Andhra Pradesh Capital Region Development Authority, Vijayawada V. ACIT, Circle-3(1), Vijayawada

ITA 398/VIZ/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 9481 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 02-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Condonation of delay
• Section: 27; 148; 37; 12; 11; 139; 143(3); 142(1); 234B; 12A; 12AA; 143(2); 113; 13

Judgement Text

आयकरअपीलȣयअͬधकरण, ͪवशाखापटणमपीठ, ͪवशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM Įीदुåवूǽआरएलरेɬडी, ÛयाǓयकसदèयएवंĮीएसबालाकृçणन, लेखासदèयकेसम¢ BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./ I.T.A. Nos. 395, 396, 397, 398 & 399/Viz/2017 (Ǔनधा[रणवष[/ AYs:2009-10, 2010-11, 2011-12, 2012-13 & 2013-14 ) Andhra Pradesh Capital Region Development Authority (Formerly VGTM Urban Development Authority), Vijayawada. PAN: AAALV 0067 E Vs. Assistant Commissioner of Income Tax, Circle-3(1), Vijayawada. (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) अपीलाथȸकȧओरसे/ Appellant by : Sri GVN Hari, Advocate Ĥ×याथȸकȧओरसे/ Respondent by : Sri MN Murthy Naik, CIT-DR सुनवाईकȧतारȣख/ Date of Hearing : 18/07/2022 घोषणाकȧतारȣख/Date of Pronouncement : 30/09/2022 O R D E R PERS. BALAKRISHNAN, Accountant Member : These appeals are filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), Vijayawada [Ld. CIT(A)], in ITA No. 111, 112, 110, 113 & 26/CIT(A)/VJA/2015-16 & 2016-17, dated 28/02/2017 arising out of the orders passed 2 U/s. 143(3) r.w.s 147 of the Income Tax Act, 1961 [the Act] for the AYs 2009-10, 2010-11 and 2011-12 and U/s. 143(3) for the AYs 2012-13 and 2013-14. Since the issues raised in all the appeals are identical and the appeals pertaining to one assessee, these appeals are clubbed, heard together and disposed off in this consolidated order. 2. The assessee has also filed a petition for admission of additional ground which is legal in nature which reads as under: “Whe ther on the facts and in the circumstances of the case, the inco me of the appellant is eligible for exe mption u/s. 11 & 12 of the Inco me Tax Ac t, 1961 since the appellant was granted registration U/s. 12AB of the Ac t vide order dated 21/3/2022 and as per the provisions of sec tion 12A of the Act the benefit shall extend to all pending assessment proceedings?” 3. The assessee has filed the above additional ground for all the assessment years under consideration. 4. The assessee has raised the original grounds of appeal which are identical for all the AYs under consideration ie 2009- 10 to 2011-12. Therefore for the sake of reference and adjudication purpose, the grounds raised by the assessee its appeal for the AY 2009-10 are extracted herein below: 3 “1. The order of the Ld. CIT (A) is erroneous both on fac ts and in law. 2. The Ld. CIT(A) erred in confir ming the action of the Assessing Officer in initiating the proceedings U/s. 147 of the Act when: a) all the material fac ts were before the AO at the time of co mple tion of regular assessment and were duly considered by the AO; b) the initiation of proceedings u/s. 147 is purely because of difference of opinion entertained by the Assessing Officer; c) when the ignition is based on the opinion expressed by the audit. 3. The Ld. CIT(A) erred in confir ming the action of the Assessing Officer in treating Rs. 11,01,93,493/- representing 85% of the Development charges / fee as the inco me of the appellant. 4. The Ld. CIT(A) ought to have considered the fac t that 85% of the fee collected does no t represent the inco me of the appellant as it is collected for specific purpose and canno t represent the income of the appellant. 5. The Ld. CIT(A) ought to have seen that ought of the to tal fee collec tions, only 15% of the amount represents the inco me of the appellant and the balance of 85% is held by the appellant only as a Trustee for specific purposes. 6. The Ld. CIT(A) erred in confirming levy of interest U/s. 234A of Rs. 7,55,926/-; U/s. 234B of Rs./ 61,98,590/- and U/s. 234D of Rs. 25,52,650/-. 7. Any other ground or grounds that may be urged at the time of hearing.” 4 5. Brief facts of the case are that the assessee, Vijayawada, Guntur, Tenali, Mangalagiri Urban Development Authority known as Andhra Pradesh Capital Region Development Authority is a statutory Authority constituted under section 3 of Andhra Pradesh Urban Areas (Development) Act, 1975. It is a non-profit oriented organization established for development of Urban Areas by implementing the provisions of the Master Plan. The assessee filed its return of income for the AY 2009-10, 2010-11 and 2011- 12 by admitting the total income of Rs. NIL after setting off the brought forward losses. The return of income was processed u/s. 143(1) of the Act and subsequently scrutiny assessment was completed U/s. 143(3) after making additions as mentioned in the respective assessment orders. Subsequently, the case was reopened U/s. 147 of the Act and a notice U/s. 148 was issued on the assessee. In response to the notice U/s. 148, the assessee requested the Ld. AO to treat the original return filed U/s. 139 as the return filed in response to the notice U/s. 148 of the Act. The assessee was also given a fresh opportunity of being heard due to change in the incumbent of the Ld. AO. The Assessee’s Representative filed submissions before the Ld. AO from time to time. The Ld. AR submitted before the Ld. AO that the assessee levies developmental charges on the institution for use or change 5 of use of land or building or development of any land or building for which permission is required. The assessee collected Development Charges, Compounding Fees, Application Fees, Open Space Charges, Recommendation Fee, Conversion Charges, Impact Fee and STP charges in accordance with the Master Plan. The Ld. AR also submitted before the Ld. AO that the assessee has debited the income and expenditure account for Rs. 11,01,93,491/- which is considered as a Sinking Fund and shown as other liabilities in the liabilities side of the balance sheet. Considering the submissions made by the Ld. AR, the AO observed that the amount was debited to Sinking Fund and disallowed the same in the respective assessment years. Aggrieved by the action of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the Ld. AR questioned the validity of the reopening of the assessment U/s. 148 of the Act as the Assessing Officer has completed the assessment U/s. 143(3) of the Act after a detailed scrutiny. The Ld. AR also contested the disallowances made by the Ld. AO in the respective assessment years for the amounts debited towards Sinking Fund. Considering the submissions made by the Ld. AR, the Ld. CIT(A) dismissed the appeal. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. 6 6. Before we adjudicate the original grounds raised by the assessee, we proceed first to adjudicate the legal issue raised by way of additional ground by the assessee. 7. The Ld. Authorized Representative [Ld. AR] while making written submission in the petition for admission of additional ground has stated that the assessee was granted registration U/s. 12AB of the Act vide order dated 21/3/2022 in Form No. 10AC. The Ld. AR also submitted that as per the Fourth Proviso to section 12A of the Act, where registration has been granted to the Trust or Institution U/s. 12AA or 12AB of the Act, the provisions of Section 11 and Section 12 shall apply in respect of income derived from property held under Trust of any assessment year preceding the assessment year effective from which the registration was granted, for which assessment proceedings are pending before the Assessing Officer as on the date of registration and the objects and activities of such Trust or Institution remain the same for such preceding assessment year. The Ld. AR further submitted that this legal issue was not contested before the Lower Authorities as registration U/s. 12AB was not granted at that point of time. 7 8. We admit the legal issue raised by way of additional ground by the Ld. AR. The Fourth Proviso to section 12A of the Act was inserted w.e.f 1/4/2014 which reads as under: “Provided that where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year: Provided further that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year:” 9. From the plain reading of the above, it is very clear that when a registration has been granted to an Institution U/s. 12AA or 12AB of the Act, the provisions of section 11 and 12 shall apply to the year preceding the assessment year in which the registration was granted if the assessment proceedings are pending before the Assessing Officer as on the date of registration the objects and activities of the said Institution remains the same for the preceding assessment years. Section 2(8) of the Act states that “assessment” includes “reassessment” In the instant case, the assessment has been completed in the year 2017 while the registration was granted in the year 2022. Prima facie, there is no 8 assessment pending before the Revenue Authorities as envisaged in the Fourth Proviso to section 12A of the Act. It will also be relevant to get into the Explanatory Notes to the Provisions of theFinance (No. 2), 2014 as given in CBDT Circular No. 01 / 2015 dated 21.1.2015 inreference F.No. 142 / 13 /2014-TPL which is reproduced hereinbelow for the sake ofconvenience:- “Para 8 – Applicability of the registration granted to a trust or institution to earlier years Para 8.2 Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organizations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfill other substantive conditions. However, the power of condonation of delay in seeking registration was not available.” Even for the earlier AYs the assessee carrying on the same objects was not disputed by the Revenue. However, admittedly no assessment proceedings were pending before the Ld. AO for the impugned assessment years as on the date of granting registration U/s. 12AB of the Act on 21/3/2022. 10. In the instant case, the assessment / reassessment has been completed much earlier to the date of registration U/s. 9 12AB of the Act which is dated 21/3/2022 and therefore the benefit of Fourth proviso to section 12A of the Act was not available to the pending appeal proceedings before the Tribunal. Therefore, the Additional Ground raised by the assessee is dismissed. 11. We now proceed to adjudicate the original grounds raised by the assessee. 12. Grounds No. 1 and 7 are general in nature and therefore they need no adjudication. 13. Ground No.2 is with respect to the validity of initiation of proceedings U/s. 147 of the Act. 14. The Ld. AR argued that the Ld. AO has verified the books of accounts of the assessee while framing the assessment U/s. 143(3) of the Act. The Ld. AR further submitted that merely not mentioning verification of Sinking Fund account in the assessment order does not tantamount to suppression of facts by the assessee or any new material available with the Ld. AO warranting the reopening of assessment U/s. 147 of the Act. The Ld. AR therefore pleaded that the order passed U/s. 143(3) r.w.s 147 of the Act dated 18/3/2015 be quashed. 10 Per contra, the Ld. DR relied on the orders of the Ld. Revenue Authorities. 15. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. Admittedly the assessee has produced books of account and furnished the information called for by the Ld. AO. The Ld.AO has framed the assessment order U/s. 143(3) after having discussion with the Ld. AR in accordance with the material available on record. 16. However, we note that there is no mention about the verification of the Sinking Fund account debited to the P & L Accounted which was claimed as an expenditure by the assessee. Reliance placed by the Ld. AR on various case laws regarding the validity of the reopening are distinguishable on the fact that in the cases cited by the assessee, the assessee has filed the required details which were considered by the Ld. AO while framing the respective assessments. In the instant case, the Ld. AR could not provide the notice U/s. 142(1) issued by the Ld. AO while framing the assessment U/s. 143(3) of the Act. It is also noted from the submissions made by the Ld. AR that the assessee has filed a petition under Right to Information Act (RTI 11 Act)requesting for the details, notices issued U/s. 143(2) and 142(1) of the Act by the Assessing Officer to the assessee. The application was rejected by the ACIT, Circle-3(1), Vijayawada stating that the information sought by the assessee was already available with the assessee and there is no necessity of furnishing the same to the assessee under the RTI Act. In the absence of any material evidence with regard to the enquiry by the Ld. AO and the submissions or required information by the assessee with respect to Sinking Fund account, we are of the considered view that the reopening of the assessment U/s. 147 is valid in law and accordingly, ground raised by the assessee is dismissed. 17. Ground No. 3 to 5 relating to debiting of 85% of the development charges received by the assessee to the Sinking Fund account. The Ld. AR submitted that as per the G.O.Ms. No. 530, dated 28/09/1998 the assessee is mandated to spend 85% in implementing the Master Plan. The G.O.Ms. No. 530, dated 28/09/1998 is extracted below: “Sections 27 to 29 of Andhra Pradesh Urban Authorities (Development) Act, 1975 empowers the Urban Development Authorities, f or collection of Development Charges f or Change of Land, Use of Land or Building or development of any building f or which permission is required under the said 12 Act. Accordingly, concerned Urban Development Authorities / Municipalities have been collecting development charges. 2. In GO f irst read above while enhancing the collection of Development Charges, it was indicated therein that the amount collected by Urban Development Authorities shall be kept in a separate account of Vice-Chairmand of Urban Development Authorities and the Urban Development Authorities shall utilize 85% of this income to implement the provision of Master Plan viz., (a) traff ic improvement (b) construction of bridges (c) development of Green Belt and parks, etc and remaining 15% can be utilized f or administration and other maintenance. 3. It is observed that the Development Charges / Conversion Charges collected by Urban Developmen t Authorities are not being earmarked and utilized to Develop Inf rastructure f rom where the Development Charges / Conversion charges are collected f rom respective panchayat areas Municipalities. 4. Theref ore Government af ter caref ul examination of the matter direct that 50% of the Development Charges collected from the areas of Panchayats / Municipalities should be earmarked and utilized on the development activities in the respective panchayat / municipalities by the Urban Development Authorities concerned. 5. The Vice Chairmans of all Urban Develop ment Authorities shall take necessary action accordingly.” 18. The Ld. AR argued that as per the G.O. Ms. No. 530 (supra), the assessee shall utilize 85% of the income for implementation provisions of the Master Plan. The Ld. AR submitted that following directions of the GO, the assessee has debited 85% of its income to Sinking Fund Account to be used for developmental activities in subsequent years. The Ld. AR submitted that this fact is clearly mentioned in the income and expenditure account 13 submitted in the paper book. The Ld. AR submitted that since the assessee could not expend the amount during the respective assessment years it has been carried forward and transferred to Sinking Fund Account for spending in future years as per the directions of the Government of Andhra Pradesh, in accordance with the Master Plan approved by the Government. The Ld. AR therefore pleaded that since the assessee being a Non-Profit Organization which is taking care of the execution of developmental activities as approved by the Government of Andhra Pradesh pleaded that the addition made by the Ld. AO be deleted. Per contra, the Ld. DR submitted that the assessee has not spent any amount during the relevant assessment year and hence the provision created by the assessee cannot be allowed as an expenditure U/s. 37 of the Act. The Ld. DR relied on the orders of the Ld. Revenue Authorities. 19. We have heard both the parties and perused the material available on record and the orders of the Ld. Revenue Authorities. Admittedly, the assessee is a Non-Profit Organization established for the development of Urban Areas by implementing the provisions of the Master Plan. As the assessee has been 14 formed under section 3 of the Andhra Pradesh Urban Areas (Development) Act, 1975, it is bound by the Circular issued by the Government of Andhra Pradesh. In the instant case, even though the assessee has not spent the entire amount but debited 85% of the Development Charges received to the Sinking Fund to meet the future formation charges expenditure as per the directions given in G.O.Ms. No.530, dated 28/9/1998. The assessee being a Local Authority which acts as per the directions of the Government of Andhra Pradesh by implementing the Master Plan approved by them. It is also seen from the submission of the Ld. AR that the Institution was exempted from the Income Tax U/s. 10(20A) of the Act upto AY 2002-03. Reliance placed by the Ld. AR on the decision of the ITAT, Hyderabad in the case of HUDA in ITA No. 321/Hyd/07 is distinguishable on the fact that HUDA in the relevant assessment year actually incurred the expenditure which was more than the Sinking Fund created during the year. It is normal accounting practice under the Accrual System of Accounting any future expenditure needs to be provided in the books of accounts in the relevant assessment year. It is not necessary that deduction shall be permissible only in case of amounts actually expended or paid. Further, it is also noticed that the assessee is supposed to 15 expend 85% of the amount to developmental activities as approved by the Government of Andhra Pradesh in accordance with the Master Plan revised. It can be concluded that the assessee as formed under the Andhra Pradesh Urban Areas (Development) Act is bound by the directions of the Government in the collection and execution of development charges. It is also found that the assessee after getting necessary approvals and permissions from the Government of Andhra Pradesh has to expend 85% of the Development Charges collected by them to implement the provisions of the Master Plan. In view of the above discussions, we are of the considered view that the assessee being a non-profit oriented organization established for the purpose of implementing the provisions of the Master Plan is not carrying on any business activity and is only an organ of Government of Andhra Pradesh. Since the assessee could not expend 85% of the development charges during the relevant assessment year it does not warrant disallowance of the same as the expenditure shall be incurred in future years for the purpose of general public utilities. Accordingly, we allow the ground raised by the assessee and hereby set aside the order of the Ld. Revenue Authorities. 16 20. With respect to Ground No.6 on the levy of interest U/s. 234A, B and D of the Act is consequential in nature and since the grounds raised by the assessee are allowed no separate adjudication is needed on this ground. 21. In the result, three appeals filed by the assessee for the AYs 2009-10, 2010-11 and 2011-12 are partly allowed. 22. In ITA Nos. 398 & 399/Viz/2017 (AY: 2012-13 and 2013- 14) the assessee has raised identical grounds which read as under: “1. The order of the Ld. CIT(A) is erroneous bo th on fac ts and in law. 2. The Ld. CIT(A) erred in confir ming the action of the Assessing Officer in treating Rs. 17,789,10,301/- representing 85% of the Development Charges / Fee as the income of the appellant. 3. The Ld. CIT(A) ought to have considered the fac t that 85% of the fee collected does no t represent the inco me of the appellant as it is collected for specific purpose and canno t represent the income of the appellant. 4. The Ld. CIT(A) ought to have seen that out of the to tal fee collec tions, only 15% of the amount represents the inco me of the appellant and the balance of 85% is held by the appellant only as a Trustee for specific purpose. 5. The Ld. CIT(A) erred in confirming levy of interest U/s. 234B of Rs. 1,00,71,721/- and U/s. 234D of Rs. 1,206/-. 17 6. Any other ground that may be urged at the time of hearing.” 23. The core issue involved in these appeals relates to the correctness of the Ld. Revenue Authorities action in treating 85% of the Development Charges collected by the assessee as income of the assessee. 24. This issue is similar to that of the issue raised by the assessee in its appeals for the AYs 2009-10 to 2011-12 which are adjudicated in the above paragraphs of this order wherein the ground raised by the assessee on this issue is decided in its favour. Therefore, considering the similitude of the issues, our decision given therein mutatis mutandis applies to the issue in the present appeals also. Accordingly, the grounds raised by the assessee are allowed. 25. In the result, two appeals raised by the assessee are allowed. 26. Ex-consequenti, assessee’s appeals for the AYs 2009-10, 2010-11 & 2011-12 are partly allowed and the appeals for the AYs 2012-13 and 2013-14 are allowed. 18 Pronounced in the open Court on the 30 th September, 2022. Sd/- Sd/- (दुåवूǽआर.एलरेɬडी) (एसबालाकृçणन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) ÛयाǓयकसदèय/JUDICIAL MEMBER लेखासदèय/ACCOUNTANT MEMBER Dated : 30.09.2022 OKK - SPS आदेशकȧĤǓतͧलͪपअĒेͪषत/Copy of the order forwarded to:- 1. Ǔनधा[ǐरती/ The Assessee–Andhra Pradesh Capital Region Development Authority (Formerly known as VGTM Urban Development Authority), UDA Complex, Lenin Centre, Governorpet, Vijayawada-520022. 2. राजèव/The Revenue –Asst. Commissioner of Income Tax, Circle- 3(1), Vijayawada. 3. The Principal Commissioner of Income Tax, Vijayawada. 4. आयकरआयुÈत (अपील)/ The Commissioner of Income Tax 5. ͪवभागीयĤǓतǓनͬध, आयकरअपीलȣयअͬधकरण, ͪवशाखापटणम/ DR,ITAT, Visakhapatnam 6. गाड[फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam