Greater Mohali Area Development Authority, Mohali V. Addl. CIT, Mohali

ITA 412/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73434 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Assessee Lawyers: RAMESH TREHAN
• Keywords: Capital asset; Gift; Business income; Depreciation; Business expenditure; Diversion of income; Deemed to accrue or arise in india; Question of law; Cost of acquisition; Capital receipt; Commercial expediency; Revised return; Revenue expenditure; Capital expenditure
• Section: 43B; 37(1); 80G; 145; 263; 12; 28; 144; 10; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 636/CHD/2011 ASSESSMENT YEAR : 2007-08 GREATER MOHALI AREA VS. D.C.I.T. DEVELOPMENT AUTHORITY CIRCLE 6(1) MOHALI MOHALI AAALG 0872G ITA NO. 658/CHD/2011 ASSESSMENT YEAR : 2007-08 D.C.I.T VS. GREATER MOHALI AREA. CIRCLE6(1) DEVELOPMENT AUTHORITY MOHALI MOHALI ITA NO. 788/CHD/2012 ASSESSMENT YEAR : 2008-09 GREATER MOHALI AREA VS. D.C.I.T. DEVELOPMENT AUTHORITY CIRCLE 6(1) MOHALI MOHALI AAALG 0872G ITA NO. 797/CHD/2012 ASSESSMENT YEAR : 2008-09 A.C.I.T. VS. GREATER MOHALI AREA CIRCLE 6(1) DEVELOPMENT AUTHORITY MOHALI MOHALI ITA NO. 412/CHD/2013 ASSESSMENT YEAR : 2009-10 GREATER MOHALI AREA VS. ADDL.C.I.T. DEVELOPMENT AUTHORITY RANGE VI MOHALI MOHALI AAALG 0872G ITA NO. 524/CHD/2013 ASSESSMENT YEAR : 2009-10 D.C.I.T. VS. GREATER MOHALI AREA CIRCLE 6(1) DEVELOPMENT AUTHORITY MOHALI MOHALI 2 ITA NO. 908/CHD/2013 ASSESSMENT YEAR : 2010-11 GREATER MOHALI AREA VS. A.C.I.T. DEVELOPMENT AUTHORITY CIRCLE 6(1) MOHALI MOHALI AAALG 0872G ITA NO. 1027/CHD/2013 ASSESSMENT YEAR : 2010-11 D.C.I.T VS. GREATER MOHALI AREA CIRCLE 6(1) DEVELOPMENT AUTHORITY MOHALI MOHALI (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI RAMESH TREHAN RESPONDENT BY: SMT. JYOTI KUMARI DATE OF HEARING 20.1.2014 DATE OF PRONOUNCEMENT 30 .1.2014 O R D E R PER BENCH THESE APPEALS ARE CROSS-APPEALS AND ARE DIRECTED AG AINST THE ORDER DATED 1.3.2011, 25.5.2012, 22.2.2013 & 1.8.20 13 OF THE LD CIT(A), CHANDIGARH. AS SOME OF THE ISSUES ARE COMM ON, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS C OMMON ORDER. ITA NO. 636/CHD/2011 ASSESSEES APPEAL 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT THE ORDER OF THE LEARNED C.I.T (APPEALS) IS BA D IN LAW AND AGAINST THE FACTS OF THE CASE. 2. THAT THE LD. C.I.T(APPEALS) HAS ERRED IN LAW AND ON FACTS IN ASSESSING RS. 99,85,106/- AS RENTAL INCOME WHICH, IN FACT, IS NOTHING BUT AMOUNT OF INSTALLMENTS RECEIVED AS PER HIRE-PURCHASE AGREEMEN T ACCORDING TO WHICH, THE OWNERSHIP OF FLATS / HOUSES, IS TRANSFERRED TO THE PURCHASER ONLY AFTER THE PAYMENT OF LAST INSTALLMENT, WHEN THE INCOME IS FIN ALLY CREDITED BY THE APPELLANT ON ITS ACCRUAL. 3. THAT THE LD. C.I.T(APPEALS) HAS ERRED IN LAW AND ON FACTS IN ASSESSING AS RENTAL INCOME, THE INSTALLMENTS RECEIVED AT RS. 99, 85,106/- UNDER HIGHER- PURCHASE AGREEMENT COMPRISING OF PRINCIPAL AMOUNT, WHEREAS THE ISSUE OF RENTAL INCOME WAS NEITHER BEFORE HER FOR ADJUDICA TION, NOR IT WAS BEFORE THE ASSESSING OFFICER. 4. THAT THE LD. C.I.T (APPEALS) HAS ERRED ON FACTS AND IN LAW IN DISALLOWING DEPRECIATION OF RS. 16731/- ON DIGITAL PHOTOCOPIER BY HOLDING THAT THE SAME CANNOT BE CLASSIFIED AS COMPUTER. 3 5. THAT THE LD. C.I.T (APPEALS) HAS ERRED ON FACTS AND IN LAW IN DISALLOWING 30% OF ADMINISTRATIVE EXPENSES OF CONSTRUCTION DIVI SION OFFICES AMOUNTING TO RS. 1,13,93,623/- ON THE GROUND THAT THE APPELLANT FAILED TO PRODUCE EVIDENCE REGARDING EACH EXPENSE CLASSIFIED UNDER THE ADMINIS TRATIVE HEAD OF ACCOUNT, DESPITE THE FACT THAT ALL THE DETAILS OF THESE EXPE NSES WERE DULY PRODUCED TO THE LD. CIT(A) AND THE AUTHORITIES BELOW AND THAT ALL T HE RELEVANT LEDGER ACCOUNTS DULY SUPPORTED BY SELF EXPLANATORY VOUCHERS WERE BE FORE THE AUTHORITIES BELOW. 3 GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT RE QUIRE ANY SEPARATE ADJUDICATION. 4 GROUNDS NO. 2 & 3 AFTER HEARING BOTH THE PARTIE S WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE ASSESSING OFFICER THAT RECEIPTS FROM SALE OF HOUSES AND FLATS WHERE COMPLETE PAYMENTS BY THE PURCHASER WERE NOT MADE, WERE BEING ACCOUNTED AS CAPITAL RECEIPT BY THE ASSESSEE. IN RESPONSE TO THE QUERY IT WAS MAINLY STATED THAT SUCH HOUSES AND FLATS HAVE BEEN SOLD ON HIRE PURCHASE BASIS AND AS PER THE HIRE PURCHASE AGREEM ENT SALE IS NOT COMPLETE UNLESS ALL PAYMENTS HAVE BEEN MADE BY THE PURCHASER. HOWEVER, THE ASSESSING OFFICER OBSERVED THAT SINCE THE ASSESSEE HAS ADOPTED CASH SYSTEM OF ACCOUNTING OF RECEIPTS A ND THEREFORE, THE AMOUNT OF SUCH INSTALLMENTS WERE REQUIRED TO BE TREATED AS REVENUE RECEIPT AND SHOULD BE ACCOUNTED IN INCOME EXPENDITURE STATEMENT. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS. IN RESPONSE THE ASSESSEE FILED THE DETAILS AND IT WAS AGAIN STATED THAT IN SUCH CASES BUYER WOULD NOT BECOME OWNER OF THE PROPERTY TILL ALL THE HIRE PURCHASE INSTALLMENTS ARE PAID AND TILL TH EN SUCH HOUSES AND FLATS CONTINUED TO REST WITH THE SELLER I.E. AS SESSEE AUTHORITY. THEREFORE, IN LEGAL SENSE SALE CAN NOT BE SAID TO H AVE COMPLETED UNLESS THE PROPERTY PASSES ON TO THE BUYER. HOWEVE R, THE ASSESSING OFFICER OBSERVED THAT THIS CAN NOT BE TREATED AS HI RE PURCHASE IF THE ALLOTTEES WERE TERMED AS TENANT TILL ALL THE INSTAL LMENTS ARE PAID BY HIM. HE FURTHER OBSERVED THAT AS PER SECTION 145 O F THE ACT THE 4 ASSESSEE CAN COMPUTE HIS INCOME EITHER ON MERCANTIL E SYSTEM OR CASH SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY HIM AND THE ASSESSEE HAD OPTION EITHER TO ADOPT CASH SYSTEM OR MERCANTILE SYSTEM AS LONG AS IT IS FEASIBLE TO COMPUTE THE IN COME THROUGH DIFFERENT ACTIVITIES BY DIFFERENT METHODS. SINCE T HE ASSESSEE HAD ADOPTED CASH SYSTEM OF ACCOUNTING, THEREFORE, INCOM E HAS TO BE COMPUTED ON THE BASIS OF INSTALLMENTS RECEIVED DURI NG THE YEAR MINUS ANY AMOUNT WHICH HAS ALREADY BEEN ACCOUNTED F OR AS REVENUE RECEIPT DURING THE YEAR UNDER CONSIDERATION .ACCORD INGLY A SUM OF RS. 99,85,106 ON ACCOUNT OF INSTALLMENTS WHICH WERE OFFERED BY THE ASSESSEE, WAS ADDED TO THE INCOME OF THE ASSESSEE. 5 ON APPEAL ACTION OF THE ASSESSING OFFICER WAS CON FIRMED BY THE LD. CIT(A). 6 BEFORE US. BOTH THE PARTIES SUBMITTED THAT THIS ISSUE IS IDENTICAL TO THE ISSUE IN GROUND NO. 5 IN ITA NO. 7 62/CHD/2007 IN CASE OF PUDA GROUP OF CASE WHICH HAS BEEN DECIDED B Y THE TRIBUNAL VIDE CONSOLIDATED ORDER IN ITA NO. 762/CHD/2007 AND OTHERS DATED 6.12.2013. 7 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE SUBMISSIONS MADE BY THE LD. COUNSEL FOR THE ASSESSE E IN THAT ORDER, MAY BE TAKEN IN THIS CASE. HOWEVER, HE FURTHER SUBM ITTED THAT THE ASSESSEE-AUTHORITY, GREATER MOHALI AREA DEVELOPMENT AUTHORITY (IN SHORT GMADA) WAS CARVED OUT FOR THE SPECIFIC AREA I N THE YEAR 1996. HE FURTHER SUBMITTED THAT THERE ARE SOME HOUSING SC HEMES WHICH WERE ALREADY GOING ON UNDER THE PUDA AND WHERE INST ALLMENTS WERE OFFERED FOR TAXATION ON COMPLETION OF A PARTICULARL Y SCHEME OR OTHERWISE TAXED ON CASH BASIS IN THE HANDS OF THE P UDA. THEREFORE A SUITABLE DIRECTION MAY BE GIVEN NOT TO TAX SUCH I NSTALLMENTS WHICH HAVE ALREADY BEEN TAXED IN THE HANDS OF THE PUDA. 5 8 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE R ELIED ON THAT ORDER. 9 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT THIS ISSUE IS IDENTICAL TO THE ISSUE RAISED BY THE REVENUE IN GROUND NO. 5 IN REVENUES APPEAL IN ITA NO. 762/CHD /2007 WHICH HAS BEEN ADJUDICATED IN PUDA GROUP OF CASES VIDE CO NSOLIDATED ORDER DATED 6.12.2013. THIS ISSUE AS DECIDED AGAIN ST THE ASSESSEE VIDE PARA 62 TO 72 WHICH ARE AS UNDER: 62 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. SECTION 145 OF INCOME TAX ACT READS AS UNDER: SECTION 145 (1) INCOME CHARGEABLE UNDER THE HEA D 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES' SHALL, SUBJECT TO TH E PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS T O BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, T HE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144 . THE ABOVE PROVISION WAS SUBSTITUTED BY FINANCE ACT ,1995 W.E.F. 1.4.1997. BEFORE THIS SUBSTITUTION THE ASSESSEE HAD CHOICE TO FOLLOW MERCANTILE OR CASH OR EVEN HYBRID SYSTEM OF ACCOUNTING I.E. THE ASSESS EE COULD CHOOSE CASH SYSTEM OF ACCOUNTING FOR ONE SOURCE OF INCOME AND M ERCANTILE SYSTEM OF ACCOUNTING FOR OTHER SOURCES. THIS CHOICE HAVE BEE N REMOVED AND NOW THE ASSESSEE COULD FOLLOW EITHER CASH SYSTEM OF ACCOUNT ING OR MERCANTILE SYSTEM OF ACCOUNTING. PLAIN READING OF THE PROVISION SHOWS THAT THE ASSESSEE COULD FOLLOW ONLY ONE SYSTEM OF ACCOUNTING IN RESPECT OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR IN COME FROM OTHER SOURCES. THESE RESTRICTIONS HAVE NOT BEEN PRESCRIBED FOR OTH ER HEADS OF BUSINESS. IN CASE BEFORE US, INCOME OF THE ASSESSEE IS CHARGEABL E UNDER THE HEAD PROFITS AND GAINS OF BUSINESS THEREFORE, THE ASSESSEE COU LD HAVE ADOPTED ONLY ONE SYSTEM OF ACCOUNTING. BEFORE THE PRESENT ASSESSMEN T YEAR THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND IN TH IS YEAR SYSTEM HAS BEEN CHANGED FROM MERCANTILE SYSTEM OF ACCOUNTING TO CAS H SYSTEM OF ACCOUNTING. THOUGH IT IS VERY SURPRISING HOW A LARGE ORGANIZATI ON SUCH AS THE ASSESSEE, COULD FOLLOW CASH SYSTEM OF ACCOUNTING BUT IT IS AD MITTED FACT THAT THE ASSESSEE FOLLOWED CASH SYSTEM OF ACCOUNTING. IN FA CT IN RESPECT OF OTHER ADDITIONS LIKE RECEIPT OF INTEREST FROM BANK AND RE CEIPT OF INTEREST FROM GOVERNMENT OF PUNJAB, IT WAS VEHEMENTLY ARGUED ON B EHALF OF THE ASSESSEE THAT THESE RECEIPTS CAN BE TAXED ONLY WHEN THE SAME HAVE BEEN ACTUALLY RECEIVED BY THE ASSESSEE BECAUSE THE ASSESSEE WAS F OLLOWING CASH SYSTEM OF ACCOUNTING. THEREFORE, ADMITTED POSITION IS THAT THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING. 63 NORMALLY PEOPLE OTHER THAN THE TRADERS KEEP ACCO UNTS IN CASH SYSTEM I.E. PEOPLE LIKE DOCTORS, ADVOCATES OR OTHER PROFESSIONA LS KEEP THEIR ACCOUNTS IN CASH BASIS BECAUSE THEY ARE NOT SELLING ANY MERCHAN DISE AND IT IS VERY EASY TO FOLLOW CASH SYSTEM FOR THEM. AS WE HAVE ALREADY OB SERVED THAT IT IS SURPRISING THAT THE ASSESSEE HAD FOLLOWED CASH SYSTEM OF ACCOU NTING. THEREFORE, WHEN THE TRADERS FOLLOW CASH SYSTEM AND WHENEVER SUCH TR ADERS SELL ANY MERCHANDISE ON CREDIT HE WOULD ENTER THE TRANSACTIO N ONLY IN A MEMORANDUM ACCOUNT OR IN SOME OTHER ROUGH ACCOUNT AS A RECORD SO THAT HE DOES NOT FORGET 6 THE SAME. THIS IS THE REASON WE ARE SURPRISED THAT ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING WHEN IN ASSESSEES CASE LARGE NUMBER OF TRANSACTIONS ARE INVOLVED THEN HOW CAN AN ORGANIZATION FOLLOW CA SH SYSTEM BECAUSE IN THE TRANSACTION WHERE NO CASH IS INCOMING OR OUTGOING S UCH TRANSACTIONS ARE NOT RECORDED UNDER THIS SYSTEM AND THEY ARE ONLY NOTED AS MEMORANDUM ENTRIES OR IN ROUGH JOTTING. UNDER THE CASH SYSTEM OF ACCOUNT ING SUCH TRADER WOULD NOT ENTER THE SALE PROCEEDS ON THE INCOME SIDE IN HIS B OOKS OF ACCOUNT OR CASH BOOK UNTIL THE SAME IS ACTUALLY RECEIVED. SIMILARL Y AN ITEM OF EXPENDITURE WILL BE BOOKED ONLY WHEN ACTUAL CASH PAYMENT IS MADE. I N CASE OF MERCANTILE SYSTEM OF ACCOUNTING INCOME AS WELL AS EXPENDITURE WOULD BE RECOGNIZED ON THE PRINCIPLE OF ACCRUAL. IN FACT THIS ISSUE WAS C ONSIDERED BY THE HON'BLE SUPREME COURT IN CASE OF RAJA MOHAN RAJA BAHADUR VS . CIT, 66 ITR 378 (S.C). IN THAT CASE THE ASSESSEE WAS A MONEY LENDER AND HA D GIVEN LOAN TO ONE SHRI NISAR AHMAD KHAN, TALUQDAR OF MOHANA ESTATE. THE ASSESSEE WAS MAINTAINING BOOKS OF ACCOUNT ON CASH SYSTEM OF ACCO UNTING. THE ASSESSEE COMMENCED AN ACTION IN CIVIL COURT FOR A DECREE FOR RECOVERY OF RS. 2,58,000/-. ULTIMATELY JUDICIAL COMMITTEE OF THE PRIVY COUNCIL DECREED IN FAVOUR OF THE ASSESSEE. SHRI NISAR AHMAD KHAN OBTAINED UNDER THE UP ENCUMBERED ESTATES ACT, 25 OF 1934 AN ORDER APPLYING THE PROVISION OF THE ACT TO HIM. THE SPECIAL JUDGE, SULTANPUR, PASSED AN ORDER FOR PAYMENT OF RS . 5,00,992/- TO THE ASSESSEE. PURSUANCE TO THE ORDER THE ASSESSEE RECE IVED IN 1946, RS. 1,54,692/- FROM THE DEBTOR AND FOR THE BALANCE THE GOVERNMENT OF THE UNITED PROVINCES GAVE TO THE ASSESSEE ENCUMBERED ESTATE B ONDS OF THE FACE VALUE OF RS. 3,46,300. THE AMOUNT RECEIVED IN THE YEAR 1946 WAS APPROPRIATED BY THE ASSESSEE TOWARDS THE PRINCIPAL DUE. THE ASSESSEE SP LIT UP THE AMOUNT OF THE FACE VALUE OF THE BONDS INTO TWO SUMS OF RS. 2,22,0 97-9-11 AND RS. 1,24,202- 6-1 AND CREDITED THE FIRST AMOUNT IN THE BOOKS OF A CCOUNT TOWARDS THE BALANCE OF PRINCIPAL AND THE SECOND AMOUNT TO AN ACCOUNT ST YLED INTEREST ACCRUED. IN SUBMITTING THE RETURN OF HIS TAXABLE INCOME FOR THE ASSESSMENT YEAR 1948-49 THE ASSESSEE DID NOT DISCLOSE ANY RECEIPT OF INCOME FROM INTEREST DUE ON THE LOANS ADVANCED TO NISAR AHMAD KHAN. THE ASSESSEE W AS DULY ASSESSED TO TAX ON THE INCOME DISCLOSED BY HIM. IN OCT 1948, THE A SSESSEE SOLD THE ENCUMBERED ESTATES BONDS AND REALIZED A TOTAL SUM O F INTEREST RECEIVED DURING THE YEAR ON ACCOUNT THE DIFFERENCE BETWEEN THE AMOU NT REALIZED BY SALE OF THE BONDS AND THE AMOUNT DUE AS PRINCIPAL. THE ITO ISS UED A NOTICE U/S 34(1)(A) OF THE INDIAN INCOME TAX ACT AND BROUGHT TO TAX TH E DIFFERENCE BETWEEN THE FACE VALUE OF THE BONDS AND THE AMOUNT DUE AS PRINC IPAL AS ESCAPED INCOME OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1 948-49. THE ORDER WAS CONFIRMED BY THE APPELLATE ASSISTANT COMMISSIONER A ND THE INCOME-TAX APPELLATE TRIBUNAL. THE HIGH COURT ALSO DECIDED TH E ISSUE AGAINST THE ASSESSEE. ON FURTHER APPEAL BEFORE THE HON'BLE SUP REME COURT IT WAS MAINLY CONTENDED THAT THE ASSESSEE WAS MAINTAINING BOOKS O F ACCOUNT ON CASH SYSTEM OF ACCOUNTING AND UNTIL THE ASSESSEE REALIZED THE V ALUE OF BONDS, NO INTEREST CAN BE SAID TO HAVE BEEN RECEIVED BY THE ASSESSEE B ECAUSE IT WAS FURTHER SUBMITTED THAT WHEN THE ACCOUNTS ARE MAINTAINED ON CASH SYSTEM OF ACCOUNTING, RECEIPT OF MONEY ALONE MAY BE TAKEN INT O ACCOUNT IN DETERMINING THE TAXABLE INCOME. THE HON'BLE APEX COURT MAINLY OBSERVED AT PAGE 382 AS UNDER: UNDER SECTION 4 OF THE INCOME-TAX ACT, 1922, THE T OTAL INCOME OF ANY PREVIOUS YEAR OF A RESIDENT ASSESSEE INCLUDES ALL INCOME, PROFITS AND GAINS FRO M WHATEVER SOURCES DERIVED WHICH ARE RECEIVED OR AR E DEEMED TO BE RECEIVED IN THE TAXABLE TERRITORIES IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON, OR ACCRU E OR ARISE OR ARE DEEMED TO ACCRUE OR ARISE TO HIM IN TH E TAXABLE TERRITORIES DURING SUCH YEAR, OR ACCRUE O R ARISE TO HIM WITHOUT THE TAXABLE TERRITORIES DURING SUCH YEAR, OR HAVING ACCRUED OR ARISEN TO HIM WITHOUT TH E TAXABLE TERRITORIES BEFORE THE BEGINNING OF SUCH YE AR AND AFTER THE 1 ST DAY OF APRIL, 1933, ARE BROUGHT INTO OR RECEIVED IN THE TAXABLE TERRITORIES BY HIM DURIN G SUCH YEAR. THE ACT DOES NOT CONTAIN MUCH GUIDANCE AS TO CASES IN WHICH TAX IS TO BE LEVIED ON INCOME REC EIVED, AND CASES IN WHICH TAX IS TO BE LEVIED ON IN COME ACCRUED OR ARISEN. SECTION 13 HOWEVER REQUIRES THAT INCOME, PROFITS AND GAINS FOR THE PURPOSES OF SECTIONS 10 AND 12 SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. IF ACCOUNTS ARE MAINTAINED ACCORDI NG TO THE MERCANTILE SYSTEM, WHENEVER THE RIGHT TO RECEIVE MONEY IN THE COURSE OF A TRADING TRANSACTIO N ACCRUES OR ARISES, EVEN THOUGH INCOME IS NOT REALIZED, INCOME EMBEDDED IN THE RECEIPT IS DEEMED TO ARISE OR ACCRUE. WHERE THE ACCOUNTS ARE MAINTAINED ON CASH BASIS RECEIPT OF MONEY OR MONEY S WORTH AND NOT THE ACCRUAL OF THE RIGHT TO RECEIVE IS THE DETERMINING FACTOR. THEREFORE, IF COMMERCIAL AS SETS ARE RECEIVED BY A TRADER MAINTAINING ACCOUNTS ON CASH BASIS IN SATISFACTION OF AN OBLIGATION, INCOME WHICH IS EMBEDDED IN THE VALUE OF THE ASSETS IS DEEMED TO BE RECEIVED: THE RECEIPT OF INCOME IS NOT DEFERRED TILL THE ASSET IS REALIZED IN TERMS OF CA SH OR MONEY. IT MAKES NO DIFFERENCE WHETHER THE RECEIPT O F ASSETS IS IN PURSUANCE OF AN AGREEMENT OR THAT TH E TRADER IS COMPELLED BY LAW TO ACCEPT THE ASSETS FRO M THE DEBTOR. ONCE TITLE OF THE TRADER TO AN ASSET 7 RECEIVED IS COMPLETE, WHETHER BY A CONSENSUAL ARRAN GEMENT OR BY OPERATION OF LAW, HE RECEIVES THE INCOME EMBEDDED IN THE VALUE OF THE ASSET. IN CALIF ORNIAN COPPER SYNDICATE V. HARRIS LORD TRAYNER IN DEALING WITH A CASE OF ASSESSEEMENT TO INCOME-TAX O F A COMPANY, FORMED FOR THE PURPOSE, INTER ALIA, OF ACQUIRING AND RE-SELLING MINING PROPERTY, WHICH RES OLD THE WHOLE OF ITS ASSETS TO A SECOND COMPANY AND RECEIVED PAYMENT IN FULLY PAID SHARES OF THE PURCHA SING COMPANY, OBSERVED: A PROFIT IS REALIZED WHEN THE SELLER GETS THE PRI CE HE HAS BARGAINED FOR. NO DOUBT HERE THE PRICE TO OK THE FORM OF FULLY PAID SHARES IN ANOTHER COMPANY, BUT, IF THERE CAN BE NO REALIZED PROFIT, EXCEPT WHEN THA T IS PAID IN CASH, THE SHARES WERE REALIZABLE AND COULD HAVE BEEN TURNED INTO CASH, IF THE APPELLANTS HAD B EEN PLEASED TO DO SO. I CANNOT THINK THAT INCOME-TAX IS DUE OR NOT ACCORDING TO THE MANNER IN WHICH THE PE RSON MAKING THE PROFIT PLEASES TO DEAL WITH IT. THE OTHER OBSERVATIONS HAVE BEEN SUMMARIZED IN THE HEAD NOTE WHICH READ AS UNDER: IF ACCOUNTS ARE MAINTAINED ACCORDING TO THE MERCAN TILE SYSTEM, WHENEVER THE RIGHT TO RECEIVE MONEY IN THE COURSE OF A TRADING TRANSACTIO N ACCRUES OR ARISES, EVEN THOUGH INCOME IS NOT REALIZED, INCOME EMBEDDED IN THE RECE IPT IS DEEMED TO ACCRUE OR ARISE. WHERE THE ACCOUNTS ARE MAINTAINED ON CASH BASIS, RE CEIPT OF MONEY OR MONEYS WORTH AND NOT THE ACCRUAL OF THE RIGHT TO RECEIVE IS THE DETERMINING FACTOR. THEREFORE, IF COMMERCIAL ASSETS ARE RECEIVED BY A TRADER MAINTAIN ING ACCOUNTS ON CASH BASIS IN SATISFACTION OF AN OBLIGATION, INCOME WHICH IS EMBE DDED IN THE VALUE OF THE ASSETS IS DEEMED TO BE RECEIVED; THE RECEIPT OF INCOME IS NOT DEFERRED TILL THE ASSET IS REALIZED IN TERMS OF CASH OR MONEY. IT MAKES NO DIFFERENCE W HETHER THE RECEIPT OF ASSETS IS IN PURSUANCE OF AN AGREEMENT OR THAT THE TRADER IS COM PELLED BY LAW TO ACCEPT THE ASSETS FROM THE DEBTOR. ONCE TITLE OF THE TRADER TO AN ASS ET RECEIVED IS COMPLETE WHETHER BY A CONSENSUAL ARRANGEMENT OR BY OPERATION OF LAW, HE R ECEIVES THE INCOME EMBEDDED IN THE VALUE OF THE ASSET. THEREFORE, IN CASH SYSTEM OF ACCOUNTING FOR DETERMI NATION OF THE INCOME RECEIPT ON MONEY (CASH) OR MONEYS WORTH INSTRUMEN TS ARE DETERMINING FACTOR AND IN ACCRUAL OF RIGHT TO RECEIVE SUCH MONEY IS A MATERIAL. IN OTHER WORDS, WHENEVER THE CASH IS RECEIVED ON INCOME SIDE THE SA ME HAS TO BE TAXED IF THE CASH IS RECEIVED ON CAPITAL SIDE FOR EXAMPLE LOAN F ROM BANK THEN THE SAME WOULD NOT BE REQUIRED TO BE TAXED. HOWEVER, IF THE RE IS SIMPLY A RIGHT TO RECEIVE SUCH CASH THE SAME CANNOT BE TAXED IN THE C ASH SYSTEM OF ACCOUNTING. IN OUR OPINION, THIS WOULD ANSWER THE QUESTION AND OR CONTENTION RAISED BY THE LD. COUNSEL OF THE ASSESSEE THAT BEFORE TAXING AN I TEM THE SAME HAS TO PASS THROUGH THE TEST OF CHARGING SECTION. SECTION 4 OF THE ACT WHICH IS CHARGING SECTION, READS AS UNDER: SECTION 4 - (1) WHERE ANY CENTRAL ACT ENACTS THAT INCOME-TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR RATES, INCOME-TAX AT THAT RATE OR THOSE RATES SHALL BE CHARGED FOR THAT YEAR IN ACCORDANCE WITH, AND [SUBJECT TO THE PROVISIONS (INCLUDING PROVISIONS FO R THE LEVY OF ADDITIONAL INCOME-TAX) OF, THIS ACT] IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR [* * *] OF EVERY PERSON : PROVIDED THAT WHERE BY VIRTUE OF ANY PROVISION OF THIS ACT INCOME-TAX IS TO BE CHARGED IN RESPECT OF THE INCOME OF A PERIOD OTHER THAN THE PREVIOUS YEAR, IN COME-TAX SHALL BE CHARGED ACCORDINGLY. (2) IN RESPECT OF INCOME CHARGEABLE UNDER SUB-SECTI ON (1), INCOME-TAX SHALL BE DEDUCTED AT THE SOURCE OR PAID IN ADVANCE, WHERE IT IS SO DEDUCTIBLE OR PAYAB LE UNDER ANY PROVISION OF THIS ACT. PLAIN READING OF THIS PROVISION WOULD SHOW THAT TAX CAN BE CHARGED AT THE RATE PRESCRIBED BY ANY CENTRAL ACT WHICH IS PRACTICALLY DONE THROUGH PASSING OF FINANCE ACT IN EVERY YEAR BY THE PARLIAMENT. SUCH TAX CAN BE CHARGED IN RESPECT OF TOTAL INCOME OF THE PREVIOUS YEAR. TOTA L INCOME HAS BEEN DEFINED IN SECTION 5 OF THE ACT. THE WORD INCOME HAS BEEN DE FINED IN SECTION 2(24) SO THEREFORE, BEFORE CHARGING TAX IT HAS TO BE SEEN T HAT AN ITEM IS IN THE NATURE OF INCOME AND COVERED BY THE DEFINITION OF INCOME GI VEN IN SECTION 2(24) OF THE ACT. IT IS FURTHER TO BE NOTED THAT INCOME HAS BEE N DEFINED IN INCLUSIVE MANNER. THIS IS VERY COMPLEX ISSUE AND WITHOUT GOI NG INTO THE DETAILS WE WOULD SIMPLY TAKE THE SIMPLE MEANING OF THE INCOME . IN THE NORMAL COMMERCIAL PARLANCE AN ITEM WHICH IS OF REVENUE NAT URE, IS TAKEN AS INCOME. NOW IN A CASE WHERE AN ORGANIZATION WHICH IS CARRYI NG OUT THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF HOUSES AND IF SUCH ORGANIZATION SELLS THE SAME OUTRIGHTLY OR ON INSTALLMENTS BASIS THEN SUCH INSTALLMENTS WOULD BE IN NATURE OF INCOME. THEREFORE, THERE IS NO FORCE I N THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT INSTALLMENTS RECEIVED BY THE ASSESSEE DO NOT 8 COME UNDER THE CHARGING SECTION AND THEREFORE, SAM E CANNOT BE TAXED SIMPLY BECAUSE U/S 145 THE RECEIPT UNDER CASH SYSTEM HAS T O BE TAXED. NO DOUBT SECTION 145 IS A MACHINERY SECTION BUT MACHINERY SE CTION ALSO HAVE LOT OF BEARING ON DETERMINATION OF INCOME AND CANNOT BE IG NORED LIGHTLY. IN THIS CONNECTION WE WOULD LIKE TO REFER TO ONE OF THE CEL EBRATED JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF CIT VS. B.C. SRINIVASA SET TY, 128 ITR 294 (S.C). IN THAT CASE THE ASSESSEE WAS A REGD FIRM. CLAUSE 13 OF THE INSTRUMENT OF PARTNERSHIP DEED SHOWED THAT GOODWILL OF THE FIRM H AVE NOT BEEN VALUED AND VALUATION WOULD BE MADE AT THE DISSOLUTION OF THE P ARTNERSHIP. PERIOD OF THE PARTNERSHIP WAS EXTENDED AND SUBSEQUENTLY PARTNERSH IP WAS DISSOLVED ON 31.12.1965. AT THE TIME OF DISSOLUTION GOODWILL WA S VALUED AT RS. 1,50,000/-. THE NEW PARTNERSHIP WITH THE SAME NAME WAS CONSTITU TED THROUGH ANOTHER DEED OF PARTNERSHIP. NEW FIRM BOOKED OVER ALL THE ASSE TS INCLUDING GOODWILL AND LIABILITY OF THE DISSOLVED FIRM. ORIGINALLY NO AD DITION WAS MADE ON ACCOUNT OF GAIN ARISING OUT OF TRANSFER OF GOODWILL BUT THIS A SSESSMENT ORDER WAS FOUND ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE AND THEREFORE, LD. COMMISSIONER PASSED REVISIONARY ORDER DIRECTING THE ASSESSING OFFICER TO MAKE FRESH ASSESSMENT AFTER TAKING INTO ACCOUNT THE CAPI TAL GAIN ARISING OUT OF SALE OF GOODWILL. THE ASSESSEE MAINTAINED THAT NO SALE TOOK PLACE TO ATTRACT THE TAX ON CAPITAL GAIN U/S 45 OF THE INCOME TAX ACT . TH E TRIBUNAL ALLOWED THE APPEAL. WHEN THE MATTER TRAVELED TO THE HON'BLE SU PREME COURT THE MATTER WAS ARGUED IN GREAT DETAIL. ONE OF THE ISSUE AROSE WHETHER THERE WAS TRANSFER AND IT WAS HELD YES IT WAS A TRANSFER. ANOTHER ISS UE AROSE WHETHER THE GAIN OF SUCH TRANSFER OF GOODWILL WOULD BE TAXED U/S 45 OF THE ACT. IT WAS FOUND THAT GOODWILL IS A SELF GENERATED ASSET AND NO COST OF A CQUISITION CAN BE ATTRIBUTED TO SELF GENERATED ASSETS. SINCE SECTION 48 WHICH I S MODE OF COMPUTATION OF CAPITAL GAIN PRESCRIBES REDUCTION OF COST OF ACQUIS ITION FROM THE SALE CONSIDERATION IT WAS HELD THAT IN THE ABSENCE OF CO ST OF ACQUISITION COMPUTATION OF CAPITAL GAIN, WAS NOT POSSIBLE. THE REFORE, SAME WAS HELD TO BE NOT TAXABLE. THIS CLEARLY SHOWS THAT COMPUTATIO N PROVISION WHICH IS AGAIN A MACHINERY PROVISION, HAD LOT OF BEARING ON THE TAXA BILITY OF GAIN RECEIVED ON TRANSFER OF GOODWILL. THEREFORE, EVEN IF SECTION 145 BEING MACHINERY SECTION HAS ITS OWN IMPLICATIONS. IMPLICATIONS ARE VERY CL EAR THAT THE ASSESSEE HAS A RIGHT TO FOLLOW EITHER MERCANTILE SYSTEM OF ACCOUNT ING OR CASH SYSTEM OF ACCOUNTING FOR DETERMINATION OF THE INCOME. THE AS SESSEE HAS BEEN GIVEN A CHOICE AND IN THE CASE BEFORE US, THE ASSESSEE HAS DELIBERATELY AND AFTER APPLYING ITS MIND DECIDED TO FOLLOW CASH SYSTEM OF ACCOUNTING, THEREFORE, THE ASSESSEE HAS TO BEAR THE CONSEQUENCES OF SUCH SYSTE M OF ACCOUNTING. 64 THE LD. COUNSEL OF THE ASSESSEE HAS STRONGLY REL IED ON THE DECISION OF K.K. KHULLAR VS. DCIT (SUPRA). IN THIS CASE THE AS SESSEE WAS AN ADVOCATE AND RECEIVED CERTAIN AMOUNTS FOR SERVICES TO BE PERFORM ED OVER A PERIOD OF TIME. THE AMOUNT RECEIVED FROM THE CLIENT IN RESPECT OF S ERVICES RENDERED IN THE YEAR UNDER CONSIDERATION , WAS SHOWN AS INCOME AND THE B ALANCE AMOUNT WAS SHOWN AS ADVANCE. THE ASSESSING OFFICER HELD THAT AS PER THE PROVISIONS OF SECTION 145 THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOU NTING AND THEREFORE, WHOLE AMOUNT WAS TAXABLE. THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE FOLLOWING PARAS: WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. WE MAY REFER TO THE CHARGING SECTION 4 OF THE ACT TO THE EFFECT THAT IN COME-TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT THE RATE OR RATES PROVIDED IN AN Y CENTRAL ACTS IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON. SECTION 5 DEALS WITH THE SCOPE OF TOTAL INCOME, WHICH IS DEFINED IN RESPECT OF ANY P REVIOUS YEAR IN TERMS OF ACCRUAL, DEEMED ACCRUAL, RECEIPT AND DEEMED RECEIPT ETC. SEC TION 145 DEALS WITH THE METHOD OF ACCOUNTING IN RESPECT OF PROFITS AND GAINS OF BUSI NESS OR PROFESSION OR INCOME FROM OTHER SOURCES. THUS, WHILE SECTIONS 4 AND 5 DEAL W ITH THE SCOPE OF INCOME AND ITS CHARGE TO INCOME-TAX, SECTION 145 IS A PROCEDURAL S ECTION REGARDING THE METHOD TO BE FOLLOWED FOR RECORDING OF INCOME IN THE BOOKS OF AC COUNT. IT IS NO DOUBT TRUE THAT FOR THE ASSESSMENT YEAR 1997-98 AND ONWARDS, THE ASSESS EE CAN FOLLOW EITHER THE CASH OR THE MERCANTILE SYSTEM OF ACCOUNTING AND THE HYBRID SYSTEM OF ACCOUNTING IS PROHIBITED. HOWEVER, WHAT IS TO BE TAXED IS INCOME AND RECEIPT OF AN AMOUNT IS NOT TO BE THE BASIS FOR THE LEVY OF THE TAX. IN THE CASE OF MESSRS. SHO ORJI VALLABHDAS AND CO. [1962] 46 ITR 144, THE HONBLE SUPREME COURT POINTED OUT THAT THE INCOME-TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME ON WHICH THE LIABILITY T O TAX IS ATTRACTED, NAMELY,-(I) ACCRUAL OF INCOME OR (II) RECEIPT OF INCOME. IT IS FURTHER MENTIONED THAT THE SUBSTANCE OF THE MATTER IS INCOME. IT MAY BE EMPHASIZED THAT IT IS ACCRUAL OF INCOME OR RECEIPT OF INCOME THAT CAN BECOME THE SUBJECT-MATTER OF TAX AN D IT IS THE INCOME WHICH HAS TO BE RECORDED AS PER SYSTEM OF ACCOUNTING FOLLOWED BY TH E ASSESSEE IN VIEW OF SECTION 145 OF THE ACT, BECAUSE THE SUBSTANCE OF THE MATTER IS INCOME. THEREFORE, THERE IS AN 9 INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IN PARAGRAPH 4.7 WHERE IT WAS STATED THAT THE ENTIRE A MOUNT RECEIVED, WHETHER ARREARS OR ADVANCE, IS TO BE SHOWN AS INCOME UNDER THE CASH SY STEM OF ACCOUNTING. THE CORRECT POSITION WOULD BE THAT THE ENTIRE INCOME RECEIVED, WHETHER ARREAR OR ADVANCE OF INCOME, HAS TO BE SHOWN AS INCOME UNDER THE CASH SY STEM OF ACCOUNTING. THE HIGHLIGHTED PORTION OF THE ABOVE PARAGRAPH CLEA RLY SHOWS THAT IN CASH SYSTEM OF ACCOUNTING THE RECEIPT OF MONEY WHETHER A RREARS OR ADVANCE, HAS TO BE SHOWN AS INCOME, THEREFORE, THIS DECISION IS TO TALLY DISTINGUISHABLE. 65 ANOTHER DECISION RELIED ON WAS THAT OF CIT VS. M ESSRS, SHOORJI VALLABHDAS AND CO. (SUPRA). IN THAT CASE THE ASSES SEE FIRM WAS THE MANAGING AGENT OF TWO SHIPPING COMPANIES AND UNDER THE MANAG ING AGENCY AGREEMENT, THE ASSESSEE WAS ENTITLED FOR COMMISSION @ 10% OF T HE FREIGHT CHARGES. BETWEEN APRIL 1, 1947 AND DECEMBER 31, 1947 AN AMOU NT OF RS. 1,71,885/- FROM ONE COMPANY AND RS. 2,56,815/- FROM OTHER COMP ANY BECAME DUE TO THE ASSESSEE AS COMMISSION @ 10%. THIS AMOUNT WAS CRE DITED IN THE BOOKS OF ACCOUNT AND DEBITED TO MANAGING AGENT. IN NOVEMBER 1947 THE ASSESSEE DESIRED TO HAVE MANAGING AGENCY TRANSFERRED TO TWO PRIVATE COMPANIES AND IN THIS CONNECTION AGREED IN DECEMBER, 1948 TO ACCEPT 2% AS COMMISSION AND GAVE UP 7% OF ITS EARNINGS. THE REVENUE SOUGHT TO ASSESS THE AMOUNTS TO RS. 1,36,903/- AND RS. 2,00,625/- BEING 7% OF THE FOREGONE AMOUNT AS INCOME. ON THESE FACTS IT WAS HELD AS UNDER: HELD, THAT THE SUBSEQUENT AGREEMENT HAD ALTERED TH E RATE OF COMMISSION IN SUCH A WAY AS TO MAKE THE INCOME WHICH REALLY ACCRUED TO T HE ASSESSEE DIFFERENT FROM WHAT HAD BEEN ENTERED IN THE BOOKS OF ACCOUNT. THIS WAS NOT A CASE OF A GIFT BY THE ASSESSEE TO THE MANAGED COMPANIES OF A PORTION OF I NCOME WHICH HAD ALREADY ACCRUED, BUT AN AGREEMENT TO RECEIVE A LESSER REMUN ERATION THAN WHAT HAD BEEN AGREED UPON. THE ASSESSEE HAD IN FACT RECEIVED ONLY THE LESSER AMOUNT IN SPITE OF THE ENTRIES IN THE ACCOUNT BOOKS, AND THIS LESSER AMOUN T ALONE WAS TAXABLE. INCOME-TAX IS A LEVY ON INCOME. THOUGH THE INCOME-T AX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATT RACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT, YET THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK- KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME, WHICH DOES NOT MATERIALIZE. WHERE INCOME HAS, IN FACT, BEEN RECEIVED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCU MSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GIVEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTE D AT ALL, THERE IS OBVIOUSLY NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTAIN CIRCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOU NT. THUS IT IS CLEAR FROM ABOVE THAT THE AMOUNT WHICH W AS SOUGHT TO BE ASSESSED WAS NOT IN NATURE OF INCOME BECAUSE THE ASSESSEE HA S CLEARLY AGREED TO REDUCE THE RATE OF COMMISSION ON CONVERSION OF THE AGENCY IN THE NAME OF PRIVATE COMPANIES. IN CASE BEFORE US, NOWHERE IT H AS BEEN DENIED THAT INSTALLMENTS RECEIVED BY THE ASSESSEE FIRM FROM THE ALLOTTEES OF THE HOUSES IS NOT IN THE NATURE OF THE INCOME. THEREFORE, THE P ROPOSITION LAID DOWN IN CASE OF CIT V MESSRS SHOOROJI VALLABHDAS AND CO. SUPRA) ARE NOT APPLICABLE. 66 WE WOULD ALSO LIKE TO NOTE THAT IN ORIGINAL RETU RN FILED BY THE ASSESSEE, WAS FOR INCOME OF RS. 21.19 CRORES WHEREAS IN THE R EVISED RETURN A LOSS OF RS. 19.12 CRORES WAS CLAIMED. THE ASSESSING OFFICER EX AMINED THE REASONS FOR LOSS AND HE FOUND THAT MAIN REASON WAS THAT EXPENDI TURE ACCOUNTS SHOW THE FIGURES OF COST OF PLOTS AND THEREFORE, SALE WHICH WAS NOT THERE IN THE ORIGINAL INCOME AND EXPENDITURE ACCOUNT. RESULT OF THESE FI GURES IS AS UNDER: COST OF PLOTS RS. 105,42,88,169/ - SALE OF PLOTS RS. 65,18,29,803/ - RS. 4 0,24,58,366/- RS. 105,43,88,169/ - RS. 105,42,88,169/ - THIS MATTER WAS INVESTIGATED IN DETAIL AND ULTIMATE LY THE REASON FOR THESE ENTRIES WAS ANALYZED AND DISCUSSED BY THE ASSESSING OFFICER AS MENTIONED IN THE ASSESSMENT ORDER AS UNDER: AS REGARDS THE REASON FOR HUGE LOSS FROM PURCHASE A ND SALE OF PLOTS, IT WAS EXPLAINED BY THE COUNSEL, DURING DISCUSSION AND ALSO EXPLAINE D BY THE ASSESSEE IN ITS LETTER NO. 1567 DATED 08.03.2006 THAT SINCE THE ASSESSEE HAS C HANGED ITS SYSTEM TO CASH SYSTEM OF ACCOUNTING, ONLY THE AMOUNT ACTUALLY RECE IVED OUT OF TOTAL SALE AMOUNT HAS BEEN SHOWN AS SALE WHEREAS THE PLOTS WHICH HAVE BEE N SOLD BUT ONLY A PART OF THE SALE AMOUNT OF WHICH HAS BEEN RECEIVED ARE NOT REFL ECTED IN THE CLOSING STOCK WHICH IS THE REASON FOR THE LOSS IN THE PURCHASE AND SALE OF PLOTS FOR THE ASSESSMENT YEAR 10 2003-04. BUT IN THE SUBSEQUENT YEARS I.E. ASSESSMEN T YEAR 2004-05 ONWARDS, THERE IS PROFIT FROM PURCHASE AND SALE OF PLOTS. DURING DISC USSION, IT WAS EXPLAINED BY THE COUNSEL BY GIVING AN EXAMPLE. SUPPOSE, THE COST OF PLOT IS RS. 1,00,000/- AND IT IS SOLD FOR RS. 1,50,000/- DURING THIS YEAR BUT ONLY 2 5% OF THE COST OF THE PLOT I.E., RS. 37,500/- IS ACTUALLY RECEIVED DURING THE YEAR. ACTU ALLY, THE PROFIT EARNED IS RS. 50,000/. BUT SINCE THE ASSESSEE HAS ADOPTED CASH SY STEM, SALE WILL BE SHOWN AT RS. 37,500/- FOR THE YEAR. THE VALUE OF CLOSING STOCK O F THAT PLOT WILL BE NIL AS THE PLOT HAS BEEN SOLD AND IS IN THE POSSESSION OF THE PURCHASER . SO THIS WILL RESULT INTO LOSS OF RS. 62,500/- FOR THAT YEAR. NOW IN THE NEXT YEAR, THERE WILL BE NO OPENING STOCK IN RESPECT OF THAT PLOT BUT IF THE BALANCE AMOUNT OF SALE CONS IDERATION I.E. RS. 1,12,500/- IS ACTUALLY RECEIVED IN THAT YEAR THAT WILL BE SHOWN A S THE AMOUNT OF SALE FOR WHICH THERE WILL BE NO OPENING STOCK OR CORRESPONDING PURCHASE AND THE SAME, ALREADY-SOLD PLOT WILL GIVE A PROFIT OF RS. 1,12,500/- IN THAT NEXT Y EAR. THIS IS THE REASON THAT THERE IS STEEP RISE IN THE PROFIT FROM SALE OF PLOTS IN THE NEXT YEAR. THE ASSESSEES COUNSEL REFERRED TO THE ORIGINAL AND REVISED RETURN FOR THE SUCCEEDING ASSESSMENT YEAR 2004- 05. PERUSAL OF THESE RETURNS SHOWS THAT IN THE ORIG INAL RETURN FOR THE ASSESSMENT YEAR 2004-05, THE INCOME AS PER THE PROFIT AND LOSS ACCO UNT AND AFTER DEDUCTING DEPRECIATION AS PER INCOME TAX RULES HAS BEEN SHOWN AT RS. 7,67,61,289/-, IN THE REVISED RETURN, THE INCOME AS PER THE PROFIT AND LO SS ACCOUNT AND AFTER DEDUCTING DEPRECIATION AS PER THE INCOME TAX RULES HAS BEEN S HOWN AT RS. 39,50,14,907/-. THERE IS A STEEP RISE OF RS. 31,82,53,618/- IN THE INCOME FOR THE ASSESSMENT YEAR 2004-05 WHICH IS MAINLY ON ACCOUNT OF RECOGNIZING R EVENUE ON PURCHASE AND SALE OF PLOTS ON CASH METHOD OF ACCOUNTING. THIS EXPLANATION OF THE ASSESSEE WAS FOUND TO BE CO NVINCING AND ACCEPTED. THUS IT IS CLEAR THAT THE ASSESSEE ITSELF CONTENDED THAT SALE OF PLOTS HAS TO BE ACCEPTED ON THE BASIS OF ACTUAL CASH RECEIPT ON SA LE EFFECTED DURING THE YEAR. THEREFORE, THE ASSESSEE COULD NOT TAKE A DIFFERENT STAND IN RESPECT OF SALE OF HOUSES AND FLATS. 67 COMING TO THE FACTS OF THE CASE, THE ASSESSEE SO LD CERTAIN HOUSES AND FLATS UNDER THE HIRE PURCHASE AGREEMENT. THE ALLOT TEES WERE TREATED AS TENANT DURING THE COMPLETION OF SUCH HIRE PURCHASE AGREEMENT TILL ALL THE INSTALLMENTS WERE PAID BY SUCH ALLOTTEES. THE INST ALLMENTS AS WELL AS EXPENDITURE INCURRED BY THE ASSESSEE, WAS BEING ACC UMULATED IN VARIOUS SCHEMES AND WAS REFLECTED IN THE BALANCE SHEET BECA USE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING TILL ASSE SSMENT YEAR 2002-03. HOWEVER, IN THIS YEAR THE ASSESSEE HAS CHANGED ACCO UNTING SYSTEM AND NOW ADOPTED CASH SYSTEM OF ACCOUNTING. WE HAVE ALREADY EXPRESSED OUR SURPRISE ON ADOPTION OF CASH SYSTEM BY THE ASSESSEE BUT ADMI TTEDLY THIS SYSTEM HAS BEEN ADOPTED AND THEREFORE, THE ASSESSEE HAS TO BE AR THE CONSEQUENCES. FIRST CONTENTION WAS THAT HOUSES AND FLATS WERE SOL D ON HIRE PURCHASE BASIS AND UNDER THE HIRE PURCHASE ACT, 1972 THE BUYER DO ES NOT GET THE OWNERSHIP RIGHT TILL THE COMPLETION OF THE PURCHASE AS PROVID ED IN THE AGREEMENT AND AS PER THE AGREEMENT TILL ALL THE INSTALLMENTS ARE PAI D SUCH BUYER OR ALLOTTEES WILL NOT BECOME THE OWNERS. HOWEVER, WE FIND NO FORCE I N THIS CONTENTION BECAUSE NO OTHER ACT CAN OVER RIDE THE PROVISIONS OF THE AC T AND THIS HAS BEEN CLARIFIED BY THE HON'BLE SUPREME COURT IN CASE OF SOUTHERN TE CHNOLOGIES LTD. VS. JCIT (SUPRA). THEREFORE, THE INSTALLMENTS RECEIVED AGAI SNT SUCH SALES WHICH ARE IN THE NATURE OF REVENUE RECEIPTS, ARE REQUIRED TO BE TAKEN INTO CONSIDERATION FOR DETERMINATION OF INCOME IN THIS YEAR BECAUSE THE AS SESSEE HAS ADOPTED CASH SYSTEM OF ACCOUNTING DURING THE YEAR. NEXT CONTENT ION WAS THAT THE ASSESSEE WAS FOLLOWING CONTINUOUSLY PROJECT COMPLETION METHO D AND THEREFORE, NO INCOME CAN BE DETERMINED UNLESS THE PROJECTS ARE CO MPLETED. AGAIN AS DISCUSSED ABOVE IN DETAIL THE ISSUE OF SYSTEM OF AC COUNTING AND THE MEANING OF CASH SYSTEM OF ACCOUNTING, THIS CONTENTION CANNOT B E ACCEPTED BECAUSE THE ASSESSEE CAN NOT FOLLOW TWO DIFFERENT SYSTEMS OF AC COUNTING UNDER THE SAME HEAD. THEREFORE, IN OUR OPINION, THE ASSESSING OFF ICER HAS CORRECTLY INCLUDED ALL THE INSTALLMENTS RECEIVED FROM THE ALLOTTEES OF THE HOUSES AND FLATS IN THE INCOME OF THE ASSESSEE. 68 HOWEVER, WE FIND THAT THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT IF SUCH INSTALLMENTS ARE INCLUDED THEN THE COR RESPONDING EXPENDITURE WHICH HAS BEEN INCURRED SHOULD ALSO BE ALLOWED ON M ATCHING PRINCIPLE. THE LD. COUNSEL OF THE ASSESSEE HAD RELIED ON THE DECISION OF CIT VS. BILAHARI INVESTMENT P LTD. (SUPRA). IN THAT CASE THE ASSESS EE SUBSCRIBED TO CHITS AS THEIR BUSINESS ACTIVITIES. THEY MAINTAINED THEIR ACCOUNTS ON THE MERCANTILE BASIS AND COMPUTED THE PROFIT/LOSS AT THE END OF THE CHIT PER IOD FOLLOWING THE COMPLETED CONTRACT METHOD. THIS WAS ACCEPTED BY THE DEPARTMENT, BUT FO R THE ASSESSMENT YEARS 1991-92 11 TO 1997-98 THE ASSESSING OFFICER CAME TO THE CONCLU SION THAT THE COMPLETED CONTRACT METHOD FOR CHIT DISCOUNT WAS NOT ACCURATE IN RECOGN IZING /IDENTIFYING INCOME AND THAT THE PERCENTAGE OF COMPLETION METHOD WAS TO BE PREFE RRED. THE HIGH COURT HELD THAT THE COMPLETED CONTRACT METHOD OF ACCOUNTING ADOPTED BY THE ASSESSES FOR CHIT DISCOUNT WAS VALID AND THE DEPARTMENT ERRED IN SPRE ADING THE DISCOUNT OVER THE REMAINING PERIOD OF THE CHIT UNDER THE PERCENTAGE O F COMPLETION METHOD ON PROPORTIONATE BASIS. ON APPEAL BY THE DEPARTMENT TO THE SUPREME COURT. IT WAS HELD AS UNDER: HELD ACCORDINGLY, AFFIRMING THE DECISION OF THE HI GH COURT, THAT, SINCE, FROM THE VARIOUS STATEMENTS PRODUCED, THE ENTIRE EXERCISE AR ISING OUT OF THE CHANGE OF METHOD FROM THE COMPLETED CONTRACT METHOD TO DEFERRED REVE NUE EXPENDITURE WAS REVENUE NEUTRAL, THE COMPLETED CONTRACT METHOD WAS NOT REQU IRED TO BE SUBSTITUTED BY THE PERCENTAGE OF COMPLETION METHOD. 69 IN OUR OPINION, THE ABOVE CASE IS NOT VERY RELEV ANT BECAUSE IN THIS CASE THE ASSESSEE WAS CONTINUOUSLY FOLLOWING THE METHOD OF COMPLETED CONTRACT UNDER MERCANTILE SYSTEM OF ACCOUNTING WHICH WAS FOU ND TO BE CORRECT. HOWEVER, THE MATCHING PRINCIPLE WAS LAID DOWN IN CA SE OF CALCUTTA COMPANY LTD. VS. CIT, 37 ITR 1 BY THE HON'BLE SUPREME COURT . IN THAT CASE THE ASSESSEE PURCHASED CERTAIN LANDS AND DEVELOPED THE SAME FOR BUILDING PURPOSES BY LAYING ROADS, PROVIDING DRAINS SYSTEM A ND INSTALLING LIGHTS ETC. THE FLATS WERE SOLD ON INSTALLMENT BASIS. AT THE T IME OF SALE THE ASSESSEE UNDERTOOK TO CARRY OUT MORE DEVELOPMENTS. IN THE R ELEVANT YEAR THE ASSESSEE RECEIVED A SUM OF RS. 29,392/- TOWARDS SALE PRICE O F LAND. HOWEVER, THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT S AND CREDITED TO ITS ACCOUNT A SUM OF RS. 43,692/- REPRESENTING FULL SAL E PRICE OF THE LAND. AT THE SAME TIME THE ASSESSEE ALSO DEBITED AN ESTIMATED SU M OF RS. 24,809 AS EXPENDITURE FOR THE DEVELOPMENTS. THIS WAS DISALLO WED BY THE REVENUE. ON APPEAL IT WAS HELD AS UNDER: HELD,(I) THAT THE UNDERTAKING TO CARRY OUT THE DEV ELOPMENTS WITHIN SIX MONTHS FROM THE DATES OF THE DEEDS OF SALE (WHICH, IN VIEW OF THE F ACT THAT TIME WAS NOT OF THE ESSENCE OF THE CONTRACT, MEANT A REASONABLE TIME) WAS UNCON DITIONAL, THE APPELLANT BINDING ITSELF ABSOLUTELY TO CARRY OUT THE SAME. THAT UNDER TAKING IMPORTED A LIABILITY ON THE APPELLANT WHICH ACCRUED ON THE DATES OF THE DEEDS O F SALE, THOUGH THAT LIABILITY WAS TO BE DISCHARGED AT A FUTURE DATE. IT WAS THUS AN ACCR UED LIABILITY AND THE ESTIMATED EXPENDITURE WHICH WOULD BE INCURRED IN DISCHARGING THE SAME COULD BE DEDUCTED FROM THE PROFITS AND GAINS OF THE BUSINESS, AND THE AMOU NT TO BE EXPENDED COULD BE DEBITED IN ACCOUNTS MAINTAINED IN THE MERCANTILE SY STEM OF ACCOUNTING BEFORE IT WAS ACTUALLY DISBURSED. THE DIFFICULTY IN THE ESTIMATIO N THEREOF DID NOT CONVERT THE ACCRUED LIABILITY INTO A CONDITIONAL ONE, BECAUSE IT WAS AL WAYS OPEN TO THE INCOME-TAX AUTHORITIES CONCERNED TO ARRIVE AT A PROPER ESTIMAT E THEREOF HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. (II) THAT THE SUM OF RS. 24,809 REPRESENTED THE EST IMATED AMOUNT WHICH WOULD HAVE TO BE EXPENDED BY THE ASSESSEE IN THE COURSE OF CARRYI NG ON ITS BUSINESS AND WAS INCIDENTAL TO THE BUSINESS AND, HAVING REGARD TO TH E ACCEPTED COMMERCIAL PRACTICE AND TRADING PRINCIPLES, WAS A DEDUCTION WHICH, IF THERE WAS NO SPECIFIC PROVISION FOR IT UNDER SECTION 10(2) OF THE INCOME-TAX ACT, WAS CERT AINLY AN ALLOWABLE DEDUCTION, ARRIVING AT THE PROFITS AND GAINS OF THE BUSINESS O F THE APPELLANT, UNDER SECTION 10(I) OF THE ACT, THERE BEING NO PROHIBITION AGAINST IT, EXPRESS OR IMPLIED, IN THE ACT. THE EXPRESSION PROFITS OR GAINS IN SECTION 10(I) OF THE INCOME-TAX ACT HAS TO BE UNDERSTOOD IN ITS COMMERCIAL SENSE AND THERE CAN BE NO COMPUTATION OF SUCH PROFITS AND GAINS UNTIL THE EXPENDITURE WHICH IS NECESSARY FOR THE PURPOSE OF EARNING THE RECEIPTS IS DEDUCTED THERE FROM- WHETHER THE EXPEND ITURE IS ACTUALLY INCURRED OR THE LIABILITY IN RESPECT THEREOF HAS ACCRUED EVEN THOUG H IT MAY HAVE TO BE DISCHARGED AT SOME FUTURE DATE. 70 THUS FROM ABOVE IT IS CLEAR THAT FOR DETERMINING TRUE PROFITS COST INCURRED BY THE ASSESSEE TOWARDS THE CONSTRUCTION OF THE HOU SES AND FLATS WHICH HAS BEEN ACCUMULATED IN THE SCHEMES IS ALSO TO BE RECOG NISED. HOWEVER, IT HAS TO BE NOTED THAT IN CASE OF CALCUTTA COMPANY LTD VS. CIT (SUPRA) THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND H AD CREDITED WHOLE AMOUNT RECEIVED OR RECEIVABLE TOWARDS SALE OF PROCEEDS I.E . WHY THE AMOUNT STILL TO BE INCURRED ON DEVELOPMENT WAS ALLOWED AS EXPENDITURE BUT STILL THE PRINCIPLE IS THERE. THEREFORE, IN CASE WERE CASH SYSTEM OF ACCO UNTING IS FOLLOWED THEN WHAT EVER EXPENDITURE HAS BEEN INCURRED IN CASH DUR ING THE YEAR, HAS TO BE 12 ALLOWED. IN THE CASE BEFORE US, THE ASSESSEE HAS N EITHER OFFERED THE INSTALLMENTS AS INCOME NOR CLAIMED EXPENDITURE INCU RRED. SINCE WE HAVE ALREADY HELD THAT INSTALLMENTS RECEIVED HAVE BEEN R IGHTLY INCLUDED IN THE INCOME OF THE ASSESSEE, THEREFORE, CORRESPONDING EX PENDITURE WHICH HAS BEEN INCURRED INC CASH TOWARDS CONSTRUCTION OF SUCH HOUS ES AND FLATS SOLD UNDER HIRE PURCHASE IS ALSO TO BE ALLOWED. 71 ONE MORE ANGLE NEEDS TO BE CONSIDERED THAT IS WH AT WOULD HAPPEN TO THE OPENING STOCK AS WELL AS CLOSING STOCK. IN THE CAS H SYSTEM OF ACCOUNTING CLOSING STOCK IS NOT CONSIDERED, THEREFORE, WHAT H AS BEEN ACCUMULATED IN THE SCHEMES IS ALSO REQUIRED TO BE CONSIDERED. CONSIDE RING THE CONTENTIONS OF THE PARTIES AND THE PRINCIPLES WE HAVE ALREADY DISCUSSE D, WE ARE OF THE OPINION THAT WHATEVER INSTALLMENTS WERE ACCUMULATED IN THE SCHEMES NEEDS TO BE CONSIDERED ALONG WITH THE OPENING STOCK WHENEVER A PARTICULAR SCHEME WAS COMPLETED. THIS IS SO BECAUSE IT WAS POINTED OUT B Y THE LD. COUNSEL OF THE ASSESSEE THAT THE PROFIT IN EACH OF THE SCHEME WAS OFFERED FOR TAXATION WHEN A PARTICULAR SCHEME WAS COMPLETED. THEREFORE, THE RE SULTS OF INDIVIDUAL SCHEMES HAVE TO BE RECALCULATED AND INSTALLMENTS ACCUMULATE D SHOULD BE TAKEN AS INCOME AND EXPENDITURE INCURRED AFTER REDUCING THE EXPENDITURE INCURRED IN CASH WHICH HAS BEEN ALLOWED IN VARIOUS YEARS, SHOUL D BE REDUCED FROM THE SUCH INSTALLMENTS AND NET RESULTS SHOULD BE CONSIDE RED IN THE YEAR OF COMPLETION OF EACH OF THE HOUSING SCHEMES IN THE YE AR IN WHICH PROFITS OF SUCH COMPLETED SCHEME WERE ACTUALLY OFFERED BY THE ASSES SEE. 72 IN THESE CIRCUMSTANCES WE SET ASIDE THE ORDER O F THE LD. CIT(A) AND DIRECT THE AO TO INCLUDE INSTALLMENTS RECEIVED ON SALE OF VARIOUS HOUSES AND FLATS UNDER HIRE PURCHASE AGREEMENT AND AT THE SAME TIME ALLOW CORRESPONDING EXPENDITURE WHICH HAS BEEN EXPENDED BY THE ASSESSEE IN CASH (INCLUDING THROUGH CHEQUE). FURTHER IN THE YEAR OF COMPLETION OF A PARTICULAR SCHEME EFFECT HAS TO BE GIVEN IN RESPECT OF ACCUMULATED I NSTALLMENTS AS WELL AS ACCUMULATED EXPENDITURE WHICH HAS NOT BEEN ALREADY CONSIDERED IN A PARTICULAR YEAR ON CASH BASIS AS OBSERVED EARLIER. WE HAVE OBS ERVED RIGHT IN BEGINNING THAT THIS ISSUE IS INVOLVED IN ALL THE YEARS BEFORE US THEREFORE, SIMILAR TREATMENT AS OBSERVED BY US, SHOULD BE GIVEN IN EAC H OF THE YEAR. THEREFORE ACCORDING TO US, THE ISSUE IS SQUARELY CO VERED BY THE ABOVE DECISION AND ACCORDINGLY WE SET ASIDE THE ORD ER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASS ESSING OFFICER WITH A DIRECTION TO TAX THE INSTALLMENTS ON RECEIPT BASI S AS WELL AS ALLOW THE EXPENDITURE WHICH HAS BEEN INCURRED FOR THE PUR POSE OF CONSTRUCTION OF SUCH FLATS. WE FIND FORCE IN THE S UBMISSIONS MADE IN THIS CASE THAT WHAT EVER INSTALLMENTS HAVE BEEN TAX ED IN THE HANDS OF PUDA WHEN THE HOUSING SCHEMES WERE RUNNING UNDER THE MANAGEMENT OF PUDA. THEREFORE WE FURTHER DIRECT TH E ASSESSING OFFICER NOT TO TAX THE INSTALLMENTS WHICH HAVE ALRE ADY BEEN TAXED IN THE HANDS OF PUDA EITHER ON COMPLETION OF SCHEMES O R ON CASH RECEIPT OF INSTALLMENTS. 10 GROUND NO. 4 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT A SUM OF RS. 13 74360/- ON ACCOUNT OF DIGITAL PHOTOCOPIER WAS INCLU DED IN THE HEAD (COMPUTERS) AND DEPRECIATION WAS CLAIMED ACCORDINGL Y. ON ENQUIRY IT WAS SUBMITTED THAT DIGITAL PHOTOCOPIER IS ALSO AN E LECTRONIC DEVICE AND ATTACHED TO THE COMPUTER. THEREFORE DEPRECIATIO N SHOULD BE ALLOWED AT 60%. THE ASSESSING OFFICER DID NOT ACCE PT THIS CONTENTION AND ALLOWED DEPRECIATION ONLY AT 15% AND ADDED THE EXCESS DEPRECIATION OF RS. 16731/-. 11 ON APPEAL THE ACTION OF THE ASSESSING OFFICER WA S CONFIRMED BY THE LD. CIT(A). 12 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT PHOTOCOPIER WAS ATTACHED TO THE COMPUTER, THEREFORE DEPRECIATION SHOULD BE PROVIDED AT THE HIGHER RATE. HOWEVER, O N ENQUIRY BY THE BENCH HE COULD NOT FURNISH ANY EVIDENCE TO SHOW THA T PHOTOCOPIER WAS REALLY ATTACHED TO THE COMPUTER. 13 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE SUPPORTED THE ORDER OF THE LD. CIT(A) 14 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD, WE FIND THAT PHOTOCOPIER IS AN INDEPENDENT MACHINE AND IS USED IN VARIOUS OFFICES FOR PHOTOCOPY PURPOSES. NO RMALLY IT CANNOT BE USED AS A PRINTER AS AN ASSESSORY TO THE COMPUTE R. PRINTER IS A DIFFERENT EQUIPMENT. SINCE NO EVIDENCE WAS PRODUCE D BEFORE US TO SHOW THAT IT WAS PART OF THE COMPUTER WE FIND NOTHI NG WRONG WITH THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 15 GROUND NO. 5 AFTER HEARING BOTH THE PARTIES WE FIND THAT THE ASSESSEE-AUTHORITY WAS ACQUIRING LAND FOR DEVELOPME NT AND AFTER SUCH DEVELOPMENT THIS LAND WAS AUCTIONED. THE AUTH ORITY WAS ALSO MAINTAINING VARIOUS SECTORS DEPENDING UPON THE SCHE ME. SINCE NO BIFURCATION WAS AVAILABLE FOR EXPENSES INCURRED FOR DEVELOPMENT OF SECTORS AND FOR MAINTENANCE OF VARIOUS SECTORS 40% OF THE 14 ADMINISTRATIVE EXPENSES WERE HELD TO BE INCURRED FO R THE PURPOSE OF DEVELOPMENT AND AFTER ADJUSTING PROVIDENT FUND A SU M OF RS. 1,13,93,623/- WAS DISALLOWED. 16 BEFORE US, BOTH THE PARTIES AGREED THAT THIS ISS UE IS IDENTICAL TO THE ISSUE RAISED IN GROUND NO. 4 IN ITA NO. 759/CHD /2007 OF ASSESSEES APPEAL IN CASE OF PUDA GROUP. 17 BOTH THE PARTIES SUBMITTED THAT THE ISSUE MAY B E DECIDED FOLLOWING THAT ORDER. 18 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE CAME UP FOR CONSID ERATION IN CASE OF ASSESSEES APPEAL IN ITA NO. 759/CHD/2007 WHICH WAS DECIDED VIDE CONSOLIDATED ORDER IN PUDA GROUP OF CASES ON 6.12.2 013. THIS ISSUE WAS DECIDED VIDE PARA 115 WHICH IS AS UNDER: WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. WE HAVE ALREADY DISCUSSED THE IMPLICATIONS OF CASH SYSTEM OF ACCOUNTING WHILE ADJUDICATING GROUND NO. 5 OF REVENUES APPEAL IN ITA NO. 762/CHD/2008. BASIC ALLY ONCE THE CASH SYSTEM OF ACCOUNTING IS FOLLOWED THEN ALL RECEIPTS WHICH R ELATE TO THE REVENUE FILED, HAVE TO BE TAXED. SIMILARLY ALL CASH OUTGOINGS WH ICH ARE IN THE REVENUE FIELD, HAD TO BE ALLOWED AS EXPENDITURE. SINCE THE ASSESSE E IS IN THE BUSINESS OF PURCHASE AND DEVELOPING THE LAND AND SELLING THE SA ME AFTER THE DEVELOPMENT OF THE SAME AND THEREFORE, ADMINISTRATIVE EXPENSES INCURRED IS CLEARLY IN THE FIELD OF REVENUE. FURTHER THE ASSESSEE WAS FOLLOWI NG CASH SYSTEM OF ACCOUNTING, THEREFORE, ONCE CASH HAS BEEN SPENT OR OUTGONE FROM THE ASSESSEE SAME HAS TO BE TREATED AS EXPENDITURE. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THE ADDITION. FOLLOWING THE ABOVE ORDER, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. HOWEVER, WE MAY CLARIFY THAT WE HAVE GI VEN THE DIRECTION WHILE ADJUDICATING THE ISSUE REGARDING IN STALLMENT THAT THE INSTALLMENTS WHICH HAVE ALREADY BEEN TAXED IN THE H ANDS OF PUDA ON CASH BASIS OR ON COMPLETION OF SCHEME, COULD NOT BE TAXED, SIMILARLY IF THE EXPENSES HAS BEEN ALLOWED IN CASE OF PUDA, T HE SAME IS NOT ALLOWABLE NOW. 19 IN THE RESULT, ASSESSEES APPEAL IN ITA NO. 636/ CHD/2011 IS PARTLY ALLOWED. 15 ITA NO. 658/CHD/2011 REVENUES APPEAL 20 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLO WING GROUNDS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE AT RS. 33,80,283/- ON ACCOUNT OF CPF. THE DISALLOWANCE 2WAS MADE FOR THE REASONS THAT THE CONTRIBUTIONS HAVE NEITHER BEEN MADE TO A PROVIDENT FUND APPROVED BY THE C.C.I.T OR TO PROVIDENT FUND ESTABLISHED UNDE R A SCHEME FRAMED UNDER THE EMPLOYEE PROVIDENT FUND ACT,1952. 21 AFTER HEARING BOTH THE PARTIES WE FIND THAT THE ASSESSING OFFICER DID NOT ALLOW PAYMENT MADE TOWARDS PROVIDENT FUND B ECAUSE THE FUND WAS NOT RECOGNIZED. 22 ON APPEAL, THE ADDITION WAS DELETED BY THE LD. C IT(A). 23 BOTH THE PARTIES ADMITTED THAT THIS ISSUE IS IDE NTICAL TO THE ISSUE IN CASE OF PUDA IN REVENUES APPEAL VIDE GRO UND NO. 7 IN ITA NO. 762/CHD/2007. 24 BOTH THE PARTIES SUBMITTED THAT THE ISSUE MAY BE DECIDED FOLLOWING THAT ORDER. 25 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD, WE FIND THAT IDENTICAL ISSUE CAME UP FOR C ONSIDERATION OF THE TRIBUNAL VIDE GROUND NO. 7 IN REVENUES APPEAL IN ITA NO. 762/CHD/2007 IN PUDA GROUP OF CASES WHICH HAVE BEEN DECIDED BY US VIDE CONSOLIDATED ORDER DATED 6.12.2013. THIS I SSUE WAS DECIDED VIDE PARA 84 TO 86 WHICH ARE AS UNDER: 84 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. FIRST OF ALL WE WOULD LIKE TO POINT OUT THAT THIS ISSUE IS ARISING IN ALL THE YEARS IN WHICH THE APPEALS WERE HEARD BY US, THEREFORE, THE DECISION IN THESE PARAS WOULD BE APPLICABLE IN ALL THE YEARS WHEREIN APPEALS ARE BEING ADJUDICATED THR OUGH THIS ORDER. THE ASSESSEE AUTHORITY WAS FORMED IN 1995 PRIOR TO WHIC H THIS ORGANIZATION WAS KNOWN AS PUNJAB HOUSING DEVELOPMENT BOARD WHICH W AS STATED TO HAVE BEEN FORMED IN 1972. THROUGH A GAZETTE NOTIFICATION DAT ED 12TH AUGUST 1983 (COPY PLACED AT PAPER BOOK AT PAGES 135-136) GOVERNMENT O F PUNJAB MADE CERTAIN RULES FOR PUNJAB HOUSING DEVELOPMENT BOARD THROUGH GSR NO. 70/PA6Z/73/S/98/83.RULE 16 OF THIS NOTIFICATION REA DS AS UNDER: PROVIDENT FUND-(1) THE STATE GOVERNMENT SHALL ESTAB LISH A PROVIDENT FUND FOR THE EMPLOYEES OF THE BOARD AND SUCH PROVIDENT FUND SHAL L BE DEEMED TO BE A GOVERNMENT PROVIDENT FUND FOR THE PURPOSE OF THE PROVIDENT FUN D ACT, 1925(CENTRAL ACT XIV OF 1925) AND NOTWITHSTANDING ANYTHING CONTAINED IN SEC TION 8 THEREOF, SUCH FUND MAY BE ADMINISTERED BY SUCH OFFICERS OF THE STATE GOVERNME NT OR OF THE BOARD AS THE STATE GOVERNMENT MAY SPECIFY IN THAT BEHALF. THE ABOVE CLEARLY SHOWS THAT GOVERNMENT THROUGH THI S NOTIFICATION WAS MANDATED TO ESTABLISH A GOVERNMENT PROVIDENT FUND U NDER PROVIDENT FUND ACT, 1925. FURTHER PAGE 152 OF THE PAPER BOOK IS COPY OF ANOTHER ORDER OF THE 16 GOVERNMENT OF PUNJAB SHOWING THAT ON CONSTITUTION OF PUNJAB URBAN PLANNING AND DEVELOPMENT AUTHORITY VARIOUS TERMS IN PUNJAB H OUSING DEVELOPMENT BOARD RULES, 1983 WOULD STAND AMENDED BY SUBSTITUT ION OF THE WORDS PUNJAB HOUSING DEVELOPMENT BOARD TO PUNJAB URBAN PLANNIN G DEVELOPMENT AUTHORITY THIS SHOWS THAT SAME RULES WHICH WERE M ADE FOR PUNJAB HOUSING DEVELOPMENT BOARD WERE ADOPTED FOR THE ASSESSEE AUT HORITY ALSO. THEREFORE, IT BECOMES CLEAR THAT PROVIDENT FUND ESTABLISHED BY THE ASSESSEE IS GOVERNED BY THE PROVISIONS OF PROVIDENT FUND ACT, 1925. RUL E (1) OF PART A TO THE FOURTH SCHEDULE OF THE ACT READS AS UNDER: APPLICATION OF THE PART THIS PART WAS NOT APPLIED TO ANY PROVIDENT FUND TO WHICH THE PROVIDENT FUND ACT, 1925 (19 OF 1925) APPLIES. THE ABOVE MAKES IT CLEAR THAT PROVIDENT FUND WHICH ARE GOVERNED BY PROVIDENT FUND ACT, 1925 ARE NOT COVERED BY THE RULES MADE UN DER THE FOURTH SCHEDULE. IN OTHER WORDS, THE PROVISIONS REGARDING RECOGNITIO N OF THE PROVIDENT FUND WOULD NOT BE APPLICATION TO SUCH FUNDS, THEREFORE, IT DOES NOT MAKE ANY DIFFERENCE WHETHER ASSESSEES PROVIDENT FUND IS REC OGNIZED OR NOT RECOGNIZED. THEREFORE, THERE IS NO FORCE IN THE SUBMISSIONS OF THE LD. DR FOR THE REVENUE THAT THE CONTRIBUTION SHOULD NOT BE ALLOWED BECAUSE THE ASSESSEE HAS NOT GOT ITS FUNDS RECOGNIZED OR CONTRIBUTION WAS NOT MADE T OWARDS RECOGNIZED PROVIDENT FUND. THIS ALSO LEADS TO THE CONCLUSION THAT SECTION 36(1)(IV) WHICH WAS FOR CONTRIBUTION TOWARDS RECOGNIZED PROVIDENT F UND, IS NOT APPLICABLE. HOWEVER, AS FAR AS SECTION 36(1)(VA) IS CONCERNED, THE SAME IS STILL APPLICABLE BECAUSE SECTION 36(1)(VA) READS AS UNDER: 36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CL AUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRE D TO IN SECTION 28 (I) TO (V) - NOT RELEVANT [(VA) ANY SUM RECEIVED BY THE ASSESSEE FROM ANY O F HIS EMPLOYEES TO WHICH THE PROVISIONS OF SUB-CLAU SE (X) OF CLAUSE (24) OF SECTION 2 APPLY, IF SUCH SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DAT E. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, 'DUE DATE' MEANS THE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EMPLOYER TO CREDIT AN EMPLOYEE'S CON TRIBUTION TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND UNDER ANY ACT, RULE, ORDER OR NOTIFICATION ISS UED THEREUNDER OR UNDER ANY STANDING ORDER, AWARD, CONTRACT OF SERVICE OR OTHERWISE;] THE ABOVE PROVISION DEALS WITH EMPLOYEES SHARE OF T HE CONTRIBUTION. ACCORDING TO THE SCHEME OF THE ACT THE EMPLOYEES S HARE IS TREATED AS INCOME WHEN SOME CONTRIBUTION IS RECEIVED BY THE ASSESSEE AND WHEN SAME IS CONTRIBUTED TO PROVIDENT FUND THEN SAME IS ALLOWED AS DEDUCTION UNDER THIS PROVISION. AT THE SAME TIME RECEIPT OF SUCH CONTRI BUTION IS TREATED AS DEEMED INCOME U/S 2(24)(X) WHICH READS AS UNDER: ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTIONS TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR ANY FUND SET UP UNDER THE PR OVISIONS OF THE EMPLOYEES' STATE INSURANCE ACT, 194 8 (34 OF 1948), OR ANY OTHER FUND FOR THE WELFARE OF SUCH EMPLOYEES ; IN THIS CLAUSE WHICH IS PART OF THE DEFINITION OF I NCOME, THERE IS NO MENTION OF THE WORD RECOGNIZED PROVIDENT FUND THEREFORE, AN Y CONTRIBUTION RAISED FROM THE EMPLOYEE TOWARDS ANY PROVIDENT FUND WOULD FORM PART OF THE DEEMED INCOME UNDER THIS PROVISION. IN OUR OPINION, THIS HAS BEEN DELIBERATELY DONE BY THE LEGISLATURE BECAUSE AS FAR AS EMPLOYEES CONTRIB UTION IS CONCERNED, THE PARLIAMENT WANTED THAT THE SAME SHOULD NOT BE USED BY THE BUSINESS PEOPLE AND SHOULD BE DEPOSITED WITH THE PROVIDENT FUND AUT HORITIES AND OR TRUST AT THE EARLIEST AND THAT IS WHY NO DIFFERENCE HAS BEEN MAD E BETWEEN RECOGNIZED PROVIDENT FUND OR OTHER FUNDS. FROM THIS IT BECOME S CLEAR THAT AS FAR AS EMPLOYEES CONTRIBUTION IS CONCERNED, THE SAME IS N OT COVERED BY SECTION 36(1)(IV). HOWEVER, AT THE SAME TIME IT CANNOT BE DENIED THAT THE CONTRIBUTION MADE BY THE ASSESSEE TOWARDS PROVIDENT FUND IS CLEA RLY IN THE NATURE OF BUSINESS EXPENDITURE AND THEREFORE, SAME IS ALLOWAB LE U/S 37 OF THE ACT WHICH IS RESIDUARY PROVISION. SINCE THE CONTRIBUTION OF EMPLOYER SHARE TOWARDS PROVIDENT FUND IS IN NATURE OF REVENUE EXPENDITURE AND NOT COVERED BY ANY 17 OTHER PROVISION AS EXPLAINED ABOVE, SAME IS COVERED BY SECTION 37 OF THE ACT. THIS ANALYSIS LEADS TO THE CONCLUSION THAT AS FAR A S EMPLOYER SHARE IS CONCERNED, THE SAME IS ALLOWABLE U/S 37 AND AS FAR AS EMPLOYEES SHARE IS CONCERNED, THE SAME IS ALLOWABLE U/S 36(1)(VA). LO T OF ARGUMENTS HAVE BEEN MADE BY BOTH THE PARTIES IN RESPECT OF SECTION 40A (9) WHICH READS AS UNDER: (9) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER TOWARDS THE SETTING UP OR FORMATION OF, OR AS CONTRIBUTION TO, ANY FUND, TRUST, COMPANY, ASSOCIATION OF PERSON S, BODY OF INDIVIDUALS, SOCIETY REGISTERED UNDER THE S OCIETIES REGISTRATION ACT, 1860 (21 OF 1860), OR OT HER INSTITUTION FOR ANY PURPOSE, EXCEPT WHERE SUCH SUM IS SO PAID, FOR THE PURPOSES AND TO THE EXTENT PROV IDED BY OR UNDER CLAUSE (IV) [OR CLAUSE (IVA)] OR CLAUS E (V) OF SUB-SECTION (1) OF SECTION 36 , OR AS REQUIRED BY OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE. PLAIN READING OF THIS PROVISIONS SHOWS THAT THE CON TRIBUTION MADE BY AN ASSESSEE AS A EMPLOYER TOWARDS VARIOUS FUNDS FOR TH E BENEFIT OF THE EMPLOYEES ARE NOT ALLOWABLE EXCEPT FOR CONTRIBUTION PROVIDED IN THIS SECTION ITSELF. THEREFORE, THE LD. DR FOR THE REVENUE IS CORRECT T HAT CONTRIBUTION WHICH ARE NOT MENTIONED IN THIS SECTION CANNOT BE ALLOWED BECAUSE THIS PROVISIONS STARTS WITH NON OBSTANTE CLAUSE WHICH IS MADE CLEAR BY STARTING OF SECTION 40A(1) WHICH READS AS UNDER: 40A. (1) THE PROVISIONS OF THIS SECTION SHALL HAVE EFFE CT NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISION OF TH IS ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINES S OR PROFESSION'. HOWEVER, CAREFUL READING CLEARLY SHOWS THAT EXCEPTI ON PROVIDED IN THIS SECTION ARE IN RESPECT OF DEDUCTION ALLOWED U/S 36(1)(IV) OR 36(1)(IVA) OR 36(1)(V). THERE IS ANOTHER EXCEPTION WHICH READS AS UNDER: OR AS REQUIRED BY OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE THEREFORE, THE LD. COUNSEL OF THE ASSESSEE IS CORR ECT THAT SINCE PROVIDENT FUND ESTABLISHED BY THE ASSESSEE WAS IN TERMS OF INDIAN PROVIDENT FUND ACT, 1925, THEREFORE, THIS HAS TO BE READ INTO THE EXCEPTIONS AND ACCORDINGLY FETTER FOR NOT ALLOWING THE DEDUCTION U/S 40A(9) WOULD NOT BE APPLICABLE FOR THE FUNDS CONTRIBUTED TOWARDS PROVIDENT FUND AS THE EMPLOYE R SHARE IN TERMS OF INDIAN PROVIDENT FUND ACT, 1925 WHICH WAS ADOPTED BY THE ASSESSEE. THEREFORE, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTI ON IN RESPECT OF CONTRIBUTIONS MADE TOWARDS PROVIDENT FUND EVEN IF S UCH FUND IS NOT RECOGNIZED. 85 THE NEXT CONTENTION RAISED IS WHETHER DEDUCTION CAN BE ALLOWED EVEN IF THE CONTRIBUTION WAS PAID AFTER THE END OF THE YEAR . THE CLAIM OF THE ASSESSEE IS THAT THE PAYMENTS HAVE BEEN MADE BEFORE THE DUE DATE OF FILING OF RETURN AS PROVIDED IN SECTION 43B. RELEVANT PORTION OF SECTI ON 43B READS AS UNDER: 43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER P ROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF [(A) ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX , DUTY, CESS OR FEE, BY WHATEVER NAME CALLED, UNDER ANY LAW FOR THE TIME BEING IN FORCE, OR] (B) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUITY FUND OR ANY OTHER F UND FOR THE WELFARE OF EMPLOYEES, [OR] [(C) TO (F) NOT RELEVANT SHALL BE ALLOWED (IRRESPECTIVE OF THE YEAR IN WHIC H THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGU LARLY EMPLOYED BY HIM) ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF THAT PREVIOUS Y EAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM> [ PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY IN RELATION TO ANY SUM [***] WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPL ICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INC OME UNDER SUB-SECTION (1) OF SECTION 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABI LITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN. CAREFUL READING OF THE ABOVE PROVISION SHOW THAT A FETTER HAS BEEN PROVIDED FOR ALLOWABILITY OF CERTAIN EXPENSES. THE EXPENDITURE EVEN IF IS ALLOWABLE BECAUSE OF THE METHOD OF ACCOUNTING FOLLOWED BY HE ASSESSEE THE SAME IS STILL NOT ALLOWABLE UNLESS AND UNTIL SUCH EXPENDITURE IS PAID . THIS MEANS THAT THIS 18 SECTION PROVIDES FURTHER RESTRICTION ON ALLOWABILIT Y OF AN EXPENDITURE WHICH ARE OTHERWISE ALLOWABLE U/S 30 TO 44. IN OTHER WORDS E VEN IF AN EXPENDITURE IS ALLOWABLE UNDER VARIOUS PROVISIONS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION THE SAME IS NOT ALLOWABLE BECAUSE OF SECTION 43B UNLESS SUCH EXPENDITURE IS ACTUALLY PAID. IN CASE BEFORE US, THE ASSESSEE IS FOLLOWING THE CASH SYSTEM OF ACCOUNTING WHICH WE HA VE ALREADY DISCUSSED WHILE ADJUDICATED GROUND NO. 5. THEREFORE, ANY EX PENDITURE IN CASE OF THE ASSESSEE HAS TO BE ALLOWABLE ONLY IF ACTUAL CASH HA S BEEN PAID DURING THE YEAR. THEREFORE, IF NO CASH HAS BEEN PAID EXPENDIT URE IS NOT ALLOWABLE. NO DOUBT SECTION 43B HAS CARVED OUT AN EXCEPTION BY WA Y OF PROVISO THAT EVEN IF EXPENDITURE IS PAID BEFORE DUE DATE OF FILING OF RE TURN THEN THE SAME SHALL BE ALLOWED AND THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. NUCHEM LTD. IN ITA NO. 323 OF 2009 FOLLOWING THE DE CISION OF HON'BLE APEX COURT IN CIT V. ALOM EXTRUSIONS (2009) 227 CTR 417 HAS CLEARLY HELD THAT IF SUCH PAYMENTS ARE MADE BEFORE DUE DATE OF FILING OF RETURN THEN THE SAME HAS TO BE ALLOWED. HOWEVER, AS OBSERVED EARLIER THIS B ENEFIT COULD NOT BE GIVEN TO THE ASSESSEE BECAUSE THE ASSESSEE IS FOLLOWING THE CASH SYSTEM OF ACCOUNTING AND ALLOWABILITY OF EXPENDITURE ITSELF DEPENDS ON A CTUAL CASH PAYMENT. HOWEVER, WE WOULD LIKE TO OBSERVE THAT AT THE BEGIN NING OF THIS ISSUE WE HAVE CLEARLY MENTIONED THAT THIS ISSUE RELATES TO MANY Y EARS, THEREFORE, IF THE PAYMENT FOR THIS YEAR WAS MADE IN NEXT YEAR THE SAM E WOULD BE CLEARLY ALLOWABLE IN THE NEXT YEAR. THEREFORE, THE ASSESS ING OFFICER SHOULD EXAMINE THIS ISSUE CLEARLY AND ALLOW THE PAYMENTS ON CASH B ASIS EVEN IF THEY RELATE TO EARLIER YEARS. THE LAST DISPUTE RAISED BY THE REVE NUE IS THAT THE ASSESSEE WAS NOT MAINTAINING SEPARATE BANK ACCOUNTS AND OR FDRS IN THE ACCOUNT IN RESPECT OF PROVIDENT FUND BECAUSE THE SAME HAVE BEEN SHOWN IN THE BALANCE SHEET. IN THIS REGARD THE LD. DR FOR THE REVENUE HAS RELIED O N THE DECISION OF CIT VS. TEXTOOL CO. LTD (SUPRA). IN THAT CASE THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 92,06,978/- AS CONTRIBUTION TOWARDS APPROVED GR ATUITY FUND. A SUM OF RS. 50 LAKHS WAS PAID AS INITIAL CONTRIBUTION AND RS. 5 ,84,754/- WAS PAID TOWARDS ANNUAL PREMIUM. THE BALANCE OF RS. 36,22,224/- WAS PROVIDED FOR INITIAL CONTRIBUTION. ALL THE SUMS WERE PAID TO LIC. THE QUESTION AROSE WHETHER DIRECT PAYMENT TO LIC WAS COVERED BY SECTION 36(1)( V). IN THIS CONNECTION THE HON'BLE SUPREME COURT OBSERVED AS UNDER: HAVING CONSIDERATION THE MATTER IN THE LIGHT OF TH E BACKGROUND FACTS, WE ARE OF THE OPINION THAT THERE IS NO MERIT IN THE APPEAL. TRUE THAT A FISCAL STATUTE IS TO BE CONSTRUCTED STRICTLY AND NOTHING SHOULD BE ADDED OR SUBTRACTED TO THE LANGUAGE EMPLOYED IN THE SECTION, YET A STRICT CONS TRUCTION OF A PROVISION DOES NOT RULE OUT THE APPLICATION OF THE PRINCIPLES OF R EASONABLE CONSTRUCTION TO GIVE EFFECT TO THE PURPOSE AND INTENTION OF ANY PARTICU LAR PROVISION OF THE ACT (SEE SHRI SAJJAN MILLS LTD. VS. CIT, M.P. & ANR (1985) 1 56 ITR 585). FROM A BARE READING OF SECTION 36(1)(V) ;OF THE ACT, IT IS MANI FEST THAT THE REAL INTENTION BEHIND THE PROVISION IS THAT THE EMPLOYER SHOULD NO T HAVE ANY CONTROL OVER THE FUNDS OF THE IRREVOCABLE TRUST CREATED EXCLUSIVELY FOR THE BENEFIT OF THE EMPLOYEES. IT IS CLEAR THAT INTENTION BEHIND THE PROVISIONS FO R VARIOUS FUNDS FOR EMPLOYEES IS THAT EMPLOYER SHOULD NOT HAVE CONTROL OVER THE F UNDS WHICH HAS BEEN CONTRIBUTED BY THE ASSESSEE OR THE WORKERS. IN THI S REGARD THE LD. COUNSEL OF THE ASSESSEE REFERRED TO SECTION 3 OF THE NOTIFICAT ION WHICH READS AS UNDER: ALL MONEYS BELONGING TO THE FUND SHALL BE INVESTED EITHER IN SECURITIES OF THE NATURE SPECIFIED IN CLAUSE (A), (B), (C), (D) OR (E ) OF SECTION 20 OF THE INDIAN TRUSTS ACT, 1882 (CENTRAL ACT 2 OF 1882) OR IN THE POST OFFICE SAVINGS BANK ACCOUNTS OR IN LONG TERM FIXED DEPOSITS WITH SCHEDU LED BANKS. POST OFFICE NATIONAL SAVING CERTIFICATES OR KEPT AS A DEPOSIT W ITH THE STATE GOVERNMENT BEATING INTEREST. FURTHER THE ASSESSEE ALSO ISSUED OFFICE ORDER COPY OF WHICH IS PLACED AT PAGE 70 OF THE PAPER BOOK WHICH READS AS UNDER: IN PURSUANCE TO RULE 3(1)(2) OF THE PUNJAB HOUSING DEVELOPMENT BOARD (PROVIDENT FUND) RULES 1983 AND FURTHER ADOPTED PUDA IN ITS MEETING HELD ON 17 TH JULY 1995 VIDE AGENDA ITEM NO. 17 A COMMITTEE, IS HEREBY CONSTITUTED TO ADMINISTER AND MANAGE THE CON TRIBUTORY PROVIDENT FUND OF THE EMPLOYEES OF PUDA. THE COMMITTEE SHALL INCLUDE: (A) THE CHIEF ADMINISTRATOR AS EX-OFFICIO CHAIRMAN OF THE COMMITTEE OR HIS NOMINEE (B) ACCOUNTS OFFICER (PENSION) AS SECRETARY OF THE COMMITTEE (C) ADMINISTRATIVE OFFICER (ADMIN-I)- MEMBER 19 (D) SH. KARAM CHAND, SENIOR ASSISTANT AND SH. SHISH U PAL, SENIOR ASSISTANT- MEMBERS (REPRESENTING THE EMPLOYEES OF PUDA, APPROV ED VIDE ITEM NO. 9,10 IN THE MEETING OF THE AUTHORITY HELD ON 29.11.02). RAKESH SINGH VICE CHAIRMAN, PUDA THUS IT IS CLEAR THAT SEPARATE COMMITTEE HAS BEEN C ONSTITUTED BUT IT IS NOT CLEAR WHETHER THIS COMMITTEE WAS MONITORING THE FUNDS OF THE PROVIDENT FUND. THE FDRS HAVE BEEN DEBITED AND MADE IN THE NAME OF THE CPF FDRS WHICH MEANS SEPARATE FDRS HAVE BEEN MADE BUT HOW IT HAS CLEARLY BEEN CONTROLLED BY THE MANAGING COMMITTEE, IS NOT VERY CLEAR. THEREFORE, TO THIS EXTENT WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO E XAMINE WHETHER PROVIDENT FUND WAS INDEPENDENTLY MONITORED IN THE LIGHT OF TH E DIRECTIONS ISSUED BY HON'BLE SUPREME COURT IN CASE OF TEXTOOL CO.LTD (SU PRA). 86 ANOTHER CONTENTION WAS ALSO RAISED THAT THE FUND S HAVE NOT BEEN INVESTED IN THE LONG TERM FDRS. WE HAVE SEEN VARIO US NOTES ISSUED BY THE COMMITTEE WHERE FDRS HAVE BEEN MADE ONLY FOR ONE YE AR AND JUSTIFICATION FOR THE SAME HAS BEEN GIVEN THAT PRESENTLY INTEREST IS ON LOWER SIDE AND INTEREST IS LIKELY TO GO UP THEREFORE, FDR WAS MADE FOR ONE YE AR. THIS ASPECT ALSO NEED FURTHER EXAMINATION BY THE ASSESSING OFFICER WHERE REGULARLY FDRS HAVE BEEN MADE FOR A PERIOD OF ONE YEAR OR LONGER PERIOD AND WHERE NO JUSTIFICATION FOR SUCH SHORTER PERIOD IS THERE OR NOT? THEREFORE, THE ASSESSING OFFICER SHOULD EXAMINE THIS MATTER FURTHER AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. IN THE RESULT, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. FOLLOWING THE ABOVE ORDER, WE SET ASIDE THE ORDER O F THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE SAME IN ACCORDANCE WITH OUR DIRECTIONS CONTAINED IN PARA 84 TO 86 IN CASE OF PUDA WHICH HA VE BEEN REPRODUCED ABOVE. 26 IN THE RESULT, REVENUES APPEAL IN ITA NO. 658/C HD/2011 IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ITA NO. 788/CHD/2012 ASSESSEES APPEAL 27 IN THIS APPEAL THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1 THAT THE ORDER OF THE LEARNED C.I.T (APPEALS) IS BA D IN LAW AND AGAINST THE FACTS OF THE CASE. 2. (A) THAT THE LD. C.I.T (APPEALS) HAS ERRED IN LA W AND ON FACTS IN ASSESSING RS. 1,43,82,706/- AS RENTAL INCOME WHICH, IN FACT, IS NOTHING BUT AMOUNT OF INSTALLMENTS RECEIVED AS PER HIRE-PURCHAS E AGREEMENT ACCORDING TO WHICH, THE OWNERSHIP OF FLATS / HOUSES, IS TRANSFER RED TO THE PURCHASER ONLY AFTER THE PAYMENT OF LAST INSTALLMENT, WHEN THE INCOME IS FINALLY CREDITED BY THE APPELLANT ON ITS ACCRUAL. (B) THAT THE LD. C.I.T(APPEALS) HAS ERRED IN LAW AN D ON FACTS IN ASSESSING AS RENTAL INCOME, THE INSTALLMENTS RECEIVED AT RS. 1,4 3,82,706/- UNDER HIGHER- PURCHASE AGREEMENT COMPRISING OF PRINCIPAL AMOUNT, WHEREAS THE ISSUE OF RENTAL INCOME WAS NEITHER BEFORE HIM FOR ADJUDICA TION , NOR IT WAS BEFORE THE ASSESSING OFFICER. 3. THAT THE LD. C.I.T(APPEALS) HAS ERRED ON FACTS A ND IN LAW IN DISALLOWING 20% OF ADMINISTRATIVE EXPENSES OF CONSTRUCTION DIVI SION OFFICES AMOUNTING TO RS. 1,54,40,904/- ON THE GROUND THAT THE APPELLANT FAILED TO PRODUCE EVIDENCE REGARDING EACH EXPENSE CLASSIFIED UNDER THE ADMINIS TRATIVE HEAD OF ACCOUNT, 20 DESPITE THE FACT THAT ALL THE DETAILS OF THESE EXPE NSES WERE DULY PRODUCED TO THE LD. CIT(A) AND THE AUTHORITIES BELOW AND THAT ALL T HE RELEVANT LEDGER ACCOUNTS DULY SUPPORTED BY SELF EXPLANATORY VOUCHERS WERE BE FORE THE AUTHORITIES BELOW. 4. THAT THE LD. C.I.T (APPEALS) HAS ERRED ON FACTS AND IN LAW IN DISALLOWING THE BUSINESS EXPENDITURE OF RS. 15.00 CRORE ON A/C OF PAYMENT MADE TO THE STATE GOVT. FOR SETTING UP AN INTERNATIONAL AIRPORT AT MOHALI ON THE GROUND THAT THE EXPENDITURE WAS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS DESPITE THE FACT THAT THE EXPENDITURE WAS IN CONSON ANCE WITH THE PUDA ACT AND ALSO FOR THE COMMERCIAL EXPEDIENCY OF THE BUSINESS OF THE ASSESSEE AUTHORITY. 5. THAT THE LD. C.I.T(APPEALS) HAS ERRED ON FACTS A ND IN LAW IN INCREASING THE VALUE OF CLOSING STOCK HYPOTHETICALLY AND ARBIT RARILY JUST TO SET OFF THE ENHANCED VALUE OF OPENING STOCK WHICH IS ONLY THE B ROUGHT FORWARD CLOSING STOCK OF THE PREVIOUS YEAR WHICH HAD TO BE RECALCUL ATED AS A CONSEQUENCE OF CAPITALIZATION OF DISALLOWANCE OF CAPITAL EXPENDITU RE OUT OF ADMINISTRATIVE EXPENSES OF PREVIOUS YEARS AND THUS ENHANCING THE V ALUE OF STOCK. 28 GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT RE QUIRE ANY ADJUDICATION. 29 GROUND NO. 2 THIS ISSUE IS IDENTICAL TO THE IS SUE RAISED IN ASSESSEES APPEAL THROUGH GROUND NO. 2 IN ITA NO. 6 36/CHD/2011 WHICH WE HAVE ADJUDICATED ABOVE VIDE PARA 9. THERE FORE FOLLOWING THAT DECISION WE DECIDE THIS ISSUE AGAINST THE ASSE SSEE. 30 GROUND NO. 3 THIS ISSUE IS IDENTICAL TO THE IS SUE RAISED IN GROUND NO. 5 OF ITA NO. 636/CHD/2012 WHICH WE HAVE ADJUDICATED ABOVE IN PARA NO. 18 AND FOLLOWING THE SAME WE DECI DE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 31 GROUND NO. 4 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING THE YEAR THE ASSESSEE HAD MADE PAYMENTS OF R S. 15 CRORES TOWARDS LAND FOR INTERNATIONAL AIRPORT AT MOHALI. THIS AMOUNT WAS CLAIMED AS BUSINESS EXPENDITURE. THIS AMOUNT WAS NOT ALLOWED BY THE ASSESSING OFFICER BECAUSE THE EXPENDITURE WAS I NCURRED FOR ENTERING IN JOINT VENTURE IN WHICH GOVT OF PUNJAB W AS ENTITLED TO 24% SHARE HOLDING AND OTHER 24% WAS GOING TO HUDA AND BALANCE OF 51% WAS RETAINED BY AIRPORT AUTHORITY OF INDIA (IN SHORT AAI). SINCE THE ASSESSEE IS NOT BENEFICIAL OWNER O F THE SHARE HOLDING, THEREFORE THE EXPENDITURE WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS AND ACCORDINGLY HE DISALLOWED THIS EXPE NDITURE. 21 32 ON APPEAL THE ACTION OF THE ASSESSING OFFICER WA S CONFIRMED BY THE LD. CIT(A). 33 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION IN CASE OF PUDA IN ITA NO. 390/CHD/2012 FOR AY 2008-09. HE SUBMITTED THAT THE CONTENTIONS GIVEN IN THAT CASE MAY BE CONSIDERED. 34 HE FURTHER SUBMITTED THAT IN THE PRESENT CASE TH ERE ARE SOME DISTINGUISHING FACTORS WHICH MAY ALSO BE CONSIDERED . FIRST OF ALL MOHALI INTERNATIONAL AIRPORT IS LOCATED IN THE JURI SDICTION OF THE ASSESSEE AND THEREFORE FOR THE DEVELOPMENT OF THE A REA IT WAS NECESSARY FOR THE ASSESSEE TO INCUR THIS EXPENDITUR E. THIS WAS DONE TO FULFILL THE OBJECTS OF THE AUTHORITY WHICH ARE M ENTIONED IN PUNJAB REGIONAL AND TOWN PLANNING AND DEVELOPMENT ACT, 192 5 IN SECTION 28. FURTHER WHEN THIS CONTRIBUTION WAS MADE AND TH E DEVELOPMENT OF THE AIRPORT WAS ANNOUNCED IN CERTAIN SECTORS WHI CH BROUGHT APPROXIMATELY 3.25 LAKHS APPLICATIONS FOR 4000 PLOT S WHICH RESULTED IN EARNING OF INTEREST AMOUNTING TO RS. 200 CRORES APPROXIMATELY WHICH HAVE BEEN OFFERED FOR TAXATION. THIS CLEARLY SHOWS THAT THE CONTRIBUTION HAS LED TO THE BENEFITS OF THE AUTHORI TY. HE GAVE OTHER EXAMPLES BY SHOWING THAT LAND WHICH WERE ACQUIRED A T RS. 3100 PER SQYD, WAS TO BE SOLD AT RS. 12000 PER SQYD FOR WHIC H THE AUTHORITY RECEIVED A VERY ENCOURAGING RESPONSE. IN THIS CASE NO LICENSE WAS ISSUED TO THE PRIVATE DEVELOPERS IN THE VICINITY OF AERO CITY AND I.T. CITY HAVING AN AREA OF 2500 ACRES AND THEREFORE WHO LE BENEFIT WOULD ACCRUE TO THE ASSESSEE AUTHORITY ONLY. HE GAVE FEW MORE EXAMPLES. HE CONTENDED THAT IN CASE OF PUDA GROUP OF CASES IT WAS OBSERVED BY THE TRIBUNAL THAT NO SUCH CONTRIBUTION WAS REQUI RED TO BE PAID BY THE PRIVATE BUILDERS BUT STILL THEY WERE BENEFITED IF THE THEORY OF ENHANCED PRICES OF LAND WAS TO BE APPLIED. BUT THI S OBSERVATION IS 22 NOT CORRECT BECAUSE EVEN IF THE THIRD PARTY BENEFIT S FOR SOME EXPENDITURE THAT WILL NOT DETERMINE THE ALLOWABILIT Y OF EXPENSES AND IN THIS REGARD HE STRONGLY RELIED ON THE DECISION O F HON'BLE SUPREME COURT IN CASE OF SASSOON J. DAVID AND CO. P. LTD VS . CIT, 118 ITR 261. 35 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE TRIBUNAL IN CASE OF PUDA CASE FOR AY 2008-09 IN ITA NO. 390/CHD/2012. HE FURTHER SUBMIT TED THAT CONTENTION GIVEN BY THE LD. COUNSEL FOR THE ASSESSE E NOW, HAVE ALREADY BEEN CONSIDERED BY THE TRIBUNAL. AT THIS S TAGE THE LD. COUNSEL FOR THE ASSESSEE WAS ASKED TO GIVE ANY EVID ENCE TO SHOW THAT ANY DELIBERATIONS WERE DONE BY THE ASSESSEE-AU THORITY BEFORE INCURRING THE EXPENDITURE. HE ADMITTED THAT NO SUC H EVIDENCE IS AVAILABLE. 36 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREF ULLY. WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION IN ITA NO. 390/CHD/2012 WHICH HAS BEEN ADJUDICATED IN PUDA GRO UP OF CASES VIDE CONSOLIDATED ORDER DATED 6.12.2013. THIS ISSU E HAS BEEN ADJUDICATED BY THE TRIBUNAL VIDE PARA 188 TO 217 W HICH ARE AS UNDER: 188 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. WE HAVE ALSO PERUSED THE RECORD AND JUDGMENTS CITED BY THE PART IES. ADMITTEDLY THE ASSESSEE HAS CONTRIBUTED A SUM OF RS. 225 CORES TOW ARDS THE DEVELOPMENT OF AIRPORT AT MOHALI. THE MAIN CONTENTION OF THE ASSE SSEE IS THAT THE AMOUNT WAS SPENT FOR THE PURPOSE OF BUSINESS AND THIS WAS ALL OWABLE EXPENDITURE U/S 37. THE RELEVANT PROVISION OF SEC 37(1) READS AS UNDER: 37. (1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHO LLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALL OWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION. EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANC E SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE.] ABOVE PROVISION SHOWS THAT FOLLOWING CONDITIONS H AD TO BE COMPLIED FOR ALLOWABILITY OF EXPENDITURE UNDER THIS SECTION: 23 I THE EXPENDITURE SHOULD NOT BE IN THE NATURE PRESC RIBED IN SECTION 30 TO 36 II IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXPEND ITURE III IT SHOULD NOT BE IN THE NATURE OF PERSONAL EXPE NDITURE AND IV THE EXPENDITURE HAS BEEN MADE OUT OR EXPANDED WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 189 CLEARLY THE EXPENDITURE IS NOT COVERED BY SECTI ON 30 TO 36 AND IT IS NOT ALSO IN NATURE OF PERSONAL EXPENDITURE AND THEREFOR E, CONDITION NO. 1 AND 3 ARE COMPLIED. NOW WE HAVE TO TEST WHETHER THE EXPENDITU RE INCURRED BY THE ASSESSEE ALSO MEETS OTHER TWO REQUIREMENTS I.E. IT IS NOT CAPITAL EXPENDITURE AND IT HAS BEEN EXPENDED WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF BUSINESS. FIRSTLY WE SHALL EXAMINE WHETHER THE EXPENDITURE WA S INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. MAIN CONT ENTION OF THE ASSESSEE WAS THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF AC QUISITION OF LAND, DEVELOPMENT OF THE SAME AND SALE OF SUCH DEVELOPED LANDS TO THE GENERAL PUBLIC. BY INCURRING THIS EXPENDITURE THERE WOULD HAVE BEEN GENERAL DEVELOPMENT OF THE AREA OF GREATER MOHALI LEADING T O GENERAL APPRECIATION OF THE LAND PRICES WHICH WOULD RESULT IN THE BENEFITS TO THE ASSESSEE IN TERMS OF VALUE OF LAND. WE DO NOT FIND ANY MERIT IN THIS CO NTENTION. FIRSTLY IF THE ASSESSEE THOUGHT THAT THIS CONTRIBUTION WOULD LEAD TO GENERAL APPRECIATION OF LAND AND IT WOULD BE BENEFICIAL TO THE ASSESSEE THE N THERE WOULD HAVE BEEN SOME DELIBERATION ON THE PART OF THE ASSESSEE BEFOR E INCURRING THIS EXPENDITURE. DURING THE COURSE OF HEARING WE HAVE SPECIFICALLY ASKED HOW THE AUTHORITY WAS BEING MANAGED AND IT WAS POINTED OUT THAT MAJOR DECISIONS WERE BEING TAKEN BY THE COMMITTEE OF SECRETARIES AND DAY TO DAY BUSINESS WAS BEING LOOKED AFTER BY THE CHIEF ADMINISTRATOR OF PU DA. IF THE ASSESSEE THOUGHT THAT BY INCURRING HUGE EXPENDITURE OF RS. 2 25 CRORES, THE SAME WOULD BE BENEFICIAL TO THE ASSESSEE THERE WOULD HAVE BEEN SOME DELIBERATIONS ON THE PART OF THE COMMITTEE OF SECRETARIES WHICH CAN BE E QUATED WITH BOARD OF DIRECTORS IN CASE OF CORPORATE ASSESSEES BUT NO SU CH DELIBERATIONS HAVE BEEN MADE AND IT WAS NOT SHOWN TO US BY WAY OF RESOLUTIO NS OR MINUTES OF THE COMMITTEE THAT THIS ISSUE WAS EVEN DELIBERATED/DISC USSED BY SUCH COMMITTEE OR HOW SUCH DECISION WAS ARRIVED AT BEFORE INCURRING T HE EXPENDITURE. RATHER THE EXPENDITURE HAS CLEARLY BEEN INCURRED ON DIRECTIONS OF THE STATE GOVERNMENT AND THIS FACT HAS BEEN BROUGHT OUT BY THE LD. CIT(A ) VERY CLEARLY IN PARAGRAPH 11 OF HIS ORDER. IN PARA 11.4 THE LD. CIT(A) HAS E XTRACTED THE MINUTES OF THE MEETING OF THE COUNCIL OF MINISTERS OF STATE GOVERN MENT WHICH IS AS UNDER: AFTER CONSIDERING THE PROPOSAL CONTAINED IN PARA-2 OF THE MEMORANDUM DATED 1.1.2008 OF THE TRANSPORT / CIVIL AVIATION DEPARTME NT AND HEARING THE CONCERNED ADMINISTRATIVE SECRETARIES, THE APPROVAL WAS ACCORD ED. IT HAS ALSO BEEN DECIDED BY THE COUNSEL OF MINISTER S THAT FOR THIS PURPOSE PUNJAB HOUSING AND URBAN DEVELOPMENT DEPARTMENT SHALL ARRA NGE FUNDS FOR ACQUISITION OF 300 ACRE LAND INCLUDING INCIDENTAL CHARGES. FOR THIS PU RPOSE, PUDA, GMADA AND GLADA WILL BEAR EXPENDITURE IN THE RATIO .75%, 12.5% AND 12.5% RESPECTIVELY UNDER SECTION 49(2)(D) OF THE PUNJAB REGIONAL AND TOWN PLANNING A ND DEVELOPMENT ACT 1995.(SIC) IN ANOTHER MEETING HELD UNDER THE CHAIRMANSHIP OF C HIEF SECRETARY, GOVERNMENT OF PUNJAB ON 5.3.2008, THE DECISION TAKE N WAS AS UNDER: THE ISSUE OF IMPLEMENTATION OF DECISION OF COUNCIL OF MINISTERS, DATED 2.1.2008, REGARDING PROVISIONING OF FUNDS WAS DISCUSSED. CHIEF SECRETA RY, PUNJAB IMPRESSED UPON THE URGENCY TO MAKE AVAILABLE THE APPROPRIATE FUNDS AT THE DISPOSA L OF DEPARTMENT OF CIVIL AVIATION, AS ALREADY DIRECTED BY CMM, U/S 49(2) OF THE PUNJAB RE GIONAL & TOWN PLANNING AND DEVELOPMENT ACT, 1995. AS PER THIS DECISION, PUDA, GMADA, AND GLADA ARE TO PROVIDE FUNDS IN THE RATION OF 75%, 12.5% AND 12.5% RESPECT IVELY. CHIEF SECRETARY ASKED CA/PUDA ON TELEPHONE TO COMPLY WITH THESE ORDERS IMMEDIATEL Y. SINCE CMM HAS ALREADY ISSUED DIRECTIVES U/S 49(2) O F THE PUNJAB REGIONAL & TOWN PLANNING AND DEVELOPMENT ACT, 1955, THE CAS ARE FULLY COMPET ENT AND WERE DIRECTED TO COMPLY WITH THESE ORDERS WITHOUT ANY FURTHER UNNECESSARY PAPER WORK. THE THREE CAS MAY INFORM THEIR RESPECTIVE AUTHORITIES IN THEIR NEXT MEETINGS. IN THE LIGHT OF ABOVE THE PROPOSAL WAS PUT UP TO TH E CHIEF ADMINISTRATOR, PUDA ON 7.3.2008 FOR APPROVAL BY THE FOLLOWING NOTE: THUS PUDA SHOULD ALSO FINANCE THE PROJECT AS ABOVE AND DECISION IN THIS REGARD HAS BEEN TAKEN BY CHIEF SECRETARY, PUNJAB IN THE MEETIN G REFERRED ABOVE. FOLLOWING POINTS NEED CLARIFICATION:- 24 AMOUNT HAS NOT BEEN MENTIONED ANYWHERE IN THE DECIS ION IN ORDER TO WORKOUT THE SHARE OF THE PUDA. NO FORMAL DIRECTION FROM GOVERNMENT HAS BEEN RECEIV ED EXCEPT THE DRAFT PROCEEDINGS MENTIONED ABOVE. NOTHING IS CLEAR REGARDING THE FORM OF PARTICIPATIO N OF PUDA. IT HAS TO BE CLARIFIED WHETHER PUDAS CONTRIBUTION SHALL BE IN THE FORM OF LOAN TO GOVERNMENT OF GMADA; OR IT WILL BE THE CONTRIBUTION UNDER THE OUVGL SCHEME ; OR IT WILL BE PUDAS OWN SHARE TOWARDS THE PROJECT. 1. ANY DECISION TAKEN ABOVE NEEDS APPROVAL OF PUDA AUTHORITY IT IS ALSO MENTIONED HERE THAT AN AMOUNT OF RS. 105 CRORES RELATING TO RECEIPT OF CHOTI BARADARI SCHEME AT JALANDHAR (PIMS) IS LYING WITH P UDA. IT MAY BE DECIDED WHETHER THE SAME BE UTILIZED FOR FUNDING THE ABOVE PROJECT. SINCE THE PAYMENT IS OT BE MADE BY 10 TH MARCH, 2008 WE MAY SEEK APPROVAL OF HON'BLE CHAIRMAN ON FILE AND THEREAFTER THE EX-POST FACTS APPROVAL FORM THE PUDA AUTHORITY WILL BE OBTAINED. (SIC) THE CHIEF ADMINISTRATOR ON THE ABOVE PROPOSAL MADE FOLLOWING COMMENTS: OFFICE NOTE FORM PAGE 1-3 ANTE MAY KINDLY BE PERU SED. IT IS MENTIONED IN THE DECISION OF THE COUNCIL OF M INISTERS THAT PUDA, GMADA AND GLADA WILL CONTRIBUTE 75%, 12.5% AND 12.5% RESPECTI VELY UNDER SECTION 49(2) (D) OF THE PUNJAB REGIONAL & TOWN PLANNING AND DEVELOPMENT ACT, 1995. IT WILL BE BETTER IF FORMAL DIRECTION IS ISSUED BY A GOVERNMENT LETTER. CONTRIBUTION PAYABLE BY PUDA HAS NOT BEEN QUANTIFIE D. IT WILL BE BETTER IF TOTAL SHARE OF THE PUNJAB GOVERNMENT AND RESULTANT SHARE OF RES PECTIVE AUTHORITIES IS PROPERLY WORKED OUT. A CONSCIOUS AND CLEAR DECISION IS ALSO REQUIRED ON A AT PAGE 2 AND B AT PAGE 3(SIC) THEREAFTER THE CHIEF SECRETARY, GOVERNMENT OF PUNJA B MENTIONED IN HIS NOTING THAT CABINET WAS TO DECIDE ON THE AMOUNT OF COMPENS ATION AND SO THE QUANTUM OF CONTRIBUTION WAS NOT KNOWN. HOWEVER, SUBSEQUENT LY THE COUNCIL OF MINISTERS HAS DECIDED IN THE MEETING HELD ON 20.3.2 008 AS UNDER: COUNCIL OF MINISTERS NOTED THAT AS PER THE EARLIER APPROVAL GIVEN BY COUNCIL OF MINISTERS, THE EXPENDITURE FOR MAKING PAYMENT OF CO MPENSATION FOR ACQUISITION OF LAND BY THE SETTING UP INTERNATIONAL AIRPORT AT MOHALI W ILL BE INCURRED BY PUNJAB URBAN DEVELOPMENT AUTHORITY (PUDA) AND GREATER MOHALI ARE A DEVELOPMENT AUTHORITY (GMADA) AND GREATER LUDHIANA AREA DEVELOPMENT AUTHO RITY (GLADA). AS ONLY RS. 300.00 CRORES ARE AVAILABLE WITH THESE AUTHORITIES, THEREFORE THE COUNCIL OF MINISTERS DECIDED THAT PUNJAB INFRASTRUCTURE DEVELOPMENT BOAR D (PIDB) WILL MAKE AVAILABLE RS. 160.00 CRORES TO THESE AUTHORITIES SO THAT THE EXPE NDITURE AT THE RATES APPROVED BY THE COUNCIL OF MINISTERS COULD BE INCURRED ON THE A CQUISITION OF LAND. (SIC) IN VIEW OF ABOVE DECISION FOLLOWING PROPOSAL WAS AG AIN PUT UP BEFORE THE CHIEF ADMINISTRATOR, PUDA: SINCE THE FUNDS OF PUDA ARE LYING IN FIXED DEPOSITS WITH DIFFERENT BANKS, PREMATURE ENCASHMENT OF THE SAME MAY RESULT IN LOSS OF INTERE ST. IT IS THEREFORE, PROPOSED THAT RS. 225.00 CRORES BE ING PUDAS 75% SHARE OF RS. 300.00 CRORE FOR ACQUISITION OF LAND FOR MOHALI INT ERNATIONAL AIRPORT MAY BE PAID TO THE GOVERNMENT BY RAISING SHORT TERM LOAN FROM BANKS A GAINST THE FDRS WHICH SHALL BE REPAID ON MATURITY OF FDRS OF OTHERWISE AND SENIOR ACCOUNTS OFFICER, PUDA MAY BE AUTHORIZED TO SIGN THE LOAN DOCUMENTS WITH BANKS.EX -POST FACTO APPROVAL OF THE AUTHORITY WILL BE TAKEN I THE NEXT MEETING.(SIC) THE CHIEF ADMINISTRATOR HAD PUT UP FOLLOWING NOTE T O THE SECRETARY HOUSING AND URBAN DEVELOPMENT FOR APPROVAL: THIS CASE RELATES TO RELEASE OF SHARE OF PUDA FOR SETTING UP OF INTERNATIONAL AIRPORT AT MOHALI. THIS FILE WAS LAST SEEN BY VC AT PAGE 1-5 ANTE. 25 NOW GOVERNMENT HAS CONVEYED THE DECISION TAKEN BY C OUNCIL OF MINISTERS IN ITS MEETING HELD ON 20.3.2008. THE SHARE OF PUDA TO BE DEPOSITED HAS BEEN WORKED O UT TO RS. 225 CORES. THIS OFFICE HAD SUBMITTED A DETAILED NOTE REGARDING SHARE OF PUDA AT PAGES 1-5 BUT PUDA HAS BEEN ASKED TO CONTRIBUTE 7%% SHARE. IT IS AGAIN RESPECTFULLY SUBMITTED THAT GMADA HAS PROPERTY WORTH THOUSANDS CORES IN MOHALI AND LOGICALLY, THE SHARE OF GMADA SHOULD BE MUCH MORE ON THE ENTIRE FUNDS COULD HAVE BEEN PROVIDED BY GMADA. THE DIRECTION OF THE GOVERNMENT TO UPDA TO C ONTRIBUTE 75% OF THE SHARE NEEDS RE-CONSIDERATION. IF GOVERNMENT DEEMS IT PROP ER, THE FILE CAN BE RE-SUBMITTED AFTER MAKING THE PAYMENT. HOWEVER, AS DESIRED BY THE GOVERNMENT, FILE IS SUBM ITTED FOR APPROVAL TO DEPOSIT FUNDS AMOUNTING TO RS. 225.00 CRORES IN GOVERNMENT TREASURY. THE PROPOSAL OF THE OFFICE FOR RAISING LOAN AGAINST FDR AND AUTHORIZING SR. ACCOUNTS OFFICER ) POST OF ACA (F&A) IS VACANT) TO SIGN THE LOAN DOCUMENTS IS ALSO SUBMITTED FOR APPROVAL PL(SIC). 190 COMBINED READING OF ABOVE MINUTES OF THE COUNCI L OF MINISTER AND VARIOUS NOTES AND NOTINGS PREPARED AND DELIBERATED BY CHIEF SECRETARY, GOVERNMENT OF PUNJAB AND CHIEF ADMINISTRATOR, PUDA CLEARLY SHOW THAT INITIALLY ON 2.1.2008, PUNJAB GOVERNMENT TOOK THE DECISION F OR MAKING OF CONTRIBUTION FOR THE PURPOSE OF ACQUISITION OF 300 ACRES OF LAN D AS CONTRIBUTION FOR MOHALI AIRPORT. THEREAFTER CHIEF SECRETARY IN A MEETING T OOK THE DECISION THAT THIS CONTRIBUTION WAS REQUIRED TO BE MADE U/S 49(2) OF P UNJAB REGIONAL & TOWN PLANNING & DEVELOPMENT ACT, 1995 AND AS PER THIS DE CISION PUDA, GMADA AND GLADA WERE TO PROVIDE FUNDS IN THE RATIO OF 75%, 12 .5% AND 12.5% RESPECTIVELY. AFTER THE ABOVE DECISION WHEN THE PR OPOSAL WAS PUT UP BEFORE THE CHIEF ADMINISTRATOR, PUDA HE RAISED MANY DOUBTS ON THE PROPOSAL. FIRST DOUBT IS CLEAR REGARDING THE QUANTUM OF AMOUNT. SEC OND DOUBT IS THAT NO FORMAL DIRECTION HAS BEEN GIVEN BY THE GOVERNMENT O F PUNJAB EXCEPT FOR DRAFT PROCEEDINGS ABOVE. DOUBT WAS FURTHER EXPRESSED VID E ITEM NO. 3 OF THE PROPOSAL REGARDING PARTICIPATION OF THE PUDA. QUES TION WAS RAISED WHETHER IT WILL BE IN THE FORM OF GOVERNMENT TO GMADA OR IT WI LL BE A CONTRIBUTION UNDER OUVGL SCHEME OR IT WILL BE PUDAS OWN SHARE TO THE PROJECT. THUS IT IS CLEAR THAT NOWHERE IT IS BEING PROPOSED OR DISCUSSED THAT THE CONTRIBUTION WILL BE BENEFICIAL TO THE PUDA RATHER THE PROPOSAL WAS THAT IT MAY BE TREATED AS LOAN BY PUDA TO THE GOVERNMENT OF PUNJAB OR IT WILL BE U TILIZATION OF FUNDS UNDER OUVGL. THUS IT IS VERY CLEAR THAT THE THEORY OF BE NEFIT TO THE ASSESSEE IN THE FORM OF APPRECIATION IN THE VALUE OF LAND HAS BEEN TAKEN ONLY DURING THE ASSESSMENT PROCEEDINGS WHEREAS AT THE TIME OF DECIS ION MAKING NO SUCH DISCUSSION OR DELIBERATIONS WERE MADE. WHEN ALL TH E DOUBTS WERE PUT UP BEFORE THE CHIEF SECRETARY WHEREIN IT WAS REITERATE D THAT THE PAYMENT WAS BEING MADE FOR COMPENSATION OF ACQUISITION OF LAND FOR SETTING UP OF THE INTERNATIONALS AIRPORT AT MOHALI AND THE DECISION H AS BEEN TAKEN THAT SUCH EXPENDITURE SHOULD BE INCURRED BY PUDA, GMADA AND G LADA. IT SEEMS THAT TOTAL EXPENDITURE WAS MORE THAN 300 CRORES WHICH WA S NOT AVAILABLE WITH PUDA, GMADA AND GLADA, THEREFORE, FURTHER INSTRUCTI ONS WERE GIVEN THAT PUNJAB INFRASTRUCTURE DEVELOPMENT BOARD WILL MAKE A CONTRIBUTION OF RS. 160 CRORES BECAUSE THE FUNDS WERE AVAILABLE WITH THAT B OARD. THIS CLEARLY SHOWS THAT NO ANALYSIS HAVE BEEN MADE ON THE BASIS OF THE BENEFITS WHICH WOULD HAVE ACCRURED TO VARIOUS AUTHORITIES I.E. THE ASSES SEE (PUDA), GMADA AND GLADA. IT IS NOT CLEAR HOW PUNJAB INFRASTRUCTURE DE VELOPMENT BOARD WOULD DERIVE ANY BENEFIT. RATHER THE CONTRIBUTION WAS DE CIDED BY THE GOVERNMENT ON THE BASIS OF AVAILABILITY OF FUNDS. THIS FACT CLE ARLY SHOW THAT AT NO POINT OF TIME THE CONTRIBUTION WAS CONSIDERED AS A BENEFICIA L TO THE ASSESSEE. IN FACT THE CHIEF ADMINISTRATOR IN HIS FINAL NOTE HAS AGAIN CATEGORICALLY OBSERVED AS UNDER: THIS OFFICE HAD SUBMITTED A DETAILED NOTE REGARDIN G SHARE OF PUDA AT PAGES 1-5 BUT PUDA HAS BEEN ASKED TO CONTRIBUTE 75% SHARE. IT IS AGAIN RESPECTFULLY SUBMITTED THAT GMADA HAS PROPERTY WORTH THOUSANDS CORES IN MOHALI AND LOGICALLY, THE SHARE OF GMADA SHOULD BE MUCH MORE ON THE ENTIRE FUNDS COULD HAVE BEEN PROVIDED BY GMADA. THE DIRECTION OF THE GOVERNMENT TO PUDA TO C ONTRIBUTE 75% OF THE SHARE NEEDS RE-CONSIDERATION. IF GOVERNMENT DEEMS IT PROP ER, THE FILE CAN BE RE-SUBMITTED AFTER MAKING THE PAYMENT. 26 THE ABOVE CLEARLY SHOW THAT THE CHIEF ADMINISTRATOR OF PUDA WAS RELUCTANT TO MAKE THESE PAYMENTS AND ACCORDING TO HIM GMADA WAS HAVING HUGE PROFITS IN MOHALI WHERE THIS AIRPORT WAS COMING UP AND THEREFO RE, CONTRIBUTION SHOULD BE MADE BY GMADA. WHEN THESE OBSERVATIONS WERE MADE IN THE NOTE PUT UP BY THE CHIEF ADMINISTRATION THEN HOW IT CAN BE SAID TH AT THE CONTRIBUTION MADE WAS FOR THE PURPOSE OF BUSINESS BECAUSE THIS WOULD HAVE LED TO GENERAL APPRECIATION IN THE VALUE OF THE LANDS. IN THIS RE GARD THE LD. CIT(A) HAS MADE FOLLOWING OBSERVATIONS VIDE PARA 11.12 TO 11.14 WHI CH ARE AS UNDER: IN VIEW OF THE ABOVE, IT IS EVIDENT THAT A DECISION WAS TAKEN BY PUNJAB GOVERNMENT THAT AN INTERNATIONAL AIRPORT SHOULD BE CONSTRUCTED AT MOHA LI. IT APPEARS THAT NO PROVISION OF FUNDS WAS AVAILABLE IN THE BUDGET OF THE PUNJAB GOVERNMEN T. IN ORDER TO GIVE IMMEDIATE EFFECT TO THE DECISION FOR ESTABLISHMENT OF INTERNATIONAL AIR PORT, A SUITABLE PIECE OF LAND HAD TO BE ACQUIRED. THE GOVERNMENT HAD THE NECESSARY POWER T O ACQUIRE THE LAND, BUT IT REQUIRED FUNDS FOR PAYMENT TO THE PERSONS WHOSE LAND WAS TO BE ACQ UIRED. UNDER THE PROVISIONS OF LAND ACQUISITION ACT, THE PAYMENT TO THE PERSONS, WHOSE LAND IS ACQUIRED, HAS TO BE MADE WITHIN THE STIPULATED PERIOD. NOW THE POSITION WAS THAT GOVERNMENT WANTED TO ESTABLISH INTERNATIONAL AIRPORT AND IT HAD ENTERED INTO AN AG REEMENT WITH THE AIRPORT AUTHORITY OF INDIA, BUT IT HAD NO FUNDS TO PAY THE FOR ACQUISITI ON OF LAND. THEREFORE, THE GOVERNMENT HAD TO FIND SOME SOURCE FROM WHERE THE ACQUISITION COUL D BE FUNDED. THE GOVERNMENT REALIZED THAT SOME ORGANIZATIONS UNDER ITS CONTROL HAD SURPL US FUNDS AVAILABLE AND THESE ORGANIZATIONS COULD BE ASKED TO PROVIDE THE NECESSA RY FUNDS FOR ACQUISITION OF LAND. IN FACT, AS IS CLEAR FROM THE NOTING OF THE FILES O F PUDA, THE OFFICERS OF PUDA WERE AGAINST BEARING THE FINANCIAL BURDEN, WHICH THE GOVERNMENT HAD IMPOSED ON IT. THE SELECTION OF THE ORGANIZATIONS WAS PURELY ON THE BASIS OF THE AVAILA BILITY OF SURPLUS FUNDS, WHICH IS CLEAR FROM THE FACT THAT ONE OF THE ORGANIZATIONS REQUIRE D TO CONTRIBUTE WAS GREATER LUDHIANA AREA DEVELOPMENT AUTHORITY (GLADA), WHICH BY NO STRETCH OF THE IMAGINATION COULD BE CONSIDERED AS HAVING ANYTHING TO DO WITH THE AIRPORT AT MOHALI . IT CAN CLEARLY INFERRED THAT THE CONTRIBUTION WAS NOT EVEN VOLUNTARY. HENCE, THE CO NTENTION OF THE LD. COUNSELS THAT THE EXPENDITURE IN THE FORM OF CONTRIBUTION WAS FOR BUS INESS PURPOSES TOTALLY LACKS CONVICTION. 191 WE FURTHER FIND THAT BEFORE THE LD. CIT(A) WHEN THIS CONTENTION OF THE APPRECIATION OF LAND WAS MADE FOLLOWING EXAMPLES WE RE GIVEN WHICH HAVE BEEN REPRODUCED AT PAGE 11 OF HIS ORDER: (I) THE LAND FOR THE AEROCITY PROJECT WAS ACQUIRED @RS. 1.50 CRORE PER ACRE I.E. RS. 3100 PER SQ. YARD AND AFTER THE LAUNCH OF THIS PROP OSED INTERNATIONAL AIRPORT. FOR THE PROSPECTIVE BUYERS WHO ENTHUSIASTICALLY APPLIED, TH E RATE OF ALLOTMENT PER SQ. YARD WAS FIXED @ RS. 12000 PER SQ. YARD. EVEN AFTER TAKING I NTO CONSIDERATION THE DEVELOPMENT COST OF THESE PLOTS, THE IMMEDIATE ONE TIME GAIN, I N TERMS OF SALE OF ONLY 4000 PLOTS WAS MORE THAN 2 TIMES. (II) BEFORE THE LAUNCH OF THIS PROPOSED AIRPORT FOR WHICH THE ASSESSEE AUTHORITY HAS CONTRIBUTED, THE RESERVE PRICE PER SQ. YARD FOR AUC TION OF THE COMMERCIAL SITE WAS @RS. 300000 PER SQ. YARD. HOWEVER THE AFTER EFFECT WAS THAT FOR AUCTIONS CONDUCTED IN SECTOR 69 AND SECTOR 70 THE PER SQ. YARD RESERVE PR ICE OF COMMERCIAL PLOTS WAS FIXED AT @ RS. 400000 AND EVEN THE ACTUAL SELLING WENT MU CH ABOVE THIS. THUS THERE WAS A STRAIGHTWAY ONE TIME GAIN OF MORE THAN 25%-30% OF T HE STOCKS HELD BY THE AUTHORITY. (III) ANOTHER ONE TIME GAIN LIKELY TO BE EARNED IS FRO BALANCE OF 50 ACRES OF COMMERCIAL LAND IN SECTOR 76 TO SECTOR 80 FROM WHERE THE ONE T IME GAIN IS LIKELY TO BE MORE THAN 25% TO 30% IN TERMS OF SALE OF COMMERCIAL PROPERTI ES. (IV) BESIDES ABOVE THE AUTHORITY HAS ALSO PROPOSED TO SET UP AN I.T. PARK IN 1500 ACRE NEAR THE AIRPORT, AGAIN FOR WHICH THE ONE TIME GAIN IN TERMS OF SALE SHALL BE HUGE. (IN HUNDREDS OF CRORES) (V) ANOTHER INSTANCE OF COMMERCIAL EXPEDIENCY AND T HE THOUGH OF A WISE AND PRUDENT BUSINESSPERSON IS IN TERMS OF HUGE GAINS FROM SALE OF MORE THAN 150 ACRES OF COMMERCIAL LAND IN HAND IN SECTOR 62 WHERE A CITY C ENTRE HAS BEEN PROPOSED AND THE SALE OF MORE THAN 150 ACRES OF COMMERCIAL LAND IN H AND IN SECTOR 62 WHERE A CITY CENTRE HAS BEEN PROPOSED AND THE SALE OF MORE THAN 600 ACRES OF LAND IN SECTOR 88- 89 WILL BRING IN ENORMOUS PROFITS TO THE AUTHORITY. THE ABOVE CLEARLY SHOWS THAT NO SPECIFIC INSTANCES HAVE BEEN GIVEN REGARDING VALUE OF LAND BEFORE MAKING THIS CONTRIBUTION AND A FTER THIS CONTRIBUTION. THEREFORE, THE LD. CIT(A) HAS CORRECTLY HELD THAT T HESE ARE GENERAL STATEMENTS 27 AND CANNOT LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS DERIVED ANY BENEFIT FROM THE SAID CONTRIBUTION TO THE AIRPORT. 192 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE HAS FILED CERTAIN EVIDENCES BY WAY OF EXAMPLES TO SHOW THAT THE PROPERTIES IN AND AROUND MOHALI HAD APPRECIATED AFTER THIS CONTRIBUTION. STRICTLY SPEA KING THIS EVIDENCE CANNOT BE ADMITTED AT THIS STAGE BECAUSE NO REASON HAVE BEEN GIVEN FOR NOT FILING THESE DOCUMENTS BEFORE THE LOWER AUTHORITIES. HOWEVER, W E HAVE STILL PERUSED THE SAME AND FIND THAT THESE DOCUMENTS DO NOT PROVE THA T THE RATES HAVE REALLY INCREASED IN THE ABSENCE OF DETAILS. FOR EXAMPLE A UCTION RATES OF VARIOUS PROPERTIES GIVEN AT PARA 1 OF THE ADDITIONAL PAPER BOOK READS AS UNDER: AUCTION RATES OF VARIOUS PROPERTIES IN PUNJAB RATES PER SQ YDS PRIOR TO MARCH 2008(I.E BEFORE MAKING PAYMENT OF 225.00 CRORE AREA 2008 2009 2010 2011 RESIDENTIAL PLOT IN SECTOR 68/69 MOHALI 34722 51429 83636 COMMERCIAL BOOTHS IN SECTOR 65 BULK MATERIAL MARKET AT MOHALI 67657 105161 SHOPS AT BANASAR ENCLAVE SANGRUR (29.08.06) 49600/- TO 50300 54000/- TO 82300 119000/- TO 166500 RESIDENTIAL PLOTS AT PHULKIAN ENCLAVE , PATIALA 10800 TO 18750 18465/- TO 21600 193 ABOVE CLEARLY SHOW THAT NO PLOT NUMBERS HAVE BE EN GIVEN. FURTHER THERE IS NO APPRECIATION IN CASE OF PLOTS AT PHULKIAN ENC LAVE, PATIALA. EVEN IF ASSUMING FOR THE SAKE OF ARGUMENT THAT IN SOME POCK ETS THE RATES HAVE INCREASED THE SAME MAY BE BECAUSE OF GENERAL APPREC IATION OF THE PROPERTY VALUES. NO LINK HAS BEEN ESTABLISHED TO SHOW THAT C ONTRIBUTION MADE BY THE ASSESSEE RESULTED DIRECTLY IN INCREASE OF LAND PRIC ES. FURTHER IT IS VERY IMPORTANT TO NOTE AS POINTED OUT BY THE LD. DR FOR THE REVENUE THAT INCREASE, IF ANY, WAS AVAILABLE TO ALL THE BUILDERS AND PROPERTY DEVELOPERS OPERATING IN THE AREA AND WAS NOT RESTRICTED EXCLUSIVELY TO THE ASSE SSEE ONLY. THEREFORE, LOGICALLY ALL SUCH ORGANIZATIONS DEALING IN THE PRO PERTY SHOULD HAVE BEEN ASKED TO CONTRIBUTE TO THE DEVELOPMENT OF AIRPORT. 194 WE FIND FORCE IN THE CONTENTION OF THE REVENUE THAT EVEN THE CONTRIBUTION WAS NOT CONSIDERED AND QUANTIFIED BY THE PUDA AND I T WAS DECIDED BY THE PUNJAB GOVERNMENT AS IT BECOMES CLEAR FROM THE NOTE OF SECRETARY, HOUSING AND URBAN DEVELOPMENT THEN HOW THE ASSESSEE CAN SAY THAT SUCH CONTRIBUTION WOULD HAVE BEEN BENEFICIAL TO THE ASSESSEE WHEN EVE N THE DECISION REGARDING QUANTUM OF CONTRIBUTION WAS TAKEN BY SOMEBODY ELSE. 195 IT WAS ALSO CONTENDED BEFORE US THAT GENERAL DE VELOPMENT OF THE AREA WAS ONE OF THE MAIN OBJECT OF THE AUTHORITY AS PER SEC 28 OF PUNJAB REGIONAL & TOWN PLANNING & DEVELOPMENT ACT, 1995 AND FURTHER U /S 49 THE GOVERNMENT CAN ISSUE DIRECTIONS TO THE AUTHORITY FOR MAKING A NY EXPENSES AND THEREFORE, THE ASSESSEE WAS DUTY BOUND TO INCUR SUCH EXPENSES AS DIRECTED BY THE GOVERNMENT. RELEVANT PORTION OF SECTIONS 28, 29 & 49 OF PUNJAB REGIONAL & TOWN PLANNING & DEVELOPMENT ACT, 1995 ARE REPRODUCE D HEREUNDER: 28(1) THE OBJECT OF THE AUTHORITY SHALL BE TO PROM OTE AND SECURE BETTER PLANNING AND DEVELOPMENT OF ANY AREA OF THE STATE AND FOR THAT P URPOSE THE AUTHORITY SHALL HAVE THE 28 POWERS TO ACQUIRE BY WAY OF PURCHASE, TRANSFER, EXC HANGE OR GIFT OR TO HOLD, MANAGE, PLAN, DEVELOP AND MORTGAGE OF OTHERWISE DISPOSE OF LAND OR OTHER PROPERTY OR TO CARRY OUT ITSELF OR IN COLLABORATION WITH ANY OTHER AGEN CY ON ITS BEHALF, BUILDING, ENGINEERING, MINING AND OTHER OPERATIONS TO EXECUTE WORKS IN CONNECTION WITH SUPPLY OF WATER, DISPOSAL OF SEWERAGE, CONTROL OF POLLUTIO N AND OTHER SERVICES AND AMENITIES AND GENERALLY TO DO ANYTHING WITH THE PRIOR APPROV AL OR ON DIRECTION OF THE STATE GOVERNMENT, FOR CARRYING OUT THE PURPOSES OF THIS A CT. IN PARTICULAR AND WITHOUT PREJUDICE TO THE GENERALI TY OF THE FOREGOING PROVISIONS, THE AUTHORITY ITSELF IN COLLABORATION WITH ANY OTHER AG ENCY OR THROUGH ANY OTHER AGENCY ON ITS BEHALF; I IF SO REQUIRED BY THE STATE GOVERNMENT OF THE BOA RD, TAKE UP THE WORKS IN CONNECTION WITH THE PREPARATION AND IMPLEMENTATION OF REGIONAL PLANS, MASTER PLANS AND NEW TOWNSHIP PLANS AND TOWN IMPROVEMENT SCHEME; II UNDERTAKE THE WORK RELATING TO THE AMENITIES AND SERVICES TO BE PROVIDED IN THE URBAN AREAS, URBAN ESTATES, PROMOTION OF URBAN DEVE LOPMENT AS WELL AS CONSTRUCTION OF HOUSES; III PROMOTE RESEARCH, DEVELOPMENT OF NEW TECHNIQUES OF PLANNING, LAND DEVELOPMENT AND HOUSE CONSTRUCTION AND MANUFACTURE OF BUILDING MATERIAL. IV PROMOTE COMPANIES, ASSOCIATION AND OTHER BODIES FOR CARRYING OUT THE PURPOSE OF THE ACT; AND V PERFORM ANY OTHER FUNCTIONS WHICH ARE SUPPLEMENTA L, INCIDENTAL OR CONSEQUENTIAL TO ANY OF THE FUNCTIONS REFERRED TO I N THIS SUB-SECTION OR WHICH MAY BE PRESCRIBED. 29(1) WHERE THE STATE GOVERNMENT IS OF OPINION THAT THE OBJECT OF PROPER DEVELOPMENT OF ANY AREA OR GROUP OF AREAS TOGETHER WITH SUCH ADJACENT AREAS AS MAY BE CONSIDERED NECESSARY WILL BE BEST SERVED BY ENTR USTING THE WORK OF DEVELOPMENT OR REDEVELOPMENT THEREOF TO A SPECIAL AUTHORITY, INSTE AD TO THE PUNJAB URBAN PLANNING AND DEVELOPMENT AUTHORITY. THE STATE GOVERNMENT MAY, BY NOTIFICATION, CONSTITU TE AN AUTHORITY FOR SUCH AREA TO BE CALLED THE SPECIAL URBAN PLANNING AND DEVELOPMENT A UTHORITY FOR THAT AREA AND THEREUPON, ALL THE POWERS AND FUNCTIONS OF THEN PUN JAB URBAN PLANNING AND DEVELOPMENT AUTHORITY RELATING TO DEVELOPMENT AND R EDEVELOPMENT OF THAT AREA UNDER THIS ACT,, SHALL BE EXERCISED AND PERFORMED BY THE SPECIAL URBAN PLANNING AND DEVELOPMENT AUTHORITY SO CONSTITUTED. EVERY NOTIFICATION ISSUED UNDER SUB-SECTION (1) SHA LL DEFINE THE LIMITS OF THE AREA TO WHICH IT RELATES. 49(2) THE FUNDS OF THE AUTHORITY SHALL BE APPLIED T OWARDS MEETING (A) THE EXPENDITURE INCURRED IN THE ADMINISTRATION , IMPLEMENTATION AND CARRYING OUT THE PROVISIONS OF THIS ACT; (B) THE COST OF ACQUISITION OF LAND FOR THE PURPOS ES OF THIS ACT; (C) THE EXPENDITURE FOR DEVELOPMENT OF LAND AND CON STRUCTION OF HOUSES; AND (D) THE EXPENDITURE FOR SUCH OTHER PURPOSES AS THE STATE GOVERNMENT MAY DIRECT OR PERMIT. 196 PLAIN READING OF ABOVE PROVISIONS CLEARLY SHOW THAT SECTION 28 HAS PROVIDED OBJECTS OF THE AUTHORITY. THE OBJECTS ARE GENERALLY DEVELOPMENT OF LAND AND OTHER SERVICES. SECTION 29 CLEARLY PROVID ES THAT FOR DEVELOPMENT OF SUCH ADJACENT AREA WHERE IT IS CONSIDERED NECESSARY SEPARATE AUTHORITIES MAY BE CONSTITUTED THEREFORE, THERE IS FORCE IN THE CO NTENTION OF THE LD. DR FOR THE REVENUE THAT PUDA HAD NOTHING TO DO WITH THE DEVELO PMENT OF THIS AIRPORT BECAUSE AS PER NOTIFICATION NO. 13/52/2006-07 HG2/7 443 DATED 14.8.2006 GMADA WAS NOTIFIED FOR THE DEVELOPMENT OF GREATER M OHALI AREA. FURTHER READING OF SECTION 49 SHOWS THAT VARIOUS AUTHORITIE S WERE AUTHORIZED TO INCUR EXPENDITURE FOR SUCH OTHER PURPOSES WHICH WERE DIRE CTED OR PERMITTED BY THE STATE GOVERNMENT. IN OUR OPINION, SUCH OTHER PURPO SES, FIRST OF ALL HAVE TO BE RELATED TO GENERAL PURPOSE OF THE AUTHORITY I.E. DE VELOPMENT OF LAND. FOR EXAMPLE STATE GOVERNMENT PERHAPS CANNOT DIRECT THE ASSESSEE AUTHORITY TO 29 START PROVIDING SUBSIDIES IN FOOD ITEMS. SECONDLY EVEN IF SAME EXPENDITURE IS INCURRED BECAUSE OF STATUTORY COMPULSIONS, IT IS NO T NECESSARY THAT SAME WOULD BECOME ALLOWABLE BUSINESS EXPENDITURE FOR THE PURPO SE OF SECTION 37 OF THE ACT BECAUSE FOR ALLOWABILITY THE EXPENDITURE HAS TO BE FURTHER FOR THE PURPOSE OF BUSINESS. THIS BECOMES CLEAR FROM THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT V. MALAYALAM PLANTATIONS LTD. (SUPRA ). IN THAT CASE ASSESSEE COMPANY WAS A RESIDENT COMPANY INCORPORATED OUTSIDE INDIA. MOST OF ITS SHAREHOLDERS WERE IN U.K. ON THE DEATH OF SHAREHOLD ERS NOT DOMICILED IN INDIA DURING THE ACCOUNTING PERIOD ENDING 31.3.1955 IT PA ID POUND 1302-9-4 AND POUND 1303 TOWARDS ESTATE DUTY WHICH WAS PAYABLE ON THE DEATH OF CERTAIN SHARE HOLDERS WHO WERE NOT DOMICILED IN INDIA. THE ASSESSEE DEBITED THE SAID AMOUNT TO ITS PROFIT AND LOSS ACCOUNT AS EXPENSES. IN ACCOUNTING YEAR ENDING 31.3.1956 ALSO AN AMOUNT OF POUND 3809-1-5 TOWARDS ESTATE DUTY PAYABLE ON THE DEATH OF CERTAIN SHAREHOLDERS. ITO DID NOT ALL OW THIS EXPENDITURE. 197 ON APPEAL, THE AAC CONFIRMED THE ACTION OF THE ITO. ON FURTHER APPEAL TO THE TRIBUNAL IT WAS HELD THAT THE ASSESSEE WAS E NTITLED TO DEDUCT THIS AMOUNT IN COMPUTING ITS PROFITS. ON AN APPLICATION MADE BY THE LD. COMMISSIONER, THE TRIBUNAL REFERRED THE CASE U/S 66 (1) OF INCOME TAX ACT, 1922 TO THE HON'BLE KERALA HIGH COURT AND REFERRED THE FOLLOWING QUESTION OF LAW FOR ITS OPINION: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE ESTATE DUTY PAID BY THE COMPANY U/S 84 OF THE ESTATE DUTY ACT, 1953, IS A REVENUE EXPENDITURE DEDUCTIBLE IN COMPUTING THE ASSESSEES BUSINESS INCOME FOR THE ASSESSMENT YEARS IN QUESTION? HON'BLE HIGH COURT AGREED WITH THE VIEW EXPRESSED B Y THE TRIBUNAL AND ANSWERED THE QUESTION REFERRED TO IT IN AFFIRMATIVE . THEREAFTER REVENUE FILED AN APPEAL BEFORE THE HON'BLE APEX COURT. THE HON'BLE APEX COURT AFTER DETAILED DISCUSSION PARTICULARLY U/S 10 WHICH WAS FOR COMPUT ING THE PROFITS AND GAINS UNDER THE OLD ACT, HELD THAT THIS EXPENDITURE WAS N OT ALLOWABLE. THE ANALYSIS HAS BEEN SUMMARIZED IN THE HEAD NOTE WHICH IS AS UN DER: HELD THAT ALTHOUGH THE AMOUNTS PAID WERE 'EXPENDITU RE', THEY WERE NOT ALLOWABLE UNDER SECTION 10(2)(XV) OF THE INDIAN INCOME-TAX AC T, 1922, AS BUSINESS EXPENDITURE BECAUSE THE PAYMENTS WERE NOT 'FOR THE PURPOSE OF T HE BUSINESS'. THE PAYMENTS HAD NOTHING TO DO WITH THE CONDUCT OF ITS BUSINESS. THE FACT THAT ON ITS DEFAULT, IF ANY, IN THE PAYMENT OF THE DUES, THE REVENUE MIGHT REALIZE THE AMOUNTS FROM THE BUSINESS ASSETS WAS A CONSEQUENCE OF THE DEFAULT OF THE COMP ANY IN NOT DISCHARGING ITS STATUTORY OBLIGATION, BUT THAT DID NOT MAKE THE EXP ENDITURE ANY THE MORE EXPENDITURE INCURRED IN THE CONDUCT OF THE BUSINESS. THE OBLIGA TION OF THE COMPANY TO PAY ESTATE DUTY UNDER SECTION 84 OF THE ESTATE DUTY ACT, 1953, WAS A STATUTORY DUTY UNCONNECTED WITH THE BUSINESS, THOUGH THE OCCASION FOR THE IMPO SITION AROSE BECAUSE OF THE TERRITORIAL NEXUS AFFORDED BY THE ACCIDENT OF ITS D OING BUSINESS IN INDIA. THE EXPRESSION 'FOR THE PURPOSE OF THE BUSINESS' IS WIDER IN SCOPE THAN THE EXPRESSION 'FOR THE PURPOSE OF EARNING PROFITS'. IT S RANGE IS WIDE; IT MAY TAKE IN NOT ONLY THE DAY TO DAY RUNNING OF A BUSINESS BUT ALSO THE RATIONALIZATION OF ITS ADMINISTRATION AND MODERNIZATION OF ITS MACHINERY; IT MAY INCLUDE MEASURES FOR THE PRESERVATION OF THE BUSINESS AND FOR THE PROTECTION OF ITS ASSETS AND PROPERTY FROM EXPROPRIATION, COERCIVE PROCESS OR ASSERTION OF HOS TILE TITLE; IT MAY ALSO COMPREHEND PAYMENT OF STATUTORY DUES AND TAXES IMPOSED AS A PR E-CONDITION TO COMMENCE OR FOR THE CARRYING ON OF A BUSINESS; IT MAY COMPREHEND MA NY OTHER ACTS INCIDENTAL TO THE CARRYING ON OF THE BUSINESS. HOWEVER, WIDE THE MEAN ING OF THE EXPRESSION MAY BE, ITS LIMITS ARE IMPLICIT IN IT. THE PURPOSE SHALL BE FOR THE PURPOSE OF THE BUSINESS, THAT IS TO SAY, THE EXPENDITURE INCURRED SHALL BE FOR THE CARR YING ON OF THE BUSINESS AND THE ASSESSEE SHALL INCUR IT IN HIS CAPACITY AS A PERSON CARRYING ON THE BUSINESS. IT CANNOT INCLUDE SUMS SPENT BY THE ASSESSEE AS AGENT OF A TH IRD PARTY, WHETHER THE ORIGIN OF THE AGENCY IS VOLUNTARY OR STATUTORY. THUS IT IS CLEAR THAT UNLESS AND UNTIL THE EXPENDIT URE IS INCURRED FOR THE PURPOSE OF BUSINESS EVEN IF THERE IS SOME STATUTORY COMPULSIONS, SAME CANNOT BE ALLOWED AS BUSINESS EXPENDITURE U/S 37 OF INCOME TAX ACT. 198 THE LAST CONDITION FOR ALLOWABILITY OF EXPENDIT URE U/S 37 WAS THAT IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE. IN THE CASE BEFORE US, IT HAS BEEN HELD THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF ACQUISITION OF LAND AND THEREFORE, BEING IN CAPITAL NATURE IS NOT ALLOWABLE. IN THIS REGARD WE HAVE PERUSED JOINT VENTURE AGREEMENT (IN SHORT J VA) CAREFULLY AND FIND THAT THE SAME WAS ENTERED ON 17 TH DAY OF SEPT, 2009 BETWEEN AIRPORT AUTHORITY OF INDIA (STATUTORY AUTHORITY ESTABLISHED UNDER THE AIRPORT ACT, 1994) AND GOVERNMENT OF PUNJAB THROUGH GMADA (STATUTORY AUTHO RITY CONSTITUTED BY 30 GOVERNMENT OF PUNJAB AND HUDA (STATUTORY AUTHORITY CONSTITUTED BY HARYANA HOUSING DEVELOPMENT AUTHORITY). IN THE RECITATION CLAUSE IT HAS BEEN RECITED THAT MEMORANDUM OF UNDERSTANDING WAS SIGNED AMONG T HOSE PARTIES ON 4.1.2008 WHICH BROADLY PROVIDE FOR THE FOLLOWING TE RMS AND CONDITIONS: A JOINT VENTURE COMPANY (JVC) WOULD BE FORMED WIT H 51% EQUITY STAKE OF AAI AND 24.5% EQUITY STAKE EACH OF GMADA AND HUDA TO OPERAT E AND MAINTAIN THE CHANDIGARH INTERNATIONAL AIRPORT (CIA) AT CHANDIGAR H TO BE BUILT BY AAI; PUNJAB GOVERNMENT WOULD TRANSFER THE REQUIRED LAND LOCATED AT MOHALI, PUNJAB OF 300 ACRES APPROXIMATELY TO BE JV COMPANY INCLUDING LAND FOR CITY SIDE DEVELOPMENT. THE COST OF LAND WOULD BE EQUALLY SHARED BETWEEN THE GO VERNMENTS OF PUNJAB & HARYANA AND WOULD BE CAPITALIZED AND SHALL COUNT TOWARDS TH E EQUITY CONTRIBUTION OF GMADA AND HUDA. AAI WOULD BE RESPONSIBLE FOR CREATING THE TERMINAL BUILDING AND OTHER AIRSIDE FACILITIES FOR THE JVC WITHOUT SEEKING ANY CASH CONSIDERATION FORM OTHER JV PARTNERS WHICH WOULD BE SUBSEQUENTLY CAPITALIZED AT A VALUE TO BE DETERMINED BY AAI AT THE TIME OF TRANSFER AND SHALL COUNT TOWARDS THE EQUITY CONTRIB UTION OF AAI; AND THE COST OF LAND WOULD BE COUNTED TOWARDS THE 49% E QUITY CONTRIBUTION OF GMADA AND HUDA AND THE COST OF INTERNATIONAL CIVIL AIR TERMIN AL & OTHER AERONAUTICAL ASSETS TO BE BUILT BY AAI WILL BE COUNTED TOWARDS THE 51% EQU ITY CONTRIBUTION OF AAI AS PER THE PROVISIONS IN THE SHAREHOLDERS AGREEMENT TO BE EXE CUTED BY THE JV PARTIES AND THE JV COMPANY. AS PER RECITATION CLAUSE IT IS FURTHER AGREED THAT SAME (JVC) IS FOR THE FOLLOWING PURPOSES: TO FORM A JOINT VENTURE COMPANY WHICH WILL UNDERTAK E THE OPERATION AND MAINTENANCE OF CHANDIGARH INTERNATIONAL AIRPORT TO BE BUILT BY AAI AT CHANDIGARH; TO SUBSEQUENTLY TAKE OVER THE EXISTING INFRASTRUCTU RE BELONGING TO AAI AT THE CIVIL ENCLAVE AT CHANDIGARH AT SUCH VALUE AS MAY BE DETER MINED BY AAI AND TO OPERATE AND MAINTAIN THE SAME. TO UNDERTAKE FURTHER DEVELOPMENT OF CIVIL AIR TERMI NAL AT CHANDIGARH, COMMENSURATE WITH THE TRAFFIC POTENTIAL, COMMERCIAL VIABILITY AN D AVAILABILITY OF FINANCIAL RESOURCES; TO RECORD THE TERMS AND CONDITIONS ON WHICH THE PAR TIES TO THIS AGREEMENT WILL SUBSCRIBE TO THE SHARE CAPITAL (AS DEFINED HEREINAF TER) OF THE JOINT VENTURE COMPANY (JKVC) AND TO REGULATE THE RELATIONSHIP AMONGST THE JOINT VENT URE PARTIES AS LONG AS THEY ARE SHAREHOLDERS OF THE JVC. FURTHER WHILE DEFINING THE RESPONSIBILITY OF THE PA RTIES, IT HAS BEEN PROVIDED IN RESPECT OF RESPONSIBILITY OF THE STATE GOVERNMENT/ GMADA AS UNDER: RESPONSIBILITIES OF STATE GOVERNMENT / GMADA: CLEARANCES / PERMISSIONS / NOC TO BE OBTAINED BY GM ADA FROM CONCERNED AUTHORITIES ACTIVITIES / SERVICES FOR RESPONSIBILITIES FOR CLE ARANCE / PERMISSION. TRANSFER OF LAND (200 ACRES) TO GMADA THE JV COMPANY FOR DEVELOPMENT OF PROJECT. THE GMADA SHALL ACQUIRE THE LAND OF AROUND 300 ACRE S AND TRANSFER TO THE JVC FOR THE DEVELOPMENT OF CHANDIGARH INTERNATIONAL AI RPORT. THE GMADA AND HUDA SHALL BEAR ALL THE EXPENDITURE IN EQUAL SHARE IN RESPECT OF CLAIM OR LIABILITIES ARISING OUT THE ANY LITIGATION , PRESENT OR FUTURE IN THE MATTER OF LAND ACQUISITION. THE GMADA SHALL ENSURE THAT INITIAL ESTABLISHMENT O F SUB STATION AND WATERLINE TO BE DONE BY STATE GOVERNMENT FREE OF COST. THE GMADA SHALL EXEMPT THE CIVIL AIR TERMINAL COMPL EX INCLUDING APRON I.E. AREA INCLUDING CITY SIDE DEVELOPMENT STAFF COLONY AND TH E LAND USED FOR THE INSTALLATION OF NAVIGATIONAL AIDS AND OTHER RELATED EQUIPMENT FROM PROPERTY TAX AND OTHER MUNICIPAL TAXES INITIALLY FOR A PERIOD OF TEN YEARS COMMENCIN G FROM THE DATE OF TRANSFER OF LAND TO JVC TO MINIMIZE OPERATIONAL LOOSES. THE NEED FOR F URTHER EXTENSION OF THESE 31 CONCESSION AND EXEMPTIONS WILL BE JOINTLY REVIEWED BY GMADA & AAI AT THE END OF THE TEN YEAR PERIOD. THE GMADA WILL ACQUIRE THE LAND AND DEVELOP FOURLAN D APPROACH ROAD TO CIVIL AIR TERMINAL WITH LIGHTING, HORTICULTURE, SIGNAGES ETC. AND THE COST OF THE SAME SHALL BE EQUALLY SHARED BETWEEN GMADA & HUDA. THE GMADA SHALL REMOVE THE IDENTIFIED OBSTACLES, IF ANY, HAZARD FOR SAFELY OF AIRCRAFT OPERATION FORM THE APPROACH PATH OF EXTENDED RUNWAY AND TRANSITIONAL AREA SUCH AS HIGH TENSION / LOW TENSION POWER LINES, CANAL, GAS PIPELINE, STRUCTURES, BUILDINGS, CHIMNEYS, TREES ETC. AT THEIR COST. IN CLAUSE 3.1 IT HAS BEEN SPECIFICALLY NOTED THAT J VC WILL BE INCORPORATED AS A PRIVATE LTD COMPANY. CLAUSE 3.2 DEALS WITH SHAREHO LDERS AGREEMENT WHICH IS AS UNDER: SHAREHOLDERS AGREEMENT A SHAREHOLDERS AGREEMENT WILL BE EXECUTED BY AND BETWEEN AAI, GMADA, HUDA AND THE JVC, AFTER THE JOINT VENTURE COMPANY IS INCORPO RATED. TILL SUCH TIME THE SHAREHOLDERS AGREEMENT IS EXECU TED AND AOA IS APPROVED BY THE PARTIES, IT IS AGREED BY THE PARTIES THAT THE REGUL ATIONS CONTAINED IN TABLE A IN SCHEDULE I TO THE INDIAN COMPANIES ACT, 1956 MAY BE APPLIED TO THE PROPOSED JVC. IN THE EVENT OF ANY INCONSISTENCY BETWEEN THE PROVI SIONS OF THIS AGREEMENT AND THE MOA OR AOA, THE PARTIES SHALL TAKE ALL STEPS TO ALT ER OR AMEND THE MOA AND AOA TO MAKE IT CONSISTENT WITH THE TERMS OF THIS AGREEMENT . CLAUSE 4.2 AND 4.3 DEALS WITH SHARE CAPITAL WHICH I S AS UNDER: 4.2 INITIAL SUBSCRIBED / PAID UP CAPITAL AT THE TIME OF INCORPORATION, THE ISSUED SHARE CAPI TAL OF THE COMPANY SHALL BE RS. 1000,00,000/- (RS. TEN CRORE) AND THE CONTRIBUTION OF THE PARTIES HALL BE AS FOLLOWS:- AAI SHALL SUBSCRIBE TO 51,00000/- (FIFTY ONE LAC) E QUITY SHARE OF RS. 10/- (RS. TEN ONLY) EACH FOR CASH AGGREGATING TO RS. 5,20,00,000/ - (RS. FIVE CRORE TEN LAC ONLY) GMADA SHALL SUBSCRIBE TO 24,50,000/- (TWENTY FOUR L AC FIFTY THOUSAND) EQUITY SHARES OF RS. 10 (RUPEES TEN ONLY) EACH FOR CASH AG GREGATING TO RS. 2,45,00,000/- (RS. TWO CRORE FORTY FIVE LAC ONLY) HUDA SHALL SUBSCRIBE TO 24,50,000/- (TWENTY FOUR LA C FIFTY THOUSAND) EQUITY SHARES OF RS. 10 (RUPEES TEN ONLY) EACH FOR CASH AGGREGATI NG TO RS. 2,45,00,000/- (RS. TWO CRORE FORTY FIVE LAC ONLY) (A) THE PROPORTION IN WHICH THE PARTIES SHALL SUBS CRIBE TO THE EQUITY SHARE CAPITAL OF THE JVC SHALL BE AS FOLLOWS SUBJECT TO PROVISIONS C ONTAINED IN PARA 5:- AAO = 51% GMADA = 24.5% HUDA = 24.5% (B) THE STATE GOVERNMENT WOULD TRANSFER THE REQUIRE D LAND LOCATED AT MOHALI, PUNJAB TO THE JVC AND AAI WOULD BE RESPONSIBLE FOR CREATIN G THE AIRSIDE FACILITIES AND TERMINAL BUILDING FOR THE JVC, WHICH WILL BE APPROP RIATED TOWARDS SHARE CAPITAL AND SHARE PREMIUM. AT THE TIME OF VOLUNTARY WINDING UP OF THE COMPANY, THE SHARE PREMIUM PAID BY GMADA, HUDA & AAI SHALL BE CONSIDER ED FOR DETERMINING THE VALUE OF ASSETS TO BE BIFURCATED / ALLOCATED TO THESE THR EE PARTIES. 199 REST ALL THE CLAUSES ARE GENERAL CLAUSES AND NO T VERY RELEVANT FOR US AND THEREFORE, SAME ARE NOT BEING REPRODUCED. COMBINE D READING OF ABOVE CLAUSES CLEARLY SHOW THAT BOTH THE STATE GOVERNMENT S HAVE CONTRIBUTED TOWARDS DEVELOPMENT OF THE AIRPORT AT MOHALI IN TER MS OF ACQUISITION OF LAND AND AGAINST SUCH ACQUISITION OF LAND THE GOVERNMEN T OF PUNJAB THROUGH GMADA HAS BEEN ALLOWED 24.5% EQUITY STAKE IN THE AI RPORT WHICH WOULD ULTIMATELY BE RUN AS BUSINESS VENTURE BY FLOATING P RIVATE LTD COMPANY. THEREFORE, IT BECOMES VERY CLEAR THAT WHAT HAS BEE N CONTRIBUTED BY THE ASSESSEE, IS ONLY LAND. IT SEEMS THAT THE LAND HAS BEEN ACQUIRED BY GOVERNMENT OF PUNJAB AND SINCE GOVERNMENT OF PUNJAB DID NOT HAVE MONEY, THEREFORE, THE ASSESSEE AUTHORITY HAS BEEN ROPED I N TO MAKE CONTRIBUTION TO MAKE THE PAYMENT FOR ACQUISITION OF LAND. IT IS N OT CLEAR IN WHOSE NAME THE 32 LAND HAS BEEN REGISTERED FROM THE DOCUMENTS PRODUCE D BEFORE US. HOWEVER, THE FACT REMAINS THAT THE CONTRIBUTION WAS MADE ONL Y IN TERMS OF LAND FOR WHICH THE GOVERNMENT OF PUNJAB THROUGH GMADA WOULD ACQUIR E SHARES TO THE TUNE OF 24.5%. THIS IS CLEAR BECAUSE OF CAPITAL CONTRIBUTI ON FOR STARTING A NEW BUSINESS VENTURE OF RUNNING AIRPORT. IT HAS FURTHE R TO BE NOTED THAT NAME OF PUDA DOES NOT APPEAR IN THE JVA DESPITE PUDA MAKING THE BIGGEST CHUNK OF THE CONTRIBUTION I.E. RS. 225 CRORES OUT OF RS. 300 CORES OF TOTAL CONTRIBUTION. WHEN THE MONEY HAS BEEN SPENT ONLY FOR ACQUISITION OF LAND THAT IS FOR ULTIMATELY PURCHASING OF LAND FOR THE PROPOSED AIRP ORT, THIS CANNOT BE CALLED A REVENUE EXPENDITURE. IT IS CLEARLY A CASE OF CAPI TAL EXPENDITURE WHICH IS NOT ALLOWABLE U/S 37 BECAUSE IT CLEARLY PROVIDES THAT E XPENDITURE IN THE NATURE OF CAPITAL IS NOT ALLOWABLE FOR THE PURPOSE OF COMPUTI NG PROFITS AND GAINS OF BUSINESS AND PROFESSION. IN VIEW OF ABOVE CLAUSES , WE HOLD THAT THIS EXPENDITURE I.E. THE CONTRIBUTION MADE BY PUDA IS N OT FOR THE BUSINESS PURPOSES AND IT IS IN FORM OF CAPITAL CONTRIBUTION AND IN THE NATURE OF CAPITAL EXPENDITURE AND THEREFORE, SAME IS NOT ALLOWABLE U /S 37. WE FAIL TO UNDERSTAND WHY PUDA HAS NOT LOOKED AFTER ITS INTERE ST EITHER BY BECOMING SHAREHOLDER IN THE PROPOSED AIRPORT OR BY RAISING A CLAIM AGAINST THE GOVERNMENT OF PUNJAB FOR TRANSFER OF LAND OR RECOVE RY OF THE CONTRIBUTION IF THE LAND WAS RETAINED BY THE GOVERNMENT OF PUNJAB AGAIN ST WHICH GOVERNMENT OF PUNJAB WAS TO RECEIVE 24.5% OF EQUITY SHARES IN THE JVA. 200 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE HAD RELIED ON MANY JUDGMENTS AND WE HAVE GONE THROUGH THE SAME AND NOW LET US AN ALYZE THESE JUDGMENTS: 201 FIRST CASE RELIED ON IS IN CASE OF CIT V. KARNA TKA FINANCIAL CORPORATION (SUPRA). IN THIS CASE ASSESSEE COMPANY WAS A STATE OWNED CORPORATION AND THE ASSESSEE HAD CLAIMED EXPENDITURE OF RS. 15 LAKH S UNDER THE HEAD MISCELLANEOUS EXPENSES WHICH WAS INCURRED BY THE ASSESSEE AT THE INSTANCE OF STATE TO PROMOTE ITS BUSINESS AT VILLAGE KNOWN A S MODEL VILLAGE. THIS EXPENDITURE WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THE AMOUNT SPENT BY THE ASSESSEE, IS NOT FOR ITS BUSINE SS PURPOSE. THE EXPENDITURE WAS ALLOWED BY THE HON'BLE HIGH COURT B Y GIVING FOLLOWING REASONS IN PARA 7 WHICH IS AS UNDER: WE ARE OF THE OPINION THAT THE AMOUNT OF RS. 15 LA KHS SPENT BY THE ASSESSEE HAS TO BE CONSIDERED TOWARDS ITS BUSINESS PROMOTION. SINCE THE ZILLA PANCHAYATH UNDER A SCHEME KNOWN AS 'SWASTHI GRAMA YOJANA' WAS TRYING TO DEVELOP MODEL VILLAGES BY PROVIDING FACILITIES LIKE DEVELOPING ROADS TO NEW MARKETS, ORGANIZING SELF-HELP GROUPS, COMMUNITY CENTRES AND DEVELOPMENT OF INFRASTRUCTUR AL FACILITIES. ACCORDING TO US, IF THE ASSESSEE HAS SPENT AMOUNT TOWARDS THE DEVELOPM ENT OF INFRASTRUCTURAL FACILITIES OF VILLAGES AND CONSTRUCTION OF A NEW MARKET TO OR GANIZE SELF-HELP GROUPS THAT WOULD CERTAINLY PROMOTE THE BUSINESS OF THE ASSESSEE AS T HE ASSESSEE CAN LEND THE LOAN ONLY IF SUCH ESTABLISHMENTS ARE THERE IN VILLAGES. WE ARE ALSO OF THE OPINION THAT IF THE ASSESSEE CAN SPREAD ITS ACTIVITIES TO RURAL PARTS O F THE STATE, IT WOULD CATER TO THE NEEDS OF THE PEOPLE AND WOULD SATISFY THE PURPOSE FOR WHICH IT IS CREATED BY THE STATE. THEREFORE, WE ARE OF THE OPINION THAT THE Q UESTIONS OF LAW FRAMED IN THIS APPEAL HAVE TO BE ANSWERED AGAINST THE REVENUE. THUS IT IS CLEAR THAT IT WAS HELD THAT THE ASSESSEE HAD INCURRED THE EXPENDITURE TOWARDS DEVELOPMENT OF INFRASTRUCTURAL FACILITIES B Y THE VILLAGE AND CONSTRUCTION OF A NEW MARKET TO ORGANIZE SELF HELP GROUPS WHICH WOULD PROMOTE THE BUSINESS OF THE ASSESSEE. THE ASSESSEE WAS LENDING MONEY TO THE SELF HELP GROUPS AND THEREFORE, THE PURPOSE WAS DIRECTLY RELATED TO THE BUSINESS OF THE ASSESSEE. IN ANY CASE THIS DECISION IS NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE. IN CASE BEFORE US, THE ASSESSEE HAS MADE CONTRIBUTION FOR PROMOTING OF AIRPORT IN WHICH GOVERNMENT OF PUNJAB THROUGH GMADA HAS ACQUIR ED STAKING OF 24.5% WHICH IS CLEARLY IN THE NATURE OF CAPITAL CONTRIBUT ION OF NEW VENTURE. 202 THE NEXT CASE RELIED ON IS IN CASE OF SRI VENKA TA SATYANARAYANA RICE MILL CONTRACTORS CO. VS. CIT, 223 ITR 101 (S.C). I N THAT CASE THE ASSESSEE WAS CARRYING ON THE BUSINESS OF EXPORTING RICE FROM THE STATE OF ANDHRA PRADESH. THE RICE COULD NOT BE EXPORTED WITHOUT AS SESSEES OBTAINING A PERMIT FROM THE DISTRICT COLLECTOR. THE PERMITS WERE GIVE N ONLY IF A PAYMENT WAS MADE TO WELFARE FUND WHICH HAS BEEN ESTABLISHED. T HIS PAYMENT WAS DISALLOWED BY THE ITO BY OBSERVING THAT THE SAID AM OUNT WAS NEITHER MANDATORY NOR STATUTORY BUT WAS ONLY DISCRETIONARY AND THE FUND HAS NOT BEEN APPROVED U/S 80G OF INCOME TAX ACT . ON APPEAL THE TRIBUNAL ALLOWED THE EXPENSES BY OBSERVING THAT THOUGH THERE WAS NO COMP ULSION ON THE ASSESSEE TO MAKE CONTRIBUTION TO WELFARE FUND STILL THE CONT RIBUTION MADE IN PURSUANCE OF A SCHEME EVOLVED BY THE RICE MILLERS ASSOCIATION I N CONSULTATION WITH DISTRICT COLLECTOR WOULD SHOW THAT ADVANTAGE WOULD ENSURE ON THE PAYMENT OF 33 CONTRIBUTION AND THEREFORE, SAME WAS ALLOWABLE U/S 37. WHEN THE MATTER TRAVELED TO HON'BLE HIGH COURT IT WAS DECIDED THAT THE EXPENDITURE WAS NOT ALLOWABLE AND IT WAS OBSERVED THAT THOUGH THE CONTR IBUTION TO THE WELFARE FUND WAS A PRE-CONDITION FOR THE GRANT OF EXPORT PERMIT AND THE ASSESSEE WAS RIGHT IN CONTENDING THAT THE CONTRIBUTION WAS A COMPULSOR Y PAYMENT BUT THE SAME WAS DISALLOWED BY COMING TO THE CONCLUSION THAT THI S PAYMENT WAS OPPOSED TO THE PUBLIC POLICY. WHEN THE MATTER TRAVELED TO THE HON'BLE SUPREME COURT, THE HON'BLE APEX COURT FOUND THAT DISTRICT WELFARE FUND WAS ESTABLISHED PURSUANT TO A SCHEME WHICH HAD BEEN EVOLVED BY THE RICE MILL ERS ASSOCIATION WITH THE DISTRICT COLLECTOR. ACCORDING TO THE SCHEME EACH M EMBER OF THE ASSOCIATION WAS TO DEPOSIT AN AMOUNT OF 0.50 PAISE PER QUINTAL IF HE PROPOSED TO EXPORT THE RICE FROM ANDHRA PRADESH. THE AMOUNT WAS DEPOSITED IN ANDHRA BANK. THE APPLICATION OF EXPORT WAS REQUIRED TO BE MADE IN A FORM WHEREIN APPLICANT DEBITED THE SAID AMOUNT OF CONTRIBUTION DEPOSITED B Y HIM GIVING THE PARTICULARS OF THE BANK AND CHALLAN ETC. QUOTING FROM VARIOUS JUDGMENTS IT WAS OBSERVED THAT THE MONEY EXPENDED, NOT OF NECESSITY AND WITH A VIEW TO DIRECT AND IMMEDIATE BENEFIT TO THE TRADE, BUT VOLUNTARILY AND ON THE GROUND OF COMMERCIAL EXPEDIENCY AND IN ORDER TO DIRECTLY FACILITATE THE CARRYING ON OF THE BUSINESS, MAY ALSO BE CONSIDERED AS EXPENDED WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF BUSINESS. AFTER DETAILED ANALYSES THE AMOUNT WAS H ELD TO BE ALLOWABLE. THE HEAD NOTE OF THE DECISION READS AS UNDER: ANY CONTRIBUTION MADE BY AN ASSESSEE TO A PUBLIC W ELFARE FUND WHICH IS DIRECTLY CONNECTED OR RELATED TO THE CARRYING ON O F THE ASSESSEES BUSINESS OR WHICH RESULTS IN BENEFIT TO THE ASSESSEES BUSINESS HAS TO BE REGARDED AS AN ALLOWABLE DEDUCTION U/S 37(1) OF INCOME TAX ACT . SUCH A DONATION, WHETHER VOLUNTARY OR AT THE INSTANCE OF THE AUTHORITIES CON CERNED, WHEN MADE TO A CHIEF MINISTERS DROUGHT RELIEF FUND OR A DISTRICT WELFAR E FUND ESTABLISHED BY THE DISTRICT COLLECTOR OR ANY OTHER FUND F OR THE BENEF IT OF THE PUBLIC AND WITH A VIEW TO SECURE BENEFIT TO THE ASSESSEES BUSINESS, CANNOT BE REGARDED AS PAYMENT OPPOSED TO PUBLIC POLICY. THE MERE FACT TH AT MAKING OF A DONATION FOR A CHARITABLE OR PUBLIC CAUSE OR IN PUBLIC INTEREST RESULTS IN THE GOVERNMENT GIVING PATRONAGE OR BENEFIT CAN BE NO GROUND TO DEN Y THE ASSESSEE A DEDUCTION OF THAT AMOUNT U/S 37(1) OF THE ACT WHEN SUCH PAYME NT HAD BEEN MADE FOR THE PURPOSE OF THE ASSESSEES BUSINESS. THUS IT IS CLEAR THAT A SMALL CONTRIBUTION OF 0.50 PAISE PER QUINTAL WAS BEING CONTRIBUTED TOWARDS WELFARE FUND WHICH WAS ESTABLIS HED BY THE RICE MILLERS ASSOCIATION IN CONSULTATION WITH THE DISTRICT COLLE CTOR FOR GENERAL DEVELOPMENT OF STATE WHICH WAS HELD TO BE DIRECTLY CONNECTED TO THE BUSINESS OF THE ASSESSEE. THIS IS SO BECAUSE THE SCHEME WAS FRAMED BY THE RICE MILLERS ASSOCIATION AND INVOLVED SMALL CONTRIBUTION. IN CA SE BEFORE US, THE CONTRIBUTION IS MADE FOR DEVELOPMENT OF THE AIRPORT THROUGH JVA BETWEEN AAI AND STATE GOVERNMENT OF PUNJAB & HARYANA. AIRPORT WOULD BE RUN AS A COMMERCIAL VENTURE THOUGH THIS MAY LEAD TO THE DEVE LOPMENT OF STATES BUT STILL IT IS ANOTHER BUSINESS VENTURE AND THEREFORE, THE FACTS OF THIS CASE CANNOT BE APPLIED TO THE FACTS OF THE CASE BEFORE US. 203 NEXT CASE RELIED IS THAT OF CIT VS. INDIA RADIA TORS LTD (SUPRA). IN THAT CASE THE ASSESSEE MADE CONTRIBUTION TO PANCHAYAT FO R UPGRADING THE SCHOOL ON ASSURANCE BY SCHOOL MANAGEMENT OF THE SCHOOL THAT C HILDREN OF ASSESSEES EMPLOYEES WOULD BE GIVEN PREFERENCE IN ADMISSION TO SCHOOL. THEREFORE, IT IS CLEAR THAT THE PURPOSE OF CONTRIBUTION WAS RELATED TO BUSINESS OF THE ASSESSEE. IN THE RURAL AREA THERE MAY NOT BE ANY SCHOOL AND IF A SUM OF MONEY WAS EXPENDED FOR THE EDUCATION OF CHILDREN OF THE EMPLO YEES OF THE ASSESSEE- COMPANY AND THAT IS WHY THE ASSESSEES CONTRIBUTION WAS ALLOWED AS BUSINESS EXPENDITURE. THIS CASE IS TOTALLY DISTINGUISHED FRO M THE FACTS IN CASE BEFORE US. 204 NEXT CASE RELIED ON IS ADDL CIT V. RAJASTHAN SP INNING AND WEAVING MILLS LTD (SUPRA). IN THIS CASE THE DISPUTE RELATES TO T HE CLAIM OF THE ASSESSEE THAT DEDUCTION OF RS. 15 LAKHS AS CONTRIBUTION MADE TO THE BHILWARA EXPORT FUND. THE EXPENDITURE WAS ALLOWED BY THE ASSESSING OFFICE R. HOWEVER, A REVISIONARY ORDER WAS PASSED U/S 263 WHERE CIT WAS OF THE VIEW THAT THE ASSESSING OFFICER COMMITTED AN ERROR WHICH WAS PREJUDICIAL TO THE INT EREST OF THE REVENUE. THE CLAIM WAS ALLOWED BY THE TRIBUNAL AND HON'BLE HIGH COURT ALSO HELD IT TO BE ALLOWABLE BECAUSE IT WAS FOUND THAT THE CONTRIBUTIO N TO THE EXPORT PROMOTION FUND WAS ESTABLISHED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS. IT WAS FURTHER NOTED THAT PARTICIPATING COMPANIES WERE REQUIRED TO MAKE CONTRIBUTION BASED ON EXPORT PERCENTAGE OF THE COMPANIES AS PER THE CRITERIA DECIDED BY THE TRUSTEES FROM TIME TO TIME. IT WAS PROVIDED THAT PARTICIPATING COMPANIES WOULD RECEIVE STIPULATED SU BSIDY ON EXPORT PERCENTAGE 34 OF THE COMPANY AS PER CRITERIA TO BE DECIDED BY THE TRUSTEES. HEAD NOTE READS AS UNDER: HELD, THAT CONTRIBUTION TO THE FUND SET UP FOR EXP ORT PROMOTION OF PRODUCTS WHICH WAS ALSO THE BUSINESS OF THE ASSESSEE HAD DIRECT NEXUS TO THE ADVANCEMENT OF THE ASSESSEES BUSINESS. THE FACT THAT THE OBJECT OF TH E EXPORT PROMOTION FUND WAS NOT CONFINED TO THE ASSESSEE BUT WAS OPEN TO ALL WHO WA NTED TO PARTICIPATE COULD NOT ALTER THE CHARACTER OF EXPENSES INCURRED BY WAY OF CONTRI BUTION TO SUCH FUND BY THE ASSESSEE FROM HIS BENEFIT TO OTHERS BENEFIT. NONE OF THE OBJECTS OF THE FUND COULD BE SAID TO BE UNRELATED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE OR WITHOUT ANY NEXUS TO THE INTEREST OF THE ASSESSEES BUSINESS. THUS, THE TRIBUNAL HAD RIGHTLY REACHED THE CONCLUSION THAT CONTRIBUTION TO THE EXPORT PROMOTIO N FUND WAS MADE BY THE ASSESSEE IN ITS BUSINESS EXPEDIENCY FOR PROMOTING ITS BUSINE SS INTEREST BY AUGMENTING EXPORTS. SUCH EXPENSES WERE INCURRED AND LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSINESS, AND WERE HENCE ALLOWABLE A S DEDUCTION UNDER SECTION 37(1) OF THE ACT. THUS IT IS CLEAR THAT THE FUNDS WERE DIRECTLY RELAT ED TO THE BUSINESS OF THE ASSESSEE. FEW MILLS WHICH WERE EXPORTING HAVE MADE CONTRIBUTION OF FUNDS AND THAT CONTRIBUTION WAS SHARED AMONG VARIOUS PAR TICIPATING COMPANIES ON THE BASIS OF ACTUAL EXPORT. THE TRIBUNAL FOUND THA T IN ORDER TO AUGMENT ITS OWN EXPORT SALES AND GIVE COMPETITIVE EDGE TO ITS MARKE TING THE ASSESSEE-COMPANY HAS CONTRIBUTED TO THE FUND IN ITS OWN BUSINESS EXP EDIENCY, FIRST WITH THE OBJECTS OF INCREASING OPPORTUNITY OF EXPORT OF GOOD S MANUFACTURED BY IT AND SECONDLY TO EARN THE SUBSIDY OUT OF CONTRIBUTION MA DE BY ALL THE PARTICIPATING COMPANIES. THE FACTS ARE TOTALLY DISTINGUISHED FRO M THE CASE BEFORE US. 205 NEXT DECISION RELIED ON IS IN CASE OF CIT VS. C HEMICALS AND PLASTICS INDIA LTD (SUPRA). IN THAT CASE THE DISPUTE IS REG ARDING DISALLOWANCE OF SUM OF RS. 1.5 LAKH BEING CONTRIBUTION TO THE MADRAS CHAMB ER OF COMMERCE. WITHOUT GOING INTO DETAILS THE FACTS ITSELF SHOWS THAT THE CONTRIBUTION TOWARDS A CHAMBER OF COMMERCE, WHICH IS A BUSINESS ASSOCIATIO N, IS DEFINITELY RELATED TO THE BUSINESS OF THE ASSESSEE AND IS FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, WHICH IS NOT THE CASE BEFORE US.. 206 NEXT DECISION IS IN CASE OF PANIPAT COOP SUGAR MILLS LTD VS. CIT (SUPRA). IN THIS CASE THE MAIN DISPUTE WAS REGARDING DISALLO WANCE OF A SUM OF RS. 6 LAKHS WHICH WAS CONTRIBUTED BY THE ASSESSEE TO THE STATE GOVERNMENT FOR UTILIZATION TOWARDS COST OF CONSTRUCTION OF AN APPR OACH ROAD CONNECTING CERTAIN VILLAGES TO THE MAIN ROAD. AFTER DETAILED DISCUSSI ON IT WAS HELD AS UNDER: HELD THAT THOUGH A ROAD BECOMES COMPARATIVELY MORE PERMANENTLY RESTORED BY METALLING, THE CONVERSION OF A KUTCHA ROAD INTO A M ETALLED ONE DOES NOT AMOUNT TO THE CONSTRUCTION OF A NEW ROAD. THE ROAD DID NO T BELONG TO THE ASSESSEE NOR COULD IT HAVE ANY CONTROL OVER THEM. THE EXPENDITU RE WAS INCURRED ON ACCOUNT OF BUSINESS EXPEDIENCY, NAMELY THE EFFORT TO GET F RESH SUGARCANE WHICH YIELDED HIGH PERCENTAGE OF SUGAR. THE KUTCHA ROAD WAS A PERMANENT INCONVENIENCE AND THE EXPENSE INCURRED BY THE ASSES SEE TO GET RID OF THIS INCONVENIENCE CANNOT BE HELD TO HAVE BROUGHT TO IT A LASTING ADVANTAGE. THE METALLING OF THE ROADS IN THE INSTANT CASE AMOUNTED TO THEIR REPAIR AND THE EXPENDITURE INCURRED WAS REVENUE EXPENDITURE ALLOW ABLE U/S 37(1) OF THE INCOME TAX ACT, 1961. THE ABOVE CLEARLY SHOW THAT THE EXPENDITURE WAS DIR ECTLY RELATED TO THE BUSINESS OF THE ASSESSEE. THE CONVERSION OF A KUTC HA ROAD INTO A METALLED ROAD LEAD TO EASY PROCUREMENT OF SUGARCANE. SINCE THE ROADS DID NOT BELONG TO THE ASSESSEE THE EXPENDITURE COULD NOT BE CALLED E VEN AS CAPITAL EXPENDITURE, THEREFORE, CLEARLY THE FACTS OF THIS CASE ARE TOTAL LY DIFFERENT FROM THE FACTS IN THE CASE BEFORE US. 207 NEXT DECISION RELIED ON IS IN CASE OF CIT VS. C HERAN TRANSPORT CORP LTD (SUPRA) AND THE ISSUE WHICH HAS BEEN CITED BEFORE U S IS REGARDING DISALLOWANCE OF A SUM OF RS. 5 LAKHS CONTRIBUTION BY THE ASSESSE E TO CHERAN WELFARE TRUST. HON'BLE HIGH COURT HAS DECIDED THIS ISSUE ON THE BA SIS OF EARLIER DECISION WHICH IS REPORTED IN CASE OF CHERAN ENGINEERING COR P LTD VS. CIT, 238 ITR 892 (MAD), IN THAT DECISION IT WAS HELD THAT ONCE IT W AS LABOUR WELFARE EXPENDITURE, IT WAS ALLOWABLE. WE MAY NOTE THAT TH IS DECISION WAS RENDERED FOR ASSESSMENT YEAR 1978-79 WHEN SECTION 40A(9) WAS NOT THERE WHICH MANDATES THAT NO EXPENDITURE CONTRIBUTED TOWARDS AN Y FUND FOR THE BENEFIT OF THE EMPLOYEE EXCEPT FOR CERTAIN FUNDS PROVIDED IN T HE PROVISIONS, WILL NOT BE ALLOWABLE U/S 40A(9) WHICH HAS BEEN INSERTED BY FIN ANCE ACT 1984 W.E.F. 1.4.1980. THEREFORE, THIS PROVISION WAS NOT APPLIC ABLE AND SINCE THE EXPENDITURE WAS STRICTLY RELATED TO THE WELFARE OF THE LABOUR AND IT WAS HELD TO BE ALLOWABLE. THE FACTS ARE TOTALLY DISTINGUISHABL E. 35 208 NEXT DECISION RELIED ON WAS IN CASE OF CIT V. V ELUMANICKAM LODGE (SUPRA). IN THAT CASE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF THE CONSTRUCTING HOCKEY STADIUM AND CINEMAS. THE ASSES SEE CONSTRUCTED HOCKEY STADIUM AND CLAIMED THE AMOUNT OF RS. 24 LAKHS. IT WAS HELD THAT THE EXPENDITURE WAS INCURRED IN THE REGULAR COURSE OF B USINESS FOR THE PURPOSE OF REVENUE EXPENDITURE AND IT WAS NOT CAPITAL EXPENDIT URE BECAUSE THE HOCKEY STADIUM BELONGS TO THE PUBLIC. IN THIS CASE ASSESS EE WAS RUNNING A CINEMA HALL, A LODGE AND WAS ALSO GOVERNMENT CONTRACTOR AN D SOME CONTRIBUTION WAS MADE TOWARDS CONSTRUCTION OF THE HOCKEY STADIUM IN THE PARK OF THE TOWN. THE EXPENDITURE BROUGHT BENEFIT TO THE ASSESSEE IN THE FORM ADVERTISEMENT ETC. AND THAT IS WHY THE SAME WAS HELD TO BE ALLOWABLE. AGAI N THE FACTS ARE TOTALLY DIFFERENT FROM THE FACTS IN CASE BEF ORE US. 209 LAST CASE RELIED ON IS CIT V. DTTDC LTD (SUPRA) . IN THIS CASE TWO ISSUES AROSE FOR CONSIDERATION BEFORE THE HON'BLE HIGH COU RT. FIRST ISSUE WAS WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE ON CONSTRU CTION OF FLYOVER WAS ALLOWABLE. SOMEWHERE IN 1989 DELHI ADMINISTRATION DECIDED TO EXPAND THE SCOPE OF DELHI TOURISM DEVELOPMENT CORPORATION AND IT WAS DECIDED THAT COUNTRY LIQUORS AND UP RUM WHICH WAS BEING SOLD BY THE EXCISE DEPARTMENT OF DELHI ADMINISTRATION, WHICH WOULD GENERATE A SURPLU S OF RS. 100 CRORES AND SUCH SURPLUS CAN BE UTILIZED FOR CONSTRUCTION OF FL YOVER AND SUBSTANTIAL NUMBER OF PEDESTRIAN FACILITIES. IT WAS DECIDED TO HAND OV ER THIS TRADE TO THE DTDC WHICH WOULD USE THIS SURPLUS FOR CONSTRUCTION OF FL YOVER AND PEDESTRIAN OUT OF SUCH SURPLUS. AFTER GOING THROUGH ALL THE DOCUMEN TS AND LAW ULTIMATELY IT WAS HELD AS UNDER: HELD (I) THAT IT WAS THE OBLIGATION OF THE ASSESSE E TO CONSTRUCT FLYOVERS AND PEDESTRIAN FACILITIES OUT OF 95 PAISE FROM RE. 1 WH ICH THE ASSESSEE WAS ENTITLED TO RETAIN AND KEEP. THE BALANCE 5 PAISE P ER BOTTLE WAS TO MEET THE ADMINISTRATIVE EXPENSES INCLUDING CORPORATE EXPENSE S BUT IT DID NOT MEAN THAT THERE WAS DIVERSION OF INCOME BY WAY OF OVERRIDING TITLE. FROM ABOVE IT BECOMES CLEAR THAT THE ASSESSEE WAS E NTITLED TO RETAIN AND KEEP PAISE 5 PER BOTTLE TO MEET THE ADMINISTRATIVE EXPEN SES AND PAISE 95 PER BOTTLE WAS TO BE UTILIZED FOR CONSTRUCTION OF FLYOVERS ETC . THEREFORE, IT IS CLEAR THAT THE GOVERNMENT ITSELF ALLOWED THE CORPORATION TO E ARN EXTRA MONEY WHICH WAS MANDATED TO BE UTILISED FOR INFRASTRUCTURE IN DELHI BUT IN THE CASE BEFORE US NO SUCH BENEFIT HAS BEEN GIVEN BY THE STATE GOVERNMENT TO THE ASSESSEE WHICH WAS SPECIFICALLY EARMARKED FOR THE PURPOSE OF MAKIN G CONTRIBUTION TOWARDS DEVELOPMENT OF THE AIRPORT. 210 SECOND QUESTION IS NOT RELEVANT FOR THE PURPOSE OF CASE BEFORE US AND THEREFORE, WE ARE NOT DEALING WITH THE SAME. 211 THEREFORE, IT IS CLEAR THAT ALL THE CASE LAWS RELIED ON BY THE ASSESSEE ARE TOTALLY DISTINGUISHED AND WE FIND THAT NONE OF THESE CASE LAWS HELP THE CASE OF THE ASSESSEE. 212 NOW WE COME TO THE CASES CITED ON BEHALF OF THE REVENUE. 213 FIRST DECISION RELIED ON BEHALF OF THE REVENUE IS IN CASE OF OIL INDUSTRY DEVELOPMENT BOARD VS. ACIT, 123 ITD 67 (DELHI TRIBU NAL). IN THIS CASE THE ASSESSEE IS A PUBLIC SECTOR UNDERTAKING. THE ASSES SEE DISBURSED CERTAIN GRANTS TO DIFFERENT ENTITIES OF THE STATE. THE QUE STION AROSE WHETHER SUCH EXPENDITURE WAS IN THE NATURE OF GRANTS AND ROYALTY AND DEDUCTIBLE U/S 37(1). IN THIS CASE IT WAS ALSO CONTENDED THAT SINCE THE G RANTS OF ROYALTY WAS ONE OF THE OBJECTS OF THE UNDERTAKING AND THEREFORE, SUCH EXPENDITURE SHOULD BE HELD TO BE ALLOWABLE. THE TRIBUNAL AFTER DETAILED DISCU SSION HELD AS UNDER: SECTION 37 DEALS WITH EXPENDITURE IN GENERAL REFER RED TO AS BUSINESS EXPENDITURE. IT LAYS DOWN THAT ANY EXPENDITURE, NOT BEING EXPENDITU RE, NOT BEING EXPENDITURE OF THE NATURE AS DESCRIBED IN SECTION 30 TO SECTION 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE LA ID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSI ON, SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND G AINS OF BUSINESS OR PROFESSION. DEDUCTIONS WHICH ARE ALLOWED WHILE COMPUTING BUSINE SS INCOME HAVE BEEN LAID DOWN IN SECTIONS 30 TO 36. SECTION 37 IS A RESIDUARY SEC TION EXTENDING THE ALLOWANCE OF EXPENSES TO ITEMS OF EXPENDITURE NOT COVERED BY SEC TIONS 30 TO 36, THE LIST OF ALLOWANCES ENUMERATED IN SECTIONS 30 TO 36 BEING NO T EXHAUSTIVE. AN ITEM OF EXPENDITURE, WHICH IS WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MAY BE ALLOWED TO BE DEDUCTED IN COMPUTING THE PROFITS AND GAINS ACCORDING TO THE ORDINARY PRINCIPLES EVEN IF IT DOES NOT FALL UNDER ANY OF TH E ABOVE SECTIONS. [PARA 20] SECTION 37 STARTS WITH NEGATIVE CONDITIONS. AFTER T HE NEGATIVE CONDITIONS ARE SATISFIED, THE SECTION LAYS DOWN A POSITIVE CONDITION. IT IS O NLY WHEN BOTH THE NEGATIVE AND 36 POSITIVE CONDITIONS ARE SATISFIED THAT AN EXPENDITU RE CAN BE CONSIDERED AND ALLOWED UNDER THIS SECTION. THE NEGATIVE CONDITIONS ARE: (I) THAT THE EXPENDITURE SHOULD NOT BE OF THE NATUR E DESCRIBED- (A) UNDER SECTION 30 TO SECTION 36; (B) IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONA L EXPENDITURE OF THE ASSESSEE. IF THE EXPENDITURE SATISFIES THESE NEGATIVE TESTS, THEN IT HAS TO SATISFY THE POSITIVE TEST, NAMELY, THAT IT IS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSSSEES BUSINESS.[ PARA 21] THUS, THE ESSENTIAL AND POSITIVE CONDITION OF ALLOW ANCE IS THAT THE EXPENDITURE SHOULD HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF SUCH BUSINESS. THEREFORE, THE EXPENSES WHICH ARE PERMITT ED AS DEDUCTION ARE SUCH WHICH ARE MADE FOR THE PURPOSE OF CARRYING ON THE BUSINES S I.E., TO ENABLE A PERSON TO CARRY ON AND EARN PROFIT IN THAT BUSINESS. IT IS NOT ENOU GH THAT THE DISBURSEMENTS ARE MADE IN THE COURSE OF OR ARISE OUT OF OR ARE CONCERNED W ITH OR MADE OUT OF THE PROFIT OF THE BUSINESS, BUT THEY MUST ALSO BE FOR THE PURPOSE OF EARNING PROFITS OF THE BUSINESS. [PARA 22] IT HAS TO BE REMEMBERED THAT THE WORDS WHOLLY AND EXCLUSIVELY BOTH REFER TO THE EXPENSES INCURRED BY THE ASSESSEE FOR THE PURPOSE O F HIS BUSINESS. WHILE DETERMINING AS TO WHETHER THE DEDUCTION CLAIMED HAS BEEN WHOLLY AND EXCLUSIVELY SPENT ON SUCH BUSINESS, IT IS PERMISSIBLE TO FIND OUT WHETHER THE AMOUNT HAS REALLY GONE FOR THE PURPOSE OF BUSINESS OR NOT. [PARA 23] THE WORD BUSINESS USED IN SECTION 3791) CONNOTES SOME REAL, SUBSTANTIAL AND SYSTEMATIC OR ORGANIZED COURSE OF ACTIVITY OR CONDU CT WITH A SET PURPOSE WHICH IS CARRIED ON WITH THE END IN VIEW OF MAKING OR EARNIN G PROFIT. THUS, IN ORDER TO BE DEDUCTIBLE UNDER SECTION 37(1), THE EXPENDITURE MUS T BE INCURRED FOR THE PURPOSE OF THE BUSINESS WHICH WAS IN EXISTENCE IN THE ACCOUNTI NG YEAR AND THE PROFITS OF WHICH ARE UNDER ASSESSMENT. [PARA 24] IN VIEW OF THE ABOVE DISCUSSION, THE GRANTS BY THE ASSESSEE EVEN THOUGH THEY WERE IN ACCORDANCE WITH THE OBJECTS STATED IN THE OIL INDUS TRIES (DEVELOPMENT) ACT, 1974 AND THEY WERE MADE OR DISBURSED AS PER DIRECTIONS OF TH E CENTRAL GOVERNMENT AND IN THE PUBLIC INTEREST, YET THE SAME DID NOT FULFILL THE C RITERIA LAID DOWN IN SECTION 37 TO COME WITHIN THE PURVIEW OF ALLOWABILITY SO THE SAME COUL D NOT BE SAID TO BE AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE, THE CLAIM OF THE ASSESSEE THAT THESE GRANTS SHOULD BE ALLOWED UN DER SECTION 37(1) COULD NOT BE ACCEPTED AND WERE TO BE REJECTED. [PARA 25] FROM ABOVE IT IS CLEAR THAT UNLESS AND UNTIL THE EX PENDITURE IS RELATED TO THE BUSINESS OF THE ASSESSEE SO AS TO MEET THE REQUIREM ENT OF SECTION 37 THAT THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF BUSINESS, SAME IS NOT ALLOWABLE. THEREFORE, CLEARL Y THIS CASE LAW IS APPLICABLE TO THE ASSESSEE IN THE SENSE THAT EVEN IF THE EXPEN DITURE IS INCURRED TO MEET THE OBJECTS OF A PARTICULAR UNDERTAKING THE SAME IS STILL NOT ALLOWABLE UNLESS THE SAME HAS BEEN INCURRED FOR THE PURPOSE OF BUSIN ESS. 214 NEXT CASE LAW RELIED ON BY THE LD. DR FOR THE R EVENUE IS IN CASE OF MALAYALA MANORAMA CO. LTD. VS. CIT (SUPRA). IN THIS CASE THE ASSESSEE HAD INCURRED SOME EXPENDITURE FOR THE PURPOSE OF RECONS TRUCTION OF BANEGAON VILLAGE IN LATHUR DISTRICT BY WAY OF CONTRIBUTION T O A TRUST WHICH WAS CONSTITUTED TO GRANT RELIEF AND AID TO THE PERSONS EFFECTED BY NATURAL CALAMITIES. IT WAS CONTENDED THAT RECONSTRUCTION O F LATHUR VILLAGE WAS UNDERTAKEN BECAUSE A MASSIVE EARTHQUAKE HAD EFFECTE D LATHUR. THE COURT HELD THAT THE EXPENDITURE IS NOT ALLOWABLE. HEAD N OTED READS AS UNDER: HELD THAT THE AMOUNT CONTRIBUTED BY THE ASSESSEE T O THE RELIEF FUND WAS NOT UTILIZED WHOLLY OR EXCLUSIVELY FOR ITS BUSINESS PUR POSE. THE MERE FACT THAT INDIRECTLY THE ASSESSEE EARNED GOODWILL OF THE VICT IMS AND THE GENERAL PUBLIC DID NOT MEAN THAT THE EXPENDITURE INCURRED BY THE A SSESSEE WAS WHOLLY OR EXCLUSIVELY FOR BUSINESS PURPOSE. THE CONTRIBUTION MADE BY THE ASSESSEE WOULD BE AN ALLOWABLE DEDUCTION U/S 80G OF INCOME T AX ACT AND NOT U/S 37(1). FROM ABOVE IT IS CLEAR THAT INCURRING OF EXPENDITUR E FOR EARNING GOODWILL OR INDIRECT BENEFIT TO THE ASSESSEE THEN THE SAME CANN OT BE HELD TO BE ALLOWABLE BECAUSE THE SAME MAY NOT BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 37 215 WE HAVE ALSO GONE THROUGH THE DECISION RENDERED BY HYDERABAD BENCH OF THE TRIBUNAL IN CASE OF ANDHRA PRADESH HOUSING B OARD VS. DCIT IN ITA NO. 717/H/12 AND OTHERS. THIS CASE, IN OUR OPINION, IS IDENTICAL AS THAT OF THE ASSESSEE. THE ASSESSEE BOARD WAS CONSTITUTED UNDER ANDHRA PRADESH HOUSING BOARD ACT, 1956 AND WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF LAND AND CONSTRUCTION OF HOUSES. DURING THE YEAR THE ASSESSEE HAD MADE A CONTRIBUTION OF RS. 1180 CRORES UNDER THE DIRECTION S OF ANDHRA PRADESH GOVERNMENT TOWARDS A SCHEME KNOWN AS RAJIV GREHA K ALPA FOR PROVIDING HOUSES TO THE URBAN POOR. BENEFICIARIES WERE TO PR OVIDE 10% OF COST OF HOUSE AND BALANCE WAS TO BE FINANCED BY BANKS AS CONTRIBU TION FOR EXPENDITURE IN PROVIDING INFRASTRUCTURE FACILITIES LIKE DRAINAGE, WATER SUPPLY, INTERNAL ROADS, POWER SUPPLY ETC. THE EXPENDITURE WAS NOT ALLOWED BY THE ASSESSING OFFICER. IN THIS CASE ALSO THE LD. COUNSEL OF THE ASSESSEE C ONTENTED THAT THE EXPENDITURE WAS INCURRED BECAUSE IT WAS TO MEET ONE OF THE OBJECTS OF ANDHARA PRADESH HOUSING BOARD ACT, 1956 AS WELL AS THE EXPE NDITURE WAS INCURRED ON THE DIRECTION OF THE STATE GOVERNMENT. THE TRIBUNAL CONSIDERED THE ISSUE IN DETAIL AND ULTIMATELY HELD THAT THIS EXPENDITURE IS NOT ALLOWABLE. PARA 56 OF THIS ORDER IS IMPORTANT WHICH WE ARE EXTRACTING BEL OW: 56. ON CONSIDERING THE SUBMISSIONS OF THE PARTIES IN THE LIGHT OF THE MATERIALS ON RECORD AND ALSO THE RATIOS CITED BEFORE US, WE ARE CONSTRAINED TO HOLD THAT IT IS NOT AN ALLOWABLE EXPENDITURE BUT ONLY AN APPLICATION OF IN COME. IT IS NOT IN DISPUTE THAT THE AMOUNT OF RS. 1180 CRORES IS STATED TO HAVE BEEN GI VEN TO THE AP STATE HOUSING CORPORATION ON THE DIRECTIVE OF THE GOVERNMENT. HOW EVER, THAT WOULD NOT AMOUNT TO AN EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. A N EXPENDITURE WHICH IS EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS IS A REVENUE E XPENDITURE AND, THEREFORE, ALLOWABLE. ON APPRECIATION OF THE FACTS ON RECORD, IT IS QUITE EVIDENT THAT THE AMOUNT OF RS. 1180 CRORES WAS NOT SPENT BY THE ASSESSEE BOARD FOR THE PURPOSE OF ITS BUSINESS. THE SAID AMOUNT WAS TRANSFERRED TO AP STATE HOUSING CORPORATION AT THE DIRECTIVE OF THE GOVERNMENT FOR IMPLEMENTING CERTAIN HOUSING PRO JECTS. THE ASSESSEE IS NO WAY CONNECTED WITH IMPLEMENTING THE PROJECT. THIS CANNO T BE SAID TO BE AN EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE DECISIONS RELIED UPON BY THE LEARNED AR ARE FACTUALLY DISTINGUISHABLE AS IN THOSE CASES THERE WAS NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE BUSINESS O F THE ASSESSEE. THEREFORE, IN OUR VIEW THE REVENUE AUTHORITIES WERE CORRECT IN DISALL OWING SUCH EXPENDITURE. 216 THE ABOVE RATIO IN THE ABOVE CASE IS CLEARLY AP PLICABLE TO THE CASE OF THE ASSESSEE. 217 ONE MORE ISSUE HAS BEEN RAISED IN THE GROUND TH AT THIS EXPENDITURE SHOULD HAVE BEEN ALLOWED IN ANY CASE U/S 36(1)(XII). BOTH THE PARTIES DID NOT MAKE ANY ARGUMENTS BEFORE US, HOWEVER, WE WOULD LIKE TO DEAL WITH THIS ISSUE ALSO. SECTION 36(1)(XII) OF THE ACT READS AS UNDER: 36(1)[(XII) ANY EXPENDITURE (NOT BEING IN THE NAT URE OF CAPITAL EXPENDITURE) INCURRED BY A CORPORATI ON OR A BODY CORPORATE, BY WHATEVER NAME CALLED, IF, (A) IT IS CONSTITUTED OR ESTABLISHED BY A CENTRAL, STATE OR PROVINCIAL ACT; (B) SUCH CORPORATION OR BODY CORPORATE, HAVING REG ARD TO THE OBJECTS AND PURPOSES OF THE ACT REFERRED TO IN SUB-CLAUSE (A), IS NOTIFIED 29 BY THE CENTRAL GOVERNMENT IN THE OFFICIAL GAZETTE FOR THE PURPOSES OF THIS CLAUSE. THE ABOVE MAKES IT CLEAR THAT ANY EXPENDITURE IN CA SE OF GOVERNMENT CORPORATIONS IS ALLOWABLE IF THE SAME ARE ESTABLISHED UNDER SOME EN ACTMENT OF THE CENTRE OR STATE. HOWEVER, AT THE SAME TIME UNDER THIS PROVISION, THE CAPITAL EXPENDITURE IS NOT ALLOWABLE. SINCE WE HAVE ALREADY OBSERVED THAT THE EXPENDITURE IS OF CAPITAL NATURE, THEREFORE, THE SAME IS NOT ALLOWABLE UNDER THIS SE CTION. IN VIEW OF ABOVE DISCUSSION IT BECOMES ABSOLUTELY C LEAR THAT FIRSTLY THE EXPENDITURE HAS NOT BEEN INCURRED FOR THE PURPOSE O F BUSINESS. IN ANY CASE THE EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDI TURE AND THEREFORE, THE SAME IS NOT ALLOWABLE. WE FIND THAT ALL THE CONTENTIONS RAISED BY THE LD. COUNSEL FOR THE ASSESSEE NOW HAVE ALREADY BEEN MET IN THE ABOVE NOT ED PARAS. THE ASSESSEE-AUTHORITY HAS NOT FURNISHED ANY EVIDENCE T O SHOW THAT 38 WHETHER ANY DELIBERATIONS OF ANY KIND WERE CONDUCTE D BEFORE INCURRING THE EXPENDITURE WHICH CLEARLY SHOW THAT T HESE ARE ONLY AFTER THOUGHT ARGUMENTS. AS FAR AS THE DECISION OF HON'BLE SUPREME COURT IN CASE OF SASSOON J. DAVID AND CO. P. LTD VS . CIT (SUPRA) IS CONCERNED, THE SAME IS DISTINGUISHABLE ON FACTS. I N THAT CASE FOLLOWING FACTS WERE INVOLVED: SHARES OF THE APPELLANT AN INVESTMENT COMPANY, WER E HELD BY THE DAVIDS. ITS ASSETS WERE WORTH RS. 155 LAKHS AS ON DECEMBER 31, 1955. ON DECEMBER 2, 1955, ITS DIRECTORS PROPOSED THAT TH E SERVICES OF 22 EMPLOYEES, THE MANAGING DIRECTOR AND A DIRECTOR BE TERMINATED AND THAT THEY BE PAID COMPENSATION; AND ON JAN 25, 1956 THE SHAREHOLDERS ACCEPTED THE DIRECTORS PROPOSAL. UNDER AN AGREEME NT DATED MAR 23, 1956, THE DAVIDS AGREED TO SELL TO THE TATAS ALL TH E SHARES IN THE APPELLANT COMPANY FOR RS. 155 LAKHS, THE SUM VOTED FOR PAYMENT OF COMPENSATION TO THE EMPLOYEES BEING DEDUCTIBLE THER EFROM. THE AGREEMENT ALSO PROVIDED THAT THE DAVIDS SHOULD ARRA NGE TO TERMINATE THE SERVICES OF ALL EMPLOYEES WITH EFFECT FROM MAR 31,1 956, AND ARRANGE TO HAVE ALL DIRECTORS RESIGN THEIR OFFICES SO THAT THE TATAS WOULD BE ENTITLED TO APPOINT THEIR OWN DIRECTORS OR EMPLOYEES. AFTER THE TAKE OVER, THE APPELLANT REEMPLOYED 9 OF THE 22 EMPLOYEES. THERE W AS A SUBSTANTIAL REDUCTION IN THE WAGE BILL AS A CONSEQUENCE OF THE RETRENCHMENT. THE APPELLANT PAID RS. 1,64,899 DURING THE CALENDAR YEA R 1956 RELELVANT TO THE AY 1957-58 WHICH AMOUNT INTER ALIA, INCLUDED RS . 16,188 PAID TO THE MANAGING DIRECTOR IN LIEU OF SIX MONTHS NOTICE, RS . 21,200 PAID TOWARDS COMPENSATION FOR TERMINATION OF PENSION ALLOWANCE, AND RS. 16,885 THE FIRST OF FIVE ANNUAL PAYMENTS AS COMPENSATION TO TH E DIRECTOR. THE APPELLANT CLAIMED DEDUCTION OF THE SUM OF RS. 1,64, 899 AS BUSINESS EXPENDITURE U/S 10(2)(XV). THE APPELLATE TRIBUNAL HELD THAT THE EXPENDITURE HAD BEEN INCURRED BY THE APPELLANT NOT FOR THE PURPOSE OF THE BUSINESS BUT PURELY AS A RESULT OF THE BARGAIN BETWEEN THE DAVIDS AND THE TATAS AND THAT EVEN ASSUMING THE PAYMENTS W ERE BENEFICIAL TO THE APPELLANT, NO DEDUCTION COULD BE ALLOWED SINCE THEY HAD BEEN MADE TO BENEFIT THIRD PARTIES. ON A REFERENCE THE HON'BL E HIGH COURT HELD THAT ONLY THE TWO AMOUNTS OF RS. 21,200 AND RS. 16,188 W ERE ALLOWABLE AS DEDUCTIONS AND THAT THE BALANCE OF RS. 1,27,511 PAI D TO THE EMPLOYEES AND A DIRECTOR WAS NOT ALLOWABLE A S A DEDUCTION SI NCE THE EXPENDITURE HAD NOT BEEN INCURRED BY THE COMPANY FOR COMMERCIAL REASONS. ON THE ABOVE FACTS, IT WAS HELD BY THE HON'BLE APEX COURT AS UNDER: HELD, ON THE FACTS, THAT, EVEN ASSUMING THAT THE MO TIVE BEHIND THE PAYMENT OF THE COMPENSATION WAS THAT THE TERMS OF THE AGREEMEN T BETWEEN THE DAVIDS AND THE TATAS FOR THE SALE OF THE SHARES SHOULD BE SATI SFIED, AS LONG AS THE AMOUNT OF RS. 1,27,511 WAS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT THERE WAS NO REASON FOR D ENYING THE BENEFIT OF SECTION 10(2)(XV). THE APPELLANT COMPANY CONTINUED TO FUNCT ION EVEN AFTER ITS CONTROL PASSED ON TO THE TATAS AND THE EXPENDITURE IN QUEST ION WAS LAID OUT FOR THE PURPOSE OF THE COMPANYS OWN TRADE AND NOT FOR THE TRADE OF THE TATAS WHO WERE ONLY ITS SHAREHOLDERS. AS A RESULT OF THE EXPE NDITURE, THE APPELLANT COMPANY WAS IN FACT BENEFITED BY REDUCTION IN ITS W AGE BILL. IT COULD NOT BE SAID THAT THE TATAS WERE IN ANY WAY BENEFITED FINANCIALL Y BECAUSE OF THE DEDUCTION IN THE CONSIDERATION PAYABLE BY THEM FOR THE SHARES. T HE SUM OF RS. 1,27,511 WAS EXPENDED BY THE APPELLANT ON THE GROUND OF COMMERCI AL EXPEDIENCY AND IN ORDER INDIRECTLY TO FACILITATE THE CARRYING ON OF I TS BUSINESS, AND WAS, THEREFORE, ALLOWABLE AS A DEDUCTION. 39 THUS FROM ABOVE IT IS CLEAR THAT THE COURT HAS CLEA RLY OBSERVED THAT EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINES S AND EVEN IF THAT RESULTED IN BENEFIT TO THE THIRD PARTY THE SAM E WILL NOT HINDER THE LIABILITY OF THE SAME UNDER INCOME -TAX ACT, 1961. HOWEVER, IN CASE BEFORE US, WE HAVE REACHED THE CONCLUSION THAT THE EXPENDITURE WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS WHILE DECI DING THIS ISSUE IN CASE OF PUDA IN PARAS 188 TO 217. THEREFORE, IN OU R OPINION, THIS DECISION IS OF NO HELP TO THE ASSESSEE. IN THESE C IRCUMSTANCES FOLLOWING OUR ORDER IN CASE OF PUDA FOR AY 2008-09 IN ITA NO. 390/CHD/2012, WE HOLD THAT THE EXPLANATION OF RS. 1 5 CRORER WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS. 37 GROUND NO. 5 BOTH THE PARTIES WERE HEARD. 38 AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PA RTIES AND THE MATERIAL ON RECORD, WE FIND THAT WE HAVE ALREADY H ELD THAT THE MAINTENANCE EXPENDITURE IS ALLOWABLE BECAUSE OF TH E CASH SYSTEM OF ACCOUNTING, THEREFORE NO ADJUSTMENT IS REQUIRED TO BE MADE IN CLOSING STOCK OR OPENING STOCK. ACCORDINGLY THIS G ROUND HAS BECOME INFRUCTUOUS AND THEREFORE SAME IS DISMISSED. 39 IN THE RESULT, ASSESSEES APPEAL IN ITA NO. 788/ CHD/2012 IS PARTLY ALLOWED. ITA NO. 797/CHD/2012 REVENUES APPEAL 40 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUND: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 89,51,048 /- MADE BY DISALLOWING CONTRIBUTION TO (UNRECOGNIZED) PROVIDENT FUND. THE DISALLOWANCE WAS MADE FOR THE REASONS THAT THE CONTRIBUTIONS HAVE NE ITHER BEEN MADE TO A PROVIDENT FUND APPROVED BY THE C.C.I.T. OR TO A PR OVIDENT FUND ESTABLISHED UNDER A SCHEME FRAMED UNDER THE EMPLOYE E PROVIDENT FUND ACT. 41 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD, WE FIND THAT IDENTICAL ISSUE HAS BEEN ADJUD ICATED BY US IN ITA NO. 658/CHD/2011 VIDE PARA 25. FOLLOWING THE S AME WE SET 40 ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MAT TER BACK TO THE FILE OF ASSESSING OFFICER WITH SAME DIRECTIONS AS C ONTAINED IN PARA 25. 42 IN THE RESULT, REVENUES APPEAL IN ITA NO. 797/C HD/2012 IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ITA NO. 412/CHD/2013 ASSESSEES APPEAL 43 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT THE ORDER OF THE LD. CIT(APPEALS) IS BAD IN LA W AND AGAINST THE FACTS OF THE CASE. 2. (A) THAT THE LD. CIT(APPEALS) HAS ERRED IN LAW A ND ON FACTS IN ASSESSING RS. 1,41,47,686/- AS RENTAL INCOME WHICH, IN FACT, IS NOTHING BUT AMOUNT OF THE INSTALLMENTS RECEIVED AS PER HIRE PURCHASE AGREEMEN T ACCORDING TO WHICH, THE OWNERSHIP OF FLATS/HOUSES, IS TRANSFERRED TO THE PU RCHASER ONLY AFTER THE PAYMENT OF LAST INSTALLMENT, WHEN THE INCOME FINALL Y CREDITED BY THE APPELLANT IN THE BOOKS OF ACCOUNTS. (B). THAT THE LD. CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN ASSESSING AS RENTAL INCOME, THE INSTALLMENT RECEIVED AT RS. 1,41 ,47,686/- UNDER HIGHER PURCHASE AGREEMENT COMPRISING OF PRINCIPAL AMOUNT, WHEREAS THE ISSUE OF RENTAL INCOME WAS NEITHER BEFORE HIM FOR ADJUDICA TION, NOR IT WAS BEFORE THE ASSESSING OFFICER. 3. THAT THE LD. CIT(APPEALS) HAS ERRED ON FACTS AND IN LAW IN DISALLOWING15% OF ADMINISTRATIVE EXPENSES OF CONSTR UCTION DIVISION OFFICES AMOUNTING TO RS. 1,46,99,785/- ON THE GROUND THAT S IMILAR ADDITIONS WAS UPHELD BY THE CIT(APPEALS) IN A.Y. 2008-09 AND 2007-08. AL L THE DETAILS REGARDING EXPENSES WERE PRODUCED BEFORE ASSESSING OFFICER. 4. THAT THE LD. CIT(APPEALS) HAS ERRED ON FACTS AND IN LAW IN DISALLOWING THE BUSINESS EXPENDITURE OF RS. 160.87 CRORES ON AC COUNT OF PAYMENT MADE TO THE STATE GOVT. FOR SETTING UP A INTERNATIONAL AIRP ORT AT MOHALI ON THE GROUND THAT THE EXPENDITURE WAS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS DESPITE THE FACT THAT THE EXPENDITURE WAS IN CONSONANCE WITH THE PUDA ACT AND ALSO THE COMMERCIAL EXPEDIENCY OF THE BUSINESS OF THE ASSESSEE AUTHORITY. 5. THAT THE LD. CIT(APPEALS) HAS ERRED ON FACTS AND IN LAW IN INCREASING THE VALUE OF THE CLOSING STOCK HYPOTHETICALLY AND ARBIT RARILY JUST TO SET OFF THE ENHANCED VALUE OF OPENING STOCK WHICH IS ONLY THE B ROUGHT FORWARD CLOSING STOCK OF PREVIOUS YEAR WHICH HAD TO BE RECALCULATED AS A CONSEQUENCE OF CAPITALIZATION OF DISALLOWANCE OF CAPITAL EXPENDITU RE OUT OF ADMINISTRATIVE EXPENSES OF PREVIOUS YEAR AND THUS ENHANCING THE VA LUE OF STOCK. 44 BOTH PARTIES WERE HEARD. 45 GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION. 46 GROUND NO. 2- AFTER HEARING BOTH THE PARTIES WE FIND THAT BASICALLY THE ISSUE INVOLVED IS TAXATION OF INSTALL MENTS AND ONLY THE DIFFERENCE IS THAT IN THIS CASE THE INSTALLMENTS HA VE BEEN TAXED BY 41 THE LD. CIT(A) AS RENTAL INCOME. THIS ISSUE HAS BE EN ADJUDICATED BY US IN ITA NO. 636/CHD/2011 IN PARA 9. FOLLOWING TH E SAME WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 47 GROUND NO. 3 AFTER CONSIDERING THE RIVAL SUBMI SSIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE HAS BE EN ADJUDICATED BY THE TRIBUNAL IN ITA NO. 636/CHD/2012 AT PARA 18 OF THIS ORDER. FOLLOWING THE SAME WE DECIDE THIS ISSUE IN FAVOUR O F THE ASSESSEE. 48 GROUND NO. 4 AFTER CONSIDERING THE RIVAL SUBMI SSIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS IDE NTICAL TO THE ISSUE RAISED IN GROUND NO. 4 IN ITA NO. 788/CHD/2012. SA ME HAS BEEN ADJUDICATED BY US AT PARA 36 OF THIS ORDER. FOLLOW ING THE SAME WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 49 GROUND NO. 5 AFTER CONSIDERING THE RIVAL SUBMI SSIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS IDE NTICAL TO THE ISSUE RAISED IN GROUND NO. 5 IN ITA NO. 788/CHD/2012 WHIC H WE HAVE ADJUDICATED AT PARA 38. FOLLOWING THE SAME WE HOLD THAT THIS GROUND IS INFRUTUOUS. 50 IN THE RESULT, ASSESSEES APPEAL IN ITA NO. 412/ CHD/2013 IS PARTLY ALLOWED. ITA NO. 524/CHD/2013 REVENUES APPEAL 51 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,01,99,80 6/- WHICH WAS- MADE ON ACCOUNT OF DISALLOWANCE OF THE SAID AMOUNT WHICH WAS INCURRED BY THE ASSESSEE AS ITS CONTRIBUTION TO CONTRIBUTORY PROVID ENT FUND. THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER DUE TO THE REASONS THAT THE CONTRIBUTIONS HAVE NEITHER BEEN MADE TO A PROVI DENT FUND APPROVED BY THE C.C.I.T. NOR TO A PROVIDENT FUND ESTABLISH ED UNDER A SCHEME FRAMED UNDER THE EMPLOYEE PROVIDENT FUND AC. 1952. 52 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD, WE FIND THAT IDENTICAL ISSUE HAS BEEN ADJUD ICATED BY US IN ITA NO. 658/CHD/2011 VIDE PARA 25. FOLLOWING THE S AME WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MAT TER BACK TO THE 42 FILE OF ASSESSING OFFICER WITH SAME DIRECTIONS AS C ONTAINED IN PARA 25. 53 IN THE RESULT, REVENUES APPEAL IN ITA NO.524/CH D/2013 IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ITA NO. 908/CHD/2013 ASSESSEES APPEAL 54 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT THE ORDER OF THE LD. CIT(A) IS BAD IN LAW A ND AGAINST THE FACTS OF THE CASE. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN ASSESSING RS. 4,56,72,558/- AS RENTAL INCOME ON THE GROUND THAT S IMILAR ADDITIONS WAS UPHELD BY THE LD. CIT(A) IN AY 2007-08 TO 2009-10. IN FACT INSTALLMENTS RECEIVED AS PER HIRE PURCHASE AGREEMENT ACCORDING T O WHICH THE OWNERSHIP OF FLATS/HOUSES, IS TRANSFERRED TO THE PU RCHASER ONLY AFTER THE PAYMENT OF LAST INSTALLMENTS WHEN THE INCOME FINALL Y CREDITED BY THE APPELLANT IN THE BOOKS OF ACCOUNTS. 3 THAT THE LD. CIT(A) AS ERRED ON FACTS AND IN LAW IN DISALLOWING 28% OF ADMINISTRATIVE EXPENSES OF CONSTRUCTION DIVI SION OFFICES AMOUNTING TO RS. 1,73,49,866/- ON THE GROUND THAT S IMILAR ADDITION S WAS UPHELD BY THE LD. CIT(A) IN AY 2007-08 TO 2009-10. ALL THE DETAILS REGARDING EXPENSES WERE PRODUCED BEFORE ASSESSING O FFICER. 55 GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION. 56 GROUND NO. 2 - AFTER HEARING BOTH THE PARTIES W E FIND THAT BASICALLY THE ISSUE INVOLVED IS TAXATION OF INSTALL MENTS AND ONLY THE DIFFERENCE IS THAT IN THIS CASE THE INSTALLMENTS HA VE BEEN TAXED BY THE LD. CIT(A) AS RENTAL INCOME. THIS ISSUE HAS BE EN ADJUDICATED BY US IN ITA NO. 636/CHD/2011 IN PARA 9. FOLLOWING TH E SAME WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 57 GROUND NO. 3 AFTER CONSIDERING THE RIVAL SUBMI SSIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE HAS BE EN ADJUDICATED BY THE TRIBUNAL IN ITA NO. 636/CHD/2012 AT PARA 18 OF THIS ORDER. FOLLOWING THE SAME WE DECIDE THIS ISSUE IN FAVOUR O F THE ASSESSEE. 58 IN THE RESULT, ASSESSEES APPEAL IN ITA NO. 908/ CHD/2013 IS PARTLY ALLOWED. ITA NO. 1027/CHD/2013 REVENUES APPEAL 59 IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GROUNDS: 43 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1, 18,32,072/- WHICH WAS MADE ON ACCOUNT OF DISALLOWANCE OF THE SAID AMOUNT WHICH WAS INCURRED BY THE ASSESSEE AS ITS CONTRIBUTION TO CONTRIBUTORY PROVIDENT FUND (CPF). THIS DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER DUE TO THE REASON THAT THE CONTRIBUTIONS HAVE NEITHER BEEN MAD E TO A PROVIDENT FUND APPROVED BY THE C.C.I.T NOR TO A PROVIDENT FU ND ESTABLISHED UNDER A SCHEME FRAMED UNDER THE EMPLOYEES PROVIDENT FUND ACT, 1952. 60 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD, WE FIND THAT IDENTICAL ISSUE HAS BEEN ADJUD ICATED BY US IN ITA NO. 658/CHD/2011 VIDE PARA 25. FOLLOWING THE S AME WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MAT TER BACK TO THE FILE OF ASSESSING OFFICER WITH SAME DIRECTIONS AS C ONTAINED IN PARA 25. 61 IN THE RESULT, REVENUES APPEAL IN ITA NO.1027/C HD/2013 IS ALLOWED FOR STATISTICAL PURPOSES ONLY. 62 IN THE RESULT, ALL THE APPEALS ARE DISPOSED OFF AS UNDER: 636/CHD/2011 ASSESSEES APPEAL PARTLY ALLOWED 658/CHD/2011 REVENUES APPEAL ALLOWED FOR STATISTICAL PURPOSES ONLY. 788/CHD/2012 ASSESSEES APPEAL PARTLY ALLOWED 797/CHD/2012 REVENUES APPEAL ALLOWED FOR STATISTICAL PURPOSES ONLY. 412/CHD/2013 ASSESSEES APPEAL PARTLY ALLOWED 524/CHD/2013 REVENUES APPEAL ALLOWED FOR STATISTICAL PURPOSES ONLY. 908/CHD/2013 ASSESSEES APPEAL PARTLY ALLOWED 1027/CHD/2013 REVENUES APPEAL ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 30.1.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30.1.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 44