TaxTMI 
TaxTMI 
2014 (3) TMI 1055
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....the reassessment proceedings deserve to be declared void ab initio and CIT(A) erred in not declaring the reassessment proceedings illegal, without jurisdiction and bad in law. Asst. yr. 2005-06; Revenue's appeal ITA No. 910/Jp/2013:- (i) Whether on the facts and in the circumstances of the case and in law the learned CIT(A) was justified in deleting the addition of Rs. 1, 07,47,296 holding that the provision made by the assessee for development of land is ascertained liability. Asst. yr. 2007-08; assessee's appeal ITA No. 896/Jp/2013:- (i) That on the facts, in totality of the circumstances and in law, and in view of detailed objections/submissions made before the learned lower authorities, the reassessment proceeding is illegal, bad in law, without jurisdiction and is based on wrong facts, thus all the reassessment proceedings deserve to be declared void ab initio and learned CIT(A) erred in not declaring the reassessment proceedings illegal, without jurisdiction and bad in law. Asst. yr. 2007-08; Revenue's appeal ITA No. 911 /Jp/2013 (i) Whether on the facts and in the circumstances of the case and in law, the lear....
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....ncurred by the developer) are not being charged separately from the buyers of the plots in addition to the sale price of the plot taken by the developer. The development work has to be carried out as per the specification of the JDA. The external development work like construction of sector road (approach road from the main road for the colony) is carried out by JDA. 2.1 For the asst. yr. 2005-06, the assessee filed its original return of total income on 31st Oct., 2005 declaring-income of Rs, 55,15,130. Assessment under s. 143(3) of IT Act, 1961 ('the Act' for short) was completed by AO designated as Jt. CIT, Range-2, Jaipur vide his order dt. 28th Dec., 2007 at total income Rs. 2,79,25,370. The additions made were deleted by the learned CIT(A) vide order in IT Appeal No. 645 of 2007-08 dt. 1st Feb., 2008 and the order of first appellate authority was confirmed by the Tribunal vide common order dt. 24th April, 2009 in ITA No. 1097/Jp/2007 and ITA No. 737/Jp/208 for the asst. yrs. 2004-05 and 2005-06 respectively. 2.2 In respect of asst. yr. 2007-08 the assessee filed its original return of total income on 15th Nov., 2007 declaring income of Rs. 2,01,20,460. Assessment un....
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....t paper book pp. 119-124 asst. yr. 2005-06, paper book pp. 94-99, asst. yr. 2007-08 and paper book pp. 55-61, asst. yr. 2008-09) and the same was disposed of by the AO vide order dt. 7th Sept., 2012. 2.5 The income for asst. yr. 2005-06 was reassessed vide order dt. 1st March, 2013 under s. 143(3)/147 of the IT Act on total income of Rs. 1,62,62,430 against original return of Rs. 55,15,130 by making addition of Rs. 1,07,47,296 on account of disallowance of provision of development Expenses debited in PandL a/c. In similar way the income of asst. yr. 2007-08 was reassessed vide order dt. 1st March, 2013 under s. 143(3)/147 of the IT Act on total income of Rs. 13,22,95,340 against original return of Rs. 2,01,20.460 by making addition of Rs. 11,21,74,877 on account of disallowance of provision of development expenses debited in PandL a/c. The income of asst. yr. 2008-09 was reassessed vide order dt. 1st March, 2013 under s. 143(3)/147 of the IT Act on total income of Rs. 18,28.35.530 against original return of Rs. 1,73,71,460 by making the addition of Rs. 16,35,62,072 on account of provision for development expenses and Rs. 19,05,000 on account of disallowance under s. 40A(3) of IT A....
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....Act, no action can be taken for reopening of an assessment after four years unless the AO has reason to believe that income had escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The reasons recorded by learned AO do not whisper that the assessee has failed to disclose fully and truly all material facts necessary for the assessment. The learned Authorised Representative submitted that in the present case for asst. yr. 2005-06, the reassessment proceedings under s. 147 was initiated after expiry of four years from the end of the relevant assessment year. The original assessment was completed under s. 143(3) of IT Act after detailed examination and scrutiny of the case. Further, the asst. yr. 2004-05 was also completed under s. 143(3) of IT Act after detailed scrutiny and certain legal issues/principles which were decided in asst. yr. 2004-05 were followed in this year also. The copy of reasons recorded is placed at paper book p. 118. The AO simply mentioned that the expenses incurred during the previous year are only allowable for deduction under s. 37(1) of IT Act and provisions are not allowa....
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....not objected by the Department at any stage. On this issue audit objection was also raised in asst. yr. 2004- 05 and after considering our reply at the AO stage, the objection was dropped. The assessment of asst. yr. 2004-05 has reached at finality as no appeal is pending. Therefore following the rule of consistency, the provision for development expenses cannot be disallowed in asst. yr. 2005- 06. In the present case, there is no indication that the assessee had failed or omitted to disclose the material or primary facts. These were available on record. In the reasons for initiating proceedings under s. 147 of the Act, it is stated that provision for development expenses was wrongly allowed. Therefore, the allegation of the learned AO is that then AO while passing the original assessment had failed to draw correct legal inferences from the said primary facts. This is not an error or omission on the part of the assessee. It is not alleged that the assessee had suppressed, misrepresented or falsified the records/facts. It .is not alleged that there was any subsequent factual information on the basis of which it was found that the assessee had not fully disclosed the primary facts or....
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.... purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." Thus as per the above provisions of above section the expenses laid out or expended wholly and exclusively for the purpose of business or profession shall be allowed. The above section does not restrict that the future liability to incurred expenses will not be allowed in the relevant year in which the liability arose. This principle has already been decided by Hon'ble apex Court. Hon'ble apex Court in the case of Rotork Controls India (P) Ltd. us. CIT (2009) 223 CTR (SC) 425: (2009) 23 DTR (SC) 79: (2009) 314 ITR 62 (SC) has laid down the principle that any provision made for the obligation of expenses to be incurred in future against the current year's sale is allowable expenses. Further, Hon'ble apex Court in the case of Bharat Earth Movers us. CIT (2000) 162 CTR (SC) 325: (2000) 245 ITR 428 (SC) has held that if the business liability has arisen in the accounting year then deduction should be allowed although liability may have to be quantified and discharged at a future date. Hon'ble Rajasthan High Court in the case of Udaipur Mineral Developmen....
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....ly ignored the method of accounting regularly employed by the assessee and according to method of accounting the provision for development expenses is directly attributable to sales of the assessee thus duly allowable to the assessee. The learned Authorised Representative submitted that the expenses incurred/liability to be incurred for certain expenses should be looked in equal terms. The "development expenses" are direct cost attributable to the sales as the same is essential part and condition of sales of scheme therefore expenses incurred/to be incurred are business expenses of the assessee and allowable. In the mercantile system accrued but undischarged liability against revenue expenditure must be allowed. In this case, the assessee follow a the mercantile system of the accounting. The assessee's sale consists of two things; first cost of land and second development expenses. Since the development expenses cannot be incurred on plot-to-plot basis but incur for whole scheme, therefore, the development expenses to be incurred against the plot sold in a particular year have to be estimated and to that extent the sale is set part under the nomenclatural "provision for develop....
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....re Pictures (P) Ltd. (1973) 90 ITR 452 (Mad). Hon'ble Supreme Court in the case of CIT us. Shoorji Vallabhdas and Co. (1962) 46 ITR 144 (SC)] laid down that the income-tax is a levy on the real income of business or profession. Hon'ble Supreme Court in Poona Electric Supply Co. Ltd. vs. CIT (1965) 57 ITR 521 (SC) has laid down principle that under the IT Act "tax" shall be payable by an assessee under the head "Profits and gains of business" in respect of the profits and gains of any business carried on by him. The said profits and gains are profits of business computed on business principles. Therefore, any provision made for the obligation of expenses to be incurred in future against the current year's sale is allowable expenses. Further, in asst, yr. 2006-07 on the same issue AG audit party raised the audit objection in the case of assessee on the similar issue i.e. "Provision for development charges". The CIT-I, Jaipur, did not accept this objection and requested to the AG audit team to drop the audit objection (copy at paper book pp. 131-132). The audit party did not reply to the letter of CIT-I, Jaipur, then to follow the instruction of CBDT for remedial action, a....
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.... The powers of the AO for assumption of jurisdiction under s. 147 are not plenary powers. The proceedings under s. 147 cannot be initiated on the mere whim or fancy of the AO. The words in statute are 'reason to believe' and not 'reason to suspect' or in the opinion' The words "has reason to believe" are stronger than the words 'is satisfied'. The belief entertained by the AO must not be arbitrary or irrational. Where a reasonable inference cannot be drawn from ' the materials that there was escapement, the reassessment proceedings cannot be sustained.[ITO vs. Dwarka Das Shah Bros (P) Ltd. (1974) 95 ITR 527 (Cal)]. Following decisions are quoted for support. The facts of the case are fully applicable to the facts of the case of the assessee:- (i) ITO and Ors. vs. Lakhmani Mewal Das 1976 CTR (SC) 220: (1976) 103 ITR 437 (SC); (ii) Ganga Saran and Sons (P) Ltd. vs. ITO and Ors. (1981) 22 CTR (SC) 112: (1981) 130 ITR 1 (SC); (iii) Bankipur Club Ltd. vs. CIT 1972 CTR (SC) 245: (1971) 82 ITR 831 (SC); (iv) Pursottam Das Bangur vs. ITO and Ors. (1980) 14 CTR (Raj) 161: (1979) 126 ITR 580 (Raj); (v) Sardar Kehar Singh....
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....nnai) 388: (2007) 293 ITR 68 (Chennai)(AT), held that where the AO had called for details of a claim made by the assessee and allowed the same reassessment is not permissible as it would be tantamount to change of opinion. (iii) CIT vs. Feather Foam Enterprises (P) Ltd. (2008) 296 ITR 342 (Del) held that where a matter had been considered and accepted during original assessment, it could not be subject-matter of reassessment. iv) Aventis Pharma Ltd. vs. Asstt. CIT and Ore. (2010) 233 CTR (Bom) 258: (2010) 37 DTR (Bom) 353: (2010) 323 ITR 570 (Bom). Reassessment-Reason to believe-Change of opinion-In the original assessment deduction of consultancy fee and the amount paid by the assessee to the purchaser for meeting the demand of the State Government towards unearned increase in the value of land were allowed in the computation of long-term capital gains-AO reopened the assessment for the reason that the amount paid to the Government is not allowable as deduction in computing the long-term capital gains-Not justified-There was no tangible material on the basis of which the assessment could be reopened-Reassessment is sought to be made on the basis of mere chan....
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....disclosure on the part of the assessee in the purported reasons behind the reopening of the assessment in respect of asst. yr. 2005-06; and (b) in fact there was a full and true disclosure on the part of the assessee and even no inference could be drawn from the purported reasons that there was no such full and true disclosure. It was also contended by the learned counsel for the assessee that reopening of the assessment for asst. yr. 2005-06 which had been completed under s. 143(3) of the Act on 28th Dec., 2007, was not supported by law. The reasons recorded by the AO for asst. yr. 2005-06 were as under (copy at paper book p. 118):- "On perusal of assessment records it is revealed that the assessee made and raised a provision for development expenses of Rs. 63,37,614 against development expenses to be incurred in subsequent year. Expenses incurred during the previous year are only allowable for deduction from income under s. 37(1) of the IT Act, 1961 and no provision is allowable but the same has been wrongly allowed during assessment proceedings. Thus there was under-assessment of business income by Rs. 63,37,614." The provisions of s. 147 to the extent relevant, are as....
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....ctually not incurred but only a provision to that extent has been made by the assessee company. The provisions for allowing the deduction of expenses are clearly laid clown in the IT Act and as per s. 37(1) the expenditure actually incurred is only allowable..." 2.15 Now, we have to see as to whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year. In the reasons recorded by the AO for issuing notice under s. 148 of the Act, the AO has himself stated that on perusal of assessment records, it is revealed that provision for development expenses was allowed to the assessee. Therefore, from the averments made by him in the reasons recorded, it is clear that the AO has issued notice under s. 148 of the Act in the light of the details or facts available in the assessment records as well as in the audit report and annexure thereto filed with the return of income by the assessee. The learned AO has not pointed out any material or basic fact which came to his notice subsequently after the assessment was made under s. 143(3) of the Act, and which was not disclosed by the assessee du....
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....e. The requirement of Expln. 1 is that there should be full and true disclosure of the primary or material facts and not beyond that. It is the obligation of the assessee to disclose fully and truly the primary facts. It is not the obligation of the assessee to indicate and state what legal inference can be drawn from the primary facts. While examining the implication of a similar provision in s. 34 of the IT Act, 1922, the Supreme Court in Calcutta Discount Co. Ltd. vs. ITO (supra), had observed:- "From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts interred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax is leviable." Dwelling on the said aspect in Sri Krishna (P) Ltd. vs. ITO and Ors. (1996) 135 CTR (SC) 75: (1996) 221 ITR 538 (SC), it was held that the AO for the purpose of determining the tax due from the assessee is required to kno....
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....ailed to consider whether s. 2(22)(e) of the Act was attracted. Failure to apply law or a section to admitted facts on record is not covered by Expln. 1. Explanation 1 applies when the AO on the basis of account books or other evidence fails to discover or infer material facts which with due diligence could have been discovered. Expln. 1 deals with failure of the AO to discover or infer all material facts on the basis of books of account or other evidence produced by the assessee. Difference between facts and law is well recognized and understood. Expln. 1 reflects the said difference." 2.18 Hon'ble Gujarat High Court in the case of Kalpataru Sthapatya (P) Ltd. vs. ITO (2013) 215 Taxman 479 (Guj) has held as under:- "5.1 The exercise of powers beyond four years is fettered by an additional condition that the escapement of income has resulted on account of failure on the part of the assessee inter alia to disclose fully and truly material facts necessary for the assessment for that assessment year. The import of the said proviso is that where the assessee is not in default in disclosing fully and truly all material facts necessary for assessment for the assessment year....
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....e AO to draw the proper conclusions from it. If the wrong conclusion is drawn, then it is no ground for reopening the assessment because the assessing authority previously held another opinion as to the legal effect of certain primary facts and the AO later on took a different view.' 6.1 The phrase 'material facts' contemplated in the proviso to s. 147 connotes 'primary facts' necessary for assessment in relation to the year of assessment. The expression 'material facts' was considered by the Supreme Court in the context of s. 34(1)(a) of the IT Act. 1922 in Associated Stone Industries (Kotah) Ltd. us. CIT (1997) 138 CTR (SC) 260: (1997) 224 ITR 560 (SC), wherein the assessee was granted a lease for quarrying stones by the then Maharao of Kotah State under an agreement of lease. The royalty was inclusive of income-tax. When the State of Kotah later merged with United State of Rajasthan, a tri-partite dispute amongst the assesee, Stale of Rajasthan and Union of India arose pursuant to an application of the assessee-company to the CIT for a declaration that it was exempt from payment of income-tax in accordance with the terms of the lease agreemen....
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....o rely on the decision of apex Court in Keluinator of India (supra) and on the decision of this Court in Garden Silk Mills Ltd. vs. Dy. CIT (1996) 135 CTR (Guj) 405: (1996) 222 ITR 68 (Guj), to contend and submit that in the facts of the case the exercise of powers to reopen the assessment was based on the same facts and that a change of opinion does not give a ground to reopen the concluded assessment. 9................. 10. The conditions of s. 147 of the Act and in particular the first proviso thereto, which is applicable in the present case, having not been complied with on facts, the reopening of the assessment was not permissible. The assumption of jurisdiction by the respondent-ITO seeking to reopen the assessment for the asst. yr. 2005-06 was, therefore, beyond his powers and, was illegal. As a result, the impugned notice dt. 18th March, 2011 under s. 148 of the Act issued by the respondent is hereby set aside. The petition succeeds. There shall be no order as to costs." 2.19 Hon'ble jurisdictional High Court in the case of CIT vs. Manish Ajmera (2011) 238 CTR (Raj) 469: (2011) 51 DTR (Raj) 117 has held that when the assessment is reopened after the ex....
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....to believe" and the reasons must have the rational and a direct nexus and are intelligible and acceptable in law. The learned Authorised Representative submitted that the AO initiated the reassessment proceedings for asst. yr. 2005-06, asst. yr. 2007-08 and asst. yr. 2008-09 on the opinion that expenses incurred during the previous year are only allowable for deduction from income under s. 37(1) of IT Act, 1961 and no provision is allowable but the same was wrongly allowed during the assessment proceedings. The learned Authorised Representative submitted that the assessment of the assessee for asst. yr. 2004-05 was completed under s. 143(3) of IT Act and this issue was examined in detail. After examination of this issue in detail, the provision for development expenses was allowed in asst. yr. 2004-05. Therefore, there was no reason to disallow the same in asst. yr. 2005-06, asst. yr. 2007-08 and asst. yr. 2008-09. 2.22 The provisions of s. 37(1) of IT Act are as under:- "Any expenditure (not being expenditure of the nature described in ss. 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exc....
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....assessee had to cany for that JDA charges Rs. 250-(25 + 30 + 20) i.e. 175 per sq. meter against which the assessee has made provision for expenses @ 165 per sq. yard thus the provisioning has been made on scientific basis and not arbitrarily manner. The assessee has made provisions for expenses of development of plot sold to various parties at Rs. 165 per sq. yd. out of which expenses to the tune of Rs. 56.53 per sq. yd. incurred during the year under consideration itself and provision was made for balance @ of Rs. 108.47 per sq. yd. The development expenses had been worked out by the assessee on the basis of guidelines/directions of JDA mentioning rates for various development works. Further, it is explained by the assessee that he has made full disclosure of facts in audit report. and after examination of relevant records claim was allowed. The assessee placed reliance on the decision of Hon'ble apex Court in the case of Calcutta Co. Ltd. us. ITO (1961) 37 ITR 1 (SC)." Therefore, the CIT-I Jaipur himself found that the provisions for development expenses are allowable expenses. However, the order under s. 263 dt. 21st March, 2011 of IT Act was passed. In this order also, it....
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....mined at the stage of the original assessment. It is noticed that the return of income was filed by the assessee on 15th Nov.. 2007 and 2nd Oct., 2008 for asst. yr. 2007-08 and asst. yr. 2008-09 respectively, thereafter notice under s. 143(2) was issued and the AO mentioned that the assessee furnished the details called for and after examining the information filed and discussing the case, assessments for asst. yr. 2007-08 and asst. yr. 2008-09 were completed under s. 143(3) of IT Act. So it cannot be said that the AO did not apply his mind while framing the assessment under s. 143(3) of the Act vide orders dt. 29th Dec., 2009 and 27th Dec.. 2010 for asst. yr. 2007-08 and asst. yr. 2008-09 respectively. Moreover, the view taken by the AO was in consonance with the view already taken while framing the assessment for the preceding years i.e., asst. yr. 2004-05 and asst. yr. 2006-07, the same view had been taken in the subsequent years i.e., asst. yr. 2005-06, asst. yr. 2007-08 and asst. yr. 2008-09 wherein also the assessment was framed under s. 143(3) of the Act. From the above facts, it is clear that the AO while framing original assessment under s. 143(3) applied his mind and fram....
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.... is held that by reason of s. 147 if the ITO exercises his jurisdiction for initiating a proceeding for reassessment only upon mere change of opinion, the same may be held to be unconstitutional. Sec. 147 does not postulate conferment of power upon the AO to initiate reassessment proceeding upon his mere change of opinion." The aforesaid case has been affirmed by the Hon'ble Supreme Court in CIT us. Keluinator of India Ltd. (2010) 228 CTR (SC) 488: (2010) 34 DTR (SC) 49: (2010) 320 ITR 561 (SC) wherein it has been held as under:- "Prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions viz., if (a) the ITO had reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under s. 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b) the ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. The fulfilment of the said conditions alone conferred ....
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....e completion of original assessment under s. 143(3) of the Act. It is also a matter of record that before initiating reassessment proceedings by issuing notice under s. 148 of the Act, the AO had initiated proceedings under s. 154 of the Act for the same reasons and proceedings initiated under s. 154 were dropped by him after the issuance of notice under s. 148 and were thus pending on the date of initiation of the reassessment proceedings. In these circumstances, the Tribunal while setting aside the reassessment proceedings relied upon the Full Bench Judgment of this Court in the case of Keluinator of India Ltd. (supra) and quoted the following passage from the said judgment:.... Various other judgments are also referred to by the Tribunal in support of its aforesaid view. 6. In these circumstances, we do not find any substantial question of law that would arise for consideration in this appeal. The appeal is devoid of any merit and is accordingly dismissed." 2.28 In view of the aforesaid discussions, submissions made by the learned Authorised Representative and learned Departmental Representative, the facts of the present case and in view of the ratio laid down by vario....
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....#39;s appeal for asst. yr. 2008-09, ITA No. 897/Jp/2013 relates to the addition of Rs. 19,05,000 made under s. 40A(3) by holding that the expenses was not found to be covered under r. 6DD (c) of IT Rules. The brief facts of the case are that the learned AO held that the assessee has incurred expenses exceeding Rs. 20,000 otherwise than by an account payee cheque drawn on a bank or account payee bank draft out of such expenses of Rs. 19,05,000 not found to be covered under r. 6DD(j) of IT Rules. The explanation filed by the Authorised Representative is not found tenable for obvious reason that the assessee deals in purchase and sale of land and the expenditure debited against purchase of land tantamount to the business of the assessee and same is covered under s. 40A(3) of the IT Act, 1961. Aggrieved from the order of the AO on this issue, the assessee has challenged the addition before the learned CIT(A). The learned CIT(A) confirmed the addition by holding that the appellant has relied on its submission made earlier. The appellant has not been able to bring on records any fact to show that its case was covered by any of the exception provided in r. 6DD as amended by IT (8th Amendm....
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....erwise than by crossed cheque drawn on a bank or by crossed bank draft in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors." 3.3 The words "having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors were added to "under such circumstances as may be prescribed" have some specific meanings. If the legislature intended to restrict the exemption only to the circumstances prescribed under r. 6DD then there was no need to add these words. The intention of the law is to give proper weightage to availability of banking facilities, business expediency and other relevant factors. The AO should have considered the applicability of r. 6DD after considering the other factors also like availability of banking facilities and business expediency. The reliance is placed on the following decisions:- (i) Jurisdictional High Court in the case of Kanti Lal Purshottam and Co. vs. CIT (1986) 53 CTR (Raj) 19: (1985) 155 ITR 519 (Raj) held that proviso to s. 40A(3) shows t....
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....unt paid in cash could not be disallowed under s. 40A(3). (v) Gujarat High Court decision in the case of CIT vs. P. Pravin and Co. (2005) 193 CTR (Gaj) 213: (2005) 274 ITR 534 (Guj): held that the requirement under r. 6DD of the IT Rules 1962, regarding practicability of payment otherwise than in cash and consideration of business expediency have to be judged from the point of view of the businessman and not of the Revenue authorities. (vi) In the case of Jt. CIT vs. Swarup Vegetable Products Industries Ltd. (2005) 98 TTJ (Del) 420: (2005) 96 ITD 468 (Del): Hon'ble Delhi 'G' Bench held that factory located in a village where assessee has not maintained any bank account constituted exceptional circumstances. (vi) Hon'ble Jaipur Bench in its recent decision in the case of PACL India Ltd. vs. Asstt. CIT in ITA No. 944/Jp/2007[reported at (2010) 38 DTR (Jp)(Trib) 1-Ed.] vide order dt. 12th March, 2010 has deleted the addition made by applying the provisions of s. 40A(3) by considering the second proviso to s. 40A(3) of IT Act. The copy of decision is enclosed herewith. In view of the above submissions, the disallowance of Rs. 19,05,000 ma....
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....ed nor enquiry was made that the payments were made after banking hours or they resided in the villages. 14.9 The provisions of s. 40A(3) are very stringent and, therefore, it was the duty of the AO that before attracting stringent provision he should have made enquiry about the persons whether they live in the villages or not and whether payments have been made after banking hours or not. There is no dispute that payments have been made from disclosed sources as all the payments have been accounted for. The provision of s. 40A(3) was brought on statute initially to curb the practice of introducing black money. However, the provisions of s. 40A(3) say that if the cash payment exceeds Rs. 20,000 and they do not fall under the exception clause of r. 6DD, then addition @ 20 per cent of such cash payment has to be made. However, the background of the case has to be seen and it should be enquired whether there "is any real difficulty with the assessee to make payment in cash. In the present case it is seen that assessee was forced to make cash payment as agriculturists were not ready to accept the cheques as' many other purchasers were available in the market and willing to ....
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....cheque as the case may be. This contention of the learned counsel of the assessee remained uncontroverted, therefore, we see no reason to interfere with the finding of learned CIT(A) and hold that learned CIT(A) was right in deleting the disallowance made by AO under s. 40A(3).' 15. Facts in the present case for both the years are similar. Therefore, in view of the above facts and circumstances and in view of the consistency as on similar facts the Tribunal has deleted the additions made under s. 40A(3), we hold that learned CIT(A) was not justified in confirming the action of the AO in making addition under s. 40A(3) for both the years. Accordingly the entire additions for both the years are deleted." 3.7 The nature and circumstances of the business of the assessee are same as they were in the asst. yr. 2006-07 and asst. yr. 2007-08. Therefore the above findings of Tribunal are applicable for the asst. yr. 2008-09 also. Therefore, in view of the above decision of Tribunal in the case of assessee itself, we hold that the learned CIT(A) was not justified in confirming the addition of Rs. 19,05,000 made by the AO by disallowing the cash payment under s. 40A(3) of IT Ac....
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.... the colonizer. The JDA releases these 12.5 per cent plots only after the completion of entire internal development by the colonizer in accordance with the quality controls specified by JDA. The scheme is that in case a private colonizer does not do the work of internal development, the JDA would sell these 12.5 per cent plots in open market and do the work of internal development of the colony from the sale proceeds of these plots. 4.2 The assessee follows mercantile system of accounting. It recognizes the sales on accrual basis as and when the possession letter of the plot is issued. The sale of the plot is subject to a liability for development work to be carried out in colony in future. This liability accrues as soon as the sales of the plot are made. The assessee made the provision for development expenses for the plots sold out during the year. Whatever actual expenses on development work incurred in the colony are accounted for by reversing the provision made in respect to the plots sold by it. The assessments of assessee for asst. yr. 2004-05, asst. yr. 2005-06 asst. yr. 2006-07, asst. yr. 2007-08, asst. yr. 2008-09 and asst. yr. 2009-10 were made under s. 143(3) and provi....
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....owing cases:- (a) Assessees' own case by Hon'ble Tribunal Jaipur Shree Salasar Overseas (P) Ltd. vs. CIT ITA No. 433/Jp/2011 (supra) with reference to order under s. 263 passed by CIT (copy of order at paper book pp. 77-84). (b) Tribunal Jaipur in ITO vs. Fintech Real Estate Developers (P) Ltd., ITA No 30/Jp/2009 (copy of order at paper book pp. 160-162). (c) Tribunal Jaipur in Dy. CIT vs. Ram Chandra Agarwal ITA No 1078/Jp/2011 (copy of order at paper book pp. 146-159). In this case, Hon'ble Tribunal has followed its decision given in the case of assessee in ITA No. 433/Jp/2011. Para-wise submission on the facts on which the submission given before AO was rejected (pp. 3 to 9 of assessment order:- (a) At S. No. 1 the learned AO rejected the submission of the assessee on the ground that the assessee has not abided itself by obligation of development expenses to be with the purchasers. No such terms and conditions are made while selling the plots of land. No such agreement is entered when a plot is sold. In this regard we may submit that the finding of the AO on this issue is merely on suspicion and given without properly ....
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....rred as per regulation of JDA and its not according to agreement of sale of plot with parties. The development expenses incurred by the assessee are not on individual plot of plot holder but the same are incurred on entire scheme. If suppose a particular plot holder does not want road or water line or other development work even than the assessee has to carry out the development work in accordance with JDA norms. Therefore there is no need to have any contract with plot-holder for development of scheme because the contractual obligation for development work is in-built in the sale of plot. At S. No. 2 the learned AO rejected the submission of assessee by replying on the decision of Sri Krishna (P) Ltd. vs. ITO and Ors. (supra). In this regard we submit that in the above referred case law it was held that full and true disclosure-The disclosure by the assessee (for avoiding reassessment) must not only be true but also full and a false assertion or statement of a material fact would attract s. 147-Fact that ITO could have investigated the truth of the assertion does not relieve the assessee of his obligation-In the case of assessee there is no justification/finding th....
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....plots of land. In absence of any agreement of sale with the purchasers of the plots no such bifurcation of cost comes to light. The findings of the learned AO in para 3 contradicts the findings of AO in para 4. The learned AO himself in para Nos. 3 at p. 4 cited the JDA Order No. D-1694 dt. 1st Dec., 2005, which clearly mentions that the developer has to carry out internal development of the scheme and this internal development can either be carried out through JDA or by the developer himself. In case the development work is not carried out by the developer, he has to keep 12.5 per cent of plots with JDA as security and these plots will be released only after the completion of the work. Therefore, there is in built system in JDA which abides the developer to carry out the development work in accordance with the specification laid down by the JDA. Therefore, the assessee has contractual obligation with the customers to carry out the development work. However, at any stage, if the AO finds that the liability against the development work is extinguished, he may apply the provisions of s. 41(1) of IT Act. In IT Act also there is in-built system to tax the liability which is fou....
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....pted commercial practice and trading principles it can be said to arise out of carrying on of the business and incidental to it and if that is established, then the deduction must be allowed. The levy of tax is on profits or gains as understood in the commercial sense and determination of profits and gains would be vital area of the computation and determination of income and liability to tax." In the case of the assessee development expenses are incidental for carrying business by the assessee, therefore, while determining the profit/loss from business of the assessee due deduction of development expenses incurred/to be incurred should be allowed to the assessee following the principle laid down in the judgment. Hon'ble Supreme Court in the case of CIT vs. Shooiji Vallabhdas and Co. (supra): The learned AO distinguished this case law on the ground that the case pertains to asst. yr. 1948-49 and in this case was regarding allowability of commission on shipping freights agreed upon in the previous years. The learned AO failed to understand the ratio or principles laid down by Hon'ble Court in this case. In this case the finding given by Hon'ble Court that....
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.... etc. Some of the plots were sold by the assessee against a consideration of Rs. 29,392. Following mercantile system of accounting, the assessee credited the entire sum of Rs. 43,692 being the full sale price of the land. At the same time, it also debited an estimated sum of Rs. 24,809 on account of the expenditure for development it had undertaken to carry out, even though no part of that amount was actually spent. The Department had disallowed such expenditure. Ultimately, the matter reached to the Supreme Court and it was held that assessee was justified in computing the profit in the manner it did." The sale credited by the assessee in its books of account is not in dispute and difference in nature of receiving the sales consideration does not in dispute. Further the scheme of the assessee is governed as per norms and regulations of the JDA and the development work is mandatory as per such norms, therefore the learned AO erred in holding that in the case of the assessee the very presence of terms and condition of development is not there. In the case of the assessee the terms and condition are with JDA as the assessee is to carry the development of whole scheme not for the plot....
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.... plots in the scheme with JDA as security. This exercise is done before the announcing of camp by JDA for issuance of Patta by JDA in favour of the plot holders. For development work, the developer has two options only. (1) Either to carry out development work himself in accordance with norms and specifications laid down by JDA or (2) Deposit the amount against internal development with JDA as per the standard rates fixed by JDA, However, if a developer opts to carry out work himself and unable to complete the work before the date of Camp for issuance of Patta by JDA, the developer has to deposit 12.5 per cent of plot area with JDA as security and this security will be released only after the completion of development work. Therefore, the assessee is under the contractual obligation to carry out the development work. The estimation of the development expenses is made on the basis of estimation of development cost in the order of the JDA and the development work is to be carried out as per norms and regulations of the JDA, therefore it is not at the option of the assessee as to how much expenses are to be incurred. As per rules of JDA if the assessee failed to complete the d....
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....ant to the development work:- This issue has been explained in detail in above paras. Further, the learned AO (has not) brought any positive material to prove that the assessee was hot liable to incur development expenses on the scheme or the provision made for development expenses is not ascertained liability of the assessee. In the above para the learned AO himself admitting that the assessee has to carry out certain development activities on the scheme otherwise it will be carry out by the JDA on its own level and the charges against development work are required to be deposited by the assessee or plots to be kept with JDA as security. As regards to copy of order of JDA, dt. 1st Dec., 2005 this is to submit that it was the latest order issued by JDA and was in force as on the date when the assessment proceedings were being carried out. This order was submitted to AO only for proving that the assessee has to carry out development work as per the norms and specifications of the JDA. This does not mean that the liability to carry out development work started from 1st Dec., 2005 in asst. yr. 2005-06 the assessee was not bound to carry out development work or to depo....
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....bility extinguishes only when the assessee is absolved from the liability to construct the road or laying down electric pole/water line etc. and the assessee cannot be absolved from this liability because of the regulation of JDA and the plots sold by the assessee are subject to this liability of the assessee. The lands under the colonies are at far distant from the city and plot holders are not starting to reside there. The plots are open and no construction activities have been started by the plot holders. In most of the colonies, the JDA has not developed approach roads/sector roads. There were several reasons for non carry development work at full swap such as problem in possession of land due to disputes with Khatedars, problem of way (Rasta) by adjoining farmers, non construction of sector roads by JDA, Takashna problem in case of joint ownership of land, etc. The main problem which the assessee is facing that most of the lands were in joint names. Some of the original Khatedars sold the land to the assessee but some of them not sold to the assessee. Since the Khasara are in joint names therefore without Takasana it was not possible to carry out development work on the land, ....
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.... disallowing the provision made against the liability of revenue expenditure to be incurred in future in respect of the income booked in current year cannot be made. Further, the accounting method consistently followed by the assessee and accepted by the Department in previous year cannot be ignored/ changed. The learned Authorised Representative submitted that the appeal filed by the Department in this regard is devoid of any merit and deserves to be dismissed. 4.5 We have heard the rival submissions perused the facts of the case and material available on records. We have also gone through the various pronouncements of Hon'ble Courts cited before us on this issue. The learned CIT(A) has deleted the addition on the basis of following findings:- "6, I have considered submissions made by the appellant and have also gone through the assessment order. The appellant company is a colonizer. Its business is to buy agricultural land, get it converted into residential/commercial land by obtaining approval from JDA in accordance with the provisions of Rajasthan Land Revenue Act and Jaipur Development Authority, The assessee divides the land into plots of various sizes a....
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.... carried out by the developer as per JDA's specifications and guidelines. As per JDA guidelines, a developer has to incur expenses on basic infrastructure such as internal roads, water supply, sewer lines, electrification, etc. and the cost of these expenses is part of the sale price of the plot. Thus, what the buyer was paying was not only the cost of land but cost of other basic amenities also. Once a plot is sold, it means that liability to cany out developmental work to that extent has been incurred by the appellant. It is, however, not a feasible option for the appellant to develop infrastructural facilities on plot to plot basis because the plots are neither sold in one go nor the buyers start constructing houses simultaneously. There is bound to be some time-lag in the sale of plots and further developmental activities. Since the appellant was following mercantile system of accounting, it had to make provision for developing the plots as soon as the liability was incurred. The expenditure upon development of infrastructure was mandatory as per the notification of JDA. Unless the assessee incurs these expenses and develops internal roads, water lines etc. the JDA would no....
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....iscussion, it is held that the liability incurred by the appellant was an ascertained and admissible liability. The appeal on these grounds is, therefore, allowed." 4.6 In assessee's case itself on the basis of audit objection raised by the AG audit team, the revision proceeding under s. 263 of IT Act was initiated for asst. yr. 2006-07. The order passed under s. 263 of IT Act was challenged by assessee in this Tribunal. The Tribunal cancelled the order passed under s. 263 of IT Act on the basis of following findings made in ITA No. 433/Jp/2011, dt. 22nd Nov., 2011 (supra):-"We have heard both the parties. The learned CIT issued the show-cause notice under s. 263 of the Act on 13th Sept., 2010. In the show-cause notice, the learned CIT mentioned that the provisions for development expenses to be incurred in subsequent years are not allowable. Only the expenses during the previous year are allowable for deduction from income. The order under s. 263 can be passed after giving the opportunity to the assessee. If the issue raised in show-cause notice is different from the issue on which the learned CIT has passed the order under s. 263 of the Act then it cannot be said the assess....
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....ame could be deducted from the profits and gains of the business, and the amount to be expended could be debited in accounts 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 IT 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 having regard to the accepted commercial practice and trading principles, was a deduction which, if there was no specific . provision for it under s. 10(2) of the IT Act, was certainly an allowable deduction in arriving at the profits and gains of the business of the appellant, under s, 10(1) of the Act, there being no prohibition against it, express or implied, in the Act. The expression 'profits and gains' in s. 10(1) of the IT Act has to be understood" in its commercial sense and there can be no computation of such prof....
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....se of Udaipur Mineral Development Syndicate (P) Ltd. vs. Dy. CIT (2003) 181 CTR (Raj) 251: (2003) 261 ITR 706 (Raj) had an occasion to consider the accrual of liability. In this case the assessee as per agreement was required to restore the surface land in the original condition and hence the liability to refil pits accrued as soon as pits were dug. In the instant case, the assessee as per agreement was to provide insurance policy to members having attained S-I category and hence liability accrued as and when such members got category of S-1. 35. The Hon'ble Madras High Court in the case of CIT vs. Tube Investments of (India) Ltd. (2003) 261 ITR 753 (Mad) allowed pro rata annual allocation of premium payable at future date. Hence, the expenditure allowable under mercantile system of accounting does not mean that it should be spent in that year. 36. The Hon'ble Allahabad High Court in CIT vs. Development Trust (P) Ltd. (1991) 99 CTR (All) 247: (1991) 189 ITR 504 (All) held that expenses in respect of development to be carried by assessee are an allowable deduction under mercantile system of accounting. 37. The Hon'ble Delhi High Court in the case ....
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.... liability clearly exists then quantification of the sum should not come in the way of the assessee in debiting the sum and claiming the deduction thereof. In order to estimate the true profits a liability has to be determined. It was observed by the Supreme Court in the case of CIT vs. Gemini Cashew Sales Corporation (1967) 65 ITR 643 (SC) (headnote): 'Broadly stated, the present value on commercial valuation of money to become due in future, under a definite obligation, will be a permissible outgoing or deduction in computing the taxable profits of a trader, even if in certain conditions the obligation may cease to exist because of forfeiture of the right. Where, however, the obligation of the trader is purely contingent, no question of estimating its present value may arise, for to be a permissible outgoing or allowance, there must in the year of account be a present obligation capable of commercial valuation'. It was further observed that 'where accounts are maintained on the. mercantile system, if liability to make the payment has arisen during the lime the business is carried on, it may appropriately be regarded as expenditure. But where the liability is, during t....
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....paper book pp. 147-151 APB asst. yr. 2005-06) that the assessee is bound to cariy out internal development of the colony at its cost. The JDA keeps 12.5 per cent of the assessee's plots as security against the development work to be carried out in future by the assessee. These plots are released to the assessee only after completion of entire development work upto the norms, standards and quality control of JDA. (paper book pp. 150-151 APB asst. yr. 2005-06). Further, the JDA has specified the work to be done by the private colonizer in its circular copy of which placed at (APB PB pp. 162 to 168 asst. yr. 2005-06). The development of private township in Jaipur by the colonizer is subject to approval and norms of the JDA. The private colonizer has to abide by the circulars, directions and orders of the JDA if it wants to develop private township in Jaipur and it cannot wriggle out from its obligations fixed by JDA. Therefore, the liability of the assessee to carry out the internal development work in the colony is not a contingent liability but ascertained liability which accrued on the date of sale of the plot. 4.8 Further, the AO mentioned that the assessee has incurred very ....