and 142(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") on January 5, 2004, which was served on the assessee on January 8, 2004. Some questionnaire were also issued on January 5, 2004 and September 10, 2004. Later on the assessee filed revised return on February 7, 2005, again in Circle 6(1). This revised return was also transferred to the Deputy Commissioner of Income-tax, Circle 2(1), Chandigarh on February 17, 2005, as the assessee was being regularly assessed by that Circle. Thereafter according to the Assessing Officer, the Deputy Commissioner of Income-tax, Circle 2(1), Chandigarh, took the matter of transfer of the case to this circle ....
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....ect of any specified area or persons or classes of persons or incomes or classes of income or cases or classes of cases, shall be exercised or performed by a Joint Commis sioner or a Joint Director, and, where any order is made under this clause, references in any other provision of this Act, or in any rule made thereunder to the Assessing Officer shall be deemed to be references to such Joint Commissioner or Joint Director by whom the powers and functions are to be exercised or performed under such order, and any provision of this Act requiring approval or sanction of the Joint Commissioner shall not apply. (5) The directions and orders referred to in sub-sections (1) and (2) may wherever considered necessary or appropriate for the proper management of the work, require two or more Assessing Officers (whether or not of the same class) to exercise and perform, concur rently, the powers and functions in respect of any area or persons or classes of persons or incomes or classes of income or cases or classes of cases ; and where such powers and functions are exercised and performed concurrently by the Assessing Officers of different classes, any authority lower in rank amongst them....
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....r the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or after the completion of the assessment, whichever is earlier ; (b) where he has made no such return, after the expiry of the time allowed by the notice under sub-section (1) of section 142 or under section 148 for the making of the return or by the notice under the first proviso to section 144 to show cause why the assessment should not be completed to the best of the judgment of the Assessing Officer, whichever is earlier. (4) and (5) . . . 127(1). The Director General or Chief Commissioner or Commis sioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him. (2) Where the Assessing Officer or Assessing Officers from whom the case is to be and the Assessing Office....
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.... information system. In this regard she had referred to a letter dated May 24, 1999, through which the orders under sections 120 and 127 were directed to be passed on system using the assessee information system (AIS). The relevant letter reads as under : "Dated : 24-05-1999 Sir, Sub : Transfer of jurisdiction of cases under sections 120 and 127 of the Income-tax Act-procedure regarding. It has come to the notice of this Directorate that orders relating to transfer of jurisdiction under sections 120 and 127 of the Income-tax Act are not being passed on the system using the assessee information system application software. 2. In this context, I am directed to state that the assessee information system (AIS) software provides for transfer of jurisdiction under sections 120 and 127 of the Income-tax Act. The text of the order can be adopted from the standard order text and further customised. The "transfer movements" to be effected for an order in cases identified by PAN, source Assessing Officer and destination Assessing Officer can be entered and maintained in the system. The draft orders can be printed from the system, which also provides for generation of intimation....
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....city because in such cases the assessee is not inconvenienced and therefore reasons may not be required to be recorded. However, at the same time it is not clear whether this order was served on the assessee or not. Therefore, basically it can be said that an order under section 127 for transfer of the case has already been passed but even if assuming for the sake of argument that this order was not served on the assessee and this is not proper order, the jurisdiction has still to be exercised properly and legitimately by the Assessing Officer by Circle 6(1) for the following reasons. Firstly, if the assessee had problem with the jurisdiction then the assessee should have raised the objection under section 124(3)(a) which clearly provides that if the objection is not raised during the assessment within a period of one month from the issue of notice under section 143(2) then the issue of jurisdiction cannot be called in question after completion of assessment. The hon'ble Punjab and Haryana High Court in the case of Subhash Chander v. CIT [2008] 218 CTR (P&H) 191 has clearly held that jurisdiction cannot be called in question by the assessee after expiry of one month from the da....
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....as not under-stated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return : Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished." First of all it is clear from above that sub-section (2) of section 143 refers to section 139 which means that the return under various sub-section of section 139 are included herein. Since notice has been issued on July 12, 2005 which is well within time and therefore, if the assessee had any objection he should have raised the same under section 124(3)(a) within one month of issue of such notice. Learned counsel of the assessee had made another objection that section 124(3)(a) which refers to the objection to be raised by the assessee, in fact makes reference to returns filed under section 139(1) and therefore, this requirement of raising the objection cannot be read in cases o....
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.... particular office ceases to exercise the jurisdiction. Thus it is clear that this provision is not required to be used where a particular case is transferred from one particular jurisdiction to another jurisdiction. Even if assuming for the argument sake that section 129 would apply even in cases of transfer of jurisdiction we fail to understand how the assessee cannot be allowed to raise objection against the jurisdiction under section 124(3)(a) particularly in the light of the legal scenario that no remedy is available later on by way of appeal. Since both parties have cited many case law on this aspect we would like to discuss the important cases as under : 23. In the case of CIT v. Sohan Lal Sewa Ram Jaggi [2009] 222 CTR (All) 412 the facts before the hon'ble Allahabad High Court were that the assessee had filed return under section 139(1) with Income-tax Officer Ward 1(1), Lucknow and notice was issued by the same Income-tax Officer. Later on the jurisdiction of the assessee was transferred by the Commissioner of Income-tax, Lucknow, to Ward 1(2), Lucknow. However, the Income-tax Officer Ward 1(3), Lucknow, had issued notice on November 18, 1995, under section 143(2) o....
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....objection the assessee cannot challenge the jurisdiction later on. 24. In the case of Smt. Jaswinder Kaur Kooner [2007] 291 ITR 80 (P&H), the hon'ble Punjab and Haryana High Court was concerned with a case where the assessment was completed at income of Rs. 2,44,243 on account of undisclosed investment made in the construction of house. The learned Commissioner of Income-tax (Appeals) allowed part relief and the Tribunal remanded the matter back to the file of the Assessing Officer. The assessee had also raised the issue that the order of transfer of jurisdiction under section 127 of the Act was also void and therefore, reassessment proceedings were void on that ground. The Tribunal did not agree that this proposition by following another order in which it was observed with the assessee had the knowledge of the order and did not challenge the same at the relevant forum. Therefore, the same could not be set aside in the assessment proceedings by the Assessing Officer or the learned Commissioner of Income-tax. On these facts it was held as under (headnote) : "The scope of assessment proceedings under the Act....
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....that notice issued was time barred and the Assessing Officer had no jurisdiction to proceed in the matter. It was also cited that the proceedings had been initiated at the instance of the father of the son-in-law with a view to harass the assessee because there was some matrimonial disputes between his daughter and her husband. The assessee also filed writ petition before the hon'ble High Court. In the writ petition the Revenue took the preliminary objection to the effect that writ petition is not directed against the notice issued under section 148 of the Act and since no adverse order has yet been passed against the assessee, the writ petition is premature and deserves to be dismissed. It was further stated that if the assessee is having any objection the same should be raised before the Income-tax authorities. The court did not accept this objection because of the extraordinary situation and in this regard the hon'ble High Court observed as under (headnote): "Held, that it was admitted that the file of the petitioner pertaining to the assessment year 1988-89 had not been transferred from the jurisdiction of the As....
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....n rendered under the provisions of the Punjab General Sales tax Act. The hon'ble High Court has not referred to relevant provisions of the Punjab General Sales tax Act in the order. Even at the time of hearing learned counsel of the assessee has not made any efforts to show us the relevant provisions. Therefore, it is not clear what were the provisions relating to the transfer of the cases under the Punjab General Sales tax Act and whether there is any provision equivalent to section 124(3)(a) of the Act relating to the raising of objection, was also there or not ? Therefore, this decision is also of not much help to the assessee. 28. The next case law relied on in the case of Valvoline Cummins Limited v. Deputy CIT [2008] 307 ITR 103 (Delhi). In that case the facts were that the return of the assessee for the assessment year 2005-06 was considered by the Additional Commissioner of Income-tax. The returned income was Rs. 7.5 crores and the assessed income was Rs. 58.68 crores. The tax liability on the assessed income was worked out to Rs. 25.01 crores. The assessee preferred an appeal before the Commissioner (Appeals). The assessee also filed an application on the next day b....
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....ate his power to the Deputy Commissioner when he was conferred a statutory power by the Central Board for Direct Taxes. The application filed by the assessee was required to be dealt with only by the Assessing Officer, which in this case was the Additional Commissioner. The mere fact that the letters were addressed to the Deputy Commissioner did not mean that the Deputy Commissioner had jurisdiction over the matter. The assessee could not confer juris diction on the Deputy Commissioner to deal with the application filed under section 220(6) of the Act. The assessee had been insisting through various letters that it was prepared to pay 15 per cent. of the net demand but only in instalments. Therefore the Deputy Commis sioner while passing the order had completely misconstrued the stand of the assessee. The assessee would in the normal course, be entitled to an absolute stay of the demand on the basis of Instruction No. 96 dated August 21, 1969, issued by the Board. The Revenue was seeking to enforce the demand when the petition for stay was pending. The petitioner was directed to pay 15 per cent. of the net demand in instalments after deduction of Rs. 1 crore already paid." First....
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....nsferred to Central circle. It was contended that the transfer order was made without informing the assessee and giving reasons and the hon'ble High Court has directed the learned Chief Commissioner of Income-tax to consider the matter afresh. The assessee filed the returns with the Income-tax Officer, Ward (1), Trivendrum. However, these orders were later recalled by the Assessing Officer. It was mainly contended that the case can be transferred under section 127 but the hon'ble High Court held against the assessee by observing that Explanation 1 to section 127 clarify that "case" means all proceedings under the Act. Therefore, the assessee was held not be entitled to retain the assessment with the previous officer. Other argument was that after the search only raid cases should be transferred to the Central circle and the regular assessment should be retained by the regular Assessing Officer. This contention was also rejected. We fail to understand what assistance the assessee wants to obtain from this decision. Basically the decision is laying down that once an authority transfers the case then the whole record would stand transferred to the new assessing authority, t....
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....damus directing the return of Rs. 10,000 collected from the petitioner under the notice of demand : Held, per Baharul Islam J. and Pathak J. (Sadanandaswamy J., dissenting), that the point urged for the petitioner was that the income of the petitioner for the assessment year 1960-61 having been assessed by the Income-tax Officer, Calcutta, the Income-tax Officer, Jorhat, had no jurisdiction to assess the income of the petitioner for the same year. If the petitioner had raised before the Income-tax Officer, Jorhat, the contention that he had no jurisdiction to make an assessment again for the year 1960-61, that contention would have been dealt with under the provisions of section 124 of the Income-tax Act, 1961, corresponding to section 64 of the Indian Income-tax Act, 1922. Though in the writ petition and in the affidavit filed in support thereof, it had been stated that the question of jurisdiction was raised before the officer, there was no record to support that plea. The Income-tax Officer had not referred in his order to any such objection having been taken before him. The plea of filing the return before him through 'mistake' appeared to be an afterthought. No reli....
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....d to one more aspect of the case, i.e., in this case orders passed under section 120 fixing the jurisdiction would show that Mohali area would fall under Circle 6(1) and therefore, in terms of section 124(5), the inherent jurisdiction was with the Assessing Officer Circle 6(1). The Notification No. CCIT/ NWR/Tech/Juri/2001-02/617 issued on May 11, 2001, by Chief Commissioner of Income-tax, NW Region, Chandigarh, clearly shows that areas falling within the Revenue district of SAS Nagar (Mohali) Punjab excluding the areas falling within the jurisdiction of Range V SAS, Nagar (Mohali) would fall in Range VI, Chandigarh. Now it has to be noticed that sub- section (5) of section 124 starts with non-obstante clause which means even if some directions have been given by the Commissioner of Income- tax or other authorities, different Assessing Officers of the territory which have been notified under section 120 can still exercise the jurisdiction. This provisions has been explained by commentary of Sampath Iyengar's Commentary on Law of Income-tax at page 8901. The relevant para reads as under : "20. A saving provision.-Sub-sect....
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....ising territorial jurisdiction over the place where the assessee's shop is situated completes an assessment. The validity of such an assessment is completely protected by the provisions of sub-section (5). The sub-section has no wider scope. It will not cover the case of the assessees who are having business in several places and whose income accrues, arises or is received in several areas." The above makes it clear that the assessment which has been made by an assessing authority who holds territorial jurisdiction over the assessee in terms of notification issued under section 120 then validity of such assessment is completely protected by sub-section (5) of section 124. 33. In this regard the observations made by the hon'ble High Court in the case of CWT v. Siri Paul Oswal [2007] 293 ITR 273 (P&H) is also relevant. Following observations were made (headnote): "A distinction has to be made between a situation when there is inherent lack of jurisdiction and a situation where jurisdiction is irregularly assumed and plea of want of jurisdiction can be waived by a party. If the assessee participates in assessment ....
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.... raised because many facts were involved and additional ground can be raised in respect of legal issues and for which the facts were already on record. In this regard she had further relied on the observations of the hon'ble Punjab and Haryana High Court in the case of Aravali Engineers P. Ltd. v. CIT [2011] 335 ITR 508 (P&H). She also contended that there was no provision in section 246A of the Act to challenge the question of jurisdiction. In this regard reliance was also placed on the decision of the hon'ble Allahabad High Court in the case of CIT v. British India Corporation Ltd. [2011] 337 ITR 64 (All). 35. On the other hand, learned counsel of the assessee had mainly submitted that once the issue goes to the root of the matter then the same could be raised before the appellate authority. He mainly relied on the decision of West Bengal State Electricity Board v. Deputy CIT [2005] 278 ITR 218 (Cal) and National Thermal Power Co. Ltd. [1998] 229 ITR 383 (SC). We do not find force in the submissions of learned counsel of the assessee. First of all we are of the opinion that it is a trite law that appeal is a statutory right and not an inherent right. (Reference may be ....
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....ome-tax Act, 1961, and this by necessary corollary excludes the jurisdiction of the first appellate authority or the court. An appeal to an appellate authority under the Act lies on the grounds as enumerated in section 246 of the Act. None of its clauses shows that an appeal on the question of jurisdiction of the assessing authority is maintainable. Unless some prejudice is caused to a party by a wrong or irregular exercise of jurisdiction by a court, no interference in appeal or revision is legally permissible. Held, allowing the appeal, that the burden was upon the assessee to state specifically when the order of the transfer was received by it, which it failed to discharge. There was no plea even in the additional grounds of appeal raised before the first appellate authority and there was no evidence that any prejudice had been caused to the assessee by the assessment order having been passed by the Income-tax Officer. The Income-tax Officer had the jurisdiction when the assess ment proceedings commenced and a draft assessment order was submitted to the Inspecting Assistant Commissioner. Subsequent change in the jur....
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.... at paragraph 16, it was observed (page 278) : "Para 16 -A distinction has to be made between a situation when there is inherent lack of jurisdiction and a situation where jurisdiction is irreg ularly assumed and plea of want of jurisdiction can be waived by a party. In the latter situation, the question arises whether party who could waive the plea of jurisdiction, raised such a plea and whether such a party had been prejudiced on account of erroneous assump tion of jurisdiction. The present case, in our view, falls in the second category. The assessee participated in assessment proceedings by the Assessing Officer to whom assessment proceedings under the Income-tax Act were transferred and who exercised jurisdiction to assess wealth-tax also with the participation of the assessee without any objection by the assessee. If the assessee had raised an objection, the proceedings could have been transferred back to the concerned Wealth-tax Officer. The Assessing Officer having proceeded further and assessment having been finalised, plea of lack of jurisdiction could not be raised for the first time in appeal, without....
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....issioner of Income-tax (Appeals) while adjudicating various issues, has not considered change of method of accounting and has not given any finding in this regard. Therefore, impugned order suffers from infirmity. 41. On the other hand, learned counsel of the assessee submitted that this ground is of general nature, however, he admitted that the assessee had changed method of accounting from mercantile, i.e., accrual to cash system of accounting. 42. After considering the rival submissions we find that no specific finding is required to be given in this regard. However, we shall take notice while adjudicating other grounds on merit that the assessee had admittedly followed the cash system of accounting in the present year. 43. Ground No. 4-After hearing both parties we find that during the assessment proceedings the Assessing Officer noticed that the assessee has originally filed return showing taxable income of Rs. 21,15,46,295. Later on this return was revised by declaring a loss of Rs. 19,12,35,451. He further notice that perusal of the accounts shows that the assessee has not only changed the figure of present year but have also changed the opening balances under vario....
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....der reconciliation. (iii) A sum of Rs. 1,10,65,281 has been shown in the books of account as the amount in transit. Out of this, Rs. 8,55,117 is pending for reconciliation since long. (iv) A difference of Rs. 19,23,188 exists in the inter-division accounts." The assessee was confronted with these issues. In response vide letter dated August 23, 2005, it was explained that these changes are not on account of any figure which has been imported in the books of account but rather they are on account of only grouping and regrouping of figures of the earlier years so that the accounts show a clear picture of the state of affairs. No new figure of any amount have been introduced in the revised accounts. In the original statement of affairs, the figures were shown of net value (i.e., credits were deducted from deposits whereas in the revised returns the credits which were earlier reduced from the deposits have been taken to the credit side as a result of which figures are reflected at higher value and this increase in the debit side is only the result of grossing of the net assets). Therefore, revision of figure of closing balance of the earlier year....
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....missions observed that main contention of the assessee is that it had been working out income from purchase and sale of plot right from the beginning up to the assessment year 2002-03 and it was only in the assessment year 2003-04 that the assessee recognised revenue from purchase and sale of plots of these year as well as the earlier years which would have consequential effect on the income of earlier assessment years. He further observed that income from schemes (i.e., from sale and purchase of houses and flats) has already been worked out and shown in the return for the assessment year 2002-03 and the assessment has been completed accepting such income from sale of plots and houses. Such income was worked out on the mercantile system of accounting. The change in system of accounting would have some effect on the sale of houses and flats during the assessment year 2003-04 but cannot have any effect for the earlier year. The increase of income from houses and flats resulting from the change of system of accounting made in the assessment year 2003-04 will belong to the present year and not earlier years. The assessee has cleverly shown the income belonging to the assessment year 20....
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....f com putation of net profit from schemes were examined with the original balance-sheet pertaining to the assessment year 2002-03 and the same was enclosed with the revised balance-sheet for the same year was also given to me. It is clear that the unrecognised profitability of two schemes were incorporated in the revised accounts for the assessment year 2002-03. The addition done by the Assessing Officer during the assessment year 2003-04 was uncalled for as the income pertained to the assessment year 2002-03 which was properly incorporated in the accounts of the financial year 2001-02. It is further seen that the authority had not revised the return pertaining to the assess ment year 2002-03, the period to which the entries pertain, as the revised accounts were finally signed and audited on February 1, 2005. The last date for revising the return was March 31, 2004. Since the last date had already expired and there was no impact on taxable income of the authority for the relevant year as the income was exempt under section 10(20A) the allegation of the Assessing Officer that since the return has not been revised for the assessment year 2002-03 and hence the income should be credite....
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....basis of provisions of the Act. In this regard reliance was placed on the decision of the hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC). She also referred to the decision of the hon'ble Supreme Court in the case of Southern Technologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC) wherein it was held that subject to the provisions of Income-tax the profits to be assessed under the Act have to be real profits which have to be computed on the ordinary principles of commercial accounting. 50. On the other hand, learned counsel of the assessee submitted that when the accounts were revised it came to light that profitability of two schemes had not been recognised in the assessment year 2002-03 and therefore, since system of accounting was being changed from mercantile to cash the sales and closing stocks were reworked and profit for the earlier year, i.e., assessment year 2002-03 was worked out at Rs. 2,54,98,722 and ultimately this sum was credited to the general reserve account. Similarly interest of instalments amounting to Rs. 16,683 which also remain unrecognised in the earlier balance-sheet for the assessment year 2002-03 was re....
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....is year then the assessee has no right to change income to the earlier year, i.e., assessment year 2002-03 by simply saying that the income belongs to that year and was not recognised in the earlier year. This cannot be done particularly in view of the fact that in the assessment year 2002-03 the income was exempt under section 10(20A). Moreover the assessment which has become final cannot be reopened again. The assessee has no time left in terms of section 139(5) to revise the return. Therefore, we are of the opinion that the learned Commissioner of Income-tax (Appeals) has erred in giving relief by simply stating that this income actually belongs to the earlier year without giving any reasons how and why this income was not recognised in the earlier year. Accordingly we set aside the order of the learned Commissioner of Income-tax (Appeals) and restore that of the Assessing Officer in this regard. 52. Ground No. 5-After considering the rival submissions we find that during the assessment proceedings it was noticed by the Assessing Officer that receipts from sale of houses and flats where complete payments by the purchaser were not made, were being accounted as capital receipt ....
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...., the income would be shown only on the completion of the scheme. 54. Before us, the learned Departmental representative for the Revenue submitted that as per section 4 of the Income-tax Act tax is chargeable in respect of total income of each assessment year and therefore, income received during the year cannot be deferred to future years by adopting the method of accounting which is inconsistent with the method of accounting which the assessee is following regularly. Since the assessee has started following the cash system of accounting during the year and therefore, income received during the year has to be subject to taxation. She also referred to the provisions of section 145 and submitted that though the assessee had the option to adopt the mercantile system or cash system of accounting but the assessee has no right to follow hybrid system of accounting, i.e., one method for one particular source of income and another method for other source of income. She further submitted that it was stated by learned counsel of the assessee that the assessee was recognising revenue on the completion of the scheme because assessee was selling houses and flats on hire purchase agreement b....
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....t status rights of the hirer shall be exclusively that of a tenant and not as owner. It was contended that instalments consist of two elements namely interest embedded in such instalments and secondly the principle amount. It was submitted that as far as interest is concerned, the same was being accounted for in every year because it was possible to quantify the same even during the year a sum of Rs. 24,76,01,075 has already been accounted for as interest on instalments. On account of instalments the assessee has already credited a sum of Rs. 6,71,56,134. This is the only amount which can be recognized on account of revenue. It was further submitted that it was not possible to quantify the profit during the mid of the scheme because even true expenses on account of construction of last house was also carried over as stocks and therefore, the expenditure is not being debited and the profit could not be worked in respect of uncompleted schemes. In fact there was unclaimed expenditure during the year as per the following detail : Particulars Balance as on 31.3.2003 (Rs.) Balance as on 1.4.2002 (Rs.) Receipt from allottees pending recognition of revenue due to schemes for i....
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....144 (SC). Learned counsel of the assessee also referred to the decision of the hon'ble Punjab and Haryana High Court in the case of CIT v. Punjab Financial Corporation Ltd. [2007] 295 ITR 510 (P&H) wherein it was clearly held that a mere system of accounting cannot create an income. In view of these decisions simply because the assessee was following cash system of accounting the receipt cannot be given the colour of income. 59. It was further submitted that receipts were accumulated in the balance- sheet and at the same time the cost was also accumulated in a particular scheme in the balance-sheet. The Assessing Officer again simply picked up the receipt without allowing corresponding cost. Therefore, in the alternative even if it is held that advance receipt of instalments is in the nature of the income then suitable directions for allowing the actual cost incurred should also be given. In this connection reliance was placed on the decision of the hon'ble Supreme Court in the case of CIT v. Bilahari Investment P. Ltd. [2008] 299 ITR 1 (SC). It was further submitted that the decision of the hon'ble Punjab and Haryana High Court in the case of CIT v. Chandigarh Indus....
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....by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correct ness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assess ment in the manner provided in section 144." The above provision was substituted by the Finance Act, 1995, with effect from April 1, 1997. Before this substitution the assessee had a choice to follow mercantile or cash or even hybrid system of accounting, i.e., the assessee could choose cash system of accounting for one source of income and mercantile system of accounting for other sources. This choice have been removed and now the assessee could follow either cash system of accounting or mercantile system of accounting. Plain reading of the provision shows that the assessee could follow only one system of accounting in respect of income under the....
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....only when actual cash payment is made. In case of mercantile system of accounting income as well as expenditure would be recognised on the principle of accrual. In fact this issue was considered by the hon'ble Supreme Court in the case of Raja Mohan Raja Bahadur v. CIT [1967] 66 ITR 378 (SC). In that case the assessee was a money lender and had given loan to one Shri Nisar Ahmad Khan, Taluqdar of Mohana Estate. The assessee was maintaining books of account on cash system of accounting. The assessee commenced an action in civil court for a decree for recovery of Rs. 2,58,000. Ultimately Judicial committee of the Privy Council decreed in favour of the assessee. Shri Nisar Ahmad Khan obtained under the U.P. Encumbered Estates Act, 1934 (25 of 1934) an order applying the provision of the Act to him. The Special Judge, Sultanpur, passed an order for payment of Rs. 5,00,992 to the assessee. Pursuance to the order the assessee received in 1946, Rs. 1,54,692 from the debtor and for the balance the Government of the United Provinces gave to the assessee Encumbered Estate Bonds of the face value of Rs. 3,46,300. The amount received in the year 1946 was appropriated by the assessee toward....
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....re the beginning of such year and after the 1st day of April, 1933, are brought into or received in the taxable territories by him during such year. The Act does not contain much guidance as to cases in which tax is to be levied on income received, and cases in which tax is to be levied on income accrued or arisen. Section 13 however requires that income, profits and gains for the purposes of sections 10 and 12 shall be computed in accordance with the method of accounting regularly employed by the assessee. If accounts are maintained according to the mercantile system, whenever the right to receive money in the course of a trading transaction accrues or arises, even though income is not realised, income embedded in the receipt is deemed to arise or accrue. Where the accounts are maintained on cash basis receipt of money or money's worth and not the accrual of the right to receive is the determining factor. Therefore, if commercial assets are received by a trader maintaining accounts on cash basis in satisfaction of an obli gation, income which is embedded in the value of the assets is deemed to be received : the receipt of income is not deferred till the asset is realised in te....
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....ual arrangement or by operation of law, he receives the income embedded in the value of the asset." Therefore, in cash system of accounting for determination of the income receipt on money (cash) or money's worth instruments determining factor and in accrual of right to receive such money material. In other words, whenever the cash is received on income side the same has to be taxed if the cash is received on capital side for example loan from bank then the same would not be required to be taxed. However, if there is simply a right to receive such cash the same cannot be taxed in the cash system of accounting. In our opinion, this would answer the question and or contention raised by learned counsel of the assessee that before taxing an item the same has to pass through the test of charging section. Section 4 of the Act which is charging section, reads as under : "Section 4.-(1) Where any Central Act enacts that Income-tax shall be charged for any assessment year at any rate or rates, income- tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including pro....
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....ution of the partnership. The period of the partnership was extended and subsequently partnership was dissolved on December 31, 1965. At the time of dissolution goodwill was valued at Rs. 1,50,000. The new partnership with the same name was constituted through another deed of partnership. New firm booked over all the assets including goodwill and liability of the dissolved firm. Originally no addition was made on account of gain arising out of transfer of goodwill but this assessment order was found erroneous and prejudicial to the interests of the Revenue and therefore, the learned Commissioner of Income-tax passed revisionary order directing the Assessing Officer to make fresh assessment after taking into account the capital gain arising out of sale of goodwill. The assessee maintained that no sale took place to attract the tax on capital gain under section 45 of the Income-tax Act. The Tribunal allowed the appeal. When the matter travelled to the hon'ble Supreme Court the matter was argued in great detail. One of the issue arose whether there was transfer and it was held yes it was a transfer. Another issue arose whether the gain of such transfer of goodwill would be taxed u....
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.... 'profits and gains of business or profession' or 'income from other sources'. Thus, while sections 4 and 5 deal with the scope of income and its charge to Income-tax, section 145 is a procedural section regarding the method to be followed for recording of income in the books of account. It is no doubt true that for the assessment year 1997-98 and onwards, the assessee can follow either the cash or the mercantile system of accounting and the hybrid system of accounting is prohibited. However, what is to be taxed is income and receipt of an amount is not to be the basis for the levy of the tax. In the case of Shoorji Vallabhdas and Co. [1962] 46 ITR 144 (SC), the hon'ble Supreme Court pointed out that the Income-tax Act takes into account two points of time on which the liability to tax is attracted, namely,- (i)accrual of income or (ii) receipt of income. It is further mentioned that the substance of the matter is 'income'. It may be emphasised that it is accrual of income or receipt of income that can become the subject-matter of tax and it is the income which has to be recorded as per system of accounting followed by the assessee in view of section 145....
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....ax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, yet the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical income', which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account." Thus it is clear from the above that the amount which was sought to be assessed was not in nature of income because the assessee has clearly agreed to reduce the rate of commission on conversion of the agency in the name of private companies. In the case before us, nowhere it has been denied that instalments received by the assessee-firm from the allottees of the houses is not in the nature of the income. Therefore, the ....
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....t of sale consideration, i.e., Rs. 1,12,500 is actually received in that year that will be shown as the amount of sale for which there will be no opening stock or corresponding purchase and the same, already sold plot will give a profit of Rs. 1,12,500 in that next year. This is the reason that there is steep rise in the profit from sale of plots in the next year. The assessee's counsel referred to the original and revised return for the succeeding assessment year 2004-05. Perusal of these returns shows that in the original return for the assessment year 2004-05, the income as per the profit and loss account and after deducting depreciation as per the Income-tax Rules has been shown at Rs. 7,67,61,289. In the revised return, the income as per the profit and loss account and after deducting depreciation as per the Income-tax Rules has been shown at Rs. 39,50,14,907. There is a steep rise of Rs. 31,82,53,618 in the income for the assessment year 2004-05 which is mainly on account of recognising revenue on purchase and sale of plots on cash method of accounting." This explanation of the assessee was found to be convincing and accepted. Thus it is clear that the assessee itself ....
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....f the houses and flats in the income of the assessee. 68. However, we find that the submissions of learned counsel of the assessee that if such instalments are included then the corresponding expenditure which has been incurred should also be allowed on matching principle. Learned counsel of the assessee had relied on the decision of CIT v. Bilahari Investment P. Ltd. [2008] 299 ITR 1 (SC). In that case the assessee subscribed to chits as their business activities. They maintained their accounts on the mercantile basis and computed the profit/loss at the end of the chit period following the completed contract method. This was accepted by the Department, but for the assessment years 1991-92 to 1997- 98 the Assessing Officer came to the conclusion that the completed contract method for chit discount was not accurate in recognising/ identifying income and that the percentage of completion method was to be preferred. The High Court held that the completed contract method of accounting adopted by the assessees for chit discount was valid and the Department erred in spreading the discount over the remaining period of the chit under the percentage of completion method on proportionate ....
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....ounts maintained in the mercantile system of accounting before it was actually disbursed. The difficulty in the estimation thereof did not convert the accrued liability into a conditional one, because it was always open to the Income-tax authorities concerned to arrive at a proper estimate thereof having regard to all the circumstances of the case. (ii) That the sum of Rs. 24,809 represented the estimated amount which would have to be expended by the assessee in the course of carrying on its business and was incidental to the business and, hav ing regard to the accepted commercial practice and trading principles, was a deduction which, if there was no specific provision for it under section 10(2) of the Income-tax Act, was certainly an allowable deduction, arriving at the profits and gains of the business of the appellant, under section 10(1) of the Act, there being no prohibition against it, express or implied, in the Act. The expression 'profits or gains' in section 10(1) of the Income-tax Act has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the ....
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.... profits of such completed scheme were actually offered by the assessee. 72. In these circumstances we set aside the order of the learned Commissioner of Income-tax (Appeals) and direct the Assessing Officer to include instalments received on sale of various houses and flats under hire purchase agreement and at the same time allow corresponding expenditure which has been expended by the assessee in cash (including through cheque). Further in the year of completion of a particular scheme effect has to be given in respect of accumulated instalments as well as accumulated expenditure which has not been already considered in a particular year on cash basis as observed earlier. We have observed right in beginning that this issue is involved in all the years before us therefore, similar treatment as observed by us, should be given in each of the year. 73. Ground No. 6.-After hearing both parties we find that during the assessment proceedings it was noticed by the Assessing Officer from Schedule "G" in respect of "current assets, land and advance" annexed to the balance-sheet that the assessee has shown an amount of Rs. 51,91,164 which was received from hire purchase debtors but not....
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.... we set side the order of the learned Commissioner of Income- tax (Appeals) and remit the matter to the file of the Assessing Officer with the direction to consider only those instalments which have been received during the particular year as income of the assessee. 77. Ground No. 7-After hearing both parties we find that during assessment proceedings the Assessing Officer noticed that the assessee had claimed following expenses : (i) C.P.F Contribution 1,47,00,164 (ii) Interest on C.P.F contribution (employees' share) 88,82,689 (iii) Interest on C.P.F. contribution (employer's share) 1,15,50,654 Total 3,51,33,507 He further noted that- "(a) Authority is depositing the employees and the employer contribution towards provident fund for the year in bank account in the form of bank fixed deposit receipt after finalisation of the balance- sheet. Provident fund contribution of 2002-03 is yet to be deposited in separate bank account. (b) In the absence of non-creation of separate trust to which contribution of both employer and employee are made periodically or remittance of such contribution to the employee provident fund administra....
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....sioner of Income-tax in accordance with the rules made under Part "A" of Fourth schedule. Since the assessee has not made contribution towards such approved provident fund and therefore, these expenses amounting to Rs. 3,51,33,507 were disallowed. 78. On appeal before the learned Commissioner of Income-tax (Appeals) it was mainly submitted that provident fund of the assessee is deemed to be a Government provident fund and disallowance can be made only under section 40A(9) of the Act, if possible. The Assessing Officer has not invoked this section at all. The disallowance has been made under section 36(1)(iv) which is not correct. It was further pointed out that to protect the interest of the employees, Punjab Housing Development Board Rules were framed in 1983 and as per rule 16 of these Rules, State Government was to administer and control provident fund of the Board. Later on when PUDA was formed the said rules were adopted and by an order the word "Board" was replaced with the word "authority". As per these rules "authority" was given the power to administer the provident fund. 79. The learned Commissioner of Income-tax (Appeals) discussed the submissions on the issue in d....
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.... referred to the decision of the hon'ble Andhra Pradesh High Court in the case of Raasi Cement Ltd. v. CIT (No. 1) [2005] 275 ITR 579 (AP) and the decision of the hon'ble Kerala High Court in the case of Aspinwall and Co. (Travancore) Ltd. v. Deputy CIT (Assessment) [2007] 295 ITR 553 (Ker) wherein it is clearly held that contribution made only towards recognised provident fund under section 36(1)(iv) or (v) or as required by any law, is liable to deduction under section 40A(9). However, the hon'ble Calcutta High Court in the case of Brooke Bond India Ltd. v. Joint CIT [2011] 337 ITR 482 (Cal) has clearly held that joint reading of sections 36 and 40A(9) would show that liability on account of contributions towards an unapproved superannuation fund, would not be entitled to deduction. In any case the assessee is following the cash system of accounting and therefore, the assessee can claim the deduction only on actual payment. 81. She further stated that though it was claimed that the assessee was maintaining a separate bank account/FDRs where contribution of provident fund was deposited but reading of the balance-sheet would show that no separate funds or trust have ....
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....t. Coming to the second aspect where the provident fund was being independently implemented and monitored he submitted that authority had constituted a committee to administer the provident fund. In this regard he referred to an office order constituting the committee. He also submitted that as per section 3 of the notification, money belonging to the funds were required to be invested either in the securities of the nature specified on section 20 of the Indian Trusts Act, 1882 or in the post office, saving bank account or in term deposits with the Scheduled bank. In the case before us, the money has been invested as fixed deposit receipt, therefore, that requirement is also compiled. He submitted that if the payments are made before due date of filing of return then requirement of section 43B would also stand to be complied. He referred to various vouchers regarding making of fixed deposit receipts. He also relied on the decision of the hon'ble Punjab and Haryana High Court in the case of CIT v. Punjab Financial Corporation Ltd. [2007] 295 ITR 510 (P&H) and CIT v. J and J Dechane Labs P. Ltd. [1995] 216 ITR 383 (AP). 83. In the rejoinder the learned Departmental representat....
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....f the Act reads as under : Application of the part This part was not applied to any provident fund to which the Provi dent Funds Act, 1925 (19 of 1925) applies. The above makes it clear that provident fund which are governed by the Provident Funds 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 the assessee's provident fund is recognised or not recognised. Therefore, there is no force in the submissions of the learned Departmental representative for the Revenue that the contribution should not be allowed because the assessee has not got its funds recognised or contribution was not made towards recognised provident fund. This also leads to the conclusion that section 36(1)(iv) which was for contribution towards recognised provident fund, is not applicable. However, as far as section 36(1)(va) is concerned, the same is still applicable....
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.... 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 under section 37 of the Act which is residuary provision. Since the contribution of employer share towards provident fund is in the nature of revenue expenditure and not covered by any other provision as explained above, the 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 under section 37 and as far as employee's share is concerned, the same is allowable under section 36(1)(va). Lot of arguments have been made by both 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 registere....
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....ortion 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 fo....
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....sed by the Revenue is that the assessee was not maintaining separate bank accounts and or fixed deposit receipts in the account in respect of provident fund because the same have been shown in the balance-sheet. In this regard the learned Departmental representative for the Revenue has relied on the decision of CIT v. Textool Company Ltd. [2009] 1 ITR-OL 241 (SC). 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 considered 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 construed strictly and nothing should be added or subtracted to the language employed in the section, yet a....
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....ther this committee was monitoring the funds of the provident fund. The fixed deposit receipts 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 learned Commissioner of Income-tax (Appeals) and direct the Assessing Officer to examine whether provident fund was independently monitored in the light of the directions issued by the hon'ble Supreme Court in the case of Textool Company 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 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 exa....
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....this issue of cash system of accounting in detail while discussing ground No. 5. In that discussion we have also reproduced the provisions of section 145 which mandates that the assessee can follow either cash system of accounting or mercantile system of accounting in respect of the profits and gains of the business or profession and income of other sources. Thus the assessee had the right to follow the cash system of accounting even in respect of income to be assessed under the head "Income from other sources". Though in the assessment order income has not been computed head-wise but even if assuming that the income on account of interest is assessed under the head "Income from other sources" even then the assessee had right to offer the same on receipt basis. Therefore, we find nothing wrong in the order of the learned Commissioner of Income-tax (Appeals) and confirm the same. 93. In the result, appeal in I. T. A. No. 762/Chd/2008 is partly allowed. Before parting with this order, we would like to clarify that in this appeal, we have confirmed many additions an....
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....of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in making the addition of Rs. 6,78,007 on account of regrouping/reclassification of the accounts as per findings given in paragraph 6 of the order. 2. That the learned Commissioner of Income-tax (Appeals) has also erred in confirming the action of the Assessing Officer in making the addition of Rs. 5,99,52,243 on account of instalments for sale of houses/flats received during the year. 3. That the learned Commissioner of Income-tax (Appeals) has also erred in confirming the action of the Assessing Officer in making the addition of Rs. 53,71,784 towards instalments received pending adjustments from hire purchase debtors. 4. That the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in making the addition of Rs. 15,39,45,370 by disallowing 50 per cent. of adminis trative expenses claimed by the appellant and treating the same as capital expenditure." In addition to the above, the assessee has also raised an additional ground which reads as under : &n....
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.... of Rs. 6,78,007 from sale of houses and plots as income of this year. 101. On appeal, written submissions were filed and the learned Commissioner of Income-tax (Appeals) after considering the same decided the issue vide paragraph 6 which is as under : "I have carefully considered the submissions of the assessee as well as gone through the assessment order. I find that the Assessing Officer has noted that there is some increase in the income due to regrouping of the accounts. The Assessing Officer has specifically pointed out that there is an increase of income from the sale of houses. The Assessing Officer has not given details as how the figure of Rs. 6,78,007 has been arrived at. In principle, if there is some increase of income which has not been shown by the assessee in any of the earlier assessment years due to certain reclassification or rear rangements of the accounts/changed method of accounting, then such income should be taxable. The Assessing Officer is directed to find out how this figure has been arrived at and after ascertaining the correct figure, the same should be added to the income of the a....
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....ssessment year 2003-04 that whatever instalments which have been included in the earlier year should not be included again in this year. 110. Ground No. 4-After hearing both parties we find that during assessment proceedings the Assessing Officer noticed that the assessee authority was in the business of acquiring land and developing it and after development the land, same was sold in auction. It was maintaining various sectors even after completion, for different time period ranging from 5 to 13 years depending on the same. That means that maintenance and development in respect of developed sectors and undeveloped sectors was being done by PUDA. Staff and infrastructure available with the PUDA was jointly shared by the developed and undeveloped sectors. The assessee had debited entire cost in respect of this expenditure and claimed the same as revenue expenditure. The assessee was asked to bifurcate these expenses into two parts, i.e., the expenditure on developed and developing sector. It was submitted that as per accounting standard AS7, general administration cost and finance cost were to be allowed as revenue expenditure. The Assessing Officer noted that if the assessee was....
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....bifurcation of the same which was not given. She further submitted that even if the assessee was following the cash system of accounting and when the assessee was not showing receipt from a particular project then the expenses against the same could not be allowed. 115. We have heard the rival submissions carefully. We have already discussed the implications of cash system of accounting while adjudicating ground No. 5 of the Revenue's appeal in I. T. A. No. 762/Chd/2008. Basically once the cash system of accounting is followed then all receipts which relate to the revenue field, have to be taxed. Similarly all cash outgoings which are in the revenue field, had to be allowed as expenditure. Since the assessee is in the business of purchase and developing the land and selling the same after the development of the same and therefore, administrative expenses incurred is clearly in the field of revenue. Further the assessee was following cash system of accounting, therefore, once cash has been spent or outgone from the assessee the same has to be treated as expenditure. Therefore, we set aside the order of the learned Commissioner of Income-tax (Appeals) and delete the addition. ....
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....and is not included in the building then the detail of cost of land be mentioned separately. In response it was stated that cost of land is not included in the building, on which depreciation has been claimed. However, the Assessing Officer after examining these details noted that in the balance-sheet total assets have been grouped under four heads, i.e., fixed assets in schedule "E", works executed in schedule "F", OUVGL works in Schedule F-1 and current assets and loan and advances in schedule "G". As per schedule "G" closing stock of only building material, stock in transit, stock-in-trade (built-up houses) and stock-in-trade (plots) are given. There is no mention of land in the closing stock as mentioned by the assessee in its reply. Therefore, the assessee was asked why the cost of land is not included in the building when such land has not been accounted for separately. After various opportunities it was stated in the letter dated December 17, 2007, that all the lands on which buildings in question have been constructed are under the ownership of PUDA. All such lands were acquired before March 31, 2000 and most of then were acquired during the existence of "Housing Developmen....
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....under the head PUDA Building at Mohali, Ludhiana and Patiala represents only the amount of construction of such buildings. It does not include any cost of land. The land value was taken as zero in this case as the concerned land was transferred authority namely PHDB and Directorate of Housing and Urban Development, etc. These land was transferred by the order of the Government and PUDA has not booked any amount as cost of such land. The amount depicted in the balance-sheet is only the cost of construction met by the PUDA. Thus the question of the inclusion of such element of cost in the head buildings and thereafter claiming depreciation on such amount does not arise as such depreciation has not been claimed on the land value. As it is not included in the building head as explained earlier. The depreciation relates only to the building portion the construction cost of which is met by PUDA. Thus the action of the learned Assessing Officer of disallowance of depreciation worth Rs. 2,07,23,700 is incorrect and against the fact of the case and liable to be deleted." 121. The learned Commissioner of Income-tax (Appeals) found force in the submissions and allowed the depreciation. ....
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....In these circumstances, we find nothing wrong with the order of the learned Commissioner of Income-tax (Appeals) and confirm the same. 125. In the result, I. T. A. No. 769/Chd/2008 is partly allowed for statistical purposes. I. T. A. No. 760/Chd/2008-assessee's appeal for 2005-06 126. In this appeal the assessee has raised the following grounds : "1. That the worthy Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in making the addition of Rs. 4,90,51,888 on account of instalments for sale of houses/flats received during the year. 2. That the worthy Commissioner of Income-tax (Appeals) has also erred in confirming the action of the Assessing Officer in making the addition of Rs. 46,47,680 and Rs. 6,84,104 towards instalments received of pending adjustments from hire purchase debtors. 3. That the worthy Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in making the addition of Rs. 18,87,02,121 by disallowing 50 per cent. of admi....
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....favour of the assessee. 131. Ground No. 4-After hearing both parties we find that during assessment proceedings the Assessing Officer noticed that the assessee has claimed a sum of Rs. 3,63,74,569 as bad debt. This amount was recoverable on account of 50 per cent. of the salary payable to the employees of erstwhile Urban Estate Department which was merged with the PUDA. In response to the query raised it was submitted that this amount represented recoverables on account of establishment and contingency expenses from the assessment years 1992-93 to 1998-99 when the Urban Estate Department was continuing. Department of Housing, Government of Punjab has agreed to pay 50 per cent. of salary of the Department of Urban Estate staff, therefore, this amount was shown recoverable under the mercantile method by crediting the salary provision account. The Assessing Officer did not find force in these submissions because according to him once the assessee was following the cash system of accounting, therefore, it cannot be said to have been any outgoing during the year. Therefore, this amount was held not to be allowable. 132. On appeal it was mainly stated that the amount claimed, was w....
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....counted for computing the income of the earlier year and the assessee has not proved that this amount was accounted for under section 36(2)(i) of the Act. Further the assessee was following the cash system of accounting, therefore, unless and until real outgoing of cash happens the same cannot be allowed. Further the decision of the hon'ble Madras High Court has been correctly relied on by the learned Commissioner of Income-tax (Appeals) because what is allowable under section 36(1)(vii) is bad debt and only because it was held that a debt from Government Department cannot be construed to be bad debt. 135. We have heard the rival submissions carefully and agree with the submissions of the learned Departmental representative for the Revenue. First of all it is not clear how the salary was payable at the time of merger of the Urban Estate Department with the assessee authority. Normally the salary would be paid from month to month and there cannot be any outstanding salary. If some arrears of salary are there then question arises whether they were booked by the assessee as expenditure or not, is also not clear. If it a mere case of taking over a liability for which no expendit....
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....8. In this appeal through ground No. 2 which is the effective ground the Revenue has raised two issues namely (i) deletion of addition amounting to Rs. 5,42,40,683 on account of contribution to CPF and (ii) deletion of addition on account of depreciation amounting to Rs. 2,14,17,794. 139. First issue-After hearing both parties we find that the facts relating to this issue are identical to the facts of ground No. 7 in the Revenue's appeal for the assessment year 2003-04 in I. T. A. No. 762/Chd/2008. Since the facts and arguments of both parties are identical, following that order in paragraphs 84 to 86 we set aside the issue to the file of the Assessing Officer with similar directions is contained in above noted paragraphs. 140. Second issue-As far as second issue is concerned, the facts are identical to the facts of ground No. 3 of the Revenue's appeal in the assessment year 2005-06 in I. T. A. No. 769/Chd/2008. Since the facts and arguments of both parties are identical, therefore, following the decision in the Revenue's appeal for ground No. 3 in I. T. A. No. 769/Chd/2008 in paragraph 124 we decide this issue in favour of the assessee. 141. In the result, I. ....
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....8 in paragraphs 62 to 72 we decide this issue against the assessee. 145. Ground No. 3-After hearing both parties we find that during the assessment proceedings the Assessing Officer noticed that the assessee has received a sum of Rs. 10,89,77,227 which was reflected in Schedule "C" to the balance-sheet and the same was shown as earnest money from prospective buyers. On enquiry it was mainly submitted that this money represented advance receipt from customers but no allotment has been made and therefore, the same cannot be recognised as income. The Assessing Officer did not find the reply convincing and added this amount to the income of the assessee. 146. On appeal the learned Commissioner of Income-tax (Appeals) confirmed the disallowance raised in ground No. 2 in respect of the instalments received by the assessee without giving any further reasoning. 147. Before us, learned counsel of the assessee reiterated the submissions made before the Assessing Officer. He further submitted that during the year nothing has been received. In fact, the earnest money was outstanding on March 31, 2005, amounting to Rs. 11,71,39,423. During the year it reduced to Rs. 10,89,77,227 which ....
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..... T. A. No. 545/Chd/2011-Revenue's appeal for 2007-08 151. In this appeal the Revenue has raised the following effective grounds : "2. On the facts and in the circumstances of the case and law, the learned Commissioner of Income-tax (Appeals) has erred in deleting the disallowance made at Rs. 5,75,23,367 on account of CPF and interest on CPF contribution. The disallowance was made for the reasons that the contributions have neither been made to a provident fund approved by the Chief Commissioner of Income-tax or to a 'provident fund' established under a Scheme framed under the Employees Provident Funds Act, 1952. 3. On the facts and in the circumstances of the case and law, the learned Commissioner of Income-tax (Appeals) has erred in deleting the disallowance made at Rs. 2,76,73,633 on account of depreciation despite the facts that the case does not fulfil the conditions as laid down in section 32 regarding ownership of land and the cost of land on which buildings have been e....
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.... 2,87,61,683) on the ground that the appellant failed to produce evidence regarding each expense classified under the administrative head of account, despite the fact that all the relevant ledger accounts duly supported by self-explanatory vouchers were before the authorities below. 4. That the learned Commissioner of Income-tax (Appeals) has erred on facts and in law in increasing the value of closing stock hypothetically and arbitrarily just to set off the enhanced value of opening stock which is only the brought forward closing stock of the previous year which had to be recalculated as a consequence of capitalisation of disallowance of expenditure out of administrative expenses of previous years and thus enhancing the value of stock. 5. That the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in disallowing the 50 per cent. expenses on account of maintenance of urban estates amounting to Rs. 4,81,09,536, included in the disallowed administrative expenses of Rs. 23,96,45,249, on the ground that the appellant failed to establish that ....
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....er against the assessee, therefore, there is no need to adjudicate ground No. 2 separately. 160. Grounds Nos. 3, 4 and 5-The facts in respect of this ground are identical to the facts of ground No. 4 in the assessee's appeal in the assessment year 2004-05 in I. T. A. No. 759/Chd/2008. Since the facts and arguments are identical to ground No. 5 in I. T. A. No. 759/Chd/2008 which we have decided vide paragraph 124 and following our order we decide this issue in favour of the assessee. 161. In respect of disallowance of depreciation it seems that this contention was not raised before the learned Commissioner of Income-tax (Appeals) that if such expenses are allowed and are held to be on capital account then effect should be given to the opening stock. These contentions have been dismissed by the learned Commissioner of Income-tax (Appeals) by observing that the details of expenses are not available. 162. Before us, both parties raised identical arguments as in ground No. 5 of the assessee's appeal in the assessment year 2004-05 in I. T. A. No. 759/ Chd/2008. Further, learned counsel of the assessee reiterated the alternative submission which were made in the assessmen....
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....n that appeal this issue has been remitted back to the file of the Assessing Officer vide paragraphs 111 to 124 and following that decision here also, we set aside the order of the learned Commissioner of Income- tax (Appeals) and remit the matter back to the file of the Assessing Officer with identical directions. 165. Ground No. 2-After hearing both parties we find that the facts in respect of this ground are identical to ground No. 3 in the Revenue's appeal for the assessment year 2005-06 in I. T. A. No. 769/Chd/2008. Both parties made identical arguments as in respect of ground No. 3 of I. T. A. No. 769/Chd/2008. 166. After considering the rival submissions we find that the facts as well as arguments of the parties are identical to the issue raised in ground No. 3 of the Revenue's appeal in the assessment year 2005-06 in I. T. A. No. 769/ Chd/2008. This issue was decided by us against the Revenue and in favour of the assessee in that appeal vide paragraph 164. Following the same we decide this issue against the Revenue and accordingly confirm the order of the learned Commissioner of Income-tax (Appeals). 167. In the result, I. T. A. No. 484/Chd/2012 is partly a....
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.... "That the Assessing Officer gravely erred in treating the amount of Rs. 46,15,584 as rental income which in fact is nothing but amount of instalments received as per hire purchase agreement according to which the ownership of houses/flats is transferred to the purchaser only after the payment of last instalment when the income credited by the appellant on accrual." 170. Ground No. 1-After hearing both parties we find that in this case a notice under section 143(2) was issued on September 30, 2009. The learned Commissioner of Income-tax (Appeals) had adjudicated this issue vide paragraph 3.1 which is as under : "Brief facts of the issue are that the return of income in this case was filed on September 29, 2008 and as per the assessment order, notice under section 143(2) was issued on September 30, 2009. The appellant has not filed any reply in response to this ground of appeal and so it is presumed that the dated given in the assessment order are correct and the notice under section 143(2) had been issued within the pr....
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.... a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return : Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished." From the above it becomes clear that notice is required to be served before the expiry of 12 months from the end of the month for which the return has been filed. In this case return has been filed on September 29, 2009, which means the notice was required to be served on or before September 30, 2009. First of all the assessee has not given any argument before the learned Commissioner of Income-tax (Appeals), therefore, it cannot be said that the issue was not pressed before him and therefore, the assessee cannot be allowed to agitate this issue before the Tribunal for the first time. However, when similar issue came up for consideration before the hon'ble Punjab and Haryana High Court in the case of V. R. A. Cotton Mills P. Ltd. v. UOI [2013] 359 ITR 495 (P&H). Headnote of the decision reads as under : ....
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....uring the assessment proceedings the administrative expenses have been treated separately under the head "Administrative expenses" amounting to Rs. 28,52,43,200 and maintenance of urban estate claimed at Rs. 4,31,59,314. It was explained by learned counsel of the assessee that both these amounts have been ultimately clubbed as disallowance of administrative and maintenance expenses at Rs. 16,42,01,257. It was further explained that by making total amount of Rs. 16,42,01,257 has been taken in ground No. 2. In fact that amount should be 50 per cent. of Rs. 28,52,43,200 because separate ground No. 3 has been taken for disallowance of maintenance expenses of 50 per cent. amounting to Rs. 2,15,79,657, therefore, in our opinion, both issues relate to similar facts, i.e., disallowance of administrative and maintenance expenses. The issues have been decided by us in favour of the assessee in the assessment year 2004-05 in I. T. A. No. 759/ Chd/2008 in paragraph 115. Following that order we decide this issue in favour of the assessee. 177. Ground No. 4-After hearing both parties we find that during the assessment proceedings the Assessing Officer noticed that the assessee has claimed exp....
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.... the launch of upcoming international airport in the state. To quote few instance like the rates of commercial properties in Samrala after this were sold at Rs. 39,600 viz-a-viz at Rs. 29,600, similarly the residential plots in Nabha were sold at Rs. 9,500 viz-a-viz at Rs. 5,300, similarly in Pathankot the new selling rates were Rs. 9,100 as against Rs. 4,700. These are only few instances, there are much more gains in other areas also. In other words, by spending Rs. 225 crores only, the immediate one time gain, in terms of sale of properties of the authority was more than 2 times and it was in addition to the other gains which are likely to be earned in the near future in terms of sale of commercial/institutional plots. These huge gains have really proved beyond doubt, that the assessee, as a wise businessman, has rightly foreseen the necessity of making expenditure of Rs. 225 crore as its business expediency on top priority which has proved beyond doubt a gainful business activity. Therefore on a common commercial norms and as per accounting principle, the expenditure of Rs. 225 crores could be charged or debited to no other account, except only and only to income and expenditure....
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....e provisions of this Act ; (b) The cost of acquisition of land for the purposes of this Act ; (c) The expenditure for development of land and construction of houses ; and (d) The expenditure for such other purposes as the State Government may direct or permit. In fulfilment of above objects especially as mentioned in clause (a) and clause (d) the authority has paid the amount of Rs. 225 crores and claimed the same as expenditure by way of debit to profit and loss account. Further, the payment made is non-refundable because it is neither a loan nor deposit, nor it is for acquisition of any capital asset or property. The same has been made in furtherance of development objects of the authority as mentioned above including economic development of the land and also of the area in totality. It is a general accounting principle and commercial necessity that any expenditure incurred in furtherance of objects of the assessee has to be claimed and allowed as a legitimate business expenditure. 3. Further the issue in question is not res integra. Similar issues have already been tried by the various courts of the country. To quote in a recent judgment of CIT v. Karnataka Financ....
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....n are 'wholly and exclusively' and there is no mention of the word 'necessarily'. The word wholly refers to quantum of expenditure while the word exclu sively refers to motive, objective or purpose with which the particular expense has been incurred. PUDA is the development authority in the State of Punjab. The authority has been constituted under Punjab Regional and Town Planning and Development Act, 1995. Section 28 of that Act lays down the objects and functions of the authority. The same are repro duced as under : 'Object and functions of the authority' Section 28 of Punjab Regional and Town Planning and Develop ment Act, 1995 which is regarding object and functions is reproduced as under : 28. (1) The object of the authority shall be to promote and secure better planning and development of any area of the State and for that purpose the authority shall have the powers to acquire by way of purchase, transfer, exchange or gift or to hold, manage, plan, develop and mortgage of otherwise dispose of land or other property or to carry out itself or in collaboration with any other agency on its behalf, building, engineering, mining and other operati....
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....it was further claimed that the assessee was bound by the directions of the Punjab Government because the assessee was responsible for infrastructure development. The Assessing Officer observed that the assessee has to keep in mind that the assessee is a taxable entity and bound to follow the mandate of the Income-tax Act. He then referred to the decision of the Tribunal in the assessee's case reported in Punjab Urban Planning and Development Authority v. CIT [2006] 103 TTJ (Chd) 988 wherein following observations were made by the Tribunal : "If the accounts of the assessee are analysed, it has turned into a huge profit making agency for which it is taking money from the general public. In such a situation, we are of the view that no charity is involved and if any institution of public importance like schools, community centres are created/developed, the assessee is charging the cost of it from the public at large and the money is coming from the coffer of the Government. It cannot be said that objectives/ activities of the assessee are more of commercialised nature and we do not find ....
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....t of the International Airport at Mohali. In this regard statement of Additional Chief Administrator, PUDA was also recorded. According to the Assessing Officer answers given by the Additional Chief Administrator, PUDA clearly showed that PUDA had nothing to do with the airport. 179. The Assessing Officer then referred to the provisions of section 37 of the Income-tax Act and observed that the expenditure of Rs. 225 crores was for acquisition of land for Airport, Mohali which was not related to the income earned in financial year by selling of plots, etc and mainly reducing its actual profit. The land was not included in the fixed assets of the assessee which clearly show that it is not related to the business of the assessee, therefore, this expenditure was not of revenue nature and not allowable under section 37. He also distinguished the judgments relied on by the assessee and ultimately held that the assessee is not the beneficial owner of the shareholding in the joint venture company and therefore, expenditure of Rs. 225 crores should have been charged to the account of the Punjab Government which is beneficial owner of the shares in the joint venture for the airport. Ultim....
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....er reliance was placed on various case law. The learned Commissioner of Income-tax (Appeals) discussed the issue in detail. He also referred to provisions of section 37 as well as minutes of the meeting of the cabinet and various clauses of joint venture agreement He also discussed the case law cited by the parties and ultimately the issue was decided by him against the assessee vide paragraph 11.26 of his order as under : "In view of the above discussion, it is held that the amount paid for acquisition of land for airport of Rs. 225 crores was not wholly and exclusively for the purpose of business and hence the same is not allowable under section 37(1) of the Act. The addition made on this account is accordingly upheld." 181. Before us, learned counsel of the assessee mainly reiterated the submissions made before the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals). He further emphasised that the assessee authority was mainly engaged in the business of colonisation. It acquired land, developed the same and then selling the same by process of auction. When the proposal for expansion of Interna....
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....5 (Mad) ; (v) Panipat Co-operative Sugar Mills Ltd. v. CIT [1977] 108 ITR 111 (P&H) ; (vi) CIT v. Cheran Transport Corporation Ltd. [2000] 241 ITR 137 (Mad) ; (vii) CIT v. Velumanickam Lodge [2009] 317 ITR 338 (Mad) ; and (viii) CIT v. D. T. T. D. C. Ltd. [2013] 350 ITR 1 (Delhi). 182. Learned counsel of the assessee had also filed copies of certain documents showing change in the rates of lands in auction, at collector rate basis and held on various dates. These documents have been filed during the hearing as it transpired that no specific instances have been given for increase in prices, and therefore, learned counsel of the assessee sought the permission to file these documents. 183. On the other hand, the learned Departmental representative for the Revenue referred to various observations of first appellate authority's order and submitted that it has been clearly held by the learned Commissioner of Income-tax (Appeals) that the expenditure has not been incurred wholly and exclusively for the purpose of the assessee's business. He has further observed that the decision for development of airport area was taken by the Government of Punjab along with Gove....
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....diture was not incurred for the objects of the authority which have been prescribed in section 28 because PUDA has not acquired any land in its own name. Therefore, it cannot be said that some advantage would accrue to the assessee through this contribution. 185. She also submitted that section 28 of the Punjab Regional and Town Planning and Development Act, 1995, is a general provision giving the objects whereas section 29 of the same Act is specific provision under which various authorities have been established for development of specific areas which is demarcated for development and maintenance. For example, GMADA has been established to manage and develop the area in and nearby area vide Notification No. 13/52/2006/1 HF2/7443 dated August 14, 2006 and it has been specifically mentioned in this notification that all the powers of PUDA relating to development of Mohali and adjoining areas would be looked after by GMADA. Therefore, PUDA is only nodal agency of the Government for policy formation and co-operation between PUDA and other development authorities. Therefore, it cannot be said that the assessee has incurred this expenditure in view of section 49(2)(a) read with sect....
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....1). Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation.-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." The above provision shows that following conditions had to be complied for allowability of expenditure under this section : (i) The expenditure should not be in the nature prescribed in sections 30 to 36 ; (ii) It should not be in the nature of capital expenditure ; (iii) It should not be in the nature of personal expenditure ; and (iv) The expenditure has been made out or expanded wholly and exclusively for the purpose of business. 189. Clearly the expendit....
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....p; "After considering the proposal contained in paragraph 2 of the memorandum dated January 1, 2008, of the Transport/Civil Aviation Department and hearing the concerned Administrative Secretaries, the approval was accorded. It has also been decided by the Counsel of Ministers that for this purpose Punjab Housing and Urban Development Department shall arrange funds for acquisition of 300 acre land including incidental charges. For this purpose, PUDA, GMADA and GLADA will bear expenditure in the ratio 75 per cent., 12.5 per cent. and 12.5 per cent. respectively under section 49(2)(d) of the Punjab Regional and Town Planning and Development Act 1995."(sic) In another meeting held under the Chairmanship of Chief Secretary, Government of Punjab on March 5, 2008, the decision taken was as under : "The issue of implementation of decision of Council of Ministers, dated January 2, 2008, regarding provisioning of funds was discussed. Chief Secretary, Punjab impressed upon the urgency to make available the appropriate funds at the disposal of Department of C....
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....per cent. and 12.5 per cent. respectively under section 49(2)(d) of the Punjab Regional and Town Planning and Development Act, 1995. It will be better if formal direction is issued by a Government letter. Contribution payable by PUDA has not been quantified. It will be better if total share of the Punjab Government and resultant share of respective authorities is properly worked out. A conscious and clear decision is also required on 'A' at page 2 and 'b' at page 3."(sic) Thereafter the Chief Secretary, Government of Punjab mentioned in his noting that Cabinet was to decide on the amount of compensation and so the quantum of contribution was not known. However, subsequently the Council of Ministers has decided in the meeting held on March 20, 2008, as under : "Council of Ministers noted that as per the earlier approval given by Council of Ministers, the expenditure for making payment of compensation for acquisition of land by the setting up International Airport at Mohali will be incurred by the Punjab Urban Development Authority (PUDA) and the Greater Mohali Area Development Authority (GMAD....
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....ms it proper, the file can be re-submitted after making the payment. However, as desired by the Government, file is submitted for approval to deposit funds amounting to Rs. 225 crores in Government treasury. The proposal of the office for raising loan against FDR and autho rising senior accounts officer (post of ACA (F&A) is vacant) to sign the loan documents is also submitted for approval pl" (sic). Combined reading of the above minutes of the Council of Minister and various notes and notings prepared and deliberated by Chief Secretary, Government of Punjab and Chief Administrator, PUDA, clearly shows that initially on January 2, 2008, the Punjab Government took the decision for making of contribution for the purpose of acquisition of 300 acres of land as contribution for Mohali Airport. Thereafter the chief secretary in a meeting took the decision that this contribution was required to be made under section 49(2) of the Punjab Regional and Town Planning and Development Act, 1995 and as per this decision the PUDA, the GMADA and the GLADA were to provide fund....
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....sp; "This office had submitted a detailed note regarding share of PUDA at pages 1-5 but PUDA has been asked to contribute 75 per cent. share. It is again respectfully submitted that GMADA has property worth thousands crores in Mohali and logically, the share of GMADA should be much more on the entire funds could have been provided by GMADA. The direction of the Government to PUDA to contribute 75 per cent. of the share needs re-consideration. If Gov ernment deems it proper, the file can be resubmitted after making the payment." The above clearly shows that the Chief Administrator of PUDA was reluctant to make these payments and according to him GMADA was having huge profits in Mohali where this Airport was coming up and therefore, contribution should be made by GMADA. When these observations were made in the note put up by the chief administration then how it can be said that the contribution made was for the purpose of business because this would have led to general appreciation in the value of the lands. In this regard the learned Commissioner of Income-tax (Appeals) has made following observations vide paragraphs 11.12 to 11.14 which are as under : ....
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....ernational airport. For the prospective buyers who enthusiastically applied, the rate of allotment per sq. yard was fixed at Rs. 12,000 per sq. yard. Even after taking into consideration the development cost of these plots, the immediate one time gain, in terms of sale of only 4,000 plots was more than 2 times. (ii) Before the launch of this proposed airport for which the asses see authority has contributed, the reserve price per sq. yard for auction of the commercial site was at Rs. 3,00,000 per sq. yard. However the after effect was that for auctions conducted in sector 69 and sector 70 the per sq. yard reserve price of commercial plots was fixed at at Rs. 4,00,000 and even the actual selling went much above this. Thus there was a straightway one time gain of more than 25 per cent.to 30 per cent. of the stocks held by the authority. (iii) Another one time gain likely to be earned is from balance of 50 acres of commercial land in sector 76 to sector 80 from where the one time gain is likely to be more than 25 per cent. to 30 per cent. in terms of sale of commercial properties. &nbs....
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....iala 10,800 to 18,750 18,465 to 21,600 193. Above clearly shows that no plot numbers have been given. Further there is no appreciation in the case of plots at Phulkian Enclave, Patiala. Even if assuming for the sake of argument that in some pockets the rates have increased the same may be because of general appreciation of the property values. No link has been established to show that contribution made by the assessee resulted directly in increase of land prices. Further it is very important to note as pointed out by the learned Departmental representative for the Revenue that increase, if any, was available to all the builders and property developers operating in the area and was not restricted exclusively to the assessee only. Therefore, logically all such organisations dealing in the property should have been asked to contribute to the development of airport. 194. We find force in the contention of the Revenue that even the contribution was not considered and quantified by the PUDA and it was decided by the Punjab Government as it becomes clear from the note of Secretary, Housing and Urban Development then how the assessee can ....
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....pplemental, incidental or consequential to any of the functions referred to in this sub-section or which may be prescribed. 29. (1) Where the State Government is of opinion that the object of proper development of any area or group of areas together with such adjacent areas as may be considered necessary will be best served by entrusting the work of development or redevelopment thereof to a Special Authority, instead to the Punjab Urban Planning and Development Authority the State Government may, by notification, constitute an Authority for such area to be called the Special Urban Planning and Development Authority for that area and thereupon, all the powers and functions of the Punjab Urban Planning and Development Authority relating to development and redevelopment of that area under this Act, shall be exercised and performed by the Special Urban Planning and Devel opment Authority so constituted. (2) Every notification issued under sub-section (1) shall define the limits of the area to which it relates. 49(2). The funds of the authority shall be applied towards meeting- (a) the expenditure incurred in the administration, implementa tion and carrying out the provision....
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....xpenditure. 197. On appeal, the Appellate Assistant Commissioner confirmed the action of the Income-tax Officer. On further appeal to the Tribunal it was held that the assessee was entitled to deduct this amount in computing its profits. On an application made by the learned Commissioner, the Tribunal referred to the case under section 66(1) of the Indian Income-tax Act, 1922, to the hon'ble Supreme Court in CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC) and referred the following question of law for its opinion (page 142) : "Whether on the facts and in the circumstances of the case, the estate duty paid by the company under section 84 of the Estate Duty Act, 1953, is a revenue expenditure deductible in computing the assessee's business income for the assessment years in question ?" The hon'ble High Court agreed with the view expressed by the Tribunal and answered the question referred to it in affirmative. Thereafter the Revenue filed an appeal before the hon'ble apex court. The hon'ble apex court after detailed discussion particularly under section 10 which was for comp....
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.... it is clear that unless and until the expenditure is incurred for the purpose of business even if there is some statutory compulsions, the same cannot be allowed as business expenditure under section 37 of the Income- tax Act. 198. The last condition for allowability of expenditure under section 37 was that it should not be in the nature of capital expenditure. In the case before us, it has been held that the expenditure was incurred for the purpose of acquisition of land and therefore, being of capital nature it is not allowable. In this regard we have perused the joint venture agreement (in short JVA) carefully and find that the same was entered on the 17th day of September, 2009 between Airports Authority of India (statutory authority established under the Airports Authority of India Act, 1994) and the Government of Punjab through GMADA (statutory authority constituted by the Government of Punjab and HUDA (statutory authority constituted by the Haryana Housing Development Authority). In the recitation clause it has been recited that memorandum of understanding was signed among those parties on January 4, 2008, which broadly provide for the following terms and conditions : ....
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....of the joint venture company (JVC); and to regulate the relationship amongst the joint venture parties as long as they are shareholders of the JVC." Further while defining the responsibility of the parties, it has been provided in respect of responsibility of the State Government/GMADA as under : Responsibilities of State Government/GMADA : Clearances/permissions/NOC to be obtained by GMADA from concerned authorities- Activities/services for responsibilities for clearance/permission. Transfer of land (200 acres) to GMADA. The joint venture company for the development of project. The GMADA shall acquire the land of around 300 acres and transfer to the JVC for the development of Chandigarh International Airport. The GMADA and HUDA shall bear all the expenditure in equal share in respect of claim or liabilities arising out the any litigation, present or future in the matter of land acquisition. The GMADA shall ensure that initial establishment of sub-station and waterline to be done by State Government free-of-cost. The GMADA shall exempt the civil air terminal complex including apron, i.e. area including city side ....
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....Rs. 10 (Rs. ten only) each for cash aggregating to Rs. 2,45,00,000 (Rs. two crore forty-five lakhs only) HUDA shall subscribe to Rs. 24,50,000 (twenty-four lakhs fifty thousand) equity shares of Rs. 10 (Rs. ten only) each for cash aggre gating to Rs. 2,45,00,000 (Rs. two crore forty-five lakhs only) (a) The proportion in which the parties shall subscribe to the equity share capital of the JVC shall be as follows subject to provisions contained in paragraph 5 : AAO = 51% GMADA = 24.5% HUDA = 24.5% (B) The State Government would transfer the required land located at Mohali, Punjab to the JVC and AAI would be responsible for creating the airside facilities and Terminal building for the JVC, which will be appropriated towards share capital and share premium. At the time of voluntary winding up of the company, the share premium paid by GMADA, HUDA and AAI shall be considered for determin ing the value of assets to be bifurcated/allocated to these three parties." 199. Rest all the clauses are general clauses and not very relevant for us and therefore, same are not being reproduced. Combined reading of the above clauses clearly shows that both State Governments have cont....
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....ments and we have gone through the same and now let us analyse these judgments : 201. The first case relied on is in the case of CIT v. Karnataka Financial Corporation [2010] 326 ITR 355 (Karn). In this case, the assessee-company was a state owned corporation and the assessee had claimed expenditure of Rs. 15 lakhs under the head "Miscellaneous expenses" which was incurred by the assessee at the instance of State to promote its business at village known as "model village". This expenditure was disallowed by the Assessing Officer on the ground that the amount spent by the assessee, is not for its business purpose. The expenditure was allowed by the hon'ble High Court by giving following reasons in paragraph 7 which is as under (page 357): "We are of the opinion that the amount of Rs. 15 lakhs spent by the assessee has to be considered towards its business promotion. Since the Zilla Panchayath under a scheme known as 'Swasthi Grama Yojana' was trying to develop model villages by providing facilities like developing roads to new markets, organising self-help groups, commu....
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.... advantage would ensure on the payment of contribution and therefore, same was allowable under section 37. When the matter travelled to the hon'ble High Court it was decided that the expenditure was not allowable and it was observed that though the contribution to the welfare fund was a precondition for the grant of export permit and the assessee was right in contending that the contribution was a compulsory payment but the same was disallowed by coming to the conclusion that this payment was opposed to the public policy. When the matter travelled to the hon'ble Supreme Court, the hon'ble apex court found that district welfare fund was established pursuant to a scheme which had been evolved by the Rice Millers Association with the District Collector. According to the scheme each member of the association was to deposit an amount of 0.50 paise per quintal if he proposed to export the rice from Andhra Pradesh. The amount was deposited in Andhra Bank. The application of export was required to be made in a form wherein applicant debited the said amount of contribution deposited by him giving the particulars of the bank and challan, etc. Quoting from various judgments it was....
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....f CIT v. India Radiators Ltd. [1999] 236 ITR 719 (Mad). In that case the assessee made contribution to panchayat for upgrading the school on assurance by management of the school that children of the assessee's employees would be given preference in admission to school. Therefore, it is clear that the purpose of contribution was related to business of the assessee. In the rural area there may not be any school and if a sum of money was expended for the education of children of the employees of the assessee-company and that is why the assessee's contribution was allowed as business expenditure. This case is totally distinguished from the facts in case before us. 204. The next case relied on is Addl CIT v. Rajasthan Spinning and Weaving Mills Ltd. [2005] 274 ITR 465 (Raj). In this case the dispute relates to the claim of the assessee that deduction of Rs. 15 lakhs as contribution made to the Bhilwara Export Fund. The expenditure was allowed by the Assessing Officer. However, a revisionary order was passed under section 263 where the Commissioner of Income-tax was of the view that the Assessing Officer committed an error which was prejudicial to the interests of the Revenue....
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....uished from the case before us. 205. The next decision relied on is in the case of CIT v. Chemicals and Plastics India Ltd. [2007] 292 ITR 115 (Mad). In that case the dispute is regarding disallowance of sum of Rs. 1.5 lakhs being contribution to the Madras Chamber of Commerce. Without going into details the facts itself shows that the contribution towards a Chamber of Commerce, which is a business association, is definitely related to the business of the assessee and is for the purpose of business of the assessee, which is not the case before us. 206. Next decision is in the case of Panipat Co-operative Sugar Mills Ltd. v. CIT [1977] 108 ITR 111 (P&H). In this case the main dispute was regarding disallowance of a sum of Rs. 6 lakhs which was contributed by the assessee to the State Government for utilization towards cost of construction of an approach road connecting certain villages to the main road. After detailed discussion it was held as under : "Held, that though a road becomes comparatively more perma nently restored by metalling, the conversion of a kutcha road into a metalle....
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....y stadium and claimed the amount of Rs. 24 lakhs. It was held that the expenditure was incurred in the regular course of business for the purpose of revenue expenditure and it was not capital expenditure because the hockey stadium belongs to the public. In this case the assessee was running a cinema hall, a lodge and was also Government contractor and some contribution was made towards construction of the hockey stadium in the park of the town. The expenditure brought benefit to the assessee in the form of advertisement, etc. and that is why the same was held to be allowable. Again the facts are totally different from the facts in case before us. 209. The last case relied on is CIT v. D. T. T. D. C. Ltd. [2013] 350 ITR 1 (Delhi). In this case two issues arose for consideration before the hon'ble High Court. First issue was whether the expenditure incurred by the assessee on construction of flyover was allowable. Somewhere in 1989 Delhi Administration decided to expand the scope of Delhi Tourism Development Corporation and it was decided that country liquors and U. P. rum which was being sold by the Excise Department of Delhi Administration, which would generate a surplus of ....
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....): "Section 37 deals with expenditure in general referred to as busi ness expenditure. It lays down that any expenditure, not being expenditure of the nature as described in section 30 to section 36 and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of business or profession, shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'. Deductions which are allowed while computing business income have been laid down in sections 30 to 36. Section 37 is a residuary section extending the allowance of expenses to items of expenditure not covered by sections 30 to 36, the list of allowances enumerated in sections 30 to 36 being not exhaustive. An item of expenditure, which is wholly or exclusively for the purpose of business may be allowed to be deducted in computing the profits and gains according to the ordi nary principles even if it does not fall under any of the above sections. (paragraph 20) Section 37 starts with negative....
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....the same did not fulfil the criteria laid down in section 37 to come within the purview of allowability so the same could not be said to be an expenditure incurred wholly and exclusively for the purpose of business. Therefore, the claim of the assessee that these grants should be allowed under section 37(1) could not be accepted and were to be rejected. (paragraph 25)." From the above it is clear that unless and until the expenditure is related to the business of the assessee so as to meet the requirement of section 37 that the expenditure has been incurred "wholly and exclusively" for the purpose of business, the same is not allowable. Therefore, clearly this case law is applicable to the assessee in the sense that even if the expenditure is incurred to meet the objects of a particular undertaking the same is still not allowable unless the same has been incurred for the purpose of business. 214. Next case law relied on by the learned Departmental representative for the Revenue is in the case of Malayala Manorama Co. Ltd. v. CIT [2006] 284 ITR 69 (Ker). In this case the assessee had incurred some expenditure for the purpose of reconstruction of Banegaon Village in Lathur Dist....
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....ly held that this expenditure is not allowable. Paragraph 56 of this order is important which we are extracting below : "56. On considering the submissions of the parties in the light of the materials on record and also the ratios cited before us, we are constrained to hold that it is not an allowable expenditure but only an application of income. It is not in dispute that the amount of Rs. 1,180 crores is stated to have been given to the AP State Housing Corporation on the directive of the Government. However, that would not amount to an expenditure incurred for the purpose of business. An expenditure which is exclusively laid out for the purpose of business is a revenue expenditure and, therefore, allowable. On appreciation of the facts on record, it is quite evident that the amount of Rs. 1,180 crores was not spent by the assessee board for the purpose of its business. The said amount was transferred to Andhra Pradesh State Housing Corporation at the directive of the Government for implementing certain housing projects. The assessee is no way connected with implementing the project. This cann....
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....ide order passed on March 23, 2001, under section 154, the contention of the assessee was accepted and addition was reduced to Rs. 46,15,584. It was further submitted that this ground could not be taken by mistake. 219. On the other hand, the learned Departmental representative for the Revenue opposed the submissions. 220. After considering the rival submissions we are of the opinion that this issue has been taken before the learned Commissioner of Income-tax (Appeals). Further the issue was raised in all other years, therefore, there is force in the submissions that this ground was not raised before us inadvertently and accordingly we admit this ground. 221. After hearing both parties we find that this issue is identical to the issue raised in ground No. 5 of the Revenue's appeal for the assessment year 2003-04 in I. T. A. No. 762/Chd/2008. Since facts and submissions of both parties are same, therefore, following our order in I. T. A. No. 762/Chd/ 2008 in respect of ground No. 5 which we have decided vide paragraphs 62 to 72, we decide this issue against the assessee. 222. In the result, I. T. A. No. 390/Chd/2012 is partly allowed. 223. Before parting with this....
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....he learned Commissioner of Income-tax (Appeals) has failed to appreciate properly the objects of GLADA which provides for incurring of expenditure for development of the state of Punjab as per direction of the Punjab Government and the above expenditure had been incurred for promotion of infrastructure for the development of area which is the main objects of the GLADA. 6. That the learned Commissioner of Income-tax (Appeals) has failed to consider that the Assessing Officer while interpreting provisions of the Punjab Rural Area Town Planning and Development Act, 1995, has taken very narrow and rigid view and has ignored actual meaning and purpose of the development authority. 7. That the learned Commissioner of Income-tax (Appeals) has failed to take into consideration application filed by the appellant with the Central Board of Development Taxes, New Delhi, for noti fication under section 36(1)(xii) of the Income-tax Act, 1961." 225. In this appeal though many grounds have been raised but only dispute is addition of Rs. 60 crores on account of contribution made towards ....
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.... prosper once International Airport at Mohali was established. It was further contended that the Assessing Officer has observed that there was a small airport in Ludhiana, therefore, no benefit would come by development of international airport at Mohali because the assessee could have made contribution to Ludhiana airport which is not feasible because development of the airport at a particular place is decided by the Central Government. Various case law have also been cited and most of them are same as cited before us in the case of PUDA in identical issue in the assessment year 2008-09. Learned counsel of the assessee had strongly relied on these decisions in addition to these decisions reliance was also placed on the following case law : (i) CIT v. Coats Viyella India Ltd. [2002] 253 ITR 667 (Mad) ; (ii) CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971] 82 ITR 166 (SC) ; and (iii) CIT v. Madras Refineries Ltd. [2004] 266 ITR 170 (Mad). 229. On the other hand, the learned Departmental representative for the Revenue reiterated the submissions made in the case of PUDA for the assessment year 2008-09 in I. T. A. No. 390/Chd/2012 on similar issue. She also pointe....
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....mmission was allowable as general expenses or not. Clearly the lawyer has been engaged for defending the assessee and therefore, it was decided that this was allowable as general expenses. We fail to understand how this proposition is of any help to the assessee. 234. The third decision relied on is the case of CIT v. Madras Refineries Ltd. [2004] 266 ITR 170 (Mad). In this case the assessee-company incurred an expenditure for providing drinking water facilities to the residents in the vicinity of the refinery and some money was also provided as aid to the school run for the benefit of the children of those local residents. Total amount incurred was Rs. 15,32,000 for that purpose. The hon'ble High Court decided this issue in favour of the assessee and observed as under (headnote) : "The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the people of the locality in which the business is located, in particular. Being known as a good corpo rate citizen brings goodw....