TaxTMI 
TaxTMI 
2018 (2) TMI 2013
X X X X Extracts X X X X
X X X X Extracts X X X X
....d dispose of land for residential, industrial, commercial and institutional purposes, (c) To make available developed land to Haryana Housing Board and other bodies for providing houses to Economically Weaker Sections of the society; and (d) To undertake building works and other engineering works. HUDA is developer of urban areas. It develops urban infrastructure. It is doing business of development of large real estate projects. HUDA is the entity which is acquiring land, developing and finally handing it over to consumers for a price. Lands developed by HUDA is though identified and acquired by the Urban Estate Department, Haryana Government, yet the ownership and possession of land is transferred to HUDA for consideration paid by HUDA. Land to be developed is identified and surveyed by the Director General Town & Country Planning, Haryana. The land so identified and surveyed is ready for acquisition by LAO (Land Acquisition Officer) of the Urban Estate Department, Haryana. LAO requests its superior authority, Director General, Urban Estate Department, Haryana for administrative approval for acquiring the land. The Urban Estate Department, Haryana conveys administrative approval ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., when plots are sold, no profit from such sale of plots made by the assessee is taken to the profit and loss account. In other words, no income is shown by the assessee even after the plots are sold and full amount of installments has been received by it. The entire recoveries from the allotees of sold plots and auctioned areas continue to be shown as Advance from Customers'. Over the years, the assessee has not declared income in its returns filed from several such projects (each sector is taken as a project), but generated huge surplus which is shown from the surplus of cash and bank balance of as on 31.03:2006 among other current assets. Thus, method of accounting is totally contradictory to normal accounting procedure. Once a sector has been plotted and sold, the receipts from the plots should be a revenue receipt. It is even contradictory to the assessee's own cash system of accounting. ii) The total payment in the form of installments for the plots auctioned by HUD A by calling for applications through the newspapers etc., are received within three to six years. Once the full installments are given, possession is handed over to the buyer. Once the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tract costs incurred of which recovery is probable. The AO noted that in assessee's case, outcome of contract-even if assessee's claims of being a contractor is considered for a moment though not allowed- is totally known and predictable with full certainty. It has a clause for even recovering the enhanced cost of acquisition of land from the buyers in case it is so granted by the courts at any future stage. The AO further referred to the Central Govt, ry /^V1-: notification u/s 145(2) for assessees following mercantile system of accounting to make it compulsory to follow uniformly two standards of accountancy i.e. AS-1 and AS-2. As per the notification, accounting policy followed by the assessee will be deemed to represent a true and fair view of the state of affairs of business only if it is governed by substance and not merely by the legal form. The AO observed that the assessees case is even stronger to fall under These notified guidelines as in assessee's case not only has the income accrued, it has been actually received. There can be no deferment of income thereafter, as done by the assessee. The AO referred to the decision of Hon'ble ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave been some details as regards to the date of completion upto that date the expenses can be capitalized and when the sector is fully developed and plots are allotted/auctioned to the applicant, the expenses incurred thereafter are not capital in nature because the stock i.e. the plot is ready to be disposed off without making any further development in the instant case the assessee is not following the complete contract method and capitalizing certain expenses which were not related to a particular sector e.g. interest etc which might have been for a few sectors and not for all the sectors. In our opinion, the only cost or expenses which are directly attributable to a specific contract can only be capitalized and that too upto the date when the plots are ready to be sold/allotted/auctioned. In AS7 completed contract method has been prescribed in para 10 according to which the principal advantage of the completed contract method is that it is based on the results as determined when the contract is completed or substantially completed rather than on estimated which may require subsequent adjustment as a result of unforeseen costs and possible losses the risk of recognizing profits ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....heme of the I. T. Act, 1961. liability to pay Income-tax is attracted the moment the income is received and the profit, if any, in the business is to be taxed, subject to other provisions of Act. The assessee is postponing its income to after 20 years when the project is taken to be completed while full payment is received in most cases within 6 years of allotment and by charging interest if the payment is made in installment. For Income-tax Act, each previous year is a self contained period. Income-tax is an annual levy. The accounting standards may guide the assessee how to keep accounts but these do not over-ride the provisions of IT Act. iv) The period of 20 years has been taken arbitrarily & hypothetically without any basis. The assessee receives total payments from the allottees of plots within a period of six years. The project is also completed almost in that period. After receipt of the payment, the assessee deposit this amount in the bank which results in huge accumulation. This postponement of profit without any reason is in contravention to Section 3& 4 of the Income tax Act. v) During the year under reference assessee has received a sum of from allote....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... inception. The assessee is selling plots by allotment and the sectors in which the sectors are sold take about 15 to 20 years to get fully developed and be ready for occupation. Recent examples are sectors 20/21 which were floated almost about 20 years and yet these are not fully developed. Besides the period of twenty years is taken as the period taken for completion of the project and the time frame when the project is treated to be fully completed. As has been stated in the opening paras, the assessee is following the AS7 being a contractor, and as an option following completed contract method. Since in the right state of circumstances, the period when the project is deemed to be completed is twenty years, the period of twenty years is taken by the assessee for treating its sectors to eb complete. It is further argued that a bare reference to the AS 7 reveals that the same applies to the contracts of creating composite assets. It is not applicable to building contracts only. It is argued that the contracts which result in creation of an asset or a group of assets also qualifies to be contractor as per AS 7. Further more in respect of assessment year 2003-2004 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounts. During the year under question, the assessee booked a profit of Rs. 846072183 in its books of account, which is in order and was offered for taxation. It is further submitted that the contentions of the AO are baseless and are not supported by force of law and do not correctly address the submissions made by the assessee. The AO has erred in holding that the accounting standards prescribed under Section 145 of the IT Act have not been followed by the assessee. It needs to be noticed from the statute book that Section 145 of IT Act has not yet prescribed for any accounting standard in respect of construction activities. Only accounting standard prescribed by the said section are AS1 and AS2, which have been followed by the assessee in true letter and spirits. The appellant also relied upon the decision of (2007) 15 SOT 1 (DELHI) SNC Lavalin/Acres Inc. and(2008) 4 DTR (Mumbai)(Trib) 547ITO Vs. Pratiksha Enterprises ITAT, Mumbai D' Bench in support of its contention in this regard. 4. The Ld. CIT(A) while confirming the action of the Assessing Officer held that it is seen that the appellant's method of keeping its account has been found to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e AS - 1 & AS - 2 relating to "Disclosure of Accounting Policies" & "Valuation of Inventories", which have been duly adhered to by the assessee. 9. Reliance is placed in the case of Prestige Estate Projects (P) Ltd. (2010) 129 TTJ (Bang) 0680. It was argued that the principal advantage of the completed contract method is that it is based on the results as determined when the contract is complete rather than on estimates which may require subsequent adjustment as a result of unforeseen cost & possible losses. This method minimizes the risk of recognizing profits that may not have been earned. Therefore the contention of the AO that annual profits cannot be deduced is not tenable. As regards the issue that assessee is postponing its income to after 20 years we submit that the applications are invited and after the allotment of residential plots, a total time period of six years is allowed to the allottee to make the payment in installments. Allottee is allowed a period of 2 years for construction from the date of offer of possession which is offered after creating basic infrastructure facilities. To provide basic infrastructure facilities such as roads, water electricity sewerage ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee can follow any recognized method of accounting i.e. it is entirely within the discretion of the assessee to adopt any method of accounting may be cash or mercantile but the condition is that the same method has to follow consistently. Reliance on Krish Infrastructure (P.) Ltd. vs. Assistant Commissioner of Income Tax, IT AT Jaipur Bench (2013) 58 SOT 127 (Jaipur) (URO) 12. The Ld. AR further argued that the method followed by the taxpayer cannot be called as an unreasonable method where any change in the method is revenue neutral. The assessee is following completed contract method & accordingly on completion i.e. 20 years, the assessee transfers the profit from the project to the Profit & Loss Account. Till that time the receipts & expenditure are capitalized in the uncompleted sector account. Thus, there is no concealment or understatement of profit, but the difference is only about the year in which the income is to be assessed. In nutshell, there is no loss of revenue to the department. Indeed, the method adopted by AO is leading to double taxation as the department is assessing income prior to being shown by assessee and also in the years in which it has been disc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... account on cash basis. As such, amount recoverable from/payable to various Government Departments, Colonizers, allottees etc. are neither being worked out nor depicted in accounts. Party wise details of creditors and debtors have not been indicated. vii. Even Statutory Auditors in the notes to accounts at page 36 have made observation in para 3 in AY 2007-08 in their Notes that Authority is maintaining its accounts on cash basis. It is desirable that HUDA should maintain its accounts on accrual basis. viii. In view of the detailed facts mentioned above, books of accounts of the assessee were rejected u/s 145(3) of the IT. Act, 1961. The Hon'ble ITAT Chandigarh in appellant's own case for AY 2003-04 has concluded that (a) Assessee is not a contractor, (b) the assessee is not following the complete contract method in toto, and (c) Only cost or expenses which are directly attributable to a specific contract can be capitalized, and that too upto the date when plots are ready to be sold/allotted/auctioned'. The CIT (A) held that the appellant's method of accounting has not been found in order by the Hon'ble ITAT Chandigarh also. He further....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he profit till the completion of work and so the income flow would be erratic, and (ii) this method has the effect of postponement of income. On the basis of the recommendations of the Accounting Committee "Completed Contract Method" was revised and replaced by "Revised Accounting Standard7". The revised Standard has been formulated on the line of "Indian Accounting Standard-11" and shall come into effect from the accounting period commencing on or after 01.04.2003. In the revised Accounting Standard, it is not permissible to capitalize the receipt and claim expenditure in the revenue side. Hence, assessee's contention is not acceptable that he has the choice to adopt any method of accounting. Assessee is not a contractor in true sense. [AO's Order page 7 818 for AY 2004-05]. Change in the method of accounting will not be revenue neutral as it will reflect true nature of income in each relevant Previous Year as per the intent of the legislation and provisions of the Income Tax Act. 3.4. Assessee has placed reliance on the following cases which are distinguishable on facts with reference to the instant case: > Prestige Estate Projects (P) Ltd. (2010) 129 TT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere, in the instant case issue at hand is entirely different. > Krish Infrastructure (P.) Ltd. vs. Assistant Commissioner of Income Tax, ITAT Jaipur Bench (2013) 58 SOT 127 (Jaipur) (URO). This case is distinguishable on the facts from the facts of the present case. In that case Assessee Company was a real estate developer which maintained its accounts by adopting Completed Contract Method. The AO assessed the case by following Percentage Completion Method. The Jaipur Bench decided in favour of the assessee by saying that same results can be attained by any one of the method of accounting. In the instant case, the appellant is neither a Construction Contractor nor in true sense a Real Estate Developer. It is also not following either the Complete Contract Method or the Percentage Completion Method. The Revenue recognition is being deferred for a period of 20 years. Therefore, the decision is not applicable in the instant case. 3.5. On the other hand the reliance is placed on the following decisions by the Revenue. The Hon'ble Supreme Court in the case of CIT Vs British Paints India Ltd 188 ITR 44 wherein it is held as under: "It is not only the right ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect principles. The High Court was clearly wrong in interfering with those findings. Accordingly, the judgment of the High Court was to be set aside." Sutlej Cotton Mills Ltd Vs CIT 116 ITR 1 wherein it is held that "It is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries which are not in conformity with the proper accountancy principles, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive .one way or the other...." Tuticorin Alkali Chemicals & Fertilizer Ltd vs CIT 93 Taxmann.com 502 wherein it is held that "It is true that the Supreme Court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not the question has to be decided according to the principles of law and not in accordance with accountancy practice. Accounti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee. The assessee, contends and as understood by the Commissioner (Appeals), was not following percentage of completion method. Under the percentage of completion method revenue is recognized in the profit and loss account in the accounting period to the extent the work is completed. In case the revenue has to be recognized on the basis of receipt of payment from the plot-holders, that will also not be regarded to be percentage completion method. It is not a case where the Assessing Officer has rejected the accounts of ' the assessee on the ground that it had not followed AS-7 for recognition of revenue on the basis of percentage completion method. The method as has been followed by the assessee, is neither project completion method nor percentage completion method. Percentage completion method is not linked with the consideration received by the assessee from the intended buyer. The assessee has recognized the revenue only when the registration of the sale deed has been done in favour of the buyer. Under AS-7 this is not a recognized method of recognizing the revenue. This method is neither project completion method nor percentage of completion method. The method adopt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndirect charges received by the assessee. The AO observed that the assessee is debiting all the indirect charges i.e. charges in the nature of administrative charges, interest charges to the income & expenditure account. As per the AO the amount received by way of indirect charges should be included in the income of the appellant. The AO after going through the details/costs sheet of Jagadhri Urban Estate noted that 29.79% of the total receipts to be attributable to indirect charges and proposed to tax the same on receipts basis. The AO asked the assessee to furnish the costs sheets of other Urban Estates. The assessee however informed that the cost ratios are the same for all the costs sheets for various Estates as worked out in the earlier year i.e. 2005-06 & 2006-07. The AO noted that addition on these lines has been made by the AO in the earlier years also by taking the ratio of indirect charges received @ 30% of total recoveries. The appellant however contested the proposed addition and submitted as under :- " The AO has bifurcated the sums received by HUDA from plots as under:- a) Land Cost- 14.02% b) Development Cost- 44.61% c) Indirect charges- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Sq. yd. Add Loss of EWS Plots = 590 Add infrastructural cost = 50 5282 per Sq. yd. (Rs. 6317 per Sq. mtr.) Approved Rate = 6317 per Sq. mtr 18.3 As per the AO the assessee in its computation sheet has excluded the commercial Area from saleable Area and then computing the rate of saleable area for residential plots. It has even absorbed loss of EWS plots genuineness of which are to be ascertained. The AO also noted that the land carved out for commercial purpose like shopping centre and institutions is not even taken in to consideration by the assessee who claims to be running its business on 'No profit No Loss' basis. In the above computation, the AO noted land for commercial purposes is equivalent to residential land which may vary in other cases. The land cost of the commercial part of the sector comes to Rs. 5500/- per sq. mtr (approx) as loss of EWS plots is already absorbed in residential plots. However, the commercial plots are not sold at the cost price, but instead auctioned. The selling price of the commercial plots is higher than the residential plots by in the range of 5 to 40 times. The appellant was aske....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tails regarding recovery from allottees, with regard to old sales by the assessee, the AO made an estimate of component of sale of the commercial sites at 50%, as the buyers are allowed to pay the balance amount in commercial sites over nearly the same time frame as done in the residential sector. 20. In view of the facts as mentioned above the AO referring to the earlier assessment year held that 30% of the recoveries from sale of projects which correspond to the heads of expenditure which are booked by the assessee directly to his income and expenditure is to be taken as income from residential sectors. However, with regard to the recoveries from sale of commercial plots, 60% of these receipts were proposed to be taken as income of the assessee during the year. The higher rate was estimated far commercial properties keeping in view the fact that the income from sale of commercial plots for exceeds the income from sale of residential plots. 20.1 The AO worked out the income from receipts as under: Recoveries from commercial sites From New Sales Rs. 289.53 Cr. From Old Sales (50% of Rs. 805.96) Rs. 402.98 Cr Total Rs. 692.51 Recover....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lieved by the AO that costs appearing at a, b and d above are parted by HUD A towards cost of the plot which is sold by it to the plot allottee. The percent age of the amount parted by HUDA has been assumed to be an out go and the remaining percent age amount of the total amount received during the year from allottees is treated as income by the AO. Further, it is reiterated that the cost sheet which was taken as the basis for adopting an assumptive NP rate is a projection of the cost expected to be incurred for developing a sector. This cost was based upon the historical data and the past figures and as per PWD estimates, which are based in scientific postulates and calculations. The Indirect Charges include some amounts which are compulsorily payable by the assessee to other departments/persons and are not retained by the assessee at all. For the purpose of making these charges, the assessee is treated at par with private colonizers and are to be paid to various departments. Thus, even if the presumption of the AO that Indirect charges are to be taxed as income, expenditure incurred under the head commercial interest, escalation charges, License Fees, Conversion....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation has already been brought on record, which prescribe the rate per acre to be paid by HUD A to the state Government. These charges are also paid to the State Govt., of Haryana and is a statutory levy and cannot by any stretch of imagination be included or deemed to contain any element of profit and contributing to the surplus of organization, as has been held by the AO. Out of indirect charges taken as 29.79%, commercial interest, escalation charges, license fees, conversion charges, security fees and service charges totaling to 21.17 % are not retained by the assessee at all and are parted by it either with the government or with the plot owners under directions of the Court. In respect of the year under question, the assessee has paid a sum of Rs. 50 cores to the State Government of Haryana on account of license fee, conversion charges and infrastructure development charges. The amount has paid to the State Government on account of License Fee, Conversion Charges, Infrastructure Development Charges and Scrutiny Fee as per the circular of the State Government applicable at that time. The amount of Rs. 5000.00 lacs was paid on this account during the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... area. A bare reading of the cost sheet reveals as under; In the sample taken for considering the matter and arriving at the conclusion it has been observed that total areas dedicated for developing sector 33 Karnal was 240 acres. Out of this area, 30.54 acres, was released from the total occupation. In the sample cost sheet taken into account while completing the assessment, the land in possession of HUDA to be developed for the whole sector was 209.46 acres. Out of the total land earmarked for the sector, 46.75 acres of land was earmarked for area under shopping and 1.10 acres was reserved for institutions. Accordingly, balance area available for development and sale towards residential plots was 158.75 acres. This fact clearly appears in the cost sheet. It is also evident from a reading of the cost sheet that out of the total 158.75 acres of land proposed to be developed for residential plots, land measuring 105.17 acres was to be left as common utility area viz. parks, roads, rain water disposal and other such facilities. Therefore only 51.88 acres was left to be offered for sale by way of residential plots. Thus, out of the total saleable area of 158.75 acres....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rofit element as envisaged by the 'AO in this transaction. It is submitted as under 2. Addition @ 60% on commercial properties is on a very high side due to the following reasons:- i) The development cost of commercial sectors is 3 to 4 times higher than the development cost of the residential sectors. ii) The saleable area in the commercial sectors is only 25% to 30%, as against the saleable area of 50 to 55%, in the residential sectors. iii) The enhanced compensation awarded by the Courts in respect of commercial sectors is not recovered from the allottees of commercial sectors unlike the residential sectors as the commercial sites are sold by way of auction. iv) The license fee, conversion charges, infrastructure development charges are much higher in the case of commercial sectors than the residential sectors. The Chart showing these charges is enclosed at Annexure A'. Therefore, the commercial sites have a huge cost and addition @ 60% on the commercial sites is not justified. 21.2 The appellant further referred to the assessment order for the year 2008-09 wherein the AO himself has computed the income from sale of commercial plots....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f enhanced compensation granted by the Courts. Therefore such receipts cannot have any element of income and the same needs to be excluded from the taxable income. The appellant's contention is found to be valid. Therefore, the AO is enhanced compensation after duly verifying the details 6.11 As regards, the appellant's contention with regard to application of rate of fetch more price while the cost of acquisition is the same. Therefore profit margin 6. 1 60% with regard to commercial property, it is held that the same is on the higher side. First of all the application of higher rate is approved in principle as one does not need to go into the details of the rates of commercial property and residential property. There is no denying the fact that the commercial properties is definitely high in case of commercial properties. There is merit in appellant's submission that all these towns of Haryana are not commercially as advanced as Faridabad & Gurgaon wherein the proportion might be justified Further, there is also substance in appellant's submission that the cost of developing commercial area is more than that of residential area as proportion of land utili....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the PAL account and which have been included by the AO also for net profit rate purposes and claim appropriate relief. The AO is directed to allow the relief in this regard after due verification. 6.13 In conclusion, it is held that the income of the appellant be determined by applying a net rate of 20% in the case of residential property and ki% in case of commercial property. The amount recovered by the appellant on account of enhanced compensation with regard to residential property also be reduced from the total receipts for working out the net profit with regard to residential properties after due verification by the AO. The appellant' gets appropriate relief in this regard. The ground of appeal is partly allowed. 23. Before us the Ld. AR strongly relied on the arguments taken before the Ld. CIT(A). It was further argued that on perusal of cost sheet it will be observed that out of the land earmarked for the sector 46.75 acres of land was earmarked for area under shopping & 1.10 acres was reserved for institution. Accordingly, the balance area was available for development and sale towards residential plots was 158.75 acres. The commercial area has been right....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rth alternate argument without prejudice to the above, that it is a fact beyond doubt that the commercial areas fetch better price than the residential plots. But at the same time another fact cannot be ignored that cost of developing the commercial properties is very high as compared to residential properties and there is no such huge profit element of 60% as envisaged by the AO due to the following reasons; - The site development cost varies depending on various factors such as site, development plan, local fees, permitting costs etc. o The development cost of commercial sectors is much higher than development cost of the residential area. - The saleable area in the commercial sectors is only 25% to 30% as against the saleable area of50% to 55% in the residential sectors - The enhanced compensation awarded by the Courts in respect of commercial sectors is not recovered from the allottees of commercial sectors unlike the residential sectors. - The license fee, conversion charges infrastructure development charges are much higher in the case of commercial sectors than the residential sectors. - The auction in the commercial sectors is commenced o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ioner of Income Tax (2014) 146 ITD 335 (Delhi), Nandi Housing (P) Ltd. vs. Deputy Commissioner of Income Tax (2003) 80 TTJ (Bang) 750 : (2004) 2 SOT 395 (Bang), R. Natarajan vs. Assistant Commissioner of Income Tax (2012) 135 ITD (Chennai) (TM) (Trib) 0055 28. The assessee has taken an alternate argument that there would be unforeseen charges and also estimated expenses of 2.04% of the total cost to meet the variations and 6.13% can be treated as cost of administration maintenance and establishment expenses. It was argued that Commercial interest/ escalation charges are part of development cost, the outflows of which are compulsorily required to be incurred for the purpose of developing & selling a sector and are not claimed in Income & Expenditure. Therefore it is requested that since commercial interest & escalation charges are to cover the contingencies of the development cost, the same should be clubbed with the Development Cost. Therefore in view of the above, it was pleaded that the Development Cost be taken as 56.06% ( 44.61%+7.36%+4.09%) as against 44.61% taken by AO and addition if any should only be made in respect of administrative & unforeseen charges. Our prayer is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the assessee in Income & Expenditure Account was made by the AO for the first time in AY 2004-05 by estimating the 30% of the total recoveries as income. Thereafter from AY 2004-05 onwards, the income was estimated @ 30% of the total recoveries from residential sector on account of indirect charges claimed by the assessee in all the years. 4.1. AO has also discussed that HUDA is not an organization working on a "No Profit No Loss" as it is generating following profits: i. Total Sector is divided into plots and the value is fixed after including all development and administrative expenditure. Residential plots are allotted at cost price but commercial plots are sold on auction, which generated profits in several hundred crores. ii. HUDA receives the entire charges on account of future developments and the maintenance of sectors from its allottees within a period of 5/6 years, but development is carried out in a period of 20 years meaning thereby that it is receiving maintenance/development charges from allottees in advance. These charges are deposited in the bank as FDRs and earned Interest Income. iii HUDA is not including Forfeiture of Sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as, the profit generated and therefore, the income from sale of commercial plots far exceeds the income from the sale of residential plots. Hence, 30% recoveries from sale of projects which correspond to the heads of expenditure which are booked by the assessee directly to his income and expenditure is taken with regard to income from residential sector. Thus adopting a consistent view of accounting, it is seen that receipts for the same heads ought to be income of the assessee. The CIT(A) has accepted assessee's contention on indirect charges claimed compulsorily payable to other departments without calling for comments from the AO and properly appreciating the reasoning given by the Assessing Officer. 4.4 Every assessment year is a separate assessment year and principle of res- judicata is not applicable in the Income Tax proceedings. Reliance is placed on (a) H.A. Shah & Co. vs. Commissioner of Income-tax (30 ITR 618, Bom.), (b) The Amalgamated Coalfields Ltd. vs. The Janapada Sabha Chhindwara (AIR 1964 SC 1013), (c) C.l.T vs. Brij Lai Lohia and Mahabir Prasad Khemka (84 ITR 273, SC), (d) C.l.T vs. Micro Land Ltd. (347 ITR 613, Karn.), and (e) Dharmesh R. Shah vs. J....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e & Expenditure Account of Commercial Sectors was made by the AO for the first time in AY 2007-08 by estimating the 60% of the total recoveries as income. AO points out that the cost sheet of the assessee takes into the saleable area of residential plots in any sector into consideration and the cost of residential plot is worked out on the same. Assessee has submitted that the cost of commercial sites is not included while preparing in cost sheet in respect of residential sectors. Thus, what the assessee is doing smartly in its computation sheet is excluding the commercial Area from saleable Area and the computing the rate of saleable area for residential plots. Thereafter, land carved out for commercial purpose like shopping centre and Institutions is not even taken into consideration by the assessee in its' computation sheet for sector, though it claims to be running its' activities on "No Profit No Loss". The selling price of the commercial plots are higher than the residential plots within the range of 5 to 40 times the cost of residential plot in the sectors developed by HUDA. The profit generated and the income from sale of commercial plots far exceeds the income from....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not recovered in case of commercial sectors from allottees without calling for comments from the AO and appreciating the reasons recorded by the AO. 5.3 Even if for the sake of argument's sake it is accepted that saleable area of commercial sectors is 25% to 30% as against the saleable area of residential sectors about 50% to 55% and development cost for commercial sectors is 3 to 4 times higher than the development of residential sectors, the contention of the assessee's is not acceptable as commercial plots are put to auction to the highest bidder fetching 5 to 40 times more profit corresponding to the residential sector. No evidence was placed before the AO regarding enhanced compensation awarded by the courts. Assessee's contention that the CIT (A) in AY 2007-08 has accepted the contention of the assessee that the cost of developing commercial area is more than that of the residential plots reduced the percentage of profit to 45% and it requests the Hon'ble ITAT to kindly further reduce the percentage of profit to 20% considering the submissions of the assessee, in turn further strengthens AO's point of view. The CIT (A) failed to appreciate the rea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rofits estimated on rejection of books of accounts. The ground of the assessee is technical in nature and the Assessing Officer is directed to exclude the profit already declared by the assessee from the profits computed by rejecting the books of accounts. 35. As a result this ground of appeal of the assessee is allowed. External Development Charges 36. Ground No. 5 for the Assessment years 2004-05, 2006-07, 2007-08, 2008-09, and ground No. 3 for the Assessment years 2009-10, 2010-11, 2011-12 and Ground No. 4 for A.Y. 2012-13, 2013-14 and 2014-15 of the assessee appeal and Ground No. 2 for the Assessment years 2006-07, 2007-08, 2008-09, 2009-10, 201011, 2011-12, 2012-13 and 2013-14 of the Revenue appeal pertains to the issue of external development charges. 37. The assessee has claimed liability in the Balance Sheet under the head "Other Liabilities' on account of External Development Charges. It is seen that the liability shown is increasing year after year and is constantly progressing. The assessee did not show any details regarding the utilization of the amounts received over the years. However, it is seen that very little of it has been actually spent. The basic f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ers proposing to develop residential and other colonies is the state of Haryana. 1. EDC is charged solely with the intent to provide external service to the colonizers who develop colonies in private land acquired by them. The services proposed to be provided are wide area varied and cover from sewerages, roads, electricity, horticulture, rain water disposal and other such services. The amount received from colonizes is solely and purely with a view to provide services over a period of time depending on there such and status of the colony developed by HUDA. Although, EDC is charged from the initial date when the colonizer begins to undertake colonization, these are spent at later stage. In the meantime, or during the period the amount is not spent, the amount is retained b HUDA in liability account to be discharged at a later date. The amount of EDC is thus purely in the nature of liability and cannot be said to be income of from any stretch of imagination. 2. During the course of competing assessment for AY 2005-06 and 2006- 07, the AO had assumed that the EDC contained an element of prof it to the extent of 30 °A> amount. The basis for holding this requires ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xecuted in the periphery of or outside colony/area for the benefit of the colony/area; HUDA has been assigned the responsibility of executing the external development works in the Urban Estate of Haryna. Again HUDA works out the EDC for a particular Urban Estate on 'No profit no loss basis'. The cost of external development services such as Master Water Supply, Master sewage, Master roads, Master storm water drainage, Master horticulture, Master community buildings and other services on the basis of a price index of a particular year in respect of a particular Urban Estate. The cost is worked out by the Engineering Wing of HUDA keeping in view the requirement of the Development Plan of the Urban Estate. In the development cost worked out by the Engineering Wing, the direct and indirect charges are added on the same pattern as explained in Para1 above. Since these are the common services for the sectors/colony for whole of the Development Plan, the cost of these services including the direct/indirect charges are spreaded over the total area of the Development Plan and the cost of EDC per gross acre is worked out. The same EDC is charged from the sectors floated by H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut that EDC is collected from colonizers with a view to undertake development in the area proposed to be colonized. Although the EDC are being collected from the colonizers since a long time, the State of Haryana underwent a spate of colonization in recent years and prior to that there was no such activity incurred on the development of area. Hence the same resulted in accumulation of funds at the disposal of the assessee. These funds were kept as earmarked funds and were retained for the purposes of undertaking external development. There has been a major change in the thrust on developing the colonies in the state and in recent past, on account of colonization undergoing at a fast pace, the expenditure is being incurred heavily on the external development works/ activities etc. Furthermore the issue of spending EDC on areas under control of HUDA has been under surveillance of High Court, who is constantly monitoring the deployment of EDC in various Urban Estates. We are placing hereunder relevant data evidencing the above submissions and which also proves that in the recent times the expenditure on EDC has gone up in last few years to meet the requirement. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the additions. It is gathered from the details submitted that the EDC is basically a statutory fee which is chargeable by HUDA from Colonizers. The fee is supposed to be for the development works carried out by HUDA. However, it is seen that very little of it has been actually spent. The basic fact which remains is that this fee in the nature of EDC is collected by the assessee from the colonizers. It is statutory fee which is to be paid by the purchaser of plots sold through colonizers. This statutory payment has been received by the assessee and has been kept as a liability. It needs to be noted that the said amount is not refundable in any event. It is further seen that the amount is subject to upward revision. Therefore, if the actual expenditure is more than the recoveries, the same is recoverable from the developers and if the expenditure is less then the recoveries the same constitute the income of the appellant as by very nature the amount is not refundable. It is seen that the appellant has kept complete record of EDC charges received and spent with regard to each Urban Estate. As per the details filed the expenditure is progressive. There is merit in appellant's sub....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the State Government, it is necessary that the amenties provided by the Authority in an urban estate should be extended to any land or building situated within the said area or within such distance front the said area it may deem expedient, such amenities shall be extended to such land or building and the owner of such land or building shall be liable to pay to the Authority, in the manner prescribed, such development charges therefore, as may be fixed by the State Government having regard to the expenses to be incurred for providing such amenities and the benefits to be extended to the land or building. 42. The Ld. AR argued that the above clearly shows that EDC is fixed by the State Government for amenties extended as per the directions of state government. In order to involve the private sectors in the process of urban development, the Department of Town & Planning Department, Haryana grants licenses to the private colonizers for the development of Residential, Commercial, Industrial & IT Park/ Cyber Park Colonizers, in accordance with the provisions of the Haryana Development and Regulation of Urban Areas Act, 1975, and rules framed there under. 43. The Ld. AR argued ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s as follows: 'External Development Works include water supply, sewerage, drains, necessary provisions of treatment and disposal of sewage, sullage and storm water, roads, electrical works, solid waste management and disposal, slaughter houses, colleges, hospitals, stadium/sports complex, fire stations, grid sub-stations etc. and any other work which the Directory may specify to the executed in the periphery of or outside colony/area for the benefit of the colony/area'. 6.2. HUDA charges EDC as per Section 3(3)(a)(ii) of HDRUA, which reads as under: ' To pay proportionate development charges if the external development works as defined in clause (g) of Section 2 are to be carried out by the Government or any other local authority. The proportion in which and the time within which, such payment is to be made, shall be determined by the Director." 6.3. HUDA charges EDC for EDWs by issuing letters/ circulars. The content of these letters/ circulars is that EDC are levied as per Section 2(g) for EDW on the beneficiaries to whom the change of land use permission is granted for various purposes in the Agricultural/ Rural Zone and who are al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....state on the basis of the cost of External Development Services such as Master Water Supply, Master Sewage, Master Roads, Master Storm Water Drainage, Master Horticulture, Master Community building and other services is determined on the basis of a price index of a particular year in respect of a particular urban estate. The cost is determined by the Engineering Wing of HUDA keeping in view the requirement of development plan of an urban estate. EDC is charged from sectors floated by HUDA or the license granted by the Town & Country Planning Department to the developers. To say that there is no element of profit in EDC because EDC varies depending upon requirement of development in each urban estate, therefore, it is in the nature of liabilities is incorrect, because the pavers of EDC are allowed to use EDWs for payment of fees worked out on the basis of investments in EDWs. EDC is charged from colonizers for using the developed urban infrastructure in urban estates wherein they are allowed to establish their commercial set ups. The EDC is a user fee charged by HUDA from colonizers. The income nature of EDC would not change even though it is received through DGTCP Department, Harya....
X X X X Extracts X X X X
X X X X Extracts X X X X
....DRs or other investments, (iii) EDC charges are not uniform in the state but are charged at different rates depending on the location i.e Zonal basis, hence there is no basis on which EDC charges can be linked with actual amount spent, (iv) A proportion of the total cost recovered in the financial year is to be taken for the purpose of indirect charges. The assessee here has received EDC as a part of the total recoveries. Further, in the absence of any basis for determining the EDC charged by colonizers, an estimation has to be done with regard to the addition made on this account, (v) Thus it is logical to include the total received EDC of Rs. 602,23,48,336/- in the recoveries from allottees. In doing so a percentage of 30% is liable to be treated as recovery on account of indirect charges from this receipt, as has been done in the past. It was further argued by the Ld. DR that the CIT (A) in his order for AY 2007-08 was adjudicated first & the rate was reduced from 30% to 20% on the reasons that there is merit in appellant's submission that the amount has accumulated in the initial years mainly because the development work was slow but currently the amount is bein....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is required to pay back the EDC to the State Govt, is misrepresentation actual facts. 48.1 The Ld. DR argued that the truth is that EDC is charged on the facilities of use of External Development Works provided by the developers/builders. This fact does not establish that HUDA does not have absolute title on EDC. The CIT (A) has reduced the addition of 30% on the basis that income on indirect charges has been reduced to 20%. The CIT(A) has accepted assessee's contention on indirect charges claimed compulsorily payable to other departments without calling for comments from the AO and appreciation of the facts and circumstances discussed by the AO, the reduction of addition on account of EDC from 30% to 20% is also without any definite basis. 48.2 The Ld. DR argued that the Ld. CIT(A) has erred in applying a net rate of 20% and AO's rate of 30% is requested to be restored. Further, The Ld. DR vide letter dt. 17/11/2017 has filed the details of the survey report and other relevant details (total pages 1 to 149), For the sake of convenience Rule 29 reproduced hereunder: "29. Production of additional evidence before the Tribunal.- The parties to the ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ible implementation of the intention on the ground over a period of ten years or so needs to be examined to treat the EDC as income or not. In this connection the additional evidences held by the Ld. DR are needed to arrive at a correct decision. Since these facts were not before the first appellate authority, it is hereby directed that the issues may be examined in the light of the directions and guidelines issued above in tandem, examination of the additional evidences filed and to pass a speaking order by the Ld. CIT(A). 51. This ground of appeal of both the parties are treated as allowed for statistical purposes. Annual Maintenance Charge 52. Ground No. 6 for the Assessment years 2004-05, Ground No. 7 for AY 200607, 2007-08, 2008-09, and ground No. 4 for the Assessment years 2009-10, 201011, 2011-12 Ground No. 5 for A.Y. 2012-13, 2013-14 and 2014-15 pertains to disallowance of Annual Maintenance Charges. 53. Brief facts are that HUDA is engaged in the work of developing Urban Estates which involves acquisition of land, its development into plots, laying down basic infrastructure such as sewerage system and inner roads and disposing of plots by sale on auction etc. H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led principle that where income has been estimated by applying profit rate, no separate additions / disallowances can be made by the AO. In this regard reliance is placed on the ratio of the following cases, * Assistant Commissioner of Income Tax vs. Lakshmi Industries (2011) 135 TTJ (Chennai) 112 : 7 ITR 0495 * Commissioner of Income Tax vs. Aggarwal Engg. Co. (Jal.) (2006) 302 ITR (P&H) 0246 * Commissioner of Income Tax vs. Smt. Santosh Jain (2008) 296 ITR 324 (P&H) * Assistant Commissioner of Income Tax vs. Sarv Prakash Kapoor* (2009) 119 ITD (Agra)(TM) 197 56.1. The Ld. AR further argued that there has been justification for the period of ten years as major chunk of development expenditure is incurred during the initial stage of the project itself. The development of the projects is completed in most of the cases in the minimum time frame of 6 -7 years i.e. before the possession of the plot is handed over to the assessee. In some cases, depending on situational factors it takes 2 - 3 years more for the development. Accordingly, the assessee treats the period of 10 years as a reasonable period by which it expects all the development c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2011) 135 TTJ Chennai) 112 : 7 ITR 0495 facts are different in that case as compared to the instant case as that case belongs to search and seizure assessment. Hence this case is not applicable, (ii) Commissioner of Income Tax vs. Aggarwal Engg. Co. (Jal.) (2006) 302 ITR (P&H) 0246 facts are different in that case as compared to the instant case as in that case after addition on the basis of net profit rate other additions were made on account purchase and introduction of cash. Hence this case is also not applicable; (iii) Commissioner of Income Tax vs. Smt. Santosh Jain (2008) 296 ITR 324 (P&H) facts are different in that case as compared to the instant case as that case belongs to search and seizure assessment. Hence this case too is not applicable, and (iv) Assistant Commissioner of Income Tax vs. Sarv Prakash Kapoor (2009) 119 ITD (Agra)(TM) 197 facts are different in that case as compared to the instant case as in that case assessee is in Civil Construction Business, whereas in the instant case the assessee is not in construction business in true sense. Hence this case is not applicable. In view of the above, the Ld. DR argued that the order of the C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....equently the plots of various sizes both commercial and residential were allotted sold or auctioned. Subsequent to this sale / allotment, the assessee maintained sectors for a period of 20 years, for that period all expenses in relation and maintenance were made by the assessee. After the period of 20 years, the developed sectors wore handed over to the Municipal Council / Corp etc. The Assesse was not snowing any profit on those projects of sectors for a period of 20 years staring from the cquisition to the date of handing over the sector to the Municipal Council / Corp etc. Further for the first 10 years of any development of a sector, the maintenance and development charges were capitalized as work in progress and for the period subsequent to 10 years, the entire amount of maintenance and development was charged to the P & L Account and being claimed as expenditure. The Assessing Officer observed that the assessee was declaring profit in the P & L Account only on completion of" 10 years and the: expenses related to some incomplete projects were debited to P &L Account as expenditure in the period between 10 years and 20 years of acquisition . The Assessing Officer asked the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gaged in construction since its inception and for the purpose of maintaining its accounts the assessee was following contract accounting system under which the accounts were maintained as per prescription laid down in the Accounting Standard (in short AS) 7, as per the said Standard in general administrative cost. selling cost research an development, depreciation cost of idle plant & equipment, cost incurred in securing contract and por-contract cost if it was not probable that the contract will be obtained are not the part of the contract cost. However, the cost which related directly to the contract and were incurred in securing contract if they could be separately identified and it was probable that contract would be obtained such costs are also included in the contract cost. After considering the submissions of the assessee, the Assessing Officer observed that the assessee bi-furcated the expenses in the sector which were more than 10 years, or less than 10 years old. However the recoveries / enhancements etc, or the profit from sectors which were more than 20 years old were being reflected in the P&L Account, therefore, the expense for the sectors whose receipt were not entir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essment order dated 30.11.2005. The Assessing Officer asked the assessee to furnish bifurcation of expenses. According to the Assessing Officer the assessee was unable to furnish the bifurcation of expenses but only submitted that the expenses were of general administrative nature. The Assessing Officer held that since the entire expenditure related to completed / incomplete sectors, besides administrative expenditure of the Head Office in Panchkula the one and half of the entire expenditure being equally allocatable to the developed and undeveloped parts of the activity of the assessee at Rs. 75,45,72,832/- was added in the total income being of capital nature i.e. relating to the projects not completed. He accordingly made a disallowance of Rs. 37,72,86,416/-. 12 When the matter was taken to the Ld. CIT(A), the assesse submitted that it. i.e the Haryana Urban Development Authority (HUDA) was constituted in 1977 for ensuring speedy and economical development of urban areas in the State of Haryana. It was further stated that the assessee provided planned and fully developed residential, commercial, institutional and industrial plots in various urban estates of Har....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... payments / receipt were capitalized and treated either as an asset or as a liability. It was submitted that the years in which the receipts are high the profit o the sector would be high and on the other hand where in a year refunds are in excess than the amount received there would be losses for the sector and this position has been duly accepted by the Income tax department. It was contended that the assessee is a contractor engaged in the construction contract and contract accounting standard has been followed since its inception. It was 'emphasized that the account were maintained by the assessee as per prescription laid down. Accounting Standard 7 (in short AS-7'). The said AS-7. defines and prescribes the mode of calculation of the contract revenue and contract cost it was pointed out that AS-7 further lays down the manner of arriving at the contract cost which is not written off on year to year basis. It was explained that the AS-7 lays down two methods for accounting, one method is percent of completion method and another one is completed contract method. It, was submitted that the assessee is following the policy of treating the sector as a complete sector after a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) CIT Vs. Lokhandwala Construction Inds Ltd. (2003) 180 CTR (Bom) CIT Vs. V. S. Dempo & Co. Pvt. Ltd. (1996) 131 CTR (Bom) 203 CIT Vs. Advance Construction Co. (P) Ltd. (2005) 193 CTR (Guj) 127 Wall Street Construction Ltd. Vs. JCIT S.R. 12(2006) 5 SOT 103 (MUM) (SB) DCIT Circle 8(1) V. Ranka Developers (2006) 6 SOT 815 (Bang) 13 Ld CIT(A) after considering the Submissions of the assesses observed that AS 7 (New) clearly says that a contract accounting has to be accrual system of accounting and only allows part completion of method, so. the assessee cannot selectively claim the benefit of AS-7 which it was not following. He distinguished the case relied on by the assessee in the case of Raheja Builders stating that the said case was relating to finance cost and not administration cost and that case was for a period prior to revision of Accounting Standard. He further pointed out that the assessee was asked to furnish the bifurcation of expenses which the assessee was unable to do but only submitted that the expenses were of the nature of general administrative nature. According t him the revised AS 7 did not allow any person to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure, was faulty. He pointed out that in the earlier 10 years, there was no direct relation of the expenditure incurred with the development of sector a reference was made to para 2 of assessment order in support of his contention. He further submitted that the Assessing Officer asked the assessee to give detail bifurcation of the expenses claimed in respect of complete and incomplete sectors but no such data was furnished by the assessee. He pointed out that the assessee not a contractor and also not following the project complete method and that in the preceding year no expenses were claim since total income was claimed exempt u/s 10(20A) of income Tax Act, 1961. He also stated that certain project might have been completed and some remained incomplete in the first 10 year: however. the expenses were capitalized in the completed sectors as well as for incomplete sectors, it was submitted that only the cost attributable to the contract activity could have been allocated to the specific contract and since the assessee has not given the bifurcation, the Assessing Officer rightly estimated the capital expenditure and made the disallowance @ 50% of the claim made by the assessee consid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es there should have been some details as regards to the date of completion upto that date the expenses can be capitalized and when the sector is fully developed and plots are allotted / auctioned to the applicant, the expenses incurred thereafter are not capital in nature because the stock i.e. the plot is ready to be disposed off without making any further development. In the instant case the assessee is not following the complete contract method and capitalizing certain expenses which were not related to particular sector e.g. interest etc which might have been for a sectors and not for all the sectors. In our opinion, the only cost of expenses which are directly attributable to a specific contract carried only be capitalized and that too upto the date when the plots are ready to be sold / allotted / auctioned. In AS 7, completed contract method has been prescribed in Para 10 according to which the principle advantage of the completed contract method is that it is based on the results as determined when the contract is completed or substantially completed rather than on estimated which may require subsequent adjustment as a result of unforeseen costs and possible losses, the ris....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aer under challenge contains reasons." 16.2 A similar view has been taken by the Hon'ble Jurisdictional High Court in the case of CIT Vs Patwal Co-operative Sugar Mills Ltd (2006) 284 ITR 153 wherein it has been held that - "Every judicial / quasi judicial body / authority must pass a reasoned order which should reflect the application of mind of the concerned authority to the issues / points raised before it. The requirement of recording reasons is an important safeguard to ensure observance of the rule Of law. It introduces clarify, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision making process. Another reason which makes it imperative or quasi judicial authorities to give reasons is that their orders are not only subject to the right of the aggrieved persons to challenge them by filing statutory appeal and revision but also by filing writ petition under article 226 of the Constitution. Such decisions can also be challenged by way of appeal under article 136 of the Constitution of India. The High Courts have the power to issue writs of certiorari to quash the orders passed by quasi judicial authoriti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nses incurred in maintenance separately in detail to the Assessing Officer to determine the allowable expenditure, failing which the assessee would be allowed the expenditure of maintenance expenses only on pro -rata basis. 60. The appeal of the assessee on this ground is treated as allowed for statistical purposes. Forfeiture of security 61. Ground No. 7 for the Assessment years 2004-05 and ground no. 8 for assessment year 2006-07 of the assessee relates to forfeiture of security. 62. The assessee has shown an amount of Rs. 8,67,58,348/- (for AY 2006-07) on account of receipt from forfeiture of security. However in the computation of income the security forfeited was reduced from the income returned. The Assessing Officer made addition of the amount forfeited which was upheld by the Ld.CIT(A). 63. Before us the Ld. AR argued that while floating the sector, 10% of the total amount of a particular plot offered for draw is received as earnest money and after draw of that particular sector whole of the 10% amount taken as earned money is refunded to unsuccessful applicants and from successful applicants/allottee 15% more amount s demanded which is required to be deposit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....losing stock and had been duly accounted for in the profits in the following years which accrued to the assessee at the time of sale of those plots is not acceptable because the amount was not reduced by the assessee in the value of the closing stock rather it was shown as income in the P&L Account however while filing the return of income the amount was reduced from the income in the computation of income. We are therefore of the view that the Assessing Officer rightly made the addition and the Ld. CIT(A) was fully justified in confirming the addition made by the Assessing Officer." 67. On careful consideration of the facts of the case and keeping in view the decision of Coordinate Bench of ITAT in appellant's own case in ITA No. 742/CHD/2007 for A.Y. 2003-04, the addition made by the Assessing Officer is hereby upheld. Sale of Plants 68. Ground No. 8 for the Assessment years 2004-05 and 2007-08 and ground no. 9 for the Assessment Year 2006-07of the assessee , relates to disallowance on account of sale of plants. 69. The Assessing Officer while framing the assessment noted that the assessee has shown income from sale of plants grass and trees and claimed it as agricult....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the contribution to the IAG is in the nature of publicity expenditure incurred with a view to show case the activities of the assessee and is thus attributable to the business activities of the appellant. 76. It is noted that the Coordinate Bench of ITAT Chandigarh while adjudicating a similar disallowance for the A.Y. 2003-04 in appellant's own case has upheld the disallowance so made observing that the assessee is not getting any direct benefit from the IAG and the payment has been made voluntarily. On careful consideration of the facts of the case and keeping in view the decision of Coordinate Bench of ITAT in appellant's own case in ITA No. 742/CHD/2007 for A.Y. 2003-04, the disallowance made by the Assessing Officer is hereby upheld. 77. The ground of appeal is dismissed. Payment to Pension and Gratuity Fund 78. The application for registration of the Gratuity fund has been made on 03/08/2004. Since the fund was not recognized during the assessment year the Assessing Officer has disallowed the amount claimed and the same addition has been confirmed by the Ld. CIT(A). Since the fund was recognized with effect from 20/01/2004 the Assessing Officer has directed to v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee has claimed expenditure on account of demarcation / survey, this amount was incurred for marking of the plots and mapping of the area while and before handing over of the plots. The Assessing Officer has treated this expenditure as capital expenditure. 87. The Ld. CIT(A) has confirmed the addition. 88. Before us the Ld. AR argued that at the time of allotment of plot demarcation is not done physically on the ground but based on the survey maps and land records. At the time of handing over the possession of the plot the demarcation measuring the size of plot as per the allotment is done. Accordingly the expenditure incurred on such activities are debited under demarcation / survey expenditure. It was argued that these are purely incidental to the business and this expenditure is routine expenditure and should be allowed as Revenue expenditure. Once the demarcation is completed then only the allottee would be able to start the construction on the plot. 89. Ld. DR argued that this expenditure is to be relatable to completed sectors but the same does not appear to be correct as per the accounting policy followed by the appellant. A project is treated completed only after ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A within the city is definitely the function of HUDA, the expense for which is to be booked under the head EDC. It was argued that HUDA has been constituted by the government of Haryana as per Section 3 of the Haryana Urban Development Authority Act, 1977 * The Objects & functions of the authority are envisaged u/s 13 of the Act which provides that the objects of the Authority shall be to promote and secure the Objects and development of all or any of the areas comprised in the urban area and for that purposes to provide other services and amenities and generally to do anything, with the prior approval, or on direction, of the State Government for carrying out the purposes of this Act. * Amenties has been defined in Section 2(a)as under:- "amenties" includes roads, water-supply, street-lighting, drainage, [sewerage, treatment and disposal of sewerage, sullage and storm water] public works, tourist spots, open spaces, parks, landscaping and play fields, and such other conveniences as the State Government may, by notification, specify to be an amenity for the purposes of this Act; * Section 21 of the HUDA Act provides that the funds of the authorit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ectivity by the metro line will certainly enhanced the business of the assessee and increases the marketability of the plots. The contribution to the metro is akin to construction of the road which will be used by the residents approaching through the road hence the expenditure can be treated as an allowable expenditure laid down for wholly and exclusively for the business purpose. 100. The appeal of the assessee on this ground is treated as allowed. Salary to PF Staff 101. Ground No. 12 of the appeal of the Assessee for the Assessment years 2007-08 relates to disallowance on account of Rs. 50,00,000/-. 102. The assessee has not pressed this ground before us therefore need no adjudication on this ground. Disallowance of advertisement on buses: 103. Ground No. 13 of the appeal of the Assessee for the Assessment years 2007-08 relates to disallowance on account of advertisement expenses on buses of Rs. 6,000,0000/-. 104 Brief facts are that the assessee has paid Rs. 6 crores to Transport department Haryana for the purchase of CNG Buses and the same was debited to P&L Account under the head Advertisement expenses. It has been submitted by the assessee that this amo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....DR supported the order of the Ld. CIT(A) and submitted written submissions reiterating the ratio laid down by the Ld. CIT(A). 108. We have perused the matter and also the order sheet and the approval placed before us. imag From the perusal of the above it is observed that the busses have been purchased by Transport Department of Haryana and it was allowed to be charged to advertisement expenses. One time funds to be provided by HUDA after which the facility may be extended through private operators. 109. On going through the above events it can be said that while spending is the prerogative of the assessee, whether it makes the expenditure elligible under the head of allowable expenditure or not, is to be decided on the facts of the case as there is no clear cut test on the base of expenditure which may be distinguished from revenue expenditure or otherwise. The question has to be decided from the practical and business point of view. In the instant case whether funding the purchase of busses so that advertisement can be had on this buses purchased doesn't fit on the lines of expenditure incurred fully and exclusively for the purpose of the business. After paying the am....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been Rs. 2,66,38,000/-. It was further argued that the same has been corrected in the subsequent years by taking opening stock at zero and closing stock at Rs. 2,66,38,000/-. 115. Ld. DR has relied on the order of the lower authorities. 116. We have perused the facts before us and find that there has been error in computation of closing stock which needs to be corrected in the instant year. At the same time the assesee will get the benefit of increased opening balance in the subsequent years. 117. Hence the appeal of the assessee on this ground is dismissed. Salary of Employees of Department of Urban States 118. Ground No. 4 of the appeal of the Revenue for the Assessment years 2012-13 & 2013-14 and 2014-15 and Ground No. 8 of the Assessee appeal for the Assessment Years 2012-13, 2014-15 and Ground No. 7of the Assessee appeal for the Assessment Year 2013-14 deals with disallowance of Rs. 3,96,79,223/- and confirming of Rs. 82,19,472/- by the Ld. CIT(A) out of the total amount claimed in P&L Account of Rs. 4,10,97,364/-. Thus this issue is involved in Revenue as well as Assessee's appeal. 119. During the assessment the Assessing Officer has held that the administr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ifferent in that case as compared to the instant case as that case belongs to search and seizure assessment. Hence this case is not applicable, similarly in the case of Commissioner of Income Tax vs. Aggarwal Engg. Co. (Jal.) (2006) 302 ITR (P&H) 0246 facts are different in that case as compared to the instant case as in that case after addition on the basis of net profit rate other additions were made on account of purchase and introduction of cash. Hence this case also is not applicable; In the case of Commissioner of Income Tax vs. Smt. Santosh Jain (2008) 296 ITR 324 (P&H) facts are different in that case as compared to the instant case as that case belongs to search and seizure assessment. Hence this case too is not applicable, and in the case of Assistant Commissioner of Income Tax vs. Sarv Prakash Kapoor (2009) 119 ITD (Agra)(TM) 197 facts are different in that case as compared to the instant case as in that case assessee is in Civil Construction Business, whereas in the instant case the assessee is not in construction business in true sense. Hence this case is not applicable. The Department of Urban Estate is a separate department of State Government workings under the admi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ld. CIT(A) has allowed Rs. 42.00 Lacs as Revenue expenditure which was paid to Rolta India Ltd. and allowed depreciation on Rs. 58,68,928/- being the computer items purchased from M/s Hartron. 128. This issue has been dealt while dealing with Office maintenance and office expenses. Hence the entire issue relating to Rs. 1,79,11,266/- is remanded back to the file of Assessing Officer for the limited purpose of verification of type of expenses. It is hereby directed that the Assessing Officer would allow as Revenue expenses on the amount is spent for software purchases and due depreciation would be allowed in the case of hardware purchases. Disallowance under section 40(a)(ia) 129. Ground No. 9 of the appeal of the Assessee for the Assessment years 2014-15 relates to disallowance U/s 40(a)(ia) due to default of TDS on the interest payment made to different people as per the Court order. The assessee has paid interest of Rs. 1,97,29,877/- without observing the provisions of TDS. The Assessing Officer has disallowed this amount under section 40(a)(ia). 130. The Assessing Officer has also given alternate finding that this interest paid should be capitalized. The Assessing O....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in misplacing facts and invoking provisions of Section 36(l)(iii). 133. The Ld. DR argued that since the interest has been paid to the allottees TDS needs to be deducted and failure of which will attract provisions of 40(a)(ia). He further argued that Assessing Officer made addition on account of 32.35 lacs under section 14A too. 134. Regarding the deductability of the TDS on the amounts paid to various allottees, we find that the interest has been paid by the assessee to allottees for payment of compensation due to delaying offer of the possession after allotment has been squarely covered by judgment in case of Ghaziabad Development Authority vs. Dr. NK. Gupta ( NCDRC) 258 ITR 0337 and Delhi Development Authority vs Income-Tax Officer (1995) 53 ITD 19 Delhi the amount of compensation do not fall under the meaning of 2(24) of Income Tax Act. Hence assessee is not liable to the provisions of TDS on these payments. Since assessee has not borrowed any funds and no interest has been paid the Assessing Officer's alternate observation also stands dismissed. 135. The ground of the assessee is allowed. 136. Regarding the addition made under section 14A of Rs. 32,35,885/- by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... borrowed funds-Assessee had made written submission to the AO that the investment was out of own funds-Said claim not refuted by the AO-Revenue contending that even if the assessee had made investment in shares out of its own funds, the assessee had taken loans on which interest was paid and all the money available with the assessee was in common kitty-Said contention not acceptable-In the present base} 'the assessee did not make any claim for exemption-In such a situation s. 14A could have no application. CITvs. Corrtech Energy (P.) Ltd 223 Taxman 130(Guj) Income-Expenditure Incurred In Relation To Income Not Includible in Total Income- AO made disallowance of expenditure of specified amount under section 14A-Disallowance was confirmed by CIT (Appeals)- Tribunal held that Assessee did not make any claim for exemption and in such situation, Section 14A could have no application-Held, S. 14A(1) provides that for the purpose of computing total income under chapter IV of the Act, no deduction shall be allowed in respect of expenditure incurred by the Assessee in relation to income which does not form part of the total income-Assessee did not make any claim for e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e cannot exceed the exempt income. The Delhi High Court in Joint Investments Pvt Ltd v CIT held that Section 14A or Rule 8D cannot be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A of the Act, and is only to the extent of disallowance of expenditure 'incurred by the assessee in relation to tax exempt income'. Accordingly, the tax exempt income cannot be disallowed entirely. Thus following this logic also, where the exempt income is zero, the disallowance cannot exceed the exempt income which is zero. 137. In a nutshell, going through the facts and submissions and various judicial pronouncements on the issue, it is clearly observed that the issue is to be decided in favour of the assessee as in the case of CIT Vs. Lakhani Marketing (P&H) (supra), CIT Vs. Winsome Textile Industries Ltd. (P&H) (supra), CIT Vs. Holcim India Pvt. Ltd. (Del.) ITA No. 486 & 299/2014 dated 05.09.2014 , Cheminvest India Ltd. Vs. CIT (Del) ITA No. 749/2014 dated 02.09.2015. 138. Thus the addition made under section 14A stands deleted (ground of Disallowance under section 40(a)(ia) and 14A together ). IN....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that if the ownership of the shares is incidental to carrying on the business or if the shares are held as business assets dividend income should be treated as income from business and based on the judgment the income received by the assessee cannot be treated as dividend but only as business income. The Assessing Officer further held that in case the income is treated as exempt, the provisions of Section 14 would be applicable. 146. The Ld. CIT(A) held that the investments were made in the equity shares of Gurgaon Technology Park Ltd. and these investments(shares) were or held as capital investment and not as stock in trade and hence the amount received would be treated as dividend. 147. Before us the Ld. DR relied on the order of the Assessing Officer. 148. The Ld. AR argued that these investments are made to earn dividend and also that the assessee does not have any business relationship with M/s. Gurgaon Technology Park Ltd. or the investments made in this company is not incidental to carrying out the business of the assessee and hence argued that the dividend received is eligible for exemption under section 10(34) of the Income Tax Act. 149. We have gone through th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of computerization of record is an admissible business expenditure of revenue nature. 154. Before us the Ld. CIT,DR argued that the Computer expenses have to be capitalized whereas the Ld. AR relied on the order of the Ld. CIT(A). computerization of Department of Town and Country Planning to prepare layout plan of HUDA. 155. From the records it is not clear that the computation expenses involved are for software up gradation or for up gradation of hardware and purchase of new computers or augmenting the capability of the existing computers. Hence this issues is remanded back to the file of Assessing Officer for the limited purpose of verification of type of expenses. It is hereby directed that the Assessing Officer would allow as Revenue expenses on the amount is spent for software purchases and due depreciation would be allowed in the case of hardware purchases. Sales Tax 156. Ground No. 5 of the appeal of the Revenue for the Assessment years 2012-13 & 2013-14 and 2014-15 relates to disallowance of Sales Tax paid. 157. During the year the assessee has claimed sales tax (Haryana VAT) of Rs. 7,98, 36,527/- the assessee explained that the amount has been paid against....
X X X X Extracts X X X X
X X X X Extracts X X X X
....v)License Fee 3.00 vi)Conversion Charges 3.87 vii)Security Fee and Service Charges 0.81 1370 29.79(%) 81.2 (D) Add:- a. Infrastructure Cost 50 1.01% b. EWS Plots 482 10.49% 4598 100% Document 2 The Transport Department has placed orders for the purchase of 15 air conditioned CNG Low Floor buses for Gurgaon. Each bus is going to cost around Rs. 45.00 lakhs and total cost is Rs 6.75 crores. Earlier we had estimated the expected price of each bus around Rs.30.00 lakhs. HUDA had committed a sum of Rs.3 crores towards the cost of these buses. It is there requested that HUDA may release additional Rs.3.75 crores. As decided earlier, HUDA is to use these buses for publicizing their activities. It is therefore requested that HUDA may initiate action for preparation of publicity material to be pasted on the body of these AC buses. It goes without saying that induction of these buses will not only meet the long standing demands of the daily commuters but also decongest the traffic conditions. It may also discourage people to use their personal vehicles. 573 BCTCP HUDAD NO. 1024....