ACIT, Shimla V. M/s H.P. State Industrial Development Corp. Ltd., Shimla

ITA 1308/CHANDI/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90217 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 17-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MANJIT SINGH
• Keywords: Cost of acquisition
• Section: 43B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO.1036/CHD/2012 ASSESSMENT YEAR: 2009-10 H.P. STATE INDUSTRIAL CORPORATION LTD. VS. THE A CIT NEW HIMRUS BUILDING CIRCLE CART ROAD SHIMLA SHIMLA PAN NO. AACCT03313N & ITA NO.1308/CHD/2012 ASSESSMENT YEAR:2009-10 ACIT, VS. H.P. STATE INDUSTRIAL DEVELOPMENT CIRCLE CORP. LTD. SHIMLA SHIMLA PAN NO. AACCT0331N (APPELLANT) (RESPONDENT) APPELLANT BY : SH. VISHAL MOHAN RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 06/07/2015 DATE OF PRONOUNCEMENT : 10/07/2015 ORDER PER T.R.SOOD, A.M. THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 24/09/2012 PASSED BY THE CIT(A) SHIMLA. 2. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUND WHICH ARE AS UNDER : 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE MADE BY LD. A.O. OF RS. 4677792/- ON A/C OF PAYMENT OF PREMIUM FOR GROUP GR ATUITY MADE TO LIC 2 HOLDING THE SAME NOT TO BE ALLOWABLE UNDER SECTION 36(1)(V) OF THE INCOME TAX ACT, 1961. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF RS. 2129850/ - ON ACCOUNT OF DISALLOWANCE OF PREMIUM PAID FOR LEAVE ENCASHMENT. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF RS. 6029838/ - ON ACCOUNT OF INTEREST ACCURED ON FDRS UNDER ASIDE SCHEME. 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF RS. 1,11,537 /- ON ACCOUNT OF DISALLOWANCE OF EXPENSES PERTAINING TO CPF TRUST. 3. OUT OF THE ABOVE GROUND NO. 4 WAS NOT PRESSED AN D THE SAME IS DISMISSED AS NOT PRESSED. GROUND NO. 1 4. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS PAID A SUM OF RS. 68,34,365/- ON ACCOUNT OF PREMIUM FOR GRATUITY. THE ASSESSEE WAS A SKED TO FILE COPY OF THE ORDER GRANTING APPROVAL TO THE GRATUITY FUND. NO SU CH CERTIFICATE WAS FILED BUT IT WAS CLAIMED THAT ASSESSEE HAS FOLLOWING THE MERCANT ILE SYSTEM OF ACCOUNTING AND THEREFORE CLAIM WAS JUSTIFIED, THIS CLAIM WAS N OT ALLOWED SINCE THE FUNDS WAS NOT APPROVED. HOWEVER THE ALTERNATIVE SUBMISSION TH AT AMOUNTS ALREADY PAID TO THE EMPLOYEES AMOUNTING TO RS. 21,56,573/- SHOULD B E ALLOWED WAS ACCEPTED AND DISALLOWANCE WAS MADE FOR RS. 46,77,792/-. 5. ON APPEAL THE ACTION OF THE AO WAS CONFIRMED BY THE LD. CIT(A). 6. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE FAIRL Y ADMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES O WN CASE FOR THE EARLIER YEAR. HOWEVER HE CONTENDED THAT SINCE THE AMOUNT HAS BEEN PAID TO THE LIFE INSURANCE CORPORATION WHICH IS APPROVED FUND AND TH EREFORE THIS AMOUNT SHOULD BE ALLOWED. IN VIEW OF THE DECISION OF HONBLE SUPR EME COURT IN CASE OF CIT VS. M/S TEXTOOL CO. LTD. IN CIVIL APPEAL NO. 447 OF 200 3(COPY ENCLOSED). 7. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF LD. CIT(A). 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULL Y WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN TH E EARLIER YEAR 2005-06 AND 3 2007-08 IN ITA NO. 1226&1227/CHD/2010. THIS ISSUE W AS DECIDED VIDE PARA 8 WHICH IS AS UNDER: 8 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT IN THE EARLIER ROUND, THE MATTER WAS REFERRED TO THE A SSESSING OFFICER FOR VERIFICATION OF THE FATE OF APPLICATION OF THE ASSE SSEE FOR REGISTRATION OF GRATUITY SCHEME. THE ASSESSING OFFICER ENQUIRED FR OM THE OFFICE OF THE COMMISSIONER VIDE LETTER NO. CIT/TECH/SML/GRATUITY FUND/2009-10/4140. THE COMMISSIONER HAS CLEARLY INFORMED THE ASSESSING OFFICER THAT NO SUCH APPLICATION WAS PENDING IN THAT OFFICE. IN SUCH CI RCUMSTANCES IN OUR OPINION, THE ASSESSEE SHOULD HAVE TAKEN CAUTION TO PURSUE THE MATTER IN THE OFFICE OF THE COMMISSIONER OR SHOULD HAVE PRODU CED SOME EVIDENCE BEFORE US TO SHOW THAT THE APPLICATION WAS REALLY P ENDING. IN THE ABSENCE OF SUCH EVIDENCE ONLY CONCLUSION WHICH CAN BE REACH ED IS THAT THE GRATUITY FUND OF THE ASSESSEE IS NOT APPROVED. HON' BLE DELHI HIGH COURT HAS CLEARLY EXAMINED THIS ISSUE AND ALSO THE CONTENTION OF THE ALLOWABILITY OF THE CLAIM OF THE ASSESSEE ALTERNATIVELY U/S 37 IN CASE OF SONY INDIA P. LTD V CIT (SUPRA). IN THAT CASE HEAD NOTE READS AS UNDER : SECTION 36 OF THE INCOME-TAX ACT, 1961, PROVIDES F OR DEDUCTIONS THAT ARE ADMISSIBLE WHILE COMPUTING THE INCOME REFERRED TO I N SECTION 28. ONE OF THE DEDUCTIONS WHICH IS MADE ADMISSIBLE UNDER CLAUS E (IV) OF SECTION 36 IS ANY SUM PAID BY THE ASSESSEE BY WAY OF CONTRIBUTIO N TOWARDS A RECOGNIZED PROVIDENT FUND OR AN APPROVED SUPERANNUA TION FUND. CLAUSE (V) OF SECTION 36(1) SIMILARLY PROVIDES FOR DEDUCTI ON OF ANY SUM PAID BY THE ASSESSEE BY WAY OF CONTRIBUTION TOWARDS AN APPR OVED GRATUITY FUND PROVIDED THE SAME IS UNDER AN IRREVOCABLE TRUST. A PLAIN READING OF SECTION 36(1)(IV) AND (V) MAKES IT MANIFEST THAT DE DUCTIONS THERE UNDER ARE ADMISSIBLE ONLY IF THE EMPLOYER PAYS THE CONTRIBUTI ONS TOWARDS A RECOGNIZED PROVIDENT FUND, AN APPROVED SUPERANNUATI ON FUND OR AN APPROVED GRATUITY FUND. THE PROVISIONS OF A TAXING STATUTE HAVE TO BE INTER PRETED STRICTLY APPLYING THE RULE OF LITERAL INTERPRETATION. NOTHING CAN BE ADDED OR SUBSTITUTED BY IMPLICATION OR INTENDMENT. IF PARLIAMENT HAS MADE D EDUCTIONS TOWARDS PROVIDENT FUND, SUPERANNUATION FUND OR GRATUITY FUN D ADMISSIBLE ONLY IN CASES WHERE SUCH FUNDS ARE APPROVED, GRANTING DEDUC TION OF AMOUNTS PAD INTO UNAPPROVED FUNDS UNDER THE COVER OF SECTIO N 37 MAY DEFEAT THE LEGISLATIVE INTENT AND FRUSTRATE THE VERY PURPOSE U NDERLYING THE SPECIFIC PROVISIONS MADE THEREUNDER. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH THE LIC AND MADE CONTRIBUTIONS TOWARDS GRATUITY AND SUPERANNUATION F UNDS FOR THE BENEFIT OF ITS EMPLOYEES. THE ASSESSEE MADE AN APPLICATION TO THE COMMISSIONER FOR APPROVAL OF THE FUND UNDER THE EMPLOYEES GROUP GRAT UITY SCHEME (CORPORATE AND FACTORY ) WHICH WAS APPROVED BY THE COMMISSIONER WITH EFFECT FROM SEPTEMBER 30,1998. A SIMILAR APPROVAL F OR THE SUPERANNUATION SCHEME WAS GRANTED BY THE COMMISSIONER WITH EFFECT FROM OCTOBER 14, 1998. THE ASSESSEE CLAIMED THAT THE CONTRIBUTIONS M ADE BY IT WERE ADMISSIBLE DEDUCTIONS FOR THE ASSESSMENT YEAR 1998- 99 FOR THE PREVIOUS YEAR ENDED MARCH 31, 1998, WHICH WAS REJECTED BY TH E ASSESSING OFFICER ON THE GROUND THAT THE CONTRIBUTION TO AN UNAPPROVE D FUND DID NOT QUALIFY FOR DEDUCTION UNDER SECTION 36(1)(IV) AND 3 6(1)(V). THE COMMISSIONER (APPEALS) AFFIRMED THE VIEW TAKEN BY THE ASSESSING OFFICER. THE TRIBUNAL ALSO DISALLOWED THE DEDUCTION TOWARDS CONTRIBUTION OF A SUM OF RS. 4,31,342 MADE BY THE ASSESSEE TO THE GRATUIT Y FUND AND A SUM OF RS. 35,31,223 CONTRIBUTED TOWARDS THE SUPERANNUATION FU ND ON THE GROUND THAT THE SAID FUNDS WERE NOT APPROVED DURING THE RE LEVANT PERIOD. ON APPEAL: HELD, DISMISSING THE APPEAL, THAT IT WAS COMMON GRO UND THAT THE FUNDS TO WHICH THE ASSESSEE HAD CONTRIBUTED WERE NOT APPROVE D EITHER DURING THE YEAR UNDER CONSIDERATION OR AT ANY TIME UP TO THE D ATE OF MAKING THE CONTRIBUTIONS. THEREFORE, THE CONTRIBUTIONS MADE DI D NOT QUALIFY FOR 4 DEDUCTION UNDER SECTION 36. FURTHER THE DEDUCTION W HICH THE ASSESSEE CLAIMED WAS ADMITTEDLY OF THE NATURE DESCRIBED IN S ECTION 36(1)(IV) AND (V). THEREFORE SECTION 37 WOULD NOT COME TO THE AID OF THE ASSESSEE. FROM ABOVE IT BECOMES CLEAR THAT IF PARTICULAR FUND IS NOT APPROVED THEN SECTION 36(1)(IV) WOULD COME INTO OPERATION AND SUC H EXPENDITURE CANNOT BE ALLOWED. IN SUCH SITUATION SEC 37 IS NO T APPLICABLE BECAUSE HON'BLE HIGH COURT HAS VERY CLEARLY HELD THAT DEDU CTION ADMISSIBLE U/S 30 TO 36 CANNOT BE CLAIMED U/S 37. THEREFORE IN OUR O PINION, IN VIEW OF THIS DECISION THE CLAIM OF THE ASSESSEE HAS BEEN CORRECT LY DENIED BY THE AUTHORITIES BELOW AND ACCORDINGLY WE CONFIRM THE O RDER OF THE LD. CIT(A). 9. FROM THE ABOVE IT IS CLEAR THAT ISSUE IS COVERED AGAINST THE ASSESSEE. WE ARE UNABLE TO AGREE THAT THIS YEAR DIFFERENT VIEW S HOULD BE TAKEN IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS . M/S TEXTOOL CO. LTD. (SUPRA) BECAUSE IN THAT CASE CLEARLY THE FUND WAS APPROVED BY THE COMMISSIONER OF INCOME TAX (AS SHOWN IN HIGHLIGHTED PORTION) WHEREA S IN CASE BEFORE US THE FUND IS NOT APPROVED. THIS BECOMES CLEAR FROM FOLLOWING PARA OF THE JUDGMENT OF M/S TEXTOOL CO. LTD. FOR THE ASSESSMENT YEAR, 1983-84, FOR WHICH THE R ELEVANT PREVIOUS YEAR ENDED ON 30 TH APRIL, 1982, THE ASSESSEE CLAIMED A DEDUCTION OF RS. 92,06,978/- AS CONTRIBUTION / PROVISION TOWARDS THE APPROVED GRATUITY FUND. AS PER THE BREAKUP OF THE SAID AMOUNT, AN AMOUNT OF RS. 5,84,754/- WAS PAID AS ANNUAL PREMIUM TO THE LIFE INSURANCE CORPOR ATION(LIC FOR SHORT); A SUM OF RS. 50,00,000/- WAS PAID TO THE LIC AS INI TIAL CONTRIBUTION IN THE GROUP LIFE ASSURANCE SCHEME FRAMED BY THE LIC FOR T HE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE AND THE REMAINING AMOUNT OF RS. 36,22,224/- WAS SHOWN AS PROVISION FOR INITIAL CONTRIBUTION. IT IS COMMON GROUND THAT ASSESSEE COMPANYS GRATUITY FUND, VIZ., THE TEXTOOL COMPANY LTD. EMPLOYEES GROUP GRATUITY FUND WAS APPROVED BY THE C OMMISSIONER OF INCOME TAX, COIMBATORE, W.E.F. 25 TH FEBRUARY, 1983. WHILE COMPLETING ASSESSMENT, THE ASSESSING OFFICER ALLOWED A DEDUCTI ON OF RS. 36,22,224/- UNDER SECTION 40A(7) OF THE ACT. HOWEVER, DEDUCTION FOR THE BALANCE AMOUNT WAS DISALLOWED ON THE GROUND THAT PAYMENT TO WARDS THE GRATUITY FUND WAS MADE BY THE ASSESSEE DIRECTLY TO THE LIC A ND NOT TO AN APPROVED GRATUITY FUND AND, THEREFORE, IT WAS NOT A LLOWABLE UNDER SECTION 36(1)(V) OF THE ACT. THEREFORE FOLLOWING THE EARLIER DECISION WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. GROUND NO. 2 10. AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING THE ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT ASSESSEE HAS PAID C ERTAIN PREMIUM TOWARDS LEAVE ENCASHMENT. AFTER DETAILED DISCUSSION THIS PR EMIUM WAS HELD TO BE NOT ALLOWABLE. 11. ON APPEAL THE ACTION OF AO WAS CONFIRMED BY THE LD. CIT(A). 5 12. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THIS ISSUE IS COVERED BY THE ORDER OF TRIBUNAL FOR EARLIER YEARS IN FAVOU R OF THE ASSESSEE. 13. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF LD. CIT(A). THIS ISSUE CAME UP FOR CONSIDERATION IN THE EARLIER YEAR AND THE SAME WAS DECIDED IN ITA NO. 1226&1227/CHD/2010 VIDE PARA 20 WHICH IS AS UNDER: 20 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. T HE AMOUNT HAS NOT BE PAID BY WAY OF PROVISION BUT BY WAY OF PREMIUM UNDE R A PARTICULAR SCHEME UNDER WHICH THE INSURANCE COMPANY HAD COMPUT ED THE LEAVE ENCASHMENT DUES. THEREFORE IT CANNOT BE CALLED A P AYMENT TOWARDS A PROVISION. IN ANY CASE ONCE THE PAYMENT HAS BEEN M ADE THE SAME IS ALLOWABLE UNDER CLAUSE (F) OF SEC 43B. OTHERWISE A LSO THE ISSUE STANDS SETTLED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DE CISION OF HON'BLE SUPREME COURT IN CASE OF BHARAT EARTH MOVERS V. CI T, 245 ITR 428 IN WHICH PROVISION FOR LEAVE ENCASHMENT WAS HELD TO BE ALLOW ABLE IF THE SAME WAS BASED ON A PARTICULAR SCHEME PROPORTIONATELY WITH T HE ENTITLEMENTS EARNED BY THE EMPLOYEES. LATER ON EFFECT OF THIS J UDGMENT WAS NULLIFIED BY INSERTION OF CLAUSE (F) TO SEC 43B PROVIDING THA T THE AMOUNT WOULD BE ALLOWABLE ONLY IF THE SAME HAS BEEN PAID. SINCE TH E AMOUNT HAS BEEN PAID, THEREFORE SAME IS, IN OUR OPINION, ALLOWABLE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESS ING OFFICER TO ALLOW THIS AMOUNT. FOLLOWING THE SAME WE DELETE THIS ADDITION. GROUND NO. 3 14. AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS NOT ACCOUN TED FOR INTEREST ON FDRS AMOUNTING TO RS. 60,29,838/-. AO AFTER DETAILED DIS CUSSION DISALLOWED THIS AMOUNT AND THE ACTION OF THE AO WAS CONFIRMED BY TH E LD. CIT(A). 15. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T RIBUNAL IN THE EARLIER YEARS. 16. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF LD. CIT(A). 17. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFUL LY WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION IN EARLIER YEAR AND SAME WAS DECIDED IN ITA NO. 1226&1227/CHD/2010 VIDE PARA 25 WHICH IS AS UNDER: 25 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDU STRY, DEPARTMENT OF COMMERCE HAS SANCTIONED THE GRANT TO THE ASSESSEE V IE LETTER DATED 16.7.2002. CLAUSE 4 OF THE SAME READS AS UNDER: 4 THE RELEASE OF FUND ARE SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS: 6 (I) NO ADMINISTRATIVE EXPENDITURE BE INCURRED OUT O F THE FUNDS ALLOCATED (II) THE ACCOUNT OF THE IMPLEMENTING AGENCY BE KEPT OPEN FOR INSPECTION BY THE SANCTIONING AUTHORITY/AUDIT. (III) THE AMOUNT RECEIVED FROM THE GOVERNMENT BE KE PT IN A SEPARATE HEAD OF ACCOUNT OF THE NODAL AGENCY. (IV) NO PART OF THE FUNDS BE INVESTED EXCEPT IN THE SCHEDULED NATIONALIZED BANKS. ANY INTEREST ACCRUED BE UTILIZ ED FOR THE SCHEME. (V) THE NODAL AGENCY SHALL SUBMIT THE REPORT IN THE PRESCRIBED PROFORMA ALONG WITH THE PROPOSAL FOR RELEASE OF SEC OND INSTALLMENT AS PRESCRIBED IN THE GUIDELINES. (VI) AUDITED ACCOUNTS IN SUPPORT OF THE EXPENDITURE INCURRED FOR THE ASIDE SCHEME BE SUBMITTED WITHIN 9 (NINE) MOHTHS FR OM THE CLOSING OF THE ACCOUNTS. HIGHLIGHTED PORTION CLEARLY SHOWS THAT THE ASSESSEE WAS REQUIRED TO INVEST FUNDS IN A SCHEDULED BANK AND THE INTEREST IF ANY W AS REQUIRED TO BE UTILIZED FOR THE PURPOSE OF SCHEME. THUS IT IS CLEA R THAT THE INTEREST NEVER BELONGS TO THE ASSESSEE. IN ALMOST IDENTICAL SITUA TION WHICH AROSE BEFORE THE HON'BLE KARNATAKA HIGH COURT WHERE THE ASSESSE E, THE KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT AND FINANCIAL CORP , A GOVERNMENT COMPANY OWNED BY THE STATE OF KARNATAKA WAS INVOLVE D IN PROJECT DEVELOPMENT OF INFRASTRUCTURE AND WAS PROVIDED FUND S BY THE PLANNING COMMISSION FOR DEVELOPMENT OF URBAN INFRASTRUCTURE TO BANGALORE CITY. THE FUNDS RECEIVED BY IT FROM THE GOVERNMENT OF IN DIA WERE DEPOSITED WITH BANKS FOR THE PERIOD THEY WERE NOT UTILIZED. THE INTEREST EARNED ON THESE DEPOSITS WAS TRANSFERRED TO THE MEGA CITY ACC OUNT DIRECTLY. ON THE QUESTION WHETHER THE INTEREST ON THE BANK DEPOSITS WAS TAXABLE AND IT WAS HELD AS UNDER: THE ASSESSEE, THE KARNATAKA URBAN INFRASTRUCTURE D EVELOPMENT AND FINANCIAL CORPORATION, A GOVERNMENT COMPANY OWNED B Y THE STATE OF KARNATAKA, WAS INVOLVED IN PROJECTS OF DEVELOPMENT OF INFRASTRUCTURE AND WAS APPOINTED THE NODAL AGENCY FOR THE IMPLEMENTATI ON OF THE MEGA CITY SCHEME WORKED OUT BY THE PLANNING COMMISSION F OR DEVELOPMENT OF URBAN INFRASTRUCTURE TO BANGALORE CITY. THE FUNDS R ECEIVED BY IT FROM THE GOVERNMENT OF INDIA WERE DEPOSITED WITH BANKS FOR T HE PERIOD THEY WERE NOT UTILIZED. THE INTEREST EARNED ON THESE DEPOSITS WAS TRANSFERRED TO THE MEGA CITY ACCOUNT DIRECTLY. ON THE QUESTION WHETHER THE INTEREST ON THESE BANK DEPOSITS WAS TAXABLE. HELD, THAT THERE WAS NO PROFIT MOTIVE AS THE ENTIRE FUND ENTRUSTED AND THE INTEREST ACCRUED ON THE DEPOSITS IN THE BANK, THOUG H IN THE NAME OF THE ASSESSEE, HAD TO BE APPLIED ONLY FOR THE PURPOSE OF WELFARE OF THE NATION AS PROVIDED IN THE GUIDELINES. THE WHOLE OF THE FUN DS BELONGED TO THE STATE EXCHEQUER AND THE ASSESSEE HAD TO CHANNELISE THEM TO THE OBJECTS OF THE CENTRALLY SPONSORED SCHEME OF INFRASTRUCTURA L DEVELOPMENT FOR THE MEGA CITY OF BANGALORE. THE ENTIRE MONEY WAS RECEIV ED FOR A PUBLIC PURPOSE AND THE END SCHEME WAS IMPLEMENTED IN ACCOR DANCE WITH THE GUIDELINES OF THE CENTRAL GOVERNMENT. THEREFORE, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE THE INTEREST ACCRUED ON THE BANK DEPOSITS COULD NOT BE TREATED AS INCOME. THIS DECISION HAS BEEN FOLLOWED BY THE CHANDIGARH B ENCH OF THE TRIBUNAL IN CASE OF H.P. GOVERNMENT ENERGY DEVELOPMENT AGEN CY, SHIMLA V. ACIT (SUPRA). THEREFORE FOLLOWING THIS DECISION WE ARE OF THE OPINON THAT THE INTEREST INCOME DOES NOT ACCRUED TO THE ASSESSEE AN D THE ASSESSEE IS NOT LIABLE TO BE TAXED ON SUCH INTEREST. THEREFORE WE SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THIS ADDITION. 7 FOLLOWING THE SAME WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 18. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.1308/CHD/2012 THE APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 24/09/2012 PASSED BY THE CIT(A). 19. IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE A.O. WAS NOT RIGHT IN APPORTIONING THE DEVELOPMENT COST INCURRED ON 159868 SQ. MTRS OF MAR KETABLE LAND TO WHOLE PIECE OF LAND OF 317803 SQ. MTRS PURCHASED AN D DEVELOPED BY THE ASSESSEE FOR SALE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE DEVELOPMENT MADE BY T HE ASSESSEE IN THE ENTIRE LAND SUCH AS CONSTRUCTION OF ROAD ETC. DOES NOT HOLD GOOD FOR WHOLE OF LAND AND ONLY INCREASES THE COST OF LAND S OLD BY THE ASSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN REACHING TO THE CONCLUSION WITHOUT ANY MATERIAL ON RECORD THAT NO DEVELOPMENT WAS CARRIED OUT ON THE REMAINI NG LAND MEASURING 88292 SQ. MTRS., BECAUSE OF ITS JUXTAPOSITION WITH SOME GOVERNMENT LAND. WHEREAS THE ASSESSEE HAD CARRIED OUT THE DEVELOPMEN T OF ROAD ETC. WHICH CONNECTS TO THE ENTIRE LAND AND THE COST OF W HICH CANT BE EXCLUDED FROM THE WHOLE PIECE OF LAND. 20. AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS DEVELOPED PLOTS IN DAVNI INDUSTRIAL AREA SITUATED IN BADDI, THE TOTAL COST INCURRED WAS RS. 22,73,07,500/-. THE TOTAL AREA SOLD DURING THE YEAR WAS 65051.34 SQ, MTR. THE ASSESSEE HAS TAKEN AVERAGE COST AT RS. 2438.77 PER SQ. MTR. THIS COST WAS DETE RMINED BY CONSIDERING THE PURCHASE PRICE + COST OF DEVELOPMENT OF THE LAND SO LD. THE ASSESSEE HAD REDUCED COST OF LAND COVERED UNDER THE TUBE WELL WH ICH WAS NON MARKETABLE AND COST OF LAND HAD BEEN REDUCED BY RS. 864.36 PER SQ. MTR. AO DID NOT ACCEPTED THIS PROPOSITION AND HELD THAT DEVELOPMENT EXPENSES INCURRED FOR THE PLOTS WERE REQUIRED TO BE APPORTIONED TO THE WHOLE OF THE LAND AFTER REDUCING ONLY THE AREA UNDER TUBE WELL. THEREAFTER AO RECOMP UTED AVERAGE COST AT RS. 1453.22 PER SQ. MTR. BECAUSE AO REDUCED ONLY THE TU BE WELL AREA OF 3000 SQ. MTR. THE DEVELOPMENT COST OF THE TUBE WELL AT RS. 8 7,13,155/- WAS ALSO NOT INCLUDED IN THE TOTAL DEVELOPMENT COST. HOWEVER NET PROFIT FROM THE SALE OF LAND WAS CALCULATED AT RS. 13,27,74,086/- AGAINST THE PR OFIT OF RS. 6,86,63,073/- AS 8 DECLARED BY THE ASSESSEE AND SUM OF RS. 6,41,11,013 /- WAS ADDED TO THE INCOME OF THE ASSESSEE. 21. ON APPEAL IT WAS MAINLY SUBMITTED THAT ASSESSEE HAD ACQUIRED TOTAL LAND HOLDING OF 426.12 BIGHAS EQUIVALENT TO 320803 SQ. M TRS. FOR DEVELOPMENT OF INDUSTRIAL ESTATE AT BADDI. DURING THE PROCESS OF D EVELOPMENT OF INDUSTRIAL PLOTS IT WAS FOUND THAT 88292 SQ. MTRS. OF LAND COULD NOT BE DEVELOPED BECAUSE OF THE EXISTENCE OF SMALL PATCHES OF GOVT. LAND IN BETWEEN THE PLOTS, BECAUSE OF THIS REASON DEVELOPMENT OF THIS AREA COULD NOT BE UNDERT AKEN AND ONLY THE PURCHASE COST WAS INCURRED. IN THE BALANCE SHEET CO ST OF THIS LAND MEASURING 88292 SQ. MTRS WAS SEPARATELY SHOWN IN THE INVENTOR Y. FURTHER THE LAND COMPRISING TUBE WELL MEASURING 3000 SQ. MTR. COULD ALSO NOT BE SOLD AND THEREFORE COST OF THAT LAND WAS ALSO REDUCED FOR WO RKING OUT OF COST OF LAND TO BE SOLD. THEREFORE, TOTAL BALANCE AVAILABLE AREAS W AS ONLY 229511 SQ. MTRS. THE SAID AREA WAS DEVELOPED BY PROVIDING SEWERAGE, ROAD S AND OTHER FACILITIES AND WHICH ALSO LEAD TO WASTAGE OF DEVELOPED AREA WHICH WAS REDUCED TO 69643 SQ. MTRS. THUS NET SALEABLE AREA WAS 159868 SQ. MTRS. W HICH GAVE THE AVERAGE COST OF RS. 2438.77 PER. SQ. MTR. SINCE THE ASSESSEE HAS SOLD LAND MEASURING 65051 SQ. MTRS. OF LAND. DURING THE YEAR THE PROFIT WAS REFLE CTED ACCORDINGLY. IT WAS ALSO POINTED OUT THAT OUT OF THE SOLD AREA 14148 SQ. MET RS. WAS SURRENDERED BY THE BUYERS IN THE IMMEDIATELY SUCCEEDING YEAR AND LOSS WAS BOOKED ACCORDINGLY WHICH WAS ACCEPTED BY THE DEPARTMENT. THE LD. CIT(A ) FOUND FORCE IN THIS SUBMISSION AND DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE. 22. LD. DR RELIED ON THE CONTENTS OF THE ASSESSMENT ORDER AND VEHEMENTLY ARGUED THAT THE COST OF DEVELOPMENT WAS REQUIRED TO BE SPREAD IN THE WHOLE AREA OF LAND WHICH WAS AVAILABLE WITH THE ASSESSEE AND THEREFORE AO RIGHTLY SPREAD THE COST OF WHOLE AREA. 23. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT LD. CIT(A) HAS ADJUDICATED THIS ISSUE VIDE PARA 9 WHICH IS AS UNDER: 9. THE RIVAL SUBMISSIONS HAVE BEEN CAREFULLY CONS IDERED W.R.T THE FACTS OF THE CASE. IT IS NOTED THAT 229511 SQ. MTRS. OF AREA WAS ACTUALLY DEVELOPED BY THE APPELLANT CORPORATION, ALTHOUGH TH E TOTAL LAND PURCHASED AMOUNTED TO 320803 SQ. MTRS. 3000 SQ. MTR S. OF AREA WAS 9 SEPARATELY DEVELOPED AS THE SAID AREA WAS UNDER THE TUBEWELLS. THE DEVELOPMENT COST OF THIS AREA WAS RS. 87,13,155/-. NO DEVELOPMENT WAS CARRIED OUT ON THE REMAINING LAND MEASURING 88292 S Q. MTRS. AS IT WAS NOT POSSIBLE TO DEVELOP THE SAME BECAUSE OF ITS JUXTAPO SITION WITH SOME GOVERNMENT LAND. ACCORDINGLY THE SAID LAND MEASURIN G 88292 SQ. MTRS. WAS NOT A PART OF THE STOCK-IN-TRADE READY FOR SALE . THEREFORE THE INVESTMENT IN THE SAID LAND WAS SEPARATELY SHOWN BY THE ASSESSEE AS A DISTINCT STOCK(INVENTORY) NOT YET DEVELOPED AND HEN CE NOT SALEABLE. THE APPELLANT HAS CALCULATED THE COST OF THE PLOTS READ Y FOR SALE BY DIVIDING THE TOTAL LAND COST AND DEVELOPMENT COST INCURRED O N SALEABLE LAND BY THE TOTAL MARKETABLE/SALEABLE AREA WHICH WAS 159868 SQ. MTRS. THE A.O. HAS NOT DOUBTED THE GENUINENESS OF THE APPELLANTS CLAIM IN RESPECT OF THE LAND COST AND THE DEVELOPMENT COST AND THE BALA NCE WORK COST. THEREFORE IT IS NOT UNDERSTOOD AS TO HOW HE HAS CHO SEN TO DIVIDE THE DEVELOPMENT COST INCURRED IN RESPECT OF 159868 SQ. MTRS. OF LAND BY 317803 SQ. MTRS. OF LAND IN ORDER TO ARRIVE AT THE AVERAGE COST PER SQ. MTR. OF THE SALEABLE LAND. IT IS NOT THE A.O.S CASE THA T 88292 SQ. MTRS. OF LAND SHOWN AS NON-MARKETABLE BY THE APPELLANT COPORATION WAS NOT IN NEED OF ANY DEVELOPMENT IN ORDER TO MAKE IT MARKETABLE / SALEABLE. NOR HAS THE A.O. CONDUCTED ANY INDEPENDENT ENQUIRIES OR BRO UGHT ANYTHING ON RECORD TO CONTROVERT THE APPELLANT CORPORATIONS CL AIM THAT THE LAND OF 88292 SQ. MTRS. WAS NOT IN A POSITION TO BE DEVELOP ED PENDING DISPUTES REGARDING THE EXISTENCE OF CERTAIN GOVERNMENT LAND. THE APPELLANTS CLAIM, ON THE CONTRARY, IS SUPPORTED BY THE SITE DE VELOPMENT PLANS AND THE LAY-OUT MAPS OF THE DAVNI INDUSTRIAL AREA/ESTAT E WHICH SHOW VARIOUS PATCHES OF LAND BELONGING TO THE GOVERNMENT AND NOT BELONGING TO THE APPELLANT CORPORATION. EVEN OTHERWISE, AS ALREADY M ENTIONED, THERE IS FOUND NO LOGIC IN THE METHOD OF CALCULATION OF COST OF THE STOCK-IN-TRADE ADOPTED BY THE A.O. HE IS NOT FOUND JUSTIFIED IN A PPORTIONING THE DEVELOPMENT COST INCURRED ON 159868 SQ. MTRS. OF MA RKETABLE LAND TO 317803 SQ. MTRS. OF LAND PURCHASED BY THE ASSESSEE CORPORATION. THEREFORE THE ADJUSTMENT MADE BY HIM IN THE AVERAGE COST OF P LOTS TAKING IT AT RS. 1453.22 PER SQ. MTRS. IS NOT FOUND TO BE SUSTAINABL E. THE ADDITION OF RS. 6,41,11,013/- ON ACCOUNT OF THE SO-CALLED SHORT PR OFIT IS ACCORDINGLY DIRECTED TO BE DELETED. 25. IN OUR OPINION LD. CIT(A) HAS CORRECTLY ADJUDIC ATED THIS ISSUE BECAUSE COST CANNOT BE ALLOCATED TO THE AREA WHICH COULD NOT BE SOLD ULTIMATELY. FURTHER AO HAS NOWHERE DISPUTED THAT THIS PORTION OF LAND WAS NOT SALEABLE. THEREFORE, WE FIND NOTHING WRONG IN THE ORDER OF LD. CIT (A) AND CONFIRM THE SAME. 26. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D. 27. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN ITA NO.1036/CHD/2012 AND APPEAL OF THE REVENUE IS DISMISSED IN ITA NO.1308/CHD/2012. ORDER PRONOUNCED IN THE OPEN COURT ON 10/07/2015 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 10/07/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR