Income-tax Officer, V. Pimpri Chinchwad New Town Dev. Authority, Pune

CO 78/PUN/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2231 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 10 month(s) 30 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-10-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 28-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NANDITA KANCHAN
• Keywords: Capital asset; Business income; Depreciation; Charitable institution; Retrospective amendment; Capital receipt; Benefit of exemption; Condonation of delay; Capital expenditure; Set aside
• Section: 143(3); 12A; 12AA; 32; 148; 263; 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO S . 929 TO 932 /P U N/201 4 / ASSESSMENT YEAR S : 20 0 3 - 0 4 TO 2005 - 06 & 2008 - 09 PIMPRI CHINCHWAD NEW TOWN DEVELOPMENT AUTHORITY, SECTOR 26, PRADHIKARAN, PUNE 4110 44 . / APPELLANT P AN: A A ALP0279Q VS. THE ASST . COMMISSIONER OF INCOME TAX, RANGE 10, PUNE . / RESPONDENT . /CO NO S . 78 & 79 /PUN/201 4 / ASSESSMENT YEAR S : 2003 - 04 & 2008 - 09 (OUT OF ITA NOS.929 & 932/PUN/2014 ) THE INCOME TAX OFFICER, WARD 10(1), PUN E / CROSS OBJECT OR VS. PIMPRI CHINCHWAD NEW TOWN DEVELOPMENT AUTHORITY, SECTOR 26, PRADHIKARAN, PUNE 411044 . / RESPONDENT PAN: AAALP0279Q ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 2 . / ITA NO S . 944 & 945 /P U N/201 4 / ASSESSMENT YEA R S : 2004 - 05 & 2005 - 06 THE INCOME TAX OFFICER, WARD 10(1), PUNE . / APPELLANT VS. PIMPRI CHINCHWAD NEW TOWN DEVELOPMENT AUTHORITY, SECTOR 26, PRADHIKARAN, PUNE 411044 . / RESPONDENT PAN: AAALP0279Q / APPELLANT BY : SHRI KISHORE PHADKE / RESPONDENT BY : MS NANDITA KANCHAN, CIT - DR / DATE OF HEARING : 1 3 . 0 3 .201 9 / DATE OF PRONOUNCEMENT: 27. 0 6 .201 9 / ORDER PER SUSHMA CHOWLA, J M : OUT OF T HIS BUNCH OF APPEAL S , FOUR APPEALS FILED BY ASSESSEE ARE AGAINST RESPECTIVE ORDER S OF CIT (A) - 2 , NASHIK , ALL DATED 26 . 0 2 .20 1 4 RELATING TO ASSESSMENT YEAR S 2003 - 04 TO 200 5 - 0 6 AND 2008 - 09 AGAINST RESPECTIVE ORDER S PASSED UNDER SECTION 143(3) R.W. S. 263 / 143(3) R.W.S. 254 / 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . THE REVENUE HAS FILED CROSS OBJECTIONS AND CROSS APPEALS AGAINST RESPECTIVE APPEALS OF ASSESSEE. 2. OUT OF THIS BUNCH OF APPEALS, AGAINST APPEALS FILED BY ASSESSEE IN A SSESSMENT YEARS 2003 - 04 AND 2008 - 09 THE REVENUE HAS FILED CROSS ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 3 OBJECTIONS AND FOR ASSESSMENT YEARS 2004 - 05 AND 2005 - 06, BOTH THE ASSESSEE AND REVENUE HAVE FILED CROSS APPEALS. THE ISSUES RAISED IN THE PRESENT BUNCH OF APPEALS ARE CO - RELATED AND DEPENDENT ON EACH OTHER, HENCE THE APPEALS ARE BEING DECIDED BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. THE ISSUES RAISED IN PRESENT BUNCH OF APPEALS ARE SIMILAR AND WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. HOWEVER, REFERENCE IS MADE TO THE FACTS AND ISSUES RAISED IN ASSESSMENT YEAR 2003 - 04 IN ORDER TO ADJUDICATE THE ISSUES. 3. THE ASSESSEE IN ITA NO.929/PUN/2014, RELATING TO ASSESSMENT YEAR 2003 - 04 HAS RAISED THE FOLLOWING GROUNDS OF APPEA L: - 1. LEARNED CIT(A) ERRED IN NOT ACCEPTING THAT APPEAL IS EXTENDED ARM OF THE STATE GOVERNMENT OF MAHARASHTRA AND CONSEQUENTLY THE INCOME OF APPELLANT IS NOT TAXABLE UNDER INCOME TAX ACT 1961. WITHOUT PREJUDICE TO THE ABOVE GROUND THE FOLLOWING GROUND S OF APPEAL ARE RAISED : 2 . THE HON'BLE ITAT MAY KINDLY HOLD THAT THE APPELLANT IS ENGAGED IN CHARITABLE ACTIVITY AND THAT ALL PROPERTY HELD IS UNDER TRUST. 3. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN DIRECTING THE APPELLANT TO SEEK ADMINISTRATIVE MEASURES AND NOT GRANTING BENEFIT OF ACCUMULATION, WHEN THE LEARNED AO FAILED TO PROVIDE OPPORTUNITY OF FILING FORM 10 WHEN HE RECOMPUTED SURPLUS AT SUBSTANTIALLY HIGHER AMOUNT WHEN THERE WAS NO TAXABLE SURPLUS COMPUTED BY APPELLANT. 4. THE REASSESSMENT F RAMED, IS ERRONEOUS AS THE INCOME IN REASSESSMENT, IS HIGHER THAN INCOME ORIGINALLY ASSESSED, AFTER THE ORIGINAL ASSESSMENT WAS SET ASIDE BY HON'BLE ITAT . 5. THE HON'BLE ITAT MAY KINDLY HOLD THAT THE LEASE OF LAND AND/OR PROPERTY FOR 99 YEARS DOES NOT TAN TAMOUNT TO SALE OF PROPERTY. IN ALTERNATIVE IF TRANSACTION OF HELD AS SALE, COST OF SALE BE ALLOWED AS DEDUCTION. 6. THE HON'BLE ITAT MAY HOLD THAT THE LEASE TRANSACTION OF THE APPELLANT AS REGARDS TO THE LAND AND/OR PROPERTY BE HELD AS OPERATING LEASE. 7. THE LEARNED CIT (A) ERRED IN CONFIRMING AO'S FINDING THAT, LEASE TRANSACTIONS OF THE APPELLANT CLASSIFY AS FINANCIAL LEASE AS PER ICAI ACCOUNTING STANDARD 19, INSTEAD OF AN OPERATING LEASE AND THEREBY ERRED IN NO T ALLOWING DEPRECIATION ON LEASED ASSETS AMOUNTI NG TO RS.8,17,70,109/ - . ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 4 8. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFORMING THE DECISION OF AO OF NOT GRANTING APPROPRIATE DEDUCTION OF COST OF LAND AND COST OF DEVELOPMENT OF THE CONST RUCTED PREMISES INCURRED DURING EARLIER PERIOD/YEARS. 9. WITHOUT PREJUDICE TO GROUND NO.5 AND 6,THE LEARNED CIT(A) HAS ERRED IN CONFORMING THE DECISION OF AO IN DISALLOWING THE DEPRECIATION ON LEASED ASSETS AMOUNTING RS.8,11,41,046/ - AS AN APPLICATION OF INCOME. HE OUGHT TO HAVE APPRECIATED THAT DEPRECIATI ON ON LEASED ASSETS IS ALLOWABLE CONSIDERING THE CBDT CIRCULAR NO.2 OF 2001 DATED 9 - 2 - 2001. 10. THE APPELLANT CRAVES LEAVE TO ADD , A L TER, CLARIFY, EXPLAIN, MODIFY, DELETE ANY OF THE GROUNDS OF APPEAL, AND TO SEEK ANY JUST AND FAIR RELIEF. 4. THE ASSESSE E HAS ALSO RAISED ADDITIONAL GROUNDS OF APPEAL WHICH READ AS UNDER: - 11. THE OPENING WDV OF VARIOUS ASSETS AS ON 1/4/2002 (INCLUDING THE INFRASTRUCTURE ASSETS CREATED BY THE APPELLANT) OUGHT TO BE CONSIDERED FOR THE PURPOSE OF DEPRECIATION U/S 32 OF THE I TA, 1961. 12. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE GROUND NO.7, 9 & 11, THE INCOME FROM DEVELOPMENT ACTIVITIES ARISING FROM LEASE PREMIUM AND TRANSFER PREMIUM, OUGHT TO BE WORKED OUT AFTER REDUCING ALL RELATED CORRESPONDING PROPORTIONATE COSTS (INCL UDING INFRASTRUCTURE COSTS) INCURRED PRIOR TO 1/4/2002. 5. THE ADDITIONAL GROUNDS OF APPEAL RAISED BY ASSESSEE ARE LEGAL ISSUES AND IT DOES NOT REQUIRE INVESTIGATION OF FACTS, HENCE THE SAME ARE ADMITTED FOR ADJUDICATION. 6. THE REVENUE IN CO S / APPEALS HA VE RAISED THE FOLLOWING COMMON GROUNDS OF OBJECTIONS / APPEAL : - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN ALLOWING DEPRECIATION ON BROUGHT FORWARD BLOCK OF ASSETS OF THE ASSESSEE TRUST, WHEN THE AO HAD RIGHTLY REWORKED THE WDV OF ASSETS OF THE ASSESSEE BY CONSIDERING THE EXPLANATION 4 TO SECTION 32 OF THE IT ACT? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING DEPRECIATION EVEN IF THE INCOME IS T O BE COMPLETED AFTER APPLICATION OF SEC. 11 TO 13 OF THE IT ACT, WHICH RESULTS INTO DOUBLE RELIEF I.E. APPLICATION OF MONEY ON DEPRECIABLE CAPITAL ASSETS AND THE RE DEPRECIATION AGAIN ON SUCH ASSETS. ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 5 7 . BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS AN INSTITUTION SET UP FOR THE PURPOSE OF PROVIDING HOUSING FACILITIES, PROMOTING TOWNSHIPS WITHIN THE AREA OF JURISDICTION AS DIRECTED BY THE GOVERNMENT OF MAHARASHTRA. THE ASSESSEE WAS ENJOYING BENEFIT OF EXEMPTION UNDER SECTION 10(20A) OF THE ACT UPTO ASSESSMENT YEAR 2002 - 03. AFTER WITHDRAWAL OF EXEMPTION UNDER SECTION 10(20A) OF THE ACT BY FINANCE ACT W.E.F. 01.04.2003 , THE ASSESSEE WAS MADE TAXABLE ENTITY. THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD NOT FILED RETURN OF INCOME FOR ASSESSMENT YEAR 2 003 - 04. HENCE NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED TO ASSESSEE; IN RESPONSE TO WHICH ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME AT NIL. THE ASSESSMENT PROCEEDINGS WERE COMPLETED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT ON 12.12.20 08 AT TOTAL INCOME OF 7,42,84,300/ - . IN THE FIRST APPEAL, THE CIT(A) DELETED ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF ASSESSEES CLAIM OF DEPRECIATION OF 1,68,80,373/ - , VIDE ORDER DATED 31.03.2010. THE COMMISSIONER OF INCOME - TAX - V, PUNE VIDE ORDE R UNDER SECTION 263 OF THE ACT DATED 07.03.2011 SET ASIDE THE ASSESSMENT ORDER FOR THE YEAR UNDER CONSIDERATION HOLDING THE SAME TO BE BOTH ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE, WITH DIRECTION TO ASSESSING OFFICER TO FRAME ASSESSMENT DE - NOV O AFTER TAKING INTO ACCOUNT THE FACTS OF CASE AND ALSO SUBMISSIONS MADE BY ASSESSEE. THE ASSESSING OFFICER TAKING UP ASSESSMENT, ISSUED NOTICE OF HEARING TO THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2008 - 09 IT WAS NOTE D THAT PROFIT ON SALE OF PLOTS WAS RECOGNIZED ON NOTIONAL 10% ON THE AMOUNT REALIZED FROM THE LEASE OF PLOTS OF LAND. SIMILARLY, PROFITS ON SALE OF PLOTS FOR ASSESSMENT YEAR 2003 - 04 WERE RECOGNIZED ON SIMILAR LINES I.E. @ 10% OF AMOUNT REALIZED DURING THE YEAR. THE ASSESSING OFFICER ALSO NOTED THAT ASSESSEE WAS CHARGING TRANSFER PREMIUM WHEN THE LEASE WAS ASSIGNED BY LE SSEE TO ANOTHER PARTY, BUT ONLY A PART OF TRANSFER PREMIUM WAS TREATED AS ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 6 INCOME FOR THAT YEAR. THE INCOME OF 22,01,555/ - AT 1/78 TH PART OF TOTAL RECEIPTS WERE RECOGNIZED AS TRANSFER PREMIUM IN THE YEAR UNDER APPEAL. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE WAS ENTERING INTO 99 YEARS LEASE WITH BUYERS IN RESPECT OF BUILDINGS AND PLOTS OF LAND. AT THE TIME OF ENTERING INTO LEASE AGREEMENT, HUGE AMOUNT WAS TAKEN AS ONE TIME PREMIUM AND ONLY NOTIONAL AMOUNT OF 1 PER YEAR WAS SHOWN AS PAYABLE FOR THE BALANCE 99 YEARS. THE ASSESSEE WAS TREATING THE SAID AMOUNT OF ONE TIME PREMIUM RECEIVED AS BEING S PREAD OVE R 99 YEARS AND ONLY 1/99 TH OF PREMIUM WAS TREATED AS INCOME DURING THE YEAR. IN ASSESSMENT YEAR 2008 - 09, THE ASSESSING OFFICER INSTEAD OF 1/99 TH OF PREMIUM, TREATED ENTIRE YEARS RECEIPTS AS INCOME OF ASSESSEE AND ON SAME LINES FOR ASSESSMENT YEAR 2003 - 04 . THE ASSESSEE HAD RECOGNIZED ONLY 1,23,42,928/ - AT 1/99 TH PART OF RENT ACCRUED ON LEASE PROPERTIES. 8 . THE ASSESSING OFFICER THEN HAS REFERRED TO REPLY GIVEN BY ASSESSEE IN RESPONSE TO NOTICE ISSUED UNDER SECTION 263 OF THE ACT TO THE COMMISSIONER OF INCOME - TAX - V, PUNE UNDER PARA 8 AN D UNDER PARA 9 THE SUBMISSIONS OF ASSESSEE BEFORE THE ASSESSING OFFICER. THE ASSESSEE PLEADED THAT IT WAS AN ARTIFICIAL JUDICIAL PERSON FORMED AND CONSTITUTED UNDER THE MAHARASHTRA REGIONAL AND TOWN PLANNING ACT, 1966 AND THE RULES FRAMED THEREUNDER. THE EXISTING SYSTEM OF BOOKS OF ACCOUNT WAS PRIMARILY FUND BASED ACCOUNTING. THE THREE FUNDS WERE (I) PRADHIKARAN FUND/ GENERAL FUND, (II) DEVELOPMENT FUND AND (III) DEPRECIATION FUND. THE ASSESSEE POINTED OUT THAT INCOME AND OUTGOING OF THREE FUNDS WERE RE CORDED AND POSTED AS PER DIRECTIONS OF GOVERNMENT OF MAHARASHTRA FROM TIME TO TIME. IT WAS ALSO POINTED OUT THAT AUDIT OF ENTRE TRANSACTIONS AND ACTIVITIES OF ASSESSEE WERE CONDUCTED BY AUDITORS APPOINTED BY GOVERNMENT OF MAHARASHT RA AND IT WAS A PROPRIET Y AUDIT. THE AUDIT REPORT WAS ALSO SUBMITTED TO THE DEPARTMENT OF URBAN DEVELOPMENT, GOVERNMENT OF ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 7 MAHARASHTRA. THE ASSESSEE FURTHER EXPLAINED THAT UPTO 01.04.2003 IT RECEIVED EXEMPTION FROM INCOME TAX UNDER SECTION 10(20A) OF THE ACT. THEREAFTER, THE S AID EXEMPTION WAS WITHDRAWN BY THE FINANCE ACT, 2003 AND THE EXISTING SYSTEM OF ACCOUNTING WAS NOT SUITABLE TO WORK OUT SURPLUS O R DEFICIT ARISING FROM THE ACTIVITIES CARRIED OUT BY ASSESSEE. THE ASSESSEE THUS, CONSIDERED IT APPROPRIATE TO CONVERT THE ACC OUNTING SYSTEM INTO ACCRUAL BASIS OF ACCOUNTING BY USING ACCOUNTING SOFTWARE TALLY. THE ASSESSING OFFICER VIDE PARA 10.2 REFERS TO ENTRIES SHOWN IN THE BALANCE SHEET AND IN PARA 10.3 THE RECEIPTS SHOWN IN INCOME AND EXPENDITURE ACCOUNT. THE TOTAL RECEIPT S IN THE HANDS OF ASSESSEE WERE DECLARED AT 17,57,19,565/ - AGAINST WHICH, THE ASSESSEE HAD BOOKED DIRECT EXPENSES OF 11,73,40,782/ - AND INDIRECT EXPENSES OF 9,74,658/ - . ACCORDINGLY, SURPLUS OF 5,74,03,924/ - WAS SHOWN IN THE RECEIPT AND PAYMENT ACC OUNT, WHICH WAS CLAIMED AS EXEMPT. THE INCOME OF 17.57 CRORES COMPRISED OF INCOME FROM DEVELOPMENT ACTIVITIES, INTEREST ACCRUED AND RENT ACCRUED. THE ASSESSING OFFICER NOTED THAT TOTAL INTEREST ACCRUED TO 14.06 CRORES ON TERM DEPOSITS HELD WITH THE B ANKS APPEARING UNDER THE HEAD INVESTMENT IN THE BALANCE SHEET. FURTHER, RENT ACCRUED WAS DECLARED AT 1,23,87,565/ - WHICH WAS THE LEASE PREMIUM RECOGNIZED ON CONSTRUCTED PROPERTIES. THE ASSESSING OFFICER FURTHER NOTED THAT INCOME FROM DEVELOPMENT ACT IVITIES WAS 2.26 CRORES. HOWEVER, THE INCOME WAS NOT FULLY OFFERED AND SINCE THE ASSESSEE HAD NOT OFFERED THE PROFIT RECOGNIZED ON SALE OF PLOTS OF 1.42 CRORES, INCOME RECOGNIZED ON TRANSFER PREMIUM OF 22 LAKHS (APPROX.) AND LEASE PREMIUM ON CONSTR UCTED PROPERTIES OF 1.23 CRORES , T HE ASSESSEE WAS ASKED TO EXPLAIN THE NATURE OF SAID ENTRIES. AFTER CONSIDERING REPLY OF ASSESSEE AND TAX AUDIT REPORT AND THE ORDER PASSED IN ASSESSMENT YEAR 2008 - 09, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD FAILED TO CREDIT SUM OF 18.98 CRORES BEING PLOT PREMIUM FUNDS (NET CREDIT), 1.08 CRORES OF PROPERTIES ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 8 PREMIUM FUNDS (NET CREDIT) AND 1.12 CRORES OF DEVELOPMENT CHARGES (NET CREDIT). THE ASSESSING OFFICER OBSERVED THAT METHOD OF ACCOUNTING ADOPTED BY ASSES SEE RESULT ED IN SUBSTANTIALLY DEFERRING RECOGNIZING OF REVENUE AND RECEIPTS. HE CONCLUDED BY HOLDING THAT INSTEAD OF RECOGNIZING ENTIRE RECEIPTS OF THE YEAR AND INCLUDING IT IN ITS HANDS, ONLY A PART OF THESE RECEIPTS WERE OFFERED AS INCOME IN THE ACCOUNT S. THE ASSESSING OFFICER WAS OF THE VIEW THAT ACCOUNTING METHOD FOLLOWED BY ASSESSEE WAS DEFECTIVE A CCOUNTING METHOD . T HE ASSESSEE WAS FOLLOWING ACCRUAL METHOD OF ACCOUNTING, WHICH AS PER THE ASSESSING OFFICER WAS NOT REFLECTING REAL INCOME AND WAS ERRON EOUS. IT WAS OBSERVED BY HIM VIDE PARA 11.4 OF ASSESSMENT ORDER THAT THE ASSESSEE HAD CONSTRUCTED VARIOUS PROPERTIES AND GIVEN THEM ON LONG TERM LEASE OF 99 YEARS TO VARIOUS LESSEES FROM TIME TO TIME AS PER PROVISIONS OF LAND DISPOSAL RULE APPROVED BY G OVERNMENT OF MAHARASHTRA FOR THIS PURPOSE. THE LEASE DEED WAS EXECUTED BETWEEN ASSESSEE (LESSOR) AND THE LESSEE ON CONSIDERATION OF ONE TIME PREMIUM AT THE TIME OF LEASE I.E. 1 PER YEAR FOR TERM OF LEASE OF 99 YEARS. THE ASSESSING OFFICER FURTHER OBSER VED THAT NO FURTHER CONSIDERATION ACCRUES FROM THE LESSEE DURING THE EFFECTIVE YEARS OF LEASE. HOWEVER, THE REVENUE WAS RECOGNIZED @ 1/99 TH AND THE ASSESSEE HAD CLASSIFIED THE TRANSACTION AS OPERATING LEASE AND WHEREIN THE INCOME WAS RECOGNIZED FOR ONLY O NE YEAR AT 1/99 TH PART OF ENTIRE CUMULATIVE LEASE PREMIUM RECEIPT. THE ASSESSING OFFICER FURTHER OBSERVED THAT WHERE THE ASSESSEE HAD LEASED THE HOUSE PROPERTY ON LEASE FOR 99 YEARS TO THE LESSEE, THE ENTIRE RISK AND REWARDS INCIDENT AL TO OWNERSHIP OF LEA SED ASSETS W ERE ALSO TRANSFERRED TO THE LESSEE, WHO HAD RIGHT TO EXPLOIT THE BENEFIT INCLUDING CLAIMING DEPRECIATION ON IT. WHERE THE LESSEE ACQUIRED THE BENEFITS OF USE OF LEASED ASSET FOR THE ENTIRE PART OF ITS ECONOMIC LIFE IN RETURN FOR ENTERING INTO OBLIGATION TO PAY FOR THAT RIGHT AN AMOUNT APPROXIMATING TO THE FAIR VALUE OF ASSETS, THEN THE SAID LEASE WAS FINANCIAL ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 9 LEASE AND NOT OPERATIONAL LEASE AS CLAIMED BY ASSESSEE. THUS, THE ASSESSEE HAD NO RIGHT TO CLAIM DEPRECIATION ON THE COMMERCIAL AND RES IDENTIAL PROPERTIES LEASED. 9 . THE PLEA OF ASSESSEE ON THE OTHER HAND, WAS THAT IT WAS OPERATING LEASE AND REFERENCE WAS MADE TO ACCOUNTING STANDARD - 19 AND IT WAS PLEADED THAT ONE TIME PREMIUM CHARGED AT THE BEGINNING OF LEASE WAS MORE THAN VALUE OF ASS ET AND WHERE THE LIFE OF BUILDING LEASED WAS TYPICALLY 50 YEARS OR SO, WAS MUCH LESSER THAN PERIOD OF 99 YEARS. THE ASSESSING OFFICER HOWEVER, OBSERVED THAT EVEN AS PER AS - 19, THIS WOULD BE FINANCIAL LEASE AND NOT OPERATING LEASE. HENCE, THE CLAIM OF DEP RECIATION BY ASSESSEE WAS FOUND TO BE NOT IN ORDER BY THE ASSESSING OFFICER. IT WAS FURTHER HELD THAT DEPRECIATION COULD BE CLAIMED BY LESSEE BUT NOT THE ASSESSEE. IT WAS FURTHER HELD THAT THERE WAS NO BASIS FOR SPREADING THE PREMIUM RECEIVED AT THE TIME OF AGREEMENT, TO 99 YEARS ON A STRAIGHT LINE BASIS. THE ASSESSING OFFICER OBSERVED THAT WHERE THE ASSESSEE WAS NOT REQUIRED TO PROVIDE ANY SERVICES TO THE LESSEE OVER THE PERIOD OF 99 YEARS, EVEN WHERE THE ASSESSEE MAY BE GENERALLY ENGAGED IN DEVELOPMENT OF LAND AREA FALLING IN ITS JURISDICTION, BUT THE LEASE CONTRACT DID NOT HAVE EVEN A SINGLE CLAUSE REQUIRING THE LESSOR I.E. ASSESSEE TO PROVIDE ANY SERVICES TO THE LESSEE. THUS, EVEN FROM THE MATCHING PRINCIPLE, THERE WAS NO EXPENDITURE TO BE INCURRED CONTRACTUALLY OVER THE 99 YEARS LEASE PERIOD AND THEREFORE, PREMIUM RECEIVED IN THE FIRST YEAR WAS INCOME IN THAT YEAR AND AS - 9 WAS INAPPLICABLE TO PLOTS AND LANDS ESPECIALLY WHERE THE ASSESSEE HAD ACCOUNTED ONLY FOR PART OF RECEIPT AS INCOME IN THE CURRE NT YEAR. THE ASSESSING OFFICER HELD THAT WHERE LEASE WAS FOR A PERIOD OF 99 YEARS, WHICH WAS MORE THAN 12 YEARS, THEREFORE IT WAS CASE OF TR ANSFER OF PROPERTY AND ONE TIME PREMIUM RECEIVED AT THE TIME OF AGREEMENT WAS INCOME OF ASSESSEE. HE FURTHER HELD ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 10 THAT ENTIRE CONSIDERATION RECEIVED WAS THE INCOME OF ASSESSEE FOR THE SAME YEAR IN WHICH IT WAS RECEIVED. HE ALSO HELD THAT THERE WAS NO JUSTIFICATION FOR DEFERRING INCOME BY SPREADING THE AMOUNT ALREADY RECEIVED TO A PERIOD OF 99 YEARS. FINALLY, IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE WAS NOT OBLIGED TO PROVIDE ANY SERVICES OR INCURRED ANY EXPENDITURE OVER THE PERIOD OF 99 YEARS IN TERMS OF AGREEMENT. THE ASSESSING OFFICER ALSO HELD THAT TRANSACTION AMOUNTED TO TRANSFER OF ASSET AND W AS CHARGEABLE AS CAPITAL GAINS. 10 . THE SECOND ISSUE WHICH WAS CONSIDERED BY ASSESSING OFFICER WAS TRANSFER PREMIUM, WHEREIN ON TRANSFER OF ANY PLOT BY ORIGINAL OWNER , TRANSFER PREMIUM WAS TO BE PAID BEFORE TRANSFERRING THE TERM OF LEASE IN RESPECT OF BAL ANCE PERIOD AVAILABLE OF THE LEASE PERIOD. THE ASSESSEE HAD CHARGED 50% OF AMOUNT CHARGED BY EARLIER LESSEE TO THE NEW LESSEE TO WHOM THE LEASE WAS ASSIGNED FOR THE BALANCE PERIOD OF ASSIGNING THE LEASE. WHERE THE ASSESSEE WAS NOT OBLIGED TO PROVIDE ANY SERVICES TO LESSEE OVER THE LEASE PERIOD AND EVEN IF IT WAS CONSIDERED THAT SOME SERVICES WERE TO BE PROVIDED, SERVICES AND ITS COST WOULD NOT CHANGE MERELY BECAUSE THE ORIGINAL LESSEE ASSIGNED THE LEASE TO NEW LESSEE FOR THE REMAINING PERIOD. THE ASSESSI NG OFFICER WAS OF THE VIEW THAT ON MATCHING PRINCIPLE HOW IS IT THE RECEIPT WAS REQUIRED TO BE SPREAD OVER THE BALANCE PERIOD OF ORIGINAL DEED. HE WAS OF THE VIEW THAT TRANSFER PREMIUM RECEIPT WA S TO BE CONSIDERED AS INCOME OF THE YEAR IN WHICH IT WAS R ECEIVED. 1 1 . THE LAST ITEM CONSIDERED BY HIM WAS THE PROFIT RECOGNIZED ON SALE OF PLOTS. THE ASSESSING OFFICER NOTED THAT ENTIRE AMOUNT RECEIVED IN RESPECT OF PLOTS WAS NOT INCLUDED IN THE INCOME OF YEAR AND ON NOTIONAL ESTIMATE BASIS, 10% OF AMOUNT RECE IVED WAS TREATED AS PROFIT FOR THE YEAR. THE ASSESSEE DID ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 11 NOT FURNISH COST DETAILS IN RESPECT OF PLOTS TRANSFERRED IN THE CURRENT YEAR. THE ASSUMPTION OF ASSESSEE THAT COST INCREASES IN EACH YEAR AND PROFIT REMAINS EXACTLY 10% WAS NOT SUPPORTED OR ESTABL ISHED BY THE ACCOUNTING DATA OF ASSESSEE AND HENCE, WAS NOT ACCEPTED. REJECTING THE EXPLANATION OF ASSESSEE THAT PERCENTAGE OF APPLICATION FUND FOR ASSESSMENT YEAR WAS 106% AND WAS ABOVE 100% FOR ASSESSMENT YEAR 2004 - 05, THE ASSESSING OFFICER HELD THAT WO RKING OF PERCENTAGE OF APPLICATION OF FUNDS WORKED OUT BY ASSESSEE WAS AN INCORRECT METHOD OF ACCOUNTING. 1 2 . THE NEXT ASPECT WHICH WAS TAKEN UP BY THE ASSESSING OFFICER WAS SUBMISSION OF ASSESSEE THAT IT HAD BEEN GRANTED REGISTRATION UNDER SECTION 12A OF THE ACT AND INCOME WOULD NEED TO BE COMPUTED IN ACCORDANCE WITH SECTIONS 11 TO 13 OF THE ACT. THE ASSESSEE ALSO SUBMITTED THAT IT HAD FILED AN APPEAL BEFORE THE TRIBUNAL AGAINST ORDER PASSED UNDER SECTION 263 OF THE ACT. THE ASSESSING OFFICER VIDE PAR A 15.2 AT PAGE 28 NOTES THAT INCOME OF ASSESSEE BECAME TAXABLE AFTER DELETION OF SECTION 10(20A) OF THE ACT W.E.F. 01.04.2003. SUBSEQUENTLY, THE ASSESSEE APPLIED FOR REGISTRATION UNDER SECTION 12A OF THE ACT FOR THE FIRST TIME ON 28.11.2006 AND THIS APPLI CATION WAS REJECTED BY COMMISSIONER VIDE ORDER DATED 30.05.2007. SUBSEQUENTLY, THE ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL, WHICH DECIDED THE ISSUE IN FAVOUR OF ASSESSEE VIDE ITS ORDER DATED 29.04.2009. THE REGISTRATION WAS ACCORDINGLY, GRANTED BY O RDER OF COMMISSIONER OF INCOME - TAX - V, PUNE, DATED 29.09.2009 W.E.F. 30.11.2006. THE ASSESSEE FURTHER WENT IN APPEAL AGAINST ORDER OF COMMISSIONER IN GRANTING REGISTRATION UNDER SECTION 12AA OF THE ACT W.E.F. 30.11.2006 AND THE TRIBUNAL VIDE ORDER DATED 19 .05.2010 ALLOWED THE APPEAL OF ASSESSEE AND HAS DIRECTED THE COMMISSIONER TO GRANT REGISTRATION UNDER SECTION 12AA OF THE ACT TO THE ASSESSEE W.E.F. 01.04.2002. PURSUANT TO THE ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 12 AFORESAID DIRECTIONS, THE COMMISSIONER PASSED AN ORDER DATED 28.06.2010 AND GR ANTED REGISTRATION UNDER SECTION 12AA OF THE ACT W.E.F. 01.04.2002 WITH DIRECTION TO ASSESSING OFFICER THAT REGISTRATION GRANTED UNDER SECTION 12AA R.W.S. 12A OF THE ACT WAS NOT CONCLUSIVE IN RESPECT OF CLAIM OF EXEMPTION UNDER SECTIONS 11 TO 13 OF THE ACT WHILE PROCESSING THE RETURN OF INCOME. THE DEPARTMENT ALSO FILED AN APPEAL AGAINST ORDER OF TRIBUNAL BEFORE THE HONBLE BOMBAY HIGH COURT. 1 3 . THE ASSESSING OFFICER MADE CERTAIN OBSERVATIONS ON THE OBJECTS OF TRUST AND ACTIVITIES OF ASSESSEE AND WAS O F THE VIEW THAT ACTIVITIES OF ASSESSEE CANNOT BE SAID TO BE CHARITABLE IN NATURE, SINCE THE ASSESSEE WAS INVOLVED IN BUSINESS ACTIVITIES OF PROFIT WITH OBJECTS OF THOSE OF COMMERCIAL ORGANIZATION. HOWEVER, FOR JUDICIAL PROPRIETY, HE HELD THAT ASSESSEES C ASE WAS TO BE CONSIDERED UNDER SECTION 11 OF THE ACT BUT SINCE THE ASSESSEE HAD NOT FILED ANY FORM NO.10 FOR ACCUMULATION OF INCOME AND AS THE ASSESSEE HAD NOT SPENT 85% OF ITS RECEIPTS IN THE CURRENT YEAR AND IN THE ABSENCE OF ANY NOTICE TO THE ASSESSING OFFICER IN FORM NO.10 FOR ACCUMULATION OF ALL SURPLUS, THE ASSESSING OFFICER COMPUTED APPLICATION AND SURPLUS FOR THE YEAR UNDER PARA 16.3 AT PAGE 33 OF ASSESSMENT ORDER. THE ASSESSING OFFICER HELD THAT WHERE THE ASSESSEE WAS GENERATING HUGE SURPLUS EACH YEAR WHICH WERE MORE THAN APPLICATION AS EXPENDITURE EACH YEAR AND THERE WAS EVEN SHORTFALL AGAINST 85% OF THE INCOME REQUIRED, THEN SUCH SHORTFALL IN APPLICATION OF INCOME WAS TAXABLE AS PER PROVISIONS OF SECTION 11(2) OF THE ACT. HE THUS, HELD THAT 85% OF SURPLUS OF INCOME TO THE EXTENT IT EXCEEDS THE ACTUAL APPLICATION TO CHARITABLE PURPOSES WAS TAXABLE UNDER SECTION 11(2) OF THE ACT AND ADDED 21.89 CRORES FOR THE YEAR UNDER CONSIDERATION. THE INCOME WAS ASSESSED UNDER SECTIONS 11 TO 13 OF THE ACT. HOWEVER, DEFECT IN ACCOUNTING METHOD WAS HELD TO BE RELEVANT FOR ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 13 ASSESSMENT U NDER BUSINESS INCOME ALSO . T HE ASSESSING OFFICER OBSERVED THAT SINCE ENTIRE RECEIPTS WERE CONSIDERED AS TAXABLE, EXPENDITURE CONSIDERED AS CAPITAL EXPENDITURE WOULD NOT BE ALLOWE D AND TAXABLE INCOME WAS DETERMINED AT 21.89 CRORES AND THE ASSESSMENT WAS MADE UNDER THE HEAD BUSINESS INCOME. 1 4 . THE CIT(A) NOTES THAT THE ASSESSEE HAD FURNISHED RETURN OF INCOME IN RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT AT NIL CLAIMING EX EMPTION UNDER SECTION 11 OF THE ACT. HOWEVER, THE ORDER UNDER SECTION 143(3) R.W.S. 148 OF THE ACT WAS PASSED ASSESSING INCOME AT 7,42,84,300/ - . THE ASSESSEE FILED AN APPEAL AGAINST THE SAID ORDER OF ASSESSMENT AND THE CIT(A) ALLOWED THE ISSUE OF DEPRE CIATION PARTIALLY. BOTH THE DEPARTMENT AND ASSESSEE FILED APPEAL TO THE TRIBUNAL. BEFORE THE DECISION OF TRIBUNAL, COMMISSIONER ISSUED NOTICE UNDER SECTION 263 OF THE ACT ON 28.01.2011 AND PASSED THE ORDER ON 07.03.2011. THE TRIBUNAL SET ASIDE THE ISSUE OF DEPRECIATION IN RESPECT OF REVENUES APPEAL AND DIRECTED ADJUDICATION CONSIDERING REGISTRATION UNDER SECTION 12A OF THE ACT WAS AVAILABLE. THE CIT(A) THUS, NOTES THAT ENTIRE GAMUT OF ASSESSMENT HAD BEEN CHANGED ; HENCE THE PLEA OF ASSESSEE THAT ASSESSM ENT SHOULD BE COMPLETED DE - NOVO . THIS ORDER OF TRIBUNAL WAS PASSED ON 30.12.2011. THE CIT(A) ALSO NOTES THAT ON THE SAME DATE, THE ASSESSING OFFICER PASSED AN ORDER UNDER SECTION 143(3) R.W.S. 263 OF THE ACT ON 30.12.2011 DETERMINING INCOME AT 26,63,31 ,810/ - . AGAINST THE SAID ASSESSMENT ORDER, APPEAL WAS FILED BEFORE THE CIT(A). THE CIT(A) NOTED THE STATUS OF VARIOUS YEARS LITIGATION IN ASSESSEES OWN CASE INCLUDING SPECIFIC APPELLATE ORDERS IN THE CONTEXT OF APPROVAL UNDER SECTION 12A OF THE ACT. TH E SAME ARE TABULATED AND REPRODUCED AT PAGES 5 TO 8 OF APPELLATE ORDER. ON PERUSAL OF THE SAME, THE CIT(A) OBSERVED AS UNDER: - ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 14 4.7 A PERUSAL OF THE ABOVE CHART REVEALS FOLLOWING POSITION. A ) THE APPELLANT APPLIED FOR 12A, WHICH WAS REJECTED INITIALLY, BU T ACCORDED LATER ON BY THE HONORABLE ITAT WITH EFFECT FROM 01 / 04 / 2002 ( I.E. A.Y. 2003 - 04 ) . AS SUCH, ASSESSMENTS OF THE APPELLANT WILL HAVE TO BE CONCLUDED IN THE FRAME - WORK OF SECTION 11 OF THE ITA, 1961. B ) THE RETURNS OF EARLIER YEARS PRIOR TO A.Y. 2008 - 0 9 WERE FILED BY THE APPELLANT WITHOUT CONSIDERING THE EXEMPTION U /S 11 , AS THE ISSUE OF REGISTRATION U /S 12A WAS PENDING THEN, THOUGH A NOTE AS TO CLAIM OF EXEMPTION WAS SUBMITTED WITH RETURN OF INCOME. C ) WHEN THE TAX DISPUTES OF EARLIER YEARS PRIOR TO A.Y. 2008 - 09 (AND PRIOR TO THE TIME OF GRANT OF 12A BY THE HONORABLE ITAT) REACH THE ITAT, THE ITAT SET - ASIDE THE DISPUTES OBSERVING THAT THE ASSESSMENTS OUGHT TO BE DONE DE - NOVO AS THE ENTIRE GAMUT (SITUATION) HAS CHANGED AFTER GRANT OF REGISTRATION U/S 12A. D ) AS SUCH, WHAT EMERGES IS THAT, THE APPELLANTS INCOME FOR ALL THE YEARS IS REQUIRED TO BE COMPUTED AS PER SECTION 11 AND 12 OF THE ITA, 1961. 1 5 . THE FIRST ISSUE DECIDED BY CIT(A) WAS WHETHER THE ASSESSEE WAS EXTENDED ARM OF GOVERNMENT AND THE SAID ISSUE WAS REJECTED. THE ASSESSEE FILED WRITTEN SUBMISSIONS BEFORE THE CIT(A) AND POINTED OUT THAT TILL ASSESSMENT YEAR 2002 - 03, INCOME OF DEVELOPMENT AUTHORITY WAS EXEMPT FROM INCOME TAX UNDER SECTION 10(20A) OF THE ACT. HOWEVER, FROM ASSESSMENT YEAR 2003 - 04, SAID EXEMPTION WAS REMOVED BY THE LEGISLATURE AND UNDER THE AMENDED PROVISIONS, INCOME OF HOUSING BOARDS OF STATES AND DEVELOPMENT AUTHORITIES WAS TAXABLE. THE ASSESSEE EXPLAINED THAT TRIBUNAL HAD GRANTED REGISTRATION UNDER SECTION 12A OF THE ACT W.E.F. 01.04.2002 AND APPEALS FOR FOUR YEARS STARTING FROM ASSESSMENT YEARS 2003 - 04 TO 2006 - 07 HAD TO BE DECIDED IN LINE WITH DIRECTIONS OF TRIBUNAL ALLOWING REGISTRATION TO ASSESSEE UNDER SECTION 12A OF THE ACT. THE ASSESSEE THUS, EXPLAINED ITS MODALITIES OF DE VELOPING TOWNSHIP AND VARIOUS EXPENDITURE INCURRED I.E. FIRST ALLOTMENT OF LAND / TENEMENTS TO VARIOUS PARTIES. IT WAS THEN EXPLAINED THAT THE ASSESSEE CARRIED OUT INFRA RELATED EXPENSES WHICH INCLUDED MAKING ROADS, GARDENS, WATER TANKS, STREETS, PLANTATI ON, ETC. THESE INFRA FACILITIES WERE USED BY PUBLIC, FOR WHICH ASSESSEE ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 15 WAS NOT CHARGING ANY FEES / TOLL CHARGES. HOWEVER, THESE INFRA EXPENSES HAD TO BE CONSIDERED FOR COMPUTING INCOME IN THE HANDS OF ASSESSEE. ANOTHER POINT WHICH WAS RAISED BY ASSESSE E WAS THAT THE ASSESSEE CREATED BUDGET OF EXPENSES IN ENSUING YEAR AND THE SAME WERE APPROVED BY THE STATE GOVERNMENT I.E. APPLICATION OF FUNDS WAS UNDER THE CONTROL OF GOVERNMENT AUTHORITIES. ANOTHER POINT WHICH WAS RAISED WAS THAT THE ASSESSEE WAS REQUI RED TO REFUND PREMIUM OF LAND ALLOTMENT IF ANY CUSTOMER WISHES TO SURRENDER THE ALLOTTED PLOT, WHICH CLAUSES WERE MISSING IN PRIVATE ENTERPRISES. THE ASSESSEE STRESSED THAT IT WAS ENTERING INTO LEASE AGREEMENTS WITH VARIOUS PARTIES FOR ALLOTMENT OF LANDS AND CONSTRUCTED UNITS, WHERE THE PERIOD OF LEASE WAS 99 YEARS BUT IT RECEIVES PREMIUM AT THE TIME OF ALLOTMENT. AS PER AGREEMENT WITH THE RESPECTIVE PARTIES, THE ADVANCE PREMIUM ON LAND / CONSTRUCTED UNITS WAS REFUNDABLE TO THE LESSEE OF THE PLOT IF LESSE E DECIDES TO CANCEL LEASE. HENCE, THE ASSESSEE DID NOT HAVE CONTRACTUAL RIGHT TO APPROPRIATE THE ENTIRE PREMIUM TO INCOME AND EXPENDITURE ACCOUNT, THAT IS WHY IT RECOGNIZED 1/99 ADVANCE LEASE PREMIUM ON CONSTRUCTED UNITS AS INCOME OF EACH YEAR. HOWEVER, THE ASSESSING OFFICER HAS CONSIDERED ENTIRE AMOUNT OF PREMIUM AS INCOME AND ADDED THE SAME IN THE HANDS OF ASSESSEE. THE ASSESSEE ALSO EXPLAINED VARIOUS CONTRACTUAL TERMS OF AGREEMENT OF NON - ASSIGNMENT, REVERSION OF POSSESSION AFTER COMPLETION OF LEASE PE RIOD, NON - MORTGAGE OF LEASEHOLD RIGHTS WITHOUT CONSENT OF AUTHORITIES. THE ASSESSEE STRESSED THAT ACCOUNTING METHOD IT WAS FOLLOWING NEEDS TO BE ADOPTED, WHEREIN 10% OF PROFIT WAS ESTIMATED ON LAND ALLOTMENT. IT WAS ALSO EXPLAINED THAT THE ASSESSEE HAD N OT CLAIMED PROPORTIONATE COST ON SUCH LANDS SINCE THE SAID COST WAS INCURRED OVER THE PERIOD OF MANY YEARS. FURTHER, THE ASSESSEE HAD ALSO NOT CLAIMED ANY DEDUCTION ON ACCOUNT OF INFRA DEVELOPMENT COST INCURRED, WHICH AGAIN WAS INCURRED OVER PERIOD OF MAN Y YEARS. THUS , THE ASSESSEE OBJECTED TO ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 16 THE PROPOSAL OF ASSESSING OFFICER IN TAXING ENTIRE RECEIPTS AS INCOME IN THE HANDS OF ASSESSEE. IN THIS REGARD, RELIANCE WAS PLACED ON DANDEKAR COMMITTEE REPORT. IN ANOTHER SUBMISSIONS, THE ASSESSEE POINTED OUT TH AT IT SHOULD BE ALLOWED GRANT OF LAND COST OF PAST YEARS AS DEDUCTION SINCE THE ENTIRE LAND REVENUE FOR NEXT 99 YEARS WAS CONSIDERED AS REVENUE FOR THE CURRENT YEAR . THE ASSESSEE THEN PLEADED THAT BENEFIT OF ACCUMULATION OF INCOME AS PER FORM NO. 10 WAS AV AILABLE TO THE ASSESSEE AND SAME SHOULD BE ALLOWED. ANOTHER PLEA RAISED BY ASSESSEE BEFORE THE COMMISSIONER WAS THAT SINCE IT WAS RECOGNIZING ONLY 1/99 TH PART OF BUILDING LEASE REVENUE AND IN CASE THE ENTIRE LEASE REVENUE RECEIVED IN A YEAR NEEDS TO BE CO NSIDERED AS ELIGIBLE REVENUE, THEN THE QUANTUM OF REVENUE FOR PAST YEARS REGARDING 1/99 TH REVENUE NEED TO BE REMOVED ON LOGICAL REASONING. SIMILAR PLEA WAS RAISED IN RESPECT OF CREATING ENTIRE PROCEEDS ON PLOTS LEASED PREMIUM TO ACCOUNT CALLED AS PLOTS P REMIUM ACCOUNT. EVERY YEAR 10% OF SAID PREMIUM USED TO BE TAKEN TO PROFIT AND LOSS ACCOUNT. HOWEVER, THE ASSESSING OFFICER HAD ADDED ENTIRE CREDITS TO PLOTS PREMIUM ACCOUNT, WHICH HA D RESULTED IN DOUBLE TAXATION. THE NEXT PLEA RAISED BY ASSESSEE WAS TH AT CLAIM OF DEPRECIATION ON LEASED BUILDING. IT WAS STRESSED THAT WHERE THE LEASE PERIOD WAS 99 YEARS AND THE SAME WAS OPERATING LEASE, THEN THE LESSEE WAS REQUIRED TO VACATE BUILDING / PREMISES AND HANDOVER THE PROPERTIES BACK TO THE ASSESSEE AT THE END OF LEASE PERIOD. SINCE THE INCOME FROM USE OF PROPERTY WAS BEING OFFERED TO TAX, THEN RELATED DEPRECIATION ON THE SAME OUGHT TO BE CONSIDERED BEFORE WORKING OUT TAXABLE INCOME OF ASSESSEE FOR THE RESPECTIVE YEARS. IN THIS REGARD, ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION REPORTED IN 264 ITR 110 (BOM) AND DIT VS. FRAMJEE CAWASJEE INSTITUTE REPORTED IN 109 CTR 463 (BOM). THE NEXT PLEA WAS AGAINST BENEFIT OF ACCUMULATION THROUGH FORM NO.10. THE SAID CLAIM WAS NOT MADE DURING THE COURSE OF ASSESSMENT ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 17 PROCEEDINGS BUT BEFORE THE APPELLATE PROCEEDINGS AND THE CIT(A) WAS ASKED TO ALLOW THE SAME. THE ASSESSEE THEN, POINTED OUT THAT FOR ASSESSMENT YEARS 2005 - 06 AND 2008 - 09, THE ASSESSING OFFICER HAD REJECT ED ACCUMULATION CLAIM MADE THROUGH FORM NO.10 ON THE GROUND OF DEFECT THEREIN. IT WAS STRESSED BEFORE THE CIT(A) THAT SINCE THERE WAS HUGE CONFUSION WITH REGARD TO COMPUTATION OF INCOME, AS SUCH, RELIANCE MAY NOT BE PLACED ON FORM NO.10 ALREADY FILED AND THE ASSESSEE BE ALLOWED TO SUBMIT CORRECTED FORM NO.10. 1 6 . THE CIT(A) VIDE PARA 11 DECIDES THE FIRST ISSUE OF RECOGNITION OF INCOME IN THE HANDS OF ASSESSEE AND REJECTED THE PLEA OF ASSESSEE THAT ONLY 10% OF PLOT PREMIUM IS CONSIDERED AS ELIGIBLE REVEN UE. RELIANCE ON THE GUIDANCE GIVEN BY DANDEKAR COMMITTEE REPORT APPOINTED BY THE GOVERNMENT WAS NOT ACCEPTED AS NO SUCH REPORT WAS FILED BEFORE HIM. SECONDLY, THE PLEA OF ASSESSEE TO TAKE REVENUE AT ONLY 10% OF PLOT REVENUE RECEIPTS WAS HELD TO BE NOT CO RRECT. HE WAS OF THE VIEW THAT ENTIRE RECEIPTS WERE TO BE CONSIDERED AS ELIGIBLE REVENUE FOR WORKING OUT TAXABLE INCOME AND EXEMPTION UNDER SECTION 11 OF THE ACT. COMING TO NEXT PLEA OF CLAIM OF DEDUCTION OF MATCHING LAND COST, IT WAS HELD THAT PROCESS OF DEDUCTING INCOME OF CHARIT ABLE INSTITUTE WAS AKIN TO RECEIPT AND PAYMENT ACCOUNT. WHERE THE LAND COST WAS INCURRED IN EARLIER YEARS, SUCH LAND COST OUGHT TO BE AN APPLICATION OF INCOME IN SUCH EARLIER YEARS, HENCE THIS PLEA OF ASSESSEE WAS ALSO NOT ACCEP TED. THE NEXT ISSUE WHICH WAS DELIBERATED UPON BY THE CIT(A) WAS THAT WITH REGARD TO REMOVAL OF 1/99 TH PREMIUM OF PAST YEARS TRANSACTIONS, WHEREIN THE ASSESSING OFFICER WAS DIRECTED TO WORK OUT CORRECT FIGURES OF EARLIER YEARS RELATED TO 1/99 TH REVENUE ST REAMS. IT WAS FURTHER HELD THAT IF THE ASSESSEE TAKES UP THE ISSUE OF REVENUE MODEL IN FURTHER LITIGATION AND SUCCEEDS, THEN RELIEF GRANTED VIDE PRESENT GROUND WOULD STAND WITHDRAWN. THE NEXT PLEA OF ASSESSEE WAS WITH REGARD ACCUMULATION OF ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 18 INCOME VIDE F ORM NO.10, WHEREIN IT WAS NOTED BY THE CIT(A) THAT THE ASSESSEE HAD ACCEPTED THAT FORM NO.10 WAS NOT FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HOWEVER, SAME WAS FILED WITH CIT(A) AND THEN ASSESSING OFFICER ON 1 1 .02.2014 AND 1 4 .02.2014, RESPECTIVE LY, REQUESTING CONDONATION OF DELAY IN FILING THE SAID FORM NO.10 LATE. SINCE THE ASSESSEE HAD FURNISHED FORM NO.10 LATE BEFORE THE ASSESSING OFFICER, THE CIT(A) WAS OF THE VIEW THAT DECISION O N FORM NO.10 AND ACCUMULATION WAS YET TO BE TAKEN AND HENCE TH E ISSUE RAISED WAS HELD TO BE PREMATURE AND DISMISSED. VIS - - VIS ENHANCED CLAIM OF ACCUMULATION OF INCOME, REQUEST BEING MADE IN FORM NO.10, THE CIT(A) OBSERVED THAT CONFUSION IN WORKING OUT CORRECT CLAIM FOR ACCUMULATION APPEARED TO BE BONAFIDE. REFEREN CE WAS MADE TO CBDT CIRCULAR NO.273, DATED 06.02.1980, WHICH SPECIFICALLY ALLOWS THE ASSESSING OFFICER AND CIT(A) TO ACCEPT BELATED SUBMISSION OF FORM NO.10 AND ALLOW THE CONDONATION OF DELAY. COMING TO LAST ISSUE OF DEPRECIATION ON LEASED ASSETS, THIS PL EA OF ASSESSEE WAS ALSO NOT ACCEPTED. THE NEXT PLEA OF ASSESSEE WHICH WAS RAISED WAS THE ASPECT OF WDV FOR THE PURPOSE OF WORKING OUT ELIGIBLE DEPRECIATION. THE ASSESSING OFFICER HAD RE - WORKED THE WDV OF ASSETS BY CONSIDERING EXPLANATION 4 TO SECTION 32 OF THE ACT, WHEREIN DEPRECIATION WAS TO BE COMPULSORILY ALLOWED FOR WORKING OUT BUSINESS INCOME. IT WAS PLEADED THAT SINCE UPTO ASSESSMENT YEAR 2002 - 03, INCOME OF ASSESSEE WAS EXEMPT, THERE WAS NO OCCASION TO VISIT SECTION 32 OF THE ACT. FURTHER, REFEREN CE WAS MADE TO DEFINITION OF WDV UNDER SECTION 43(6) OF THE ACT, WHICH STATE THAT WDV SHOULD BE BASED ON DEPRECIATION ACTUALLY ALLOWED . TO THE DEFINITION, EXPLANATION 6 WAS ADDED BY THE FINANCE ACT, 2008 WITH RETROSPECTIVE EFFECT FROM 01.04.2003 I.E. EFFE CTIVE FROM ASSESSMENT YEAR 2003 - 04 ONWARDS. BY THIS EXPLANATION, IT W AS CLARIFIED THAT WHEN THE ASSESSEE WAS NOT REQUIRED TO COMPUTE INCOME UNDER THE INCOME - TAX ACT AND WAS THUS, NOT PROVIDING DEPRECIATION UNDER THE INCOME - TAX ACT, VALUE OF ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 19 ASSETS AFTER D EPRECIATION ACTUALLY PROVIDED SHOULD BE CONSIDERED AS WDV OF ASSETS AS ON 01.04.2002 I.E. OPENING WDV FOR ASSESSMENT YEAR 2003 - 04. THE ASSESSEE CLAIMED THAT THIS ISSUE STANDS COVERED BY EXPLANATORY NOTE TO FINANCE ACT, 2008, CLAUSE 14 AND HENCE, THE QUEST ION OF OPENING WDV HAS TO BE DECIDED FOR ASSESSMENT YEAR 2003 - 04. THE CIT(A) IN VIEW OF SPECIFIC PROVISIONS OF EXPLANATION 6 TO SECTION 43(6) OF THE ACT, HELD THAT IT ONLY APPROPRIATE TO ALLOW DEPRECIATION ON BROUGHT FORWARD BLOCK OF ASSETS OF THE ASSESSE E. FOR ASSESSMENT YEAR 2003 - 04, ONE ISSUE WHICH WAS DECIDED BY CIT(A) WAS THAT THE ASSESSING OFFICER HAD TO FRAME ASSESSMENT DE - NOVO AFTER ORDER OF TRIBUNAL ALLOWING REGISTRATION UNDER SECTION 12A OF THE ACT W.E.F. 01.04.2002. HENCE, THE INCOME NEEDED TO BE COMPUTED STRICTLY AS PER SECTION 11 OF THE ACT, SINCE THE WHOLE GAMUT OF ASSESSMENT HAD CHANGED, THEN ASSESSING OFFICER COULD NOT SUSTAIN ADDITION OF 5.74 CRORES MADE IN THE FIRST ROUND OF ASSESSMENT AND THE ASSESSING OFFICER WAS DIRECTED TO DELETE T HE SAME. 1 7 . BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL AGAINST RESPECTIVE PORTIONS OF ORDER OF CIT(A). 1 8 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET REFERRED TO CHART 1 AND 2, WHICH SUMMARIZED YEAR - WISE GROUNDS OF APPEAL RAI SED BY ASSESSEE AND THE GROUNDS OF APPEAL RAISED BY REVENUE. THEN, COMING TO EVENTS CHART, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT TRIBUNAL AGAINST ORDER PASSED UNDER SECTION 263 OF THE ACT VIDE PARA 6 HAS HELD THE LEASE PR EMIUM IS TAXABLE ON ACCRUAL / RECEIPT BASIS. IT WAS POINTED OUT THAT THE ASSESSEE WAS DEVELOPMENT AUTHORITY, WHEREIN THE LAND WAS ACQUIRED BY THE GOVERNMENT IN STAGES AND WAS MADE ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 20 AVAILABLE TO THE ASSESSEE FOR DEVELOPMENT INTO A TOWNSHIP. THE ASSESSEE WA S CARRYING ON TWO - FOLD ACTIVITIES I.E. OFFERING PLOTS OF LAND ON LEASE BASIS AND ALSO CONSTRUCTING PREMISES AND GIVING THEM TO THE ULTIMATE USER AGAIN ON LEASE BASIS. THE OVERALL PERIOD OF LEASE WAS 99 YEARS AND IF IT IS TRANSFERRED, THEN FOR BALANCE PERI OD PREMIUM IS RECEIVED. IN CASE IT IS TRANSFERRED IN MIDWAY THEN ORIGINAL LESSEE GETS REFUND ON PROPORTIONATE BASIS FOR BALANCE PERIOD OF LEASE AND PURCHASER PAYS MARKET VALUE OF THE PREMIUM FOR BALANCE PERIOD OF LEASE. THE ASSESSEE WAS FOLLOWING MERCANT ILE / ACCRUAL SYSTEM OF ACCOUNTING. REFERRING TO THE ORDER OF ASSESSING OFFICER, THE ASSESSEE POINTS OUT THAT IT TALKS OF THE CLAIM OF ASSESSEE THAT CORRESPONDING COST BE ALLOWED. THE ASSESSING OFFICER TREATED THE ASSESSEES LEASE AS FINANCIAL LEASE AND DID NOT ALLOW DEPRECIATION ON ASSETS AND / OR CORRESPONDING COSTS . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED THAT IN CASE LEASE PREMIUM IS TREATED AS INCOME OF ASSESSEE ON ACCRUAL BASIS, THEN LAND COST NEEDS TO BE ALLOWED AND ALSO CO ST OF CONSTRUCTION ON INFRASTRUCTURE IS TO BE ALLOWED ALONG WITH DEPRECIATION ON LEASEHOLD PREMISES AND ALSO DEPRECIATION ON INFRA COST. IT WAS FAIRLY POINTED OUT THAT EXPENDITURE ON INFRA COST FOR THE RESPECTIVE YEARS WAS ALLOWED BY THE ASSESSING OFFICER . HOWEVER, THE ASSESSING OFFICER DENIED DEPRECIATION ON THE GROUND THAT IT WAS FINANC E LEASE. 1 9 . THE ASSESSING OFFICER HAS DENIED APPLICATION OF INCOME AS INCURRED IN EARLIER YEARS AND THE CASE OF ASSESSING OFFICER WAS THAT AT BEST THE ASSESSEE CAN BE A LLOWED DEPRECIATION ON THEM AS ASSESSEE HAD ALREADY BOOKED EXPENSES IN ITS INCOME AND EXPENDITURE ACCOUNT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THEREAFTER, TOOK US THROUGH WRITTEN SUBMISSIONS FILED BEFORE THE CIT(A) AND POINTED OUT THAT UNDER - MENTIONED ISSUES WERE RAISED BEFORE HIM: ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 21 A) LAND COST OF EARLIER YEARS NEEDS TO BE ALLOWED THOUGH NO BREAKUP COULD BE GIVEN BEFORE THE CIT(A); B) LAND ACQUIRED IN CURRENT YEAR WAS CLAIMED AND ALLOWED AS APPLICATION OF INCOME BUT THE REVENUE WAS NOT IN APPEAL ON THIS ISSUE I.E. IN ASSESSMENT YEAR 2008 - 09; C) DEPRECIATION ON LEASED BUILDING, WHERE THE LEASED BUILDINGS WERE GIV EN ON LEASE FROM PAST YEARS AND ASSESSEE CLAIMED DEPRECIATION ON IT; D) THE ASSESSING OFFICER HAD ALLOWED APPLICATION OF INC OME ON COST OF LEASED BUILDINGS IN THE RESPECTIVE YEARS OF PURCHASE BUT HAD DENIED DEPRECIATION ON THE GROUND THAT IT AMOUNTED TO DOUBLE DEDUCTION. 20 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT APPLYING MATCHING PRINCIPLE, TH E PROPORTIONATE COST OF BUILDING / LAND SOLD MERITS TO BE ALLOWED IN THE HANDS OF ASSESSEE AND / OR ALLOW DEPRECIATION ON BUILDING. THE ASSESSEE WAS SHOWING LEASE RENT FOR THE YEAR AND CLAIMING DEPRECIATION. HOWEVER, NOW SINCE THE ENTIRE LEASE RENT FOR 9 9 YEARS HAS BEEN BROUGHT TO TAX IN THE YEAR OF RECEIPT, THEN COST OF CONSTRUCTION PLUS LAND COST PLUS INFRA COST IS TO BE ALLOWED ON PROPORTIONATE BASIS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DREW OUR ATTENTION TO THE BALANCE SHEET AS ON 01.04.2002, UNDER WHICH THE ASSESSEE MADE UNDER - MENTIONED DECLARATIONS: A) COST OF LAND - 7,74,86,087/ - B) PROPERTIES CONSTRUCTED - 1,23,99,72,278/ - C) INFRA AND DEVELOPMENT - 3,91,90,091/ - D) OFFICE BUILDING (SEPARATELY SHOWN) - 18,73,149/ - ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 22 2 1 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT PROPERTIES CONSTRUCTED OF 123.99 CRORES WAS SHOWN AS FIXED ASSETS; BUT IN FACT IT WAS INVENTORY COST OF REVISED RECOGNIZED INCOME AS HELD BY THE TRIBUNAL. HE FURTHER POINTED OUT THAT ARGUMENTS MADE BEFORE THE CIT(A) GET MODIFIED AS THE ASSESSE E WAS RECOGNIZING REVENUE YEAR - WISE AND NOT ON ACCOUNT OF TOTAL PREMIUM RECEIPTS. OUR ATTENTION WAS DRAWN TO PAGE 30 OF ORDER OF CIT(A), WHERE THE LAND COST WAS NEVER ALLOWED AS APPLICATION OF MONEY, SO DEPRECIATION CLAIMED WAS PERSE FOR THE FIRST TIME. HE FURTHER ARGUED THAT EVEN OTHERWISE WHERE THE COST OF ASSET WAS ALLOWED AS APPLICATION OF MONEY , DEPRECIATION MERITS TO BE ALLOWED. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF HONBLE APEX COURT IN CIT VS. RAJASTHAN & GUJARATI CHARITABLE FOUN DATION POONA (2018) 89 TAXMANN.COM 127 (SC). AGAIN REFERENCE WAS MADE TO ORDER OF CIT(A) AT PAGE 31 I.E. CONTENTION 5, WHERE IT WAS HELD THAT THE ASSESSEE WAS CLAIMING REDUCED DEPRECIATION AT HIGHER RATES AND THE ASSESSING OFFICER ON THE OTHER HAND, WAS O F THE VIEW THAT DEPRECIATION WAS TO BE THRUST UPON AT THE INCOME TAX RATES AND REWORKED WDV AS PER INCOME TAX ACT. IT WAS STRESSED BY LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT WORKING OF ASSESSING OFFICER WAS WRONG. UNDER SECTION 43(6), EXP LANATION 6 OF THE ACT, HE STATED THAT (A) THERE WAS NO RELIANCE IN CLAUSE (C) WHICH WAS NOT APPLICABLE AND TOTAL AMOUNT OF DEPRECIATION ALREADY CLAIMED AND ALLOWED. HOWEVER, THE FINANCE ACT, 2008 AMENDED WITH RETROSPECTIVE EFFECT FROM 01.04.2003. HE THEN REFERRED TO DECISION OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION (SUPRA), WHEREIN IT WAS HELD THAT IT WAS NOT UNDER SECTION 32 OF THE ACT UNDER WHICH THRUST WAS TO CLAIM DEPRECIATION AS PER THE PRINCIPLE. THE LEAR NED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HERE STRESSED THAT WHERE THE ASSESSEE WAS NOT CLAIMING DEPRECIATION ON ASSETS, ASSESSING OFFICERS EXERCISE OF GOING BACK BY ONE YEAR ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 23 WAS UNCALLED FOR. THEN REFERRING TO PAGE 31 OF ORDER OF CIT(A), CONTENTION NO.6 WITH REGARD TO FORM NO.10 AND PAGES 35 AND 36, IT WAS POINTED OUT THAT WHERE THE ASSESSEE TRUST WAS NOT RECOGNIZED UNDER SECTION 12A OF THE ACT, THERE WAS NO QUESTION OF FILING FORM NO.10 IN ORIGINAL PROCEEDINGS AND ADDITIONALLY THE REVENUE WAS RECOG NIZ ED AND IN ANY CASE, THE REVENUE RECOGNITION I.E. 1/99 TH LEASE PREMIUM WAS REASONABLE METHOD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE CIT(A) HAS IN PARA 18 HELD THAT INCOME HAD TO BE COMPUTED AS PER SECTION 11 OF THE ACT. REFERRING TO SERIES OF CASES, IT WAS POINTED OUT THAT FIRST OF ALL, LAND COST IS TO BE ALLOWED AGAINST RECOGNIZED INCOME IN THE HANDS OF ASSESSEE AND RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS: - A) CALCUTTA CO. LTD. VS. CIT (1959) 37 ITR 1 (SC) , WHERE IT HAS BEEN RECOGNIZED THAT FEW LIABILITIES TO BE ACCOUNTED FOR AGAINST SALE PROCEEDS OF THE SAID LAND. B) CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION REPORTED IN 264 ITR 110 (BOM) FOR THE PROPOSITION THAT COMMERCIAL PROFITS HAVE TO BE WORKED O UT AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION. C) CBDT CIRCULAR NO.005P, DATED 19.06.1968, WHEREIN INSTRUCTIONS WERE GIVEN WITH REGARD TO ASSESSABILITY OF INCOME OF CHARITABLE TRUST (PARAS 3 AND 4) D) CIT VS. MUMBAI METROPOLITAN REGIONAL IRON & STEEL MARKET COMMITTEE (2015) 378 ITR 103 (BOM) E) ACIT VS. PUNJAB URBAN DEVELOPMENT AUTHORITY (2014) 100 DTR 118 (CHD)(TRIB), WHEREIN IT WAS DIRECTED THAT CORRESPONDING EXPENDITURE WHICH HAS BEEN EXPENDED BY ASSESSEE IS TO BE ALLOWED AS DEDUCTION IN CA SH SYSTEM. ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 24 2 2 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HERE STRESSED THAT WHERE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING , THEN EXPENSES ARE TO BE ALLOWED IN THE HANDS OF ASSESSEE ON MATCHING PRINCIPLE. FURTHER, T HE DEPREC IATION HAD TO BE ALLOWED IN CASE OF FINANCIAL LEASE. IN THIS REGARD, RELIANCE WAS PLACED ON THE RATIO LAID DOWN IN I.C.D.S. LTD. VS. CIT (2013) 29 TAXMANN.COM 129 (SC). THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED THAT IT WAS RIGHTFUL OWNER AND ONLY THE ENJOYMENT RIGHTS WERE GIVEN TO LESSEES BUT THE OWNERSHIP RIGHTS REMAINED WITH ASSESSEE. OUR ATTENTION WAS DRAWN TO LEASE DEED AT PAGES 20 TO 28, WHEREIN IT IS VERY CLEARLY PROVIDED THAT DELIVERY OF POSSESSION IS TO BE RETURNED TO ASSESS EE AFTER EXPIRATION OF LEASE. HE DREW OUR ATTENTION TO CLAUSE (Q) AND (R), WHERE THE ASSESSEE HAD GIVEN LEASEHOLD RIGHTS, THEN THE ASSETS WOULD RETURN BACK TO THE ASSESSEE ON EXPIRY OF LEASE. 2 3 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, POINTED OUT THAT PREMIUM RECEIVED BY ASSESSEE IS TO BE TAXED IN THE YEAR OF RECEIPT. WITH REGARD TO COST OF LAND, IT WAS STRESSED BY HER THAT TILL 2002, THERE WAS EXEMPTION UNDER SECTION 10(20A) OF THE ACT AND WHERE THE ASSESSEE WAS FOLLO WING CASH METHOD, EXPENSES ON COST OF LAND AND COST OF CONSTRUCTION WERE TAKEN CARE OF IN EARLIER YEARS AND CANNOT BE AGAIN DEDUCTED , EVEN THOUGH SURPLUS WAS NOT OFFERED TO TAX. SHE STRESSED THAT WHERE THE EXPENSES WERE ALREADY INCURRED AND CLAIMED , THEN THEY WE RE DEEMED TO BE ALLOWED. IT WAS FURTHER POINTED OUT THAT WHERE THE ASSESSEE WAS ALSO BENEFITTING AND GETTING COST OF LAND AS DEDUCTION AS APPLICATION OF INCOME AND WA S FURTHER CLAIMING DEPRECIATION ON SUCH ASSETS, THEN CLAIM OF DEPRECIATION ON SUCH ASSETS WOULD AMOUNT TO DOUBLE DEDUCTION. IT WAS FURTHER POINTED OUT THAT RELIANCE ON CALCUTTA CO. LTD. VS. CIT (SUPRA) IS MISPLACED AS THE RATIO LAID DOWN THEREIN IS APPLICABLE ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 25 TO COMMERCIAL ENTITIES. IT WAS FURTHER POINTED OUT THAT CASES WHICH WERE REL IED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WERE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, WHEREAS THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING. OUR ATTENTION WAS DRAWN TO OBSERVATIONS OF TRIBUNAL AT PAGE 2 IN ACIT VS. PUNJ AB URBAN DEVELOPMENT AUTHORITY (SUPRA), WHEREIN IT WAS HELD THAT INCOME AND EXPENDITURE CAN NOT BE SHIFTED WHEN THERE IS CHANGE IN SYSTEM OF ACCOUNTING. REGARDING DEPRECIATION, IT WAS ALSO POINTED OUT THAT ASSESSING OFFICER HAD RE - COMPUTED WDV AND THE CIT( A) HAS GIVEN RELIEF AND FOR THIS, RELIANCE WAS PLACED ON THE ORDER OF ASSESSING OFFICER. WITH REGARD TO DELIBERATIONS ON FINANCIAL LEASE, THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF CIT(A). 2 4 . THE LEARNED AUTH ORIZED REPRESENTATIVE FOR THE ASSESSEE IN REJOINDER STRESSED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING NOW, THOUGH IN EARLIER YEARS NO PROPER METHOD WAS FOLLOWED. IT WAS ALSO POINTED OUT THAT FOR THE FIRST TIME IN ASSESSMENT YEAR 200 3 - 04, THE BALANCE SHEET WAS PREPARED WITH APPROXIMATE FIGURES AND THE OPENING BALANCES WERE NOT DISTURBED BY THE ASSESSING OFFICER /CIT(A) . IT WAS ALSO STRESSED BY HIM THAT IN THE HANDS OF ASSESSEE WHAT IS TO BE CHARGED IS THE INCOME AND NOT THE RECEIPTS, SO PROPORTIONATE COST MERITS TO BE ALLOWED ON MATCHING PRINCIPLE . COMING TO NEXT ISSUE OF NON - FILING OF FORM NO.10, RELIANCE WAS PLACED ON THE RATIO LAID DOWN IN CIT VS. MUMBAI METROPOLITAN REGIONAL IRON & STEEL MARKET COMMITTEE (2015) 378 ITR 103 (BOM). 2 5 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS DIRECTED TO FILE CALCULATION OF ALLOCABLE EXPENDITURE WITH NECESSARY CERTIFICATION ON THE NEXT DATE OF HEARING. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FILED ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 26 AREA MEASUREMENT S WORKING IN RESPECT OF AREA SOLD DURING DIFFERENT ASSESSMENT YEARS AND ALSO AREA CONSTRUCTED BEFORE 2002 BUT NOT SOLD UPTO ASSESSMENT YEAR 2013 - 14 . ANOTHER STATEMENT WAS FILED REGARDING DISTRIBUTION OF AREA AFTER 31.03.2002; BOTH FOR RESIDENTIAL, COMMERC IAL AND HOUSING SCHEME. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER SOUGHT TIME TO FURNISH EVIDENCE AND MATTER WAS ADJOURNED. THE ASSESSEE WAS ALSO DIRECTED TO FILE COST OF CONSTRUCTION OF CONSTRUCTED UNITS; COST OF OPEN LAND AS ON 01. 04.2002 AND INFRA COST AS ON 01.04.2002. THE ASSESSEE IN THIS REGARD FURNISHED WRITTEN SUBMISSIONS, COPY OF WHICH WAS HANDED OVER TO THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, WHO SOUGHT TIME TO GO THROUGH THE SAME. THE ASSESSEE ALSO FURNIS HED CERTAIN DETAILS WITH REGARD TO WORKING OF LAND AREA, WHICH WAS POSSESSED BY ASSESSEE AND PART OF WHICH WAS DEVELOPED AND THE ASSESSEE THEN GAVE SOME WORKING OF LAND COST BOTH FOR THE SALE OF LAND AND PORTION OF LAND UTILIZED FOR CONSTRUCTION. HE ALSO THEN TOOK US THROUGH WORKING OF CONSTRUCTED PREMISES COST WHICH NEEDS TO BE APPORTIONED YEAR - WISE IN ORDER TO WORK OUT THE INCOME IN THE HANDS OF ASSESSEE. IN ADDITION, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE OF A SSESSABILITY OF LEASE PREMIUM IN THE HANDS OF ASSESSEE NOW STANDS COVERED BY DECISION OF THE HONBLE HIGH COURT OF MADHYA PRADESH IN M.P. AUDYOGIK KENDRA VIKAS NIGAM (INDORE) LTD. VS. ACIT REPORTED IN 98 TAXMANN.COM 191 (MP), WHEREIN IT HAS BEEN HELD THAT FOR ACCOUNTING PURPOSE, 1/99 TH LEASE PREMIUM IS TO BE TAKEN AS REVENUE IN THE HANDS OF ASSESSEE. IN THIS REGARD IT WAS POINTED OUT THAT THE SAID DECISION WAS NEITHER QUOTED BEFORE THE TRIBUNAL WHILE ARGUING APPEAL AGAINST ORDER PASSED UNDER SECTION 263 OF THE ACT NOR WAS IT REFERRED IN THE SAID ORDER. HOWEVER, IT WAS SOLITARY DECISION ON THE POINT AND THE FACTS OF SAID CASE AND THE FACTS OF ASSESSEE WERE SIMILAR AND THE ASSESSEE STOOD AT BETTER POSITION, WHEREIN IT WAS LOCAL AUTHORITY CREATED ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 27 FOR THE PURP OSE AND THE ASSESSEE BEFORE THE HONBLE HIGH COURT OF MADHYA PRADESH WAS A COMPANY. IT WAS THEN POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT WHERE THE TREATMENT OF ONE TIME LEASE PREMIUM WAS TREATED AS ADVANCE RENT AND HAS BE EN APPROVED BY THE HONBLE HIGH COURT, THEN IN THE ABSENCE OF ANY CONTRARY DECISION ON THIS POINT WHEREIN THE ISSUE OF LEASE PREMIUM OF SAID CONTROLLED GOVERNMENT CORPORATION WAS INVOLVED HAVE BEEN DECIDED, THEN THE SAID DECISION OF THE HONBLE HIGH COURT BECOMES BINDING ON THE TRIBUNALS OPERATING ALL OVER THE COUNTRY. FOR THIS PROPOSITION, RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. GODAVARIDEVI SARAF REPORTED IN 113 ITR 589 (BOM) AND ALSO DECISION OF PUNE BENCH OF TRIB UNAL IN BHAGINI NIVEDITA SAHAKARI BANK LTD. VS. DCIT (2018) 100 TAXMANN.COM 375 (PUNE - TRIB.). ON THE LAST DATE OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURNISHED TABULATED DETAILS AND POINTED OUT THAT THE LAND UTILIZED FOR THE PU RPOSE WAS 179.02 HECTORS, WHICH WAS VALUED AT 1.74 CRORES, COST OF CONSTRUCTION OF SAME WAS 12.92 CRORES. THIS COST OF LAND AND COST OF CONSTRUCTION WAS TO BE APPORTIONED OVER THE PERIOD FROM 01.04.2002 TO 31.03.2014 ON THE BASIS OF LAND TRANSFER RED AND TENEMENTS SOLD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ALSO POINTED OUT THAT THERE WAS STILL BALANCE AREA AVAILABLE WITH THE ASSESSEE OF 55.37 HECTORS AND CONSTRUCTED AREA OF 2171 SQ.MTRS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ALSO REFERRED TO SECOND NOTE ON THE ADDITION ON ACCOUNT OF INFRA COST AND IT WAS POINTED OUT THAT SAME WAS PROPORTIONATE OVER THE WHOLE CONSTRUCTION COST AND WAS ALREADY ADDED. HOWEVER, DEPRECIATION ON SUCH INFRASTRUCTURE AND DEVELOPMENT HAS TO BE ALLOWED. IT WAS ALSO POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE ASSESSEE HAD ALREADY CLAIMED EXPENDITURE ON PURCHASE OF ASSETS AS APPLICATION OF MONEY WHICH HAS BEEN ALLOWED IN THE HANDS OF ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 28 ASSESSEE. REFERRING TO DE CISION OF HONBLE HIGH COURT, IT WAS POINTED OUT THAT BENEFIT OF ACCUMULATION NEEDS TO BE ALLOWED AND BECAUSE OF INSERTION OF EXPLANATION 6 TO SECTION 43(6) OF THE ACT, WHERE ANY OF THE PERSON COMES FROM THE EXEMPT ERA I.E. INCOME BEING TAXABLE W.E.F ASSES SMENT YEAR 2003 - 04, THEN ON THIS THE CIT(A) HAS ALREADY ALLOWED THE RELIEF VIDE PARA 17 IN ASSESSMENT YEAR 2003 - 04. REFERRING TO ORDER OF THE HONBLE HIGH COURT OF MADHYA PRADESH IN M.P. AUDYOGIK KENDRA VIKAS NIGAM (INDORE) LTD. VS. ACIT (SUPRA), WHEREIN IN THE CASE OF SAID CASE IT WAS ARM OF GOVERNMENT, WHERE THE INCOME WAS TAXABLE THEN THE SAME HAS TO BE TAXED OVER PERIOD OF 99 YEARS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT OBLIGATION ON THE LESSOR THAT IF ANY PERSON SURR ENDERS LEASE AFTER PERIOD OF 5 YEARS, THEN 93/99 YEARS PREMIUM HAD TO BE RETURNED; THIS WAS CONTRACTUAL LIABILITY OF ASSESSEE. HOWEVER, THE TRIBUNAL IN SUCH CIRCUMSTANCES HAD HELD THAT ACCOUNTING IS TO BE DONE OF THE WHOLE RECEIPT ON THE DATE OF ENTERING INTO AGREEMENT , IGNORING THE SUBMISSIONS OF ASSESSEE ON SURRENDER OF LEASE AFTER LOCK IN PERIOD OF 5 YEARS . 2 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE AFTER GOING THROUGH WRITTEN SUBMISSIONS, POINTED OUT THAT NO PART OF EXPENSES WERE TO BE ALLOWED SINCE ALL COSTS WERE PRIOR TO YEAR 2002, SO IT WAS ALLOWED IN THE HANDS OF ASSESSEE. IN THIS REGARD, S HE PLACED RELIANCE ON THE ORDERS OF ASSESSING OFFICER/CIT(A). SHE SAID THAT SAME WAS LEFT TO THE WISDOM OF TRIBUNAL. COMING TO ACCUMULATION OF PROFITS IN FORM NO.10 , IT WAS POINTED OUT THAT SAME HAD TO BE ALLOWED BY THE COMMISSIONER AND WHATEVER WAS EXCESS, THE ASSESSEE HAS TO APPLY TO THE COMMISSIONER ON THIS REGARD. WITH REGARD TO RECOGNITION OF LEASE PREMIUM, IT WAS STRESSED THAT THE ISSU E STANDS COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE. ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 29 2 7 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN REJOINDER STRESSED THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE STATES THAT NO EXPENSES ARE TO BE ALLOWED TO ASSESSEE; BUT MATCHING PRINCIPLE HAS TO BE APPLIED AND SINCE WHAT IS TO BE TAXED IN THE HANDS OF ASSESSEE IS INCOME AND NOT TOTAL REVENUE. IF THE REVENUE MODEL IS DISTURBED, THEN FORM NO.10 WOULD HAVE TO BE REVISED AND FOR THIS, SUITABLE DIRECTIONS BE GRA NTED. 2 8 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS MULTI - FOLD, WHEREIN THE FIRST GROUND WHICH HAS BEEN RAISED IN ALL THE YEARS BY THE ASSESSEE IS THAT SINCE IT WAS EXTENDED ARM OF STATE G OVERNMENT OF MAHARASHTRA AND CONSEQUENTLY, INCOME OF ASSESSEE WAS NOT TAXABLE UNDER THE INCOME TAX ACT. WE FIND NO MERIT IN THE SAID PLEA RAISED BY ASSESSEE AND THE SAME IS DECIDED AGAINST ASSESSEE. 2 9 . NOW, THE NEXT STEP TO BE CONSIDERED IN THE PRESENT SET OF FACTS IS THE COMPUTATION OF INCOME IN THE HANDS OF ASSESSEE, WHEREIN IT HAS RAISED TWO PRINCIPAL ISSUES; (A) THAT THE LEASE PREMIUM IF IT IS TAXED IN THE HANDS OF ASSESSEE ON THE DATE OF ITS ACCRUAL I.E. THE DATE WHEN IT HAS ENTERED INTO AGREEMENT, THEN MATCHING PRINCIPLE HAS TO BE APPLIED AND THE CORRESPONDING COST HAVE TO BE ALLOWED TO THE ASSESSEE. IT HAS ALSO RAISED THE ISSUE OF NOT ONLY ALLOWING MINIMUM COST I.E. COST OF LAND AND CONSTRUCTION AS DEDUCTION BUT IT HAS ALSO RAISED THE ISSUE OF ALL OWING DEPRECIATION ON INFRA COST AND DEPRECIATION ON THE BUILDING AS THE ASSESSEE CONTINUES TO BE OWNER OF BUILDING EVEN AFTER ENTERING INTO LEASE DEED WITH LESSEE. THE SURPLUS IF ANY, WHICH ARISES IS TO BE CARRIED FORWARD FOR WHICH THE ASSESSEE PLEADS TH AT SINCE IT WAS TRUST AND THE PROVISIONS OF SECTION 11 OF THE ACT ARE TO BE APPLIED FOR COMPUTING ITS INCOME, THEN SURPLUS AS DECLARED IN FORM NO.10 SHOULD NOT BE TREATED AS ITS INCOME AND ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 30 IN CASE THE SURPLUS IS DETERMINED AT A HIGHER FIGURE THAN THE ONE D ECLARED BY ASSESSEE, THEN THE ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY TO FILE REVISED FORM NO.10 IN THIS REGARD. THE CONNECTED ISSUE RAISED BY ASSESSEE IS DEPRECIATION ON ASSETS, COST OF WHICH HAS BEEN ALLOWED AS APPLICATION OF INCOME IN THE HANDS OF ASSE SSEE. THE CASE OF REVENUE ON THE OTHER HAND, IS THAT REVENUE THOUGH IS TAXABLE IN THE HANDS OF ASSESSEE BUT THE COST OF CONSTRUCTION AND ALL OTHER COSTS INCLUDING INFRA COST WAS INCURRED DURING EARLIER PERIOD AND THE SAME SHOULD NOT BE ALLOWED AS DEDUCTIO N IN CURRENT YEAR. SIMILARLY, IN RESPECT OF DEPRECIATION ON ASSETS AND ITS WDV, THE ISSUES WERE RAISED BY DEPARTMENT AGAINST CLAIM OF ASSESSEE. THIS IS WITHOUT PREJUDICE TO THE PLEA OF ASSESSEE BEFORE THE AUTHORITIES BELOW A N D EVEN BEFORE US THAT THE INC OME WHICH NEEDS TO BE ASSESSED IN THE HANDS OF ASSESSEE IS 1/99 TH OF LEASE PREMIUM AND NOT THE WHOLE LEASE PREMIUM. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS RELIED ON THE TERMS OF LEASE AND ALSO LATEST DECISION OF THE HON BLE HIGH COURT OF MADHYA PRADESH IN M.P. AUDYOGIK KENDRA VIKAS NIGAM (INDORE) LTD. VS. ACIT (SUPRA). 30 . THE ASSESSEE HAS BEEN GRANTED REGISTRATION UNDER SECTION 12A OF THE ACT BY TRIBUNAL VIDE ITS ORDER DATED 20.04.2009. CONSEQUENTLY, THE INCOME WHICH IS TO BE ASSESSED IN THE HANDS OF ASSESSEE AS PROVIDED UNDER SECTIONS 11 AND 12 OF THE ACT I.E. INCOME OF TRUST. IN THIS REGARD, AS EARLY AS IN 1968, CBDT HAD ISSUED CIRCULAR DATED 19.06.1968. UNDER THE SAID CIRCULAR, IT WAS PROVIDED THAT WHERE A RELIGIO US OR CHARITABLE TRUST WAS CLAIMING EXEMPTION UNDER SECTION 11(1) OF THE ACT, THEN IT MUST SPENT ATLEAST 75% OF ITS TOTAL INCOME FOR RELIGIOUS OR CHARITABLE PURPOSES (NOW IT IS 85% OF TOTAL INCOME) . IN OTHER WORDS, IT WAS ALLOWED TO ACCUMULATE MORE THAN 2 5% OF ITS TOTAL INCOME. THE CIRCULAR FURTHER REFERRING TO SECTION 11(1) OF THE ACT EXPLAINED THAT REFERENCE IN ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 31 SUB - SECTION (A) IS INVARIABLY TO INCOME AND NOT TO TOTAL INCOME . FURTHER VIDE PARA 3 IT IS EXPLAINED THAT IN CASE OF BUSINESS UNDERTAKING H ELD UNDER TRUST, ITS INCOME WOULD BE THE INCOME AS SHOWN IN ACCOUNTS OF THE UNDERTAKING. UNDER SECTION 11(4) OF THE ACT, IT IS PROVIDED THAT ANY INCOME OF BUSINESS UNDERTAKING , DETERMINED IN ACCORDANCE WITH PROVISIONS OF THE ACT, WHICH IS IN EXCESS OF INC OME AS SHOWN IN ITS ACCOUNTS, IS TO BE DEEMED TO HAVE BEEN APPLIED TO PURPOSES OTHER THAN CHARITABLE OR RELIGIOUS AND HENCE, WOULD BE CHARGED TO TAX UNDER SUB - SECTION (3). AS ONLY INCOME DISCLOSED WOULD BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11(1) OF THE ACT, THE PERMITTED ACCUMULATION OF 25% WOULD BE CALCULATED WITH RESPECT TO THIS INCOME. CLAUSE (4) REFERS TO INCOME DERIVED BY THE TRUST FROM HOUSE PROPERTY, INTEREST ON SECURITIES, CAPITAL GAINS OR OTHER SOURCES AND IT IS PROVIDED THAT THE WORD INCOME SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE. 3 1 . THE HON'BLE SUPREME COURT IN CALCUTTA CO. LTD. VS. CIT (SUPRA) WHILE DECIDING THE CASE OF ASSESSEE WHICH DEALT IN LAND AND PROPERTY AND CARRIED LAND DEVELOPING BUSINESS, HELD THAT WHEREIN CERTAIN PLOTS WERE SOLD AND WHOLESALE PRICE OF PLOTS WAS DECLARED THOUGH NOT RECEIVED, THEN WHERE THE ASSESSEE UNDERTOOK DEVELOPMENTS WITHIN SIX MONTHS FROM THE DATE OF SALE, UNDER THE TERMS OF SALE DEED AND IT ESTIMATED THE SAID EXPENDITURE TO BE CARRIED OUT AND DEBIT ED THE SAME TO BOOKS OF ACCOUNT AS ACCRUED LIABILITY, THEN THE ESTIMATED EXPENDITURE WAS AN ACCRUED LIABILITY, WHICH ACCORDING TO MERCANTILE SYSTEM OF ACCOUNTING WAS DEBITED TO BOOKS OF ACCOUNT AGAINST THE RECEIPTS WHICH REPRESENT SALE PROCEEDS OF SAID LAN D AND SAME IS TO BE ALLOWED AS DEDUCTION WHILE COMPUTING INCOME UNDER SECTION 28(1) OF THE ACT. THE HONBLE APEX COURT OBSERVED THAT THE APPELLANT HERE IS BEING ASSESSED IN RESPECT OF THE PROFITS AND GAINS OF ITS BUSINESS AND THE PROFITS AND GAINS OF THE BUSINESS ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 32 CANNOT BE DETERMINED UNLESS AND UNTIL THE EXPENSES OR THE OBLIGATIONS WHICH HAVE BEEN INCURRED ARE SET OFF AGAINST THE RECEIPTS. THE EXPRESSION 'PROFITS AND GAINS' HAS TO BE UNDERSTOOD IN ITS COMMERCIAL SENSE AND THERE CAN BE NO COMPUTATION OF SUC H PROFITS AND GAINS UNTIL THE EXPENDITURE WHICH IS NECESSARY FOR THE PURPOSE OF EARNING THE RECEIPTS IS DEDUCTED THEREFROM WHETHER THE EXPENDITURE IS ACTUALLY INCURRED OR THE LIABILITY IN RESPECT THEREOF HAS ACCRUED EVEN THOUGH IT MAY HAVE TO BE DISCHARGED AT SOME FUTURE DATE. 3 2 . WE MAY ALSO REFER TO THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF AN ASSESSEE , WHICH WAS LOCAL AUTHORITY AND WAS ENTITLED TO EXEMPTION UNDER SECTION 10(20A) OF THE ACT UPTO ASSESSMENT YEAR 2002 - 03. THE A SSESSEE ON A LATER DATE APPLIED FOR GRANT OF REGISTRATION UNDER SECTION 12A OF THE ACT IN ORDER TO ENABLE IT TO CLAIM EXEMPTION UNDER SECTION 11 OF THE ACT. THE ASSESSMENT WAS COMPLETED IN THE HANDS OF ASSESSEE BY ASSESSING OFFICER WITHOUT ALLOWING ANY EX EMPTION UNDER SECTION 11 OF THE ACT. AFTER RECEIPT OF REGISTRATION UNDER SECTION 12A OF THE ACT, THE ASSESSEE OBTAINED AUDIT REPORT AS WAS REQUIRED UNDER SECTION 12A(1)(B) OF THE ACT FOR THE PURPOSE AND SAME WAS FILED ALONG WITH FORM NO.10 BEFORE THE CIT( A) AND CLAIM FOR EXEMPTION UNDER SECTION 11 OF THE ACT WAS MADE , FOR THE FIRST TIME BEFORE THE CIT(A). HOWEVER, THIS CLAIM WAS REJECTED BY CIT(A) ON THE GROUND THAT CLAIM WAS NOT MADE IN THE ORIGINAL RETURN AND FORM NO.10 AND AUDIT REPORT IN SUPPORT OF TH AT CLAIM WERE NOT FILED BEFORE THE ASSESSING OFFICER. THE TRIBUNAL SET ASIDE ASSESSMENT ON THE GROUND THAT PROCEEDINGS BEFORE CIT(A) WERE CONTINUATION OF ASSESSMENT AND DIRECTED THE ASSESSING OFFICER TO MAKE DE - NOVO ASSESSMENT. A T THE TIME OF DE - NOVO ASS ESSMENT, FORM NO.10, AUDIT REPORT AND DOCUMENTS WERE ALREADY ON RECORD OF THE ASSESSING OFFICER. THE HONBLE HIGH COURT HELD THAT IF THE ASSESSEE WAS REQUIRED TO FILE FORM NO.10 AND ANOTHER DOCUMENT BEFORE ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 33 COMPLETION OF ASSESSMENT AND IN THE CASE WHERE TH ERE WAS ONLY TECHNICAL PLEA RAISED BY REVENUE, THEN THAT SHOULD NOT TAKE AWAY THE BENEFIT ACCRUING TO THE ASSESSEE , IN LAW. IN VIEW OF CHE QUERED HISTORY OF CASE PERTAINING TO REGISTRATION UNDER SECTION 12A OF THE ACT , IT WAS OBSERVED THAT RIGORS OF SECTIO N HAVE BEEN S O MEWHAT DILUTED BY REVENUES UNDERSTANDING AND THE ISSUANCE OF CIRCULAR. THE SAID CIRCULAR CONTEMPLAT ED CONDONATION OF DELAY IN FILING DOCUMENTS, WHICH WOULD ENABLE THE ASSESSEE TO AVAIL OF THE BENEFITS. THE CIRCULAR NO.273, DATED 03.06.1980 DOES NOT DISPENSE WITH THE FILING OF FORM NO.10. THE COMMISSIONER IS ONLY VESTED WITH THE POWERS TO ACCEPT THE SAME AFTER THE SPECIFIED PERIOD. IN SUCH CIRCUMSTANCES AND WHERE THE OBJECTS OF TRUST WERE FOUND TO BE GENUINE, THE ASSESSING OFFICER WAS DIRE CTED TO CARRY OUT DE - NOVO ASSESSMENT AND ASSESSEES CLAIM FOR BENEFIT OF EXEMPTION UNDER SECTION 11 OF THE ACT DESERVED ACCEPTANCE . 3 3 . THE CHANDIGARH TRIBUNAL IN ACIT VS. PUNJAB URBAN DEVELOPMENT AUTHORITY (SUPRA) HAS LAID DOWN THE PROPOSITION THAT WH ERE THE INCOME OF LOCAL AUTHORITY IS TO BE ASSESSED, THEN THE INSTALLMENTS RECEIVED ON SALE OF VARIOUS HOUSES AND PLOTS UNDER HIRE PURCHASE AGREEMENT SHOULD BE INCLUDED AS REVENUE AND AT THE SAME TIME TO ALLOW CORRESPONDING EXPENDITURE WHICH HAD BEEN EXPEN DED BY ASSESSEE IN CASH. THE RELEVANCE OF WORD CASH IS THAT THE ASSESSEE HAD ADOPTED CASH SYSTEM OF ACCOUNTING BUT IT WAS FOLLOWING PROJECT COMPLETION METHOD AND HENCE, INCOME WAS DETERMINED UNDER THE PROJECT COMPLETION. THE TRIBUNAL HELD THAT ASSESSEE COULD NOT FOLLOW TWO DIFFERENT SYSTEMS OF ACCOUNTING UNDER THE SAME HEAD AND UPHELD THE ORDER OF ASSESSING OFFICER IN INCLUDING ALL THE INSTALLMENTS RECEIVED FROM THE ALLOTTEES OF HOUSES AND PLOTS IN THE INCOME OF ASSESSEE. IN CONTRA, THE CLAIM OF ASSESS EE WAS THAT IF SUCH INSTALLMENTS WERE INCLUDED, THEN THE CORRESPONDING EXPENDITURE WHICH ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 34 HAS BEEN INCURRED SHOULD ALSO BE ALLOWED ON MATCHING PRINCIPLE. FOR APPLYING MATCHING PRINCIPLE, RELIANCE WAS PLACED ON THE DECISION IN CALCUTTA CO. LTD. VS. CIT (SUP RA) AND IT WAS HELD THAT FOR DETERMINING TRUE PROFITS, COST INCURRED BY ASSESSEE TOWARDS CONSTRUCTION OF HOUSES AND PLOTS, WHICH HAS BEEN ACCUMULATED IN THE BOOKS WAS ALSO TO BE RECOGNIZED. THE TRIBUNAL FURTHER HELD THAT IN CASE WHERE CASH SYSTEM OF ACCOU NTING WAS FOLLOWED, THEN WHATEVER EXPENDITURE HAS BEEN INCURRED IN CASH DURING THE YEAR HAS TO BE ALLOWED. IN THE CASE BEFORE THE TRIBUNAL, THE ASSESSEE HAD NEITHER OFFERED INSTALLMENTS AS INCOME NOR CLAIMED EXPENDITURE. SO, IT WAS HELD THAT INSTALLMENTS RECEIVED HAD BEEN RIGHTLY INCLUDED IN THE INCOME OF ASSESSEE, THEREFORE, CORRESPONDING EXPENDITURE WHICH HAS BEEN INCURRED IN CASH TOWARDS CONSTRUCTION OF SUCH HOUSES AND FLATS WAS ALSO TO BE ALLOWED. 3 4 . COMING TO THE FACTS OF PRESENT CASE, THE ASSESSEE WAS FORMED UNDER NOTIFICATION DATED 14.03.1972 ISSUED BY THE MAHARASHTRA STATE UNDER THE MAHARASHTRA REGIONAL TOWN PLANNING ACT, 1966 AS A NEW TOWNSHIP IN PIMPRI - CHINCHWAD AREA OF PUNE DISTRICT. THE ASSESSEE WAS A SPECIAL PURPOSE VEHICLE FORMED FOR THE D ESIGNATED OBJECTS OF AREA DEVELOPMENT AS ENVISAGED UNDER SECTION 113 OF THE SAID MRTP ACT. THE ASSESSEE AFTER NOTIFICATION DATED 14.03.1972 STARTED DEVELOPMENT OF AREA BY TAKING OVER VARIOUS LANDS IN NOTIFIED AREAS. THE ASSESSEE ON ONE HAND DEVELOPED OVE RALL AREA AND CREATED VARIOUS INFRA FACILITIES; AND ON THE OTHER HAND, THE ASSESSEE ALLOTTED DEVELOPED PLOTS AND CONSTRUCTED AREAS TO VARIOUS PERSONS BY WAY OF LONG TERM LEASE. THE ASSESSEE, BEING A DEVELOPMENT AUTHORITY WAS NOT LIABLE TO INCOME TAX TILL ASSESSMENT YEAR 2002 - 03 AS PER EXEMPTION UNDER SECTION 10(20A) OF THE ACT. HOWEVER, AS THE SAID EXEMPTION WAS WITHDRAWN FROM ASSESSMENT YEAR 2003 - 04. THE ASSESSEE FOR THE FIRST TIME ON 01.04.20 02 DREW UP BALANCE SHEET OF ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 35 STATE OF AFFAIRS AS ON THAT DATE AND STATED VARIOUS ASSETS AND LIABILITIES AT THEIR HISTORIC COST. TILL 31.03.2002, THE ASSESSEE WAS NOT PREPARING ANY BALANCE SHEET AND / OR PROFIT AND LOSS ACCOUNT. THE BALANCE SHEET AS ON 01.04.2002 WAS THE OPENING BALANCE OF VARIOUS ASSETS AND LIABILI TIES OF ASSESSEE , WHICH HAS NOT BEEN DISTURBED BY THE ASSESSING OFFICER AND CIT(A) . THE ASSESSEE ADOPTED RENT MODEL FOR OFFERING ITS REVENUE FROM THE LEASE PREMIUM. AS SUCH, 99 YEARS LEASE PREMIUM WAS SPREAD OVER ENTIRE 99 YEARS LIFE OF THE LEASE AGREEME NT PERIOD. THE ASSESSEE THUS, DID NOT CLAIM DEDUCTION OF LAND COST, CONSTRUCTED AREA COST, INFRA COST AND DEPRECIATION ON INFRA COST IN THE RETURN OF INCOME FILED FROM ASSESSMENT YEAR 2003 - 04 ONWARDS. THEREAFTER, THE ASSESSEE FILED RETURNS FROM TIME TO T IME, THOUGH WITH DELAY IN THE INITIAL YEARS. THE RETURN FOR ASSESSMENT YEAR 2003 - 04 WAS FILED ON 11.07.2008 AND IN RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT ON 28.03.2008 DECLARING NIL INCOME CLAIMING EXEMPTION UNDER SECTION 11 OF THE ACT. THE ASSE SSMENT IN THE CASE WAS COMPLETED UNDER SECTION 143(3) R.W.S. 148 OF THE ACT ASSESSING INCOME AT 7.42 CRORES. THE REVENUE AUTHORITIES REJECTED THE RENT MODEL OF OFFERING REVENUE ADOPTED BY ASSESSEE ; INSTEAD, THE ENTIRE LEASE PREMIUM WERE TAXED IN THE YEA R OF REGISTRATION OF LEASE DEED AND THE SAID METHOD WAS APPLIED AS APPROPRIATE METHOD FOR COMPUTING TAXABLE INCOME IN THE HANDS OF ASSESSEE. THE PLEA OF ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT IN CASE THE MODEL OF TAXING ENTIRE LEASE PREMIUM IS ADO PTED, THEN THE CONCEPT OF MATCHING PRINCIPLE SHOULD BE APPLIED AS A COROLLARY. THE RELATED COST I.E. LAND COST , CONSTRUCTED AREA COST, INFRA COST AND DEPRECIATION ON INFRA COST SHOULD BE ALLOWED TO ASSESSEE. THE SAID ISSUES WERE RAISED BEFORE THE ASSESSI NG OFFICER AND CIT(A) IN THE RESPECTIVE YEARS BUT THE SAME WERE NOT ACCEPTED IN TOTO. THE ASSESSEE FILED AN APPEAL AGAINST ORDER OF ASSESSMENT. THE CIT(A) ALLOWED THE ISSUE OF DEPRECIATION PARTIALLY. BOTH THE ASSESSEE AND REVENUE FILED AN APPEAL ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 36 BEFORE THE TRIBUNAL. BEFORE DECISION OF TRIBUNAL, THE COMMISSIONER ISSUED NOTICE UNDER SECTION 263 OF THE ACT AND PASSED ORDER UNDER SECTION 263 OF THE ACT ON 07.03.2011. THE TRIBUNAL SET ASIDE THE ISSUE OF DEPRECIATION IN RESPECT OF REVENUE APPEAL AND DIRECTED ADJUDICATION UNDER THE CONSIDERATION, SINCE THE REGISTRATION UNDER SECTION 12A OF THE ACT WAS AVAILABLE. THE ASSESSING OFFICER WAS THUS, DIRECTED TO COMPUTE INCOME IN TERMS OF SECTIONS 11 AND 12 OF THE ACT. THE TRIBUNAL PASSED THIS ORDER ON 30.12.2011 . S IMULTANEOUSLY, ON THE SAME DAY, THE ASSESSING OFFICER PASSED AN ORDER UNDER SECTION 143(3) R.W.S. 263 OF THE ACT ON 30.12.2011 DETERMINING INCOME AT 27.63 CRORES. AGAINST THE SAID ORDER, APPEAL WAS FILED BEFORE THE CIT(A) , WH O CLEARLY ACKNOWLEDGED THAT THE WHOLE GAMUT OF ASSESSMENT HAD CHANGED BECAUSE OF REGISTRATION GRANTED UNDER SECTION 12A OF THE ACT. THE CIT(A) THEREAFTER, DECIDED THE ISSUE AND THE ASSESSEE IS AGGRIEVED BY THE SAME AND HENCE, THE APPEAL BEFORE US. MEANWHILE, THE TRIBUNAL HAS ALSO DECIDED APPEAL FILED AGAINST ORDER OF COMMISSIONER PASSED UNDER SECTION 263 OF THE ACT. 3 5 . THE FIRST ISSUE RAISED BEFORE US IS THE APPLICATION OF MA TCHING PRINCIPLE IN CASE THE LEASE PREMIUM IS TO BE TREATED AS INCOME OF ASSESSEE IN THE YEAR IN WHICH THE ASSESSEE ENTERS INTO AGREEMENT WITH THE LESSEE. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS SUBMITTED WRITTEN SUBMISS IONS IN WHICH IT HAS EXPLAINED STEP - WISE WORKING OF COST OF LAND AND THE COST OF CONSTRUCTED AREA WHICH THE ASSESSEE SEEKS AS DEDUCTION AGAINST REVENUE EARNED FOR THE YEAR. THE ASSESSEE HAD OFFERED 99 YEARS PREMIUM SPREAD OVER THE ENTIRE LIFE OF LEASE AGR EEMENT PERIOD OF 99 YEARS I.E. 1/99 TH OF AMOUNT WAS OFFERED IN ITS HANDS. SINCE IT WAS ONLY OFFERING 1/99 TH OF LEASE PREMIUM IN EACH OF THE YEAR, THE ASSESSEE HAD NOT CLAIMED ANY LAND COST, CONSTRUCTED AREA COST OR INFRA COST AND ALSO DEPRECIATION ON VARI OUS ITEMS. ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 37 ONCE THE MANNER OF RECOGNIZING INCOME IN THE HANDS OF ASSESSEE UNDERGOES CHANGE, THEN CORRESPONDING EXPENDITURE WHICH HAS BEEN INCURRED BY ASSESSEE EITHER IN EARLIER YEARS OR DURING THE YEAR UNDER CONSIDERATION NEED TO BE APPROPRIATED. UNDOUBT EDLY, THE ASSESSEE HAD PURCHASED THE PIECE OF LAND IN EARLIER YEARS I.E. THE YEARS OF REGIME 10(20A) EXEMPTION. THE ASSESSEE HAD DEVELOPED PART OF THE LAND FOR ESTABLISHING A TOWNSHIP IN THE AREA AND OUT OF BALANCE PART, SOME PLOTS OF LANDS WERE CARVED OU T AND SOLD TO INDIVIDUAL LESSEES ; ON OTHER PORTION OF LAND, THE ASSESSEE HAD CONSTRUCTED TENEMENTS WHICH WERE AGAIN LEASED TO VARIOUS LESSEES. THE CONCEPT OF MATCHING PRINCIPLE REQUIRES THAT WHEN THE REVENUE IS ASSESSED IN THE HANDS OF ASSESSEE, THEN CORR ESPONDING EXPENDITURE NEEDS TO BE APPROPRIATED AND ALLOWED AS DEDUCTION , AS WHAT IS TO BE TAXED IN THE HANDS OF ASSESSEE IS INCOME AND NOT THE TOTAL REVENUE EARNED BY IT. APPLYING THE PROPOSITIONS LAID DOWN AS REFERRED IN THE PARAS HEREINABOVE, WE FIN D MERIT IN THE PLEA OF ASSESSEE IN APPLICATION OF MATCHING PRINCIPLE OF CLAIM OF EXPENDITURE ON ACCOUNT OF VARIOUS ITEMS. 3 6 . FIRST, WE WILL REFER TO THE CLAIM OF ASSESSEE ON ACCOUNT OF COST OF LAND AND THE CONSTRUCTED AREA COST ON PROPORTIONATE BASIS. IN THIS REGARD, THE ASSESSEE HAS FILED DETAILS IN EXCEL FILE AND HAS CLAIMED THE COST TO BE WORKED OUT IN STEP - WISE MANNER. THE ASSESSEE IN THE WRITTEN SUBMISSIONS HAS EXPLAINED THE RATIONALE OF EACH STEP AND THE SAME IS REPRODUCED HEREUNDER FOR READY RE FERENCE: STEP - WISE WORKING NOW, IN THE ENCLOSED EXCEL FILE, THE COSTS SOUGHT TO BE CLAIMED ARE WORKED OUT IN A STEP - WISE MANNER. HEREINBELOW, MEANING AND RATIONALE OF EACH STEP IS BEING STATED FOR THE SAKE OF EASY REFERENCE. SAME IS AS FOLLOWS: STEP NO. LAND COST CONSTRUCTED AREA COST 1 AREA TOTAL NOTIFIED AREA FOR PCNTDA IS TAKEN ON THE BASIS OF LETTER OF PCNTDA DATED 27/11/2018 AREA TOTAL CONSTRUCTED AREA OF PCNTDA AS OF 31/3/2002 IS TAKEN FROM THE CERTIFICATE OF PCNTDA DATED 27/11/2018 ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 38 2 AREA LAN D IN POSSESSION OF PCNTDA IS AS PER THE CERTIFICATE GIVEN BY PCNTDA DATED 27/11/2018. COST TOTAL LAND COST OF RS.774.86 LACS IS TAKEN FROM THE OPENING BALANCESHEET OF PCNTDA AS OF 31/3/2002 AREA TOTAL CONSTRUCTED AREA OF PCNTDA AS OF 31/3/2002 IS TAKEN FR OM THE CERTIFICATE OF PCNTDA DATED 27/11/2018 COST TOTAL COST OF CONSTRUCTED AREA OF RS.12399.72 LACS IS TAKEN FROM THE OPENING BALANCESHEET AS OF 31/3/2002 3 ON AN OVERALL BASIS, PCNTDA HAS CONFIRMED THAT, LAND AREA OF ABOUT 50% IS USED FOR CREATING VAR IOUS INFRA FACILITIES AND BALANCE 50% LAND AREA IS USED FOR VARIOUS DEVELOPMENTS TO BE USED FOR OWN PURPOSE OR TO BE USED FOR LEASING PURPOSE. (NOT APPLICABLE) 4 AREA BALANCE 50% AREA OF LAND IS CONSIDERED AVAILABLE FOR VARIOUS USAGES BY PCNTDA AS PER LET TER DATED 27/11/2018 COST THOUGH ONLY 50% OF ACQUIRED AREA IS CONSIDERED AS AVAILABLE FOR DEVELOPMENT AND FURTHER USAGE, 100% OF LAND COST IS CONSIDERED FOR THE FURTHER PRORATION SAME AS STEP 2 ABOVE 5 AREA ON AN OVERALL BASIS, PCNTDA HAS CONFIRMED THAT, LAND AREA OF ABOUT 200 HECTORS (SUPPORTED BY GOOGLE IMAGE) IS USED FOR CONSTRUCTION OF PREMISES FOR LEASING. COST AS APPROX AREA OF 200 HECTORS IS UTILIZED FOR CONSTRUCTION PREMISES, THE PROPORTIONATE LAND COST HAS BEEN REDUCED FROM THE TOTAL LAND COST A ND TAKEN TO THE CONSTRUCTION COST WORKING TABLE. AREA (NOT APPLICABLE) COST AS APPROX AREA OF 200 HECTORS IS UTILIZED FOR CONSTRUCTION PREMISES THE PROPORTIONATE COST HAS BEEN ADDED TO THE COST OF CONSTRUCTED PREMISES. 6 AREA THE SAID AREA IS BALANC E DERIVED LAND AREA WHICH IS AVAILABLE FOR DEVELOP & LEASE. COST THE PROPORTIONATE COST IS DERIVED ON THE BASIS OF TOTAL LAND COST & TOTAL LAND AREA AS TO THE PROPORTION OF BALANCE DERIVED AREA AREA SAME AS STEP 4 ABOVE COST TOTAL COST INCURRED ON CONS TRUCTED PREMISES INCLUDING PROPORTIONATE LAND COST CONSIDERED THROUGH STEP NO 5 ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 39 7 AREA LAND WHICH IS LEASED OUT PRIOR TO 31/03/2002 IS AS PER CERTIFICATE OF PCNTDA DATED 27/11/2018 COST PROPORTIONATE COST HAS BEEN WORKED OUT THE BASIS OF TOTAL LAND COST & TOTAL LAND AREA AS TO THE PROPORTION OF AREA SOLD PRIOR TO 01/04/2002 AREA CONSTRUCTED PREMISES WHICH IS LEASED OUT PRIOR TO 31/03/2002 COST PROPORTIONATE COST HAS BEEN WORKED OUT THE BASIS OF TOTAL CONSTRUCTED AREA & TOTAL CONSTRUCTION COST AS TO THE PROPORTION OF AREA SOLD PRIOR TO 1/04/2002 8 AREA LAND LEASED OUT DURING 01/04/2002 TILL 31/03/2014 IS AS PER CERTIFICATE OF PCNTDA DATED 27/11/2018. THE YEAR WISE AREA LEASED OUT IS ALSO MENTIONED IN THE SAID CERTIFICATE DATED 27/11/2018 COST PROPORTI ONATE COST HAS BEEN WORKED OUT THE BASIS OF TOTAL LAND COST & TOTAL LAND AREA AS TO THE PROPORTION OF AREA SOLD FROM 1/04/2002 TILL 31/03/2014. THE APPELLANT IS ELIGIBLE TO CLAIM THE SAID PROPORTIONATE COST IN A YEAR IN WHICH AREA IS LEASED OUT. AREA CONS TRUCTED AREA LEASED OUT DURING 01/04/2002 TILL 31/03/2014 IS AS PER CERTIFICATE OF PCNTDA DATED 27/11/2018. THE YEAR WISE CONSTRUCTED AREA LEASED OUT IS ALSO MENTIONED IN THE SAID CERTIFICATE DATED 27/11/2018. COST PROPORTIONATE COST HAS BEEN WORKED OUT THE BASIS OF TOTAL LAND COST & TOTAL LAND AREA AS TO THE PROPORTION OF AREA SOLD FROM 1/04/2002 TILL 31/03/2014 THE APPELLANT IS ELIGIBLE TO CLAIM THE SAID PROPORTIONATE COST IN A YEAR IN WHICH AREA IS LEASED OUT. 9 AREA BALANCE AREA IS AVAILABLE TO LEAS ED OUT IS DERIVED FROM ABOVE STEPS COST BALANCE COST AVAILABLE TO CLAIM AS ON 31/03/2014 IS DERIVED FROM ABOVE STEPS AREA BALANCE AREA IS AVAILABLE TO LEASE OUT ON 31/03/2014 IS AS PER CERTIFICATE OF PCNTDA DATED 27/11/2018. COST BALANCE COST AVAILABLE TO CLAIM IS DERIVED FROM ABOVE STEPS 3 7 . THE ASSESSEE HAS ENCLOSED TABULATED DETAILS IN THIS REGARD, WHICH READS AS UNDER: - STEP NO. PARTICULARS LAND CONSTRUCTED AREA AREA AMOUNT AREA AMOUNT HECTORS RS. IN LACS (SQ METERS) RS. IN LACS 1 TO TAL NOTIFIED AREA TO PCNTDA 2586.55 3,96240.80 2 LAND IN POSSESSION / CONSTRUCTED AREA AS ON 31/3/2002 1586.72 774.86 3,96,240.80 12,399.72 ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 40 3 PRESUMPTION OF 50% LAND USED FOR INFRA 50% NOT APPLICABLE NOT APPLICABLE 4 5 6 7 8 9 DEVELOPED LAND AREA / CONSTRUCTED AREA LESS: AREA ON WHICH CONSTRUCTION CARRIED OUT AVAILABLE AREA OF LAND FOR LEASE / CONSTRUCTED AREA LESS: AREA LEASED PRIOR TO 31/03/2002 LESS: AREA LEASED AFTER 1/04/2002 TILL 31/03/2014 BALANCE AREA AVAILAB LE AS ON 31/03/2014 793.36 - 200.00 593.36 - 358.97 - 179.02 55.37 774.86 - 195.34 579.52 - 350.60 - 174.85 54.08 3,96,240.80 3,96,240.80 - 3,53,394.97 40,674.83 2,171.00 12,399.72 195.34 12,595.06 - 11,233 .14 1,292.91 22,535.29 3 8 . IN SUPPORT TO THE SAID TABULATED DETAILS, THE ASSESSEE HAS FURNISHED CERTIFICATE OF ACCOUNTS DEPARTMENT OF ASSESSEE AND ALSO OF THE ARCHITECT FOR WORKING OUT THE LAND COST AND COST OF CONSTRUCTION . AS POINTED OUT THAT, TH E ASSESSEE HAD ATTRIBUTED 50% OF TOTAL LAND AVAILABLE FOR DEVELOPMENT AND THE BALANCE 50% LAND BEING USED FOR INFRA AND FOR PROVIDING AMENITIES. THUS, OUT OF TOTAL AREA POSSESSED BY ASSESSEE OF 1586.72 HECTORS, 50% OF LAND AVAILABLE WITH THE ASSESSEE FOR DEVELOPMENT WA S 793.36 HECTORS COSTING 7.75 CRORES (APPROX.) OUT OF THIS 200 HECTORS IS EARMARKED FOR CONSTRUCTED PROPERTIES AND THE BALANCE SALEABLE OPEN LAND WAS 593.36 HECTORS. THE ASSESSEE UPTO 31.03.2002 HAD LEASED THE LAND TOTALING 358.97 HECTORS AND THE AREA LEASED AFTER 01.04.2002 TILL 31.03.2014 MEASURES 179.02 HECTORS VALUED AT 1.74 CRORES. FURTHER, THE ASSESSEE STILL HAS BALANCE LAND AVAILABLE AS ON 31.03.2014, WHICH IS 55.37 HECTORS. THUS, THE ASSESSEE IS SEEKING APPROPRIATION OF LAND CO ST OVER THE PERIOD OF YEARS TOTALING 1.7 4 CORES. THE ASSESSEE HAS FILED DETAILS OF LAND SOLD YEAR WISE AFTER 2002 AND HENCE, WE DIRECT THE ASSESSING OFFICER TO VERIFY THIS STAND OF ASSESSEE AND AFTER CHECKING THE AREA LEASED AFTER 01.04.2002 TO 31.03.2014 (179.02 HECTORS), THE COST OF ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 41 SAID LAND AT 1.75 CRORES NEEDS TO BE APPROPRIATED YEAR - WISE AND ALLOW ED AS LAND COST AGAINST REVENUE BOOKED ON ENTERING INTO LEASE DEED WITH LESSEES (YEAR - WISE). 3 9 . THE SECOND STEP IS WORKING OF CONSTRUCTED PREMISES COST. THE PE RUSAL OF BALANCE SHEET FILED BY ASSESSEE AS ON 01.04.2002 REFLECTS THE VALUE OF PROPERTIES CONSTRUCTED AT 123.99 CRORES . TO THIS LAND , COST OF 200 HECTORS I.E. COSTING AT 1.95 CRORES NEEDS TO BE ADDED. THUS, TOTAL COST OF CONSTRUCTION INCLUDING LAND AND COST OF CONSTRUCTED PREMISES WORKS OUT TO 125.95 CRORES. OUT OF TOTAL CONSTRUCTED AREA OF 396240 SQ.MTRS. , THE VALUE OF AREA WHICH WAS LEASED OUT AFTER 01.04.2002 TILL 31.03.2014 (AS PER SCHEDULE 1 TO THE CALCULATION FILED) WORKS OUT TO 40,674 SQ.MT RS. VALUING 12.92 CRORES (APPROX.) THE CLOSING BALANCE AVAILABLE FOR LEASE AS ON 31.03.2014 AS PER SCHEDULE 2 IS 2171 SQ.MTRS. VALUED AT 69 LAKHS. HENCE, THE VALUE OF AREA WHICH WAS LEASE D PRIOR TO 2002 WORKS OUT TO 112.33 CRORES. IN OTHER WORDS, AS FAR AS YEARS UNDER APPEAL ARE CONCERNED, THE VALUE OF AREA LEASED OUT WAS 12.92 CRORES (APPROX.), WHICH IS TO BE BIFURCATED OVER THE NUMBER OF YEARS. THE ASSESSEE HAS FURNISHED CERTIFICATE OF ARCHITECT IN THIS REGARD AND THE ASSESSING OFFICER IS DIRE CTED TO CARRY OUT NECESSARY VERIFICATION AND ALLOW DEDUCTION ON ACCOUNT OF COST OF CONSTRUCTED PREMISES TO THE ASSESSEE IN THE RESPECTIVE YEARS. 40 . NOW, COMING TO NEXT STAND OF ASSESSEE THAT BESIDES CARVING OUT THE PLOTS OF LAND AND CONSTRUCTING PREMISES FOR LEASING OUT, THE ASSESSEE HAD ALSO DEVELOPED THE AREA I.E. BUILT ROADS, INFRA WAYS, CONSTRUCTED PROJECTS AND THE COST OF SAID ITEMS WERE BOOKED UNDER THE HEAD INFRA COST AT 39,19,00,091/ - . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD HAS POINTED OUT THAT DEPRECIATION ON THIS COST AS ON 01.04.2002 SHOULD BE ALLOWED ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 42 AS DEDUCTION IN THE HANDS OF ASSESSEE , FROM YEAR TO YEAR, AS THE ASSESSEE GETS APPROPRIATE BENEFIT OF INFRA COST BY WAY OF CHARGING THE LEASE PREMIA FROM THE RES PECTIVE LESSEES. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND OF APPEAL FOR ALLOWING DEPRECIATION ON OPENING INFRA COST AND ALSO ON INFRA COST INCURRED FROM YEAR TO YEAR. OUR ATTENTION WAS DRAWN TO PAPER BOOK - 4 I.E. BALANCE SHEET FOR ASSESSMENT YEAR 2003 - 04 AS ON 31.03.2003, WHEREIN INFRA COST HAS BEEN DECLARED AT 40.56 CRORES. IN ADDITION, THE ASSESSEE HAS POINTED OUT THAT IT HAS ALSO BOOKED INFRA COST RELATING TO WATER AND DRAINAGE SYSTEM AT 3.72 CRORES, DEPRECIATION ON WHICH ALSO IS BEING CLA IMED BY ASSESSEE. THE ASSESSEE IN THIS REGARD HAS MADE THE FOLLOWING SUBMISSIONS: - INFRA COST RELATING TO CONSTRUCTED AREA (LEASED / USED) IN THE BALANCESHEETS, THERE ARE SEPARATE INFRA COSTS W.R.T. CONSTRUCTED PREMISES, APPEARING UNDER THE HEAD OF PR OPERTIES CONSTRUCTED. THIS COST IS SPECIFIC TO THE LEASED OUT / OWN USED CONSTRUCTED AREA. AS PER THE MATCHING PRINCIPLE, SUCH COSTS ARE REQUIRED TO BE PRO - RATED OVER THE ENTIRE CONSTRUCTION COST AND CLAIMED ON PROPORTIONATE BASIS. THE SAID COST IS PAR T OF COST OF CONSTRUCTED PREMISES AND THIS STEP IS ALREADY CONSIDERED IN THE ABOVE WORKING. INFRA COST RELATING TO WATER & DRAINAGE SYSTEM IN THE BALANCESHEET AS OF 31/3/2002 (I.E. OPENING BALANCESHEET), COST OF RS.372.31 LACS IS SHOWN UNDER THIS HEAD. FURTHER, THE SAID ITEM APPEARS IN THE GROUPING OF FIXED ASSETS. AS PER FACTS, THIS INFRA COST IS INCURRED FOR THE OVERALL AREA OF ACTIVITY OF PCNTDA . IN OTHER WORDS, THE SAID COST DOES NOT RELATE SPECIFICALLY TO LEASED OUT LAND AREA OR LEASED OUT CONSTR UCTED AREA. APPELLANT HAS BEEN CLAIMING DEPRECIATION ON THE SAID COST AND THE I - T DEPARTMENT HAS BEEN GRANTING THE SAME EVERY YEAR. HENCE, THERE IS NO DISPUTE ABOUT DEPRECIATION OF THIS INFRA COST ITEM. DEPRECIATION ON INFRA COSTS APPEARING IN MISC EXPE NDITURE IN THE OPENING BALANCESHEET AS OF 31/3/2002, COST OF RS.3919.00 LAKHS IS APPEARING. THE SAID COST IS ACCUMULATION OF VARIOUS COSTS RELATING TO CREATION OF ROADS, CREATION OF PARKS, WATER TANKS, BRIDGES, ETC. NOW, THIS INFRA COST IS AN ASSET USE D BY PCNTDA FOR ITS OVERALL ACTIVITY. OWNERSHIP OF THE SAID ASSET (I.E. INFRA FACILITIES) VESTS WITH PCNTDA. IN OTHER WORDS, OWNERSHIP OF SUCH INFRA FACILITIES DOES NOT GET TRANSFERRED TO ANY USERS / LESSEES. CONSIDERING THIS ASPECT, PCNTDA IS ELIGIBLE TO CLAIM DEPRECIATION ON COST OF SUCH INFRA FACILITIES / INFRA ASSETS. THESE INFRA COSTS ARE INCURRED ON AN ONGOING BASIS / REGULAR BASIS. LEARNED I - T AUTHORITIES HAVE SIMPLY ALLOWED COSTS INCURRED IN EACH YEAR ON THESE INFRA FACILITIES. HOWEVER, THE LE ARNED I - T AUTHORITIES OUGHT TO HAVE GRANTED DEPRECIATION ON THESE INFRA FACILITIES COSTS WHICH INCLUDES OPENING BALANCE AS ON 31/3/2002 AS WELL AS YEARLY COSTS INCURRED THEREAFTER. PCNTDA KEEPS RELIANCE ON THE APEX COURT RULING IN THE CASE. CIT VS RAJAST HAN & GUJARATI CHARITABLE FOUNDATION POONA 89 TAXMANN.COM 127 (SC). ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 43 4 1 . THE INFRA COST WHICH HAS BEEN INCURRED BY ASSESSEE AND WHICH WA S THE OPENING BALANCE AS ON 31.03.2002 IN THE HANDS OF ASSESSEE ON ACCOUNT OF CREATION OF ROADS, CREATION OF PARKS, W ATER TANKS, BRIDGES, ETC. AND ALSO THE ITEMS BOOKED UNDER THE HEAD RELATING TO WATER AND DRAINAGE SYSTEM WA S THE BASIC FRAMEWORK PROVIDED BY THE ASSESSEE WHICH WA S NECESSARY FOR ESTABLISHING A TOWNSHIP. ON S UCH INFRA COST WHICH HAS ALREADY BOOKED IN THE H ANDS OF ASSESSEE, DEPRECIATION IS TO BE ALLOWED AND WE FIND MERIT IN THE PLEA OF ASSESSEE AND ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON SUCH INFRA COST. THE STATUTE HAD INTRODUCED EXPLANATION 6 UNDER SECTION 43(6) OF THE ACT, WHIC H CLEARLY PROVIDES THE METHOD TO BE ADOPTED IN THE HANDS OF ASSESSEE FOR WORKING OUT WRITTEN DOWN VALUE OF AN ASSET WHERE THE ASSET WAS ACQUIRED IN THE YEARS WHERE THE ASSESSEE WAS NOT REQUIRED TO COMPUTE TOTAL INCOME FOR THE PURPOSE OF THIS ACT. THE SECT ION TALKS OF ADOPTION OF ACTUAL COST OF ASSET SHALL BE ADJUSTED BY THE AMOUNT ATTRIBUTABLE TO REVALUATION OF SUCH ASSET, IF ANY IN THE BOOKS OF ACCOUNT. CLAUSE (B) FURTHER LAYS DOWN THAT TOTAL AMOUNT OF DEPRECIATION ON SUCH ASSETS PROVIDED IN THE BOOKS OF ACCOUNT OF ASSESSEE SHALL BE DEEMED TO BE THE DEPRECIATION ACTUALLY ALLOWED. IN OTHER WORDS, IN CASE NO DEPRECIATION IS CLAIMED BY ASSESSEE IN ITS BOOKS OF ACCOUNT, THEN THE COST OF ASSET IS TO BE TAKEN AND NO DEPRECIATION ON PRESUMPTION BASIS IS TO BE D EDUCTED FROM SUCH COST OF ASSETS. ACCORDINGLY, WHERE THE ASSESSEE WAS GOVERNED BY 10(20A) REGIME PROVISIONS AND THE ASSESSEE WAS NOT LIABLE TO PAY ANY TAXES UPTO 31.03.2002 AND SINCE THE ASSESSEE HAD NOT PREPARED ANY BALANCE SHEET OR PROFIT AND LOSS ACCOU NT FOR ANY OF EARLIER YEARS, THEN THE COST OF ASSETS AS WORKED OUT BY ASSESSEE AS ON 01.04.2002 NEEDS TO BE ADOPTED FOR COMPUTING DEPRECIATION ON SUCH ASSETS. ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 44 4 2 . BEFORE PARTING, WE MAY ALSO DEAL WITH THE OBJECTIONS OF LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IN THIS REGARD THAT ALL THE COSTS WHICH THE ASSESSEE CLAIMS AS DEDUCTIBLE I.E. ON ACCOUNT OF LAND COST AND CONSTRUCTED COST WAS INCURRED PRIOR TO 2002 , HENCE IS DEEMED TO BE ALLOWED IN THE HANDS OF ASSESSEE. IT IS REITERATED THAT UPTO 31. 03.2002, THE ASSESSEES INCOME WAS EXEMPT UNDER SECTION 10(20A) OF THE ACT AND THE ASSESSEE HAD NOT CLAIMED DEDUCTION ON ACCOUNT OF SAID LAND COST IN ITS HANDS AS IT WAS NOT OFFERING ANY INCOME IN ITS HANDS. EVEN AFTER 01.04.2002 IN THE RETURN OF INCOME, THE ASSESSEE HAD NOT CLAIMED ANY SUCH LAND COST OR CONSTRUCTED COST, SINCE IT HAD OFFERED THE LEASE PREMIA IN THE FORM OF RENT IN ITS HANDS FROM YEAR TO YEAR. IT WAS ONLY AFTER THE ORDER PASSED UNDER SECTION 263 OF THE ACT, LEASE PREMIA IN TOTALITY WAS AS SESSED IN THE HANDS OF ASSESSEE IN THE YEAR IN WHICH THE ASSESSEE HAD ENTERED INTO AGREEMENT OF LEASE. THE CORRESPONDING FALL OUT TO WHICH IS THAT THE CONCEPT OF MATCHING PRINCIPLE HAS TO BE APPLIED AND WHERE THE ASSESSEE HAD ENTERED INTO AGREEMENT TO LEA SE, THEN THE COST OF SAID ASSETS NEEDS TO BE ALLOWED AS DEDUCTION IN ITS HANDS. 43. ANOTHER ASPECT WHICH NEEDS TO BE KEPT IN MIND IS THAT THE ASSESSEE WAS RECOGNIZING INCOME ON THE BASIS OF 1/99 TH PREMIUM AND HENCE, THE PREMIUM RELATING TO PAST YEARS TR ANSACTIONS WERE ALSO OFFERED TO TAX BY ASSESSEE. THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO WORK OUT THE FIGURES OF EARLIER YEARS PREMIUM ON PLOTS OF LAND SOLD AND PLOTS OF TENEMENTS SOLD. THE SAME NEEDS TO BE EXCLUDED IN THE HANDS OF ASSESSEE. FU RTHER, THE ASSESSEE ON TRANSFER OF PLOTS / PROPERTIES AFTER LOCK IN PERIOD OF 5 YEARS, WAS RECEIVING PREMIUM FOR THE AFORESAID TRANSFER. THE ASSESSEE WAS OFFERING SAID PREMIUM ALSO IN STAGGERED MANNER. SO, THE FIGURES OF PLOT PREMIUM AND PROPERTY PREMIUM WERE NOT ONLY INCLUDED THE AMOUNT ATTRIBUTABLE TO PROPERTIES WHICH ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 45 WERE TRANSFERRED IN EARLIER YEARS AND ONLY PART OF PREMIUM FOR THE YEAR UNDER CONSIDERATION WAS OFFERED TO TAX. THE ASSESSING OFFICER IS DIRECTED TO ADOPT CORRECT FIGURES OF CURRENT YEAR AND EXCLUDE THE FIGURES RELATING TO EARLIER YEARS. 44. IT MAY ALSO BE POINTED OUT HEREIN ITSELF THAT INCOME IN THE HANDS OF ASSESSEE IS TO BE COMPUTED IN LINE WITH PROVISIONS OF SECTIONS 11 AND 12 OF THE ACT SINCE THE ASSESSEE ENJOYS REGISTRATION UNDER SE CTION 12AA OF THE ACT ; HENCE INCOME AND EXPENDITURE HAS TO BE COMPUTED IN LINE WITH THE SAID SECTIONS. IT MAY ALSO BE REITERATED HEREIN THAT PROVISIONS OF APPLICATION OF INCOME AND BENEFIT OF ACCUMULATION OF INCOME IN THE HANDS OF ASSESSEE ALSO NEEDS TO B E VERIFIED AND ALLOW ED IN EACH OF THE YEARS UNDER CONSIDERATION. THE ASSESSEE HAD SOUGHT PERMISSION FOR ACCUMULATION OF SURPLUS ARISING FROM THE ACTIVITIES SINCE THE PRINCIPLES OF FINAL QUANTIFICATION OF INCOME IN THE HANDS OF ASSESSEE EMERGES FROM THE OR DER PASSED UNDER SECTION 263 OF THE ACT AND ALSO CONSEQUENT ORDER PASSED BY THE TRIBUNAL DATED 26.10.2018 AND ALSO OUR DIRECTIONS VIS - - VIS COMPUTATION OF INCOME IN THE HANDS OF ASSESSEE . T HEN WE FIND MERIT IN THE PLEA OF ASSESSEE THAT IT SHOULD BE PERMIT TED TO RAISE ISSUE OF ACCUMULATION OF INCOME AND SUBMIT FORM NO.10 BEFORE THE CIT - 5, PUNE. THE ASSESSEE HAS ALREADY SUBMITTED FORM NO.10 BEFORE THE CIT - 5, PUNE. HOWEVER, AFTER QUANTIFICATION OF INCOME IN THE HANDS OF ASSESSEE, MODIFICATION OF ACCUMULATIO N IS CONSEQUENT AND THE SAME NEEDS TO BE VISITED BY THE COMMISSIONER AND EFFECT OF THE SAME BE ALLOWED BY THE ASSESSING OFFICER. IN THIS REGARD, WE FIND SUPPORT FROM THE RATIO LAID DOWN IN CIT VS. MUMBAI METROPOLITAN REGIONAL IRON & STEEL MARKET COMMITTEE (SUPRA). 4 5 . THE ISSUE RAISED IN CROSS OBJECTIONS / APPEALS FILED BY REVENUE IS AGAINST ALLOWANCE OF DEPRECIATION ON BROUGHT FORWARD BLOCK OF ASSETS OF ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 46 ASSESSEE TRUST. THE ASSESSING OFFICER HAD RE - WORKED THE WDV OF ASSETS BY ALLOWING DEPRECIATION FOR ONE YEAR. HOWEVER, IN VIEW OF EXPLANATION 6 TO SECTION 43(6) OF THE ACT, WE FIND NO MERIT IN THE ISSUE RAISED BY REVENUE IN THIS REGARD. WE HAVE ALREADY HELD IN THE PARAS HEREINABOVE THAT THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION ON THE ASSETS ON WD V STARTING FROM 01.04.2002 AND COST OF ASSETS IS TO BE ADOPTED, SINCE THE ASSESSEE IN EARLIER YEARS WAS NOT FILING ANY RETURN OF INCOME IN 10(20A) ERA OF EXEMPTION. 4 6 . THE SECOND LINKED ISSUE IS WHETHER DEPRECIATION IS TO BE ALLOWED ON THE ASSETS VALUE, WHICH HAS BEEN ALLOWED AS APPLICATION OF INCOME IN THE HANDS OF ASSESSEE AND THE OBJECTION OF REVENUE IS THAT ALLOWING DEPRECIATION ON SUCH ASSETS WOULD RESULT IN DOUBLE RELIEF. 4 7 . WE FIND THAT THIS ISSUE STANDS SQUARELY COVERED BY THE RATIO LAID DOWN BY HON'BLE SUPREME COURT IN CIT VS RAJASTHAN & GUJARATI CHARITABLE FOUNDATION POONA (SUPRA), WHEREIN IT HAS BEEN HELD THAT WHERE THE ASSESSEE CHARITABLE INSTITUTION IS REGISTERED UNDER SECTION 12A OF THE ACT, EVEN THOUGH EXPENDITURE INCURRED FOR ACQUISITIO N OF CAPITAL ASSET WAS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES UNDER SECTION 11(1)(A) OF THE ACT, YET DEPRECIATION IS TO BE ALLOWED ON SUCH ASSETS. 4 8 . WE ALSO FIND THAT THE HONBLE BOMBAY HIGH COURT IN CIT VS. INSTITUTE OF BANKING PERS ONNEL SELECTION (SUPRA) HAD ALSO LAID DOWN SIMILAR PROPOSITION. APPLYING THE SAME, WE HOLD THAT GROUND OF APPEAL NO.2 RAISED BY REVENUE DOES NOT STAND AND THE SAME IS DISMISSED. ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 47 4 9 . WE HAVE ALSO DECIDED THE ISSUE OF APPLICATION / ADJUDICATION OF INCOME I N THE HANDS OF ASSESSEE AFTER ALLOWING DEDUCTION ON ACCOUNT OF LAND COST, CONSTRUCTED COST AND DEPRECIATION ON INFRA COST AND ALSO DEDUCTION ON ACCOUNT OF INFRA COST AND ALSO APPLICATION OF INCOME. BUT WE WOULD BE FAILING IF WE DO NOT ADDRESS THE LAST PLE A RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THOUGH THE TRIBUNAL VIDE ITS ORDER DATED 20.06.2018 HAS DECIDED THE ISSUE AGAINST ASSESSEE BUT THE ISSUE STANDS SQUARELY COVERED BY ORDER OF HONBLE HIGH COURT OF MADHYA PRADESH IN M.P . AUDYOGIK KENDRA VIKAS NIGAM (INDORE) LTD. VS. ACIT (SUPRA), WHEREIN THE ACCOUNTING PRACTICE OF 1/99 TH HAS BEEN AFFIRMED BY THE HONBLE HIGH COURT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS ALSO HIGHLIGHTED THE KEY FACTS WHICH WERE IDENT ICAL / SIMILAR TO THE ASSESSEES CASE AND THE SAME READ AS UNDER: - FACTS M.P. AUDYOGIK KENDRA VIKAS NIGAM (INDORE) LTD. PCNTDA I.E. APPELLANT HEREIN FORMED BY STATE GOVERNMENT YES (PARA 5) YES INCORPORATION 1981 (PARA 5) 1972 OBJECT DEVELOPMENT OF INDU STRIAL AREA (PARA 5) DEVELOPMENT OF NEW TOWN LEGAL FORM COMPANY (PARA 5) LOCAL AUTHORITY CREATED UNDER MRTP ALLOTMENT OF LAND BY RESPECTIVE STATE GOVERNMENT FOR DEVELOPMENT OF AREA YES (PARA 5) YES EXEMPT U/S 10(20A) OF ITA TILL 2002 YES (PARA 14) YES ACCOUNTING TREATMENT FOR LAND PREMIUM SPREAD OVER 99 YEARS (PARA 26) SPREAD OVER 99 YEARS NO RENEWAL CLAUSE AFTER 99 YEARS IN AGREEMENT YES (PARA 34) YES 50 . BEFORE THE HONBLE HIGH COURT, THE CONTENTIONS RAISED WERE TWO - FOLD, WHICH ARE AS UNDER: - FIRST LY, LEASE PREMIUM IS NOT INCOME OF APPELLANT AS IT IS ACTING AS NODAL AGENCY OF STATE AND, ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 48 SECONDLY, IT WAS CONTENDED THAT, LEASE PREMIUM APPEARING LIABILITY SIDE ARE IN THE NATURE OF CAPITAL RECEIPT. 51 . THE HONBLE HIGH COURT HAS DECIDED THE ISSUE IN F AVOUR OF ASSESSEE HOLDING THAT LAND PREMIUM IS NOTHING BUT REVENUE RECEIPT IN THE FORM OF ADVANCE RENT AND THERE WAS NO REASON WHY THE ADVANCE RENT RECEIVED SHOULD BE TAXED ACCORDINGLY. 52 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER STATED THAT IN THE FACTS OF SAID CASE ALSO, THE ASSESSEE HAD OFFERED 1/99 TH PORTION OF SUCH LAND PREMIUM AS REVENUE RECEIPT TO BE TAXED IN THE YEAR UNDER CONSIDERATION AND THE HONBLE HIGH COURT HAS HELD THAT WHERE THE LEASING OF PLOT WAS FOR 99 YEARS AND THERE WAS NO PROVISION AND CONDITION IN THE AGREEMENT TO SUGGEST , THE MODALITY OF TRANSFER AND RENEWAL AFTER 99 YEARS, THEN THERE WAS NO REASON WHY THE ADVANCE RENT SHOULD BE TAXED ACCORDINGLY. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESS ED THAT IT WAS THE OBLIGATION OF ASSESSEE THAT IN CASE ANY LESSEE SURRENDERS THE LEASE AFTER 5 YEARS, THEN 93/99 YEARS PREMIUM HAD TO BE RETURNED AND SUCH A LIABILITY WAS CONTRACTUAL LIABILITY. HE FURTHER POINTED OUT THAT THE TRIBUNAL WHILE DECIDING THE I SSUE HAS NO DOUBT DECIDED THE SAME AGAINST ASSESSEE BUT SINCE THE ISSUE STANDS COVERED BY THE DECISION OF HONBLE HIGH COURT OF MADHYA PRADESH AND WHERE THERE IS NO CONTRARY DECISION ON THE POINT, THEN THE SAID DECISION OF THE HONBLE HIGH COURT BECOMES SO LITARY DECISION ON THE POINT. IN THIS REGARD, HE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. GODAVARIDEVI SARAF (SUPRA) AND STRESSED THAT SOLITARY NON - JURISDICTIONAL DECISION WAS BINDING ON THE TRIBUNALS OPERATING AL L OVER THE COUNTRY. HE FURTHER PLACED RELIANCE ON THE DECISION OF PUNE BENCH OF TRIBUNAL IN BHAGINI NIVEDITA SAHAKARI BANK LTD. VS. DCIT (SUPRA). HE FAIRLY POINTED OUT THAT THIS DECISION ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 49 WAS NEITHER RELIED ON NOR REFERRED BEFORE TRIBUNAL DURING APPEAL AG AINST ORDER UNDER SECTION 263 OF THE ACT . 5 3 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HOWEVER, STRESSED THAT THE ISSUE NOW STANDS COVERED BY ORDER OF TRIBUNAL AND THERE IS NO MERIT IN THE PLEA OF ASSESSEE. 5 4 . IN THE FACTS OF PRESENT CASE , THE ISSUE WHICH IS RAISED IS THE ASSESSABILITY OF LEASE PREMIUM IN THE HANDS OF ASSESSEE. THE ASSESSEE IS A NODAL AGENCY FORMED UNDER MAHARASHTRA REGIONAL AND TOWN PLANNING ACT BY THE GOVERNMENT OF MAHARASHTRA VIDE ITS RESOLUTION DATED 14.03.1972, FOR W HICH NOTIFICATION WAS ISSUED. THE ASSESSEE STARTED DEVELOPMENT OF AREA BY TAKING OVER VARIOUS LANDS IN NOTIFIED AREAS. AFTER CREATING CERTAIN INFRASTRUCTURE FACILITIES, THE ASSESSEE ALLOTTED DEVELOPED PLOTS AND CONSTRUCTED AREAS BY WAY OF LONG TERM LEASE TO DIFFERENT PERSONS. TILL 31.03.2002, INCOME OF ASSESSEE WAS NOT TAXABLE. HOWEVER, AFTER THE END OF 10(20A) PROVISIONS W.E.F. 01.04.2002, THE ASSESSEE ADOPTED RENT MODEL FOR OFFERING ITS INCOME. SINCE THE LEASE PERIOD SPREAD OVER 99 YEARS, IT HAD OFFE RED LEASE PREMIUM AT 1/99 I.E. INCOME WAS OFFERED OVER THE LIFE OF LEASE AGREEMENT. 5 5 . THE QUESTION WHICH AROSE WAS THE ASSESSABILITY OF LEASE PREMIUM IN THE HANDS OF ASSESSEE I.E. WHETHER IT COULD BE SPREAD OVER THE PERIOD OF 99 YEARS OR THE SAME HAS TO BE ASSESSED IN THE HANDS OF ASSESSEE IN THE YEAR IN WHICH IT ENTERS INTO LEASE AGREEMENT. THE ASSESSEE HAS CLEARLY MENTIONED THAT THE ALLOTMENT OF LAND WAS MADE BY RESPECTIVE STATE GOVERNMENTS FOR DEVELOPMENT OF AREA AND HAS ALSO POINTED OUT THAT AS IN THE CASE BEFORE THE HONBLE HIGH COURT, THERE WAS NO RENEWAL CLAUSE AFTER 99 YEARS IN THE AGREEMENT. FURTHER, IN CASE ANY LESSEE SURRENDERS THE LEASE AFTER INITIAL PERIOD OF 5 YEARS, THEN 93/99 ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 50 YEARS PREMIUM HAD TO BE RETURNED. SUCH A LIABILITY WAS CONT RACTUAL LIABILITY OF ASSESSEE. IN THE FACTS BEFORE THE HONBLE HIGH COURT OF MADHYA PRADESH, IT WAS NOTED THAT LAND WAS TRANSFERRED THROUGH THE GOVERNMENT OF MADHYA PRADESH AND APART FROM THERE, ASSESSEE WAS ALSO AUTHORIZED TO PURCHASE / ACQUIRE LAND OF I TS OWN. THE ASSESSEE WAS UNDOUBTEDLY, MANAGING AND LEASING THE SAID LAND AS AN INDEPENDENT OWNER OF LAND, THE SUMS EQUATED AS LAND PREMIUM WAS USED FOR INCURRING EXPENDITURE TO DEVELOP THE LAND AND MAINTAINING INDUSTRIAL INFRASTRUCTURE. THE HONBLE HIGH COURT HELD THAT THERE WAS NO DENIAL THAT THE TRANSACTION HAD TO BE TAXED UNDER THE INCOME - TAX ACT, UNLESS THE SAME IS EXEMPTED BY A PARTICULAR PROVISION OF THE ACT. THE ASSESSEE WAS OFFERING 1/99 OF LAND PREMIUM (OUT OF TOTAL LAND PREMIUM RECEIVED BY IT D URING THE YEAR) AS TAXABLE. THE ASSESSEE CLAIMED THAT LEASE PREMIUM WAS NOT ITS INCOME BEFORE THE HONBLE HIGH COURT, SO IT WAS DECIDED THAT THE SAID LAND PREMIUM WAS THE INCOME OF ASSESSEE TO BE TAXED UNDER THE INCOME - TAX ACT. VIDE PARA 31 IT WAS HELD T HAT FROM THE PERUSAL OF CLAUSES OF MEMORANDUM, IT WAS REVEALED THAT THE ASSESSEE WAS IN THE BUSINESS OF LEASING OUT OF LAND AND GETTING RENTAL INCOME AS WELL AS PREMIUM, THEREFORE, THE LAND PREMIUM IS NOTHING BUT A REVENUE RECEIPT IN THE FORM OF ADVANCE RE NT, WHICH H AS LOOSELY BEEN NAMED AS LAND PREMIUM. THE HONBLE HIGH COURT NOTED THAT THE ASSESSEE ITSELF HAD OFFERED 1/99 TH PORTION OF SUCH LAND PREMIUM AS REVENUE RECEIPT TO BE TAXED IN THE YEAR UNDER CONSIDERATION, WHICH GOES TO PROVE THAT THE NATURE OF RECEIPT IS REVENUE. REFERENCE WAS MADE TO DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MEMBER OF THE BOARD OF AGRICULTURAL INCOME - TAX V. SINDHUR CHAUDHURANI (1957) 32 ITR 169 (SC) AND IT WAS HELD AS UNDER BY HONBLE HIGH COURT OF MADHYA PRADESH : - 34. IN THE CASE OF MEMBER OF THE BOARD OF AGRICULTURAL INCOME - TAX V. SINDHUR CHAUDHURANI (1957) 32 ITR 169 (SC) THE SALAMIS/PREMIUM WERE NOT AT ALL DEPENDENT ON THE PAYMENT OF THE RENT CHARGED WHEREAS, IN THE INSTANT CASE, THE LAND PREMIUM IS NOTHING BUT ADVANCE RENT FULLY DEPDENT ON THE RENT OF ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 51 RENT. FURTHER IN THAT CASE, THE SALAMI WAS DEFINED AS LUMP SUM NON RECURRING RECEIPT OF MONEY PAID BY TENANT TO LANDLORD BEFORE MAKING A SETTLEMENT OF HOLDING. WHEREAS, IN THE CASE UNDER REFERENCE, WHERE LEASING OF PLOT IS FOR 99 YEARS AND THERE IS NO PROVISION AND CONDITIONS IN THE AGREEMENT TO SUGGEST THE MODALITY OF TRANSFERS AND RENEWABLE AFTER 99 YEARS. (HIGHLIGHT PROVIDED BY US) 5 6 . THE HONBLE HIGH COURT VIDE PARA 35 AFTER RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN UKHARA ESTATE ZAMINDARIES (P.) LTD. V. CIT (1979) 120 ITR 549 (SC) OBSERVED AS UNDER: - 35. THE CASE UKHARA ESTATE ZAMINDARIES (P.) LTD. V. CIT (1979) 120 ITR 549 /2 TAXMAN 402 (SC) RELIED BY THE APPELLANT, IS ALSO DISTINGUISHABL E FROM THE FACTS OF THE INSTANT CASE. IN THAT CASE, THE ASSESSEE WAS HIMSELF A LESSEE WHO TOOK OVER THE ZAMINDARI PROPERTIES OF A FAMILY FOR 99 YEARS. THE LEASE ITEMS COMPRISED OF COAL BEARING LANDS/MINES, GOVERNMENT PROMISSORY NOTE, JEWELLERY, ARREARS O F RENT ETC. THE APPELLANT GRANTED SEVERAL SUB LEASES FOR 90 YEARS TO VARIOUS COMPANIES AND RECEIVED SALAMI AS WELL AS COMPENSATION FOR COMPULSORY ACQUISITIONS. THIS WAS A SINGLE LEASE BY THE APPELLANT AND RECEIPT OF SALAMI BY GRANTING OF SUB LEASES FOR M ANAGEMENT OF REAL PROPERTY AS AN OWNER OF LEASE HOLD INTEREST WAS CONSTRUED AND TREATED AS CAPITAL ASSET. WHEREAS IN THE INSTANT CASE, THE LAND WAS GIVEN BY THE STATE GOVERNMENT AND THE ASSESSEE HAS TRANSFERRED THE SAME ON LONG TERM LEASE AND EARNED RENTA L INCOME AS WELL AS THE ADVANCE RENT IN THE FORM OF LAND PREMIUM. THE ISSUE HAS BEEN DEALT WITH BY ALL THE AUTHORITIES CONSIDERING ALL THE ASPECTS OF THE CASE AND RECORDING THEIR FINDING. (HIGHLIGHT PROVIDED BY US) 5 7 . THE ISSUE THUS, HAS BEEN DECIDED ON THE BASIS OF INCOME OFFERED BY ASSESSEE I.E. @ 1/99 OF LEASE PREMIUM AS ADVANCE RENT AND THE APPEAL HAS BEEN DISMISSED. 58. HOWEVER, IN THE FACTS OF PRESENT CASE, WE FIND THAT TRIBUNAL HAS DECIDED THE ISSUE OF RECOGNITION OF REVENUE RECEIPTS WHILE DE CIDING APPEAL AGAINST ORDER PASSED BY COMMISSIONER UNDER SECTION 263 OF THE ACT, WHICH IS FOR THE INSTANT ASSESSMENT YEAR ITSELF. THE ISSUE OF ASSESSABILITY OF LEASE PREMIUM HAS BEEN DECIDED AGAINST THE ASSESSEE. WE HAVE IN THE PARAS HEREINABOVE DECIDED THE ALTERNATE ISSUE OF ALLOWING DEDUCTION OF COST / DEPRECIATION BY FOLLOWING MATCHING PRINCIPLE OF ACCOUNTING. IN SUCH CIRCUMSTANCES, WE FIND NO MERIT IN THE PLEADINGS OF LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN ITA NO S . 929 TO 932 /P U N/201 4 ITA NOS.944 & 945/PUN/2014 CO NOS.78 & 79/PUN/2014 52 APPLYING DICTATE OF HONBLE H IGH COURT OF MADHYA PRADESH. ACCORDINGLY, THIS PLEA IS DISMISSED. THE GROUNDS OF APPEAL ON MERITS ARE THUS, ALLOWED IN FAVOUR OF ASSESSEE. 5 9 . THE FACTS AND ISSUES IN ITA NOS.930/PUN/2014 TO 932/PUN/2014 ARE IDENTICAL TO THE FACTS AND ISSUES IN ITA NO.9 29/PUN/2014 AND OUR DECISION IN ITA NO.929/PUN/2014 SHALL APPLY MUTATIS MUTANDIS TO ITA NOS.930/PUN/2014 TO 932/PUN/2014. 60 . IN THE RESULT, ALL THE APPEALS OF ASSESSEE ARE ALLOWED AND CROSS OBJECTIONS AND APPEALS OF REVENUE ARE DISMISSED. ORDER PRONOUNC ED ON THIS 27 TH DAY OF JUNE , 201 9 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 27 TH JUNE , 201 9 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 2 , NASHIK ; 4. THE CI T - V , PUNE ; 5. 6. , , / DR B , ITAT, PUNE ; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE