DCIT, Mohali V. M/s Punjab Urban Planning and Development Authority, Mohali

ITA 485/CHANDI/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68610 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-06-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 02-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Gift; Depreciation; Business expenditure; Deemed to accrue or arise in india; Cost of acquisition; Revised return; Revenue expenditure
• Section: 43B; 139(5); 32; 145; 12; 28; 144; 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. 391/CHD/2012 ASSESSMENT YEAR : 2009-10 PUNJAB URBAN PLANNING & VS. D.C.I.T. C-6(1) DEVELOPMENT AUTHORITY, MOHALI MOHALI AAALP 0045J ITA NO. 485/CHD/2012 ASSESSMENT YEAR : 2009-10 D.C.I.T. C-6(1) VS. PUNJAB URBAN PLANNING & MOHALI DEVELOPMENT AUTHORITY, MOHALI AAALP 0045J (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI ASHWANI KUMAR DEPARTMENT BY: SMT. JYOTI KUMARI DATE OF HEARING 23.9.2013 DATE OF PRONOUNCEMENT 23.12.2013 O R D E R PER T.R.SOOD, A.M THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST TH E ORDER DATED 23.3.2012 OF THE LD. CIT(A), CHANDIGARH . ITA NO. 391/CHD/2012 ASSESSEES APPEAL 2 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS: 1. THAT ORDER PASSED U/S (6) OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), CHAND IGARH IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED IN NEGATING THE CLAIM OF THE APPELLANTIN RESPECT OF THE FOLLOWI NG ITEMS CLAIMED BY WAY OF FILING A REVISED RETURN: (A) INTEREST FROM GOVT. (REVERSED) RS. 91,46,74,7 95/- (B) INTEREST ON DDA FLATS (REVERSED) RS. 2,18,00, 000/- (C) RENT FROM DGP- MISC. RECEIPTS (REVERSED) RS. 3 ,82,245/- 2. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS), CHANDIGARH WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD THE ACTION OF THE LD. 2 ASSESSING OFFICER IN MAKING AN ADDITION OF RS. 1,34 ,44,346/- ON ACCOUNT OF INSTALLMENTS AGAINST SALE OF HOUSES / FLATS RECE IVED DURING THE YEAR 3. THAT THE ORDER U/S 250(6) PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS), CHANDIGARH IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTIO N OF THE LEARNED DCIT, CIRCLE 6 (1), MOHALI DELHI IN MAKING ADDITION OF RS. 11,64,19,304/- BY DISALLOWING 50% OF ADMINISTRATIVE EXPENSES. 4. THAT THE ORDER U/S 250(6) PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS), CHANDIGARH IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTIO N OF THE LEARNED DCIT, CIRCLE 6(1), MOHALI IN MAKING AN ADDITION OF RS. 1,60,79,056/- BEING 50% OF RS. 3,21,58,112/- WHICH IS AMOUNT PAID TOWARDS MAINTENANCE OF URBAN ESTATES. 5. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ), CHANDIGARH WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN NOT GIVING CREDIT OF ADMINISTRATIVE EXPE NSES OF THE PRECEDING YEAR IN DETERMINING THE VALUE OF THE OPENING STOCK. 3 GROUND NO. 1 AFTER HEARING BOTH THE PARTIES WE FIND THAT THE ASSESSEE HAD INITIALLY MADE PROVISION FOR THE F OLLOWING INCOME: A. INTEREST FROM GOVERNMENT (REVERSED) RS. 91,46, 74,795/- B. INTEREST ON DDA FLATS (REVERSED) RS. 2,18,00,0 00/- C. RENT FROM DGP- MISC. RECEIPTS RS. 3,82,245/- (REVERSED) ---------------------------- RS. 93,68,57,040/- LATER ON THE SAME WERE REVERSED AND THE CLAIM FOR T HESE INCOMES WAS MADE AS EXPENSES IN THE REVISED RETURN. THE ASSESSING OFFICER REJECTED THIS REVISED RETURN ITSE LF AND DID NOT CONSIDER THE REVISED RETURN. 4 THE LD. CIT(A) ACCEPTED THAT THE ASSESSEE HAD RIG HT TO FILE REVISED RETURN VIDE PARA 3.2.1. WHICH IS AS UNDER: PARA 3.2.1. THUS, THE PROVISIONS OF SECTION 139(5) ENTITLE ANY ASSESSEE TO FILE A REVISED RETURN WITHIN THE STIPUL ATED PERIOD TO CURE ANY MISTAKE IN THE ORIGINAL RETURN. IF THE APPELLANT OM ITTED TO EXCLUDE CERTAIN ITEMS FROM THE TAXABLE INCOME IN THE ORIGINAL RETUR N, THE APPELLANT AHS A RIGHT TO FILE A REVISED RETURN TO CLAIM THAT CERTAI N ITEMS INCLUDED IN THE TAXABLE INCOME IN THE ORIGINAL RETURN WERE WRONGLY SO DECLARED. INDEPENDENT OF THE MERITS OF THE CLAIM, THERE IS NO THING WRONG WITH THE ACTION OF THE APPELLANT. WHILE IT IS WITHIN THE DIS CRETION OF THE ASSESSING OFFICER TO TAKE A VIEW ON THE MERITS OF THE CLAIM M ADE IN THE REVISED RETURN IN THE SAME WAY AS HE HAS TO CONSIDER THE CO RRECTNESS OF THE ORIGINAL RETURN, BUT ONCE THE RETURN IS REVISED WIT HIN THE STIPULATED PERIOD, THE REVISED RETURN GETS SUBSTITUTED FOR THE ORIGINAL RETURN AND ASSESSING OFFICER HAS TO CONSIDER THAT RETURN. THER E IS ABSOLUTELY NO BASIS FOR THE VIEW TAKEN BY THE ASSESSING OFFICER A ND HE WAS DUTY BOUND TO DECIDE THE CLAIM MADE BY THE APPELLANT IN THE RE VISED RETURN. AN ASSESSEE CAN FILE AS MANY REVISED RETURNS AS IT WAN TS WITHIN THE TIME LIMITATION ALLOWED U/S 139(5) OF THE ACT. IN FACT, IN SUCH A SITUATION THE LAST REVISED RETURN IS TO BE CONSIDERED AND ALL OTH ER EARLIER RETURNS OF INCOME ARE TO BE IGNORED. GROUND OF APPEAL NO. 2 IS ALLOWED. 3 ON MERITS OF THE CLAIM IT WAS SUBMITTED BEFORE THE LD. CIT(A) AS UNDER: THE ASSESSEE HAD CREDITED A HYPOTHETICAL INCOME IN THE FORM OF INTEREST AND RENTAL TO BE RECOVERED FROM STATE GOVT. THOUGH THERE WAS NO FORMAL UNDERSTANDING ON THIS ISSUE. THE ASSESSEE ON ITS BO NAFIDE BELIEF CREDITED THE SAME IN THE BOOKS OF ACCOUNTS, HOWEVER AFTER TH E FILING OF THE RETURN WHEN THE MATTER WAS TAKEN UP BY THE STATE GOVT. IT WAS DECIDED BY THE GOVT. FOR THE REVERSAL OF THE SAME. THUS THIS HYPOT HETICAL INCOME IN THE FORM OF INTEREST AND RENTAL RECOVERABLE FROM GOVT. MADE THE INTEREST / RENTAL INCOME SHOWN AS A WRONG STATEMENT AND THIS M ISTAKE WAS A BONAFIDE ONE SO THE ASSESSEE WAS LEGALLY ENTITLED T O REVERSE THIS HYPOTHETICAL INCOME BY FILING A REVISED RETURN WHIC H IT DID SO BY FILING THE SAME WITHIN THE PRESCRIBED TIME PERIOD. THE RELIANC E IS PLACED IN THE CASE OF KM BHATIA VS. CIT 193 ITR 379 (GUJ.) IN WHI CH IT WAS HELD THAT THE RETURN CAN BE REVISED IF THE MISTAKE IS A BONAF IDE. THUS THE LD. A.O. MAKING THE ASSESSMENT AT ORIGINAL RETURN AND IGNORI NG THE VALID REVISED RETURN IS ILLEGAL. THE RELIANCE IS PLACED IN THE CA SE OF DHAMPUR SUGAR MILLS LTD. VS. CIT (90 ITR 236) AND CHIEF CIT VS. M ACHINE TOOLS CORP. OF INDIA LTD. 108 CTR 110 WHICH HELD THAT ONCE A REVIS ED RETURN IS FILED, THE ORIGINAL RETURN STANDS WITHDRAWN. MOREOVER THE ASSESSEE WAS MAINTAINING CASH SYSTEM O F ACCOUNTING AND THE ENTRY RECOGNIZING THE INCOME WAS MADE ON ACCRUA L BASIS AS THE SAME WAS ENTERED IN THE BOOKS BY JUST DEBITING THE AMOUN T TO THE OUVL A/C. THUS BY RECOGNIZING THE INCOME ON ACCRUAL BASIS ITS ELF MADE A WRONG STATEMENT IN THE ORIGINAL RETURN PARTICULARLY WHEN THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING. BY REVERSING T HE SAID TRANSACTION AND REVISING THE RETURN CONFIRMED TO THE ACCOUNTING SYSTEM REGULARLY FOLLOWED BY THE ASSESSEE. HENCE THE DECISION TO REV ERSE THE SAME WAS RIGHTLY TAKEN BY THE EMPOWERED COMMITTEE. SIR, IT I S FURTHER BROUGHT TO YOUR NOTICE THAT IN THE PAST NO SUCH TRANSACTION RE COGNIZING THE INTEREST INCOME WAS ENTERED BY THE ASSESSEE ON THE BASIS OF CASH SYSTEM OF ACCOUNTING AS THIS INCOME WAS NEVER RECEIVED. THE D EPARTMENT HAS ALSO NEVER OBJECTED TO THE SAME AND CONSISTENTLY ACCEPTE D THE RETURN OF THE ASSESSEE. HOWEVER IT WAS FOR THE FIRST TIME DURING THE RELEVANT YEAR UNDER CONSIDERATION THAT THIS INCOME TRANSACTION WA S ENTERED WHICH TOO WAS A HYPOTHETICAL INCOME AND NOT RECEIVED, SO TO M AINTAIN THE CONSISTENCY AND IN CONSONANCE WITH EARLIER YEARS TH IS INCOME WAS REVERSED AND A REVISED RETURN WAS FILED. SIR, EVEN IF THE ASSESSEE WOULD NOT HAVE REVISED TH E RETURN, THE HYPOTHETICAL INCOME CREDITED IN THE BOOKS IS NOT AT ALL ASSESSABLE. SIMILARLY, THE RATIO LAID DOWN BY THE HONBLE SUPRE ME COURT IN THE CASE OF CIT WEST BENGAL-I VS. INDIA DISCOUNT CO. LTD. 73 ITR PAGE 191 (SC) APPLIES TO THE APPELLANTS CASE AS THE HONBLE SUPR EME COURT HAS HELD THAT THE RECEIPT BEING ONE WHICH IN LAW COULD NOT BE REGARDED AS INCOME, IT COULD NOT BECOME INCOME MERELY BECAUSE T HE RESPONDENT ERRONEOUSLY CREDITED IT TO THE PROFIT AND LOSS ACCO UNT. SIMILARLY, THE HONBLE SUPREME COURT IN THE CASE OF SATLUJ COTTON MILLS LTD. VS. CIT WEST BENGAL 16 ITR PAGE 137(SC) HELD IT IS NOW WE LL SETTLED THAT THE WAY IN WHICH ENTRIES ARE MADE BY THE ASSESSEE IN HI S BOOKS OF ACCOUNT IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE AS SESSEE HAS EARNED ANY PROFIT OR SUFFERED ANY LOSS. THE ASSESSEE MAY B Y MAKING ENTRIES WHICH ARE NOT IN CONFORMITY WITH THE PROPER PRINCIP LES OF ACCOUNTANCY, CONCEAL PROFIT OR SHOW LOSS AND THE ENTRIES MADE BY HIM CANNOT, THEREFORE, BE REGARDED AS CONCLUSIVE ONE WAY OR THE OTHER. WHAT IS NECESSARY TO BE CONSIDERED IS THE TRUE NATURE OF TH E TRANSACTION AND WHETHER IN FACT IT HAS RESULTED IN PROFIT OR LOSS T O THE ASSESSEE. THE HONBLE JURISDICTION HIGH COURT HAS HELD IN THE CAS E OF CIT AMRITSAR-1 VS. N.D. RADHA KISHAN & CO. 140 ITR 860 (P&H) THAT INCOME DOES NOT ACCRUE BY MERE ENTRY IN BOOKS OF ACCOUNT- ASSETS OF OLD FIRM TAKEN OVER BY NEW FIRM AT WRITTEN DOWN VALUE-ASSETS REVALUED A ND DIFFERENCE DEBITED TO OLD FIRM- DEBIT ENTRY REVERSED AND INTER EST CHARGED FROM OLD FIRM EARLIER WITHDRAWN IN REVISED RETURN RESULTING IN REDUCTION OF INTEREST INCOME TO INCOME DERIVED FROM OUTSIDE SOURCE- AMOUN T IS ONLY A NOTIONAL RECEIPT AND NOT ASSESSABLE IN HANDS OF ASSESSEE-FIR M. THEY HAVE 4 UPHELD THE DECISION OF THE TRIBUNAL THAT THE MERE PASSING OF AN ENTRY DID NOT MEAN THAT INCOME HAD ACCRUED TO THE ASSESSEE TH AT THE ASSESSEE DID NOT DERIVE ANY INCOME FROM ANY OUTSIDE SOURCE AND T HAT IT WAS ENTITLED TO REVERE THE ENTRY AT ANY TIME RETROSPECTIVELY BEFORE THE COMPLETION OF THE ASSESSMENT FOR THE RELEVANT YEAR. THEY FOLLOWED TH EIR EARIER DECISION IN THE CASE OF CIT VS. FEROZEPUR FINANCE (P) LTD. (198 0) 124 ITR 619 (P&H). IN VIEW OF THE ABOVE DECISION OF THE HONBLE SUPREME COURT OF INDIA AND THE JURISDICTION HIGH COURT THE LAW ON TH E POINT IS ABSOLUTELY CLEAR THAT NOTIONAL INCOME CANNOT BE ASSESSED IRRES PECTIVE OF THE FACT THAT WHETHER THE ASSESSEE HAS MADE ANY ENTRY IN THE IR BOOKS OF ACCOUNT. THE ASSESSEE HAS THE RIGHT TO REVERSE THE ENTRIES AT ANY TIME BEFORE FRAMING OF THE ASSESSMENT. SIMILAR VIEW HAVE BEEN TAKEN IN THE FOLLOWING DECIS ION:- I) CIT VS. INDIA DISCOUNT CO. LTD. 1970 (75 ITR -19 1) (SC) II) SUTLEJ COTTON MILLS LTD. VS. CIT, 1979, 116 ITR 1(SC). III) CIT VS. SHOORJI VALLABH DASS AND COMPANY (1962 ), 46 ITR- 144(SC). IV) CIT VS. N.D. RADHAKRIHAN AND CO. (1983) 140 ITR 860(P&H) V) CIT VS. BAWA SINGH CHAUHAN (1984) 150 ITR 8 (DEL HI) THUS IN VIEW OF THE ABOVE IT IS CLEALR THAT THE FIL ING OF THE REVISED RETURN BY THE ASSESSEE REVERSING A HYPOTHETICAL INCOME IS LEGAL AND THE LD. A.O. MAKING THE ASSESSMENT ON THE ORIGINAL RETURN I S ILLEGAL ACCORDINGLY IT IS NOT ONLY THAT THE ASSESSMENT OF THE ASSESSEE SHOULD HAVE BEEN MADE ON THE REVISED RETURN AND IT IS NOT ONLY THAT THE BENEFIT OF REVERSAL OF HYPOTHETICAL INCOME CREDITED BY THE ASSESSEE IN THE ORIGINAL RETURN TO BE ALLOWED, EVEN IF THE ASSESSEE WOULD NOT HAVE REV ISED THE RETURN REVERSING THIS HYPOTHETICAL INCOME IT IS THE WHOLE OF THE ASSESSMENT THAT IS LIABLE TO BE QUASHED IN THE CASE WHERE THE A.O. MAKES THE ASSESSMENT ON THE ORIGINAL RETURN WHEN HE HAS ALREA DY IN HIS POSSESSION A VALID REVISED RETURN. THUS IT IS REQUESTED THAT T HE ASSESSEE BE GIVEN THE BENEFIT OF REVERSAL OF HYPOTHETICAL INCOME WHIC H CAN NOT BE ASSESSED. THUS THE REVISED RETURN OF THE ASSESSEE W HICH WAS A VALID RETURN AND THE REVERSAL OF THE HYPOTHETICAL INCOME BE ACCEPTED.(SIC) THE LD. CIT(A) EXAMINED THE ABOVE SUBMISSIONS AND D ID NOT FIND ANY FORCE IN THE SAME. HE OBSERVED THAT THE C LAIM THAT NO INCOME HAS ACTUALLY ACCRUED OR RECEIVED AFTER TWO Y EARS FROM THE PREVIOUS YEAR CAN NOT BE ENTERTAINED. HE FURTH ER OBSERVED THAT IF THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF A CCOUNTING THEN ONLY THAT PART OF INCOME WHICH HAS ACTUALLY BE EN RECEIVED, WOULD BE SHOWN IN THE INCOME AND EXPENDITURE ACCOUN T. HE ALSO OBSERVED THAT THE PERUSAL OF THE ACCOUNTS PART ICULARLY SCHEDULE G OF CURRENT ASSETS SHOW THAT THERE WAS NO MENTION OF AMOUNT RECEIVABLE, THEREFORE, THIS AMOUNT MUST HAVE BEEN RECEIVED AND ACCORDINGLY REJECTED THE CONTENTION O F THE ASSESSEE. 5 BEFORE US, IT WAS MAINLY CONTENDED THAT THE ASSES SEE UNDER THE WRONG IMPRESSION CREDITED THESE AMOUNTS A S INCOME BELIEVING THAT THESE AMOUNTS WERE RECEIVABLE FROM T HE GOVERNMENT. HOWEVER, LATER ON GOVERNMENT OF PUNJAB TOOK A 5 DECISION THAT THEY DID NOT WISH TO PAY THESE AMOUNT S THEREFORE, NO INCOME HAS ACTUALLY ACCRUED AND REVERSAL OF THE SAME WAS PROPER. IN ANY CASE NO AMOUNT HAS BEEN RECEIVED AN D SINCE THE ASSESSEE WAS ACTUALLY FOLLOWING CASH SYSTEM OF ACCOUNTING THEREFORE, THIS INCOME CANNOT BE TAKEN INTO CREDIT FOR TAXATION PURPOSES UNLESS AND UNTIL THE AMOUNT IS RECEIVED. 6 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE ST RONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 7 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. I N THIS CASE INITIALLY THE ASSESSEE HAD RECOGNIZED INCOME I N RESPECT OF INTEREST FROM GOVERNMENT OF PUNJAB, INTEREST ON DDA FLATS AND RENT FROM DGP (MISCELLANEOUS RECEIPTS) AND THESE I NCOMES WERE SHOWN IN THE RETURN OF INCOME. LATER ON THESE ENTRIES WERE REVERSED BECAUSE THE ASSESSEE HAD NOT RECEIVED ANY OF THESE PAYMENTS AND FILED REVISED RETURN. NO DOUBT THESE RECEIPTS RELATE TO THE INCOME AND THE ASSESSEE IS S UPPOSED TO SHOW THIS INCOME IN THE RETURN. THERE IS NO JUSTIF ICATION THAT THESE INCOMES WERE LATER ON REVERSED BECAUSE THE GO VERNMENT OF PUNJAB DECIDED NOT TO PAY THE INTEREST. THE ASS ESSEE BEING A COMMERCIAL ENTITY SHOULD HAVE INSISTED ON THE REC EIPT OF INTEREST FROM THE GOVERNMENT OF PUNJAB. HOWEVER, A T THE SAME TIME THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCO UNTING AND THEREFORE, THESE INCOMES CAN BE RECOGNIZED IN THE BOOKS OF ACCOUNT ONLY WHEN THE INCOME HAS BEEN ACTUALLY RECE IVED. WE HAVE ALREADY DISCUSSED THE ISSUE REGARDING CASH SYS TEM OF ACCOUNTING WHILE DISCUSSING THE ISSUE REGARDING ADV ANCE INSTALLMENTS RECEIVED BY THE ASSESSEE IN ASSESSMENT YEAR 2003-04 IN REVENUES APPEAL IN ITA NO. 762/CHD/2008 VIDE ORDER DATED 6.12.2013. THE ISSUE REGARDING INSTALL MENTS HAS BEEN ADJUDICATED EVEN IN THIS APPEAL WHILE DISCUSSI NG THE ISSUE REGARDING INSTALLMENTS IN GROUND NO. 2 OF THIS APPE AL VIDE PARA NO.11. WE HAVE ALREADY HELD WHILE ADJUDICATING THE ISSUE OF INSTALLMENTS THAT WHATEVER AMOUNTS ARE RECEIVED HAV E TO BE ACCOUNTED AS INCOME, THEREFORE, THIS WOULD ALSO ME AN WHATEVER HAS NOT BEEN RECEIVED, CANNOT BE ACCOUNTED AS INCOME. HOWEVER, THE FACTS ARE NOT CLEAR BECAUSE I T IS NOT CLEAR WHETHER THIS AMOUNT WAS RECEIVED OR NOT BECAU SE OF THE 6 ACCOUNTS WITH GOVERNMENT OF PUNJAB HAVE BEEN DEALT THROUGH OPTIMUM UTILIZATION VACANT GOVERNMENT LAND ACCOUNT (IN SHORT OUVGL). THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE OUVGL ACCOUNT AND IF THIS AMOUNT HAS NOT BEEN RECEIVED BY THE ASSESSEE THEN SAME CANNOT BE SUBJECT TO TAX. 8 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS RECEIVED A SUM OF RS. 1,34,44,346/- ON ACCOUNT OF INSTALLMENTS AGAINST SALE OF HOUSES AND FLATS. SINCE THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING TH EREFORE, THIS AMOUNT WAS CHARGED TO TAX. 9 ON APPEAL THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 10 BEFORE US, BOTH THE PARTIES AGREED THAT THE ISSU E IS SIMILR TO THE ISSUE IN RESPECT OF GROUND NO. 5 OF ITA NO. 762/CHD/2008 FOR ASSESSMENT YEAR 2003-04 AND MADE S IMILAR ARGUMENTS AS WERE ADVANCED IN THAT CASE. 11 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE FACTS INN THIS CASE ARE IDENTICAL TO THE FACTS OF A SSESSEES CASE IN RESPECT OF GROUND NO. 5 IN THE APPEAL FILED BY THE REVENUE INN ITA NO. 762/CHD/2008. THE CONTENTIONS OF BOTH THE PARTIES ARE ALSO SAME. THE ISSUE IN RESPECT OF GROUND NO. 5 HAS BEEN ADJUDICATED BY US IN THE CONSOLIDATED ORDER IN ITA NO. 762/CHD/2008 DATED 6.12.2013 VIDE PARA 62 TO 72 WHI CH 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 HEAD 'PROFITS AND G AINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURC ES' SHALL, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCORDANCE WITH EIT HER 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 TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. 7 (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 ACCOUNTIN G STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGUL ARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSM ENT 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 ASSE SSEE HAD CHOICE TO FOLLOW MERCANTILE OR CASH OR EVEN HYB RID SYSTEM OF ACCOUNTING I.E. THE ASSESSEE COULD CHOOSE CASH SYSTEM OF ACCOUNTING FOR ONE SOURCE OF INCOME AND MERCANTILE SYSTEM OF ACCOUNTING FOR OTHER SOURCES. THIS CHOICE HAVE BEEN REMOVED AND NOW THE ASSESSEE COULD FOLLOW EITHER CASH SYSTEM OF ACCOUNTING OR MERCANTI LE SYSTEM OF ACCOUNTING. PLAIN READING OF THE PROVISIO N SHOWS THAT THE ASSESSEE COULD FOLLOW ONLY ONE SYSTE M OF ACCOUNTING IN RESPECT OF INCOME UNDER THE HEAD PR OFITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES. THIS RESTRICTIONS HAVE NOT BEEN PRESCRIB ED FOR OTHER HEADS OF BUSINESS. IN CASE BEFORE US, INCOME OF THE ASSESSEE IS CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS THEREFORE, THE ASSESSEE COULD HAVE AD OPTED ONLY ONE SYSTEM OF ACCOUNTING. BEFORE THE PRESENT ASSESSMENT YEAR THE ASSESSEE WAS FOLLOWING MERCANTI LE SYSTEM OF ACCOUNTING AND IN THIS YEAR SYSTEM HAS BE EN CHANGED FROM MERCANTILE SYSTEM OF ACCOUNTING TO CAS H SYSTEM OF ACCOUNTING. THOUGH IT IS VERY SURPRISING HOW A LARGE ORGANIZATION SUCH AS THE ASSESSEE, COULD FOLL OW CASH SYSTEM OF ACCOUNTING BUT IT IS ADMITTED FACT T HAT THE ASSESSEE FOLLOWED CASH SYSTEM OF ACCOUNTING. IN FA CT IN RESPECT OF OTHER ADDITIONS LIKE RECEIPT OF INTERES T FROM BANK AND RECEIPT OF INTEREST FROM GOVERNMENT OF PUN JAB, IT WAS VEHEMENTLY ARGUED ON BEHALF OF THE ASSESSEE THA T THESE RECEIPTS CAN BE TAXED ONLY WHEN THE SAME HAVE BEEN ACTUALLY RECEIVED BY THE ASSESSEE BECAUSE THE ASSESSEE WAS FOLLOWING 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 ACCOUNTS IN CASH SYSTEM I.E. PEOPLE LIKE DOCTORS, ADVOCATES OR OTHER PROFESSIONALS KEEP THEIR ACCOUNT S 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 OBSERVED THAT IT IS SURPRISING THAT TH E ASSESSEE HAD FOLLOWED CASH SYSTEM OF ACCOUNTING. THEREFORE, WHEN THE TRADERS FOLLOW CASH SYSTEM AND WHENEVER SUCH TRADERS SELL ANY MERCHANDISE ON CREDI T HE WOULD ENTER THE TRANSACTION ONLY IN A MEMORANDUM ACCOUNT OR IN SOME OTHER ROUGH ACCOUNT AS A RECORD SO THAT HE DOES NOT FORGET THE SAME. THIS IS THE REAS ON WE ARE SURPRISE THAT ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING WHEN IN ASSESSEES CASE LARGE NUMBER OF TRANSACTIONS ARE INVOLVED HOW CAN AN ORGANIZATION C AN FOLLOW CASH SYSTEM BECAUSE IN THE TRANSACTION WHERE NO CASH IS INCOMING OR OUTGOING SUCH TRANSACTIONS ARE NOT RECORDED UNDER THIS SYSTEM AND THEY ARE ONLY NOTED AS 8 MEMORANDUM ENTRIES OR IN ROUGH JOTTING. UNDER THE CASH SYSTEM OF ACCOUNTING SUCH TRADER WOULD NOT ENTER TH E SALE PROCEEDS ON THE INCOME SIDE IN HIS BOOKS OF ACCOUNT OR CASH BOOK UNTIL THE SAME IS ACTUALLY RECEIVED. SIM ILARLY IN AN ITEM OF EXPENDITURE WILL BE BOOKED ONLY WHEN ACT UAL CASH PAYMENT IS MADE. IN CASE OF MERCANTILE SYSTEM OF ACCOUNTING INCOME AS WELL AS EXPENDITURE WOULD BE RECOGNIZED ON THE PRINCIPLE OF ACCRUAL. IN FACT TH IS ISSUE WAS CONSIDERED 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 HAD G IVEN LOAN TO ONE SHRI NISAR AHMAD KHAN, TALUQDAR OF MOH ANA ESTATE. THE ASSESSEE WAS MAINTAINING BOOKS OF ACCO UNT ON CASH SYSTEM OF ACCOUNTING. THE ASSESSEE COMMENC ED AN ACTION IN CIVIL COURT FOR A DECREE FOR RECOVERY OF RS. 2,58,000/-. ULTIMATELY JUDICIAL COMMITTEE OF THE P RIVY COUNCIL DECREED IN FAVOUR OF THE ASSESSEE. SHRI NI SAR AHMAD KHAN OBTAINED UNDER THE UP ENCUMBERED ESTATE S ACT, 25 OF 1934 AN ORDER APPLYING THE PROVISION OF THE ACT TO HIM. THE SPECIAL JUDGE, SULTANPUR, PASSED AN OR DER FOR PAYMENT OF RS. 5,00,992/- TO THE ASSESSEE. PUR SUANCE TO THE ORDER THE ASSESSEE RECEIVED IN 1946, RS. 1,5 4,692/- FROM THE DEBTOR AND FOR THE BALANCE THE GOVERNMENT OF THE UNITED PROVINCES GAVE TO THE ASSESSEE ENCUMBERED ESTATE BONDS OF THE FACE VALUE OF RS. 3,46,300. TH E AMOUNT RECEIVED IN THE YEAR 1946 WAS APPROPRIATED B Y 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. 2,22,097-9-11 AND RS. 1,24,202-6-1 AND CREDI TED THE FIRST AMOUNT IN THE BOOKS OF ACCOUNT TOWARDS TH E BALANCE OF PRINCIPAL AND THE SECOND AMOUNT TO AN AC COUNT STYLED INTEREST ACCRUED. IN SUBMITTING THE RETUR N OF HIS TAXABLE INCOME FOR THE ASSESSMENT YEAR 1948-49 THE ASSESSEE DID NOT DISCLOSE ANY RECEIPT OF INCOME FRO M INTEREST DUE ON THE LOANS ADVANCED TO NISAR AHMAD K HAN. THE ASSESSEE WAS DULY ASSESSED TO TAX ON THE INCOME DISCLOSED BY HIM. IN OCT 1948, THE ASSESSEE SOLD T HE ENCUMBERED ESTATES BONDS AND REALIZED A TOTAL SUM O F INTEREST RECEIVED DURING THE YEAR ON ACCOUNT THE DIFFERENCE BETWEEN THE AMOUNT REALIZED BY SALE OF T HE 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 THE DIFFERENCE BETWEEN THE FACE VALU E OF THE BONDS AND THE AMOUNT DUE AS PRINCIPAL AS ESCAPE D INCOME OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSM ENT YEAR 1948-49. THE ORDER WAS CONFIRMED BY THE APPEL LATE ASSISTANT COMMISSIONER AND THE INCOME-TAX APPELLATE TRIBUNAL. THE HIGH COURT ALSO DECIDED THE ISSUE AG AINST THE ASSESSEE. ON FURTHER APPEAL BEFORE THE HON'BLE SUPREME COURT IT WAS MAINLY CONTENDED THAT THE ASSE SSEE WAS MAINTAINING BOOKS OF ACCOUNT ON CASH SYSTEM OF ACCOUNTING AND UNTIL THE ASSESSEE REALIZED THE VALU E OF BONDS, NO INTEREST CAN BE SAID TO HAVE BEEN RECEIVE D BY THE ASSESSEE BECAUSE IT WAS FURTHER SUBMITTED THAT WHEN THE ACCOUNTS ARE MAINTAINED ON CASH SYSTEM OF ACCOUNTING, RECEIPT OF MONEY ALONE MAY BE TAKEN INT O 9 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 TO TAL INCOME OF ANY PREVIOUS YEAR OF A RESIDENT ASSESSEE INCLUDES ALL INCOME, PROFITS AND GAINS FROM WHATEVER SOURCES DERIVED WHICH ARE RECEIVED OR ARE DEEMED TO BE RECEIVED IN THE TAXABLE TERRITORIES IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON, OR ACCRUE OR ARISE OR ARE DEEMED TO ACCRUE OR ARISE TO HIM IN THE TAXABLE TERRITORIES DURING SUCH YEAR, OR ACCRUE OR ARISE TO HIM WITHOUT THE TAXABLE TERRITORIES DURING SUCH YEAR, OR HAVING ACCRUED OR ARISEN TO HIM WITHOUT THE TAXABLE TERRITORIES BEFORE THE BEGINNING OF SUCH YEAR AND A FTER THE 1 ST DAY OF APRIL, 1933, ARE BROUGHT INTO OR RECEIVED IN THE TAXABLE TERRITORIES BY HIM DURING SUCH YEAR. THE ACT DOES NOT CONTAIN MUCH GUIDANCE AS TO CASES IN WHICH TAX IS TO BE LEVIED ON INCOME RECEIVED, AND CASES IN WHICH TAX IS TO BE LEVIED ON INCOME AC CRUED OR ARISEN. SECTION 13 HOWEVER REQUIRES THAT INCOME, PROFITS AND GAINS FOR THE PUR POSES OF SECTIONS 10 AND 12 SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTIN G REGULARLY EMPLOYED BY THE ASSESSEE. IF ACCOUNTS ARE MAINTAINED ACCORDING TO T HE MERCANTILE SYSTEM, WHENEVER THE RIGHT TO RECEIVE MONEY IN THE COURSE OF A TRADING T RANSACTION ACCRUES OR ARISES, EVEN THOUGH INCOME IS NOT REALIZED, INCOME EMBEDDED IN T HE RECEIPT IS DEEMED TO ARISE OR ACCRUE. WHERE THE ACCOUNTS ARE MAINTAINED ON CASH B ASIS RECEIPT OF MONEY OR MONEYS WORTH AND NOT THE ACCRUAL OF THE RIGHT TO RECEIVE I S 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 WHET HER 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 AS SET 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. IN CALIFORNIAN COPPER SYNDICATE V. HARRIS LORD TRAYNER IN DEALING WITH A CASE OF ASSESSEEMENT TO INCOME-TAX OF A COMPANY, FORMED FOR THE PURPOSE, INTER ALIA, OF ACQUIRING AND RE-SELLING MINING PROPERTY, WHICH RESOLD THE WHOLE OF ITS ASSETS TO A SECOND COMPANY AND RECEIVED PAYMENT IN FULLY PAID S HARES OF THE PURCHASING COMPANY, OBSERVED: A PROFIT IS REALIZED WHEN THE SELLER GETS THE PRI CE HE HAS BARGAINED FOR. NO DOUBT HERE THE PRICE TOOK THE FORM OF FULLY PAID SHARES IN ANO THER COMPANY, BUT, IF THERE CAN BE NO REALIZED PROFIT, EXCEPT WHEN THAT 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 MANN ER IN WHICH THE PERSON 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 MERCANT ILE SYSTEM, WHENEVER THE RIGHT TO RECEIVE MONEY IN THE COURSE O F A TRADING TRANSACTION ACCRUES OR ARISES, EVEN THOUGH INCOME I S NOT REALIZED, INCOME EMBEDDED IN THE RECEIPT IS DEEMED TO ACCRUE OR ARISE. WHERE THE ACCOUNTS ARE MAINTAINED ON CASH BASIS, RECEIPT OF M ONEY OR MONEYS WORTH AND NOT THE ACCRUAL OF THE RIGHT TO RECEIVE I S THE DETERMINING FACTOR. THEREFORE, IF COMMERCIAL ASSETS ARE RECEIVE D 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 TIL L THE ASSET IS REALIZED IN TERMS OF CASH OR MONEY. IT MAKES NO DIFFERENCE WHET HER THE RECEIPT OF ASSETS IS IN PURSUANCE OF AN AGREEMENT OR THAT THE TRADER IS COMPELLED BY LAW TO ACCEPT THE ASSETS FROM THE DEBTOR. ONCE TITL E OF THE TRADER TO AN ASSET RECEIVED IS COMPLETE WHETHER BY A CONSENSUAL ARRANGEMENT OR BY OPERATION OF LAW, HE RECEIVES THE INCOME EMBEDDED I N THE VALUE OF THE ASSET. 10 THEREFORE, IN CASH SYSTEM OF ACCOUNTING FOR DETERMI NATION OF THE INCOME RECEIPT ON MONEY (CASH) OR MONEYS WO RTH INSTRUMENTS ARE DETERMINING FACT AND IN ACCRUAL OF RIGHT TO RECEIVE SUCH MONEY IS A MATERIAL. IN OTHER WORD S, 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 FROM BANK THEN THE SAME WOULD NOT REQU IRED TO BE TAXED. HOWEVER, IF THERE IS SIMPLY A RIGHT T O RECEIVE SUCH CASH THE SAME CANNOT BE TAXED IN THE CASH SYST EM OF ACCOUNTING. IN OUR OPINION, THIS WOULD ANSWER THE QUESTION AND OR CONTENTION RAISED BY THE LD. COUNSE L OF THE ASSESSEE THAT BEFORE TAXING AN ITEM THE SAME HA S 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-TA X AT THAT RATE OR THOSE RATES SHALL BE CHARGED FOR THAT YEAR IN ACCORDANCE WITH, AND [SUBJECT TO THE PROVISIONS (INCLUDING PROVISIONS FOR THE LEVY OF ADDITIONAL INCOME-TAX) O F, 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 PR EVIOUS YEAR, INCOME-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 DE DUCTIBLE OR PAYABLE 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 W HICH 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. TOTAL INCOME HAS BEEN DEFINED IN SECTION 5 OF THE ACT. THE WORD INCOME HAS BEEN DEFINED IN SECTION 2(24) SO THERE FORE, BEFORE CHARGING TAX IT HAS TO BE SEEN THAT AN ITEM IS IN THE NATURE OF INCOME AND COVERED BY THE DEFINITION OF INCOME GIVEN IN SECTION 2(24) OF THE ACT. IT IS FU RTHER TO BE NOTED THAT INCOME HAS BEEN DEFINED IN INCLUSIVE MEANING. THIS IS VERY COMPLEX ISSUE AND WITHOUT GO ING INTO THE DETAILS WE WOULD SIMPLY TAKE THE SIMPLE ME ANING OF THE INCOME. IN THE NORMAL COMMERCIAL PARLANCE AN ITEM WHICH IS OF REVENUE NATURE, IS TAKEN AS INCOME . NOW IN CASE OF PRESENT YEAR THE ORGANIZATION WHICH IS C ARRYING OUT THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF HOUSES AND IF SUCH ORGANIZATION SELLS THE SAME OUTR IGHTLY OR ON INSTALLMENTS BASIS THEN SUCH INSTALLMENTS WOU LD BE IN NATURE OF INCOME. THEREFORE, THERE IS NO FORC E IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT INSTALLMENTS RECEIVED BY THE ASSESSEE DO NOT COME U NDER THE CHARGING SECTION AND THEREFORE, SAME CANNOT BE TAXED SIMPLY BECAUSE U/S 145 THE RECEIPT UNDER CASH SYSTE M HAS TO BE TAXED. NO DOUBT SECTION 145 IS A MACHINERY S ECTION BUT MACHINERY SECTION ALSO HAVE LOT OF BEARING ON DETERMINATION OF INCOME AND CANNOT BE IGNORED LIGHT LY. IN THIS CONNECTION WE WOULD LIKE TO REFER TO ONE OF TH E CELEBRATED JUDGMENT OF HON'BLE SUPREME COURT IN CAS E OF CIT VS. B.C. SRINIVASA SETTY, 128 ITR 294 (S.C). I N THAT 11 CASE THE ASSESSEE WAS A REGD FIRM. CLAUSE 13 OF T HE INSTRUMENT OF PARTNERSHIP DEED SHOWED THAT GOODWILL OF THE FIRM HAVE NOT BEEN VALUED AND VALUATION WOULD B E MADE AT THE DISSOLUTION OF THE PARTNERSHIP. PERIOD OF THE PARTNERSHIP WAS EXTENDED AND SUBSEQUENTLY PARTNERSH IP WAS DISSOLVED ON 31.12.1965. AT THE TIME OF DISSOL UTION GOODWILL WAS VALUED AT RS. 1,50,000/-. THE NEW PARTNERSHIP WITH THE SAME NAME WAS CONSTITUTED THRO UGH ANOTHER DEED OF PARTNERSHIP. NEW FIRM BOOKED OVER ALL THE ASSETS INCLUDING GOODWILL AND LIABILITY OF THE DISSOLVED FIRM. ORIGINALLY NO ADDITION WAS MADE ON ACCOUNT OF GAIN ARISING OUT OF TRANSFER OF GOODWILL BUT THIS ASSESSMENT ORDER WAS FOUND ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF THE REVENUE AND THEREFORE, LD. COMMISSIONER PASSED REVISIONARY ORDER DIRECTING THE ASSESSING OFFICER TO MAKE FRESH ASSESSMENT AFTER TA KING INTO ACCOUNT THE CAPITAL GAIN ARISING OUT OF SALE O F GOODWILL. THE ASSESSEE MAINTAINED THAT NO SALE TOO K PLACE TO ATTRACT THE TAX ON CAPITAL GAIN U/S 45 OF THE INCOME TAX ACT . THE TRIBUNAL ALLOWED THE APPEAL. WHEN THE MATTER TRAVELED TO THE HON'BLE SUPREME COURT TH E MATTER WAS ARGUED IN GREAT DETAIL. ONE OF THE ISSU E AROSE WHETHER THERE WAS TRANSFER AND IT WAS HELD YES IT W AS A TRANSFER. ANOTHER ISSUE AROSE WHETHER THE GAIN OF SUCH TRANSFER OF GOODWILL WOULD BE TAXED U/S 45 OF THE A CT. IT WAS FOUND THAT GOODWILL IS A SELF GENERATED ASSET A ND NO COST OF ACQUISITION CAN BE ATTRIBUTED TO SELF GENE RATED ASSETS. SINCE SECTION 48 WHICH IS MODE OF COMPUTAT ION OF CAPITAL GAIN PRESCRIBES REDUCTION OF COST OF ACQUIS ITION FROM THE SALE CONSIDERATION IT WAS HELD THAT IN THE ABSENCE OF COST OF ACQUISITION COMPUTATION OF CAPI TAL GAIN, WAS NOT POSSIBLE. THEREFORE, SAME WAS HELD TO BE NOT TAXABLE. THIS CLEARLY SHOWS THAT COMPUTATION PROVISION WHICH IS AGAIN A MACHINERY PROVISION, HAD LOT OF BEARING ON THE TAXABILITY OF GAIN RECEIVED ON TRANS FER OF GOODWILL. THEREFORE, EVEN IF SECTION 145 BEING MA CHINERY SECTION HAS ITS OWN IMPLICATIONS. IMPLICATIONS ARE VERY CLEAR THAT THE ASSESSEE HAS A RIGHT TO FOLLOW EITHE R MERCANTILE SYSTEM OF ACCOUNTING OR CASH SYSTEM OF ACCOUNTING FOR DETERMINATION OF THE INCOME. THE ASSESSEE HAS BEEN GIVEN A CHOICE AND IN THE CASE BE FORE US, THE ASSESSEE HAS DELIBERATELY AND AFTER APPLYIN G ITS MIND DECIDED TO FOLLOW CASH SYSTEM OF ACCOUNTING, THEREFORE, THE ASSESSEE HAS TO BEAR THE CONSEQUENC ES OF SUCH SYSTEM 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 ASSESSEE WAS AN ADVOCATE AND RECEIVED CERT AIN AMOUNTS FOR SERVICES TO BE PERFORMED OVER A PERIOD OF TIME. THE AMOUNT RECEIVED FROM THE CLIENT IN RESPE CT OF SERVICES RENDERED IN THE YEAR UNDER CONSIDERATION , WAS SHOWN AS INCOME AND THE BALANCE AMOUNT WAS SHOWN AS ADVANCE. THE ASSESSING OFFICER HELD THAT AS PER TH E PROVISIONS OF SECTION 145 THE ASSESSEE WAS FOLLOWIN G CASH SYSTEM OF ACCOUNTING AND THEREFORE, WHOLE AMOUNT WA S 12 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 E FFECT THAT INCOME-TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT THE RAT E OR RATES PROVIDED IN ANY CENTRAL ACTS IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON. SECTION 5 DEALS WITH THE SCOPE OF TO TAL INCOME, WHICH IS DEFINED IN RESPECT OF ANY PREVIOUS YEAR IN TERMS OF ACCRUAL, DEEMED ACCRUAL, RECEIPT AND DEEMED RECEIPT ETC. SECTION 14 5 DEALS WITH THE METHOD OF ACCOUNTING IN RESPECT OF PROFITS AND GAI NS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES. THUS, W HILE SECTIONS 4 AND 5 DEAL WITH THE SCOPE OF INCOME AND ITS CHARGE TO INC OME-TAX, SECTION 145 IS A PROCEDURAL SECTION REGARDING THE METHOD TO BE FOLLOWED FOR RECORDING OF INCOME IN THE BOOKS OF ACCOUNT. IT IS NO DOUBT T RUE THAT FOR THE ASSESSMENT YEAR 1997-98 AND ONWARDS, THE ASSESSEE C AN FOLLOW EITHER THE CASH OR THE MERCANTILE SYSTEM OF ACCOUNTING AND THE HYBRID SYSTEM OF ACCOUNTING IS PROHIBITED. HOWEVER, WHAT IS TO BE TA XED IS INCOME AND RECEIPT OF AN AMOUNT IS NOT TO BE THE BASIS FOR THE LEVY OF THE TAX. IN THE CASE OF MESSRS. SHOORJI VALLABHDAS AND CO. [1962] 4 6 ITR 144, THE HONBLE SUPREME COURT POINTED OUT THAT THE INCOME-T AX 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 IN COME. IT IS FURTHER MENTIONED THAT THE SUBSTANCE OF THE MATTER IS INCO ME. IT MAY BE EMPHASIZED THAT IT IS ACCRUAL OF INCOME OR RECEIPT OF INCOME THAT CAN BECOME THE SUBJECT-MATTER OF TAX AND IT IS THE INCO ME 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 INFIRMITY IN THE O RDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IN PARAGRAPH 4 .7 WHERE IT WAS STATED THAT THE ENTIRE AMOUNT RECEIVED, WHETHER ARR EARS OR ADVANCE, IS TO BE SHOWN AS INCOME UNDER THE CASH SYSTEM OF ACCOUNT ING. 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 SYSTEM OF ACCOUNTING. THE HIGHLIGHTED PORTION OF THE ABOVE PARAGRAPH CLEA RLY SHOWS THAT IN CASH SYSTEM OF ACCOUNTING THE RECEIPT OF MONEY WHETHER ARREARS OR ADVANCE, HAS TO BE SHOWN A S INCOME, THEREFORE, THIS DECISION IS TOTALLY DISTIN GUISHABLE. 65 ANOTHER DECISION RELIED ON WAS THAT OF CIT VS. MESSRS, SHOORJI VALLABHDAS AND CO. (SUPRA). IN THA T CASE THE ASSESSEE FIRM WAS THE MANAGING AGENT OF TWO SHIPPING COMPANIES AND UNDER THE MANAGING AGENCY AGREEMENT, THE ASSESSEE WAS ENTITLED FOR COMMISSION @ 10% OF THE FREIGHT CHARGES. BETWEEN APRIL 1, 1947 AND DECEMBER 31, 1947 AN AMOUNT OF RS. 1,71,885/- FROM ONE COMPANY AND RS. 2,56,815/- FROM OTHER COMPANY BECAM E DUE TO THE ASSESSEE AS COMMISSION @ 10%. THIS AMO UNT WAS CREDITED IN THE BOOKS OF ACCOUNT AND DEBITED TO MANAGING AGENT. IN NOVEMBER 1947 THE ASSESSEE DESI RED 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 AMO UNTS TO RS. 1,36,903/- AND RS. 2,00,625/- BEING 7% OF T HE FOREGONE AMOUNT AS INCOME. ON THESE FACTS IT WAS H ELD AS UNDER: 13 HELD, THAT THE SUBSEQUENT AGREEMENT HAD ALTERED THE RATE OF COMMISSION IN SUCH A WAY AS TO MAKE THE INCOME WHIC H REALLY ACCRUED TO THE ASSESSEE DIFFERENT FROM WHAT HAD BEEN ENTERED I N THE BOOKS OF ACCOUNT. THIS WAS NOT A CASE OF A GIFT BY THE ASSES SEE TO THE MANAGED COMPANIES OF A PORTION OF INCOME WHICH HAD ALREADY ACCRUED, BUT AN AGREEMENT TO RECEIVE A LESSER REMUNERATION THAN WHA T HAD BEEN AGREED UPON. THE ASSESSEE HAD IN FACT RECEIVED ONLY THE LE SSER AMOUNT IN SPITE OF THE ENTRIES IN THE ACCOUNT BOOKS, AND THIS LESSE R AMOUNT 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 T O TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT, YET THE S UBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, TH ERE CANNOT BE A TAX, EVEN THOUGH IN BOOK-KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME, WHICH DOES NOT MATERIALIZE. WHERE INCOME H AS, IN FACT, BEEN RECEIVED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCU MSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GI VEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSLY NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTA IN CIRCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOUNT. 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 HAS CLEARLY AGREED TO REDUCE T HE RATE OF COMMISSION ON CONVERSION OF THE AGENCY IN T HE NAME OF PRIVATE COMPANIES. IN CASE BEFORE US, NOWH ERE IT HAS BEEN DENIED THAT INSTALLMENTS RECEIVED BY THE ASSESSEE FIRM FROM THE ALLOTTEES OF THE HOUSES IS N OT IN THE NATURE OF THE INCOME. THEREFORE, THE PROPOSIT ION LAID DOWN IN CASE OF CIT V MESSRS SHOOROJI VALLABHDAS AN D CO. SUPRA) ARE NOT APPLICABLE. 66 WE WOULD ALSO LIKE TO NOTE THAT ORIGINAL RETURN FILED BY THE ASSESSEE, WAS FOR INCOME OF RS. 21.19 CRORES WHEREAS IN THE REVISED RETURN A LOSS OF RS. 19.12 C RORES WAS CLAIMED. THE ASSESSING OFFICER EXAMINED THE REASONS FOR LOSS AND THE AMOUNT AND THE MAIN REASON NOTED THAT EXPENDITURE ACCOUNTS SHOW THE FIGURES OF COST OF PLOTS AND THEREFORE, SALE WHICH WAS NOT THERE I N THE ORIGINAL INCOME AND EXPENDITURE ACCOUNT. RESULT OF THESE FIGURES IS AS UNDER: COST OF PLOTS RS. 105,42,88,169/- SALE OF PLOTS RS. 65,18,29,803/- LOSS RS. 40,24,58,366/- 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 14 THE ASSESSING OFFICER AS MENTIONED IN THE ASSESSMEN T 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 EXPLAINED BY THE ASSESSEE IN ITS LETTER NO. 1567 DATED 08.03.200 6 THAT SINCE THE ASSESSEE HAS CHANGED ITS SYSTEM TO CASH SYSTEM OF A CCOUNTING, ONLY THE AMOUNT ACTUALLY RECEIVED OUT OF TOTAL SALE AMOUNT H AS BEEN SHOWN AS SALE WHEREAS THE PLOTS WHICH HAVE BEEN SOLD BUT ONL Y A PART OF THE SALE AMOUNT OF WHICH HAS BEEN RECEIVED ARE NOT REFLECTED IN THE CLOSING STOCK WHICH IS THE REASON FOR THE LOSS IN THE PURCHASE AN D SALE OF PLOTS FOR THE ASSESSMENT YEAR 2003-04. BUT IN THE SUBSEQUENT YEAR S I.E. ASSESSMENT YEAR 2004-05 ONWARDS, THERE IS PROFIT FROM PURCHASE AND SALE OF PLOTS. DURING DISCUSSION, 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 25% OF THE COS T 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 SYSTEM, SALE WILL BE SHOWN AT RS. 37,500/- FOR THE YEAR. THE VAL UE OF CLOSING STOCK OF 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 STOC K IN RESPECT OF THAT PLOT BUT IF THE BALANCE AMOUNT OF SALE CONSIDERATIO N 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 CORRESP ONDING PURCHASE AND THE SAME, ALREADY-SOLD PLOT WILL GIVE A PROFIT OF R S. 1,12,500/- IN THAT NEXT YEAR. THIS IS THE REASON THAT THERE IS STEEP R ISE IN THE PROFIT FROM SALE OF PLOTS IN THE NEXT YEAR. THE ASSESSEES COUN SEL REFERRED TO THE ORIGINAL AND REVISED RETURN FOR THE SUCCEEDING ASSE SSMENT YEAR 2004-05. PERUSAL OF THESE RETURNS SHOWS THAT IN THE ORIGINAL RETURN FOR THE ASSESSMENT YEAR 2004-05, THE INCOME AS PER THE PROF IT AND LOSS ACCOUNT 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 LOSS ACCOUNT AND AFTER DEDUCTING DEPRECI ATION AS PER THE INCOME TAX RULES HAS BEEN SHOWN 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 CONVINCING 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 H OUSES AND FLATS. 67 COMING TO THE FACTS OF THE CASE, THE ASSESSEE SO LD CERTAIN HOUSES AND FLATS UNDER THE HIRE PURCHASE AGREEMENT. THE ALLOTTEES WERE TREATED AS TENANT D URING THE COMPLETION OF SUCH HIRE PURCHASE AGREEMENT TILL ALL THE INSTALLMENTS WERE PAID BY SUCH ALLOTTEES. THE INSTALLMENTS AS WELL AS EXPENDITURE INCURRED BY THE ASSESSEE, WAS BEING ACCUMULATED IN VARIOUS SCHEMES AND WAS REFLECTED IN THE BALANCE SHEET BECAUSE THE ASSE SSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING TILL ASSESSMENT YEAR 2002-03. HOWEVER, IN THIS YEAR THE ASSESSEE HAS CHANGED ACCOUNTING SYSTEM AND NOW ADOPTED CASH SYSTEM OF ACCOUNTING. WE HAVE ALREADY EXPRESSED OUR SURPRISE ON ADOPTION OF CASH SYSTEM B Y THE ASSESSEE BUT ADMITTEDLY THIS SYSTEM HAS BEEN ADOPTE D 15 AND THEREFORE, THE ASSESSEE HAS TO BEAR THE CONSEQUENCES. FIRST CONTENTION WAS THAT HOUSES AND FLATS WERE SOLD ON HIRE PURCHASE BASIS AND UNDER THE HIRE PURCHASE ACT, 1972 THE BUYER DOES NOT GET THE OWNE RSHIP RIGHT TILL THE COMPLETION OF THE PURCHASE PROVIDED IN THE AGREEMENT AND AS PER THE AGREEMENT TILL ALL THE INSTALLMENTS ARE PAID SUCH BUYER OR ALLOTTEES WILL NOT BECOME THE OWNERS. HOWEVER, WE FIND NO FORCE IN TH IS CONTENTION BECAUSE NO OTHER ACT CAN OVER RIDE THE PROVISIONS OF INCOME TAX ACT AND THIS HAS BEEN CLA RIFIED BY THE HON'BLE SUPREME COURT IN CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JCIT (SUPRA). THEREFORE, TH E INSTALLMENTS RECEIVED AGAISNT SUCH SALES WHICH ARE IN THE NATURE OF REVENUE RECEIPTS, ARE REQUIRED TO BE TAKE N INTO CONSIDERATION FOR DETERMINATION OF INCOME IN THIS Y EAR BECAUSE THE ASSESSEE HAS ADOPTED CASH SYSTEM OF ACCOUNTING DURING THE YEAR. NEXT CONTENTION WAS TH AT THE ASSESSEE WAS FOLLOWING CONTINUOUSLY PROJECT COMPLET ION METHOD AND THEREFORE, NO INCOME CAN BE DETERMINED UNLESS THE PROJECTS ARE COMPLETED. AGAIN AS DISCUS SED ABOVE IN DETAIL THE ISSUE OF SYSTEM OF ACCOUNTING A ND THE MEANING OF CASH SYSTEM OF ACCOUNTING, THIS CONTENTI ON CANNOT BE ACCEPTED BECAUSE THE ASSESSEE CAN NOT FOL LOW TWO DIFFERENT SYSTEMS OF ACCOUNTING UNDER THE SAME HEAD. THEREFORE, IN OUR OPINION, THE ASSESSING OFFICER HA S CORRECTLY INCLUDED ALL THE INSTALLMENTS RECEIVED FR OM 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 A RE INCLUDED THEN THE CORRESPONDING EXPENDITURE WHICH H AS BEEN INCURRED SHOULD ALSO BE ALLOWED ON MATCHING PRINCIPLE. THE LD. COUNSEL OF THE ASSESSEE HAD REL IED ON THE DECISION OF CIT VS. BILAHARI INVESTMENT P LTD. (SUPRA). IN THAT CASE THE ASSESSEE SUBSCRIBED TO CHITS AS TH EIR BUSINESS ACTIVITIES. THEY MAINTAINED THEIR ACCOUNTS ON THE MERCANTILE BASIS AND COMPUTED THE PROFIT/LOSS AT TH E END OF THE CHIT PERIOD FOLLOWING THE COMPLETED CONTRACT METHOD . THIS WAS ACCEPTED BY THE DEPARTMENT, BUT FOR THE ASSESSMENT YEARS 1991-92 TO 1997-98 THE ASSESSING OFFICER CAME TO TH E CONCLUSION THAT THE COMPLETED CONTRACT METHOD FOR C HIT DISCOUNT WAS NOT ACCURATE IN RECOGNIZING /IDENTIFYI NG INCOME AND THAT THE PERCENTAGE OF COMPLETION METHOD WAS TO BE PREFERRED. THE HIGH COURT HELD THAT THE COMPLETED C ONTRACT METHOD OF ACCOUNTING ADOPTED BY THE ASSESSES FOR CH IT DISCOUNT WAS VALID AND THE DEPARTMENT ERRED IN SPRE ADING THE DISCOUNT OVER THE REMAINING PERIOD OF THE CHIT UNDE R THE PERCENTAGE OF COMPLETION METHOD ON PROPORTIONATE BA SIS. ON APPEAL BY THE DEPARTMENT TO THE SUPREME COURT. IT W AS HELD AS UNDER: HELD ACCORDINGLY, AFFIRMING THE DECISION OF THE HIG H COURT, THAT, SINCE, FROM THE VARIOUS STATEMENTS PRODUCED, THE ENTIRE EX ERCISE ARISING OUT OF THE CHANGE OF METHOD FROM THE COMPLETED CONTRACT ME THOD TO DEFERRED REVENUE EXPENDITURE WAS REVENUE NEUTRAL, THE COMPLE TED CONTRACT METHOD WAS NOT REQUIRED TO BE SUBSTITUTED BY THE PE RCENTAGE OF COMPLETION METHOD. 16 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 FOUND TO BE CORRECT. HOWEVER, THE MATCHING PRINCIPLE WAS LAID DOWN IN CASE 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 AND INSTALLING LIGHTS ETC. THE FLATS WERE S OLD ON INSTALLMENT BASIS. AT THE TIME OF SALE THE ASSESSE E UNDERTOOK TO CARRY OUT MORE DEVELOPMENTS. IN THE RELEVANT YEAR THE ASSESSEE RECEIVED A SUM OF RS. 29 ,392/- TOWARDS SALE PRICE OF LAND. HOWEVER, THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTS AND CREDITE D TO ITS ACCOUNT A SUM OF RS. 43,692/- REPRESENTING FULL SALE PRICE OF THE LAND. AT THE SAME TIME THE ASSESSEE A LSO DEBITED AN ESTIMATED SUM OF RS. 24,809 AS EXPENDITU RE FOR THE DEVELOPMENTS. THIS WAS DISALLOWED BY THE REVENUE. ON APPEAL IT WAS HELD AS UNDER: HELD,(I) THAT THE UNDERTAKING TO CARRY OUT THE DEVE LOPMENTS WITHIN SIX MONTHS FROM THE DATES OF THE DEEDS OF SALE (WHICH, IN VIEW OF THE FACT THAT TIME WAS NOT OF THE ESSENCE OF THE CONTRACT, M EANT A REASONABLE TIME) WAS UNCONDITIONAL, THE APPELLANT BINDING ITSE LF ABSOLUTELY TO CARRY OUT THE SAME. THAT UNDERTAKING IMPORTED A LIABILITY ON THE APPELLANT WHICH ACCRUED ON THE DATES OF THE DEEDS OF SALE, TH OUGH THAT LIABILITY WAS TO BE DISCHARGED AT A FUTURE DATE. IT WAS THUS AN A CCRUED LIABILITY AND THE ESTIMATED EXPENDITURE WHICH WOULD BE INCURRED IN DI SCHARGING THE SAME COULD BE DEDUCTED FROM THE PROFITS AND GAINS OF THE BUSINESS, AND THE AMOUNT TO BE EXPENDED COULD BE DEBITED IN ACCOUNTS MAINTAINED IN THE MERCANTILE SYSTEM OF ACCOUNTING BEFORE IT WAS ACTUA LLY DISBURSED. THE DIFFICULTY IN THE ESTIMATION THEREOF DID NOT CONVER T THE ACCRUED LIABILITY INTO A CONDITIONAL ONE, BECAUSE IT WAS ALWAYS 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 CO URSE OF CARRYING ON ITS BUSINESS AND WAS INCIDENTAL TO THE BUSINESS AND , HAVING REGARD TO THE ACCEPTED COMMERCIAL PRACTICE AND TRADING PRINCIPLES , WAS A DEDUCTION WHICH, IF THERE WAS NO SPECIFIC PROVISION FOR IT UN DER SECTION 10(2) OF THE INCOME-TAX ACT, WAS CERTAINLY AN ALLOWABLE DEDUCTIO N, ARRIVING AT THE PROFITS AND GAINS OF THE BUSINESS OF THE APPELLANT, UNDER SECTION 10(I) OF THE ACT, THERE BEING NO PROHIBITION AGAINST IT, EXP RESS 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 TH ERE CAN BE NO COMPUTATION OF SUCH PROFITS AND GAINS UNTIL THE EXP ENDITURE WHICH IS NECESSARY FOR THE PURPOSE OF EARNING THE RECEIPTS I S DEDUCTED THERE FROM- WHETHER THE EXPENDITURE IS ACTUALLY INCURRED OR THE LIABILITY IN RESPECT THEREOF HAS ACCRUED EVEN THOUGH IT MAY HAVE TO BE D ISCHARGED 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 HOUSES AND FLATS WHICH HAS BEEN ACCUMULATED IN THE SCHEMES IS ALSO TO BE RECOGNISED . HOWEVER, IT HAS TO BE NOTED THAT IN CASE OF CALCUT TA COMPANY LTD VS. CIT (SUPRA) THE ASSESSEE WAS FOLLOW ING 17 MERCANTILE SYSTEM OF ACCOUNTING AND HAD CREDITED WH OLE AMOUNT RECEIVED OR RECEIVABLE TOWARDS SALE OF PROCE EDS I.E. WHY THE AMOUNT STILL TO BE INCURRED ON DEVELOP MENT WAS ALLOWED AS EXPENDITURE BUT STILL THE PRINCIPLE IS THERE. THEREFORE, IN CASE WERE CASH SYSTEM OF ACCOUNTING I S FOLLOWED THEN WHAT EVER EXPENDITURE HAS BEEN INCURR ED IN CASH DURING THE YEAR, HAS TO BE ALLOWED. IN THE CA SE BEFORE US, THE ASSESSEE HAS NEITHER OFFERED THE INSTALLMENTS AS INCOME NOR CLAIMED EXPENDITURE INCU RRED. SINCE WE HAVE ALREADY HELD THAT INSTALLMENTS RECEIV ED HAVE BEEN RIGHTLY INCLUDED IN THE INCOME OF THE ASS ESSEE, THEREFORE, CORRESPONDING EXPENDITURE WHICH HAS BEEN INCURRED INC CASH TOWARDS CONSTRUCTION OF SUCH HOUS ES AND FLATS SOLD UNDER HIRE PURCHASE IS ALSO TO BE AL LOWED. 71 ONE MORE ANGLE NEEDS TO BE CONSIDERED THAT IS WH AT WOULD HAPPEN TO THE OPENING STOCK AS WELL AS CLOSIN G STOCK. IN THE CASH SYSTEM OF ACCOUNTING CLOSING ST OCK IS NOT CONSIDERED, THEREFORE, WHAT HAS BEEN ACCUMULAT ED IN THE SCHEMES IS ALSO REQUIRED TO BE CONSIDERED. CONSIDERING THE CONTENTIONS OF THE PARTIES AND THE PRINCIPLES WE HAVE ALREADY DISCUSSED, 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 S CHEME WAS COMPLETED. THEREFORE, THE RESULTS OF INDIVIDUA L SCHEMES HAVE TO BE RECALCULATED AND INSTALLMENTS ACCUMULATED SHOULD BE TAKEN AS INCOME AND EXPENDITU RE INCURRED AFTER REDUCING THE EXPENDITURE INCURRED IN CASH WHICH HAS BEEN ALLOWED IN VARIOUS YEARS, SHOULD BE REDUCED FROM THE SUCH INSTALLMENTS AND NET RESULTS SHOULD BE CONSIDERED IN THE YEAR OF COMPLETION OF EACH OF THE HOUSING SCHEMES. 72 IN THESE CIRCUMSTANCES WE SET ASIDE THE ORDER O F THE LD. CIT(A) AND DIRECT THE AO TO INCLUDE INSTAL LMENTS RECEIVED ON SALE OF VARIOUS HOUSES AND FLATS UNDER HIRE PURCHASE AGREEMENT AND AT THE SAME TIME ALLOW CORRESPONDING EXPENDITURE WHICH HAS BEEN EXPENDED B Y THE ASSESSEE IN CASH (INCLUDING THROUGH CHEQUE). FU RTHER IN THE YEAR OF COMPLETION OF A PARTICULAR SCHEME EF FECT HAS TO BE GIVEN IN RESPECT OF ACCUMULATED INSTALLMENTS AS WELL AS ACCUMULATED EXPENDITURE WHICH HAS NOT BEEN ALREADY CONSIDERED IN A PARTICULAR YEAR ON CASH BAS IS AS OBSERVED EARLIER. WE HAVE OBSERVED RIGHT IN BEGINNI NG THAT THIS ISSUE IS INVOLVED IN ALL THE YEARS BEFORE US THEREFORE, SIMILAR TREATMENT AS OBSERVED BY US, SH OULD BE GIVEN IN EACH OF THE YEAR. FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE AGAINST T HE ASSESSEE. 18 12 GROUNDS NO. 3 & 4 - AFTER HEARING BOTH THE PARTI ES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OF FICER NOTICED THAT THE ASSESSEE HAS INCURRED ADMINISTRATI VE AND MAINTENANCE EXPENSES ON DEVELOPED AND DEVELOPING SE CTORS. ACCORDING TO HIM THE EXPENSES INCURRED ON DEVELOPIN G SECTOR IS NOT REVENUE EXPENDITURE AND THEREFORE, HE DISALLOW ED A SUM OF RS. 11,64,19,304/- ON ACCOUNT OF ADMINISTRATIVE EX PENSES AFTER REDUCING PROVIDENT FUND CONTRIBUTION FROM THE TOTAL EXPENSES BECAUSE ACCORDING TO HIM SOME EXPENSE WERE INCURRED FOR THE SCHEME WHICH ARE UNDER DEVELOPMENT. THIS ISSUE HAS BEEN RAISED IN GROUNDS NO. 3 & 4 AND DISALLOWANCE OF MAI NTENANCE EXPENSES HAS BEEN SEPARATELY CHALLENGED BY THE ASSE SSEE THROUGH GROUND NO. 4 THAT IS WHY THESE TWO GROUNDS ARE BEING CONSIDERED TOGETHER. 13 ON APPEAL THE ACTION OF THE ASSESSING OFFICER WA S CONFIRMED BY THE LD. CIT(A). 14 BOTH THE PARTIES BEFORE US SUBMITTED THAT THE FA CTS IN THIS CASE ARE IDENTICAL TO THE FACTS IN RESPECT OF GROU ND NO. 4 IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2004-05 AND B OTH THE PARTIES SUBMITTED SAME ARGUMENTS AS WERE ADVANCED I N ASSESSMENT YEAR 2004-05, MAY BE ADOPTED HERE. 15 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE FACTS ARE IDENTICAL TO THE FACTS OF GROUND NO. 4 IN ASSESSEE/S APPEAL IN ASSESSMENT YEAR 2004-05 IN ITA NO. 759/CH D/2007 VIDE ORDER DATED 6.12.2013. THIS ISSUE WAS DECIDED VIDE PARA NO. 115 WHICH IS AS UNDER: 115 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. WE HAVE ALREADY DISCUSSED THE IMPLICATIONS OF CASH SYS TEM OF ACCOUNTING WHILE ADJUDICATING GROUND NO. 5 OF REVEN UES APPEAL IN ITA NO. 762/CHD/2008. BASICALLY ONCE THE CASH SYSTEM OF ACCOUNTING IS FOLLOWED THEN ALL RECEIPTS WHICH RELATE TO THE REVENUE FILED, HAVE TO BE TAXED. SIMI LARLY ALL CASH OUTGOINGS WHICH ARE IN THE REVENUE FIELD, HAD TO BE ALLOWED AS EXPENDITURE. SINCE THE ASSESSEE IS IN THE BUSINESS OF PURCHASE AND DEVELOPING THE LAND AND SE LLING THE SAME AFTER THE DEVELOPMENT OF THE SAME AND ADMINISTRATIVE EXPENSES INCURRED IS CLEARLY IN THE FIELD OF REVENUE. FURTHER THE ASSESSEE WAS FOLLOWING CASH S YSTEM OF ACCOUNTING, THEREFORE, ONCE CASH HAS BEEN SPENT OR OUTGONE FROM THE ASSESSEE SAME HAS TO BE TREATED AS 19 EXPENDITURE. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THE ADDITION. 16 GROUND NO. 5 AFTER HEARING BOTH THE PARTIES WE FIND THAT THE ASSESSEE HAS ALSO TAKEN A PLEA IF THE ADMINISTR ATIVE EXPENSES AND MAINTENANCE EXPENSES, WAS DISALLOWED T HEN SAME SHOULD BE ADDED TO THE CLOSING STOCK AND BENEF IT SHOULD BE GIVEN FOR THE OPENING STOCK. HOWEVER, THE LD. C IT(A) DID NOT FIND FORCE IN THE SAME AND FOLLOWING THE APPEAL ORD ER FOR ASSESSMENT YEAR 2007-08 HELD PARA 9.1 AS UNDER: SIMILAR GROUND WAS TAKEN IN ASSESSMENT YEAR 2007-0 8 ALSO AND MY PREDECESSOR HAS ADJUDICATED THIS GROUND VIDE PARAS 29 TO 3`1 OF HER ORDER DATED 14.1.2011 (SUP4A ) AS UNDER: 29 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS AND MATERIAL ON RECORD. I FIND THAT THE ASSESSING OFFI CER IN THE PRECEDING YEAR HAS DISALLOWED 50% OF THE ADMINISTRA TIVE EXPENSES ON THE COUNT THAT THESE EXPENSES WERE RELATABLE TO INCOMPLETE PROJECT. SINCE THESE EXPENSES WERE DISALLOWED ON A CCOUNT OF BEING RELATED TO UNCOMPLETED PROJECTS, SUCH DISALLO WED EXPENSES FORMED PART OF THE CLOSING STOCK IN THAT PRECEDING YEAR. THE CLOSING STOCK OF THE PRECEDING YEAR BECOMES THE O0P ENING STOCK OF THE YEAR UNDER APPEAL. I AGREE WITH THE CONTENTION OF THE APPELLANT THAT THE DISALLOWED EXPENSES OF THE PRECE DING YEAR ON THIS ACCOUNT SHOULD FORM PART OF THE OPENING STOCK. I FURTHER FIND THAT THERE IS NO MARTIAL ON RECORD TO SUGGEST THAT THE PROJECTS IN RESPECT OF WHICH THE EXPENSES WERE DISALLOWED IN T HE PRECEDING YEAR GOT COMPLETED IN THE YEAR UNDER CONSIDERATION . SINCE THERE IS NO EVIDENCE OR MATERIAL WITH REGARD TO COMPLETIO N OF PROJECTS IN RESPECT OF WHICH THESE EXPENSES WERE DISALLOWED IN PRECEDING YEAR, I AM OF THE OPINION THAT THESE DISALLOWED EXP ENSES OF PRECEDING YEARS WHICH FORMED PART OF OPENING STOCK OF THE YEAR UNDER CONSIDERATION DUE TO NON COMPLETION OF THESE PROJECTS AND WILL BE CARRIED FORWARD TO THE SUBSEQUENT YEARS UNT IL THE PROJECTS TO WHICH THESE DISALLOWED EXPENSES RELATE ARE COMPL ETED. 30 IN VIEW OF THE ABOVE, THE CONTENTION OF THE APPE LLANT THAT IT SHOULD ONLY FORM PART OF THE OPENING STOCK IS NOT T ENABLE SINCE IT WILL ALSO FORM PART OF THE CLOSING STOCK DUE TO NON COMPLETION AND SALE THEREOF OF THE PROJECTS TO WHICH THESE EXPENSE S RELATED. 31 THIS GROUND OF APPEAL IS THEREFORE, PARTLY ALLO WED. 17 BOTH THE PARTIES WERE HEARD IN DETAIL. 18 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT WE HAVE ALREADY HELD THAT THE ADMINISTRATIVE EXPENSES AS WELL AS MAINTENANCE EXPENSES ARE ALLOWABLE IN VIEW OF THE C ASH SYSTEM OF ACCOUNTING AND THEREFORE, THIS GROUND WO ULD BECOME INFRUCTUOUS AND ACCORDINGLY THE SAME IS DISMISSED. 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 20 ITA NO. 485/CHD/2012 REVENUES APPEAL 20 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWA NCE MADE OF RS. 5,99,39,928/- ON ACCOUNT OF CONTRIBUTIONS TO UNREC OGNIZED PROVIDENT FUND AND INTEREST ON CPF CONTRIBUTION. T HE DISALLOWANCE WAS MADE FOR THE REASON THAT THE CONTRIBUTIONS HAVE NEITHER BEEN MADE TO A PROVIDENT FUND APPROVED BY THE CHIEF COMM ISSIONER OR CIT NOR TO A PROVIDENT FUND ESTABLISHED UNDER A SC HEME FRAMED UNDER THE EMPLOYEE PROVIDENT FUND ACT, 1952. 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWA NCE MADE OF RS. 1,99,96,457/- ON ACCOUNT OF DEPRECIATION, DESPITE THE FACT THAT THE ASSESSEE DOES NOT FULFILL THE CONDITIONS AS LAID DO WN IN SECTION 32 REGARDING OWNERSHIP OF LAND AND THE COST OF LAND ON WHICH BUILDING HAS BEEN ERECTED AND THE TIME WHEN THESE LANDS WERE ACQUIRED, THE ASSESSEE IS NOT ELIGIBLE FOR THE CLAIM OF DEPRE CIATION. 21 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE AO DISALLOWED A SUM OF R S. 5,99,39,928/- ON ACCOUNT OF CONTRIBUTION TO UNRECO GNIZED PROVIDENT FUND. THE ADDITION WAS DELETED BY THE LD . CIT(A). 22 BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE F ACTS ARE IDENTICAL TO THE ISSUE TAKEN UP BY THE REVENUE IN A SSESSMENT YEAR 2003-04 IN REVENUES APPEAL IN ITA NO. 762/CHD /2008 VIDE GROUND NO. 7. BOTH THE PARTIES MADE SIMILAR C ONTENTIONS AS WERE MADE IN RESPECT OF GROUND NO. 7 FOR ASSESS MENT YEAR 2003-04 IN ITA NO. 762/CHD/2008. 23 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT SINCE THE FACTS AND CONTENTIONS ARE IDENTICAL TO THE FACT S IN RESPECT OF GROUND NO. 7 IN REVENUES APPEAL FOR ASSESSMENT YEA R 2003-04 IN ITA NO. 762/CHD/2008, THIS ISSUE HAS BEEN DECIDE D BY US VIDE PARAS NO. 84 TO 86 WHICH IS AS UNDER: 84 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. FIRST OF ALL WE WOULD LIKE TO POINT OUT THAT THIS ISSUE I S ARISING IN ALL THE YEARS IN WHICH THE APPEALS WERE HEARD BY US, THEREFORE, THE DECISION IN THESE PARAS WOULD BE APP LICABLE IN ALL THE YEARS WHEREIN APPEALS ARE BEING ADJUDICA TED THROUGH THIS ORDER. THE ASSESSEE AUTHORITY WAS FOR MED IN 1995 PRIOR TO WHICH THIS ORGANIZATION WAS KNOWN AS PUNJAB HOUSING DEVELOPMENT BOARD WHICH WAS STATED TO HAVE BEEN FORMED IN 1972. THROUGH A GAZETTE NOTIFI CATION DATED 12TH AUGUST 1983 (COPY PLACED AT PAPER BOOK A T PAGES 135-136) GOVERNMENT OF PUNJAB MADE CERTAIN RU LES 21 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 PROVID ENT FUND SHALL BE DEEMED TO BE A GOVERNMENT PROVIDENT FUND FOR THE PU RPOSE OF THE PROVIDENT FUND ACT, 1925(CENTRAL ACT XIV OF 1925) A ND NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 8 THEREOF, SUCH FUND MAY BE ADMINISTERED BY SUCH OFFICERS OF THE STATE GOVERNMENT 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 UNDER PROVIDENT FUND ACT, 1925. FURT HER PAGE 152 OF THE PAPER BOOK IS COPY OF ANOTHER ORDER OF THE GOVERNMENT OF PUNJAB SHOWING THAT ON CONSTITUT ION OF PUNJAB URBAN PLANNING AND DEVELOPMENT AUTHORITY VARIOUS TERMS IN PUNJAB HOUSING DEVELOPMENT BOARD RULES, 1983 WOULD STAND AMENDED BY SUBSTITUTION OF THE WORDS PUNJAB HOUSING DEVELOPMENT BOARD TO PUNJAB URBAN PLANNING DEVELOPMENT AUTHORITY THIS SHOWS T HAT SOME RULES WHICH WERE MADE FOR PUNJAB HOUSING DEVELOPMENT BOARD WERE ADOPTED FOR THE ASSESSEE AUTHORITY ALSO. THEREFORE, IT BECOMES CLEAR THAT PROVIDENT FUND ESTABLISHED BY THE ASSESSEE IS GOVER NED BY THE PROVISIONS OF PROVIDENT FUND ACT, 1925. RUL E (1) OF PART A TO THE FOURTH SCHEDULE 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 COVERE D BY THE RULES MADE UNDER THE FOURTH SCHEDULE. IN OTHER WORDS, THE PROVISIONS REGARDING RECOGNITION OF THE PROVIDENT FUND WOULD NOT BE APPLICATION TO SUCH FUN DS, THEREFORE, IT DOES NOT MAKE ANY DIFFERENCE WHERE ASSESSEES PROVIDENT FUND IS RECOGNIZED 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 ASSE SSEE HAS NOT GOT ITS FUNDS RECOGNIZED OR CONTRIBUTION WA S NOT MADE TOWARDS RECOGNIZED PROVIDENT FUND. THIS ALSO LEADS TO THE CONCLUSION THAT SECTION 36(1)(IV) WHICH WAS FOR CONTRIBUTION TOWARDS RECOGNIZED PROVIDENT FUND, IS NOT APPLICABLE. HOWEVER, AS FAR AS SECTION 36(1)(VA) I S CONCERNED, THE SAME IS STILL APPLICABLE BECAUSE SEC TION 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 REFERRED TO IN SECTION 28 ( I ) TO (V) - NOT RELEVANT [( VA ) ANY SUM RECEIVED BY THE ASSESSEE FROM ANY OF HIS EMPLOYEES TO WHICH THE PROVISIONS OF SUB-CLAUSE ( X ) OF CLAUSE ( 24 ) OF SECTION 2 APPLY, IF SUCH SUM IS CREDITED BY 22 THE ASSESSEE TO THE EMPLOYEE'S ACCOUNT IN THE RELEV ANT FUND OR FUNDS ON OR BEFORE THE DUE DATE. EXPLANATION . FOR THE PURPOSES OF THIS CLAUSE, 'DUE DATE' MEANS THE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EMPLOYER TO CREDIT AN EM PLOYEE'S CONTRIBUTION TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND UNDER ANY A CT, RULE, ORDER OR NOTIFICATION ISSUED THEREUNDER OR UNDER ANY STANDING ORDER, AWARD, CONT RACT OF SERVICE OR OTHERWISE;] THE ABOVE PROVISION DEALS WITH EMPLOYEES SHARE OF T HE CONTRIBUTION. ACCORDING TO THE SCHEME OF THE ACT T HE EMPLOYEES SHARE IS TREATED AS INCOME WHEN THE SAME CONTRIBUTION IS RECEIVED BY THE ASSESSEE AND WHEN T HE SAME IS CONTRIBUTED TO PROVIDENT FUND THEN SAME IS ALLOWED AS DEDUCTION UNDER THIS PROVISION. AT THE SAME TIME RECEIPT OF SUCH CONTRIBUTION IS TREATED AS DEE MED 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 UNDE R THE PROVISIONS OF THE EMPLOYEES' STATE INSURANCE ACT, 1948 (34 OF 1948), OR ANY OTHE R 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 PROVIDE NT FUND THEREFORE, ANY CONTRIBUTION RAISED FROM THE EMPLOYEE TOWARDS ANY PROVIDENT FUND WOULD FORM PART OF THE DEEMED INCOME UNDER THIS PROVISION. IN OUR OPI NION, THIS HAS BEEN DELIBERATELY DONE BY THE LEGISLATURE BECAUSE AS FAR AS EMPLOYEES CONTRIBUTION IS CONCERNED, THE PARLIAMENT WANTED THAT THE SAME SHOULD NOT BE USED BY THE BUSINESS PEOPLE AND SHOULD BE DEPOSITED WITH TH E PROVIDENT FUND AUTHORITIES AND OR TRUST AT THE EARL IEST AND THAT IS WHY NO DIFFERENCE HAS BEEN MADE TOWARDS RECOGNIZED PROVIDENT FUND OR OTHER FUNDS. FROM THI S IT BECOMES CLEAR THAT AS FAR AS EMPLOYEES CONTRIBUTION IS CONCERNED, THE SAME IS NOT 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 CLEARLY IN THE NATURE OF BUSINESS EXPENDITURE AN D THEREFORE, SAME IS ALLOWABLE U/S 37 OF THE ACT WHIC H IS RESIDUARY PROVISION. SINCE THE CONTRIBUTION OF EMP LOYER SHARE TOWARDS PROVIDENT FUND IS IN NATURE OF REVEN UE EXPENDITURE AND NOT COVERED BY ANY OTHER PROVISION AS EXPLAINED ABOVE, SAME IS COVERED BY SECTION 37 OF T HE ACT. THIS ANALYSIS LEADS TO THE CONCLUSION THAT AS FAR AS 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). LOT 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 PERSONS, BODY OF INDIVIDUAL S, SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 (21 OF 1860), OR O THER INSTITUTION FOR ANY PURPOSE, EXCEPT WHERE SUCH SUM IS SO PAID, FOR THE PURPOSES AND TO THE EXTENT PROVIDED BY OR UNDER 23 CLAUSE (IV) [OR CLAUSE (IVA)] OR CLAUSE (V) OF SUB -SECTION (1) OF SECTION 36 , OR AS REQUIRED BY OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FOR CE. PLAIN READING OF THIS PROVISIONS SHOWS THAT THE CONTRIBUTION MADE BY AN ASSESSEE AS A EMPLOYER TOWA RDS VARIOUS FUNDS FOR THE BENEFIT OF THE EMPLOYEES ARE NOT ALLOWABLE EXCEPT FOR CONTRIBUTION PROVIDED IN THIS SECTION ITSELF. THEREFORE, THE LD. DR FOR THE REVENUE IS CORRECT THAT CONTRIBUTION WHICH ARE NOT MENTIONED IN THIS S ECTION CANNOT BE ALLOWED BECAUSE THIS PROVISIONS STARTS WI TH 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 PRO VISION OF THIS ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEA D 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. HOWEVER, CAREFUL READING CLEARLY SHOWS THAT EXCEPTI ON PROVIDED IN THIS SECTION ARE IN RESPECT OF DEDUCTI ON ALLOWED U/S 36(1)(IV)N 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 WA S 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 PROVI DENT FUND FOR THE EMPLOYER SHARE IN TERMS OF INDIAN PRO VIDENT FUND ACT, 1925 WHICH WAS ADOPTED BY THE ASSESSEE. THEREFORE, WE HOLD THAT THE ASSESSEE IS ENTITLED T O CLAIM DEDUCTION IN RESPECT OF CONTRIBUTIONS MADE TOWARDS PROVIDENT FUND EVEN IF SUCH FUND IS NOT APPROVED. 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 FILI NG OF RETURN AS PROVIDED IN SECTION 43B. RELEVANT PORTIO N OF SECTION 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 FO RCE, OR] (B) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUITY F UND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES, [OR] [(C) TO (F) NOT RELEVANT 24 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 REGULARLY EMPLOYED BY HIM) ONLY IN COMPUTING THE INCOME REFERRED TO IN SE CTION 28 OF THAT PREVIOUS YEAR 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 APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB-SECTI ON (1) OF SECTION 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SU M WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNISHED BY THE ASSESS EE ALONG WITH SUCH RETURN. CAREFUL READING OF THE ABOVE PROVISION SHOW THAT A FETTER HAS BEEN PROVIDED FOR ALLOWABILITY OF CERTAIN EXPEN SES. THE EXPENDITURE EVEN IF IS ALLOWABLE BECAUSE OF THE METHOD OF ACCOUNTING FOLLOWED BY HE ASSESSEE THE SA ME IS STILL NOT ALLOWABLE UNLESS AND UNTIL SUCH EXPEND ITURE IS PAID. THIS MEANS THAT THIS SECTION PROVIDES FURTHE R RESTRICTION ON ALLOWABILITY OF AN EXPENDITURE WHICH ARE OTHERWISE ALLOWABLE U/S 30 TO 44. IN OTHER WORDS E VEN IF AN EXPENDITURE IS ALLOWABLE UNDER VARIOUS PROVISION S UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION THE SAME IS NOT ALLOWABLE BECAUSE OF S ECTION 43B UNLESS SUCH EXPENDITURE IS ACTUALLY PAID. IN C ASE BEFORE US, THE ASSESSEE IS FOLLOWING THE CASH SYSTE M OF ACCOUNTING WHICH WE HAVE ALREADY DISCUSSED WHILE ADJUDICATED GROUND NO. 5. THEREFORE, ANY EXPENDIT URE IN CASE OF THE ASSESSEE HAS TO BE ALLOWABLE ONLY IF AC TUAL CASH HAS BEEN PAID DURING THE YEAR. THEREFORE, IF NO CASH HAS BEEN PAID EXPENDITURE IS NOT ALLOWABLE. NO DOU BT SECTION 43B HAS CARVED OUT AN EXCEPTION BY WAY OF PROVISO THAT EVEN IF EXPENDITURE IS PAID BEFORE DUE DATE OF FILING OF RETURN 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 (20 09) 227 CTR 417 HAS CLEARLY HELD THAT IF SUCH PAYMENTS ARE MADE BEFORE DUE DATE OF FILING OF RETURN THEN THE S AME HAS TO BE ALLOWED. HOWEVER, AS OBSERVED EARLIER THIS B ENEFIT COULD NOT BE GIVEN TO THE ASSESSEE BECAUSE THE ASSE SSEE IS FOLLOWING THE CASH SYSTEM OF ACCOUNTING AND ALLOWABILITY OF EXPENDITURE ITSELF DEPENDS ON ACTUA L CASH PAYMENT. HOWEVER, WE WOULD LIKE TO OBSERVE THAT AT THE BEGINNING OF THIS ISSUE WE HAVE CLEARLY MENTIONED T HAT THIS ISSUE RELATES TO MANY YEARS, THEREFORE, IF TH E PAYMENT FOR THIS YEAR WAS MADE IN NEXT YEAR THE SAM E WOULD BE CLEARLY ALLOWABLE IN THE NEXT YEAR. THERE FORE, THE ASSESSING OFFICER SHOULD EXAMINE THIS ISSUE CLE ARLY AND ALLOW THE PAYMENTS ON CASH BASIS EVEN IF THEY R ELATE TO EARLIER YEARS. THE LAST DISPUTE RAISED BY THE R EVENUE 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 R EVENUE HAS RELIED ON THE DECISION OF CIT VS. TEXTOOL CO. L TD (SUPRA). IN THAT CASE THE ASSESSEE HAD CLAIMED DED UCTION OF RS. 92,06,978/- AS CONTRIBUTION TOWARDS APPROVED GRATUITY FUND. A SUM OF RS. 50 LAKHS WAS PAID AS I NITIAL CONTRIBUTION AND RS. 5,84,754/- WAS PAID TOWARDS A NNUAL 25 PREMIUM. THE BALANCE OF RS. 36,22,224/- WAS PROVID ED FOR INITIAL CONTRIBUTION. ALL THE SUMS WERE PAID T O LIC. THE QUESTION AROSE WHETHER DIRECT PAYMENT TO LIC WA S COVERED BY SECTION 36(1)(V). IN THIS CONNECTION TH E 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 STR ICTLY AND NOTHING SHOULD BE ADDED OR SUBTRACTED TO THE LANGUAGE EMPLO YED IN THE SECTION, YET A STRICT CONSTRUCTION OF A PROVISION D OES NOT RULE OUT THE APPLICATION OF THE PRINCIPLES OF REASONABLE CON STRUCTION 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) 156 ITR 585). FROM A BARE READING OF SECTION 36(1)(V) ;OF THE ACT, IT IS MANIFEST THAT THE REAL INTENTION BEHIND THE PROVISI ON IS THAT THE EMPLOYER SHOULD NOT HAVE ANY CONTROL OVER THE FUNDS OF THE IRREVOCABLE TRUST CREATED EXCLUSIVELY FOR THE BENEF IT OF THE EMPLOYEES. IT IS CLEAR THAT INTENTION BEHIND THE PROVISIONS FO R VARIOUS FUNDS FOR EMPLOYEES IS THAT EMPLOYER SHOULD NOT HAV E CONTROL OVER THE FUNDS WHICH HAS BEEN CONTRIBUTED B Y THE ASSESSEE OR THE WORKERS. IN THIS REGARD THE LD. CO UNSEL 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 (CENTR AL ACT 2 OF 1882) OR IN THE POST OFFICE SAVINGS BANK ACCOUNTS OR IN LONG TERM FIXED DEPOSITS WITH SCHEDULED BANKS. POST OFFICE N ATIONAL SAVING CERTIFICATES OR KEPT AS A DEPOSIT WITH THE STATE GO VERNMENT 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 ME ETING HELD ON 17 TH JULY 1995 VIDE AGENDA ITEM NO. 17 A COMMITTEE, IS HEREBY CONSTITUT ED TO ADMINISTER AND MANAGE THE CONTRIBUTORY PROVIDENT FUND OF THE EMPLOYEES OF PUD A. 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 (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 CONSTITUTED BUT IT IS NOT CLEAR WHERE THIS COMMITTE E WAS MONITORING THE FUNDS OF THE PROVIDENT FUND. THE FD RS 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 26 COMMITTEE, IS NOT VERY CLEAR. THEREFORE, TO THIS EXTENT WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT TH E AO TO EXAMINE WHETHER PROVIDENT FUND WAS INDEPENDENTLY MONITORED IN THE LIGHT OF THE DIRECTIONS ISSUED BY HON'BLE SUPREME COURT IN CASE OF TEXTOOL CO.LTD (SUPRA). 86 ANOTHER CONTENTION WAS ALSO RAISED THAT THE FUND S HAVE NOT BEEN INVESTED IN THE LONG TERM FDRS. WE H AVE SEEN VARIOUS NOTES ISSUED BY THE COMMITTEE WHERE F DRS HAVE BEEN MADE ONLY FOR ONE YEAR AND JUSTIFICATION FOR THE SAME HAS BEEN GIVEN THAT PRESENTLY INTEREST IS ON L OWER SIDE AND INTEREST IS LIKELY TO GO UP THEREFORE, FD R WAS MADE FOR ONE YEAR. THIS ASPECT ALSO NEED FURTHER EXAMINATION BY THE ASSESSING OFFICER WHERE REGULARL Y FDRS HAVE BEEN MADE FOR A PERIOD OF ONE YEAR OR LON GER PERIOD AND WHERE NO JUSTIFICATION FOR SUCH SHORTER PERIOD IS THERE OR NOT? THEREFORE, THE ASSESSING OFFICE R SHOULD EXAMINE THIS MATTER FURTHER AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. IN THE RESULT, THIS GROUND I S ALLOWED FOR STATISTICAL PURPOSES. FOLLOWING THE ABOVE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER TO THE FILE OF ASSESSING OFFIC ER WITH SIMILAR DIRECTIONS AS CONTAINED IN ABOVE EXTRACTED PARAS. 24 GROUND NO. 4 DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAD DISALLOWED DEPRECIATION AMOUN TING TO RS. 1,99,96,457/- BECAUSE ACCORDING TO HIM THE DETAILS WERE NOT AVAILABLE WHETHER THE BUILDING INCLUDED LAND OR NOT ? 25 ON APPEAL THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. 26 BEFORE US, BOTH THE PARTIES SUBMITTED THAT THIS ISSUE IS ALSO IDENTICAL TO THE ISSUE RAISED IN GROUND NO. 3 OF REVENUES APPEAL FOR ASSESSMENT YEAR 2005-06 IN ITA NO. 769/C HD/2008. BOTH THE PARTIES SUBMITTED THAT THE DECISION IN RES PECT OF GROUND NO. 3 FOR ASSESSMENT YEAR 2005-06 MAY BE FOL LOWED HERE ALSO. 27 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE IS IDENTICAL TO THE ISSUE IN RESPECT OF GROU ND NO. 3 OF REVENUES APPEAL IN ASSESSMENT YEAR 2005-06 IN ITA NO. 27 769/CHD/2008 WHICH HAS BEEN DECIDED BY US VIDE PARA 124 OF THE CONSOLIDATED ORDER DATED 6.12.2013 WHICH READS AS UNDER: 124 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FI ND THAT THE LD. CIT(A) HAS ADJUDICATED THIS ISSUE VIDE PARA 19 WHICH IS AS UNDER: I HAVE CAREFULLY CONSIDERED THE RIVAL ARGUMENTS. I FIND THAT THE EXISTING OF PUDA CAME INTO BY MERGER OF DEPARTMENT OF HOUSING AND URBAN D EVELOPMENT AND PUNJAB HOUSING DEVELOPMENT BOARD. THE ASSETS WERE TAKEN OVER BY PU DA. ONCE ALL THE ASSETS ARE TAKEN BY PUDA, THEN IT IS UNDERSTOOD THAT THE ASSETS BELO NG TO THE ASSESSEE. IN THE WRITTEN SUBMISSION, IT HAS BEEN CATEGORICALLY STATED THAT IN THE PUDA BUILDING, THERE IS NO INCLUSION OF ANY COST OF LAND. THE DEPRECATION AMOU NT ONLY RELATES TO THE COST OF CONSTRUCTION. IN MY CONSIDERED OPINION, THE ASSESSI NG OFFICER HAS NOT JUSTIFIED IN DECLINING THE DEPRECIATION. THE ASSESSEE IS ALLOWED TO CLAIM THE DEPRECIATION. THUS, THIS GROUND OF APPEAL IS ALLOWED. IN OUR OPINION, THE LD. CIT(A) HAS CORRECTLY ADJUDI CATED THIS ISSUE. THE REVENUE HAS NOT SHOWN ANYTHING TO PROVE THAT THE VALUE OF THE LAND WAS ALSO INCLUDED IN THE COST OF BUILDING, WHEN THE FIRST APPELLATE AUTHORITY HAS DE CIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, THE BURDEN WA S ON THE REVENUE TO PROVE OTHERWISE. IN THIS CASE THE ASSESSEE CAME INTO EXISTENCE IN 1995 AFTER INHERITI NG PUNJAB HOUSING DEVELOPMENT BOARD. THE ASSESSEE IS BEING A GOVERNMENT AUTHORITY, MAY HAVE CLEARED THE CHUNKS OF LAND AND IT IS NOT POSSIBLE TO IDENTIFY O NLY PLOTS FOR CAPITALIZATION AND THEREFORE, THERE IS MERIT I N THE ARGUMENT THAT VALUE OF LAND WAS CONSIDERED IN VARIO US SCHEMES. IN THESE CIRCUMSTANCES, WE FIND NOTHING W RONG WITH THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SA ME. FOLLOWING THE ABOVE WE DECIDE THIS ISSUE AGAINST TH E REVENUE AND IN FAVOUR OF THE ASSESSEE. 28 IN THE RESULT, ITA NO. 485/CHD/2012 IS PARTLY AL LOWED 29 ITA NO. 391/CHD/2012 AND ITA NO. 485/CHD/2012 AR E PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.12.2013 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 23.12.2013 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 28