Punjab Urban Planning & Development Authority, Mohali V. DCIT, Mohali

ITA 524/CHANDI/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4444 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-07-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Capital asset; Gift; Business income; Depreciation; Business expenditure; Search and seizure; Opportunity of being heard; Period of limitation; Deemed to accrue or arise in india; Retrospective amendment; Question of law; Cost of acquisition; Wrong claim; Bad and doubtful debts; Validity of assessment; Tax effect; Capital receipt; Commercial expediency; Time period of passing order; Revised return; Reason to believe; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 142(1); 37(1); 80G; 139(5); 246; 145; 148; 263; 12; 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. 762/CHD/2007 ASSESSMENT YEAR : 2003-04 A.C.I.T. CIRCLE 6(1) VS. PUNJAB URBAN DEVELOPMENT CHANDIGARH AUTHORITY, MOHALI APPELLANT BY: S/SHRI SATISH BANSAL/PRIKSHIT AGGAR WAL RESPONDENT BY: SMT. JYOTI KUMARI, CIT ITA NO. 759/CHD/2008 ASSESSMENT YEAR : 2004-05 PUNJAB URBAN DEVELOPMENT VS. A.C.I.T. CIRCLE 6(1) , AUTHORITY, MOHALI CHANDIGARH ITA NO. 765/CHD/2008 ASSESSMENT YEAR : 2004-05 D.C.I.T. CIRCLE 6(1), VS. PUNJAB URBAN DEV CHANDIGARH AUTHORITY, MOHALI APPELLANT BY: SHRI SUDHIR SEHGAL DEPARTMENT BY: SMT. JYOTI KUMARI, CIT ITA NO. 760/CHD/2008 ASSESSMENT YEAR : 2005-06 PUNJAB URBAN DEV VS. ADDL C.I.T. RANGE 6 AUTHORITY, MOHALI CHANDIGARH APPELLANT BY: SHRI SUDHIR SEHGAL DEPARTMENT BY: SMT. JYOTI KUMARI, CIT ITA NO. 769/CHD/2008 ASSESSMENT YEAR : 2005-06 D.C.I.T. CIRCLE 6(1) VS. PUNJAB URBAN DEV CHANDIGARH AUTHORITY, MOHALI APPELLANT BY: SHRI PRIKSHIT AGGARWAL DEPARTMENT BY: SMT. JYOTI KUMARI, CIT ITA NO. 744/CHD/2009 ASSESSMENT YEAR : 2006-07 D.C.I.T. CIRCLE 6(1) VS. PUNJAB URBAN DEV CHANDIGARH AUTHORITY, MOHALI 2 ITA NO. 745/CHD/2009 ASSESSMENT YEAR : 2006-07 PUNJAB URBAN DEV VS. D.C.I.T. CIRCLE 6(1) AUTHORITY, MOHALI CHANDIGARH APPELLANT BY: SHRI PRIKSHIT AGGARWAL DEPARTMENT BY: SMT. JYOTI KUMARI, CIT ITA NO. 524/CHD/2011 ASSESSMENT YEAR : 2007-08 PUNJAB URBAN DEV VS. D.C.I.T. CIRCLE 6(1) AUTHORITY, MOHALI CHANDIGARH ITA NO. 545/CHD/2011 ASSESSMENT YEAR : 2007-08 D.C.I.T. CIRCLE 6(1) VS. PUNJAB URBAN DEV CHANDIGARH AUTHORITY, MOHALI APPELLANT BY: SHRI SATISH BANSAL DEPARTMENT BY: SMT. JYOTI KUMARI, CIT ITA NO. 390/CHD/2012 ASSESSMENT YEAR : 2008-09 PUNJAB URBAN DEV VS. D.C.I.T. CIRCLE 6(1) AUTHORITY, MOHALI CHANDIGARH ITA NO. 484/CHD/2012 ASSESSMENT YEAR : 2008-09 D.C.I.T. CIRCLE 6(1) VS. PUNJAB URBAN DEV CHANDIGARH AUTHORITY, MOHALI APPELLANT BY: SHRI ASHWANI KUMAR DEPARTMENT BY: SMT. JYOTI KUMARI, CIT ITA NO. 1220/CHD/2011 ASSESSMENT YEAR 2008-09 GREATER LUDHIANA AREA VS. ADDL CIT DEVELOPMENT AUTHORITY RANGE VI LUDHIANA LUDHIANA AAALG 1055F APPELLANT BY: SHRI SUDHIR SEHGAL DEPARTMENT BY: SMT. JYOTI KUMARI, C IT DATE OF HEARING 20.9.2013 DATE OF PRONOUNCEMENT 6.12.2013 3 O R D E R PER BENCH THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDERS DATED 30.5.2007, 21.4.2006, 19.6 .2008, 20.6.2008, 4.5.2009, 14.1.2011 AND 30.11.2011 OF THE LD. CIT(A), CHANDIGARH. ITA NO. 762/CHD/2007 REVENUE APPEAL 2 IN THIS APPEAL THE REVENUE HAS RAISED FOLLOWING GROUNDS: 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) VIDE HIS ORDER DATED 30.05.2007 IN APPEAL NO. 74/P/ 06-07 HAS ERRED IN ACCEPTING THE ADDITIONAL GROUNDS OF APPEAL TAKEN BY THE ASSESSEE WITH REGARD TO TRANSFER OF JURISDICTION OVER THE CASE U/S 127 O F THE I.T. ACT, 1961 AND DECIDING THE SAME IN FAVOUR OF THE ASSESSEE. WHILE DECIDING THE ISSUE THE LD. CIT(A) HAS FAILED TO CONSIDER THE JUDGMENT OF THE J URISDICTION HIGH COURT IN THE CASE OF SMT. JASWINDER KAUR COONER VS. CIT(A) 2007- 291 ITR 80 (P&H) DECIDED ON 23.11.2006. THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT TH AT ASSESSEE ITSELF HAS FILED REVISED RETURN FOR THE YEAR UNDER CONSIDERATION WIT H THE ACIT, CIRCLE 6(1), CHANDIGARH, BEFORE TRANSFER OF ORIGINAL RETURN BY T HE PREVIOUS A.O. TO THE PRESENT A.O. AND RETURN FOR THE NEXT ASSESSMENT YEA R 2004-05 WAS ALSO FILED WITH THE PRESENT A.O. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE ORDER OF THE LD. CIT(A) IS PERVERSE BEING BASED ON CONJECTURES A ND SURMISES WITHOUT APPRECIATING THE FACTS AVAILABLE ON RECORD. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE HAS ADOPTED CASH SYSTEM OF ACCOUNTING, AND AS SUCH ITS INCOME FROM DIFFERENT S OURCES IS REQUIRED TO BE COMPUTED UNDER CASH SYSTEM OF ACCOUNTING. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,55,15,4 06/- AS INCREASE IN INCOME SHOWN FROM SALES OF HOUSES AND FLATS AND RS. 16,683 /- AS INTEREST ON INSTALLMENTS. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 19,78,70, 924/- (I.E. THE DIFFERENCE BETWEEN THE TOTAL INSTALLMENTS RECEIVED AT RS. 23,0 0,77,465/- AND THE TOTAL AMOUNT RECOGNIZED AS REVENUE DURING THE YEAR AT RS. 3,22,06,541/-) 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 51,91,164 /- ( AN AMOUNT RECEIVED FROM THE HIRE PURCHASE DEBTORS.). 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE AT RS. 3,51,33,507/- ON A/C OF C.P.F & INTEREST ON C.P.F. CONTRIBUTION. THE DISALL OWANCE WAS MADE FOR THE REASON THAT THE CONTRIBUTIONS HAVE NEITHER BEEN MAD E TO A PROVIDENT FUND APPROVED BY THE CHIEF COMMISSIONER OR COMMISSIONER OF INCOME TAX NOR TO A 4 PROVIDENT FUND ESTABLISHED UNDER A SCHEME FRAMED UN DER THE EMPLOYEES PROVIDENT FUNDS ACT, 1952. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE AT RS. 2,24 ,04,923/- BEING INTEREST INCOME ON FDRS. 3. THE REVENUE VIDE LETTER DATED 4.1.2013 WHICH WAS RECEIVED IN OUR OFFICE ON 7.1.2013 SOUGHT TO AMEND GROUND NO. 1 OF THE APPEAL AND FILED FOLLOWING AMENDED GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) VIDE HIS ORDER DATED 30.5.2007 IN APPEAL NO. 74/P/2006-07 HAS ERRED IN ACCEPTING THE ADDITIONAL GROUNDS OF APPEAL TAKEN BY THE ASSESSEE WITH REGARD TO TRANSFER OF JURISDICTION OV ER THE CASE U/S 127 OF THE INCOME TAX ACT AND DECIDING THE SAME IN FAVOUR OF THE ASSESSEE. WHILE DECIDING THE ISSUE THE LD. CIT(A) HAS FAILED TO CONSIDER THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF SMT. JASWINDER KAUR COONER VS. CIT(A) (2007) 291 ITR 80 (PH) DECIDED ON 23.11.2006 AND THE JUDGMENT OF HON'BLE ALLAHABAD HI GH COURT IN THE CASE OF CIT V. BRITISH INDIA CORPORATION LTD. 337 I TR 64 AND THE PROVISIONS CONTAINED IN SUB-SECTION 3 OF SECTION 12 4. 4 AFTER PURSUING THE ABOVE GROUND WE FIND THAT THE RE IS HARDLY ANY DIFFERENCE AND ISSUE SOUGHT TO BE RAISE THE AMENDED GROUND, IS SAME AS CONTAINED IN ORIGINAL GROUND NO. 1. DURING HEARING WE HAD ASKED FOR OBJECTION FROM THE LD. COU NSEL OF THE ASSESSEE AND HE ALSO HAD NO OBJECTION. THEREFORE, WE HAVE SUBSTITUTED THE ORIGINAL GROUND 1 WITH THE AMENDED GROUND 1. 5 GROUND NO. 1 BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE WAS HAVING ITS REGISTERED OFFICE IN SECTOR 17, CHANDIGARH AND WAS FILING RETURN OF INCOME IN CIRCLE 2(1), CHA NDIGARH. DURING THE RELEVANT ASSESSMENT YEAR THE OFFICE OF THE ASSE SSEE WAS SHIFTED TO MOHALI AND ACCORDINGLY THE ASSESSEE FILED RETUR N FOR RELEVANT ASSESSMENT YEAR 2003-04 ON 28.11.2003 WITH ACIT, CI RCLE 6(1) WHICH WAS HAVING JURISDICTION FOR MOHALI AREA. THE RETURN WAS TRANSFERRED TO ACIT CIRCLE 2(1) AS THE CASE WAS PRE VIOUSLY DEALT BY ACIT CIRCLE 2(1). THE CASE WAS SELECTED FOR SCRUTI NY AND NOTICE U/S 143(2) AND 142(1) WAS ISSUED BY ACIT, CIRCLE 2(1) O N 5.1.2004. THE ASSESSEE FURTHER FILED REVISED RETURN FOR THIS YEAR ON 7.2.2005 AGAIN WITH CIRCLE 6(1) ON 7.2.2005. THIS RETURN WAS AGAI N TRANSFERRED TO ACIT CIRCLE 2(1) ON 17.2.2005. IN MAY 2005, ACIT C IRCLE 2(1) TRANSFERRED THE CASE BACK TO ACIT CIRCLE 6(1). THE ASSESSMENT WAS FINALLY COMPLETED BY ACIT CIRCLE 6(1). DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE NEVER OBJECTED TO THE JURI SDICTION OF ACIT CIRCLE 6(1). HOWEVER, WHEN THE ASSESSEE WAS NOT SA TISFIED WITH THE ASSESSMENT ORDER AND AN APPEAL WAS FILED AGAINST TH E SAME AN 5 ADDITIONAL GROUND WAS TAKEN BEFORE THE LD. CIT(A) W HICH READS AS UNDER: THAT THE ASSESSING OFFICER BEING ACIT, CIRCLE 6(1) , CHANDIGARH HAS ERRED IN ASSUMING JURISDICTION FROM DCIT, CIRCLE 2( 1), CHANDIGARH ON THE DIRECTION OF JT. CIT, RANGE 6, CHANDIGARH. HE PROC ESSED TO ASSESSEE THE APPELLANT WITHOUT RECEVINGTHE ORDER U/S 127 FRO M THE HON'BLE CIT- 1/II, CHANDIGARH. THE SAID ORDER WAS NOT COMMUNICA TED TO THE APPELLANT ALSO. NO OPPORTUNITY OF HEARING WAS GRANTED TO THE APPELLANT BEFORE TRANSFERRING THE JURISDICTION OVER THE CASE OF THE APPELLANT. HENCE, THE TOTAL ASSESSMENT IS BAD AND THE PROCESSINGS THEREON ARE VOID AB-INITIO. 6 THE LD. CIT(A) EXAMINED THE ISSUE IN DETAIL AND WAS OF THE OPINION THAT THIS WAS A CASE OF TRANSFER AND SINCE NO VALID ORDER HAS BEEN PASSED BY THE CONCERNED COMMISSIONER, THE JURI SDICTION WAS NOT PROPERLY TRANSFERRED. IN THIS REGARD HE WROTE A LETTER TO THE ASSESSING OFFICER. CONTENTS OF THE SAME ARE GIVEN AT PAGE 70 & 71 WHICH READ AS UNDER: THE ASSESSEE FILED THE INFORMATION AS CALLED FOR V IDE THE ABOVE NOTED QUESTIONNAIRES, ON DIFFERENT DATES. ON 03.12.2004, THE ASSESSEE VIDE ITS LETTER NO. 10180 DATED 03.12.2004 INFORMED THE DEPUTY COMM ISSIONER OF INCOME TAX, CIRCLE-2(1), CHANDIGARH THAT M/S KHURANA VINEET AND ASSOCIATES, CHARTERED ACCOUNTANTS HAVE BEEN APPOINTED AS STATUTORY AUDITO R FOR THE REVISION OF THE BALANCE SHEET FOR THE ASSESSMENT YEAR 2003-04 AND H AVE BEEN DIRECTED TO COMPLETE THE JOB WITHIN ONE MONTHS TIME. ON 14.01. 2005, THE ASSESSEE VIDE ITS LETTER NO. 257 DATED 14.01.2005 INTIMATED THE DEPUT Y COMMISSIONER OF INCOME TAX, CIRCLE -2(1), CHANDIGARH THAT THE PROFITABILIT Y ON PLOTS HAS BEEN DETERMINED AND RECOGNITION OF THE SAME HAS BEEN INCORPORATED I N THE BOOKS OF ACCOUNTS AND ACCORDINGLY PROFIT AND LOSS ACCOUNT AND BALANCE SHEET HAVE BEEN REVISED. IT WAS INTIMATED TO THE DEPUTY COMMISSIONER OF INCO ME TAX, CIRCLE-2(1), CHANDIGARH THAT RETURN FOR THE ASSESSMENT YEAR 2003 -04 HAS ALSO ACCORDINGLY BEEN REVISED AND THE SAID REVISED RETURN HAS BEEN F ILED WITH RANGE-VI, CHANDIGARH. YOUR ARE REQUESTED TO KINDLY MAKE IT CLEAR AS TO WH O WAS THE ASSESSING OFFICER HAVING JURISDICTION U/S 124 OVER THE ASSESSEE I.E. WHETHER IT WAS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 6(1), CHANDIGARH OR DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE2(1), CHANDIGARH. IN CASE THE JURISDICTION WAS WITH THE DCIT, CIRCLE 2(1), CHANDIGARH, THEN WHETHER AN ORDE R WAS PASSED U/S 127 BY THE COMMISSIONER OF INCOME TAX TRANSFERRING THE CAS E TO YOU AND IN CASE THE JURISDICTION WAS WITH YOU, THEN WHY THE CASE WAS TR ANSFERRED TO DCIT, CIRCLE2(1), CHANDIGARH. SINCE YOU HAVE REFERRED TO SEC. 128, IT APPEARS THAT DCIT CIRCLE2(1), CHANDIGARH HAD JURISDICTION AND HE CEASED TO EXERCISE THE JURISDICTION. HOWEVER, DCIT, CIRCLE 2(1), CHANDIGAR H CAN CEASE TO HAVE JURISDICTION ONLY IF THERE IS AN ORDER U/S 127 TRAN SFERRING THE CASE TO ACIT, CIRCLE 6(1), CHANDIGARH. THIS ORDER CAN ONLY BE PAS SED BY CCIT OR CIT AND NOT BY ADDL. CIT/JT. CIT. HENCE YOU ARE REQUESTED TO IN FORM AS TO HOW DCIT, CIRCLE 2(1), CHANDIGARH CEASE TO HAVE JURISDICTION. IT SEEMS INITIALLY NO REPLY WAS GIVEN BUT LATER ON SOME REPLY WAS GIVEN WHICH HAS BEEN SUMMARIZED BY THE LD. CIT(A) A T PAGE 84 TO 86 WHICH READ AS UNDER: THE ASSESSING OFFICER HAS SENT A LETTER MENTIONING THE ASSESSEE PUDAS WORK RELATES TO DEVELOPMENT OF PLOTS AND CONSTRUCTION OF BUILDINGS IN PUNJAB. THE 6 ASSESSEE HAS ITS REGISTERED OFFICE AT SECTOR 62, MO HALI. THUS IT IS CLEAR THAT THE TERRITORIAL JURISDICTION OF THE ASSESSEE LIES WITH CIRCLE 6(1), CHANDIGARH. THE ASSESSEE FILED ITS REVISED RETURN OF INCOME FOR THE A.Y. 2003-04 IN CIRCLE 6(1), FILED ITS ADVANCE TAX IN THIS CIRCLE, FILED ALL ITS REPLIES AT THE SAME TIME OF ASSESSMENT AND NEVER RAISED ANY OBJECTIONS REGARDIN G THE MATTER OF JURISDICTION. THE ASSESSEE ALSO FILED ITS ORIGINAL RETURN FOR THE A.Y. 2004-05 WITH CIRCLE 6(1). THIS VERY CLEARLY POINTS TO THE F ACT THAT THE ASSESSEE WAS WELL AWARE ABOUT THE JURISDICTION TO WHICH IT PERTAINED. THE ASSESSEE WAS ALL THE TIME AWARE THAT IT WAS UNDER THE JURISDICTION OF CI RCLE 6(1) REGARDING THE ISSUE OF JURISDICTION SECTION 124(3)( A) CLEARLY STATES THAT NO PERSON SHALL BE ENTITLED TO CALL IN QUESTION THE JU RISDICTION OF AN ASSESSING OFFICER WHERE HE HAS MADE A RETURN, UNDER SUBSECTIO N(1) OF SECTION 115 WD OR UNDER SUBSECTION (1) OF SECTION 139, AFTER THE EXPI RY OF ONE MONTH FROM THE DATE ON WHICH HE WAS SERVED WITH A NOTICE UNDER SUBSECTI ON (1) OF SECTION 142 OR SUBSECTION (2) OF SECTION 115WE OR SUBSECTION(2) OF SECTION 143 OR AFTER THE COMPLETION OF THE ASSESSMENT WHICHEVER IS EARLIER FURTHER, THE JURISDICTIONAL HIGH COURT I.E HONBLE PUNJAB & HARYANA HIGH COURT IN ITS DECISION DATED 23 NOVEMBER, 2006 IN THE CAS E OF SMT. JASWINDER KAUR KOONER V CIT(A), (2007)291 ITR 80 (P&H) HAS ALSO HE LD THAT IF NO CHALLENGE IS MADE AT THE INITIAL STAGE, THE ISSUE CANNOT BE RAIS ED IN AN APPEAL AGAINST THE ASSESSMENT ORDER. REGARDING THE ISSUE OF DIRECTION GIVEN BY THE JT. C OMMISSIONER OF INCOME TAX, RANGE VI I WOULD LIKE TO CLARIFY THAT AS PER THE RE CORDS AVAILABLE NO SUCH DIRECTION HAD BEEN ISSUED TO THE ASSESSING OFFICER IN THIS PARTICULAR CASE. SINCE THE CASE WAS IN SCRUTINY FOR THE A.Y. 2003-04 AND W AS GETTING TIME BARRED; THE ASSESSING OFFICER HAD TO ISSUE THE REQUISITE NOTICE . THERE WAS NO NEED FOR ANY DIRECTION FROM THE SUPERIOR AUTHORITY CONSIDERING T HE TIME BOUND NATURE OF THE CASE AND ALSO THAT TERRITORIALLY THE ASSESSEE PERTA INED TO THIS CIRCLE. IN SUCH CIRCUMSTANCES THERE ARE ALWAYS STANDING INSTRUCTION S THAT THE ASSESSING OFFICER MUST ISSUE THE REQUISITE NOTICES. MOREOVER THERE IS NOTHING IN RECORD WHICH MAY POINT TO THE FACT THAT THE JT. CIT HAD GIVEN DIRECT IONS TO THE ASSESSING OFFICER REGARDING THE JURISDICTION OF THE ASSESSEE. YOUR LE TTERS DATED 11.02.2007, 14.05.2007, AND 15.05.2007 WHICH ARE ALSO ON THE SA ME ISSUES WHICH HAVE BEEN CLARIFIED IN THE ABOVE PARAGRAPHS ABOVE. IT MAY BE FURTHER NOTED THAT AT THE TIME OF FRAMING THE ASSESSMENT ORDER THE JURISDICTION OF THE CASE WAS TRANSFERRED TO CIRCLE6 (1), CHANDIGARH. IT APPEARS FROM THE RECORD, THAT THE PAN WAS TRANSFERRED THROU GH AST WELL BEFORE THE DATE OF ASSESSMENT ORDER. A PAN HISTORY OF THE CASE IS B EING GENERATED TO VERIFY THE TRANSFER OF PAN IN THIS CASE. OUR OFFICE IN MOHALI IS ON A DIAL UP NETWORK BECAUSE OF WHICH THE PATIALA OFFICE HAS BEEN ASKED TO PROVIDE THE PAN HISTORY AT THE EARLIEST. I WOULD REQUEST YOU TO GRANT ME AN OTHER TWO WEEKS TIME I.E TILL 08.06.2007, AS GENERATION OF PAN HISTORY MAY TAKE S OME TIME. I WOULD ALSO REQUEST YOU THAT IF ANY VIEW, WHICH IS AGAINST REVENUE, IS CONSIDERED ON THE GROUND OF JURISDICTION, IT MUST B E CONSIDERED ONLY AFTER VERIFYING THE PAN HISTORY OF THE CASE, AS THE CASE INVOLVES A SUBSTANTIAL TAX EFFECT. THE LD. CIT(A) ADJUDICATED THE ISSUE VIDE FOLLOWING PARAS: AS FAR AS THE ASSESSEE IS CONCERNED, TERRITORIAL JU RISDICTION OVER ITS CASE LIES WITH ACIT, CIRCLE 6(1), CHANDIGARH. HOWEVER, THE AC IT, CIRCLE 6(1), CHANDIGARH HAD HIMSELF TRANSFERRED THE ORIGINAL AND REVISED RE TURN FILED BY THE ASSESSEE TO DCIT CIRCLE 2(1), CHANDIGARH WHO HAD BEEN ASSESSING THE ASSESSEE FOR INCOME-TAX IN THE PAST AND HAD ALSO ISSUED THE NOTI CE U/S 143(2) IN RESPECT OF A.Y. 2003-04 WHICH IS UNDER CONSIDERATION. FURTHERM ORE, HE HAD ALSO CONDUCTED HEARING IN THE ASSESSEES CASE. DURING THE PERIOD O F ONE MONTH UPTO THE EXPIRY OF ONE MONTH FRO THE DATE OF SERVICE OF NOTICE U/S 142(1) AND 143(2), IT WAS THE DCIT, CIRCLE 2(1) CHANDIGARH WHO WAS EXCURSING THE JURISDICTION AS HE HAD BEEN DOING IN THE PAST. THE TRANSFER OF THE CASE FR OM DCIT CIRCLE2(1), CHANDIGARH TO ACIT, CIRCLE 6(1), CHANDIGARH TOOK PL ACE AFTER THE TIME PERIOD PRESCRIBED U/S 124(3) AS SUCH THE ASSESSEE HAD NO R IGHT TO CHALLENGE THE JURISDICTION OF ACIT CIRCLE 6(1). CHANDIGARH AND IN ANY CASE THE ASSESSEE 7 WOULD NOT HAVE OBJECTED TO THE EXERCISE OF JURISDIC TION BY ACIT CIRCLE 6(1), CHANDIGARH BECAUSE AS PER SEC. 120, HE DID HAVE THE TERRITORIAL JURISDICTION OVER ITS CASE. BUT TO MAKE SUCH A TRANSFER, IT WAS NECESSARY ON THE PART OF THE CIT CONCERNED TO PASS AN ORDER U/S 127 TRANSFERRING THE CASE FROM DCIT, CIRCLE 2(1), CHANDIGARH TO ACIT CIRCLE 6(1), CHANDIGARH WH ICH WAS NOT PASSED. THEREFORE, ACIT CIRCLE 6(1), CHANDIGARH DID NOT ACQ UIRE JURISDICTION OVER THE ASSESSEE. THOUGH IT HAS BEEN CLAIMED BY THE ASSESSI NG OFFICER IN HIS LETTER DATED 28/05/2007 THAT NO DIRECTION HAD BEEN ISSUED BY THE JOINT COMMISSIONER OF INCOME TAX, IT IS SEEN FROM THE ASSESSMENT ORDER ITSELF THAT SUCH DIRECTIONS WERE ISSUED AND THERE APPEARS TO BE NO REASON FOR T HE ASSESSING OFFICER TO MAKE SUCH A FALSE CLAIM / STATEMENT IN THE ASSESSME NT ORDER. IN CASE IT IS ACCEPTED THAT ACIT CIRCLE 6(1), CHANDIGARH HAD JURI SDICTION OVER THE ASSESSEE AND DCIT, CIRCLE 2(1), CHANDIGARH HAD NO JURISDICTI ON, THEN THE ASSESSMENT ORDER IS LIABLE TO BE CANCELLED ON THE GROUND THAT NOTICE U/S 143(2) FOR THE FIRST TIME WITHIN LIMITATION DATED PRESCRIBED UNDER THE P ROVISO TO SEC. 143(2) WAS ISSUED BY DCIT CIRCLE 2(1), CHANDIGARH AND NOT BY A CIT, CIRCLE 6(1), CHANDIGARH. THEREFORE, IT WILL SERVE NO PURPOSE TO ARGUE THAT ACIT CIRCLE 6(1), CHANDIGARH HAD ALL ALONG JURISDICTION OVER THE ASSE SSEE. THE ASSESSING OFFICER HAD MENTIONED THAT AT THE TIME OF FRAMING OF THE AS SESSMENT ORDER, THE JURISDICTION OF THE CASE WAS TRANSFERRED TO ACIT CI RCLE 6(1), CHANDIGARH. IT APPEARS FROM THE STATEMENT OF ASSESSING OFFICER THA T THERE WAS NO NEED TO TRANSFER THE JURISDICTION BUT HE HAS NOT MENTIONED UNDER WHICH PROVISIONS OF THE ACT THE CASE WAS TRANSFERRED TO HIM. THE ASSESSING OFFICER HAS REFERRED TO SOME STANDING INSTRUCTIONS WHICH I MAY MENTION ARE NOT BINDING ON CIT(A) UNDER SECTION 119. THE ARGUMENTS RELATING TO SO CAL LED PAN HISTORY ARE IRRELEVANT AS THE ONUS WAS NON THE ASSESSING OFFICE R TO PRODUCE THE ORDER U/S 127 WHICH HE HAD NOT DONE SO FAR. IN FACT THERE WAS NO ORDER U/S 127 ON RECORDS AS IT WAS NOT SERVED ON THE ASSESSEE. ACCORDINGLY, THE ACIT CIRCLE 6(1) DID NOT HAVE JURISDICTION OVER THE ASSESSEE. THE ASSESSMENT ORDER IS CANCELLED AS ACIT, CIRCLE 6 (1) CHANDIGARH DID NOT HAVE JURISDICTION OVER THE ASSESSEE IN ABSENCE OF O RDER UNDER SECTION 127 TRANSFERRING THE CASE TO HIM FROM DCIT, CIRCLE, 2(1 ) CHANDIGARH. 7 BEFORE US, THE LD. DR FOR THE REVENUE MAINLY SUB MITTED THAT THE LD. CIT(A) SHOULD NOT HAVE ADMITTED THIS G ROUND FOR ADJUDICATION. SHE REFERRED TO THE DECISION OF HON' BLE SUPREME COURT IN CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT, 229 ITR 383 (S.C) IN WHICH IT WAS CLEARLY HELD THAT ONLY LEGAL ISSUES CAN BE ADMITTED BY THE APPELLATE AUTHORITY FOR ADJUDICATIO N AND IF THE FACTS WERE NOT ON RECORD THEN SUCH ISSUES CAN NOT BE ENTE RTAINED BY THE APPELLATE AUTHORITY. SINCE ISSUE OF JURISDICTION AL SO INVOLVE SOME FACTUAL MATRIX THIS ISSUE COULD NOT HAVE BEEN ENTER TAINED BY HIM. SHE ALSO RELIED ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF ARAVALI ENGINEERS P. LTD. VS. CIT, 335 ITR 508 (PH) WHERE IT WAS HELD THAT QUESTION OF LAW SHOULD NOT B E ENTERTAINED BY APPELLATE AUTHORITY IF THE FACTS REGARDING THAT ISS UE ARE NOT AVAILABLE ON RECORD. 8 SHE FURTHER SUBMITTED THAT IN VIEW OF THE PROVIS IONS OF SECTION 246A OF THE INCOME TAX ACT, 1961 WHICH CLEA RLY PROVIDES THE ISSUES AGAINST WHICH AN APPEAL CAN BE FILED BEFORE THE LD. CIT(A). SINCE THE ORDERS PASSED U/S 120 TO 127 ARE CLEARLY NOT APPEARING IN SECTION 246A AND THEREFORE, SAME ARE NOT APPEALABL E. IN THIS 8 REGARD SHE PLACED RELIANCE ON THE DECISION OF HON'B LE ALLAHABAD HIGH COURT IN CASE OF CIT VS. BRITISH INDIA CORPORA TION LTD. 337 ITR 64 (ALL). SHE ALSO REFERRED TO SECTION 124(3)(A) A ND POINTED OUT THAT THIS PROVISION CLEARLY PROVIDES THAT NO PERSON CAN CHALLENGE THE JURISDICTION AFTER ONE MONTH FROM THE DATE OF SERVI CE OF NOTICE U/S 143(2) AND 142(1). IN THIS REGARD SHE STRONGLY REL IED ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF S MT. JASWINDER KAUR COONER VS. CIT, 291 ITR 80 (PH). SINCE IN THI S CASE NOTICES U/S 143(2) AND 142(1) WERE ISSUED BY THE ACIT CIRCL E 2(1) AND CASE WAS TRANSFERRED TO CIRCLE 6(1) BECAUSE PAN OF THE A SSESSEE WAS TRANSFERRED U/S 127 OF INCOME TAX ACT. IN THIS REG ARD SHE FILED COPIES OF THE ORDER PASSED U/S 127 OF INCOME TAX AC T. IN THIS REGARD SHE ALSO SUBMITTED THAT TRANSFER OF THE CASES WITHI N VARIOUS COMMISSIONERATE TAKES PLACE BY CONSOLIDATED TRANSFE R ORDER IN COMPUTERS AND ULTIMATELY TRANSFER ISSUES ARE PASSED THROUGH ASSESSEE INFORMATION SYSTEM (IN SHORT AIS). UPDATIO N AND TRANSFER OF PAN NUMBER HAS BEEN MANDATORILY REQUIRED TO BE P ROCESSED THROUGH COMPUTER SOFTWARE AND NO SEPARATE ORDERS AR E REQUIRED TO BE PASSED. THE TRANSFER ORDERS ARE PASSED UNDER THE CODE OF COMMISSIONER ONLY. IN THIS REGARD SHE FILED COPIE S OF THE NECESSARY INSTRUCTIONS ISSUED BY ADDL DIRECTOR OF INCOME TAX SYSTEMS. MOREOVER NOTICES WERE ALSO ISSUED U/S 143(2) AND 14 2(1) BY ACIT CIRCLE 6(1) WITHIN THE LIMITATION FROM THE DATE OF FILING OF REVISED RETURN AND THEREFORE, IF THE ASSESSEE HAD ANY OBJE CTIONS, SAME SHOULD HAVE BEEN MADE BEFORE THE ACIT CIRCLE 6(1). 9 SHE ALSO CONTENDED THAT FIRST APPELLATE AUTHORIT Y DID NOT APPRECIATE THE FACT THAT ACTUAL TERRITORIAL JURISDI CTION OF THE ASSESSEE U/S 120 R.W.S. 124 OF INCOME TAX ACT FELL UNDER AC IT, CIRCLE 6(1). IN THIS REGARD SHE FILED COPIES OF THE NOTIFICATION ISSUED BY THE CCIT, NORTH WEST REGION FIXING THE JURISDICTION IN CIRCLE 6(1). MOREOVER THE ASSESSEE HAD ALSO FILED RETURN VOLUNTARILY WITH CIR CLE 6(1) AS REGD OFFICE OF THE ASSESSEE WAS TRANSFERRED TO SECTOR 62 , MOHALI DURING THE RELEVANT PERIOD. SHE ALSO RELIED ON THE DECISI ON OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF SUBHASH CHAN DER VS. CIT, 218 CTR 191 (COPY OF THE DECISION FILED IN THE PAPE R BOOK) WHERE IT WAS CLEARLY HELD THAT JURISDICTION CANNOT BE CALLED IN QUESTION INTO BY THE ASSESSEE AFTER EXPIRY OF ONE MONTH FROM THE DAT E OF SERVICE OF NOTICE. SIMILAR VIEW HAS BEEN FURTHER TAKEN BY HON 'BLE ALLAHABAD HIGH COURT IN CASE OF CIT VS. SEWA RAM JAGGI, 222 C TR 412. SHE 9 SUBMITTED THAT ACIT CIRCLE 6(1) WAS HAVING INHERENT TERRITORIAL OVER THE ASSESSEE BECAUSE OF THE ORDER PASSED BY THE C.C .I.T, N.W. REGION, CHANDIGARH U/S 120 OF INCOME TAX ACT. THERE FORE, ACIT CIRCLE 6(1) HAS JURISDICTION BY VIRTUE OF THE ORDER PASSED BY THE CIT- II U/S 120 OF THE INCOME TAX ACT ON 15.10.2001 IN P URSUANCE OF THE ORDER PASSED U/S 120 ON 11.5.2001 BY C.C.I.T. IN VI EW OF THIS INHERENT JURISDICTION SUB-SECTION (5) OF SECTION 12 4 WILL COME INTO OPERATION WHICH STARTS WITH NON-OBSTANTE CLAUSE. SH E ELABORATELY DEALT WITH THE PROVISION OF SECTION 124(5) AND ALSO REFERRED TO THE DISCUSSION IN THE COMMENTARY BY SAMPATH IYENGARS I N COMMENTARY LAW OF INCOME TAX, VOLUME 5 (EDITION 2012) PG 8901. 10 SHE ALSO SUBMITTED THAT THERE IS A DIFFERENCE IN SITUATION WHERE THERE IS INHERENT LACK OF JURISDICTION AND WHERE JU RISDICTION IS IRREGULARLY EXERCISED THEN IN LATER CASE THE PARTY CAN SAID TO HAVE WAIVED THE OBJECTION REGARDING JURISDICTION IF SUCH PARTY HAS PARTICIPATED IN THE PROCEEDINGS. IN THIS REGARD SH E RELIED ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. SHRI PAL, 293 ITR 273. ACCORDING TO HER THE RATIO OF THIS DECISION IS FULLY APPLICABLE TO THE CASE OF THE ASSESSEE. 11 IN ANY CASE THE LD. CIT(A) SHOULD HAVE APPRECIAT ED THAT AFTER INSERTION OF SECTION 292B W.E.F. 1.10.1975 IN THE A CT, NO ASSESSMENT CAN BE TREATED INVALID MERELY BECAUSE OF ANY MISTAK E, DEFECT OR OMISSION. THE LD. CIT(A) HAS ALSO FAILED TO APPREC IATE THAT THE ASSESSEE HAS NOT SUFFERED ANY HARDSHIP BECAUSE THE JURISDICTION WAS NOT TRANSFERRED TO A CITY OUTSIDE CHANDIGARH. 12 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT ORIGINALLY JURISDICTION OF THE ASSESSEE WAS WI TH ASSESSING OFFICER, CIRCLE 2(1), CHANDIGARH AND WHO HAS EXERCI SED THE JURISDICTION BY ISSUING NOTICE U/S 143(2) WITHIN TH E LIMITATION PERIOD I.E. ON 5.1.2004 AND THAT IS WHY THE ASSESSEE DID N OT RAISE ANY OBJECTION. THE ASSESSEE FILED EVEN THE REVISED RETU RN WITH CIRCLE 6(1) BUT THE SAME WAS AGAIN TRANSFERRED TO CIRCLE 2 (1) BY THE ASSESSING AUTHORITY OF CIRCLE 6(1). THE ASSESSING OFFICER HAS CLEARLY RECORDED A FINDING THAT DCIT CIRCLE 2(1) TOOK UP TH E MATTER FOR TRANSFERRING THE CASE TO CIRCLE 6(1) AND THE MATTER WAS TAKEN WITH JCIT RANGE VI WHO FINALLY DIRECTED TO TRANSFER THE CASE IN CIRCLE 2(1) IN MAY 2005. FIRSTLY THIS TRANSFER WAS DONE WITHOU T ANY PROPER ORDER PASSED U/S 127 OF INCOME TAX ACT. IN ANY CASE THE JCIT HAS NO 10 POWER TO MAKE ORDER OF TRANSFER U/S 127. THEREFORE , CIRCLE 6(1) HAD NO JURISDICTION TO MAKE THE ASSESSMENT. IN THIS RE GARD HE RELIED ON THE FOLLOWING CASE LAWS: I LT. COL. PARAMJIT SINGN VS. CIT & ANOTHER, 220 IT R 446 (PH) II INDERJIT SINGH & CO. VS. STATE OF PUNJAB & OTHER S (CIVIL WRIT PETITION NO. 3397 OF 1973 (COPY OF JUDGMENT FILED AT PAGE 59 TO 61 OF PAPER BOOK). III VALVOLINE CUMMINS LTD. VS. DCIT, 307 ITR 103 (D EL) IV GANGADHAR AGGARWAL VS. JCIT, NEW DELHI IN IT(SS) A NO. 257/DELHI/2001 (COPY ENCLOSED AT PAGE 67-73 OF PAPER BOOK). V P.A. AHAMMED VS. CCIT & ANOTHER, 282 ITR 334 (KE R) 13 HE FURTHER SUBMITTED THAT NOTICE U/S 143(2) WAS ISSUED BY ACIT CIRCLE 2(1) IN PURSUANCE TO RETURN FILED U/S 139(1) BY WHICH TIME THE PERIOD OF 30 DAYS FOR RAISING THE OBJECTION AS PER SECTION 124(3)(A) HAS ALSO EXPIRED. IN ANY CASE SECTION 124(3)(A) RE FERS TO SECTION 139(1) AND SINCE ULTIMATELY THE ASSESSEE FILED RETU RN U/S 139(5) WHICH WAS ALSO TRANSFERRED TO CIRCLE 2(1), THEREFOR E, THERE WAS NO REQUIREMENT FOR RAISING THE OBJECTION AGAINST THE R ETURN FILED U/S 139(5). MOREOVER THE ASSESSEES TERRITORIAL JURISD ICTION LIES WITH ASSESSING OFFICER CIRCLE 6(1) AND RETURN WAS FILED THERE AND THE SAME WAS TRANSFERRED TO CIRCLE 2(1) BY THE INCOME-TAX AU THORITIES THEMSELVES. HE POINTED OUT THAT IT IS A SETTLED PO SITION THAT ASSESSEES BELIEF CANNOT CONFER THE JURISDICTION BY ACQUIESCENCE. THE ASSESSEE CAN NEITHER GRANT NOR TAKE AWAY THE JU RISDICTION OF ASSESSING OFFICER. BY PARTICIPATING IN THE ASSESSME NT PROCEEDINGS JURISDICTION CANNOT BE CONFERRED ON THE ASSESSING O FFICER. AS FAR AS PROVISIONS OF SECTION 292B ARE CONCERNED, FIRSTLY T HEY WERE BROUGHT ON THE STATUTE W.E.F 31.3.2008 AND SECONDLY SINCE T HE REVENUE HAS NOT COMPILED WITH THE SCHEME OF THE ACT I.E. BY PAS SING AN ORDER U/S 127 FOR TRANSFER OF THE CASE, JURISDICTION WAS NOT PROPERLY EXERCISED BY THE ASSESSING OFFICER. IN THIS REGARD HE RELIED ON THE DECISION OF DELHI TRIBUNAL IN CASE OF IMPAST PVT LTD VS. ITO, 2 76 ITR 136 (AT). 14 IT WAS FURTHER SUBMITTED THAT NOTICE U/S 143(2) BY ASSESSING OFFICER CIRCLE 6(1) ON 12.7.2005 WAS NOT IN PURSUAN CE OF THE REVISED RETURN BUT IT WAS TO COMPLY WITH THE PROVISIONS OF SECTION 129 AS IT IS CLEARLY MENTIONED IN THE ASSESSMENT ORDER ITSELF. THIS MEANS NO PROPER NOTICE WAS GIVEN BY THE ASSESSING OFFICER CI RCLE 6(1) AND THE PROCEEDINGS WERE CONTINUED FROM WHERE THEY WERE LEF T BY ASSESSING OFFICER CIRCLE 2(1). 11 15 IT WAS FURTHER SUBMITTED THAT IN THE ENCLOSURE ANNEXED WITH THE WRITTEN SUBMISSIONS BY THE REVENUE IT WAS STATED TO BE AN ORDER PASSED U/S 127 IS MERELY AN ORDER FOR TRANSFER OF P AN AND CANNOT BE CONSTRUED AN ORDER U/S 127. THIS ORDER DOES NOT RE CORD ANY REASON AND THE SAME WAS ALSO NOT SERVED TO THE ASSESSEE WH ICH MEANS THAT THE ORDER SUFFERS FROM SERIOUS INFIRMITY. IN THIS REGARD HE RELIED ON THE DECISION OF AJANTHA INDS AND OTHERS VS. CBDT AN D OTHERS, 102 ITR 281 S.C). 16 THE LD. COUNSEL OF THE ASSESSEE ALSO SUBMITTED T HAT NORMALLY DISPUTES REGARDING TERRITORIAL JURISDICTION CANNOT BE APPEALED BEFORE THE LD. CIT(A). HOWEVER, IN THE PRESENT CASE THE D ISPUTE IS NOT REGARDING TERRITORIAL JURISDICTION BUT THE DISPUTE IS REGARDING JURISDICTION ITSELF WHICH HAS BEEN WRONGLY EXERCISE D AND ONCE THE DISPUTE GOES TO THE ROOT OF THE MATTER THEN THE SAM E CAN BE CHALLENGED BEFORE THE APPELLATE AUTHORITY. IN THIS REGARD HE RELIED ON THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN C ASE OF WEST BENGAL STATE ELECTRICITY BOARD VS. DCIT AND ANOTHER , 278 ITR 218 (CAL). HE HAS ALSO RELIED ON THE DECISION OF NATI ONAL THERMAL POWER LTD. VS. CIT (SUPRA) WHEREIN THE HON'BLE SUPR EME COURT CLEARLY OBSERVED THAT ONCE THE QUESTION OF LAW ARIS ES WHICH GOES TO THE ROOT OF THE JURISDICTION THEN THE SAME CAN BE R AISED FOR THE FIRST TIME BEFORE THE TRIBUNAL. HE ALSO RELIED ON THE DE CISION OF HON'BLE RAJASTHAN HIGH COURT IN CASE OF CIT V. GIAN PARKASH GUPTA, 54 CTR 69. 17 THE LD. COUNSEL OF THE ASSESSEE ALSO DISTINGUISH ED THE DECISIONS RELIED ON BY THE REVENUE. HE CONTENDED T HAT IN CASE OF SMT. JASWINDER KAUR COONER (SUPRA) AN ORDER U/S 127 HAS BEEN PASSED WHICH WAS NOT CHALLENGED WHEREAS IN THE PRES ENT CASE NO ORDER U/S 127 WAS PASSED. IN CASE OF SUBHASH CHAND ER (SUPRA) THE JURISDICTION LIED WITH THE ASSESSING OFFICER WHO HA D ISSUED NOTICE U/S 143(2) AND HAS ALSO PASSED THE ASSESSMENT AND THE I SSUE OF JURISDICTION WAS NOT CHALLENGED WITH HIM WITHIN THE LIMITATION PERIOD U/S 124(3)(A). BUT IN THE PRESENT CASE ONLY ISSUE RAISED BEFORE THE CIT(A) WAS THAT THE ASSESSING OFFICER HAVING TERRIT ORIAL JURISDICTION DID NOT ASSUME THE SAME BY ISSUING NOTICE U/S 143(2 ) WITHIN THE LIMITATION PERIOD. IN CASE OF BRITISH INDIA CORP ( SUPRA) ASSESSING OFFICER ISSUED NOTICE U/S 143(2) AND ALSO AND PASSE D AN ASSESSMENT ORDER AND NO OBJECTION WAS RAISED U/S 124(3)(A) TO THE TERRITORIAL JURISDICTION OF THE SAID ASSESSING OFFICER I.E. WHY IT WAS HELD THAT THE 12 LD. CIT(A) WAS NOT COMPETENT TO ENTERTAIN THE GROUN D OF JURISDICTION. THE CASE OF CIT VS. SHREE PAL OSWAL (SUPRA) IS ALSO DISTINGUISHABLE BECAUSE IN THAT CASE THE ASSESSING OFFICER WAS NOT LACKING THE INHERENT JURISDICTION WHEREAS IN THE CASE BEFORE US , THERE WAS A LACK OF INHERENT JURISDICTION AND THAT QUESTION BEING A LEGAL QUESTION WHICH WAS CHALLENGED BEFORE THE LD. CIT(A). 18 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY IN THE LIGHT OF MATERIAL ON RECORD, CASE LAWS CITED BY PARTIES AS W ELL AS THE WRITTEN SUBMISSIONS FURNISHED BEFORE US, ORIGINALLY THE ASS ESSEE WAS FILING RETURNS IN CIRCLE 2(1) BECAUSE ASSESSEES HEAD OFFI CE WAS SITUATED IN SECTOR 17, CHANDIGARH. LATER ON THE OFFICE WAS SHIFTED TO PUDA BHAWAN, MOHALI, THEREFORE, ASSESSEE ITSELF FILED T HE RETURNS FOR THE PRESENT YEARS I.E. 2003-04 WITH CIRCLE 6(1) DECLARI NG INCOME OF RS. 21,15,46,295/- ON 28.11.2003. IT WAS NOTICED THAT SINCE THE ASSESSEE WAS REGULARLY ASSESSED BY ACIT CIRCLE 2(1) , CHANDIGARH THE RETURN WAS TRANSFERRED TO THAT OFFICE. THE CAS E WAS SELECTED FOR SCRUTINY BY ACIT CIRCLE 2(1) AND A NOTICE U/S 143 (2) AND 142(1) OF INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) ON 5.1.2004 WHICH WAS SERVED ON THE ASSESSEE ON 8.1.2004. SOME QUESTIONNAIRE WERE ALSO ISSUED ON 5.1.2004 AND 10.9.2004. LATER ON THE ASSESSEE FILED REVISED RETURN ON 7.2.2005 AGAIN IN CIRCLE 6( 1). THIS REVISED RETURN WAS ALSO TRANSFERRED TO DCIT CIRCLE 2(1), CH ANDIGARH ON 17.2.2005 AS THE ASSESSEE WAS BEING REGULARLY ASSES SED BY THAT CIRCLE. THEREAFTER ACCORDING TO THE ASSESSING OFFI CER, THE DCIT CIRCLE 2(1), CHANDIGARH TOOK THE MATTER OF TRANSFER OF THE CASE TO THIS CIRCLE AND THE MATTER WAS TAKEN UP WITH JCIT R ANGE 6 WHO FINALLY DIRECTED HIM TO TRANSFER THE RECORD AND SAM E WAS TRANSFERRED TO CIRCLE 6(1) IN MAY 2005. NO DOUBT THE REVENUE H AS NOT HANDLED THE MATTER PROPERLY IN THE SENSE THAT FIRST RETURNS FILED IN CIRCLE 6(1) WERE TRANSFERRED TO CIRCLE 2(1) AND THEN THE ISSUE WAS TAKEN AS A MATTER OF TRANSFER AT THE LEVEL OF JCIT. HOWEVER, AT THE SAME TIME WE HAVE TO FIND OUT THE CORRECT LEGAL POSITION AND THE CORRECT JURISDICTION OF THE ASSESSEE. FIRST OBJECTION RAISE D BY THE LD. COUNSEL OF THE ASSESSEE IS THAT NO PROPER TRANSFER ORDER HA S BEEN PASSED U/S 127. RELEVANT PORTION OF VARIOUS PROVISIONS DEALIN G WITH ISSUE OF JURISDICTION, READS AS UNDER: 120. (1) INCOME TAX AUTHORITIES SHALL EXERCISE ALL OR ANY OF THE POWERS AND PERFORM ALL OR ANY OF THE FUNCTIONS CONFERRED ON, O R, AS THE CASE MAY BE, ASSIGNED TO SUCH AUTHORITIES BY OR UNDER THIS ACT I N ACCORDANCE WITH SUCH 13 DIRECTIONS AS THE BOARD MAY ISSUE FOR THE EXERCISE OF THE POWERS AND PERFORMANCE OF THE FUNCTIONS BY ALL OR ANY OF THOSE AUTHORITIES. (2) THE DIRECTIONS OF THE BOARD UNDER SUB-SECTION(1 ) MAY AUTHORIZE ANY OTHER INCOME-TAX AUTHORITY TO ISSUE ORDERS IN WRITING FOR THE EXERCISE OF THE POWERS AND PERFORMANCE OF THE FUNCTIONS BY ALL OR ANY OF T HE OTHER INCOME-TAX AUTHORITIES WHO ARE SUBORDINATE TO IT. (3)IN ISSUING THE DIRECTIONS OR ORDERS REFERRED TO IN SUB-SECTIONS(1) AND (2), THE BOARD OR OTHER INCOME TAX AUTHORITY AUTHORIZED BY I T MAY HAVE REGARD TO ANY ONE OR MORE OF THE FOLLOWING CRITERIA, NAMELY:- (A) TERRITORIAL AREA; (B) PERSONS OR CLASSES OF PERSONS; (C) INCOMES OR CLASSES OF INCOME; AND (D) CASES OR CLASSES IF CASES, (4) WITHOUT PREJUDICE TO THE PROVISIONS OF SUB-SECT IONS(1) AND (2), THE BOARD MAY, BY GENERAL OR SPECIAL ORDER, AND SUBJECT TO SU CH CONDITIONS, RESTRICTIONS OR LIMITATIONS AS MAY BE SPECIFIED THEREIN,- (A) AUTHORIZE ANY DIRECTOR GENERAL OR DIRECTOR TO PERFORM SUCH FUNCTIONS OF ANY OTHER INCOME-TAX AUTHORITY AS MAY BE ASSIGNED T O HIM BY THE BOARD; (B) EMPOWER THE DIRECTOR GENERAL OR CHIEF COMMISSIO NER OR COMMISSIONER TO ISSUE ORDERS IN WRITING THAT THE POWERS AND FUNC TIONS CONFERRED ON, OR AS THE CASE MAY BE, ASSIGNED TO, THE ASSESSING OFFICER BY OR UNDER THIS ACT IN RESPECT OF ANY SPECIFIED AREA OR PERSONS OR CLASSES OF PERS ONS OR INCOMES OR CLASSES OF INCOME OR CASES OR CLASSES OF CASES, SHALL BE EXERC ISED OR PERFORMED BY A [JOINT] COMMISSIONER [OR A [JOINT] DIRECTOR], AND, WHERE ANY ORDER IS MADE UNDER THIS CLAUSE, REFERENCES IN ANY OTHER PROVISIO N OF THIS ACT, OR IN ANY RULE MADE THEREUNDER TO THE ASSESSING OFFICER SHALL BE D EEMED TO BE REFERENCES TO SUCH [JOINT ] COMMISSIONER [OR [JOINT]DIRECTOR] BY WHOM THE POWERS AND FUNCTIONS ARE TO BE EXERCISED OR PERFORMED UNDER SU CH ORDER, AND ANY PROVISION OF THIS ACT REQUIRING APPROVAL OR SANCTION OF THE [ JOINT] COMMISSIONER SHALL NOT APPLY. (5) THE DIRECTIONS AND ORDERS REFERRED TO IN SUB-SE CTIONS(1) AND (2) MAY WHEREVER CONSIDERED NECESSARY OR APPROPRIATE FOR TH E PROPER MANAGEMENT OF THE WORK, REQUIRE TWO OR MORE ASSESSING OFFICERS (W HETHER OR NOT OF THE SAME CLASS) TO EXERCISE AND PERFORM, CONCURRENTLY, THE P OWERS AND FUNCTIONS IN RESPECT OF ANY AREA OR PERSONS OR CLASSES OF PERSON S OR INCOMES OR CLASSES OF INCOME OR CASES OR CLASSES OF CASES; AND WHERE SUCH POWERS AND FUNCTIONS ARE EXERCISED AND PERFORMED CONCURRENTLY BY THE ASSESSI NG OFFICERS OF DIFFERENT CLASSES, ANY AUTHORITY LOWER IN RANK AMONGST THEM S HALL EXERCISE THE POWERS AND PERFORM THE FUNCTIONS AS ANY HIGHER AUTHORITY A MONGST THEM MAY DIRECT, AND, FURTHER, REFERENCES IN ANY OTHER PROVISION OF THIS ACT OR IN ANY RULE MADE THEREUNDER TO THE ASSESSING OFFICER SHALL BE DEEMED TO BE REFERENCES TO SUCH HIGHER AUTHORITY AND ANY PROVISION OF THIS ACT REQU IRING APPROVAL OR SANCTION OF ANY SUCH AUTHORITY SHALL NOT APPLY. (6) NOTWITHSTANDING ANYTHING CONTAINED IN ANY DIREC TION OR ORDER ISSUED UNDER THIS SECTION, OR IN SECTION 124, THE BOARD MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, DIRECT THAT FOR THE PURPOSE OF FURNISHING OF THE RETURN OF INCOME OR THE DOING OF ANY OTHER ACT OR THING UNDER THIS ACT OR A NY RULE MADE THEREUNDER BY ANY PERSON OR CLASS OF PERSONS, THE INCOME-TAX AUTH ORITY EXERCISING AND PERFORMING THE POWERS AND FUNCTIONS IN RELATION TO THE SAID PERSON OR CLASS OF PERSONS SHALL BE SUCH AUTHORITY AS MAY BE SPECIFIED IN THE NOTIFICATION.] [ JURISDICTION OF ASSESSING OFFICERS. 124. (1) WHERE BY VIRTUE OF ANY DIRECTION OR ORDER ISSUED UNDER SUB-SECTION(1) OR SUB-SECTION(2) OF SECTION 120, THE ASSESSING OFF ICER HAS BEEN VESTED WITH JURISDICTION OVER ANY AREA, WITHIN THE LIMITS OF SU CH AREA, HE SHALL HAVE JURISDICTION- (A) IN RESPECT OF ANY PERSON CARRYING ON A BUSINES S OR PROFESSION, IF THE PLACE AT WHICH HE CARRIED ON HIS BUSINESS OR PROFES SION IS SITUATE WITHIN THE AREA, OR WHERE HIS BUSINESS OR PROFESSION IS CARRIE D ON IN MORE PLACES THAN ONE, IF THE PRINCIPAL PLACE OF HIS BUSINESS OR PROF ESSION IS SITUATE WITHIN THE AREA, AND (B) IN RESPECT OF ANY OTHER PERSON RESIDING WITHIN THE AREA. (2) WHERE A QUESTION ARISES UNDER THIS SECTION AS T O WHETHER AN ASSESSING OFFICER HAS JURISDICTION TO ASSESS ANY PERSON, THE QUESTION SHALL BE DETERMINED 14 BY THE DIRECTOR GENERAL OR THE CHIEF COMMISSIONER O R THE COMMISSIONER, OR WHERE THE QUESTION IS ONE RELATING TO AREAS WITHIN THE JURISDICTION OF DIFFERENT DIRECTOR GENERALS OR CHIEF COMMISSIONERS OR COMMISS IONERS, BY THE DIRECTORS GENERAL OR CHIEF COMMISSIONERS OR COMMISSIONERS CON CERNED OR, IF THEY ARE NOT IN AGREEMENT, BY THE BOARD OR BY SUCH DIRECTOR GENERAL OR CHIEF COMMISSIONER OR COMMISSIONER AS THE BOARD MAY, BY N OTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY. (3) NO PERSON SHALL BE ENTITLED TO CALL IN QUESTION THE JURISDICTION OF AN ASSESSING OFFICER- (A) WHERE HE HAS MADE A RETURN UNDER SUB-SECTION(1) OF SECTION 139, AFTER THE EXPIRY OF ONE MONTH FROM THE DATE ON WHICH HE W AS SERVED WITH A NOTICE UNDER SUB-SECTION (1) OF SECTION 142 OR SUB-SECTION (2) OF SECTION 143 OR AFTER THE COMPLETION OF THE ASSESSMENT, WHICHEVER IS EARL IER; (B) WHERE HE HAS MADE NO SUCH RETURN, AFTER THE EXP IRY OF THE TIME ALLOWED BY THE NOTICE UNDER SUB-SECTION(1) OF SECTION 142 O R UNDER SECTION 148 FOR THE MAKING OF THE RETURN OR BY THE NOTICE UNDER THE FIR ST PROVISO TO SECTION 144 TO SHOW CAUSE WHEY THE ASSESSMENT SHOULD NOT BE COMPLE TED TO THE BEST6 OF THE JUDGMENT OF THE ASSESSING OFFICER, WHICHEVER IS EAR LIER. (4)--------------------- (5)--------------------- 127. (1) THE DIRECTOR GENERA OR CHIEF COMMISSIONER OR COMMISSIONER MAY, AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD IN THE MATTER, WHEREVER IT IS POSSIBLE TO DO SO, AND AFTER RECORDI NG HIS REASONS FOR DOING SO, TRANSFER ANY CASE FROM ONE OR MORE ASSESSING OFFICE RS SUBORDINATE TO HIM (WHETHER WITH OR WITHOUT CONCURRENT JURISDICTION) T O ANY OTHER ASSESSING OFFICER OR ASSESSING OFFICERS (WHETHER WITH OR WITHOUT CONC URRENT JURISDICTION) ALSO SUBORDINATE TO HIM. (2) WHERE THE ASSESSING OFFICER OR ASSESSING OFFICE RS FROM WHOM THE CASE IS TO BE AND THE ASSESSING OFFICER OR ASSESSING OFFICERS TO WHOM THE CASE IS TO BE TRANSFERRED ARE NOT SUBORDINATE TO THE SAME DIRECTO R GENERAL OR CHIEF COMMISSIONER OR COMMISSIONER,- (A)------------------------ (B)------------------------ (3) NOTHING IN SUB-SECTION(1) OR SUB-SECTION(2) SHA LL BE DEEMED TO REQUIRE ANY SUCH OPPORTUNITY TO BE GIVEN WHERE THE TRANSFER IS FROM ANY ASSESSING OFFICER OR ASSESSING OFFICERS(WHETHER WITH OR WITHOUT CONCU RRENT JURISDICTION) TO ANY OTHER ASSESSING OFFICER OR ASSESSING OFFICERS (WHET HER WITH OR WITHOUT CONCURRENT JURISDICTION) AND THE OFFICES OF ALL SUC H OFFICERS ARE SITUATED IN THE SAME CITY, LOCALITY OR PLACE. (4) THE TRANSFER OF A CASE UNDER SUB-SECTION(1) OR SUB-SECTION(2) MAY BE MADE AT ANY STAGE OF THE PROCEEDINGS, AND SHALL NOT REND ER NECESSARY THE RE-ISSUE OF ANY NOTICE ALREADY ISSUED BY THE ASSESSING OFFICER OR ASSESSING OFFICERS FROM WHOM THE CASE IS TRANSFERRED. 129. WHENEVER IN RESPECT OF ANY PROCEEDING UNDER TH IS ACT ON INCOME-TAX AUTHORITY CEASES TO EXERCISE JURISDICTION AND IS SU CCEEDED BY ANOTHER WHO HAS AND EXERCISES JURISDICTION, THE INCOME-TAX AUTHORIT Y SO SUCCEEDING MAY CONTINUE THE PROCEEDING FROM THE STAGE AT WHICH THE PROCEEDI NG WAS LEFT BY HIS PREDECESSOR; PROVIDED THAT THE ASSESSEE CONCERNED MAY DEMAND THA T BEFORE THE PROCEEDING IS SO CONTINUED THE PREVIOUS PROCEEDING OR ANY PART THEREOF BE REOPENED OR THAT BEFORE ANY ORDER OF ASSESSMENT IS PASSED AGAINST HI M, HE BE REHEARD. 19 SECTION 127(1) PROVIDES THAT A CASE MAY BE TRANS FERRED BY DIRECTOR GENERAL OF INCOME TAX OR CHIEF COMMISSIONE R OF INCOME TAX OR THE COMMISSIONER OF INCOME TAX FROM ONE ASSE SSING OFFICER TO ANOTHER AFTER PROVIDING FOR THE REASONABLE OPPOR TUNITY TO THE ASSESSEE. HOWEVER, SUB-SECTION (3) OF THIS SECTION CARVES OUT AN 15 EXCEPTION WHICH PROVIDES THAT NO SUCH OPPORTUNITY I S REQUIRED TO BE GIVEN WHERE A CASE IS TRANSFERRED WITHIN THE SAME C ITY. SINCE IN CASE BEFORE US, THE CASE HAS BEEN TRANSFERRED WITHI N THE SAME CITY, THEREFORE, NO OPPORTUNITY WAS REQUIRED TO BE GIVEN TO THE ASSESSEE. 20 THE LD. DR FOR THE REVENUE HAS FURNISHED AN ENCL OSURE SHOWING TRANSFER OF PAN OF THE ASSESSEE FROM CIRCLE 2, CHAN DIGARH TO CIRCLE 6 OF CHANDIGARH. SHE HAS SUBMITTED THAT THIS HAS T O BE CONSTRUED AN ORDER PASSED U/S 127 BECAUSE AFTER COMPUTERIZATION SUCH ORDERS WERE REQUIRED TO BE PASSED THROUGH THE COMPUTER SOF TWARE KNOWN AS AIS. IN THIS REGARD SHE HAD REFERRED TO A LETTER D ATED 24.5.1999 THROUGH WHICH THE ORDERS U/S 120, 127 WERE DIRECTED TO BE PASSED ON SYSTEM USING THE ASSESSEE INFORMATION SYSTEM (AIS). THE RELEVANT LETTER READS AS UNDER: DATED: 24.05.1999 SIR, SUB: TRANSFER OF JURISDICTION OF CASES UNDER SECTI ONS 12 AND 127 OF THE INCOME-TAX ACT-PROCEDURE REGARDING. IT HAS COM TO THE NOTICE OF THIS DIRECTORATE THAT O RDERS RELATING TO TRANSFER OF JURISDICTION UNDER SECTIONS 120 AND 127 OF THE INCO ME-TAX ACT ARE NOT BEING PASSED ON THE SYSTEM USING THE AIS APPLICATION SOFT WARE. 2. IN THIS CONTEXT, I AM DIRECTED TO STATE THAT THE ASSESSEE INFORMATION SYSTEM (AIS) SOFTWARE PROVIDES FOR TRANSFER OF JURI SDICTION UNDER SECTIONS 120 AND 127 OF THE INCOME-TAX ACT. THE TEXT OF THE ORDE R CAN BE ADOPTED FROM THE STANDARD ORDER TEXT AND FURTHER CUSTOMISED. THE TR ANSFER MOVEMENTS TO BE EFFECTED FOR AN ORDER IN CASES IDENTIFIED BY PAN, S OURCE AO AND DESTINATION AO CAN BE ENTERED AND MAINTAINED IN THE SYSTEM. THE D RAFT ORDERS CAN BE PRINTED FROM THE SYSTEM, WHICH ALSO PROVIDES FOR GENERATION OF INTIMATION LETTERS (TO THE CONCERNED ASSESSES) AS WELL AS TRANSFER MEMOS, ONCE THE ORDERS ARE CONFIRMED ON THE SYSTEM BY THE CIT/CCIT OR DGIT CONCERNED. IN CASE OF BULK TRANSFER, A SUMMARIZED TRANSFER MEMO CAN BE PRINTED. IN CASE A PC ON NETWORK IS NOT AVAILABLE IN THE ROOM OF THE ASSESSING OFFICER, THE MACHINES PROVIDED IN THE RESPECTIVE TERMINAL BANKS CAN BE UTILIZED. 3. THE REQUISITE INSTRUCTIONS / PROCEDURE FOR TRANS FER OF JURISDICTION IN AIS IS GIVEN IN THE AIS USER MANUAL, A COPY OF WHICH HAS B EEN SENT TO YOU VIDE THIS OFFICE LETTER OF EVEN NO. DATED 21.05.99(AIS INSTRU CTION NUMBER AIS-3). 4. YOU ARE, THEREFORE, REQUESTED TO ISSUE SUITABLE INSTRUCTIONS TO THE CONCERNED OFFICERS OF YOUR REGION TO ENSURE THAT TH E TRANSFER OF JURISDICTION ORDERS UNDER SECTION 120 AND 127 OF THE INCOME-TAX ACT ARE PASSED ON THE SYSTEM USING THE AIS APPLICATION SOFTWARE SO THAT T HE JURISDICTION WITH REFERENCE TO PAN IN THE ASSESSEE INFORMATION SYSTEM IS KEPT U PDATED. YOURS FAITHFULLY, (S.W.KAUL) ADDL. DIRECTOR OF INCOME-TAX(SYSTEMS) 16 THUS ABOVE CLEARLY SHOWS THAT THE ORDERS U/S 127 WE RE REQUIRED TO BE PASSED THROUGH AIS AND ACCORDINGLY THE ORDER HA S BEEN PASSED ON 15.9.2005. THE ENCLOSURE A READS AS UNDER: PAN DATE OF ALLOTMENT DATE OF TRANSFER FROM TO PROCEDURE SECTION AAALP0045J 09.07.200 2 (1)25.11.2002 (2) 15.09.2005 WI(2)CHD CIRCLE 2 CHD ON REQUEST BY R.C.C. U/S-127 AAALP0056D 11.01.200 3 NOT TRANSFERRED N.A N.A N.A N.A ABOVE CLEARLY SHOWS THAT THIS ORDER WAS PASSED U/S 127. 21 IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE HAS OBJECTED BY CITING THE DECISION OF AJANTHA INDUSTRIES (SUPRA). CAREFUL PERUSAL OF THIS JUDGMENT SHOWS THAT ASSESSMENTS WERE BEING MAD E IN THE NELLORE DISTT AND FILES WERE SOUGHT TO BE TRANSFERR ED TO HYDERABAD WHICH MEANS THE CASE WAS TRANSFERRED FROM ONE CITY TO ANOTHER CITY AND THEREFORE THE SAME WOULD NOT BE COVERED BY THE EXCEPTION PROVIDED U/S 127(3). AS NOTED EARLIER SUB-SECTION (3) OF SECTION 127 CLEARLY PROVIDES THAT NO OPPORTUNITY IS REQUIRED TO BE PROVIDED TO THE ASSESSEE IF THE CASE IS TRANSFERRED WITHIN THE CITY BECAUSE IN SUCH CASES THE ASSESSEE IS NOT INCONVENIENCED AND THEREF ORE REASONS MAY NOT BE REQUIRED TO BE RECORDED. HOWEVER, AT TH E SAME TIME IT IS NOT CLEAR WHETHER THIS ORDER WAS SERVED ON THE ASSE SSEE OR NOT. THEREFORE, BASICALLY IT CAN BE SAID THAT AN ORDER U/S 127 FOR TRANSFER OF THE CASE HAS ALREADY BEEN PASSED BUT EVEN IF ASS UMING FOR THE SAKE OF ARGUMENT THAT THIS ORDER WAS NOT SERVED ON THE ASSESSEE AND THIS IS NOT PROPER ORDER. THE JURISDICTION HAS STILL TO BE EXERCISED PROPERLY AND LEGITIMATELY BY THE ASSESSIN G OFFICER BY CIRCLE 6(1) FOR THE FOLLOWING REASONS. FIRSTLY IF T HE ASSESSEE HAD PROBLEM WITH THE JURISDICTION THEN THE ASSESSEE SH OULD HAVE RAISED THE OBJECTION U/S 124(3)(A) WHICH CLEARLY PROVIDES THAT IF THE OBJECTION IS NOT RAISED DURING THE ASSESSMENT WITHI N A PERIOD OF ONE MONTH FROM THE ISSUE OF NOTICE U/S 143(2) THEN THE ISSUE OF JURISDICTION CANNOT BE CALLED IN QUESTION AFTER COM PLETION OF ASSESSMENT. THE HON'BLE PUNJAB & HARYANA HIGH COUR T IN CASE OF SUBHASH CHANDER VS. CIT (SUPRA) HAS CLEARLY HELD TH AT JURISDICTION CANNOT BE CALLED IN QUESTION BY THE ASSESSEE AFTER EXPIRY OF ONE MONTH FROM THE DATE OF COMPLETION OF ASSESSMENT IF NO OBJECTION IS RAISED DURING THAT PERIOD. THE LD. COUNSEL OF THE A SSESSEE TRIED TO 17 DISTINGUISH THIS CASE BY SUBMITTING THAT IN THIS CA SE NOTICE U/S 143(2) WAS ISSUED BY THE ASSESSING OFFICER WHO HAD JURISDI CTION. IN CASE BEFORE US, THE ASSESSEE HAS ITSELF FILED RETURN IN CIRCLE 6(1) AND NOTICE HAS BEEN FINALLY ISSUED BY THE ASSESSING OFF ICER OF CIRCLE 2 (1) AGAINST THE REVISED RETURN FILED BY THE ASSESSE E IN CIRCLE 6(1) WHICH WAS HAVING INITIALLY JURISDICTION TO CIRCLE 2 (1) BUT THE RETURN WAS AGAINST TRANSFERRED TO CIRCLE 6(1). ANOTHER OB JECTION WAS THAT SINCE THE ASSESSING OFFICER OF CIRCLE 2(1) HAD ALRE ADY ISSUED NOTICE U/S 143(2) ON 5.1.2004, THEREFORE, THE JURISDICTION WILL BE THAT OF THE ASSESSING OFFICER CIRCLE 2(1). WE FIND NO FORCE I N THIS SUBMISSION BECAUSE AFTER FILING OF REVISED RETURN THE AUTHORIT IES GET FRESH POWERS TO ISSUE NOTICE U/S 143(2) AGAINST SUCH REVI SED RETURN WHICH WAS ISSUED ON 12.7.2005. THE REVISED RETURN FILED ON 7.2.2005 U/S 139(5) WHICH WAS WELL IN TIME. AT THE RELEVANT POI NT OF TIME NOTICE U/S 143(2) COULD HAVE BEEN ISSUED WITHIN A PERIOD O F 12 MONTHS FROM THE END OF THE MONTH IN WHICH THE RETURN HAS BEEN F URNISHED. IN THIS REGARD WE REPRODUCE THE PROVISIONS OF SECTION 143(2 ) WHICH READ AS UNDER: [(2) WHERE A RETURN HAS BEEN FURNISHED UNDER SECTIO N 139, OR IN RESPONSE TO A NOTICE UNDER SUB-SECTION(1) OF SECTION 142, THE ASS ESSING OFFICER SHALL,- (I) WHERE HE HAS REASON TO BELIEVE THAT ANY CLAIM OF LOSS, EXEMPTION, DEDUCTION, ALLOWANCE OR RELIEF MADE IN THE RETURN I S INADMISSIBLE, SERVE ON THE ASSESSEE A NOTICE SPECIFYING PARTICULARS OF SUCH CL AIM OF LOSS, EXEMPTION, DEDUCTION, ALLOWANCE OR RELIEF AND REQUIRE HIM, ON A DATE TO BE SPECIFIED THEREIN TO PRODUCE, OR CAUSE TO BE PRODUCED, ANY EVIDENCE O R PARTICULARS SPECIFIED THEREIN OR ON WHICH THE ASSESSEE MAY RELY, IN SUPPO RT OF SUCH CLAIM: [PROVIDED THAT NO NOTICE UNDER THIS CLAUSE SHALL BE SERVED ON THE ASSESSEE ON OR AFTER THE 1 ST DAY OF JUNE, 2003;] (II) NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE(I ), IF HE CONSIDERS IT NECESSARY OR EXPEDIENT TO ENSURE THAT THE ASSESSEE HAS NOT UNDER-STATED THE INCOME OR HAS NOT COMPUTED EXCESSIVE LOSS OR HAS NO T UNDER-PAID THE TAX IN ANY MANNER, SERVE ON THE ASSESSEE A NOTICE REQUIRING HI M, ON A DATE TO BE SPECIFIED THEREIN, EITHER TO ATTEND HIS OFFICE OR TO PRODUCE, OR CAUSE TO BE PRODUCED, ANY EVIDENCE ON WHICH THE ASSESSEE MAY RELY IN SUPPORT OF THE RETURN: [ PROVIDED THAT NO NOTICE UNDER CLAUSE (II) SHALL B E SERVED ON THE ASSESSEE AFTER THE EXPIRY OF SIX MONTHS FROM THE END OF THE FINANC IAL YEAR IN WHICH THE RETURN IS FURNISHED.]] FIRST OF ALL IT IS CLEAR FROM ABOVE THAT SUB-SECTIO N (2) OF SECTION 143 REFERS TO SECTION 139 WHICH MEANS THAT THE RETURN U NDER VARIOUS SUB- SECTION OF SECTION 139 ARE INCLUDED HEREIN. SINCE NOTICE HAS BEEN ISSUED ON 12.7.2005 WHICH IS WELL WITHIN TIME AND T HEREFORE, IF THE ASSESSEE HAD ANY OBJECTION HE SHOULD HAVE RAISED TH E SAME U/S 124(3)(A) WITHIN ONE MONTH OF ISSUE OF SUCH NOTICE. THE LD. COUNSEL OF THE ASSESSEE HAD MADE ANOTHER OBJECTION THAT SEC TION 124(3)(A) WHICH REFERS TO THE OBJECTION TO BE RAISED BY THE A SSESSEE, IN FACT MAKES REFERENCE TO RETURNS FILED U/S 139(1) AND THE REFORE, THIS REQUIREMENT OF RAISING THE OBJECTION CANNOT BE READ IN CASES OF 18 REVISED RETURNS WHICH ARE FILED U/S 139(5). WE AGA IN FIND NO FORCE IN THIS CONTENTION. REQUIREMENT FOR RAISING THE OBJEC TIONS REGARDING JURISDICTION HAS BEEN INCORPORATED IN SECTION 124(3 )(A) BECAUSE IT IS SETTLED LAW THAT THE ISSUE OF TRANSFER IS A ADMINI STRATIVE MATTER AND IF ANY QUESTION ARISES REGARDING JURISDICTION THE S AME CAN BE DETERMINED BY THE DIRECTOR GENERAL OF INCOME TAX OR THE CHIEF COMMISSIONER OF INCOME TAX. THIS IS SPECIFICALLY P ROVIDED IN SUB- SECTION (2) OF SECTION 124. ANOTHER ASPECT IS THAT IN SECTION 246A WHICH GIVES RIGHT TO ASSESSEE FOR FILING OF APPEALS , NO APPEAL HAS BEEN PRESCRIBED IN RESPECT OF JURISDICTION ISSUES I.E. AGAINST SECTION 120, 124 AND 127 ETC. THE REASON FOR NOT MAKING A PROVISION FOR FILING OF AN APPEAL IS THAT THE ISSUE OF JURISDICTI ON IS AN ADMINISTRATIVE ACT AND THAT IS WHY ISSUE OF JURISDI CTION HAS BEEN LEFT ALONE TO BE DECIDED BY THE ADMINISTRATIVE AUTHORITY U/S 124. THEREFORE, MERELY NOT MENTIONING SUB-SECTION (5) O F SECTION 139 IN SECTION 124(3)(A) CAN NOT LEAD TO THE CONCLUSION T HAT OBJECTION IS NOT REQUIRED TO BE RAISED U/S 124(3)(A) IF THE ASSE SSEE DISPUTES THE JURISDICTION. IF THIS INTERPRETATION IS ADOPTED T HEN THAT WOULD MEAN THAT FIRST THE ASSESSEE ALLOWS THE ASSESSING AUTHOR ITY TO COMPLETE THE ASSESSMENT AND THEN LATER ON DISPUTE THE JURISD ICTION BY WAY OF AN APPEAL WHICH IS NOT PROVIDED IN THE ACT ITSELF. IT IS SETTLED LAW THAT APPEAL IS A STATUTORY RIGHT AND NO APPEAL CAN BE ENTERTAINED WHICH HAS NOT BEEN PROVIDED IN A PARTICULAR STATUTE . IN OTHER WORDS, THE REMEDY HAS BEEN PROVIDED TO THE ASSESSEE BY MAK ING A PROVISION FOR RAISING THE OBJECTION REGARDING JURISDICTION BY SECTION 124(3)(A) AND THAT IS WHY NO APPEAL HAS BEEN PROVIDED IN THE ACT. 22 ONE MORE OBJECTION WAS RAISED IN RESPECT OF THE ISSUE OF NOTICE BY THE ASSESSING OFFICER CIRCLE 6(1) I.E. T HIS NOTICE WAS ISSUED ONLY TO COMPLY WITH THE PROVISIONS OF SECTIO N 129. NO DOUBT ASSESSING AUTHORITY HAS CLEARLY MENTIONED THAT NOTI CE U/S 143(2) AND SECTION 142(1) DATED 12.7.2005 WERE ISSUED TO COMPL Y WITH THE REQUIREMENT OF PROVISIONS OF SECTION 129 BUT THIS I S NOT CORRECT POSITION (WE HAVE ALREADY OBSERVED EARLIER THAT EVE N THE REVENUE HAS NOT HANDLED THE ISSUE PROPERLY). WE HAVE ALREAD Y REPRODUCED SECTION 129. THIS PROVISION WOULD COME INTO OPERAT ION WHERE THE INCUMBENT OFFICER IN A PARTICULAR OFFICE CEASES TO EXERCISE THE JURISDICTION. THUS IT IS CLEAR THAT THIS PROVISION IS NOT REQUIRED TO BE USED WHERE A PARTICULAR CASE IS TRANSFERRED FROM ON E PARTICULAR JURISDICTION TO ANOTHER JURISDICTION. EVEN IF ASSU MING FOR THE 19 ARGUMENT SAKE THAT SECTION 129 WOULD APPLY EVEN IN CASES OF TRANSFER OF JURISDICTION WE FAIL TO UNDERSTAND HOW THE ASSESSEE CANNOT BE ALLOWED TO RAISE OBJECTION AGAINST THE JU RISDICTION U/S 124(3)(A) PARTICULARLY IN THE LIGHT OF LEGAL SCENAR IO THAT NO REMEDY IS AVAILABLE LATER ON BY WAY OF APPEAL. SINCE BOTH TH E PARTIES HAVE CITED MANY CASE LAWS ON THIS ASPECT WE WOULD LIKE T O DISCUSS THE IMPORTANT CASES AS UNDER: 23 IN CASE OF CIT V. SEWA RAM JAGGI (SUPRA) THE FAC TS BEFORE THE HON'BLE ALLAHABAD HIGH COURT WERE THAT THE ASSESSEE HAD FILED RETURN U/S 139(1) WITH ITO WARD 1(1), LUCKNOW AND N OTICE WAS ISSUED BY THE SAME ITO. LATER ON THE JURISDICTION OF THE ASSESSEE WAS TRANSFERRED BY THE CIT, LUCKNOW TO WARD 1(2), L UCKNOW. HOWEVER, ITO WARD 1(3), LUCKNOW HAD ISSUED NOTICE O N 18.11.1995 U/S 143(2) OF THE ACT WHICH WAS SERVED ON THE ASSES SEE. THE ASSESSEE PARTICIPATED IN THE PROCEEDINGS. LATER ON HE RAISED THE OBJECTION VIDE LETTER DATED 21.3.1996 REGARDING JUR ISDICTION. HOWEVER, THE ITO WARD 1(3) COMPLETED THE ASSESSMENT PROCEEDINGS. THE MATTER WAS TAKEN TO THE LD. CIT(A) WHO ALLOWED THE RELIEF. EVEN THE TRIBUNAL HELD ON FURTHER APPEAL THAT IN THE ABS ENCE OF AN ORDER TO TRANSFER THE ITO WARD 1(3), COULD HAVE NOT ASSUMED THE JURISDICTION OVER THE ASSESSEE THEREFORE, THE ASSESSMENT WAS NU LLITY. HON'BLE HIGH COURT AFTER CONSIDERING THE CONTENTIONS OF BOT H THE PARTIES HELD VIDE PARA 6 AS UNDER: 6. WE HAVE GIVEN OUR ANXIOUS CONSIDERATION TO THE V ARIOUS PLEAS OF THE LEARNED COUNSEL FOR THE PARTIES. FROM THE FACTS STATED ABOV E, WE FIND THAT THE NOTICE UNDER S.143(2) OF THE ACT HAD BEEN SERVED UPON THE RESPONDENT ASSESSEE ON 18 TH NOV., 1995. THE PROVISIONS OF SUB-S.(3) OF S.124 O F THE ACT ARE SPECIFIC AND CLEAR THAT AN ASSESSEE OR ANY OTHER PERSON SHOULD H AVE RAISED OBJECTION REGARDING JURISDICTION WITHIN 30 DAYS FROM THE DATE OF THE NOTICE I.E., THE SERVICE. IN THE PRESENT CASE, OBJECTION, IF ANY, WA S RAISED ONLY ON 21 ST MARCH, 1996, WHICH IS MUCH BEYOND THE PERIOD OF 30 DAYS AS PROVIDED IN SUB-S.(3) OF S.124 OF THE ACT. IT IS WELL SETTLED THAT THERE IS NO PLACE FOR EQUITY IN TAX LAWS. WHETHER THE ASSESSEE IS UNDER A FACTUAL IMPRESSION OR HAS NO KNOWLEDGE OF THE ORDER OF TRANSFER IN A PARTICULAR CASE AND IF HE IS TO RAISE ANY OBJECTION REGARDING JURISDICTION, HE SHOULD DO SO WITHIN 30 D AYS AND NOT BEYOND THAT AND THE SAME HAVING NOT BEEN DONE IN THE PRESENT CASE, WE ARE OF THE CONSIDERED OPINION THAT THE TRIBUNAL WAS NOT JUSTIFIED IN ANNU LLING THE ASSESSMENT ON THIS GROUND ALONE. 23 FROM ABOVE IT BECOMES CLEAR THAT ONCE A NOTICE I S ISSUED BY A PARTICULAR OFFICER AND IF THE ASSESSEE WISHES TO OB JECT TO SUCH JURISDICTION THEN OBJECTION HAS TO BE RAISED IN TER MS OF SECTION 124(3)(A) WITHIN 30 DAYS OF ISSUE OF SUCH NOTICE. NOW IN CASE BEFORE US, ONCE THE NOTICE WAS ISSUED TO THE ASSESSEE BY ASSESSING 20 OFFICER CIRCLE 6(1) AND IF THE ASSESSEE HAD ANY OBJ ECTION TO THE JURISDICTION HE SHOULD HAVE RAISED SUCH OBJECTION W ITHIN 30 DAYS OF ISSUE OF SUCH NOTICE. IN THE ABSENCE OF SUCH OBJECT ION THE ASSESSEE CAN NOT CHALLENGE THE JURISDICTION LATER ON. 24 IN CASE OF SMT. JASWINDER KAUR COONER (SUPRA), H ON'BLE PUNJAB & HARYANA HIGH COURT WAS CONCERNED WITH A CASE WHER E THE ASSESSMENT WAS COMPLETED AT INCOME OF RS. 2,44,243/ - ON ACCOUNT OF UNDISCLOSED INVESTMENT MADE IN THE CONSTRUCTION OF HOUSE. THE LD. CIT(A) ALLOWED PART RELIEF AND THE TRIBUNAL REM ANDED THE MATTER BACK TO THE FILE OF ASSESSING OFFICER. THE ASSESSEE HAD ALSO RAISED THE ISSUE THAT THE ORDER OF TRANSFER OF JURISDICTIO N U/S 127 OF THE ACT WAS ALSO VOID AND THEREFORE, REASSESSMENT PROCEEDI NGS WERE VOID ON THAT GROUND. THE TRIBUNAL DID NOT AGREE THAT TH IS PROPOSITION BY FOLLOWING ANOTHER ORDER IN WHICH IT WAS OBSERVED TH AT THE ASSESSEE HAD THE KNOWLEDGE OF THE ORDER AND DID NOT CHALLENG E THE SAME AT THE RELEVANT FORUM. THEREFORE, SAME COULD NOT BE S ET ASIDE IN THE ASSESSMENT PROCEEDINGS BY THE ASSESSING OFFICER OR THE LD. CIT. ON THESE FACTS IT WAS HELD AS UNDER: THE SCOPE OF ASSESSMENT PROCEEDINGS UNDER THE ACT I S CONFINED TO DETERMINING THE INCOME OF THE ASSESSEE AND LIABILITY TO TAX. TH E OFFICER TO WHOM JURISDICTION IS TRANSFERRED AND WHO DERIVES JURISDICTION FROM SU CH AN ORDER, CANNOT QUESTION THE VALIDITY OF SUCH AN ORDER. IF THE ASSESSEE IS A GGRIEVED BY AN ORDER OF TRANSFER, THE REMEDY OF THE ASSESSEE IS TO CHALLENG E SUCH AN ORDER IN INDEPENDENT PROCEEDINGS EITHER BEFORE THE HIGHER AD MINISTRATIVE AUTHORITIES AS PER THE ACT OR IN ANY INDEPENDENT PROCEEDINGS BY WA Y OF A WRIT PETITION OR OTHERWISE. IF NO SUCH CHALLENGE IS MADE AT THE INIT IAL STAGE, THE ISSUE CANNOT BE RAISED IN AN APPEAL AGAINST THE ASSESSMENT ORDER. 25 THE LD. COUNSEL OF THE ASSESSEE HAD TRIED TO DIS TINGUISH THIS DECISION BY CONTENDING THAT IN THIS CASE AN ORDER U /S 127 WAS PASSED WHICH WAS NOT CHALLENGED BY THE ASSESSEE. WE DO NOT AGREE WITH THE SUBMISSIONS BECAUSE THE RATIO OF THE DECIS ION IS THAT IF THE ASSESSEE HAS OBJECTION TO THE JURISDICTION OF SUCH ASSESSING AUTHORITY THEN OBJECTION SHOULD BE RAISED AT THE EA RLIEST BEFORE RELEVANT FORUM OR BY WAY OF WRIT PETITION. 26 THE LD. COUNSEL OF THE ASSESSEE STRONGLY RELIED ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF L T. COL. PARAMJIT SINGH VS. CIT (SUPRA). IN THAT CASE THE ASSESSEE RETIRED FROM ARMY ON AUGUST 31, 1990. AT THE TIME OF RETIREMENT, HE WAS POSTED AT PUNE IN THE STATE OF MAHARASHTRA. FOR THE ASSESSMENT YEAR 1 988-89 CORRESPONDING TO THE ACCOUNTING YEAR 1987-88, WHEN THE PETITIONER WAS 21 STATIONED AT PUNE, THE PETITIONER FILED A RETURN OF HIS INCOME WITH THE INCOME-TAX OFFICER, GHQ WARD 4(3), PUNE. THE ASSESS MENT FOR THE YEAR IN QUESTION WAS COMPLETED BY THE INCOME-TAX OFFICER, P UNE, UNDER SECTION 143(1) OF THE INCOME-TAX ACT, 1961. THE ORDER OF AS SESSMENT WAS COMMUNICATED TO THE PETITIONER AND THE AMOUNT PAYAB LE WAS PAID BY THE PETITIONER. AFTER HIS RETIREMENT FROM THE ARMY, THE PETITIONER SHIFTED TO JALANDHAR IN THE STATE OF PUNJAB AND SETTLED THERE. IN MARCH, 1995, THE INCOME-TAX OFFICER, JALANDHAR, ISSUED A NOTICE OF R EASSESSMENT FOR THE ASSESSMENT YEAR 1988-89. THE ASSESSEE FILED RETURN OF INCOME WHICH WAS FILED BEFORE THE ITO, PUNE WITH A NOTE THEREON THAT THE ASSESSMENT PROCEEDINGS FOR THE RELEVANT ASSESSMENT YEAR HAD ALREADY BEEN COMPLETED BY ITO, PUNE AND THE TAX FOU ND PAYABLE WAS ALSO PAID. IT WAS FURTHER SUBMITTED THAT NOTICE IS SUED WAS TIME BARRED AND THE ASSESSING OFFICER HAD NO JURISDICTIO N TO PROCEED IN THE MATTER. IT WAS ALSO CITED THAT THE PROCEEDINGS HAD BEEN INITIATED AT THE INSTANCE OF THE FATHER OF THE SON-IN-LAW WIT H A VIEW TO HARASS THE ASSESSEE BECAUSE THERE WAS SOME MATRIMONIAL DIS PUTES BETWEEN HIS DAUGHTER AND HER HUSBAND. THE ASSESSEE ALSO FI LED WRIT PETITION BEFORE THE HON'BLE HIGH COURT. IN THE WRIT PETITIO N THE REVENUE TOOK THE PRELIMINARY OBJECTION TO THE EFFECT THAT WRIT P ETITION IS NOT DIRECTED AGAINST THE NOTICE ISSUED U/S 148 OF THE A CT AND SINCE NO ADVERSE ORDER HAS YET BEEN PASSED AGAINST THE ASSES SEE, THE WRIT PETITION IS PREMATURE AND DESERVES TO BE DISMISSED. IT WAS FURTHER STATED THAT IF THE ASSESSEE IS HAVING ANY OBJECTION THE SAME SHOULD BE RAISED BEFORE THE INCOME TAX AUTHORITIES. THE C OURT DID NOT ACCEPT THIS OBJECTION BECAUSE OF THE EXTRA ORDINARY SITUATION AND IN THIS REGARD HON'BLE HIGH COURT OBSERVED AS UNDER: HELD, THAT IT WAS ADMITTED THAT THE FILE OF THE PE TITIONER PERTAINING TO THE ASSESSMENT YEAR 1988-89 HAD NOT BEEN TRANSFERRED FR OM THE JURISDICTION OF THE ASSESSING OFFICER, PUNE, TO THE INCOME-TAX OFFICER, JALANDHAR. AS A MATTER OF FACT, NO ORDER OF TRANSFER HAD BEEN PASSED BY THE C OMPETENT AUTHORITY UNDER SECTION 127 OF THE ACT FOR ANY ASSESSMENT YEAR AND, THEREFORE, THE PROCEEDINGS FOR REASSESSMENT WERE WHOLLY WITHOUT JURISDICTION. THE NOTICE WAS LIABLE TO BE QUASHED. IN THE ABOVE CASE, IT IS CLEAR THAT HON'BLE HIGH CO URT REFERRED TO SECTION 127 BECAUSE ASSESSMENT HAD ALREADY BEEN COM PLETED IN THE RELEVANT ASSESSMENT YEAR BY ITO PUNE AND IF FOR THE SAME YEAR ANOTHER ITO IN A DIFFERENT CITY WANTED TO ASSUME JU RISDICTION THEN THERE WAS A REQUIREMENT OF PASSING AN ORDER U/S 127 . IN CASE BEFORE US, WE HAVE ALREADY OBSERVED THAT AN ORDER THROUGH COMPUTER WAS PASSED U/S 127. MOREOVER IN CASE BEFORE US, THE AS SESSMENT IS NOT 22 COMPLETED AND IN ANY CASE INHERENT JURISDICTION RES IDED WITH THE ASSESSING OFFICER CIRCLE 6(1). IN THIS CASE THE JU RISDICTION WAS SOUGHT TO BE TRANSFERRED FROM PUNE TO JALANDHAR THA T IS WHY BECAUSE OF THE DIFFERENT CITIES WITHOUT PASSING THE RELEVAN T ORDER AND AFFORDING OPPORTUNITY TO THE ASSESSEE IN TERMS OF S ECTION 127(3)(A) THE ITO, JALANDHAR COULD NOT HAVE EXERCISED THE JUR ISDICTION. WHEREAS IN CASE BEFORE US, THE JURISDICTION REMAIN WITHIN THE SAME REGION I.E. THE SAME CITY AND THERE WAS NO REQUIREM ENT TO AFFORD OPPORTUNITY IN TERMS OF SUB-SECTION (3) OF SECTION1 27. THEREFORE, THIS DECISION IS OF NO HELP TO THE ASSESSEE. 27 THE NEXT DECISION RELIED ON BY THE LD. COUNSEL O F THE ASSESSEE IS IN CASE OF INDERJIT SINGH & CO. VS. STATE OF PUN JAB & OTHERS (SUPRA). IN THIS CASE IT WAS HELD AS UNDER: WHERE THE EXCISE AND TAXATION OFFICER, LUDHIANA, WI THIN WHOSE JURISDICTION THE PETITIONER WAS CARRYING ON ITS BUSINESS, ON HIS OWN TRANSFERRED THE FILE OF THE PETITIONERS CASE TO THE ADDITIONAL EXCISE AND TAXA TION OFFICER, BHATINDA, WHO HAD BEEN GIVEN JURISDICTION THROUGHOUT THE STATE: H ELD, THAT UNLESS THERE WAS A PROPER OR LAWFUL ORDER TRANSFERRING THE PETITIONER S ASSESSMENT PROCEEDINGS OR FILE FROM THE RECORDS OF THE ASSESSING AUTHORITY, T HE ADDITIONAL EXCISE AND TAXATION OFFICER, BHATINDA, THOUGH HAD BEEN CONFERR ED JURISDICTION THROUGHOUT THE STATE, COULD NOT DEAL WITH THE CASE. HOWEVER, IT HAS TO BE NOTED THAT ABOVE DECISION HAS BEEN RENDERED UNDER THE PROVISIONS OF PUNJAB GENERAL SALES TAX AC T. HON'BLE HIGH COURT HAS NOT REFERRED TO RELEVANT PROVISIONS OF TH E PUNJAB GENERAL SALES TAX ACT IN THE ORDER. EVEN AT THE TIME OF HE ARING LD. COUNSEL OF THE ASSESSEE HAS NOT MADE ANY EFFORTS TO SHOW US THE RELEVANT PROVISIONS. THEREFORE, IT IS NOT CLEAR WHAT WERE THE PROVISIONS RELATING TO THE TRANSFER OF THE CASES UNDER THE PUN JAB GENERAL SALES TAX ACT AND WHETHER THERE IS ANY PROVISION EQUIVALE NT TO SECTION 124(3)(A) OF THE ACT RELATING TO RAISING OF OBJECTI ON, WAS ALSO THERE OR NOT? THEREFORE, THIS DECISION IS ALSO OF NOT M UCH HELP TO THE ASSESSEE. 28 THE NEXT CASE LAW RELIED IN CASE OF VALVOLINE CU MMINS LTD VS. DCIT (SUPRA). IN THAT CASE THE FACTS WERE THAT THE RETURN OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 WAS CONSID ERED BY THE ADDITIONAL COMMISSIONER OF INCOME-TAX. THE RETURNED INCOME WAS RS. 7.5 CRORES AND THE ASSESSED INCOME WAS RS. 58.68 CRORES . THE TAX LIABILITY ON THE ASSESSED INCOME WAS WORKED OUT TO RS. 25.01 CRO RES. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER (APPEAL S). THE ASSESSEE ALSO FILED AN APPLICATION ON THE NEXT DAY BEFORE TH E ASSESSING OFFICER I.E., 23 THE ADDITIONAL COMMISSIONER FOR STAY OF ENFORCEMENT OF THE TAX DEMAND. THE ASSESSEE WAS ADVISED BY THE ADDITIONAL COMMISSI ONER TO APPROACH THE DEPUTY COMMISSIONER WHO HAD CONCURRENT JURISDIC TION IN THE MATTER. THEREFORE, THE ASSESSEE FILED AN APPLICATION BEFORE THE DEPUTY COMMISSIONER FOR STAY OF THE DEMAND. WHILE THIS REQ UEST WAS PENDING, THE ASSESSEE WAS SERVED WITH A NOTICE UNDER SECTION 221 OF THE ACT REQUIRING IT TO SHOW CAUSE WHY PENALTY SHOULD NOT BE LEVIED S INCE THE DEMANDED TAX HAD NOT BEEN PAID BY THE ASSESSEE. THEREFORE THE AS SESSEE MOVED ANOTHER APPLICATION BEFORE THE DEPUTY COMMISSIONER AGAIN REQUESTING FOR STAY OF THE DEMAND. MEANWHILE, SOME DISCUSSIONS TOO K PLACE BETWEEN THE ASSESSEE AND THE CHIEF COMMISSIONER OF INCOME-TAX. THEREAFTER, THE DEPUTY COMMISSIONER PASSED AN ORDER REQUIRING THE A SSESSEE TO PAY 15 PER CENT. OF THE NET DEMAND. THE ASSESSEE SENT A LE TTER TO THE COMMISSIONER OF INCOME-TAX INFORMING HIM THAT IT HA D EARLIER DEPOSITED RS. 1 CRORE IN TWO INSTALLMENTS AND ITS REQUEST FOR STAY OF THE DEMAND IN ITS ENTIRETY TILL THE DISPOSAL OF THE APPEAL BEFORE THE COMMISSIONER (APPEALS). HOWEVER, THE ASSESSEE ADDRESSED A LETTER TO THE DEPUTY COMMISSIONER INFORMING HIM THAT TO AVOID LITIGATION IT WAS AGREEABLE TO PAY 15 PER CENT. OF THE TAX ORDERED BY THE DEPUTY C OMMISSIONER BUT IT MAY BE PERMITTED TO MAKE THE DEPOSIT IN INSTALLMENT S. THERE WAS NO IMMEDIATE RESPONSE TO THE REQUEST . ON THESE FACTS IT WAS HELD AS UNDER: HELD, ALLOWING THE PETITION, THAT SINCE THE ADDITIO NAL COMMISSIONER HAD EXERCISED THE POWER OF AN ASSESSING OFFICER, HE WAS REQUIRED TO CONTINUE TO EXERCISE THAT POWER TILL HIS JURISDICTION IN THE MA TTER WAS OVER. HIS JURISDICTION IN THE MATTER WAS NOT OVER MERELY ON THE PASSING OF TH E ASSESSMENT ORDER BUT CONTINUED IN TERMS OF SECTION 220(6) OF THE ACT IN DEALING WITH THE PETITION FOR STAY. THE ADDITIONAL COMMISSIONER AFTER PASSING THE ASSESSMENT ORDER HAD WASHED HIS HANDS OF THE MATTER AND LEFT IT TO THE D EPUTY COMMISSIONER TO DECIDE THE STAY PETITION FILED UNDER SECTION 220(6) OF THE ACT WHICH WAS NOT PERMISSIBLE IN LAW. THE POWER UNDER SECTION 220(6) OF THE ACT BEING A STATUTORY POWER, THE ADDITIONAL COMMISSIONER COULD NOT ABDICA TE OR RELINQUISH IT. THE ADDITIONAL COMMISSIONER HAD NO AUTHORITY IN LAW TO DELEGATE HIS POWER TO THE DEPUTY COMMISSIONER WHEN HE WAS CONFERRED A STATUTO RY POWER BY THE CENTRAL BOARD FOR DIRECT TAXES. THE APPLICATION FILED BY TH E ASSESSEE WAS REQUIRED TO BE DEALT WITH ONLY BY THE ASSESSING OFFICER, WHICH IN THIS CASE WAS THE ADDITIONAL COMMISSIONER. THE MERE FACT HTAT THE LET TERS WERE ADDRESSED TO THE DEPUTY COMMISSIONER DID NOT MEAN THAT THE DEPUTY CO MMISSIONER HAD JURISDICTION OVER THE MATTER. THE ASSESSEE COULD NO T CONFER JURISDICTION ON THE DEPUTY COMMISSIONER TO DEAL WITH THE APPLICATION FI LED UNDER SECTION 220(6) OF THE ACT. THE ASSESSEE HAD BEEN INSISTING THROUGH VA RIOUS LETTERS THAT IT WAS PREPARED TO PAY 15 PERCENT. OF THE NET DEMAND BUT O NLY IN INSTALLMENTS. THEREFORE THE DEPUTY COMMISSIONER WHILE PASSING THE ORDER HAD COMPLETELY MISCONSTRUED THE STAND OF THE ASSESSEE. THE ASSESSE E WOULD IN THE NORMAL COURSE, BE ENTITLED TO AN ABSOLUTE STAY OF THE DEMA ND ON THE BASIS OF INSTRUCTION NO. 96 DATED AUGUST 21,1969 ISSUED BY T HE BOARD. THE REVENUE WAS SEEKING TO ENFORCE THE DEMAND WHEN THE PETITION FOR STAY WAS PENDING. THE PETITIONER WAS DIRECTED TO PAY 15 PER CENT. OF THE NET DEMAND IN INSTALMENTS AFTER DEDUCTION OF RS. 1 CRORE ALREADY PAID. 24 FIRSTLY THIS CASE HAS BEEN MAINLY DECIDED WITH REFE RENCE TO POWER OF THE ADDITIONAL COMMISSIONER TO DEAL WITH THE OBJEC TION FILED U/S 226 WHICH IS NOT RELEVANT FOR US. SECONDLY THE HON'BLE HIGH COURT HAS NOT REFERRED TO PROVISIONS OF SECTION 124(3)(A) REL EVANT FOR RAISING OBJECTIONS RELATING TO THE JURISDICTION. THEREFORE, THIS DECISION IS OF NO HELP TO THE ASSESSEE. 29 THE NEXT CASE RELIED THE LD. COUNSEL OF THE ASSE SSEE IS THAT OF GANGADHAR AGGARWAL VS. JCIT (SUPRA). IN THAT CASE ALSO ORIGINALLY THE JURISDICTION OF THE ASSESSEE WAS WITH ACIT CIRC LE 4(1) INVESTIGATION, MUMBAI AND THE RETURN FOR THE BLOCK PERIOD FILED WITH THE SAME ASSESSING OFFICER. LATER ON THE FILE WAS TRANSFERRED TO THE JURISDICTION OF JCIT, SPECIAL RANGE XV, DELHI. AN OBJECTION WAS RAISED TO THE TRANSFER OF THE CASE AND THE TRIBUNAL ULTIMATELY HELD THAT SINCE NO ORDER U/S 127 HAS BEEN PASSED, THEREF ORE, JCIT, SPECIAL RANGE XV HAS NO JURISDICTION OVER THE ASSES SEE. IT HAS TO BE NOTED THAT IN THIS CASE ALSO THE CASE WAS TRANSF ERRED FROM MUMBAI TO DELHI WITHOUT PASSING AN ORDER U/S 127 AN D WITHOUT AFFORDING AN OPPORTUNITY TO THE ASSESSEE. AS HAS A LREADY BEEN DISCUSSED BY US, NO SUCH OPPORTUNITY WAS REQUIRED T O BE GIVEN IN VIEW OF THE PROVISIONS OF SECTION 127(3) OF THE ACT IF THE CASE OF TRANSFERRED WITHIN THE SAME CITY. SECONDLY IT IS A LSO MENTIONED IN THE ORDER THAT THE ASSESSEE HAD ALSO INFORMED JCIT, DELHI REGARDING NOTICES ISSUED BY MUMBAI OFFICE. IN THE ORDER NO D ETAILED DISCUSSION HAS BEEN MADE BUT THE WAY THIS FACT HAS BEEN DISCUS SED IT SEEMS THAT THE ASSESSEE HAD ALSO RAISED HIS OBJECTION U/S 124(3)(A) I.E. WHY THE JURISDICTION WAS NOT CORRECT. THEREFORE, THIS DECISION IS NOT RELEVANT. 30 NEXT CASE RELIED BY THE LD. COUNSEL OF THE ASSES SEE IS P.A. AHAMMED VS. CCIT & ANOTHER (SUPRA), IN THAT CASE T HE ASSESSEE HAS CHALLENGED THE ORDER ISSUED BY CCIT REGARDING T RANSFER OF ASSESSEES FILE FROM ITO WARD (1), TRIVENDRUM TO CE NTRAL CIRCLE. IT SEEMS THAT THE ASSESSEE HAD MOVED THE HON'BLE HIGH COURT EARLIER ALSO REGARDING THIS ISSUE BECAUSE AFTER SOME SEARCH THE CASES OF 18 ASSESSEES WERE TRANSFERRED TO CENTRAL CIRCLE. IT W AS CONTENDED THAT THE TRANSFER ORDER WAS MADE WITHOUT INFORMING THE A SSESSEE AND GIVING REASONS AND THE HON'BLE HIGH COURT HAS DIREC TED THE LD. CCIT TO CONSIDER THE MATTER AFRESH. THE ASSESSEE FILED THE RETURNS WITH ITO, WARD (1), TRIVENDRUM. HOWEVER, THESE ORDERS W ERE LATER RECALLED BY THE ASSESSING OFFICER. IT WAS MAINLY C ONTENDED THAT THE 25 CASE CAN BE TRANSFERRED U/S 127 BUT THE HON'BLE HIG H COURT HELD AGAINST THE ASSESSEE BY OBSERVING THAT EXP 1 TO SEC TION 127 CLARIFY THAT CASE MEANS ALL PROCEEDINGS UNDER THE ACT. T HEREFORE, THE ASSESSEE WAS HELD NOT BE ENTITLED TO RETAIN THE ASS ESSMENT WITH THE PREVIOUS OFFICER. OTHER ARGUMENT WAS THAT AFTER THE SEARCH ONLY RAID CASES SHOULD BE TRANSFERRED TO CENTRAL CIRCLE AND T HE REGULAR ASSESSMENT SHOULD BE RETAINED BY THE REGULAR ASSESS ING OFFICER. THIS CONTENTION WAS ALSO REJECTED. WE FAIL TO UNDE RSTAND WHAT ASSISTANCE THE ASSESSEE WANTS TO OBTAIN FROM THIS D ECISION. BASICALLY THE DECISION IS LAYING DOWN THAT ONCE AN AUTHORITY TRANSFERS THE CASE THEN WHOLE RECORD WOULD STAND TRANSFERRED TO THE NEW ASSESSING AUTHORITY, THEREFORE, THIS CASE IS OF NO HELP TO THE ASSESSEE. 28A IN FACT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE FULL BENCH OF HON'BLE GAUHATI HIGH COURT IN CASE OF SMT. SOHANI DEVI JAIN VS. ITO 109 ITR 130 (GAUHATI). IN THAT CASE FOLLOWING OBSERVATIONS WERE MADE BY THE MAJORITY. A WRIT BEING A DISCRETIONARY REMEDY, IT WILL NOT BE GRANTED IF THE PETITIONER INVITED OR ACQUIESCED IN THE JURISDICTION OF THE AU THORITY. BUT A DISTINCTION MUST BE MADE BETWEEN PATENT AND LATENT WANT OF JURISDICT ION. WHERE THE LACK OF JURISDICTION IS PATENT, I.E., APPARENT ON THE FACE OF THE PROCEEDINGS, A PARTY AGGRIEVED IS ENTITLED TO A WRIT EVEN IF HE ACQUIESC ED TO THE EXERCISE OF THE JURISDICTION. WHERE, HOWEVER, THE LACK OF JURISDICT ION IS LATENT,I.E., DEPENDS ON CERTAIN FACTORS, ACQUIESCENCE WILL DISENTITLE A PAR TY TO A WRIT: S IKKU V . S TATE OF A SSAM AIR 1970 ASSAM 91[FB] RELIED ON. THE CASE OF THE PETITIONER-ASSESSEE WAS THAT SHE HA D BEEN A PARTNER IN A FIRM AT CALCUTTA, AND THAT ON AUGUST 18, 1959, SHE HAD F ILED RETURNS BEFORE THE INCOME TAX OFFICER AT CALCUTTA FOR THE ASSESSMENT YEARS 1952-53 TO 1959-1960 AND ASSESSMENTS HAD BEEN MADE THEREON. THE ASSESSME NT FOR THE ASSESSMENT YEAR 1960-61WAS MADE BY THE INCOME-TAX OFFICER, CAL CUTTA, ON DECEMBER 29, 1960, UNDER SECTION 23(4) AS NO RETURN HAD BEEN FIL ED. THE PETITIONER CLOSED DOWN THE BUSINESS AT CALCUTTA AND SHIFTED TO JORHAT . SHE BECAME A PARTNER IN A FIRM AT JORHAT. THE PETITIONER FILED A RETURN ON JU LY 29, 1964, FOR THE ASSESSMENT YEAR 1960-61 BEFORE THE INCOME-TAX OFFICER, JORHAT. THE PETITIONERS CASE WAS THAT THIS RETURN WAS MADE INADVERTENTLY AND THAT SH E HAD CONTENDED BEFORE THE INCOME INCOME-TAX OFFICER, CALCUTTA, SHE COULD NOT BE ASSESSED AGAIN AT JORHAT. THE INCOME-TAX OFFICER, JORHAT, DID NOT ACC EPT THAT CONTENTION AND MADE AN ASSESSMENT ORDER ON MARCH 24, 1965, FOR THE ASSE SSMENT YEAR 1960-61. THE PETITIONERS APPEALS TO THE APPELLATE ASSISTANT COM MISSIONER AND THE APPELLATE TRIBUNAL WERE UNSUCCESSFUL. THE TRIBUNAL ALSO REFUS ED TO MAKE A REFERENCE TO THE HIGH COURT. THEREAFTER, THE PETITIONER FILED A WRIT PETITION PRAYING FOR A WRIT OF CERTIORARI QUASHING THE ORDER OF ASSESSMENT OF T HE INCOME-TAX OFFICER, JORHAT, DATED MARCH 24,1965, AND THE CONSEQUENT NOT ICE OF DEMAND AND ALSO A WRIT OF MANDAMUS DIRECTING THE RETURN OF RS. 10,000 COLLECTED FROM THE PETITIONER UNDER THE NOTICE OF DEMAND: HELD, PER B AHARUL I SLAM J. AND P ATHAK J. ( S ADANANDASWAMY J., DISSENTING), THAT THE POINT URGED FOR THE PETITIONER WAS THAT TH E INCOME OF THE PETITIONER FOR THE ASSESSMENT YEAR 1960-61 HAVING BEEN ASSESSED BY THE INCOME-TAX OFFICER, CALCUTTA, THE INCOME-TAX OFFICER, JORHAT, HAD NO JU RISDICTION TO ASSESS THE INCOME OF THE PETITIONER FOR THE SAME YEAR. IF THE PETITIONER HAD RAISED BEFORE THE INCOME-TAX OFFICER, JORHAT, THE CONTENTION THAT HE HAD NO JURISDICTION TO MAKE AN ASSESSMENT AGAIN FOR THE YEAR 1960-61, THAT CONTENTION WOULD HAVE BEEN DEALT WITH UNDER THE PROVISIONS OF SECTION 124 OF THE INCOME-TAX ACT, 1961, CORRESPONDING TO SECTION 64 OF THE INDIAN INC OME-TAX ACT, 1922. THOUGH 26 IN THE WRIT PETITION AND IN THE AFFIDAVIT FILED IN SUPPORT THEREOF, IT HAD BEEN STATED THAT THE QUESTION OF JURISDICTION WAS RAISED BEFORE THE OFFICER, THERE WAS NO RECORD TO SUPPORT THAT PLEA. THE INCOME-TAX OFFI CER HAD NOT REFERRED IN HIS ORDER TO ANY SUCH OBJECTION HAVING BEEN TAKEN BEFOR E HIM. THE PLEA OF FILING THE RETURN BEFORE HIM THROUGH MISTAKE APPEARED TO BE AN AFTERTHOUGHT. NO RELIANCE COULD BE PLACED ON THE AVERMENTS OF THE PETITIONER THAT OBJECTION AS TO JURISDICTION WAS RAISED BEFORE THE INCOME-TAX OFFIC ER AT JORHAT. SECTION 124 DOES NOT DEAL ONLY WITH TERRITORIAL JURISDICTION. I T DOES NOT USE THE WORD TERRITORIAL. THE SECTION SPEAKS ONLY OF JURISDICT ION OF THE INCOME-TAX OFFICER. JURISDICTION INCLUDES BOTH TERRITORIAL AND OTHER KI NDS OF JURISDICTION. THEREFORE, THE OBJECTION RAISED BY THE ASSESSEE ONLY AT THE AP PELLATE STAGE WAS HIT BY SUB- SECTION(5) OF SECTION 124 OF THE ACT AND THE INCOME -TAX OFFICER, JORHAT, COULD NOT BE SAID TO HAVE LACKED JURISDICTION. IF TWO ORDERS OF ASSESSMENT ARE MADE FOR THE INCOME OF THE SAME YEAR, IT DOES NOT NECESSARILY FOLLOW THAT THE SUBSEQUENT ORDER OF ASSESSMENT IS WITHOUT JURISDICTION. THE FIRST INCOME-TAX OFFICER MIGHT HA VE POSSIBLY LACKED JURISDICTION OR THE SECOND INCOME-TAX OFFICER MAY POSSIBLY HAVE JURISDICTION. IN THE INSTANT CASE, WHETHER THE INCOME-TAX OFFICER, JORHAT, HAD O R HAD NO JURISDICTION WAS DEPENDENT ON THE QUESTION WHETHER THE INCOME-TAX OF FICER, CALCUTTA, HAD OR HAD NO JURISDICTION. THE FINDING WAS THAT THE ASSESSMEN T ORDER ALLEGED TO HAVE BEEN PASSED BY THE INCOME-TAX OFFICER, CALCUTTA, WAS GO T PASSED, IN OTHER WORDS, THAT ORDER OF THE CALCUTTA INCOME-TAX OFFICER HAD B EEN FOUND TO BE SUSPICIOUS AND COLLUSIVE. THAT WAS A FINDING OF FACT. IF THAT BE SO, IT WAS AN INVALID ORDER. AS BETWEEN A VALID AND AN INVALID ORDER, THE FORMER SUPERSEDES THE LATTER. THE PRESENT APPLICATION WAS ONE FOR WRITS OF CERTIO RARI AND MANDAMUS. THESE WRITS ARE WRITS OF DISCRETION. THE HIGH COURT EXERC ISING DISCRETIONARY POWERS UNDER ARTICLE 226 WILL REFUSE TO ISSUE SUCH A WRIT, IF JUSTICE OF THE CASE DOES NOT DEMAND IT. A WRIT OF CERTIORARI CAN BE ISSUED IF TH ERE BE, INTERALIA, AN ERROR OF LAW APPARENT ON THE FACE OF THE RECORD. THE PETITIO NER HAD NOT BEEN ABLE TO SHOW THAT THERE WAS ANY ERROR OF LAW APPARENT ON TH E FACE OF THE RECORD. WHICH OF THE TWO INCOME-TAX OFFICERS HAD JURISDICTION WAS DEPENDANT ON FACTS. THEREFORE, NO WRIT OF MANDAMUS COULD BE ISSUED AND THE APPLICATION HAD TO BE REJECTED. COMBINED READING OF THE ABOVE OBSERVATIONS SHOW THA T IF NO OBJECTION IS RAISED IN RESPECT OF THE JURISDICTION BEFORE THE ITO THEN LATER VALIDITY OF THE ASSESSMENT CANNOT BE CHALLENG ED. 32 THE LD. DR FOR THE REVENUE HAS REFERRED TO ONE MORE ASPECT OF THE CASE I.E. IN THIS CASE ORDERS PASSED U/S 120 FI XING THE JURISDICTION WOULD SHOW THAT MOHALI AREA WOULD FAL L UNDER CIRCLE 6(1) AND THEREFORE, IN TERMS OF SECTION 124(5), THE INH ERENT JURISDICTION WAS WITH THE ASSESSING OFFICER CIRCLE 6(1). THE NOT IFICATION NO. CCIT/NWR/TECH/JURI/2001-02/617 ISSUED ON 11.5.2001 BY CCIT, NW REGION, CHANDIGARH CLEARLY SHOWS THAT AREAS FALLING WITHIN THE REVENUE DISTRICT OF SAS NAGAR (MOHALI) PUNJAB EXCLU DING THE AREAS FALLING WITHIN THE JURISDICTION OF RANGE V SAS, NAG AR (MOHALI) WOULD FALL IN RANGE VI, CHANDIGARH. NOW IT HAS TO BE NOT ICED THAT SUB- SECTION (5) OF SECTION 124 STARTS WITH NON OBSTANTE CLAUSE WHICH MEANS EVEN IF SOME DIRECTIONS HAVE BEEN GIVEN BY TH E CIT OR OTHER AUTHORITIES STILL DIFFERENT ASSESSING OFFICERS OF T HE TERRITORY WHICH HAS BEEN NOTIFIED U/S 120 CAN STILL EXERCISE THE JU RISDICTION. THIS PROVISIONS HAS BEEN EXPLAINED BY COMMENTARY OF SAMP ATH IYENGARS 27 COMMENTARY ON LAW OF INCOME TAX AT PAGE 8901. THE RELEVANT PARA READS AS UNDER: 20. A SAVING PROVISION.- SUB-SECTION(5) CORRESPONDS TO SECTION 64(4) OF THE 1922 ACT. IT IS ESSENTIALLY A PROVISION OF A CLARIF ICATORY NATURE. NO ASSESSEE CAN CLAIM A BASIC RIGHT OF BEING ASSESSED BY ONE OFFICE R RATHER THAN ANOTHER. THE EAR MARKING OF JURISDICTION TO OFFICERS VIS--VIS A SSESSES HAS TWO PRINCIPAL OBJECTS: (I) THAT OF CAUSING LEAST INCONVENIENCE AN D HARASSMENT TO THE ASSESSEE, AND (II) MAXIMUM ORGANIZATIONAL ADVANTAGE AND CONVENIENCE TO THE OFFICERS OF THE REVENUE TO EFFECTIVELY DISCHARGE TH EIR STATUTORY FUNCTIONS. SO, IN A CASE WHERE AN ASSESSEE HAS SUFFERED NO REAL HARDS HIP, AN OBJECTION AS TO JURISDICTION SHOULD NOT BE ALLOWED TO PREVAIL ON TH E BASIS OF SOME LACUNA, ERROR OR OMISSION IN THE PASSING OF APPROPRIATE ORDERS OF ALLOTMENT OF JURISDICTION. THIS IS HOW SUB-SECTION(5) COMES INTO THE PICTURE A S AN OVERRIDING CLAUSE, WHICH BRUSHES AWAY ALL THE TECHNICALITIES OF THE EA RLIER SUB-SECTIONS IN THE EVENTUALITY CONTEMPLATED BY IT. THE NON OBSTATNTE C LASUE AT THE BEGINNING OF SUB-SECTION(5) IS VERY WIDE AND MAKES IT CLEAR THAT IT IS INTENDED AS A SAVING PROVISION AGAINST THE TECHNICAL OBJECTIONS AND DISP UTES THAT MAY BE RAISED IN VIEW OF THE OTHER SUB-SECTIONS. HAVING SET OUT ELAB ORATELY IN SUB-SECTIONS(1) TO (4) THE BASIS OF THE DETERMINATION OF JURISDICTION OF THE OFFICER AND ALSO HAVING OUTLINED A PROCEDURE WHEREBY ANY DISPUTES REGARDING JURISDICTION CAN BE SORTED OUT, IF RAISED IN SUFFICIENT TIME, THE ACT NEVERTHE LESS PROVIDES A SAFETY VALVE WHEREBY, THE VALIDITY OF ASSESSMENTS ARE PROTECTED NOTWITHSTANDING AN ERROR IN THE EXERCISE OF JURISDICTION IN ACCORDANCE WITH THE EARLIER SUB-SECTIONS IF THERE HAS BEEN NO INJUSTICE TO THE ASSESSEE; AND HE HAS B EEN ASSESSED ONLY BY AN OFFICER WHO IS HAVING JURISDICTION OVER THE AREA IN WHICH THE ASSESSEE RESIDES OR CARRIES ON THE BUSINESS AND THAT TOO ONLY IN RESPEC T OF INCOME FALLING WITHIN THE AREA COVERED BY THAT JURISDICTION. IT WILL BE APPRE CIATED THAT THIS IS A VERY LIMITED SAVING CLAUSE. IT APPLIES IN A CASE SUCH AS THE FOLLOWING: SUPPOSE AN ASSESSEE IS CARRYING ON A JEWELLERY BUSINESS WITHIN A PARTICULAR AREA IN DELHI AND HIS ENTIRE INCOME FROM THAT BUSINESS ACCRUES, A RISES OR IS RECEIVED WITHIN THAT AREA. SUPPOSE CASES OF ALL JEWELERS IN DELHI A RE ASSIGNED BY THE COMMISSIONER OF INCOME-TAX TO AN ASSESSING OFFICER HEADING A SPECIAL CIRCLE BUT OVERLOOKING THAT SPECIAL ORDER OF ASSIGNMENT, T HE ASSESSING OFFICER EXERCISING TERRITORIAL JURISDICTION OVER THE PLACE WHERE THE ASSESSEES SHOP IS SITUATED COMPLETES AN ASSESSMENT. THE VALIDITY OF S UCH AN ASSESSMENT IS COMPLETELY PROTECTED BY THE PROVISIONS OF SUB-SECTI ON (5). THE SUB-SECTION HAS NO WIDER SCOPE. IT WILL NOT COVER THE CASE OF THE A SSESSES WHO ARE HAVING BUSINESS IN SEVERAL PLACES AND WHOSE INCOME ACCRUES , ARISES OR IS RECEIVED IN SEVERAL AREAS. THE ABOVE MAKES IT CLEAR THAT THE ASSESSMENT WHICH HAS BEEN MADE BY AN ASSESSING AUTHORITY WHO HOLDS TERRITORIAL JUR ISDICTION OVER THE ASSESSEE IN TERMS OF NOTIFICATION ISSUED U/S 120 TH EN VALIDITY OF SUCH ASSESSMENT IS COMPLETELY PROTECTED BY SUB-SECTION ( 5) OF SECTION 124. 33 IN THIS REGARD THE OBSERVATIONS MADE BY HON'BLE HIGH COURT IN CASE OF CIT VS. SIRI PAUL OSWAL (SUPRA) IS ALSO REL EVANT. FOLLOWING OBSERVATIONS WERE MADE: A DISTINCTION HAS TO BE MADE BETWEEN A SITUATION WH EN THERE IS INHERENT LACK OF JURISDICTION AND A SITUATION WHERE JURISDICTION IS IRREGULARLY ASSUMED AND PLEA OF WANT OF JURISDICTION CAN BE WAIVED BY A PARTY. IF T HE ASSESSEE PARTICIPATES IN ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAVIN G PROCEEDED FURTHER AND ASSESSMENT HAVING BEEN FINALIZED, PLEA OF LACK OF J URISDICTION CANNOT BE RAISED FOR THE FIRST TIME IN APPEAL. THE COMMISSIONER OF INCOME-TAX PASSED AN ORDER IN D ECEMBER 1978 UNDER SECTION 127(1) OF THE INCOME-TAX, 1961, AND DIRECTE D THAT POWER CONFERRED ON THE INCOME-TAX OFFICER SHALL BE EXERCISED BY THE IN SPECTING ASSISTANT 28 COMMISSIONER OF INCOME-TAX (ASSESSMENT) IN RESPECT OF CASES MENTIONED IN THE SAID ORDER. THERE WAS, HOWEVER, NO ORDER PASSED IN RESPECT OF JURISDICTION OF THE WEALTH-TAX OFFICERS, CENTRAL CIRCLE (1), LUDHIA NA, BUT THE INSPECTING ASSISTANT COMMISSIONER OF INCOME-TAX (ASSESSMENT) P ASSED ASSESSMENT ORDERS UNDER THE WEALTH-TAX ACT ALSO IN RESPECT OF THE ASS ESSEE. THE ASSESSEE DID NOT RAISE ANY OBJECTION TO THE ASSESSMENT BEFORE THE AS SESSING OFFICER BUT RAISED OBJECTION BEFORE THE APPELLATE AUTHORITY WHICH WAS UPHELD AND THE TRIBUNAL DISMISSED THE APPEAL OF THE REVENUE. ON A REFERENCE : HELD, THAT THE ASSESSEE PARTICIPATED IN ASSESSMENT PROCEEDINGS BY THE ASSESSING OFFICER TO WHOM ASSESSMENT PROCEEDINGS UN DER THE INCOME-TAX ACT WERE TRANSFERRED AND WHO EXERCISED JURISDICTION TO ASSESS WEALTH-TAX ALSO WITH THE PARTICIPATION OF THE ASSESSEE WITHOUT ANY OBJEC TION BY THE ASSESSEE. THE ASSESSEE HAVING NOT RAISED OBJECTION AS TO THE JURI SDICTION BEFORE THE ASSESSING OFFICER, WAS DEBARRED FROM RAISING THE SAME BEFORE THE APPELLATE AUTHORITY AND THE APPEAL FILED BY THE ASSESSEE ON THE QUESTION OF JURISDICTION WAS NOT MAINTAINABLE. THE LD. COUNSEL OF THE ASSESSEE HAD TRIED TO DISTIN GUISH ABOVE DECISION, HOWEVER, HE ACCEPTED THE FACT THAT BY VIR TUE OF NOTIFICATIONS ISSUED U/S 120 TERRITORIAL JURISDICTI ON OF MOHALI AREA WAS WITH THE CIRCLE 6(1), THEREFORE, IT CANNOT BE DENI ED THAT ASSESSING OFFICER CIRCLE 6(1) HAD INHERENT JURISDICTION OVER THE ASSESSEE AND THEREFORE, ASSESSMENT MADE BY HIM WERE PROTECTED I N TERMS OF SECTION 124(5). 34 ONE MORE ASPECT WAS HOTLY CONTESTED BY BOTH THE PARTIES WHETHER THE LD. CIT(A) HAD POWER TO ADJUDICATE THE ISSUE REGARDING EXERCISE OF JURISDICTION. MAIN SUBMISSION OF THE D EPARTMENT IS THAT EVEN AFTER THE DECISION OF HON'BLE SUPREME COURT IN CASE OF NATIONAL THERMAL POWER CO. LTD. (SUPRA) THE ISSUE COULD NOT BE RAISED BECAUSE MANY FACTS WERE INVOLVED AND ADDITIONAL GRO UND CAN BE RAISED IN RESPECT OF LEGAL ISSUES AND FOR WHICH TH E FACTS WERE ALREADY ON RECORD. IN THIS REGARD SHE HAD FURTHER RELIED ON THE OBSERVATIONS OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF ARAVALI ENGINEERS P. LTD. VS. CIT (SUPRA). SHE ALS O CONTENDED THAT THERE WAS NO PROVISION IN SECTION 246A OF THE ACT T O CHALLENGE THE QUESTION OF JURISDICTION. IN THIS REGARD RELIANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN CAS E OF CIT V. BRITISH INDIA COPRPORATION LTD. (SUPRA). 35 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSE SSEE HAD MAINLY SUBMITTED THAT ONCE THE ISSUE GOES TO THE RO OT OF THE MATTER THEN THE SAME COULD BE RAISED BEFORE THE APPELLATE AUTHORITY. HE MAINLY RELIED ON THE DECISION OF WEST BENGAL STATE ELECTRICITY BOARD VS. DCIT (SUPRA) AND NATIONAL THERMAL POWER CO. LTD . (SUPRA). WE DO NOT FIND FORCE IN THE SUBMISSIONS OF THE LD. COU NSEL OF THE 29 ASSESSEE. FIRST OF ALL WE ARE OF THE OPINION THAT IT IS A TRITE LAW THAT APPEAL IS A STATUTORY RIGHT AND NOT AN INHERENT RIG HT. (REFERENCE MAY BE MADE TO SMT. GANGA BAI VS. VIJAY KUMAR AIR (1974 ) S.C 1126,1129, DARSHAN SINGH VS. RAM PAL SINGH (1992) SUPP (1) SCC, 191, 212, CIT VS. SYED JAFFER & SONS (1992) 194 IT R 645, 649). THIS ISSUE CAME UP FOR CONSIDERATION OF HON'BLE ALL AHABAD HIGH COURT IN CASE OF CIT VS. BRITISH INDIA CORPORATION LTD.. IN THAT CASE, THE ASSESSEE WAS HAVING TWO WOOLLEN MILLS LOCATED I N KANPUR (U.P) AND ANOTHER MILL IN GURDASPUR (PUNJAB). THE ASSESS EE FILED RETURN OF INCOME FOR ASSESSMENT YEAR 1994-95 WHICH WAS PRO CESSED BY THE ASSESSING OFFICER CENTRAL CIRCLE (1), KANPUR (U.P). LATER ON NOTICES U/S 143(2) WERE ISSUE AND ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S. 144B OF THE ACT ON SEPT 7, 1977 AFTER MAKING CERTAIN ADDITION. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE TH E LD. CIT(A), KANPUR. DURING THE COURSE OF APPEAL PROCEEDINGS AN ADDITIONAL GROUND WITH REGARD TO LACK OF JURISDICTION OF THE A SSESSING OFFICER BY CENTRAL CIRCLE (1) WAS ALSO RAISED BECAUSE ASSESSME NT FILED STOOD TRANSFERRED FROM ITO CENTRAL CIRCLE 1, KANPUR TO IN SPECTING ASSISTANT COMMISSIONER, RANGED, KANPUR BY ORDER DATED JULY 1 , 1977. THEREFORE ACCORDING TO THE ASSESSEE THE ASSESSMENT ORDER WAS VOID AB-INITIO. THE APPELLATE AUTHORITY CONSIDERED THE APPEAL ON MERITS AS WELL AS ON QUESTION OF JURISDICTION. THE APPEAL WAS ALLOWED IN PART ON MERIT. HOWEVER, THE QUESTION OF JURISDICTI ON WHICH WAS PERMITTED TO BE RAISED BY MEANS OF ADDITIONAL GROUN D, WAS REJECTED ON THE GROUND THAT QUESTION OF TERRITORIAL JURISDIC TION OF THE ITO IS A MATTER ON WHICH THE DECISION RESTS WITH THE ADMINIS TRATION SIDE AND NOT WITH THE APPELLATE AUTHORITY FOR WHICH RELIANCE WAS PLACED ON RAJA BHAHADUR SETH TEOMAL, VS. CIT, 36 ITR 9 AND WA LLACE BROTHERS CO. LTD. 13 ITR 39. ON THESE FACTS HON'BLE HIGH CO URT MADE FOLLOWING OBSERVATIONS AND HELD AS UNDER: THE QUESTION OF JURISDICTION OF THE ASSESSING AUTHO RITY CANNOT BE DISPUTED AFTER THE COMPLETION OF THE ASSESSMENT PROCEEDINGS. ALTER NATIVELY, IF SUCH A QUESTION ARISES THE QUESTION CAN BE ADDRESSED BY THE COMMISS IONER OR THE BOARD, AS THE CASE MAY BE, IN VIEW OF SUB-SECTION (4) OF SECTION 124 OF THE INCOME-TAX ACT, 1961, AND THIS BY NECESSARY COROLLARY EXCLUDES THE JURISDICTION OF THE FIRST APPELLATE AUTHORITY OR THE COURT. AN APPEAL TO AN A PPELLATE AUTHORITY UNDER THE ACT LIES ON THE GROUNDS AS ENUMERATED IN SECTION 24 6 OF THE ACT. NONE OF ITS CLAUSES SHOWS THAT AN APPEAL ON THE QUESTION OF JUR ISDICTION OF THE ASSESSING AUTHORITY IS MAINTAINABLE. UNLESS SOME PREJUDICE IS CAUSED TO A PARTY BY A WRONG OR IRREGULAR EXERCISE OF JURISDICTION BY A CO URT, NO INTERFERENCE IN APPEAL OR REVISION IS LEGALLY PERMISSIBLE. HELD, ALLOWING THE APPEAL, THAT THE BURDEN WAS UPON THE ASSESSEE TO STATE SPECIFICALLY WHEN THE ORDER OF THE TRANSFER WAS REC EIVED BY IT, WHICH IT FAILED TO DISCHARGE. THERE WAS NO PLEA EVEN IN THE ADDITIONAL GROUNDS OF APPEAL RAISED BEFORE THE FIRST APPELLATE AUTHORITY AND THERE WAS NO EVIDENCE THAT ANY 30 PREJUDICE HAD BEEN CAUSED TO THE ASSESSEE BY THE AS SESSMENT ORDER HAVING BEEN PASSED BY THE INCOME-TAX OFFICER. THE INCOME-T AX OFFICER HAD THE JURISDICTION WHEN THE ASSESSMENT PROCEEDINGS COMMEN CED AND A DRAFT ASSESSMENT ORDER WAS SUBMITTED TO THE INSPECTING AS SISTANT COMMISSIONER. SUBSEQUENT CHANGE IN THE JURISDICTION IF ANY UNLESS BROUGHT TO THE NOTICE OF THE AUTHORITY CONCERNED, WOULD NOT IN ANY MANNER VITIAT E THE ASSESSMENT ORDER IN THE ABSENCE OF ANY OBJECTION WITH REGARD TO THE LAC K OF JURISDICTION BY THE ASSESSEE. THE TRIBUNAL AT THE MOST SHOULD HAVE REMI TTED THE MATTER BACK TO THE INSPECTING ASSISTANT COMMISSIONER FOR COMPLETING TH E ASSESSMENT. IT WAS NOT JUSTIFIED IN ANNULLING THE ASSESSMENT ORDER. THE AS SESSMENT ORDER WAS VALID. THE LD. COUNSEL OF THE ASSESSEE HAD CONTESTED THE A BOVE DECISION BY SUBMITTING THAT THE DECISION WAS WRONG BECAUSE THE ASSESSEE HAD NOT RAISED ANY OBJECTION FOR TRANSFER U/S 124(3)(A) . BUT IN THE PRESENT CASE, THE ASSESSEE HAD NOT CHALLENGED BEFOR E THE LD. CIT(A) THE ISSUE OF TERRITORIAL JURISDICTION OF THE ASSESS ING OFFICER BUT HAS CHALLENGED THE ABSENCE OF ORDER U/S 127. WE HAVE A LREADY MADE DETAILED DISCUSSION REGARDING ORDER PASSED U/S 127 AS WELL AS SIGNIFICANCE OF RAISING THE OBJECTION BEFORE THE AS SESSING AUTHORITY AND THEREFORE, WE DO NOT FIND ANY MERIT IN THIS CO NTENTION BUT COMBINED READING OF SECTIONS 120, 124 & 127 CLEARL Y SHOW THAT THE ISSUE OF JURISDICTION IS ADMINISTRATIVE MATTER AND THE PURPOSE OF RAISING OBJECTION IS THAT THE ISSUE MAY BE SETTLED AT THE THRESHOLD BY THE ADMINISTRATIVE AUTHORITIES AND THAT IS WHY THER E IS NO PROVISION FOR FILING THE APPEAL AGAINST THE ORDER PASSED UNDE R THESE SECTIONS. 36 THE DECISIONS RELIED ON BY THE LD. COUNSEL OF TH E ASSESSEE IN CASE OF WEST BENGAL STATE ELECTRICITY BOARD VS. DCI T (SUPRA) IS OF NOT MUCH ASSISTANCE TO THE ASSESSEE. IN THAT CASE BASICALLY THE DISPUTE WAS REGARDING THE RATE OF INTEREST CHARGED U/S 201(1A) AND ONLY A PASSING REFERENCE TO THE JURISDICTION WAS MA DE BY THE HON'BLE HIGH COURT. HON'BLE HIGH COURT HAS NOT DEALT WITH THE PROVISIONS OF SECTION 124 (3)(A) I.E. REGARDING RAISING OF OBJECT IONS WITHIN ONE MONTH OF ISSUE OF NOTICE AS WELL AS SECTION 124(5) WITH RESPECT TO INHERENT JURISDICTION WHICH HAVE BEEN BOTH ADJUDICA TED BY HON'BLE PUNJAB & HARYANA HIGH COURT WHICH WE HAVE DISCUSSED IN DETAIL EARLIER AND THEREFORE, THE DECISION IS OF NO HELP TO THE ASSESSEE. 37 WE WOULD AGAIN LIKE TO REFER TO THE OBSERVATIONS OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CWT V SIRI P AUL OSWAL AT PARA 16, IT WAS OBSERVED: PARA 16 - A DISTINCTION HAS TO BE MADE BETWEEN A SI TUATION WHEN THERE IS INHERENT LACK OF JURISDICTION AND A SITUAT ION WHERE JURISDICTION IS IRREGULARLY ASSUMED AND PLEA OF WANT OF JURISDICTIO N CAN BE WAIVED BY A PARTY. IN THE LATTER SITUATION, THE QUESTION ARISES WHETHE R PARTY WHO COULD WAIVE THE 31 PLEA OF JURISDICTION, RAISED SUCH A PLEA AND WHETHE R SUCH A PARTY HAD BEEN PREJUDICED ON ACCOUNT OF ERRONEOUS ASSUMPTION OF JU RISDICTION. THE PRESENT CASE, IN OUR VIEW, FALLS IN THE SECOND CATEGORY. TH E ASSESSEE PARTICIPATED IN ASSESSMENT PROCEEDINGS BY THE ASSESSING OFFICER TO WHOM ASSESSMENT PROCEEDINGS UNDER THE INCOME-TAX ACT WERE TRANSFERR ED AND WHO EXERCISED JURISDICTION TO ASSESS WEALTH-TAX ALSO WITH THE PAR TICIPATION OF THE ASSESSEE WITHOUT ANY OBJECTION BY THE ASSESSEE. IF THE ASSES SEE HAD RAISED AN OBJECTION, THE PROCEEDINGS COULD HAVE BEEN TRANSFERRED BACK TO THE CONCERNED WEALTH-TAX OFFICER. THE ASSESSING OFFICER HAVING PROCEEDED FUR THER AND ASSESSMENT HAVING BEEN FINALIZED, PLEA OF LACK OF JURISDICTION COULD NOT BE RAISED FOR THE FIRST TIME IN APPEAL, WITHOUT SHOWING ERROR IN THE ORDER ON TH E MERIT AND WITHOUT SHOWING ANY PREJUDICE TO THE ASSESSEE BY EXERCISE OF JURISD ICTION BY THE ASSESSING OFFICER. THUS FROM ABOVE IT IS CLEAR THAT ONCE IT IS NOT A C ASE OF LACK OF INHERENT JURISDICTION AND ALSO IF THE ASSESSEE HAS PARTICIPATED IN THE ASSESSMENT PROCEEDINGS WITHOUT RAISING ANY OBJECTIO N REGARDING JURISDICTION THEN THE JURISDICTION CANNOT BE CALLED INTO QUESTION LATER ON. OTHER DECISIONS RELIED ON BY BOTH THE PARTIES A RE NOT VERY RELEVANT OR DISTINGUISHABLE ON THEIR OWN FACTS AND THEREFORE, FOR THE SAKE OF BREVITY WE ARE NOT MAKING ANY FURTHER DISCU SSION IN RESPECT OF THESE CASES. 38 IN VIEW OF ABOVE POSITION FIRSTLY THE ASSESSEE H AS ITSELF FILED RETURN WITH CIRCLE 6(1). NO DOUBT THE DEPARTMENT H AS ALSO NOT HANDLED THE ISSUE VERY WELL (I.E. ORIGINAL RETURN A ND REVISED RETURNS WERE TRANSFERRED TO CIRCLE 2(1) AND AGAIN TRANSFER RING THE SAME TO CIRCLE 6(1). HOWEVER, AS FAR AS THE ASSESSEE IS C ONCERNED, IT SUBMITTED ITSELF TO JURISDICTION OF CIRCLE 6(1). S ECONDLY WHEN THE ASSESSEE FILED REVISED RETURN AND A NOTICE U/S 143( 2) WAS ISSUED BY ASSESSING OFFICER CIRCLE 6(1), THE ASSESSEE DID NO T RAISE THE OBJECTION AS REQUIRED U/S 124(3)(A). THIS CLEARLY SHOWS THAT THE ASSESSEE HAD NO OBJECTION ON THE JURISDICTION BUT T HIS ISSUE IS BEING RAISED MERELY AS A MATTER OF TECHNICALITY TO GET TH E ASSESSMENT ANNULLED WHICH IS NOT POSSIBLE BECAUSE EVEN IF THE ASSESSMENT WAS TO BE MADE BY THE ASSESSING OFFICER CIRCLE 6(1) NO INCONVENIENCE WAS CAUSED TO THE ASSESSEE. THIRDLY INHERENT JUR ISDICTION OF THE ASSESSEE BEING LOCATED AT MOHALI LIES WITH ASSESSIN G OFFICER CIRCLE 6(1). IN VIEW OF THESE FACTS AND ABOVE DETAILED DI SCUSSION, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND HOLD THAT THE ASSESSING OFFICER CIRCLE 6(1) HOLDS JURISDICTION OVER THE ASSESSEE. WE ALSO HOLD THAT THE LD. CIT(A) HAS NOT POWER TO ENTERTAIN THE ADDI TIONAL GROUND IN RESPECT OF THE JURISDICTION. IN THE RESULT, GROUN D RAISE BY THE REVENUE IN THIS REGARD IS ALLOWED. 32 39 GROUND NO.2 IS OF GENERAL NATURE AND DOES NOT R EQUIRE ANY SEPARATE ADJUDICATION. 40 GROUND NO. 3 THE LD. DR FOR THE REVENUE SUBMIT TED THAT DURING THE YEAR THE ASSESSEE HAD CHANGED THE METHOD OF ACCOUNTING FROM MERCANTILE TO CASH, HOWEVER, THE LD. CIT(A) WH ILE ADJUDICATING VARIOUS ISSUES, HAS NOT CONSIDERED CHANGE OF METHOD OF ACCOUNTING AND HAS NOT GIVEN ANY FINDING IN THIS REGARD. THER EFORE, IMPUGNED ORDER SUFFERS FROM INFIRMITY. 41 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT THIS GROUND IS OF GENERAL NATURE, HOWEVER, HE ADMITTED THAT THE ASSESSEE HAD CHANGED METHOD OF ACCOUNTING FROM MERC ANTILE I.E. ACCRUAL TO CASH SYSTEM OF ACCOUNTING. 42 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT NO SPECIFIC FINDING IS REQUIRED TO BE GIVEN IN THIS REGARD. HO WEVER, WE SHALL TAKE NOTICE WHILE ADJUDICATING OTHER GROUNDS ON MER IT THAT THE ASSESSEE HAD ADMITTEDLY FOLLOWED CASH SYSTEM OF ACC OUNTING IN THE PRESENT YEAR. 43 GROUND NO. 4 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE ASSESSEE HAS ORIGINALLY FILED RETURN SHOWING TAXABLE INCOME OF RS. 21,15,46,295/-. LATER ON THIS RETURN WAS REVISED B Y DECLARING A LOSS OF RS. 19,12,35,451/-. HE FURTHER NOTICE THAT PERU SAL OF THE ACCOUNTS SHOWS THAT THE ASSESSEE HAS NOT ONLY CHANGED THE FI GURE OF PRESENT YEAR BUT HAVE ALSO CHANGED THE OPENING BALANCES UND ER VARIOUS HEADS WHICH MEANS THAT CLOSING FIGURES FOR FINANCIA L YEAR 2001-02 HAVE ALSO BEEN CHANGED. HE OBSERVED THAT ONCE ASSE SSMENT HAS BEEN COMPLETED U/S 143(3) THEN THE ASSESSEE HAS NO RIGHT TO CHANGE THE FIGURES OF EARLIER YEAR. IT WAS FURTHER NOTICE D THAT PROFIT FIGURE FOR ASSESSMENT YEAR 2002-03 WAS RADICALLY CHANGED A ND DETAILS ARE AS UNDER: (I) THE PROFIT FOR THE ASSESSMENT YEAR 2002-03 TRAN SFERRED TO GENERAL RESERVE SHOWN IN THE ORIGINAL RETURN FOR THE ASSESSMENT YEA R 2003-04 IS AS UNDER:- PROFIT OF RS. 41,20,63,291/- LESS RS. 5,00,00,000/- = RS. 36,20,63,291/- TRANSFERRED TO GENERAL RESERVE. BUT IN THE REVISED RETURN FOR THE ASSESSMENT YEAR 2 003-04, THE FIGURES UNDER THESE HEADS FOR THE ASSESSMENT YEAR 2002-03 HAVE BE EN SHOWN AS UNDER:- PROFIT OF RS. 43,75,78,697/- LESS RS. 5,00,00,000/- = RS. 38,75,78,697/- TRANSFERRED TO GENERAL RESERVE. THE ABOVE FIGURES SHOW THAT IN ADDITION TO THE REVI SING OF THE ACCOUNTS FOR THE ASSESSMENT YEAR, THE ASSESSEE HAD ALSO INCREASED TH E PROFIT FOR THE 33 ASSESSMENT YEAR 2002-03 BY RS. 2,55,15,406/- [ RS. 43,75,78,697/- MINUS RS. 41,20,63,291/-]. (II) NET PROFIT FROM THE SCHEME (AS PER ANNEXURE-2) FOR THE ASSESSMENT YEAR 2002-03 AS SHOWN IN THE ORIGINAL RETURN FOR THE ASS ESSMENT YEAR 2003-04 IS RS. 2,74,38,049/- WHEREAS IN THE REVISED RETURN FOR THE ASSESSMENT YEAR 2003-04, THE NET PROFIT FROM SCHEME FOR THE ASSESSMENT YEAR 2002-03 HAS BEEN SHOWN AT RS. 5,29,36,772/-. THIS SHOWS THAT THE ASSESSEE HAD RAISED THE FIGURES OF PROFIT FROM SCHEME FOR THE ASSESSMENT YEAR 2002-03 BY RS. 2,54,98,723/- [ RS. 5,29,36,772/- MINUS RS. 2,74,38,049/-]. IT WAS FURTHER NOTICED THAT THERE WAS SOME CHANGE I N RESPECT OF INTEREST FIGURE IN RESPECT OF DELAYED INSTALLMENTS FOR ASSESSMENT YEAR 2002-03 AND THIS VARIATION WAS OF RS. 16,683/- . HE FURTHER NOTICED THAT THESE CHANGES WERE REFLECTED BY THE AU DITORS IN THE NOTES TO ACCOUNTS AS UNDER: (I) THE NET EFFECT FROM DEVIATION FROM ACCRUAL SYS TEM TO CASH SYSTEM OF RECOGNIZING THE INTEREST IN THE CASES OF INTEREST O N INSTALLMENTS OF HOUSES COULD NOT BE QUALIFIED. (II) LOAN FROM HUDCO IS STILL UNDER RECONCILIATION. (III) A SUM OF RS. 1,10,65,281/- HAS BEEN SHOWN IN THE BOOKS OF ACCOUNT AS THE AMOUNT IN TRANSIT. OUT OF THIS, RS. 8,55,117/- IS P ENDING FOR RECONCILIATION SINCE LONG. (IV) A DIFFERENCE OF RS. 19,23,188/- EXISTS IN THE INTER DIVISION ACCOUNTS. THE ASSESSEE WAS CONFRONTED WITH THESE ISSUES. IN RESPONSE VIDE LETTER DATED 23.8.2005 IT WAS EXPLAINED THAT THESE CHANGES ARE NOT ON ACCOUNT OF ANY FIGURE WHICH HAS BEEN IMPORTED I N THE BOOKS OF ACCOUNTS BUT RATHER THEY ARE ON ACCOUNT OF ONLY GR OUPING AND REGROUPING OF FIGURES OF THE EARLIER YEARS SO THAT THE ACCOUNTS SHOW A CLEAR PICTURE OF THE STATE OF AFFAIRS. NO NEW FIG URE OF ANY AMOUNT HAVE BEEN INTRODUCED IN THE REVISED ACCOUNTS. IN T HE ORIGINAL STATEMENT OF AFFAIRS, THE FIGURES WERE SHOWN OF NET VALUE (I.E. CREDITS WERE DEDUCTED FROM DEPOSITS WHEREAS IN THE REVISED RETURNS THE CREDITS WHICH WERE EARLIER REDUCED FROM THE DEPOSI TS HAVE BEEN TAKEN TO THE CREDIT SIDE AS A RESULT OF WHICH FIGUR ES ARE REFLECTED AT HIGHER VALUE AND THIS INCREASE IN THE DEBIT SIDE IS ONLY THE RESULT OF GROSSING OF THE NET ASSETS. THEREFORE, REVISION OF FIGURE OF CLOSING BALANCE OF THE EARLIER YEARS WOULD NOT EFFECT THE D ETERMINATION OF TRUE AND CORRECT PROFITS FOR THE YEAR. IT WAS FURT HER SUBMITTED VIDE REPLY DATED 28.9.2005 THAT IN CASE OF CLOSING BALAN CES OF THE ASSETS AS ON 31.3.2002 THERE IS CORRESPONDING INCREASE IN CLOSING BALANCE OF THE LIABILITY AS ON 31.3.2002. THUS NET EFFECT OF REVISION OF 34 CLOSING FIGURES FOR ASSESSMENT YEAR 2002-03 WOULD B E NIL. THIS WAS EXPLAINED BY THE FOLLOWING CHART: SL.NO. DESCRIPTION OF THE FIGURE ASSET/ LIABILITY BALANCE AS ON 31-03- 2002 SHOWN IN THE ORIGINAL RETURN FOR THE ASSESSMENT YEAR 2003-04 BALANCE AS ON 31- 03-2002 SHOWN IN THE REVISED RETURN FOR THE ASSESSMENT YEAR 2003-04 AMOUNT OF INCREASE 1 CAPITAL RESERVE LIABILITY RS. 369,69,08,068/- RS.900,86,88,086/- RS .531,17,80,018/- 2 DEPOSITS WITH PUDA LIABILITY RS. 148,89,91,954/- RS.275,36,72,977/- RS . 26,46,81,023/- 3 CURRENT LIABILITIES AND PROVISIONS LIABILITY RS. 56,33,55,421/- RS.204,63,57,421/- RS. 48,30,02,000/- TOTAL INCREASE RS. 05,94,63,041/- SL.N O. DESCRIPTION OF THE FIGURE ASSET/LIABILIT Y BALANCE AS ON 31-03-2002 SHOWN IN THE ORIGINAL RETURN FOR THE ASSESSMENT YEAR 2003-04 BALANCE AS ON 31-03-2002 SHOWN IN THE REVISED RETURN FOR THE ASSESSMENT YEAR 2003-04 AMOUNT OF INCREASE 1 WORKS EXECUTED ASSET RS. 90,58,70,951/- RS. 215,52,89,843/- RS. 124,94,18,892/- 2 CURRENT ASSETS AND LOANS AND ADVANCES ASSET RS. 352,32,38,508/- RS. 1033, 32,82,658/- RS. 681,00,44,150/- 3 TOTAL INCREASE RS. 805,94,63,041/- 44 REGARDING THE INCREASE, IT WAS EXPLAINED THAT TH E SAME WAS DUE TO INCREASE OF FOLLOWING FIGURES: INCREASE OF PROFIT FROM SCHEME RS. 2,54,98,723/- INCREASE IN INTEREST INCOME FROM INSTALLMENTS RS. 16,683/- TOTAL INCREASE RS. 2,55,15,406/- 45 IT WAS FURTHER CONTENDED THAT REVISION OF ACCOUN TS BY SWITCHING FROM MERCANTILE SYSTEM TO CASH SYSTEM OF ACCOUNTING WOULD HAVE CONSEQUENTIAL EFFECT ON THE FIGURES OF INCOME FOR P RECEDING 35 ASSESSMENT YEAR 2002-03 BUT THE INCREASE IN INCOME PERTAINING TO ASSESSMENT YEAR 2002-03 WILL NOT HAVE ANY TAXABLE I MPLICATIONS BECAUSE THE INCOME IN ASSESSMENT YEAR 2002-03 WAS E XEMPT U/S 10(20A) OF THE ACT. 46 THE ASSESSING OFFICER AFTER CONSIDERING THESE SU BMISSIONS OBSERVED THAT MAIN CONTENTION OF THE ASSESSEE IS TH AT IT HAD BEEN WORKING OUT INCOME FROM PURCHASE AND SALE OF PLOT R IGHT FROM THE BEGINNING UPTO ASSESSMENT YEAR 2002-03 AND IT WAS O NLY IN ASSESSMENT YEAR 2003-04 THAT THE ASSESSEE RECOGNIZE D REVENUE FROM PURCHASE AND SALE OF PLOTS OF THESE YEAR AS WE LL AS EARLIER YEARS WHICH WOULD HAVE CONSEQUENTIAL EFFECT ON THE INCOME OF EARLIER ASSESSMENT YEARS. HE FURTHER OBSERVED THAT INCOME FROM SCHEMES (I.E. FROM SALE AND PURCHASE OF HOUSES AND FLATS) HAS ALREADY BEEN WORKED OUT AND SHOWN IN THE RETURN FOR ASSESSMENT YEAR 2002-03 AND THE ASSESSMENT HAS BEEN COMPLETED ACCEPTING SUCH INCOME FROM SALE OF PLOTS AND HOUSES. SUCH IN COME WAS WORKED OUT ON MERCANTILE SYSTEM OF ACCOUNTING. THE CHANGE IN SYSTEM OF ACCOUNTING WOULD HAVE SOME EFFECT ON THE SALE OF HOUSES AND FLATS DURING ASSESSMENT YEAR 2003-04 BUT CANNOT HAVE ANY EFFECT FOR THE EARLIER YEAR. THE INCREASE OF INCOM E FROM HOUSES AND FLATS RESULTING FROM THE CHANGE OF SYSTEM OF ACCOUN TING MADE IN ASSESSMENT YEAR 2003-04 WILL BELONG TO THE PRESENT YEAR AND NOT EARLIER YEARS. THE ASSESSEE HAS CLEVERLY SHOWN TH E INCOME BELONGING TO ASSESSMENT YEAR 2002-03 WHEN THE INCOM E WAS EXEMPT AND NOT IN THE ASSESSMENT YEAR 2003-04 WHEN THE INC OME IS NOT EXEMPT. THEREFORE, TO THIS EXTENT METHOD OF ACCOU NTING WAS REJECTED AND A SUM OF RS. 2,55,15,406/- WAS ADDED T O THE INCOME OF THE ASSESSEE. 47 ON APPEAL BEFORE THE LD. CIT(A), IT WAS MAINLY S UBMITTED THAT THE ASSESSEE AUTHORITY WAS ENGAGED IN THE DEVELOPME NT OF PLOTS, CONSTRUCTION OF HOUSES AND SALE THEREOF INCOME WAS EXEMPT UPTO 31.3.2002 IN TERMS OF SECTION 10(20A) OF THE ACT. DUE TO LOSS OF EXEMPTION THE ASSESSEE REVISED ITS ACCOUNTING POLIC Y AND BECAUSE OF WHICH CERTAIN MATTERS REQUIRED REVISION OF ACCOU NTS OF THE EARLIER YEARS ALSO. IT WAS FURTHER SUBMITTED THAT PROFITS ON WORK IN RESPECT OF TWO SCHEMES HAVE NOT BEEN WORKED AND RECOGNIZED IN RESPECT OF TWO SCHEMES UPTO 31.3.2002. EARLIER THE PROFITS WAS BEING ACCOUNTED ON THE COMPLETION OF THE SCHEME AND THEREFORE, WH EN THE ACCOUNTS WERE AMENDED SUCH PROFITS WERE RECOGNIZED UPTO 31.3 .2002 AND 36 CHANGES WERE MADE ACCORDINGLY. THIS PROFIT CAME TO RS. 2,54,98,723/-. SIMILARLY ADDITIONAL INTEREST INCO ME ON INSTALLMENTS AMOUNTING TO RS. 16,683/- WAS NOT RECOGNIZED EARLIE R AND IT WAS NOW RECOGNIZED. THEREFORE, THIS ADDITION OF RS. 2,55, 15,406/- WAS NOT JUSTIFIED. 48 THE LD. CIT(A) CONSIDERED THESE SUBMISSIONS AND AGREED WITH THE SAME AND ALLOWED RELIEF VIDE FOLLOWING PARAS: THE ASSESSING OFFICER MADE AN ADDITION OF RS. 2,55 ,15,046/- AT POINT NO. 8 OF HIS ORDER ON ACCOUNT OF DIFFERENCE IN THE FIGURES OF NET PROFIT FROM SCHEMES FOR THE FINANCIAL YEAR 2001-02 AS PER ORIGINAL PROFIT AND LOSS ACCOUNT AND FOR THE SAME FINANCIAL YEAR AS PER REVISED BALANCE SHEET. IT IS SEEN THAT THE AUTHORITY HAD NOT WORK ED OUT AND RECOGNIZED PROFITABILITY ON TWO OF THE HOUSING SCHEMES UPTO 31 .3.2002. THE ACCOUNTS FOR THE FINANCIAL YEAR 2001-02 WERE REOPEN ED AND AUDITED AND THE PROFIT FROM THOSE SCHEMES WERE INDUCTED INTO TH E BOOKS APPERTAINING TO THE FINANCIAL YEAR 2001-02. IT WAS SUBMITTED BY LD. AR THAT IT DID NOT HAVE ANY IMPACT ON THE INCOME CHARGEABLE TO INCOME TAX AS THE AUTHORITY WAS EXEMPT FROM TAX UPTO 31.3.2002 DUE TO THE APPLI CABILITY OF THE PROVISIONS OF SECTION 10(20A) OF THE INCOME TAX ACT . A COPY OF STATEMENT OF COMPUTATION OF NET PROFIT FROM SCHEME S WERE EXAMINED WITH THE ORIGINAL BALANCE SHEET PERTAINING TO ASSESSMENT YEAR 2002-903 AND THE SAME WAS ENCLOSED WITH THE REVISED BALANCE SHEE T FOR THE SAME YEAR WAS ALSO GIVEN TO ME. IT IS CLEAR THAT THE UNRECOGN IZED PROFITABILITY OF TWO SCHEMES WERE INCORPORATED IN THE REVISED ACCOUNTS F OR ASSESSMENT YEAR 2002-03. THE ADDITION DONE BY THE ASSESSING OFFICE R DURING THE ASSESSMENT YEAR 2003-04 WAS UNCALLED FOR AS THE INC OME PERTAINED TO ASSESSMENT YEAR 2002-03 WHICH WAS PROPERLY INCORPOR ATED IN THE ACCOUNTS OF FINANCIAL YEAR 2001-02. IT IS FURTHER SEEN THAT THE AUTHORITY HAD NOT REVISED THE RETURN PERTAINING TO ASSESSMENT YEAR 2002-03, THE PERIOD TO WHICH THE ENTRIES PERTAIN, AS THE REVISED ACCOUNTS WERE FINALLY SIGNED AND AUDITED ON 1.2.2005. THE LAST DATE FOR REVISING THE RETURN WAS 31.3.2004. SINCE THE LAST DATE HAD ALREADY EXP IRED AND THERE WAS NO IMPACT ON TAXABLE INCOME OF THE AUTHORITY FOR TH E RELEVANT YEAR AS THE INCOME WAS EXEMPT U/S 10(20A) THE ALLEGATION OF THE ASSESSING OFFICER THAT SINCE THE RETURN HAS NOT BEEN REVISED FOR ASS ESSMENT YEAR 2002-03 AND HENCE THE INCOME SHOULD BE CREDITED TO ASSESSME NT YEAR 2003-04 IS NOT CORRECT. IN REGARD TO THIS ADDITION OF RS. 2,55,15,046/- IT IS OBSERVED THAT AMOUNT REPRESENTS THE INCOME FROM PROJECTS WHICH WERE COMP LETED AS ON 31.3.2002. THIS INCOME CAN ONLY BE TAXED AS INCOME FOR FINANCIAL YEAR 2001-02 OR ASSESSMENT YEAR 2002-03 AND NOT ASSESSME NT YEAR 2003-04. HENCE THIS GROUND OF THE APPELLANT IS ALLOWED AND T HE ADDITION ON THIS ACCOUNT OF RS. ORDERED TO BE DELETED. 49 BEFORE US, THE LD. DR FOR THE REVENUE SUBMITTED THAT THE LD. CIT(A) WAS NOT ABLE TO APPRECIATE THE BASIC FACTS O NCE THE ASSESSEE HAD FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2002-03 AND THE ASSESSMENT WAS ALSO COMPLETED U/S 143(3) THEN HOW C AN THE ASSESSEE CLAIM THAT A SUM OF RS. 2,55,15,406/- PERT AIN TO ASSESSMENT YEAR 2002-03. THE LD. CIT(A) FURTHER FA ILED TO APPRECIATE THAT THE ASSESSEE HAD WORKED THE INCOME AT VARIOUS SCHEMES FROM SALE OF HOUSES AND FLATS AND PROFIT HA D ALREADY BEEN WORKED OUT FOR ASSESSMENT YEAR 2002-03. IF THE ASS ESSEE WAS NOT WORKING INCOME FROM SALE OF PLOTS TO ASSESSMENT YEA R 2002-03 AND THE SAME WAS WORKED OUT IN ASSESSMENT YEAR 2003-04 AND 37 RECOGNIZED THE REVENUE FOR THE FIRST TIME IN THIS Y EAR THEN THIS WOULD HAVE EFFECT ON THE PROFITS OF THE CURRENT YEAR AND NOT FOR THE EARLIER YEAR. THE ASSESSEE COULD NOT HAVE FILED REVISED R ETURN FOR ASSESSMENT YEAR 2002-03 BECAUSE SECTION 139(5) PRES CRIBES ONLY TWO SITUATIONS WHERE THE REVISED RETURN CAN BE FILE D I.E. IF THERE IS AN OMISSION OR WRONG STATEMENT IN THE ORIGINAL RETURN. IN THIS REGARD SHE RELIED ON THE DECISION OF HON'BLE DELHI HIGH CO URT IN CASE OF GOLDEN INSULATION AND ENGG. LTD. VS. CIT, 305 ITR 4 27 (DELHI). IN ANY CASE ON PRINCIPLE ALSO IF SOME INCREASE OF INCO ME WAS NOT SHOWN BY THE ASSESSEE IN EARLIER YEARS AND IF DUE TO CERT AIN RECLASSIFICATION THERE IS A CHANGE IN THE AMOUNT OF INCOME, THE SAME SHOULD BE TAXABLE DURING THE CURRENT YEAR ONLY. IN THIS REG ARD SHE PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT I N CASE OF CIT VS. BRITISH PAINTS INDIA LTD. (S.C), 188 ITR 44. FURTH ER IT WAS SUBMITTED THAT THE WAY ACCOUNTING ENTRIES HAVE BEEN MADE, IS NOT DETERMINATIVE OF THE AMOUNT OF REAL INCOME AND SAME IS REQUIRED TO BE TAXED ON THE BASIS OF PROVISIONS OF THE ACT.. IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF HON'BLE SUPR EME COURT IN CASE OF SUTLEJ COTTON MILLS LTD. VS. CIT, 116 ITR 1 (S.C). SHE ALSO REFERRED TO DECISION OF HON'BLE SUPREME COURT IN CA SE OF SOUTHERN TECHNOLOGIES LTD. VS. JCIT, 320 ITR 577 (S.C) WHERE IN IT WAS HELD THAT SUBJECT TO THE PROVISIONS OF INCOME TAX THE PR OFITS TO BE ASSESSED UNDER THE ACT HAVE TO BE REAL PROFITS WHIC H HAVE TO BE COMPUTED ON THE ORDINARY PRINCIPLES OF COMMERCIAL A CCOUNTING. 50 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT WHEN THE ACCOUNTS WERE REVISED IT CAME TO THE LIGHT THAT PROFITABILITY OF TWO SCHEMES HAD NOT BEEN RECOGNIZE D IN ASSESSMENT YEAR 2002-03 AND THEREFORE, SINCE SYSTEM OF ACCOUN TING WAS BEING CHANGED FROM MERCANTILE TO CASH THE SALES AND CLOSI NG STOCKS WERE REWORKED AND PROFIT FOR THE EARLIER YEAR I.E. ASSES SMENT YEAR 2002- 03 WAS WORKED OUT AT RS. 2,54,98,722/- AND ULTIMATE LY THIS SUM WAS CREDITED TO GENERAL RESERVE ACCOUNT. SIMILARLY IN TEREST OF INSTALLMENTS AMOUNTING TO RS. 16,683 WHICH ALSO REM AIN UNRECOGNIZED IN THE EARLIER BALANCE SHEET FOR ASSES SMENT YEAR 2002- 03 WAS RECOGNIZED. THEREFORE, ONLY MISTAKES HAVE BEEN CORRECTED. IN THIS REGARD IN THE WRITTEN SUBMISSIONS FOLLOWING CHART HAS BEEN FURNISHED: AS PER ORIGINAL AS PER REVISED DIFFERENCE 38 BALANCE SHEET AS ON 31.03.02 BALANCE SHEET AS ON 31.03.02 RECEIPTS FROM ALLOTTEES (SCHEDULE F) 2062070049 1908793878 153276171 SALES OF HOUSES (ANNEX-2) 248022499 401298670 153276171 FURTHER THE PROFITABILITY OF ABOVE TWO SCHEMES IN T HE A.Y. 02-03 AS PER ORIGINAL BALANCE SHEET AS ON 31.03.02 IS AS UNDER:- AS PER ORIGINAL BALANCE SHEET AS ON 31.03.02 (ANNEX-2) AS PER REVISED BALANCE SHEET AS ON 31.03.02 (ANNEX-2) OPENING STOCK 452 MIG SEC. 66 MOHALI 696 LIG SECTION, 66 MOHALI 106887543 57008053 106887543 57008053 TOTAL(A) 163895596 163895596 SALE 452 MIG SEC. 66 MOHALI 696 LIG SEC. 66 MOHALI - - 105909156 47367015 TOTAL(B) - 153276171 CLOSING STOCK 452 MIG SEC. 66 MOHALI 696 LIG SEC. 66 MOHALI 106887543 57008053 26848535 9269613 TOTAL (C) 163895596 36118148 PROFITABILITY(B+C-A) - 25498723 THE LD. COUNSEL OF THE ASSESSEE REFERRED TO VARIOUS DOCUMENTS IN THE FORM OF BALANCE SHEET AND POINTED OUT HOW THE FIGUR ES HAVE BEEN REWORKED. THE ASSESSING OFFICER HAS CLEARLY ACCEPT ED THE FACT THAT INCOME BELONGS TO ASSESSMENT YEAR 2002-03 AND SIMPL Y BECAUSE RETURN FOR THAT YEAR CANNOT BE REVISED NOW, DOES NO T MEAN THAT THE INCOME CAN BE ASSESSED NOW IN THE PRESENT YEAR. 51 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY A ND DO NOT FIND ANY FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. IT IS SETTLED POSITION OF LAW THAT WHEN EVER SYSTEM OF ACCOUNTING IS CHANGED SUCH CHANGE HAS TO BE BONAFIDE AND THE SYST EM SHOULD CLEARLY REFLECT THE INCOME OF THE CONCERNED YEAR. IT HAS NOT BEEN EXPLAINED BEFORE US WHY THE PROFIT IN RESPECT OF T WO SCHEMES WAS NOT RECOGNIZED IN ASSESSMENT YEAR 2002-03 EARLIER S IMPLY BY SAYING THAT IT WAS NOT DONE BY MISTAKE, IS NOT ENOUGH. EV EN IF ASSUMING THAT BECAUSE OF THE CHANGE IN SYSTEM THE INCOME OF EARLIER YEAR HAS COME TO THIS YEAR THEN THE ASSESSEE HAS NO RIGHT TO CHANGE INCOME TO EARLIER YEAR I.E. ASSESSMENT YEAR 2002-03 BY SIM PLY SAYING THAT 39 THE INCOME BELONGS TO THAT YEAR AND WAS NOT RECOGNI ZED IN THE EARLIER YEAR. THIS CANNOT BE DONE PARTICULARLY IN VIEW OF THE FACT THAT IN THE ASSESSMENT YEAR 2002-03 THE INCOME WAS EXEMP T U/S 10(20A). MOREOVER THE ASSESSMENT WHICH HAS BECOME FINAL CANN OT BE REOPENED AGAIN. THE ASSESSEE HAS NO TIME LEFT IN T ERMS OF SECTION 139(5) TO REVISE THE RETURN. THEREFORE, WE ARE OF THE OPINION THAT THE LD. CIT(A) HAS ERRED IN GIVING RELIEF BY SIMPLY STATING THAT THIS INCOME ACTUALLY BELONGS TO THE EARLIER YEAR WITHOUT GIVING ANY REASONS HOW AND WHY THIS INCOME WAS NOT RECOGNIZED IN THE EARLIER YEAR. ACCORDINGLY WE SET ASIDE THE ORDER OF THE L D. CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER IN THIS REGAR D. 52 GROUND NO. 5 AFTER CONSIDERING THE RIVAL SUBMI SSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED B Y 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 T HE 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 HAVE 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 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, INCO ME HAS TO BE 40 COMPUTED ON THE BASIS OF INSTALLMENTS RECEIVED DUR ING THE YEAR MINUS ANY AMOUNT WHICH HAS ALREADY BEEN ACCOUNTED F OR AS REVENUE RECEIPT DURING THE YEAR UNDER CONSIDERATION . ACCO RDINGLY FROM THE DETAILS IT WAS OBSERVED THAT TOTAL INSTALLMENTS REC EIVED DURING THE PERIOD 1.4.2002 TO 31.3.2003 WAS RS. 23,00,77,465/- OUT OF WHICH A SUM OF RS. 3,22,06,541/- WAS ALREADY ACCOUNTED FOR AS REVENUE DURING THE YEAR AND THEREFORE, NET AMOUNT OF RS. 1 9,78,70,924/- WAS ADDED TO THE INCOME OF THE ASSESSEE. 53 ON APPEAL SIMILAR CONTENTION AS HAVE BEEN MADE B EFORE THE ASSESSING OFFICER, WERE REITERATED. THE LD. CIT(A) DISCUSSED THE ISSUE IN DETAIL AND FOUND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND DELETED THE ADDITION BY HOLDING THAT SINCE THE ASSESSEE WAS FOLLOWING THE PROJECT COMPLETION METHOD, THEREFORE, THE INCOME WOULD BE SHOWN ONLY ON THE COMPLETION OF THE SCHEME . 54 BEFORE US, THE LD. DR FOR THE REVENUE SUBMITTED THAT AS PER SECTION 4 OF THE ACT INCOME TAX IS CHARGEABLE IN RE SPECT OF TOTAL INCOME OF EACH ASSESSMENT YEAR AND THEREFORE, INCO ME RECEIVED DURING THE YEAR CANNOT BE DEFERRED TO FUTURE YEARS BY ADOPTING THE METHOD OF ACCOUNTING WHICH IS INCONSISTENT WITH THE METHOD OF ACCOUNTING WHICH THE ASSESSEE IS FOLLOWING REGULARL Y. SINCE THE ASSESSEE HAS STARTED FOLLOWING THE CASH SYSTEM OF A CCOUNTING DURING THE YEAR AND THEREFORE, INCOME RECEIVED DURING THE YEAR HAS TO BE SUBJECT TO TAXATION. SHE ALSO REFERRED TO THE PROV ISIONS OF SECTION 145 AND SUBMITTED THAT THOUGH THE ASSESSEE HAD THE OPTION TO ADOPT THE MERCANTILE SYSTEM OR CASH SYSTEM OF ACCOUNTING BUT THE ASSESSEE HAS NO RIGHT TO FOLLOW HYBRID SYSTEM OF AC COUNTING I.E. ONE METHOD FOR ONE PARTICULAR SOURCE OF INCOME AND ANOT HER METHOD FOR OTHER SOURCE OF INCOME. SHE FURTHER SUBMITTED THAT IT WAS STATED BY THE LD. COUNSEL OF THE ASSESSEE THAT THE ASSESSEE W AS RECOGNIZING REVENUE ON THE COMPLETION OF THE SCHEME BECAUSE ASS ESSEE WAS SELLING HOUSES AND FLATS ON HIRE PURCHASE AGREEMENT BUT IT HAS TO BE NOTED THAT THE ASSESSEE IS IN THE BUSINESS OF DEVE LOPMENT AND SELLING HOUSES AND NOT IN THE BUSINESS OF PROVIDING FINANCE /CREDIT TO VARIOUS CUSTOMERS. THE ASSESSEE HAS BASICALLY RECE IVED INSTALLMENTS IN CONSTRUCTION OF FLATS AND HOUSES AN D WAS FOLLOWING CASH SYSTEM OF ACCOUNTING AND THEREFORE, SUCH INS TALLMENTS ARE TO BE TAXED IN THE CURRENT YEAR. IN ANY CASE THE PROV ISION OF HIRE PURCHASE ACT CANNOT OVER RIDE THE PROVISIONS OF THE ACT AND IN THIS 41 REGARD SHE RELIED ON THE DECISION OF HON'BLE SUPREM E COURT IN CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JCIT (SUPRA). 55 IT WAS FURTHER SUBMITTED THAT HON'BLE PUNJAB & H ARYANA HIGH COURT IN CASE OF CIT V CHANDIGARH INDUSTRIAL AND GE NERAL DEVELOPMENT CORPORATION LTD. 319 ITR 85 (PH) HAS CL EARLY HELD IN THE SIMILAR CIRCUMSTANCES THAT AMOUNT RECEIVED ON A CCOUNT OF INSTALLMENTS ARE TAXABLE DURING THE YEAR. SIMILARL Y THE SAME VIEW WAS TAKEN IN CASE OF CIT VS. FAIR DEAL TRADERS, 327 ITR 34 BY HON'BLE PUNJAB & HARYANA HIGH COURT WHEREIN THE ASS ESSEE AFTER PURCHASING THE LAND DIVIDED THE SAME INTO PLOTS AND RECEIVED INSTALLMENTS BUT THE SAME WAS HELD TO BE TAXABLE BE CAUSE POSSESSION OF THE FLATS HAD ALREADY BEEN GIVEN. SH E ALSO REFERRED TO THE DECISION OF HON'BLE DELHI HIGH COURT IN CASE OF TIRATH RAM AHUJA (P) LTD. VS. CIT, 103 ITR 15 (DEL) WHERE CONTRACT W AS NOT COMPLETE BUT IT WAS HELD THAT IT WAS OPEN TO THE REVENUE TO ESTIMATE THE PROFIT ON THE BASIS OF RECEIPT IN EACH YEAR OF CONSIDERAT ION EVEN WHEN THE CONTRACT IS NOT COMPLETE. SHE ALSO RELIED ON THE D ECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. DHIR AND CO. COLONISERS P. LTD, 288 ITR 561 (PH) WHEREIN IT WAS HELD THAT ONCE POSSESSION OF THE PLOTS WAS TRANSFERRED THEN THE RE CEIPTS COULD NOT BE HELD TO BE MERELY A DEPOSIT. 56 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER. IT WAS EMPHASIZED THAT IN CASE OF HOUSES AND FLATS THE ASS ESSEE AUTHORITY WAS ENTERING INTO HIRE PURCHASE AGREEMENT. HE REFE RRED TO VARIOUS PROVISIONS OF THE AGREEMENT AND SUBMITTED THAT THIS HIRE PURCHASE AGREEMENT CLEARLY PROVIDE THAT OWNERSHIP OF THE PRO PERTY WOULD REMAIN WITH THE AUTHORITY TILL LAST INSTALLMENTS IS PAID. IT WAS FURTHER PROVIDED IN THE AGREEMENT THAT STATUS RIGHTS OF THE HIRER SHALL BE EXCLUSIVELY THAT OF A TENANT AND NOT AS OWNER. IT WAS CONTENDED THAT INSTALLMENTS CONSIST OF TWO ELEMENTS NAMELY INTERES T EMBEDDED IN SUCH INSTALLMENTS AND SECONDLY THE PRINCIPLE AMOUNT . IT WAS SUBMITTED THAT AS FAR AS INTEREST IS CONCERNED, THE SAME WAS BEING ACCOUNTED FOR IN EVERY YEAR BECAUSE IT WAS POSSIBLE TO QUANTIFY THE SAME EVEN DURING THE YEAR A SUM OF RS. 24,76,01,075 /- HAS ALREADY BEEN ACCOUNTED FOR AS INTEREST ON INSTALLMENTS. ON ACCOUNT OF INSTALLMENTS THE ASSESSEE HAS ALREADY CREDITED A SU M OF RS. 6,71,56,134/-. THIS IS THE ONLY THE AMOUNT WHICH C AN BE RECOGNIZED ON ACCOUNT OF REVENUE. IT WAS FURTHER SUBMITTED THA T IT WAS NOT 42 POSSIBLE TO QUANTIFY THE PROFIT DURING THE MID OF T HE SCHEME BECAUSE EVEN TRUE EXPENSES ON ACCOUNT OF CONSTRUCTION OF L AST HOUSE WAS ALSO CARRIED OVER AS STOCKS AND THEREFORE, THE EXP ENDITURE IS NOT BEING DEBITED AND THE PROFIT COULD NOT BE WORKED IN RESPECT OF UNCOMPLETED SCHEMES. IN FACT THERE WAS UNCLAIMED EX PENDITURE DURING THE YEAR AS PER FOLLOWING DETAIL: PARTICULARS BALANCE AS ON 31.3.2003 BALANCE AS ON 1 .4.2002 RECEIPT FROM ALLOTTEES PENDING RECOGNITION OF REVENUE DUE TO SCHEMES FOR INCOMPLETE RS. 210,66,64,803.65 RS. 19,08,79876.72 EXPENDITURE PENDING DEBIT TO PROFIT AND LOSS ACCOUNT DUE TO SCHEMES FOR INCOMPLETE RS. 233,72,05,032.55 RS. 226,43,47,998.60 EXCESS OF EXPENDITURE OVER RECEIPT RS. 23,05,40,228.90 RS. 35,55,54,119.88 57 IT WAS FURTHER CONTENDED THAT THE ASSESSEE WAS F OLLOWING COMPLETED CONTRACT METHOD WHICH WAS ONE OF THE RECO GNIZED METHOD AS PER ACCOUNTING STANDARD AS 7 WHICH WAS ENFORCED FOR ALL THE CONTRACTS ENTERED UPTO 31.3.2003 AND THEREFORE, SA ME WOULD NOT VIOLATE THE CHARGING SECTION AND TRUE PROFIT CAN ST ILL BE WORKED OUT BY FOLLOWING THIS METHOD. MOREOVER THIS METHOD WAS CO NSISTENTLY FOLLOWED BY THE ASSESSEE IN THE EARLIER YEAR WHEN T HE INCOME WAS EXEMPT U/S 10(20A) OF THE ACT. NO DOUBT THERE IS CH ANGE IN THE SYSTEM OF ACCOUNTING TO CASH SYSTEM FROM MERCANTILE SYSTEM FOLLOWED EARLIER, HOWEVER, THE METHOD OF RECOGNITIO N OF THE INCOME FROM HOUSING SCHEMES CONTINUED TO REMAIN THE SAME A S IN THE PAST AND RECEIPT AS WELL AS EXPENDITURE WERE ACCUMULATED IN THE SCHEME AND IN THIS REGARD RELIANCE WAS MADE TO SCHEDULE F OF THE BALANCE SHEET FILED IN THE PAPER BOOK. HE ALSO REFERRED TO THE DEFINITION OF HIRE PURCHASE IN HIRE PURCHASE ACT, 1972 AS WELL AS OTHER RELEVANT PROVISIONS. THIS DEFINITION CLEARLY SHOWS THAT ALLO TTEE OF A HOUSE WOULD BECOME OWNER OF THE SAME ONLY ON THE COMPLET ION OF THE TERMS OF THE AGREEMENT. 58 THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTE D THAT ADDITION ON ACCOUNT OF INSTALLMENTS HAVE MAINLY BEEN MADE B ECAUSE THE ASSESSEE WAS FOLLOWING CASH SYSTEM. THE ASSESSING OFFICER FAILED 43 TO REALIZE THAT SECTION 145 WHICH IS A MACHINERY SE CTION AND PROVIDES FOR SYSTEM OF ACCOUNTING, CAN NOT OVER RID E CHARGING SECTION. SINCE IN THE PRESENT CASE, THE SALE IS NOT COMPLETE AND TILL COMPLETION OF THE TENURE THE RECEIPT OF INSTALLMENT S COULD NOT BE RECOGNIZED AS INCOME AND THE SAME HAVE TO BE TREATE D AS ADVANCE ONLY IRRESPECTIVE OF THE SYSTEM OF ACCOUNTING FOLLO WED BY THE ASSESSEE. IN THIS REGARD RELIANCE WAS PLACED ON TH E DECISION OF DELHI BENCH OF THE TRIBUNAL IN CASE OF K.K. KHULLAR VS. DCIT, 304 ITR (AT) 295 (DELHI). UNLESS AND UNTIL THERE IS A R EALISTIC INCOME THE SAME CANNOT BE CHARGED TO TAX AND IN THIS REGARD RE LIANCE WAS PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT VS. MESSRS. SHOORJI VALLABHDAS AND CO. 46 ITR 144 (S.C) . THE LD. COUNSEL OF THE ASSESSEE ALSO REFERRED TO THE DECISI ON OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. PUNJ AB FINANCIAL CORPORATION, 295 ITR 502 (PH) WHEREIN IT WAS CLEARL Y HELD THAT A MERE SYSTEM OF ACCOUNTING CAN NOT CREATE A INCOME. IN VIEW OF THESE DECISIONS SIMPLY BECAUSE THE ASSESSEE WAS FOL LOWING CASH SYSTEM OF ACCOUNTING THE RECEIPT CANNOT BE GIVEN CO LOUR OF INCOME. 59 IT WAS FURTHER SUBMITTED THAT RECEIPTS WERE ACCU MULATED IN THE BALANCE SHEET AND AT THE SAME TIME THE COST WAS ALS O ACCUMULATED IN A PARTICULAR SCHEME IN THE BALANCE SHEET. THE A SSESSING OFFICER AGAIN SIMPLY PICKED UP THE RECEIPT WITHOUT ALLOWING CORRESPONDING COST. THEREFORE, IN THE ALTERNATIVE EVEN IF IT IS HELD THAT ADVANCE RECEIPT OF INSTALLMENTS IS IN THE NATURE OF THE INC OME THEN SUITABLE DIRECTIONS FOR ALLOWING THE ACTUAL COST INCURRED SH OULD ALSO BE GIVEN. IN THIS CONNECTION RELIANCE WAS PLACED ON THE DECIS ION OF HON'BLE SUPREME COURT IN CASE OF CIT VS. BILAHARI INVESTMEN T P. LTD. 299 ITR 1 (S.C). IT WAS FURTHER SUBMITTED THAT THE DEC ISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. CHAN DIGARH INDUSTRIAL AND GENERAL DEVELOPMENT CORPORATION (SUP RA) AND CIT VS. DHRI AND CO. COLONISERS P. LTD (SUPRA) HAVE BEEN RE VERSED IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT V REALEST BUILDERS AND SERVICES LTD. 307 ITR 202 (S.C). 60 HE ALSO SUBMITTED THAT THERE IS NO FORCE IN THE CONTENTION OF THE LD. DR FOR THE REVENUE THAT INCOME OF ONE PARTICULA R YEAR CANNOT BE DEFERRED TO FUTURE YEARS BECAUSE FIRST OF ALL NO IN COME HAS MATERIALIZED AND SECONDLY PROFIT OF EACH YEAR BEING DETERMINABLE AT THE YEAR END IS ONE THING AND PROFIT OF EACH YEAR A RE REQUIRED TO BE ESSENTIALLY TO BE DETERMINED AT THE END OF THE YEAR , IS ANOTHER THING. 44 SIMPLY BECAUSE THE METHOD OF ACCOUNTING EXISTS FOR DETERMINATION OF PROFIT OF EACH YEAR, IT CANNOT BE FOLLOWED THAT THE PROFITS OF THE PROJECT MUST BE DETERMINED WHEN THE WHOLE PROJECT G OT COMPLETED IN THE FUTURE AND THIS METHOD WAS CONSISTENTLY FOLLOWE D. HE ALSO PLACED RELIANCE ON THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN CASE OF DCIT VS. NAGARGUNA INVESTMENT TRUST LTD. 65 ITD 17 AND TAPARIA TOOLS LTD. VS. JCIT, 260 ITR 102. 61 IN THE REJOINDER THE LD. DR FOR THE REVENUE SUBM ITTED THAT THERE IS NO FORCE IN THE SUBMISSIONS THAT SECTION 145 CAN NOT OVER RIDE THE CHARGING SECTION BECAUSE IN THE PRESENT CASE INSTAL LMENTS RECEIVED WOULD COME UNDER THE PURVIEW OF INCOME UNDER THE CH ARGING SECTION ALSO. SHE ALSO SUBMITTED THAT DECISION IN CASE OF CIT V REALEST BUILDERS AND SERVICES LTD (SUPRA) IS TOTALLY DISTIN GUISHABLE BECAUSE IN THAT CASE THE ISSUE WAS WHETHER IT WAS FOR THE D EPARTMENT TO GIVE VITAL ASPECTS REGARDING METHOD OF ACCOUNTING FOLLOW ED BY THE ASSESSEE WHICH RESULTED IN UNDER ESTIMATION OF PROF IT WHEREAS IN THE CASE BEFORE US, IS REGARDING CONSEQUENCES OF FOLLOW ING OF CASH SYSTEM OF ACCOUNTING. 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 SOURCES' SHALL, S UBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTI LE 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. (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 REGULARLY FOLL OWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MAN NER PROVIDED IN SECTION 144 . THE ABOVE PROVISION WAS SUBSTITUTED BY FINANCE ACT ,1995 W.E.F. 1.4.1997. BEFORE THIS SUBSTITUTION THE ASSESSEE HA D CHOICE TO FOLLOW MERCANTILE OR CASH OR EVEN HYBRID SYSTEM OF ACCOUNT ING I.E. THE ASSESSEE COULD CHOOSE CASH SYSTEM OF ACCOUNTING FOR ONE SOURCE OF INCOME AND MERCANTILE SYSTEM OF ACCOUNTING FOR OTHE R SOURCES. THIS CHOICE HAVE BEEN REMOVED AND NOW THE ASSESSEE COULD FOLLOW EITHER CASH SYSTEM OF ACCOUNTING OR MERCANTILE SYSTEM OF A CCOUNTING. PLAIN READING OF THE PROVISION SHOWS THAT THE ASSESSEE CO ULD FOLLOW ONLY 45 ONE SYSTEM OF ACCOUNTING IN RESPECT OF INCOME UNDE R THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR IN COME FROM OTHER SOURCES. THESE RESTRICTIONS HAVE NOT BEEN PRESCRI BED FOR OTHER HEADS OF BUSINESS. IN CASE BEFORE US, INCOME OF TH E ASSESSEE IS CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS THEREFORE, THE ASSESSEE COULD HAVE ADOPTED ONLY ONE SYSTEM OF ACCOUNTING. BEFORE THE PRESENT ASSESSMENT YEAR THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND IN THIS YEAR SY STEM HAS BEEN CHANGED FROM MERCANTILE SYSTEM OF ACCOUNTING TO CAS H SYSTEM OF ACCOUNTING. THOUGH IT IS VERY SURPRISING HOW A LAR GE ORGANIZATION SUCH AS THE ASSESSEE, COULD FOLLOW CASH SYSTEM OF A CCOUNTING BUT IT IS ADMITTED FACT THAT THE ASSESSEE FOLLOWED CASH SY STEM OF ACCOUNTING. IN FACT IN RESPECT OF OTHER ADDITIONS LIKE RECEIPT OF INTEREST FROM BANK AND RECEIPT OF INTEREST FROM GOV ERNMENT OF PUNJAB, IT WAS VEHEMENTLY ARGUED ON BEHALF OF THE A SSESSEE 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 POSITIO N 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 PROFESSIONALS KEEP THEIR ACCOUNTS IN CASH BASIS BECAUSE THEY ARE NOT SELLING ANY MERCHANDISE AND IT IS VERY EASY TO FOLLOW CASH SYST EM FOR THEM. AS WE HAVE ALREADY OBSERVED THAT IT IS SURPRISING THAT THE ASSESSEE HAD FOLLOWED CASH SYSTEM OF ACCOUNTING. THEREFORE, WHE N THE TRADERS FOLLOW CASH SYSTEM AND WHENEVER SUCH TRADERS SELL A NY MERCHANDISE ON CREDIT 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 REASON WE ARE SUR PRISED THAT ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING WHE N IN ASSESSEES CASE LARGE NUMBER OF TRANSACTIONS ARE INVOLVED THEN HOW CAN AN ORGANIZATION FOLLOW CASH SYSTEM BECAUSE IN THE TRAN SACTION WHERE NO CASH IS INCOMING OR OUTGOING SUCH TRANSACTIONS ARE NOT RECORDED UNDER THIS SYSTEM AND THEY ARE ONLY NOTED AS MEMORA NDUM ENTRIES OR IN ROUGH JOTTING. UNDER THE CASH SYSTEM OF ACCO UNTING SUCH TRADER WOULD NOT ENTER THE SALE PROCEEDS ON THE INCOME SID E IN HIS BOOKS OF ACCOUNT OR CASH BOOK UNTIL THE SAME IS ACTUALLY REC EIVED. SIMILARLY AN ITEM OF EXPENDITURE WILL BE BOOKED ONLY WHEN ACT UAL CASH PAYMENT IS MADE. IN CASE OF MERCANTILE SYSTEM OF A CCOUNTING 46 INCOME AS WELL AS EXPENDITURE WOULD BE RECOGNIZED O N THE PRINCIPLE OF ACCRUAL. IN FACT THIS ISSUE WAS CONSIDERED BY T HE 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 L ENDER AND HAD GIVEN LOAN TO ONE SHRI NISAR AHMAD KHAN, TALUQDAR OF MOHANA ESTATE. THE ASSESSEE WAS MAINTAINING BOOKS OF ACCO UNT ON CASH SYSTEM OF ACCOUNTING. THE ASSESSEE COMMENCED AN AC TION 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 ENCUMB ERED ESTATES ACT, 25 OF 1934 AN ORDER APPLYING THE PROVISION OF THE ACT TO HIM. THE SPECIAL JUDGE, SULTANPUR, PASSED AN ORDER FOR P AYMENT OF RS. 5,00,992/- TO THE ASSESSEE. PURSUANCE TO THE ORDER THE ASSESSEE RECEIVED IN 1946, RS. 1,54,692/- FROM THE DEBTOR AN D 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. THE AMOUNT RECEIVED IN THE YEAR 1946 WAS APPROPRIATED B Y THE ASSESSEE TOWARDS THE PRINCIPAL DUE. THE ASSESSEE SPLIT UP TH E 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 B OOKS OF ACCOUNT TOWARDS THE BALANCE OF PRINCIPAL AND THE SECOND AMO UNT TO AN ACCOUNT STYLED INTEREST ACCRUED. IN SUBMITTING T HE RETURN OF HIS TAXABLE INCOME FOR THE ASSESSMENT YEAR 1948-49 THE ASSESSEE DID NOT DISCLOSE ANY RECEIPT OF INCOME FROM INTEREST DU E ON THE LOANS ADVANCED TO NISAR AHMAD KHAN. THE ASSESSEE WAS DUL Y ASSESSED TO TAX ON THE INCOME DISCLOSED BY HIM. IN OCT 1948, T HE ASSESSEE SOLD THE ENCUMBERED ESTATES BONDS AND REALIZED A TOTAL S UM OF INTEREST RECEIVED DURING THE YEAR ON ACCOUNT THE DIFFERENCE BETWEEN THE AMOUNT REALIZED BY SALE OF THE BONDS AND THE AMOUNT DUE AS PRINCIPAL. THE ITO ISSUED A NOTICE U/S 34(1)(A) O F THE INDIAN INCOME TAX ACT AND BROUGHT TO TAX THE DIFFERENCE BETWEEN THE FACE VALUE OF THE BONDS AND THE AMOUNT DUE AS PRINCIPAL AS ESCAPE D INCOME OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1948- 49. THE ORDER WAS CONFIRMED BY THE APPELLATE ASSISTANT COMMISSION ER AND THE INCOME-TAX APPELLATE TRIBUNAL. THE HIGH COURT ALSO DECIDED THE ISSUE AGAINST THE ASSESSEE. ON FURTHER APPEAL BEFO RE THE HON'BLE SUPREME COURT IT WAS MAINLY CONTENDED THAT THE ASSE SSEE WAS MAINTAINING BOOKS OF ACCOUNT ON CASH SYSTEM OF ACCO UNTING AND UNTIL THE ASSESSEE REALIZED THE VALUE OF BONDS, NO INTERE ST CAN BE SAID TO HAVE BEEN RECEIVED BY THE ASSESSEE BECAUSE IT WAS F URTHER 47 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 C OURT 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 FRO M WHATEVER SOURCES DERIVED WHICH ARE RECEIVED OR ARE DEEMED TO BE RECEIVED IN THE TAXABL E TERRITORIES IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON, OR ACCRUE OR ARISE OR ARE DEEMED TO AC CRUE 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 AFTER THE 1 ST DAY OF APRIL, 1933, ARE BROUGHT INTO OR RECEIVED I N THE TAXABLE TERRITORIES BY HIM DURING SUCH YEAR. THE ACT DOES NOT CONTAIN MUCH GUI DANCE AS TO CASES IN WHICH TAX IS TO BE LEVIED ON INCOME RECEIVED, AND CASES IN WHICH TAX I S TO BE LEVIED ON INCOME ACCRUED OR ARISEN. SECTION 13 HOWEVER REQUIRES THAT INCOME, PROFITS AN D 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 ACCORDING TO T HE 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 CO MMERCIAL ASSETS 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: T HE RECEIPT OF INCOME IS NOT DEFERRED TILL THE ASSET IS REALIZED IN TERMS OF CASH OR MONEY. IT MAK ES NO DIFFERENCE WHETHER 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 TITLE OF THE TRADER TO AN ASSET R ECEIVED IS COMPLETE, WHETHER BY A CONSENSUAL ARRANGEMENT OR BY OPERATION OF LAW, HE RECEIVES THE INCOME EMBEDDED IN THE VALUE OF THE ASSET. IN CALIFORNIAN COPPER SYNDICATE V. HARRIS LORD TRAY NER IN DEALING WITH A CASE OF ASSESSEEMENT TO INCOME-TAX OF A COMPANY, FORMED FOR THE PURPOSE, IN TER 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 SHARES 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 ANOTHER COMPA NY, BUT, IF THERE CAN BE NO REALIZED PROFIT, EXCEPT WHEN THAT IS PAID IN CASH, THE SHARES WERE R EALIZABLE AND COULD HAVE BEEN TURNED INTO CASH, IF THE APPELLANTS HAD BEEN PLEASED TO DO SO. I CANNOT THINK THAT INCOME-TAX IS DUE OR NOT ACCORDING TO THE MANNER 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 OF A TRADING T RANSACTION ACCRUES OR ARISES, EVEN THOUGH INCOME IS NOT REALIZED, INCOME EMBEDDED IN THE RECEIPT IS DEEMED TO ACCRUE OR ARISE. WHERE THE ACCOUNTS ARE MAINTAIN ED ON CASH BASIS, RECEIPT OF MONEY OR MONEYS WORTH AND NOT THE ACCRUAL OF THE R IGHT TO RECEIVE IS THE DETERMINING FACTOR. THEREFORE, IF COMMERCIAL ASSETS 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 DEE MED 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 WHETHER THE RECEIPT O F ASSETS IS IN PURSUANCE OF AN AGREEMENT OR THAT THE TRADER IS COMPELLED BY LAW TO ACCEPT THE ASSETS FROM THE DEBTOR. ONCE TITLE OF THE TRADER TO AN ASSET RE CEIVED IS COMPLETE WHETHER BY A CONSENSUAL ARRANGEMENT OR BY OPERATION OF LAW, HE RECEIVES 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 IN STRUMENTS ARE DETERMINING FACTOR AND IN ACCRUAL OF RIGHT TO RECEI VE SUCH MONEY IS A 48 MATERIAL. IN OTHER WORDS, WHENEVER THE CASH IS REC EIVED ON INCOME SIDE THE SAME HAS TO BE TAXED IF THE CASH IS RECEIV ED ON CAPITAL SIDE FOR EXAMPLE LOAN FROM BANK THEN THE SAME WOULD NOT BE REQUIRED TO BE TAXED. HOWEVER, IF THERE IS SIMPLY A RIGHT TO R ECEIVE SUCH CASH THE SAME CANNOT BE TAXED IN THE CASH SYSTEM OF ACCO UNTING. IN OUR OPINION, THIS WOULD ANSWER THE QUESTION AND OR CONT ENTION RAISED BY THE LD. COUNSEL OF THE ASSESSEE THAT BEFORE TAXING AN ITEM THE SAME HAS TO PASS THROUGH THE TEST OF CHARGING SECTION. S ECTION 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 Y EAR, 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 DEDUCTIBL E 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 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. TOTAL INCOME HAS BEEN DEFINED IN SECTION 5 OF THE ACT. THE WORD INCOME HAS BEEN DEFINED IN SECTION 2(24) SO THEREFORE, BEFORE CHARGING TAX IT HAS TO BE SEEN THAT 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 I NCOME HAS BEEN DEFINED IN INCLUSIVE MANNER. THIS IS VERY COMPLEX ISSUE AND WITHOUT GOING INTO THE DETAILS WE WOULD SIMPLY TAKE THE SIM PLE MEANING OF THE INCOME. IN THE NORMAL COMMERCIAL PARLANCE AN ITEM WHICH IS OF REVENUE NATURE, IS TAKEN AS INCOME. NOW IN A CASE WHERE AN ORGANIZATION WHICH IS CARRYING OUT THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF HOUSES AND IF SUCH ORGANIZATION SELL S THE SAME OUTRIGHTLY OR ON INSTALLMENTS BASIS THEN SUCH INSTA LLMENTS WOULD 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 UNDER THE CHAR GING SECTION AND THEREFORE, SAME CANNOT BE TAXED SIMPLY BECAUSE U/S 145 THE RECEIPT UNDER CASH SYSTEM HAS TO BE TAXED. NO DOUB T SECTION 145 IS A MACHINERY SECTION BUT MACHINERY SECTION ALSO HAVE LOT OF BEARING ON DETERMINATION OF INCOME AND CANNOT BE IGNORED LI GHTLY. IN THIS 49 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. SR INIVASA SETTY, 128 ITR 294 (S.C). IN THAT CASE THE ASSESSEE WAS A REGD FIRM. CLAUSE 13 OF THE INSTRUMENT OF PARTNERSHIP DEED SHO WED THAT GOODWILL OF THE FIRM HAVE NOT BEEN VALUED AND VALUA TION WOULD BE MADE AT THE DISSOLUTION OF THE PARTNERSHIP. PERIOD OF THE PARTNERSHIP WAS EXTENDED AND SUBSEQUENTLY PARTNERSHIP WAS DISSO LVED 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 CONSTITUTED THROUGH ANOTHER DEED OF PARTNERSHIP. NEW FIRM BOOKED OVER ALL THE ASSETS INCLUDING GOODWILL AND LIABILIT Y OF THE DISSOLVED FIRM. ORIGINALLY NO ADDITION WAS MADE ON ACCOUNT OF GAIN ARISING OUT OF TRANSFER OF GOODWILL BUT THIS ASSESSMENT ORD ER WAS FOUND ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE AND THEREFORE, LD. COMMISSIONER PASSED REVISIONARY ORD ER DIRECTING THE ASSESSING OFFICER TO MAKE FRESH ASSESSMENT AFTER TA KING INTO ACCOUNT THE CAPITAL GAIN ARISING OUT OF SALE OF GOO DWILL. THE ASSESSEE MAINTAINED THAT NO SALE TOOK PLACE TO ATTR ACT THE TAX ON CAPITAL GAIN U/S 45 OF THE INCOME TAX ACT . THE T RIBUNAL ALLOWED THE APPEAL. WHEN THE MATTER TRAVELED TO THE HON'BL E SUPREME COURT THE MATTER WAS ARGUED IN GREAT DETAIL. ONE OF THE ISSUE AROSE WHETHER THERE WAS TRANSFER AND IT WAS HELD YES IT W AS A TRANSFER. ANOTHER ISSUE AROSE WHETHER THE GAIN OF SUCH TRANSF ER OF GOODWILL WOULD BE TAXED U/S 45 OF THE ACT. IT WAS FOUND THA T GOODWILL IS A SELF GENERATED ASSET AND NO COST OF ACQUISITION CAN BE ATTRIBUTED TO SELF GENERATED ASSETS. SINCE SECTION 48 WHICH IS MODE O F 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 CO MPUTATION PROVISION WHICH IS AGAIN A MACHINERY PROVISION, HAD LOT OF BEARING ON THE TAXABILITY OF GAIN RECEIVED ON TRANSFER OF GOOD WILL. THEREFORE, EVEN IF SECTION 145 BEING MACHINERY SECTION HAS ITS OWN IMPLICATIONS. IMPLICATIONS ARE VERY CLEAR 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 ASSESSEE 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 SYSTEM OF ACCOUNTING. 50 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 CERTAIN AMOUNTS FOR SE RVICES TO BE PERFORMED OVER A PERIOD OF TIME. THE AMOUNT RECEIV ED FROM THE CLIENT IN RESPECT 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 THE PROVISIONS OF SECTION 145 THE ASSESSEE WAS FOLLOWIN G CASH SYSTEM OF ACCOUNTING AND THEREFORE, WHOLE AMOUNT WAS TAXABLE. THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE F OLLOWING 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 INCOME-TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT THE RATE OR RATE S 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 TOTAL INCOME, W HICH IS DEFINED IN RESPECT OF ANY PREVIOUS YEAR IN TERMS OF ACCRUAL, DEEMED ACCRU AL, RECEIPT AND DEEMED RECEIPT ETC. SECTION 145 DEALS WITH THE METHOD OF A CCOUNTING IN RESPECT OF PROFITS AND GAINS OF BUSINESS OR PROFESSION OR I NCOME FROM OTHER SOURCES. THUS, WHILE SECTIONS 4 AND 5 DEAL WITH THE SCOPE OF INCOME AND ITS CHARGE TO INCOME-TAX, SECTION 145 IS A PROCEDURAL SECTION REG ARDING 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 AS SESSEE CAN 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 TH E TAX. IN THE CASE OF MESSRS. SHOORJI VALLABHDAS AND CO. [1962] 46 ITR 144, THE H ONBLE SUPREME COURT POINTED OUT THAT THE INCOME-TAX ACT TAKES INTO ACCO UNT TWO POINTS OF TIME ON WHICH THE LIABILITY TO 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 O F INCOME OR RECEIPT OF INCOME THAT CAN BECOME THE SUBJECT-MATTER OF TAX AND 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 TH E MATTER IS INCOME. THEREFORE, THERE IS AN INFIRMITY IN THE ORDER OF TH E LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IN PARAGRAPH 4.7 WHERE IT WAS STATED THAT THE ENTIRE AMOUNT RECEIVED, WHETHER ARREARS OR ADVANCE, IS TO BE SHOWN AS INCOME UNDER THE CASH SYSTEM OF ACCOUNTING. THE CORRECT POSITION WOULD BE THAT THE ENTIRE INCOME RECEIVED, WHETHER ARREAR OR ADVANCE OF INCOM E, 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 WHET HER ARREARS OR ADVANCE, HAS TO BE SHOWN AS INCOME, THEREFORE, THI S DECISION IS TOTALLY 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 MANAGING AGENCY AGREEMENT, THE ASSESSEE WAS ENTITLED FOR COM MISSION @ 10% OF THE FREIGHT CHARGES. BETWEEN APRIL 1, 1947 AND DECEMBER 31, 1947 AN AMOUNT OF RS. 1,71,885/- FROM ONE COMPA NY AND RS. 2,56,815/- FROM OTHER COMPANY BECAME DUE TO THE ASS ESSEE AS 51 COMMISSION @ 10%. THIS AMOUNT WAS CREDITED IN THE BOOKS OF ACCOUNT AND DEBITED TO MANAGING AGENT. IN NOVEMBER 1947 THE ASSESSEE DESIRED TO HAVE MANAGING AGENCY TRANSFERRE D 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. 1,3 6,903/- AND RS. 2,00,625/- BEING 7% OF THE FOREGONE AMOUNT AS INCO ME. ON THESE FACTS IT WAS HELD AS UNDER: HELD, THAT THE SUBSEQUENT AGREEMENT HAD ALTERED THE RATE OF COMMISSION IN SUCH A WAY AS TO MAKE THE INCOME WHICH REALLY ACCRU ED TO THE ASSESSEE DIFFERENT FROM WHAT HAD BEEN ENTERED IN THE BOOKS O F ACCOUNT. THIS WAS NOT A CASE OF A GIFT BY THE ASSESSEE TO THE MANAGED COMPA NIES OF A PORTION OF INCOME WHICH HAD ALREADY ACCRUED, BUT AN AGREEMENT TO RECEIVE A LESSER REMUNERATION THAN WHAT HAD BEEN AGREED UPON. THE AS SESSEE HAD IN FACT RECEIVED ONLY THE LESSER AMOUNT IN SPITE OF THE ENT RIES IN THE ACCOUNT BOOKS, AND THIS LESSER 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 TO TAX IS ATTRACTED, 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 TA X, EVEN THOUGH IN BOOK- KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INC OME, WHICH DOES NOT MATERIALIZE. WHERE INCOME HAS, IN FACT, BEEN RECEIV ED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GIVEN UP, THE TAX MAY BE PAYABLE. WHERE, HOW EVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSL Y NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTAIN 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 A SSESSEE HAS CLEARLY AGREED TO REDUCE THE RATE OF COMMISSION ON CONVERSION OF THE AGENCY IN THE NAME OF PRIVATE COMPANIES. IN CASE B EFORE US, NOWHERE IT HAS BEEN DENIED THAT INSTALLMENTS RECEIV ED BY THE ASSESSEE FIRM FROM THE ALLOTTEES OF THE HOUSES IS N OT IN THE NATURE OF THE INCOME. THEREFORE, THE PROPOSITION LAID DOWN IN CASE OF CIT V MESSRS SHOOROJI VALLABHDAS AND CO. SUPRA) ARE NOT A PPLICABLE. 66 WE WOULD ALSO LIKE TO NOTE THAT IN ORIGINAL RETU RN FILED BY THE ASSESSEE, WAS FOR INCOME OF RS. 21.19 CRORES WHEREA S IN THE REVISED RETURN A LOSS OF RS. 19.12 CRORES WAS CLAIMED. THE ASSESSING OFFICER EXAMINED THE REASONS FOR LOSS AND HE FOUND THAT MAIN REASON WAS THAT EXPENDITURE ACCOUNTS SHOW THE FIGURES OF C OST OF PLOTS AND THEREFORE, SALE WHICH WAS NOT THERE IN THE ORIGINA L 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/- 52 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 THE ASS ESSING 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 ALS O EXPLAINED BY THE ASSESSEE IN ITS LETTER NO. 1567 DATED 08.03.2006 TH AT SINCE THE ASSESSEE HAS CHANGED ITS SYSTEM TO CASH SYSTEM OF ACCOUNTING, ON LY THE AMOUNT ACTUALLY RECEIVED OUT OF TOTAL SALE AMOUNT HAS BEEN SHOWN AS SALE WHEREAS THE PLOTS WHICH HAVE BEEN SOLD BUT ONLY A PART OF THE SALE AM OUNT OF WHICH HAS BEEN RECEIVED ARE NOT REFLECTED IN THE CLOSING STOCK WHI CH IS THE REASON FOR THE LOSS IN THE PURCHASE AND SALE OF PLOTS FOR THE ASSESSMEN T YEAR 2003-04. BUT IN THE SUBSEQUENT YEARS I.E. ASSESSMENT YEAR 2004-05 ONWAR DS, THERE IS PROFIT FROM PURCHASE AND SALE OF PLOTS. DURING DISCUSSION, IT W AS 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 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 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 STOCK IN RESPECT OF THAT PLOT BUT IF THE BALANCE AMOUNT OF SALE CONSIDERATION I.E. RS. 1,12,500/- IS ACTUALLY RECEI VED IN THAT YEAR THAT WILL BE SHOWN AS THE AMOUNT OF SALE FOR WHICH THERE WILL BE NO OPENING STOCK OR CORRESPONDING PURCHASE AND THE SAME, ALREADY-SOLD P LOT WILL GIVE A PROFIT OF RS. 1,12,500/- IN THAT NEXT YEAR. THIS IS THE REASON TH AT THERE IS STEEP RISE IN THE PROFIT FROM SALE OF PLOTS IN THE NEXT YEAR. THE ASS ESSEES COUNSEL REFERRED TO THE ORIGINAL AND REVISED RETURN FOR THE SUCCEEDING ASSESSMENT YEAR 2004-05. PERUSAL OF THESE RETURNS SHOWS THAT IN THE ORIGINAL RETURN FOR THE ASSESSMENT YEAR 2004-05, THE INCOME AS PER THE PROFIT 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 AN D LOSS ACCOUNT AND AFTER DEDUCTING DEPRECIATION 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 REVENUE ON PURCHASE AND SALE OF PLOTS ON CASH METHOD OF ACCOUN TING. THIS EXPLANATION OF THE ASSESSEE WAS FOUND TO BE CO NVINCING AND ACCEPTED. THUS IT IS CLEAR THAT THE ASSESSEE ITSEL F CONTENDED THAT SALE OF PLOTS HAS TO BE ACCEPTED ON THE BASIS OF A CTUAL CASH RECEIPT ON SALE EFFECTED DURING THE YEAR. THEREFORE, THE ASSESSEE COULD NOT TAKE A DIFFERENT STAND IN RESPECT OF SALE OF HOUSE S 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 DURING THE COMPLETION OF SU CH HIRE PURCHASE AGREEMENT TILL ALL THE INSTALLMENTS WERE PAID BY SU CH ALLOTTEES. THE INSTALLMENTS AS WELL AS EXPENDITURE INCURRED BY THE ASSESSEE, WAS 53 BEING ACCUMULATED IN VARIOUS SCHEMES AND WAS REFLEC TED IN THE BALANCE SHEET BECAUSE THE ASSESSEE WAS FOLLOWING ME RCANTILE 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 EXPRESS ED OUR SURPRISE ON ADOPTION OF CASH SYSTEM BY THE ASSESSEE BUT ADMI TTEDLY THIS SYSTEM HAS BEEN ADOPTED AND THEREFORE, THE ASSESSE E HAS TO BEAR THE CONSEQUENCES. FIRST CONTENTION WAS THAT HOUSES AND FLATS WERE SOLD ON HIRE PURCHASE BASIS AND UNDER THE HIRE PURC HASE ACT, 1972 THE BUYER DOES NOT GET THE OWNERSHIP RIGHT TILL THE COMPLETION OF THE PURCHASE AS PROVIDED IN THE AGREEMENT AND AS PER TH E AGREEMENT TILL ALL THE INSTALLMENTS ARE PAID SUCH BUYER OR ALLOTTE ES WILL NOT BECOME THE OWNERS. HOWEVER, WE FIND NO FORCE IN THIS CONT ENTION 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 TECHNOLOGIES LTD. VS. JCIT (SUPRA). THEREFORE, THE INSTALLMENTS RECEIVED AGAISNT SUCH SALES WHICH ARE IN THE NATUR E OF REVENUE RECEIPTS, ARE REQUIRED TO BE TAKEN INTO CONSIDERATI ON FOR DETERMINATION OF INCOME IN THIS YEAR BECAUSE THE AS SESSEE HAS ADOPTED CASH SYSTEM OF ACCOUNTING DURING THE YEAR. NEXT CONTENTION WAS THAT THE ASSESSEE WAS FOLLOWING CONTINUOUSLY PR OJECT COMPLETION METHOD AND THEREFORE, NO INCOME CAN BE DETERMINED UNLESS THE PROJECTS ARE COMPLETED. AGAIN AS DISCUSSED ABOVE I N DETAIL THE ISSUE OF SYSTEM OF ACCOUNTING AND THE MEANING OF CA SH SYSTEM OF ACCOUNTING, THIS CONTENTION CANNOT BE ACCEPTED BECA USE THE ASSESSEE CAN NOT FOLLOW TWO DIFFERENT SYSTEMS OF AC COUNTING UNDER THE SAME HEAD. THEREFORE, IN OUR OPINION, THE ASSE SSING OFFICER HAS 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 ARE INCLUDED THE N THE CORRESPONDING EXPENDITURE WHICH HAS BEEN INCURRED S HOULD ALSO BE ALLOWED ON MATCHING PRINCIPLE. THE LD. COUNSEL OF THE ASSESSEE HAD RELIED ON THE DECISION OF CIT VS. BILAHARI INVESTME NT P LTD. (SUPRA). IN THAT CASE THE ASSESSEE SUBSCRIBED TO CHITS AS TH EIR BUSINESS ACTIVITIES. THEY MAINTAINED THEIR ACCOUNTS ON THE M ERCANTILE 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 FOR THE ASSESSMENT YEARS 1991-92 TO 1997-98 THE ASSESSI NG OFFICER CAME TO 54 THE CONCLUSION THAT THE COMPLETED CONTRACT METHOD F OR CHIT DISCOUNT WAS NOT ACCURATE IN RECOGNIZING /IDENTIFYING INCOME AND THAT THE PERCENTAGE OF COMPLETION METHOD WAS TO BE PREFERRED. THE HIGH COU RT 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 PER CENTAGE OF COMPLETION METHOD ON PROPORTIONATE BASIS. ON APPEAL BY THE DEP ARTMENT TO THE SUPREME COURT. IT WAS HELD AS UNDER: HELD ACCORDINGLY, AFFIRMING THE DECISION OF THE HIG H COURT, THAT, SINCE, FROM THE VARIOUS STATEMENTS PRODUCED, THE ENTIRE EXERCIS E ARISING OUT OF THE CHANGE OF METHOD FROM THE COMPLETED CONTRACT METHOD TO DEF ERRED REVENUE EXPENDITURE WAS REVENUE NEUTRAL, THE COMPLETED CONTRACT METHOD WAS NOT REQUIRED 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 T HE METHOD OF COMPLETED CONTRACT UNDER MERCANTILE SYSTEM OF ACCOU NTING WHICH WAS FOUND TO BE CORRECT. HOWEVER, THE MATCHING PRINCIP LE 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 LAY ING ROADS, PROVIDING DRAINS SYSTEM AND INSTALLING LIGHTS ETC. THE FLATS WERE SOLD ON INSTALLMENT BASIS. AT THE TIME OF SALE THE ASSE SSEE UNDERTOOK TO CARRY OUT MORE DEVELOPMENTS. IN THE RELEVANT YEAR THE ASSESSEE RECEIVED A SUM OF RS. 29,392/- TOWARDS SALE PRICE O F LAND. HOWEVER, THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTS AND CREDITED TO ITS ACCOUNT A SUM OF RS. 43,692/- REPRE SENTING FULL SALE PRICE OF THE LAND. AT THE SAME TIME THE ASSESSEE A LSO DEBITED AN ESTIMATED SUM OF RS. 24,809 AS EXPENDITURE FOR THE DEVELOPMENTS. THIS WAS DISALLOWED BY THE REVENUE. ON APPEAL IT WA S 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, MEANT A REASONABLE TIME) WAS UNCONDITIONAL, THE APPELLANT BINDING ITSELF ABSOLUTELY TO CARRY OUT TH E SAME. THAT UNDERTAKING IMPORTED A LIABILITY ON THE APPELLANT WHICH ACCRUED ON THE DATES OF THE DEEDS OF SALE, THOUGH THAT LIABILITY WAS TO BE DISCHARGED AT A FUTURE DATE. IT WAS THUS AN ACCRUED LIABILITY AND THE ESTIMATED EXPENDITURE WHI CH WOULD BE INCURRED IN DISCHARGING THE SAME COULD BE DEDUCTED FROM THE PRO FITS AND GAINS OF THE BUSINESS, AND THE AMOUNT TO BE EXPENDED COULD BE DE BITED IN ACCOUNTS MAINTAINED IN THE MERCANTILE SYSTEM OF ACCOUNTING B EFORE IT WAS ACTUALLY DISBURSED. THE DIFFICULTY IN THE ESTIMATION 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 O F CARRYING ON ITS BUSINESS AND WAS INCIDENTAL TO THE BUSINESS AND, HAVING REGA RD TO THE ACCEPTED COMMERCIAL PRACTICE AND TRADING PRINCIPLES, WAS A D EDUCTION WHICH, IF THERE WAS 55 NO SPECIFIC PROVISION FOR IT UNDER SECTION 10(2) OF THE INCOME-TAX ACT, WAS CERTAINLY AN ALLOWABLE DEDUCTION, ARRIVING AT THE P ROFITS AND GAINS OF THE BUSINESS OF THE APPELLANT, UNDER SECTION 10(I) OF T HE 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 NE CESSARY FOR THE PURPOSE OF EARNING THE RECEIPTS IS DEDUCTED THERE FROM- WHETHE R THE EXPENDITURE IS ACTUALLY INCURRED OR THE LIABILITY IN RESPECT THEREOF HAS AC CRUED EVEN THOUGH 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 O F THE HOUSES AND FLATS WHICH HAS BEEN ACCUMULATED IN THE SCHEMES IS ALSO TO BE RECOGNISED. HOWEVER, IT HAS TO BE NOTED THAT IN C ASE OF CALCUTTA COMPANY LTD VS. CIT (SUPRA) THE ASSESSEE WAS FOLLOW ING MERCANTILE SYSTEM OF ACCOUNTING AND HAD CREDITED WHOLE AMOUNT RECEIVED OR RECEIVABLE TOWARDS SALE OF PROCEEDS I.E. WHY THE AM OUNT STILL TO BE INCURRED ON DEVELOPMENT WAS ALLOWED AS EXPENDITURE BUT STILL THE PRINCIPLE IS THERE. THEREFORE, IN CASE WERE CASH S YSTEM OF ACCOUNTING IS FOLLOWED THEN WHAT EVER EXPENDITURE H AS BEEN INCURRED IN CASH DURING THE YEAR, HAS TO BE ALLOWED. IN THE CASE BEFORE US, THE ASSESSEE HAS NEITHER OFFERED THE INSTALLMENTS A S INCOME NOR CLAIMED EXPENDITURE INCURRED. SINCE WE HAVE ALREAD Y HELD THAT INSTALLMENTS RECEIVED HAVE BEEN RIGHTLY INCLUDED IN THE INCOME OF THE ASSESSEE, THEREFORE, CORRESPONDING EXPENDITURE WHIC H 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 STOC K. IN THE CASH SYSTEM OF ACCOUNTING CLOSING STOCK IS NOT CONSIDERE D, THEREFORE, WHAT HAS BEEN ACCUMULATED IN THE SCHEMES IS ALSO RE QUIRED TO BE CONSIDERED. CONSIDERING THE CONTENTIONS OF THE PAR TIES AND THE PRINCIPLES WE HAVE ALREADY DISCUSSED, WE ARE OF THE OPINION THAT WHATEVER INSTALLMENTS WERE ACCUMULATED IN THE SCHEM ES NEEDS TO BE CONSIDERED ALONG WITH THE OPENING STOCK WHENEVER A PARTICULAR SCHEME WAS COMPLETED. THIS IS SO BECAUSE IT WAS PO INTED OUT BY THE LD. COUNSEL OF THE ASSESSEE THAT THE PROFIT IN EACH OF THE SCHEME WAS OFFERED FOR TAXATION WHEN A PARTICULAR SCHEME W AS COMPLETED. THEREFORE, THE RESULTS OF INDIVIDUAL SCHEMES HAVE TO BE RECALCULATED AND INSTALLMENTS ACCUMULATED SHOULD BE TAKEN AS INC OME AND EXPENDITURE INCURRED AFTER REDUCING THE EXPENDITURE INCURRED IN CASH WHICH HAS BEEN ALLOWED IN VARIOUS YEARS, SHOULD BE REDUCED FROM 56 THE SUCH INSTALLMENTS AND NET RESULTS SHOULD BE CON SIDERED IN THE YEAR OF COMPLETION OF EACH OF THE HOUSING SCHEMES I N THE YEAR IN WHICH PROFITS OF SUCH COMPLETED SCHEME WERE ACTUALL Y OFFERED BY THE ASSESSEE. 72 IN THESE CIRCUMSTANCES WE SET ASIDE THE ORDER O F THE LD. CIT(A) AND DIRECT THE AO TO INCLUDE INSTALLMENTS R ECEIVED ON SALE OF VARIOUS HOUSES AND FLATS UNDER HIRE PURCHASE AGREEM ENT 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 S CHEME EFFECT 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 BASIS AS OBSERVED EARLIER. WE HAVE OBSERVED RIGHT IN BEGINNING THAT THIS ISSUE IS INVOLVED IN A LL THE YEARS BEFORE US THEREFORE, SIMILAR TREATMENT AS OBSERVED BY US, SHOULD BE GIVEN IN EACH OF THE YEAR. 73 GROUND NO. 6 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE ASSESSING OFFICER FROM SCHEDULE G IN RESPECT OF CURRENT A SSETS, LAND AND ADVANCE ANNEXED TO THE BALANCE SHEET THAT THE ASSE SSEE HAS SHOWN AN AMOUNT OF RS. 51,91,164/- WHICH WAS RECEIVED FRO M HIRE PURCHASE DEBTORS BUT NOT SHOWN IN THE INCOME. IN RESPONSE T O THE QUERY IT WAS MAINLY STATED THAT THIS AMOUNT REPRESENTS INSTA LLMENTS RECEIVED FOR PENDING ADJUSTMENTS FOR WHICH PARTICULARS WERE NOT AVAILABLE AND THEREFORE, THEY WERE NOT CREDITED TO A PARTICULAR BUYER. PENDING ADJUSTMENTS THESE AMOUNTS WERE SHOWN UNDER THIS HEA D. THE ASSESSING OFFICER FOLLOWING THE SAME PATTERN AS IN RESPECT OF INSTALLMENTS RECEIVED AGAINST SALE OF HOUSES AND FL ATS HELD THE RECEIPTS ALSO OF THE REVENUE IN NATURE AND SAME WER E ADDED TO THE INCOME OF THE ASSESSEE. 74 ON APPEAL THE LD. CIT(A) ALLOWED THE RELIEF ON T HE SAME BASIS AS IN CASE OF INSTALLMENTS RECEIVED AGAINST SALE OF HOUSES AND FLATS. 75 BEFORE US, THE LD. DR FOR THE REVENUE MADE SIMIL AR ARGUMENTS AS IN RESPECT OF GROUND NO. 5. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE ALSO REITERATED THE ARGUMENTS WHICH WERE MADE IN RESPECT OF GROUND NO. 5. HOWEVER, HE FURTHER SUBM ITTED THAT EVEN IF IT IS HELD THAT INSTALLMENTS ARE TO BE TAXED ON REC EIPT BASIS THEN IT SHOULD BE NOTED THAT NO FRESH INSTALLMENTS ARE RECE IVED IN THE YEAR 57 UNDER CONSIDERATION. IN FACT THIS AMOUNT REPRESENTS THE AMOUNTS RECEIVED IN THE EARLIER YEAR WHICH REMAIN UNRECONCI LED. HE FILED A CHART SHOWING THE POSITION OF INSTALLMENTS ACTUALLY RECEIVED OUT OF TOTAL AMOUNT UNRECONCILED. 76 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. ON PRINCIPLE THE ISSUE REMAINS THE SAME AS IN GROUND NO. 5 AND S INCE THE FACTS AS WELL AS THE ARGUMENTS ARE SAME PRINCIPALLY WE D ECIDE THIS ISSUE AGAINST THE ASSESSEE FOLLOWING OUR DECISION IN GROU ND NO. 5 IN PARA NO. 62 TO 72. HOWEVER, THE CHART REGARDING THESE UN RECONCILED INSTALLMENTS FILED BY THE LD. COUNSEL OF THE ASSESS EE READS AS UNDER: BALANCE AS ON AMOUNT (RS.) FRESH AMOUNT RECDDURING THE YEAR ADDITION MADE BY THE ASSESSING OFFICER MAXIMUM ADDITION THAT CAN BE MADE OF THIS ISSUE 31.3.2003 51,91,164/- NIL 51,91,164 NIL 31.3.2004 53,31,184/- 1,40,620 53,31.784/- 1,40,620 /- 31.3.2005 46,47,780/- NIL 53,31,784/- NIL ABOVE SHOWS THAT SOME OF THE INSTALLMENTS PERTAIN T O EARLIER YEARS. SINCE WE HAVE HELD THAT THE INSTALLMENTS RECEIVED D URING THE YEAR HAVE TO BE ADDED TO THE INCOME WHICH MEANS INSTALLM ENTS RECEIVED EARLIER REMAINING UNRECONCILED CANNOT BE ADDED TO T HE INCOME IN THE LATER YEARS. THEREFORE, WE SET SIDE THE ORDER OF T HE LD. CIT(A) AND REMIT THE MATTER TO THE FILE OF ASSESSING OFFICER W ITH THE DIRECTION TO CONSIDER ONLY THOSE INSTALLMENTS WHICH HAVE BEEN RE CEIVED DURING THE PARTICULAR YEAR AS INCOME OF THE ASSESSEE. 77 GROUND NO. 7 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED FOLLOWING EXPENSES: (I) C.P.F CONTRIBUTION -------- RS. 1,47,00,164/ - (II) INTEREST ON C.P.F CONTRIBUTION RS. 88,82,689 /- (EMPLOYEES SHARE) (III) INTEREST ON C.P.F. CONTRIBUTION -------- RS. 1,15,50,654 (EMPLOYERS SHARE) TOTAL -------- RS.3,51,33,507 HE FURTHER NOTED THAT - (A) AUTHORITY IS DEPOSITING THE EMPLOYEES AND THE EMPLOYER CONTRIBUTION TOWARDS P.F. FOR THE YEAR IN BANK ACCOUNT IN THE FO RM OF BANK FIXED DEPOSIT 58 RECEIPT AFTER FINALIZATION OF THE BALANCE SHEET. P. F. CONTRIBUTION OF 2002-2003 IS YET TO BE DEPOSITED IN SEPARATE BANK ACCOUNT. (B) IN THE ABSENCE OF NON-CREATION OF SEPARATE TRUS T TO WHICH CONTRIBUTION OF BOTH EMPLOYER AND EMPLOYEE ARE MADE PERIODICALLY OR REMITTANCE OF SUCH CONTRIBUTION TO THE EMPLOYEE P.F. ADMINISTRATED BY THE CENTRAL GOVERNMENT RENDERS PUDA P.F. SCHEME AS UNRECOGNIZED. NO. P.F. WAS DEDUCTED / CONTRIBUTED ON THE SALARY OF STAFF WHICH WORK ON CO NTRACT BASIS. IT WAS FURTHER NOTICED THAT THE AUDITORS REPORT CON TAINED FOLLOWING NOTES: (A) AUTHORITY IS DEPOSITING THE EMPLOYEES AND THE EMPLOYER CONTRIBUTION TOWARDS P.F. FOR THE YEAR IN BANK ACCOUNT IN THE FO RM OF BANK FIXED DEPOSIT RECEIPT AFTER FINALIZATION OF THE BALANCE SHEET. P. F. CONTRIBUTION OF 2002-2003 IS YET TO BE DEPOSITED IN SEPARATE BANK ACCOUNT. (B) IN THE ABSENCE OF NON-CREATION OF SEPARATE TRUS T TO WHICH CONTRIBUTION OF BOTH EMPLOYER AND EMPLOYEE ARE MADE PERIODICALLY OR REMITTANCE OF SUCH CONTRIBUTION TO THE EMPLOYEE P.F. ADMINISTRATED BY THE CENTRAL GOVERNMENT RENDERS PUDA P.F. SCHEME AS UNRECOGNIZED. NO. P.F. WAS DEDUCTED / CONTRIBUTED ON THE SALARY OF STAFF WHICH WORK ON CO NTRACT BASIS. FROM THE ABOVE THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE HAS NOT CREATED ANY SEPARATE PROVIDENT FUND WHICH I S APPROVED BY THE PRESCRIBED AUTHORITY AND THEREFORE, PUDA PROVID ENT FUND SCHEME WAS UNRECOGNIZED. SECONDLY PROVIDENT FUND CONTRIBU TION OF THE EMPLOYER AND THE EMPLOYEES WAS BEING DEPOSITED IN T HE FIXED DEPOSIT AND THIRDLY THESE CONTRIBUTIONS WERE NOT BE ING REGULARLY DEPOSITED ON THE DATES OF THEIR RECEIPT BUT WERE BE ING DEPOSITED AFTER FINALIZATION OF THE BALANCE SHEET. THEREFORE , THE ASSESSEE WAS ASKED TO SHOW WHY THESE AMOUNTS SHOULD NOT BE DISAL LOWED PARTICULARLY UNDER THE PROVISIONS OF SECTION 43B. IT WAS STATED THAT PUDA HAS ITS OWN STATUTORY RULES KNOWN AS PUNJAB H OUSING DEVELOPMENT BOARD (PROVIDENT FUND RULES, 1983) AND AS PER THESE RULES FUNDS BELONGING TO THE PROVIDENT FUNDS CAN BE INVESTED IN THE TERM FIXED DEPOSIT WITH THE SCHEDULED BANK. HOWEVE R, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE SUBMISSIONS AND OBSERVED THAT AS PER SECTION 36(1)(IV) OF THE ACT DEDUCTION ON ACCOU NT OF CONTRIBUTION TO PROVIDENT FUND WAS ADMISSIBLE WHEN THE CONTRIBUT ION IS MADE TO A RECOGNIZED PROVIDENT FUND AND THE RECOGNIZED PROVID ENT FUND IS DEFINED IN SECTION 2(38) OF THE ACT WOULD MEAN A FU ND WHICH HAS BEEN RECOGNIZED BY THE CHIEF COMMISSIONER OF INCOME TAX OR COMMISSIONER OF INCOME TAX IN ACCORDANCE WITH THE R ULES MADE UNDER PART A OF FOURTH SCHEDULE. SINCE THE ASSES SEE HAS NOT MADE CONTRIBUTION TOWARDS SUCH APPROVED PROVIDENT FUND A ND THEREFORE, THESE EXPENSES AMOUNTING TO RS. 3,51,33,507/- WERE DISALLOWED. 78 ON APPEAL BEFORE THE LD. CIT(A) IT WAS MAINLY SU BMITTED THAT PROVIDENT FUND OF THE ASSESSEE IS DEEMED TO BE A GO VERNMENT 59 PROVIDENT FUND AND DISALLOWANCE CAN BE MADE ONLY U/ S 40A(9) OF THE ACT, IF POSSIBLE. THE ASSESSING OFFICER HAS NOT IN VOKED THIS SECTION AT ALL. THE DISALLOWANCE HAS BEEN MADE U/S 36(1)(IV ) WHICH IS NOT CORRECT. IT WAS FURTHER POINTED OUT THAT TO PROTEC T THE INTEREST OF THE EMPLOYEES, PUNJAB HOUSING DEVELOPMENT BOARD RULES W ERE FRAMED IN 1983 AND AS PER SECTION 16 OF THESE RULES, STATE GOVERNMENT WAS TO ADMINISTER AND CONTROL PROVIDENT FUND OF THE BOA RD. LATER ON WHEN PUDA WAS FORMED SAID RULES WERE ADOPTED AND BY AN ORDER WHERE WORD BOARD WAS REPLACED WITH THE WORD AUTH ORITY. AS PER THESE RULES AUTHORITY WAS GIVEN THE POWER TO ADMI NISTER THE PROVIDENT FUND. 79 THE LD. CIT(A) DISCUSSED THE SUBMISSIONS ON THE ISSUE IN DETAIL AND ALSO REFERRED TO SECTION 16 OF PUNJAB HOUSING D EVELOPMENT BOARD. HE MAINLY OBSERVED THAT THE ASSESSING OFFICE R HAS IGNORED THE TREATMENT GIVEN TO THE EMPLOYER CONTRIBUTION TO THE PROVIDENT FUND AND EMPLOYEES CONTRIBUTION. ACCORDING TO HIM E MPLOYER CONTRIBUTION TO PROVIDENT FUND WAS DEDUCTIBLE U/S 3 7 BUT IF SAME WAS NOT PAID WITHIN TIME THE PROVISIONS OF SECTION 43B WOULD OVER RIDE SECTION 37. FURTHER THE EMPLOYEES SHARE OF PROVIDE NT FUND IS INITIALLY TREATED AS INCOME U/S 2(24)(X) AND LATER ON WHEN THE SAME IS DEPOSITED, DEDUCTION CAN BE CLAIMED U/S 36(1)(VA ). HE ALSO OBSERVED THAT SECTION 36(1)(VA) DID NOT MENTION ANY THING ABOUT RECOGNIZATION OF THE PROVIDENT FUND. SIMILARLY SE CTION 43B ALSO DOES NOT REFER TO THE RECOGNIZED PROVIDENT FUND. H E ALSO REFERRED TO DECISION OF CIT VS. UJ.J. DECHANE LABS (P) LTD. 216 ITR 383 (AP) WHEREIN IT WAS HELD THAT WHEN PROVIDENT FUND IS DEB ITED UNDER STATUTE NO FURTHER RECOGNIZATION WAS REQUIRED. SIN CE THE ASSESSEE HAD ESTABLISHED PROVIDENT FUND AS PER THE PROVISION S OF LAW THERE WAS NO NECESSITY FOR APPROVAL OF THE COMMISSIONER. FURTHER SINCE THE AMOUNTS HAVE BEEN CREDITED TO THE ACCOUNTS OF T HE EMPLOYEES ON OR BEFORE THE DUE DATE, THE DISALLOWANCE WAS NOT MA INTAINABLE AND ACCORDINGLY HE DELETED THE ADDITION. 80 BEFORE US, THE LD. DR FOR THE REVENUE MAINLY SUB MITTED THAT THE CONTRIBUTION WAS NOT MADE TO APPROVED PROVIDENT FUN D. IT WAS FURTHER SUBMITTED THAT CONTRIBUTIONS WERE NOT DEPOSITED IN A SEPARATE BANK ACCOUNT EVEN AFTER FINALIZATION OF THE ACCOUNTS AS POINTED OUT BY THE AUDITOR IN THE AUDIT REPORT. SHE FURTHER SUBMITTED THAT SECTION 40A (9) NEEDS TO BE SEEN WITH REFERENCE TO SECTION 36(1 )(IV) OF THE ACT. SECTION 40A(9) STARTS WITH NON- OBSTANTE CLAUSE THE REFORE, IT WILL 60 HAVE OVER RIDING EFFECT. SHE REFERRED TO THE PROVI SIONS AND SUBMITTED THAT CONDITION OF SECTION 36(1)(IV) HAS T O BE FULFILLED IN ORDER TO CLAIM THE DEDUCTION ON ACCOUNT OF CONTRIB UTION TO THE PROVIDENT FUND. IN THIS REGARD SHE ALSO RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN CASE OF SHREE SAJJAN MILLS LTD. VS. CIT, 156 ITR 585 (S.C) WHEREIN IT WAS CLEARLY HELD THAT PROVISIONS OF SECTION 40A WOULD HAVE OVER RIDING EFFECT ON THE PR OVISIONS OF ANY OTHER SECTION NOTWITHSTANDING ANYTHING TO THE CONT RARY CONTAINED IN OTHER PROVISIONS OF THE ACT. SHE ALSO REFERRED TO THE DECISION OF HON'BLE ANDHRA PRADESH HIGH COURT IN CASE OF RAASI CEMENT LTD. VS. CIT, 275 ITR 579 (A.P) AND DECISION OF HON'BLE KERALA HIGH COURT IN CASE OF ASPINWALL AND CO. (TRAVANCORE) LTD . VS. DCIT (ASSESSMENT), 295 ITR 553 (KER) WHEREIN IT IS CLE ARLY HELD THAT CONTRIBUTION MADE ONLY TOWARDS RECONGNISED PROVIDEN T FUND U/S 36(1)(IV) OR (V) OR AS REQUIRED BY ANY LAW, IS LIAB LE TO DEDUCTION U/S 40A(9). HOWEVER, HON'BLE CALCUTTA HIGH COURT IN CA SE OF BROOK BOND INDIA LTD. VS. JCIT AND ANOTHER, 337 ITR 482 ( CAL) HAS CLEARLY HELD THAT JOINT READING OF SECTION 36 AND 40A(9) WO ULD SHOW THAT LIABILITY ON ACCOUNT OF CONTRIBUTIONS TOWARDS AN UN APPROVED SUPERANNUATION FUND, WOULD NOT BE ENTITLED TO DEDUC TION. IN ANY CASE THE ASSESSEE IS FOLLOWING THE CASH SYSTEM OF A CCOUNTING AND THEREFORE, THE ASSESSEE CAN CLAIM THE DEDUCTION ONL Y ON ACTUAL PAYMENT. 81 SHE FURTHER STATED THAT THOUGH IT WAS CLAIMED TH AT THE ASSESSEE WAS MAINTAINING A SEPARATE BANK ACCOUNT/FDRS WHERE CONTRIBUTION OF PROVIDENT FUND WAS DEPOSITED BUT READING OF THE BALANCE SHEET WOULD SHOW THAT NO SEPARATE FUNDS OR TRUST HAVE BEE N CREATED AND THE AMOUNTS ARE REFLECTED IN THE BALANCE SHEET OF T HE ASSESSEE ONLY. IN THIS REGARD SHE REFERRED TO THE DECISION OF HON' BLE SUPREME COURT IN CASE OF CIT V. TEXTTOOL CO. LTD. IN CIVIL APPEAL NO. 447 OF 2003 WHEREIN IT WAS HELD THAT THE EMPLOYER SHOULD NOT HA VE CONTROL OVER THE FUNDS CONSISTING OF VARIOUS CONTRIBUTIONS OF TH E EMPLOYEES IN PROVIDENT FUND OR OTHER FUNDS. SINCE THE ASSESSEE HAVE FULL CONTROL OVER THE FUNDS, THEREFORE, THE DEDUCTION WAS NOT A LLOWABLE. WHILE CONCLUDING HER ARGUMENTS, SHE SUBMITTED THAT IN ANY CASE THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING AND THEREFORE, THE DEDUCTION CANNOT BE ALLOWED IF ACTUAL CASH PAYMENT HAS NOT BEEN MADE DURING THE YEAR. 61 82 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT THROUGH A NOTIFICATION GAZETTE ON 12.8.1983 TH E PUNJAB GOVERNMENT IMPLEMENTED THE PROVISIONS OF PROVIDENT FUND ACT, 1925 TO PUNJAB HOUSING DEVELOPMENT BOARD U/S 16 OF PUNJA B HOUSING DEVELOPMENT ACT, 1972. HE REFERRED TO THIS ACT AND POINTED OUT THAT HOUSING BOARD WAS MANDATED BY THE STATE GOVERNMENT TO IMPLEMENT PROVIDENT FUND SCHEME. LATER ON THE ASSESSEE AUTHO RITY I.E. PUDA WAS CONSTITUTED SOMEWHERE IN 1995 AND THE RULES OF THE ERSTWHILE BOARD WERE ADOPTED BY THE PUDA. THEREFORE, THE AS SESSEE WAS GOVERNED BY THE PROVIDENT FUND ACT 1925. HE FURTHER SUBMITTED THAT PART A OF FOURTH SCHEDULE CLEARLY EXCLUDES THE AP PLICATION OF THE RULES CONTAINED IN PART A IN RESPECT OF PROVIDEN T FUND ACT, 1925. THIS MEANS THAT THE ASSESSEE AUTHORITY WAS NOT REQU IRED TO GET ITS PROVIDENT FUND RECOGNIZED FROM THE COMMISSIONER ETC . THEREFORE, CONTRIBUTION MADE BY THE ASSESSEE BY WAY OF EMPLOYE R SHARE AND THE EMPLOYEES SHARE CANNOT BE GOVERNED BY SECTION 36(1) (IV) OR 36(1)(VA) OF THE ACT. THIS POSITION BECOMES CLEAR IF SECTION 40A(9) IS REFERRED TO WHICH PROVIDES FOR DISALLOWANCE OF V ARIOUS CONTRIBUTIONS EXCEPT FOR CONTRIBUTION U/S 36(1)(IV) OR 36(1)(VA) OR BY WAY OF RESIDUARY PROVISION IN RESPECT OF ANY CONTR IBUTION REQUIRED BY ANY OTHER LAW. SINCE CONTRIBUTION TOWARDS PROVIDEN T FUND IN CASE OF THE ASSESSEE IS GOVERNED BY THE PROVIDENT FUND ACT, 1925, THE SAME WOULD BE COVERED BY THIRD EXCEPTION. IN VIEW OF THI S POSITION ASSESSEES CONTRIBUTION IS ALLOWABLE AS BUSINESS EX PENDITURE U/S 37 OF THE ACT. COMING TO THE SECOND ASPECT WHERE THE P ROVIDENT FUND WAS BEING INDEPENDENTLY IMPLEMENTED AND MONITORED H E SUBMITTED THAT AUTHORITY HAD CONSTITUTED A COMMITTEE TO ADMIN ISTER THE PROVIDENT FUND. IN THIS REGARD HE REFERRED TO AN O FFICE ORDER CONSTITUTING THE COMMITTEE. HE ALSO SUBMITTED THAT AS PER SECTION 3 OF THE NOTIFICATION, MONEY BELONGING TO THE FUNDS W ERE REQUIRED TO BE INVESTED EITHER IN THE SECURITIES OF THE NATURE SPE CIFIED ON SECTION 20 OF INDIAN TRUST ACT, 1982 OR IN THE POST OFFICE, SAVING BANK ACCOUNT OR IN TERM DEPOSITS WITH THE SCHEDULED BANK . IN THE CASE BEFORE US, THE MONEY HAS BEEN INVESTED AS FDR, THER EFORE, THAT REQUIREMENT IS ALSO COMPILED. HE SUBMITTED THAT IF THE PAYMENTS ARE MADE BEFORE DUE DATE OF FILING OF RETURN THEN REQUI REMENT OF SECTION 43B WOULD ALSO STAND TO BE COMPLIED. HE REFERRED TO VARIOUS VOUCHERS REGARDING MAKING OF FDRS. HE ALSO RELIED ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF C IT VS. PUNJAB 62 FINANCIAL CORPORATION LTD. 295 ITR 510 AND CIT VS. J & J DECHANE LABS (P) LTD, 216 ITR 383 (A.P) 83 IN THE REJOINDER THE LD. DR FOR THE REVENUE SUBM ITTED THAT IN CASE OF PUNJAB FINANCIAL CORPORATION (SUPRA) THE IS SUE RELATED TO ASSESSMENT YEAR 1977-78 WHEREAS SECTION 40A(9) WAS INSERTED BY FINANCE ACT, 1984 WITH RETROSPECTIVE EFFECT FROM 1. 4.1980 AND THEREFORE, THIS JUDGMENT CANNOT BE RELIED. 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 THROUGH THIS ORDER. THE ASSESSEE AUTHO RITY WAS FORMED 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 NOTIFICATION DATED 12TH AUGUST 1983 (COPY PLACED AT PAPER BOOK AT PAGES 135-136) GOVERN MENT OF PUNJAB MADE CERTAIN RULES FOR PUNJAB HOUSING DEVELOPMENT B OARD THROUGH GSR NO. 70/PA6Z/73/S/98/83.RULE 16 OF THIS NOTIFICA TION READS AS UNDER: PROVIDENT FUND-(1) THE STATE GOVERNMENT SHALL ESTAB LISH A PROVIDENT FUND FOR THE EMPLOYEES OF THE BOARD AND SUCH PROVIDENT FUND SHALL BE DEEMED TO BE A GOVERNMENT PROVIDENT FUND FOR THE PURPOSE OF THE PR OVIDENT FUND ACT, 1925(CENTRAL ACT XIV OF 1925) AND NOTWITHSTANDING A NYTHING 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 FU ND UNDER PROVIDENT FUND ACT, 1925. FURTHER PAGE 152 OF THE P APER BOOK IS COPY OF ANOTHER ORDER OF THE GOVERNMENT OF PUNJAB SHOWING THAT ON CONSTITUTION OF PUNJAB URBAN PLANNING AND DEVELOPME NT AUTHORITY VARIOUS TERMS IN PUNJAB HOUSING DEVELOPMENT BOARD R ULES, 1983 WOULD STAND AMENDED BY SUBSTITUTION OF THE WORDS PUNJAB HOUSING DEVELOPMENT BOARD TO PUNJAB URBAN PLANNING DEVELO PMENT AUTHORITY THIS SHOWS THAT SAME RULES WHICH WERE M ADE FOR PUNJAB HOUSING DEVELOPMENT BOARD WERE ADOPTED FOR THE ASSE SSEE AUTHORITY ALSO. THEREFORE, IT BECOMES CLEAR THAT PROVIDENT FUND ESTABLISHED BY THE ASSESSEE IS GOVERNED BY THE PROVISIONS OF PR OVIDENT FUND ACT, 1925. RULE (1) OF PART A TO THE FOURTH SCHE DULE OF THE ACT READS AS UNDER: 63 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 RUL ES MADE UNDER THE FOURTH SCHEDULE. IN OTHER WORDS, THE PROVISION S REGARDING RECOGNITION OF THE PROVIDENT FUND WOULD NOT BE APPL ICATION TO SUCH FUNDS, THEREFORE, IT DOES NOT MAKE ANY DIFFERENCE WHETHER ASSESSEES PROVIDENT FUND IS RECOGNIZED OR NOT RECO GNIZED. 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 CONTRI BUTION WAS NOT MADE TOWARDS RECOGNIZED PROVIDENT FUND. THIS ALSO LEADS TO THE CONCLUSION THAT SECTION 36(1)(IV) WHICH WAS FOR CON TRIBUTION TOWARDS RECOGNIZED PROVIDENT FUND, IS NOT APPLICABLE. HOWE VER, AS FAR AS SECTION 36(1)(VA) IS CONCERNED, THE SAME IS STILL A PPLICABLE 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 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 THE ASSESSEE TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT 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 EMPLOYEE'S CONTRIBUTION TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND UNDER ANY ACT, RULE, ORDER OR NOTIFIC ATION ISSUED 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 SAM E IS ALLOWED AS DEDUCTION UNDER THIS PROVISION. AT THE SAME TIME R ECEIPT OF SUCH CONTRIBUTION 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, 1948 (34 OF 1948), OR ANY OTHER FUND FOR THE W ELFARE 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 THE REFORE, ANY 64 CONTRIBUTION RAISED FROM THE EMPLOYEE TOWARDS ANY P ROVIDENT FUND WOULD FORM PART OF THE DEEMED INCOME UNDER THIS PRO VISION. IN OUR OPINION, THIS HAS BEEN DELIBERATELY DONE BY THE LEG ISLATURE BECAUSE AS FAR AS EMPLOYEES CONTRIBUTION IS CONCERNED, THE PARLIAMENT WANTED THAT THE SAME SHOULD NOT BE USED BY THE BUSI NESS PEOPLE AND SHOULD BE DEPOSITED WITH THE PROVIDENT FUND AUTHORI TIES AND OR TRUST AT THE EARLIEST AND THAT IS WHY NO DIFFERENCE HAS B EEN MADE BETWEEN RECOGNIZED PROVIDENT FUND OR OTHER FUNDS. FROM THI S IT BECOMES CLEAR THAT AS FAR AS EMPLOYEES CONTRIBUTION IS CON CERNED, THE SAME IS NOT COVERED BY SECTION 36(1)(IV). HOWEVER, AT T HE SAME TIME IT CANNOT BE DENIED THAT THE CONTRIBUTION MADE BY THE ASSESSEE TOWARDS PROVIDENT FUND IS CLEARLY IN THE NATURE OF BUSINESS EXPENDITURE AND THEREFORE, SAME IS ALLOWABLE U/S 37 OF THE ACT WHICH IS RESIDUARY PROVISION. SINCE THE CONTRIBUTION OF EMPLOYER SHARE TOWARDS PROVIDENT FUND IS IN NATURE OF REVENUE EXP ENDITURE AND NOT COVERED BY ANY OTHER PROVISION AS EXPLAINED ABOVE, SAME IS COVERED BY SECTION 37 OF THE ACT. THIS ANALYSIS LEADS TO T HE 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 SA ME 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 CONTR IBUTION TO, ANY FUND, TRUST, COMPANY, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS, SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 (21 OF 1860), OR OTHER INSTITUTION FOR ANY PURPOSE, EXC EPT WHERE SUCH SUM IS SO PAID, FOR THE PURPOSES AND TO THE EXTENT PROVIDED BY OR UNDER 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 FORCE. PLAIN READING OF THIS PROVISIONS SHOWS THAT THE CON TRIBUTION MADE BY AN ASSESSEE AS A EMPLOYER TOWARDS VARIOUS FUNDS FOR THE BENEFIT OF THE EMPLOYEES ARE NOT ALLOWABLE EXCEPT FOR CONTRIBU TION PROVIDED IN THIS SECTION ITSELF. THEREFORE, THE LD. DR FOR TH E REVENUE IS CORRECT THAT CONTRIBUTION WHICH ARE NOT MENTIONED IN THIS S ECTION CANNOT BE ALLOWED BECAUSE THIS PROVISIONS STARTS WITH NON OBS TANTE CLAUSE WHICH IS MADE CLEAR BY STARTING OF SECTION 40A(1) W HICH 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 HEAD 'PROFITS A ND GAINS OF BUSINESS OR PROFESSION'. 65 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 T ERMS OF INDIAN PROVIDENT FUND ACT, 1925, THEREFORE, THIS HAS TO B E READ INTO THE EXCEPTIONS AND ACCORDINGLY FETTER FOR NOT ALLOWING THE DEDUCTION U/S 40A(9) WOULD NOT BE APPLICABLE FOR THE FUNDS CONTRI BUTED TOWARDS PROVIDENT FUND AS THE EMPLOYER SHARE IN TERMS OF I NDIAN 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 BEE N MADE BEFORE THE DUE DATE OF FILING OF RETURN AS PROVIDED IN SEC TION 43B. RELEVANT PORTION 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 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 FUND 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 REGULARLY EMPLOYED BY HIM) ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF T HAT 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-SECTION (1) OF SECTION 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY 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 SECTION PROVIDES FURTHER 66 RESTRICTION ON ALLOWABILITY OF AN EXPENDITURE WHICH ARE OTHERWISE ALLOWABLE U/S 30 TO 44. IN OTHER WORDS EVEN IF AN EXPENDITURE IS ALLOWABLE UNDER VARIOUS PROVISIONS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION THE SAME IS NOT ALLOWA BLE BECAUSE OF SECTION 43B UNLESS SUCH EXPENDITURE IS ACTUALLY PAI D. IN CASE BEFORE US, THE ASSESSEE IS FOLLOWING THE CASH SYSTE M OF ACCOUNTING WHICH WE HAVE ALREADY DISCUSSED WHILE ADJUDICATED G ROUND NO. 5. THEREFORE, ANY EXPENDITURE IN CASE OF THE ASSESSEE HAS TO BE ALLOWABLE ONLY IF ACTUAL CASH HAS BEEN PAID DURING THE YEAR. THEREFORE, IF NO CASH HAS BEEN PAID EXPENDITURE IS NOT ALLOWABLE. NO DOUBT 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 PUNJ AB & HARYANA HIGH COURT IN CASE OF CIT V. NUCHEM LTD. IN ITA NO. 323 OF 2009 FOLLOWING THE DECISION 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 RETU RN THEN THE SAME HAS TO BE ALLOWED. HOWEVER, AS OBSERVED EARLIER TH IS BENEFIT COULD NOT BE GIVEN TO THE ASSESSEE BECAUSE THE ASSESSEE I S FOLLOWING THE CASH SYSTEM OF ACCOUNTING AND ALLOWABILITY OF EXPEN DITURE ITSELF DEPENDS ON ACTUAL CASH PAYMENT. HOWEVER, WE WOULD LIKE TO OBSERVE THAT AT THE BEGINNING OF THIS ISSUE WE HAVE CLEARLY MENTIONED THAT THIS ISSUE RELATES TO MANY YEARS, TH EREFORE, IF THE PAYMENT FOR THIS YEAR WAS MADE IN NEXT YEAR THE SAM E WOULD BE CLEARLY ALLOWABLE IN THE NEXT YEAR. THEREFORE, TH E ASSESSING OFFICER SHOULD EXAMINE THIS ISSUE CLEARLY AND ALLOW THE PAY MENTS ON CASH BASIS EVEN IF THEY RELATE TO EARLIER YEARS. THE LA ST DISPUTE RAISED BY THE REVENUE IS THAT THE ASSESSEE WAS NOT MAINTAININ G SEPARATE BANK ACCOUNTS AND OR FDRS IN THE ACCOUNT IN RESPECT OF PROVIDENT FUND BECAUSE THE SAME HAVE BEEN SHOWN IN THE BALANCE SHE ET. IN THIS REGARD THE LD. DR FOR THE REVENUE HAS RELIED ON THE DECISION OF CIT VS. TEXTOOL CO. LTD (SUPRA). IN THAT CASE THE ASSE SSEE HAD CLAIMED DEDUCTION OF RS. 92,06,978/- AS CONTRIBUTION TOWARD S APPROVED GRATUITY FUND. A SUM OF RS. 50 LAKHS WAS PAID AS I NITIAL CONTRIBUTION AND RS. 5,84,754/- WAS PAID TOWARDS ANNUAL PREMIUM . THE BALANCE OF RS. 36,22,224/- WAS PROVIDED FOR INITIAL CONTRIB UTION. ALL THE SUMS WERE PAID TO LIC. THE QUESTION AROSE WHETHER DIREC T PAYMENT TO LIC WAS COVERED BY SECTION 36(1)(V). IN THIS CONNECTIO N THE HON'BLE SUPREME COURT OBSERVED AS UNDER: 67 HAVING CONSIDERATION THE MATTER IN THE LIGHT OF TH E BACKGROUND FACTS, WE ARE OF THE OPINION THAT THERE IS NO MERIT IN THE AP PEAL. TRUE THAT A FISCAL STATUTE IS TO BE CONSTRUCTED STRICTLY AND NOTHING S HOULD BE ADDED OR SUBTRACTED TO THE LANGUAGE EMPLOYED IN THE SECTION, YET A STRICT CONSTRUCTION OF A PROVISION DOES NOT RULE OUT THE A PPLICATION OF THE PRINCIPLES OF REASONABLE CONSTRUCTION TO GIVE EFFEC T TO THE PURPOSE AND INTENTION OF ANY PARTICULAR PROVISION OF THE ACT (S EE SHRI SAJJAN MILLS LTD. VS. CIT, M.P. & ANR (1985) 156 ITR 585). FROM A BA RE READING OF SECTION 36(1)(V) ;OF THE ACT, IT IS MANIFEST THAT T HE REAL INTENTION BEHIND THE PROVISION IS THAT THE EMPLOYER SHOULD NOT 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 FUNDS WHICH HAS BEEN CONTRIBUTED BY THE ASSESSEE OR THE W ORKERS. IN THIS REGARD THE LD. COUNSEL OF THE ASSESSEE REFERRED TO SECTION 3 OF THE NOTIFICATION 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 DEPOSIT S WITH SCHEDULED BANKS. POST OFFICE NATIONAL SAVING CERTIFICATES OR KEPT AS A DEPOSIT WITH 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 O N 17 TH JULY 1995 VIDE AGENDA ITEM NO. 17 A COMMITTEE, IS HEREBY CONSTITUTED TO ADMINISTER AND MANAGE THE CONTRIBUTORY 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 (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 MAD E 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 ASID E THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO EXAMINE WHETHER PR OVIDENT FUND WAS INDEPENDENTLY MONITORED IN THE LIGHT OF THE DIR ECTIONS ISSUED BY HON'BLE SUPREME COURT IN CASE OF TEXTOOL CO.LTD (SU PRA). 68 86 ANOTHER CONTENTION WAS ALSO RAISED THAT THE FUND S HAVE NOT BEEN INVESTED IN THE LONG TERM FDRS. WE HAVE SEEN VARIOUS NOTES ISSUED BY THE COMMITTEE WHERE FDRS HAVE BEEN MADE ONLY FOR ONE YEAR 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 YEAR. THIS ASPECT ALSO NEED F URTHER EXAMINATION BY THE ASSESSING OFFICER WHERE REGULARL Y FDRS HAVE BEEN MADE FOR A PERIOD OF ONE YEAR OR LONGER PERIO D AND WHERE NO JUSTIFICATION FOR SUCH SHORTER PERIOD IS THERE OR NOT? THEREFORE, THE ASSESSING OFFICER SHOULD EXAMINE THIS MATTER FURTHE R AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. IN THE RESULT, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 87 GROUND NO. 8 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE INTEREST ON FDR AMOUNTING TO RS. 2,24,44,923/- HAS NOT BEEN SHO WN BY THE ASSESSEE AS INCOME ON THE BASIS THAT SAME HAD ACCRU ED BUT NOT RECEIVED. ACCORDING TO THE ASSESSING OFFICER THE I NTEREST INCOME FROM BANK DEPOSITS RELATES TO THE YEAR IN WHICH IT ACCRUES IRRESPECTIVE OF THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE BECAUSE INTEREST IS NOT REQUIRED TO BE SHIFTED FROM BANK TO THE HANDS OF THE ASSESSEE. OTHERWISE A PERSON WHO NEVER WITH DRAWS THE AMOUNT OF INTEREST WOULD NEVER BE TAXABLE. ACCORD INGLY HE ADDED RS. 2,24,44,923/- AS INCOME OF THE ASSESSEE. 88 BEFORE THE LD. CIT(A) IT WAS MAINLY SUBMITTED TH AT AS PER SECTION 145 THE ASSESSEE HAD CHOICE TO MAINTAIN THE BOOKS OF ACCOUNT ON CASH BASIS IN RESPECT OF INCOME UNDER T HE HEAD INCOME FROM BUSINESS OR PROFESSION AS WELL AS THE INCOME FROM OTHER SOURCES. IT WAS FURTHER SUBMITTED THAT AS THE ASS ESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING, THEREFORE, IF INTEREST WAS NOT RECEIVED THE SAME CANNOT BE TAXED IN THIS YEAR. 89 THE LD. CIT(A) FOUND FORCE IN THE SUBMISSIONS BE CAUSE THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING AN D ACCORDINGLY DELETED THE ADDITION. 90 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 91 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT THE ASSESSING OFFICER HAS HIMSELF ACCEPTED THA T THE ASSESSEE 69 WAS FOLLOWING CASH SYSTEM OF ACCOUNTING AND MADE AD DITION IN RESPECT OF INSTALLMENTS RECEIVED ON ACCOUNT OF SA LE OF HOUSES AND FLATS THEN HOW CAN THE ASSESSING OFFICER DENY THE S AME SYSTEM IN RESPECT OF INTEREST ON FDRS. IT WAS FURTHER SUBMI TTED THAT SIMILAR SUBMISSIONS WERE MADE FOR ASSESSMENT YEAR 2004-05 W HICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER AND IN THIS REGARD HE REFERRED TO THE ASSESSMENT ORDER FOR ASSESSMENT YEA R 2004-05 WHEREIN NO ADDITION HAS BEEN MADE ON ACCOUNT OF AC CRUED INTEREST. 92 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. WE HAVE ALSO DISCUSSED THIS ISSUE OF CASH SYSTEM OF ACCOUNTING I N DETAIL WHILE DISCUSSING GROUND NO. 5. IN THAT DISCUSSION WE HAV E ALSO REPRODUCED THE PROVISIONS OF SECTION 145 WHICH MAND ATES THAT THE ASSESSEE CAN FOLLOW EITHER CASH SYSTEM OF ACCOUNTIN G OR MERCANTILE SYSTEM OF ACCOUNTING IN RESPECT OF THE PROFITS AND GAINS OF THE BUSINESS OR PROFESSION AND INCOME OF OTHER SOURCES. THUS THE ASSESSEE HAD RIGHT TO FOLLOW THE CASH SYSTEM OF ACC OUNTING EVEN IN RESPECT OF INCOME TO BE ASSESSED UNDER THE HEAD I NCOME FROM OTHER SOURCES. THOUGH IN THE ASSESSMENT ORDER INCO ME HAS NOT BEEN COMPUTED HEAD-WISE BUT EVEN IF ASSUMING THAT THE INCOME ON ACCOUNT OF INTEREST IS ASSESSED UNDER THE HEAD IN COME FROM OTHER SOURCES EVEN THEN THE ASSESSEE HAD RIGHT TO OFFER THE SAME ON RECEIPT BASIS. THEREFORE, WE FIND NOTHING WRONG IN THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 93 IN THE RESULT, APPEAL IN ITA NO. 762/CHD/2008 I S PARTLY ALLOWED. BEFORE PARTING WITH THIS ORDER, WE WOULD LIKE TO CL ARIFY THAT IN THIS APPEAL, WE HAVE CONFIRMED MANY ADDITIONS AND HAVE A LLOWED RELIEF ON ACCOUNT OF CERTAIN ADDITIONS. SOME OF THE ISSU ES HAVE BEEN REMITTED TO THE ASSESSING OFFICER FOR FRESH DETERMI NATION IN VIEW OF THE DIRECTIONS AND OBSERVATIONS CONTAINED IN VARIOU S PARAS. THE RESULT OF ALL THESE DIRECTIONS WOULD LEAD TO VARIAT ION IN THE INCOME DETERMINED SUBSTANTIALLY, THEREFORE, THE ASSESSING OFFICER IS FURTHER DIRECTED THAT AFTER GIVING EFFECT TO OUR ORDER THE ASSESSING OFFICER SHOULD MAKE IT SURE THAT IN NO CASE THE RESULTANT L OSS SHOULD NOT BE HIGHER THAN THE LOSS RETURNED BY THE ASSESSEE FOR T HIS YEAR. 70 ITA NO. 765/CHD/2008 REVENUES APPEAL FOR 2004-05 94 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) VIDE APPELLATE ORDER NO. 407/P/2006-07 ON 19 .6.2008 HAS ERRED IN DELETING THE DISALLOWANCE MADE AT RS. 3,61,11,651/- ON ACCOUNT OF CPF AND INTEREST ON CPF CONTRIBUTION. THE DISALLOWANCE WS MADE FOR THE REASON THAT THE CONTRIBUTIONS HAVE NEITHER BEEN MAD E TO A PROVIDENT FUND APPROVED BY THE CCIT NOR TO A PROVIDENT FUND ESTAB LISHED UNDER A SCHEME FRAMED UNDER THE EMPLOYEE PROVIDENT FUND ACT , 1952. 3 IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED . 95 AFTER HEARING BOTH THE PARTIES WE FIND THAT THE FACTS AND ARGUMENTS OF BOTH THE PARTIES ARE IDENTICAL TO THE ISSUE RAISED REGARDING DISALLOWANCE ON ACCOUNT OF CONTRIBUTION TO PROVIDENT FUND RAISED IN GROUND NO. 7 IN ASSESSMENT YEAR 2003-04 B Y THE REVENUE WHICH WE HAVE ADJUDICATED ABOVE VIDE PARA NO. 84 TO 86. FOLLOWING THE SAME WE SET ASIDE THE ORDER OF THE LD. CIT(A) A ND REMIT THE MATTER BACK TO THE FILE OF AO TO DECIDE THE ISSUE I N ACCORDANCE WITH THE DIRECTIONS CONTAINED IN THE ABOVE PARA. 96 IN THE RESULT, APPEAL NO. 765/CHD/2008 IS ALLOWE D FOR STATISTICAL PURPOSES. ITA NO. 759/CHD/2008 ASSESSEES APPEAL FOR 2004- 05 97 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS. 6,7 8,007/- ON ACCOUNT OF REGROU0PING/RECLASSIFICATION OF THE ACCOUNTS AS PER FINDINGS GIVEN IN PARA 6 OF THE ORDER. 2 THAT THE LD. CIT(A) HAS ALSO ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS. 5,9 9,52,243/- ON ACCOUNT OF INSTALLMENTS FOR SALE OF HOUSES/FLATS RECEIVED DURING THE YEAR. 3 THAT THE LD. CIT(A) HAS ALSO ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS. 53, 71,784/- TOWARDS INSTALLMENTS RECEIVED PENDING ADJUSTMENTS FROM HIRE PURCHASE DEBTORS. 4 THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE A CTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS. 15, 39,45,370/- BY DISALLOWING 50% OF ADMINISTRATIVE EXPENSES CLAIMED B6YTHE APPELLANT AND TREATING THE SAME AS CAPITAL EXPENDITURE. IN ADDITION TO ABOVE, THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND WHICH READS AS UNDER: 71 THAT THE NOTICE U/S 143(2) AND THE ASSESSMENT ORDE R OF THE ASSESSING OFFICER U/S 143(3) AND CONSEQUENTLY ALL THE CONSEQ UENT ACTIONS THEREOF ARE ILLEGAL, UNJUSTIFIED AND VOID AB-INITIO AS THE ASSESSING OFFICER HAD NOT ACQUIRED VALID JURISDICTION TO ISSUE THE IMPUGN ED NOTICE U/S 143(2) FOR THE YEAR UNDER APPEAL, THERE BEING NO VALID ORD ERS OF THE CONCERNED CIT U/S 127 OF THE INCOME TAX ACT THEREFORE, THE ORDER IS PASSED BY THE ASSESSING OFFICER IS VOID AB INITIO AND NEEDS TO BE QUASHED BY THE INTERFERENCE OF THIS HON'BLE BENCH. 98 IN RESPECT OF THIS ADDITIONAL GROUND, BOTH THE P ARTIES SUBMITTED THAT WHATEVER DECISION IS TAKEN FOR ASSESSMENT YEAR 2003-04 WILL BE APPLICABLE IN THIS YEAR ALSO. 99 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE HAS BEEN ADJUDICATED BY US WHILE DECIDING THE APPEA L FILED BY THE REVENUE IN ITA NO. 762/CHD/2008 WHEREIN THIS ISSUE HAS BEEN DECIDED BY US AGAINST THE ASSESSEE VIDE PARA NO. 18 TO 38. FOLLOWING THAT ORDER WE DECIDED THIS ISSUE AGAINST THE ASSESSEE. 100 GROUND NO. 1 AFTER HEARING BOTH THE PARTIES W E FIND THAT DURING THIS YEAR ALSO THE ASSESSEE HAD FILED REVISE D RETURN. THE ASSESSEE WAS ASKED TO CLARIFY THE VARIATIONS IN THE ORIGINAL RETURN VIS--VIS THE REVISED RETURN. IT WAS MAINLY SUBMITT ED THAT IT WAS DUE TO REGROUPING OF THE ACCOUNTS. VARIATION HAD OCCUR RED BECAUSE OF THE RECLASSIFICATION IN VARIOUS GROUPS BUT TOTALS I N THE FINAL HAD BEEN TALLIED WITH EACH OTHER. FURTHER THAT ACCOUNTS HAD NOT BEEN PREPARED FULLY BY THE TIME THE RETURN WAS TO BE FILED. IT W AS ALSO STATED THAT UPTO ASSESSMENT YEAR 2002-03 THE ASSESSEE WAS EXEMP T U/S 10(20A) AND THEREFORE, IT ONLY RECOGNIZED THE REVE NUE ON SALE OF PLOTS BY DUE DATE OF FILING. THIS REQUIRED CALCULA TION FROM THE INCEPTION OF THE AUTHORITY FOR LAST 20 YEARS AND TO OK SOMETIME BY THE TIME RETURN WAS FILED. FINANCIAL STATEMENTS WERE AL SO VIOLATIVE OF AS 9 BUT THE VIOLATION WAS OF BONA FIDE NATURE WHICH H AS ALSO BEEN MENTIONED BY THE STATUTORY AUDITOR. BASICALLY THE FACT HAS BEEN DISCUSSED DURING THE ASSESSMENT PROCEEDINGS FOR ASS ESSMENT YEAR 2003-04 WHICH HAD IMPLICATIONS IN THIS YEAR ALSO. HOWEVER, THE ASSESSING OFFICER OBSERVED THAT FOR INCREASE OF INC OME FROM SALE OF HOUSES WILL BELONG TO THE YEAR TO WHICH IT PERTAINS AND ACCORDINGLY HE ADDED A SUM OF RS. 6,78,007/- FROM SALE OF HOUSE S AND PLOTS AS INCOME OF THIS YEAR. 101 ON APPEAL, WRITTEN SUBMISSIONS WERE FILED AND THE LD. CIT(A) AFTER CONSIDERING THE SAME DECIDED THE ISSUE VIDE P ARA 6 WHICH IS AS UNDER: 72 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AS WELL AS GONE THROUGH THE ASSESSMENT ORDER. I FIND THAT THE ASSESSING OFFICER HAS NOTED THAT THERE IS SOME INCREASE IN THE INCOME DUE TO REGROUPING OF THE ACCOUNTS. THE ASSES SING OFFICER HAS SPECIFICALLY POINTED OUT THAT THERE IS AN INCREASE OF INCOME FROM THE SALE OF HOU SES. THE ASSESSING OFFICER HAS NOT GIVEN DETAILS AS HOW THE FIGURE OF RS. 678007/- HAS BEEN ARRIVED AT. IN PRINCIPLE, IF THERE IS SOME INCREASE OF INCOME WHICH HAS NOT BEEN SHOWN BY THE ASSESSEE IN ANY OF THE EARLIER ASSESSMENT YEARS DUE TO CERTAIN RECLASSIFICATION OR REARRANGEM ENTS OF THE ACCOUNTS/CHANGED METHOD OF ACCOUNTING, THEN SUCH INCOME SHOULD BE TAXABLE. THE ASSESSING OFFICER IS DIRECTED TO FIND OUT HOW THIS FIGURE HAS BEEN ARRIVED AT AND AFTER ASCER TAINING THE CORRECT FIGURE, THE SAME SHOULD BE ADDED TO THE INCOME OF THE ASSESSEE. IN RESULT, THI S GROUND OF THE ASSESSEE IS DISMISSED. 102 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUB MITTED THAT THE DIFFERENCE HAS ARISEN BECAUSE OF THE REGROUPING OF ACCOUNT AND REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER. IT WAS ALSO EMPHASIZED THAT ADDITION IS TOTALLY ARIBIT RARY AND HAS BEEN MADE WITHOUT PROVIDING BASIS OF MAKING THIS ADDITIO N. 103 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUBMITTED THAT THIS ISSUE IS IDENTICAL TO THE ISSUE AS PER GROUND NO. 4 FOR ASSESSMENT YEAR 2003-04. 104 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AND FIND THAT THE LD. CIT(A) HAS ALREADY DIRECTED THE ASSESSING O FFICER TO VERIFY THE FIGURES OF ADDITION. IN PRINCIPLE THIS ISSUE I S IDENTICAL TO THE ISSUE DECIDED BY US IN RESPECT OF GROUND NO. 4 IN REVENUES APPEAL FOR ASSESSMENT YEAR 2003-04 IN ITA NO. 762/CHD/200 8 WHEREIN WE HAVE DECIDED THIS ISSUE AGAINST THE ASSESSEE VIDE P ARA 51 AND FOLLOWING THE SAME WE FIND NOTHING WRONG IN THE ORD ER OF THE LD. CIT(A) AND CONFIRM THE SAME. 105 GROUND NO. 2 IN THIS YEAR ALSO THE ASSESSING OFFICER HAS BROUGHT INTO AMOUNT OF INSTALLMENTS RECEIVED BY THE ASSESSEE ON ACCOUNT OF SALE OF HOUSES AND FLATS. 106 BOTH THE PARTIES MADE SIMILAR ARGUMENTS AS IN C ASE FOR ASSESSMENT YEAR 2003-04 IN RESPECT OF GROUND NO. 5. 107 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE FACTS IN RESPECT OF THIS ISSUE ARE IDENTICAL TO THE FACTS O F GROUND NO 5 IN APPEAL FILED BY THE REVENUE IN ASSESSMENT YEAR 2003 -04 WHICH WE HAVE ADJUDICATED ABOVE. THIS ISSUE WAS DECIDED IN PARA 62 TO 72 AND FOLLOWING THE SAME ORDER WE DECIDE THIS ISSUE A GAINST THE ASSESSEE. 108 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES W E FIND THAT THE FACTS OF THIS ISSUE ARE IDENTICAL TO THE FACTS OF G ROUND NO. 6 OF 73 REVENUES APPEAL FOR ASSESSMENT YEAR 2003-04 IN ITA NO. 762/CHD/2008. 109 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE FACTS AND THE ARGUMENTS ARE IDENTICAL IN REVENUES APPEAL IN ITA NO. 762/CHD/2008 IN GROUND NO. 6 FOR ASSESSMENT YEAR 20 03-04. THIS ISSUE HAS BEEN DECIDED BY US AGAINST THE ASSESSEE V IE PARA 76. FOLLOWING THAT ORDER WE DECIDE THIS ISSUE AGAINST T HE ASSESSEE. HOWEVER, WE AGAIN CLARIFY AS OBSERVED IN ASSESSMENT YEAR 2003-04 THAT WHATEVER INSTALLMENTS WHICH HAVE BEEN INCLUDED IN THE EARLIER YEAR SHOULD NOT BE INCLUDED AGAIN IN THIS YEAR. 110 GROUND NO. 4 AFTER HEARING BOTH THE PARTIES W E FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE ASSESSEE AUTHORITY WAS IN THE BUSINESS OF ACQUIRING LAND AND DEVELOPING IT AND AFTER DEVELOPMENT THE LAND, SAME WAS SOLD IN AUCTIO N. IT WAS MAINTAINING VARIOUS SECTORS EVEN AFTER COMPLETION, FOR DIFFERENT TIME PERIOD RANGING FROM 5-13 YEARS DEPENDING ON THE SAM E. THAT MEANS THAT MAINTENANCE AND DEVELOPMENT IN RESPECT OF DEVE LOPED SECTORS AND UNDEVELOPED SECTORS WAS BEING DONE BY PUDA. S TAFF AND INFRASTRUCTURE AVAILABLE WITH THE PUDA WAS JOINTLY SHARED BY THE DEVELOPED AND UNDEVELOPED SECTORS. THE ASSESSEE HA D DEBITED ENTIRE COST IN RESPECT OF THIS EXPENDITURE AND CLAI MED THE SAME AS REVENUE EXPENDITURE. THE ASSESSEE WAS ASKED TO BIFU RCATE THESE EXPENSES INTO TWO PARTS I.E. THE EXPENDITURE ON DEV ELOPED AND DEVELOPING SECTOR. IT WAS SUBMITTED THAT AS PER ACC OUNTING STANDARD AS7, GENERAL ADMINISTRATION COST AND FINANCE COST W ERE TO BE ALLOWED AS REVENUE EXPENDITURE. THE ASSESSING OFFI CER NOTED THAT IF THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTIN G WHEREAS AS7 PROVIDES THAT ACCOUNTING FOR SUCH CONTRACT HAS TO B E ON ACCRUAL SYSTEM. THEREFORE, ACCORDING TO HIM THE EXPENSES IN RELATION TO DEVELOPING THE SECTORS WERE TO BE CAPITALIZED. HE FURTHER OBSERVED THAT THE TOTAL ADMINISTRATIVE EXPENSES WERE 34,40,0 2,391/-. SINCE A SEPARATE ADDITION ON ACCOUNT OF CPF CONTRIBUTION WA S MADE AND THIS AMOUNT WAS REDUCED FROM TOTAL EXPENDITURE AND OUT O F BALANCE AMOUNT 50% EXPENDITURE WAS DISALLOWED BEING OF CAPI TAL NATURE. 111 ON APPEAL BEFORE THE LD. CIT(A) IT WAS MAINLY S UBMITTED THAT ADDITION MADE BY THE ASSESSING OFFICER WAS NOT IN A CCORDANCE WITH AS7 AS WELL AS GENERAL ACCOUNTING PRINCIPLES. IT W AS SUBMITTED THAT ADMINISTRATIVE EXPENSES WHICH COULD NOT BE IDENTIFI ED WERE REQUIRED 74 TO BE SHOWN IN THE PROFIT AND LOSS ACCOUNT AND SHOU LD NOT BE MADE AS PART OF THE CONTRACT. 112 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OBSERVED THAT AS PER THE DECISION OF HON'BLE SUPREME COURT IN CAS E OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT, 227 ITR 172 (S.C) ACCOUNTING STANDARD WERE MADE FOR GENERAL GUIDELINE S AND ACCOUNTING PURPOSES AND THE SAME CAN NOT BE USED FO R DETERMINING TAX LIABILITY. HE FURTHER OBSERVED THAT NO PROJECT CAN BE COMPLETED WITHOUT GENERAL ADMINISTRATION EXPENSES AND ACCORDI NGLY CONFIRMED THE ADDITION. 113 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). HE FURTHER SUBMITTED THAT THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTIN G AND THE ASSESSING OFFICER HAS HIMSELF HELD THAT INSTALLMENT S RECEIVED IN CASH ON ACCOUNT OF SALE OF HOUSES AND FLATS UNDER HIRE PURCHASE AGREEMENT WERE TAXABLE WHICH MEANS HE HAS TOTALLY F OLLOWED CASH SYSTEM OF ACCOUNTING AND THEREFORE, HE CANNOT TAKE A U TURN AND DENY THE DEDUCTION ON ACCOUNT OF ADMINISTRATIVE EX PENSES WHICH HAVE BEEN INCURRED IN CASH. ALTERNATIVELY IT WAS S UBMITTED THAT IF THESE EXPENSES ARE HELD TO BE ON CAPITAL ACCOUNT TH EN VALUE OF THE OPENING STOCK AND CLOSING STOCK SHOULD BE ADJUSTED ACCORDINGLY . 114 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUBMITTED THAT ADMINISTRATIVE EXPENSES WERE INCURRED JOINTLY FOR D EVELOPED AND DEVELOPING SECTORS. THE ASSESSING OFFICER HAS ASKE D FOR BIFURCATION OF THE SAME WHICH WAS NOT GIVEN. SHE FURTHER SUBMI TTED THAT EVEN IF THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTIN G AND WHEN THE ASSESSEE WAS NOT SHOWING RECEIPT FROM A PARTICULAR PROJECT THEN THE EXPENSES AGAINST THE SAME COULD NOT BE ALLOWED. 115 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. WE HAVE ALREADY DISCUSSED THE IMPLICATIONS OF CASH SYSTEM O F ACCOUNTING WHILE ADJUDICATING GROUND NO. 5 OF REVENUES APPEAL IN ITA NO. 762/CHD/2008. BASICALLY ONCE THE CASH SYSTEM OF AC COUNTING IS FOLLOWED THEN ALL RECEIPTS WHICH RELATE TO THE REVE NUE FILED, HAVE TO BE TAXED. SIMILARLY 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 THEREFORE, A DMINISTRATIVE EXPENSES INCURRED IS CLEARLY IN THE FIELD OF REVENU E. FURTHER THE 75 ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING, T HEREFORE, ONCE CASH HAS BEEN SPENT OR OUTGONE FROM THE ASSESSEE SA ME HAS TO BE TREATED AS EXPENDITURE. THEREFORE, WE SET ASIDE T HE ORDER OF THE LD. CIT(A) AND DELETE THE ADDITION. 116 IN THE RESULT, ITA NO. 759/CHD/208 IS PARTLY AL LOWED. ITA NO. 769/CHD/2008 REVENUES APPEAL FOR 2005-06 117 IN THIS APPEAL THE REVENUE HAS RAISED FOLLOWING EFFECTIVE GROUNDS: 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND LAW, THE LD. CIT(A) VIDE APPELLATE ORDER NO. 361/P/2007-08 ON 20 .6.2008 HAS ERRED IN DELETING EH DISALLOWANCE MADE AT RS. 38248714/- ON ACCOUNT OF CPF AND INTEREST ON CPF CONTRIBUTION. THE DISALLOWANCE WAS MADE FOR THE REASON THAT THE CONTRIBUTIONS HAVE NEITHER BEEN MADE TO A PROVIDENT FUND APPROVED BY THE CHIEF COMMISSIONER OR C.I.T. NOR TO A PROVIDENT FUND ESTABLISHED UNDER A SCHEME FRAMED UNDER THE EMPLOYE E PROVIDENT FUND ACT, 1952. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE AT RS. 20723700/- ON ACCOUNT OF DEPRECIATION, DESPITE THE FACT THAT THE ASSESSEE DOES NOT FULFILLED THE CONDITIONS AS LAID DOWN IN SECTION 32 REGARDING OWNERSHIP OF LAND AND THE COST OF LAND ON WHICH BUILDING ERECTED AND THE TIME WHEN THESE LANDS WERE ACQUIRED, THE ASSESSEE IS NOT ELIG IBLE FOR CLAIM OF DEPRECIATION. 118 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES W E FIND THAT THIS ISSUE IS IDENTICAL TO THE ISSUE RAISED BY THE REVEN UE IN GROUND NO. 7 IN ITA NO. 762/CHD/2008 FOR ASSESSMENT YEAR 2003-04 WHICH WE HAVE ADJUDICATED ABOVE. SINCE THE FACTS AS WELL AS THE ARGUMENTS OF BOTH THE PARTIES REMAINED SAME, WE DECIDE THIS ISSU E FOLLOWING OUR ORDER IN ITA NO. 762/CHD/2008 AT PARA 84 TO 86 AND THE ISSUE IS REMITTED BACK TO THE FILE OF ASSESSING OFFICER WITH SIMILAR DIRECTIONS. 119 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES W E FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON FLATS/SCOS/BOOTHS AS WE LL AS PUDA BUILDING AT SECTOR 62, MOHALI AND PUDA BUILDING AT LUDHIANA, PUDA BUILDING AT PATIALA, COMMUNITY CENTRE, SWIMMING POO L AND STORE SHED. THE ASSESSEE WAS ASKED TO CLARIFY WHETHER THE COST OF ABOVE SITES INCLUDES THE COST OF LAND OR NOT? THE ASSESSE E WAS FURTHER ASKED TO CLARIFY IF THE COST OF LAND IS NOT INCLUDE D IN THE BUILDING THEN THE DETAIL OF COST OF LAND BE MENTIONED SEPARATELY. IN RESPONSE IT WAS STATED THAT COST OF LAND IS NOT INCLUDED IN THE BUILDING, ON WHICH DEPRECIATION HAS BEEN CLAIMED. HOWEVER, THE ASSESS ING OFFICER 76 AFTER EXAMINING THESE DETAILS NOTED THAT IN THE BAL ANCE SHEET TOTAL ASSETS HAVE BEEN GROUPED UNDER FOUR HEADS I.E. FIXE D ASSETS IN SCHEDULE E, WORKS EXECUTED IN SCHEDULE F, OUVGL WORKS IN SCHEDULE F-1 AND CURRENT ASSTS AND LOAN AND ADVANCE S IN SCHEDULE G. AS PER SCHEDULE G CLOSING STOCK OF ONLY BUI LDING MATERIAL, STOCK IN TRANSIT, STOCK IN TRADE (BUILT UP HOUSES) AND STOCK IN TRADE (PLOTS) ARE GIVEN. THERE IS NO MENTION OF LAND IN THE CLOSING STOCK AS MENTIONED BY THE ASSESSEE IN ITS REPLY. THEREFO RE, THE ASSESSEE WAS ASKED WHY THE COST OF LAND IS NOT INCLUDED IN T HE BUILDING WHEN SUCH LAND HAS NOT BEEN ACCOUNTED FOR SEPARATELY. A FTER VARIOUS OPPORTUNITIES IT WAS STATED IN THE LETTER DATED 17. 12.2007 THAT ALL THE LANDS ON WHICH BUILDINGS IN QUESTION HAVE BEEN CONS TRUCTED ARE UNDER THE OWNERSHIP OF PUDA. ALL SUCH LANDS WERE AC QUIRED BEFORE 31.3.2000 AND MOST OF THEN WERE ACQUIRED DURING THE EXISTENCE OF HOUSING DEVELOPMENT BOARD PRIOR TO 1995 WHEN THE AUTHORITY WAS FORMED AND TOOK OVER THE FIGURES SHOWN BY PUNJAB HO USING DEVELOPMENT BOARD. NO OTHER REPLY WAS FILED. ON T HE BASIS OF THIS DISCUSSION IT WAS CONCLUDED THAT THE LAND HAS BEEN INCLUDED IN THE BUILDINGS AND SINCE THE DEPRECIATION IS NOT ALLOWA BLE ON THE LAND, THEREFORE, DEPRECIATION CLAIMED DURING THE YEAR AM OUNTING TO RS. 2,07,23,700/- WAS ADDED TO THE INCOME OF THE ASSESS EE. 120 ON APPEAL BEFORE THE LD. CIT(A) IT WAS SUBMITTE D AS UNDER: VIDE ORDER OF GOVT. OF PUNJAB AND ASSENT OF PRESID ENT OF INDIA, ALL THE ASSETS PERTAINING TO URBAN ESTATES GOT TRANSFERRED TO PHDB . PHDB LATER ON BECAME PUDA IN 1995. VIDE CHAPTER V, THE LANDS VESTED IN T HE AUTHORITY. THE COPY OF RELEVANT ORDER AND PORTION OF PUDA ACT HAS ALREADY BEEN SUBMITTED WITH THE APPEAL FOR THE EARLIER A.Y. 2004-05 TO YOUR HONOUR . FROM THIS THE OWNERSHIP OF LANDS GETS ESTABLISHED. IT IS FURTHER SUBMITTED THA T ALMOST ALL THE BUILDINGS IN QUESTION HAVE BEEN CONSTRUCTED ON LANDS VESTED IN T HE AUTHORITY THROUGH THIS ROUTE AND THE AUTHORITY HAS PAID NOTHING FOR ACQUIR ING THESE LANDS. A ALL THE LANDS ON WHICH THE BUILDINGS IN QUESTION HAVE BEEN CONSTRUCTED ARE UNDER THE OWNERSHIP OF PUDA. HENCE THE CLAIM OF DEPRECIATION ON BUILDING IS LEGITIMATE. B ALL LANDS ON WHICH THE BUILDINGS IN QUESTION HAV E BEEN CONSTRUCTED HAVE BEEN ACQUIRED BEFORE 31.03.2000. M OST OF THE LANDS HAVE BEEN ACQUIRED DURING THE TENURE OF HOUSING DEVELOPM ENT BOARD PRIOR TO 1995. IN 1995, WHEN THE AUTHORITY WAS FORMED, THE AUTHORI TY TOOK OVER THE FIGURES OF PHDB AS ITS BALANCES IN CONSONANCE WITH PUDA ACT AN D GOVT NOTIFICATION FOR TAKEOVER OF ASSETS AND LIABILITIES OF PHDB. HENCE T HE CLAIM OF DEPRECIATION ON BUILDING IS LEGITIMATE. SINCE THE LAND PORTION ON WHICH BUILDINGS IN QUESTI ON HAVE BEEN ERECTED HAVE NOT BEEN CHARGED TO THE PROFIT & LOSS ACCOUNT OF TH E AUTHORITY DURING THE YEAR IN QUESTION OR DURING THE LAST 7 YEARS, NO QUESTION OF UNDERSTATEMENT OF INCOME COULD BE CONCEIVED. THE AMOUNT INCLUDED IN THE BALANCE SHEET IN SCHEDUL E E UNDER THE HEAD PUDA BUILDING AT MOHALI, LUDHIANA AND PATIALA REPRESENTS ONLY THE AMOUNT OF CONSTRUCTION OF SUCH BUILDINGS. IT DOES NOT INCLUDE ANY COST OF LAND. THE LAND VALUE WAS TAKEN AS ZERO IN THIS CASE AS THE CONCERN ED LAND WAS TRANSFERRED 77 AUTHORITY NAMELY PHDB & DIRECTORATE OF HOUSING & UR BAN DEVELOPMENT ETC. THESE LAND WAS TRANSFERRED BY THE ORDER OF THE GOVT . AND PUDA HAS NOT BOOKED ANY AMOUNT AS COST OF SUCH LAND. THE AMOUNT DEPICTE D IN THE BALANCE SHEET IS ONLY THE COST OF CONSTRUCTION MET BY THE PUDA. THUS THE QUESTION OF THE INCLUSION OF SUCH ELEMENT OF COST IN THE HEAD BUILD INGS AND THEREAFTER CLAIMING DEPRECIATION ON SUCH AMOUNT DOES NOT ARISE AS SUCH DEPRECIATION HAS NOT BEEN CLAIMED ON THE LAND VALUE. AS IT IS NOT INCLUDED IN THE BUILDING HEAD AS EXPLAINED EARLIER. THE DEPRECIATION RELATES ONLY TO THE BUILDING PORTION THE CONSTRUCTION COST OF WHICH IS MET BY PUDA. THUS THE ACTION OF THE LD. A.O. OF DISALLOWANCE OF DEPRECIATION WORTH RS. 20723700/- IS INCORRECT AND AGAINST THE FACT OF THE CASE AND LIABLE TO BE DELETED. 121 THE LD. CIT(A) FOUND FORCE IN THE SUBMISSIONS A ND ALLOWED THE DEPRECIATION. 122 BEFORE US, THE LD. DR FOR THE REVENUE MAINLY SU BMITTED THAT THE ASSESSEE HAS NOT FILED ANY DETAILS SHOWING COST OF LANDS AND SAME WERE NOT INCLUDED IN THE BUILDING AND IN THE ABSENC E OF SUCH DETAILS, THE LD. CIT(A) HAS ERRED IN ALLOWING DEPRECIATION. 123 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSE SSEE SUBMITTED THAT IN FIXED ASSET ONLY BUILDINGS HAVE BEEN CAPITA LIZED. MOST OF LAND BASICALLY WAS INHERITED FROM PUNJAB HOUSING DE VELOPMENT BOARD AND IT IS INCLUDED IN THE VARIOUS CLAIMS WHIC H WAS PERMITTED BY THE AUTHORITIES. THEREFORE, THE LD. CIT(A) WAS CORRECT IN GRANTING DEPRECIATION. 124 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE LD. CIT(A) HAS ADJUDICATED THIS ISSUE VIDE PARA 19 WHIC H 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 DEVELOPME NT AND PUNJAB HOUSING DEVELOPMENT BOARD. THE ASSETS WERE TAKEN OVER BY PUDA. ONCE ALL THE ASSETS ARE TAKEN BY PUDA, THEN IT IS UNDERSTOOD THAT THE ASSETS BELONG TO THE ASSESSEE. IN THE WRITTEN SUBMISSION, IT HAS BEEN CATEGORICALLY STATED THAT IN THE PUDA BUILDING, TH ERE IS NO INCLUSION OF ANY COST OF LAND. THE DEPRECATION AMOUNT ONLY RELATES TO THE COST OF CONS TRUCTION. IN MY CONSIDERED OPINION, THE ASSESSING OFFICER HAS NOT JUSTIFIED IN DECLINING TH E DEPRECIATION. THE ASSESSEE IS ALLOWED TO CLAIM THE DEPRECIATION. THUS, THIS GROUND OF APPEAL IS AL LOWED. IN OUR OPINION, THE LD. CIT(A) HAS CORRECTLY ADJUDI CATED THIS ISSUE. THE REVENUE HAS NOT SHOWN ANYTHING TO PROVE THAT TH E VALUE OF THE LAND WAS ALSO INCLUDED IN THE COST OF BUILDING, WHE N THE FIRST APPELLATE AUTHORITY HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, THE BURDEN WAS 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 LARGE CHUNKS OF LAND AND IT IS NOT POSSIBLE TO IDENTIFY ONLY PLOTS USED FOR BUILDINGS FOR CAPITALI ZATION AND THEREFORE, THERE IS MERIT IN THE ARGUMENT THAT VALUE OF LAND W AS CONSIDERED IN 78 VARIOUS SCHEMES. IN THESE CIRCUMSTANCES, WE FIND N OTHING WRONG WITH THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SA ME. 125 IN THE RESULT, ITA NO. 769/CHD/2008 IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ITA NO. 760/CHD/2008 ASSESSEES APPEAL FOR 2005- 06 126 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS: 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APPE ALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDIT ION OF RS. 4,90,51,888/- ON ACCOUNT OF INSTALLMENTS FOR SALE OF HOUSES/FLATS RECEIVED DURI NG THE YEAR. 2. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APPE ALS) HAS ALSO ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDIT ION OF RS. 46,47,680/- &6,84,104/- TOWARDS INSTALLMENTS RECEIVED OF PENDING ADJUSTMENTS FROM H IRE PURCHASE DEBTORS. 3. THAT THE WORTHY CIT(APPEALS) HAS ERRED IN CONFIR MING THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS. 18,87,02,121/- BY DIS ALLOWING 50% OF ADMINISTRATIVE EXPENSE CLAIMED BY THE APPELLANT AND TREATING THE SAME AS C APITAL EXPENDITURE. 4. THAT THE LD. CIT(APPEALS) HAS ERRED IN CONFIRMIN G THE ADDITION OF RS. 3,63,74,569/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LEGITIMATE C LAIM OF ASSESSEE OF BAD DEBTS U/S 36 OF THE ACT. 5. THAT THE LD. ASSESSING OFFICER HAS ERRED IN CONF IRMING THE ADDITION OF RS. 84,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF CLAIM OF LEGAL EXPENSES BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 6. THAT ADDITION AS PER ABOVE PARAS HAS BEEN CONFIR MED BY THE LD. CIT(APPEALS) AGAINST HE FACTS AND CIRCUMSTANCES OF THE CASE AND WITHOUT CON SIDERING OUR SUBMISSION PROPERLY. 127 OUT OF ABOVE GROUNDS, GROUND NO. 5 WAS NOT PRES SED AND HENCE THE SAME IS DISMISSED AS NOT PRESSED. 128 GROUND NO. 1 AFTER HEARING BOTH THE PARTIES W E FIND THAT THE FACTS IN RESPECT OF THIS ISSUE ARE IDENTICAL TO TH E FACTS IN RESPECT OF GROUND NO. 5 IN REVENUES APPEAL IN ITA NO. 762/CHD /2007 FOR ASSESSMENT YEAR 2003-04. SINCE THE FACTS AND ARGUM ENTS OF BOTH THE PARTIES ARE IDENTICAL AND THE SAME WAS DECIDED VIDE PARA 62 TO 72 AGAINST THE ASSESSEE VIDE OUR ORDER IN REVENUES APPEAL FOR ASSESSMENT YEAR 2003-04 IN ITA NO. 762/CHD/2007. FO LLOWING THE SAME WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 129 GROUND NO. 2 - THE FACTS IN RESPECT OF THIS IS SUE ARE IDENTICAL TO THE FACTS IN RESPECT OF GROUND NO. 6 IN REVENUE S APPEAL IN ITA NO. 762/CHD/2007 FOR ASSESSMENT YEAR 2003-04. THIS ISSUE HAS BEEN DECIDED BY US VIDE PARA 76 IN ITA NO. 762/CHD/ 2007. FOLLOWING THE SAME WE REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER WITH SIMILAR DIRECTIONS AS IN PARA NO. 76 O F ITA NO. 762/CHD/2007. 79 130 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES W E FIND THAT THE FACTS IN RESPECT OF THIS ISSUE ARE IDENTICAL TO TH E FACTS IN RESPECT OF GROUND NO. 4 IN ASSESSEES APPEAL IN ITA NO. 759/C HD/2008 FOR ASSESSMENT YEAR 2004-05. SINCE THE FACTS AND ARGUM ENTS OF BOTH THE PARTIES ARE IDENTICAL. THIS ISSUE HAS BEEN DECI DED BY US IN FAVOUR OF THE ASSESSEE VIDE PARA NO. 115 AND FOLLO WING THE SAME WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 131 GROUND NO. 4 AFTER HEARING BOTH THE PARTIES W E FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED A SUM OF RS. 3,63,74,569/- AS BAD DEBT. THIS AMOUNT WAS RECOVERABLE ON ACCOUNT OF 50% OF THE SALARY PA YABLE TO THE EMPLOYEES OF ERSTWHILE URBAN ESTATE DEPARTMENT WHIC H WAS MERGED WITH PUDA. IN RESPONSE TO THE QUERY RAISED IT WAS SUBMITTED THAT THIS AMOUNT REPRESENTED RECOVERABLE ON ACCOUNT OF ESTABLISHMENT AND CONTINGENCY EXPENSES FROM ASSESSMENT YEAR 1992- 93 TO 1998- 99 WHEN THE URBAN ESTATE DEPARTMENT WAS CONTINUING. DEPARTMENT OF HOUSING, GOVERNMENT OF PUNJAB HAS AGREED TO PAY 50% OF SALARY OF THE DEPARTMENT OF URBAN ESTATE STAFF, THEREFORE, T HIS AMOUNT WAS SHOWN RECOVERABLE UNDER THE MERCANTILE METHOD BY CR EDITING THE SALARY PROVISION ACCOUNT. THE ASSESSING OFFICER DI D NOT FIND FORCE IN THESE SUBMISSIONS BECAUSE ACCORDING TO HIM ONCE THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING, THEREFORE, IT CANNOT BE SAID TO HAVE BEEN ANY OUTGOING DURING THE YEAR. THEREFORE, THIS AMOUNT WAS HELD NOT TO BE ALLOWABLE. 132 ON APPEAL IT WAS MAINLY STATED THAT THE AMOUNT CLAIMED, WAS WRITTEN OFF AND WITHOUT VERIFYING WHETHER THE ASSES SEE HAD REALLY SHOWN INCOME IN THE EARLIER ASSESSMENT YEAR WHEN TH E ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE SAME WERE WRITTEN OFF WHEN THE GOVERNMENT OF PUNJAB WAS NOT R EADY TO PAY THE SAME. THE LD. CIT(A) DID NOT FIND FORCE IN THESE S UBMISSIONS AND OBSERVED THAT IT COULD NOT BE VERIFIED THAT THE ASS ESSEE HAS REALLY SHOWN INCOME IN THE EARLIER ASSESSMENT YEAR. HE ALS O REFERRED TO THE DECISION OF HON'BLE MADRAS HIGH COURT IN CASE O F SOUTH INDIA SURGICAL CO..LTD. VS. ACIT, 287 ITR 62 (MAD) WHEREI N IT WAS HELD THAT THE DEBTS FROM THE GOVERNMENT CANNOT BE WRITTE N OFF AND ULTIMATELY CONFIRMED THE DISALLOWANCE. 133 BEFORE US, IT WAS MAINLY ARGUED THAT THE ASSESS EE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING IN THE EA RLIER YEARS WHEN 80 URBAN ESTATE DEPARTMENT WAS MERGED WITH PUDA I.E. T HE ASSESSEE AND AT THAT TIME IT WAS AGREED THAT 50% OF THE COST OF THE SALARY TO BE PAID TO THE EMPLOYEES OF ERSTWHILE URBAN ESTATE DEPARTMENT WOULD BE RECOVERABLE BY PUDA FROM PUNJAB GOVERNMENT . ACCORDINGLY AT THAT TIME A PROVISION OF 50% OF SALA RY OF URBAN ESTATE DEPARTMENT WAS MADE BY CREDITING THE SALARY ACCOUNT AND SHOWING IT RECEIVABLE FROM PUNJAB GOVERNMENT IN THE BALANCE SH EET. HOWEVER, TILL DATE NOTHING WAS RECEIVED FROM THE GOVERNMENT DESPITE BEST EFFORTS. THEREFORE, IT WAS DECIDED BY THE COMMITTE E OF SECRETARIES TO WRITE OFF THIS AMOUNT. IT WAS CONTENDED THAT AFT ER THE AMENDMENT IN SECTION 36(1)(VII) W.E.F. 1.4.1989 THE ONLY REQU IREMENT FOR CLAIMING BAD DEBT IS THAT THE SAME SHOULD HAVE BEEN WRITTEN OFF. IN THIS REGARD RELIANCE WAS PLACED ON VARIOUS CASE LAW S INCLUDING THE DECISION OF HON'BLE SUPREME COURT IN CASE OF TRF LT D. VS. CIT, 323 ITR 397.(S.C). IT WAS FURTHER SUBMITTED THAT THE D ECISION OF HON'BLE MADRAS HIGH COURT HAS BEEN WRONGLY RELIED BY THE LD . CIT(A) BECAUSE IN THAT CASE, IT WAS HELD THAT IT WAS NOT S UFFICIENT FOR MAKING A CLAIM THAT A BAD DEBT HAS BEEN WRITTEN OFF PARTIC ULARLY IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT. 134 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUBMITTED THAT FOR MAKING A CLAIM FOR BAD DEBT FIRST IT HAS TO BE PROVED THAT SAME HAS BEEN ACCOUNTED FOR COMPUTING THE INCOME OF THE EARLIER YEAR AND THE ASSESSEE HAS NOT PROVED THAT THIS AMOUNT WAS AC COUNTED FOR U/S 36(2)((I) OF THE ACT. FURTHER THE ASSESSEE WAS FOL LOWING THE CASH SYSTEM OF ACCOUNTING, THEREFORE, UNLESS AND UNTIL REAL OUTGOING OF CASH HAPPENS SAME CANNOT BE ALLOWED. FURTHER THE D ECISION OF HON'BLE MADRAS HIGH COURT HAS BEEN CORRECTLY RELIED ON BY THE LD. CIT(A) BECAUSE WHAT IS ALLOWABLE U/S 36(1)(VII) IS BAD DEBT AND ONLY BECAUSE IT WAS HELD THAT A DEBT FROM GOVERNMENT DEP ARTMENT CANNOT BE CONSTRUED TO BE BAD DEBT. 135 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AND AGREE WITH THE SUBMISSIONS OF THE LD. DR FOR THE REVENUE. FIR ST OF ALL IT IS NOT CLEAR HOW THE SALARY WAS PAYABLE AT THE TIME OF MER GER OF URBAN ESTATE DEPARTMENT WITH THE ASSESSEE AUTHORITY. NOR MALLY THE SALARY WOULD BE PAID FROM MONTH TO MONTH AND THERE CANNOT BE ANY OUTSTANDING SALARY. IF SOME ARREARS OF SALARY ARE T HERE THEN QUESTION ARISES WHETHER THEY WERE BOOKED BY THE ASSESSEE AS EXPENDITURE OR NOT, IS ALSO NOT CLEAR. IF IT A MERE CASE OF TAKIN G OVER A LIABILITY FOR WHICH NO EXPENDITURE HAS BEEN BOOKED THEN IT WOULD BE A SIMPLE 81 CASE THAT LIABILITY WITHOUT ANY RECOVERY FROM THE GOVERNMENT HAS BEEN MET WHICH CANNOT BE TREATED AS BAD DEBT BECAUS E THE SAME DOES NOT COMPLY WITH THE REQUIREMENT OF SECTION 36( 2)(I) FOR CLAIM OF BAD DEBT. THIS PROVISION MAKES IT CLEAR THAT FOR C LAIM OF BAD DEBT IT HAS TO BE SHOWN THAT IN THE EARLIER YEAR THE SAME HAS BEEN ACCOUNTED FOR WHILE COMPUTING THE PROFITS. IN OTHE R WORDS, IN A PARTICULAR YEAR IF A TRADER SELLS THE GOODS ON CRED IT BASIS AND CREDIT SALES CANNOT BE RECOVERED FROM THE CUSTOMERS THEN I T CAN BE SAID THAT THE SALE OF THE GOODS HAVE BEEN RECORDED AND C ONSIDERED FOR THE COMPUTATION OF INCOME AND IN LATER YEARS THIS A MOUNT IS NOT RECOVERABLE FROM THE CUSTOMER, THE SAME CAN BE SAID TO BAD DEBT. BUT THE SITUATION BEFORE US IS TOTALLY DIFFERENT. THE SALARY WAS PAYABLE BY URBAN ESTATE DEPARTMENT AND ASSESSING AU THORITY HAS TAKEN OVER LIABILITY WITHOUT ANY DETAILS TO SHOW WH ETHER THE EXPENDITURE WAS BOOKED BY THE AUTHORITY OR NOT? T HEREFORE, FIRSTLY IT CANNOT BE SAID THAT THE AMOUNT INVOLVED IN THE C LAIM OF BAD DEBT HAS REALLY BEEN CONSIDERED FOR CALCULATING THE INCO ME IN THE EARLIER YEARS. 136 SECONDLY SECTION 36(1)(VII) PROVIDES FOR ALLOWI NG OF CLAIM OF BAD DEBT WHICH MEANS GOOD DEBT CANNOT BE WRITTEN OF F. NO DOUBT AFTER THE AMENDMENT FROM 1.4.1989 THE CLAIM FOR BAD DEBT CAN BE MADE MERELY BY WRITING OFF THE AMOUNT WHICH HAS BEC OME BAD BUT THIS CLAIM CANNOT BE MADE BY WRITING OFF THE GOOD DEBT. IN CASE OF SOUTH INDIA SURGICAL CO.LTD. VS. ACIT, 287 ITR 62 ( MAD) THE ASSESSEE WAS CARRYING ON THE BUSINESS OF MANUFACTUR ING AND MARKETING OF SURGICAL INSTRUMENTS. THE ASSESSEE HA S SOLD THE GOODS TO GOVERNMENT HOSPITALS DURING THE YEAR AND MADE TH E CLAIM FOR BAD DEBTS. IT WAS OBSERVED THAT CONCERNED HOSPITAL HAS IN FACT DELAYED THE PAYMENT OF DUES TO THE ASSESSEE ON ACCOUNT OF P AUCITY OF FUNDS AND THE CLAIM WAS NOT PAID DURING THE YEAR. THERE FORE, SUCH CLAIM CANNOT BE SAID TO HAVE BECOME BAD. IN OUR OPINION, THIS DECISION IS STILL VALID BECAUSE WHAT CAN BE WRITTEN OFF IS ONLY BAD DEBT AND NOT GOOD DEBT. IN VIEW OF THIS DISCUSSION, WE FIND NOTH ING WRONG IN THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 137 IN THE RESULT, ITA NO. 760/CHD/2008 IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ITA NO. 744/CHD/2009 REVENUES APPEAL FOR 2006-0 7 82 138 IN THIS APPEAL THROUGH GROUND NO. 2 WHICH IS TH E EFFECTIVE GROUND THE REVENUE HAS RAISED TWO ISSUES NAMELY (I) DELETION OF ADDITION AMOUNTING TO RS. 5,42,40,683/- ON ACCOUNT OF CONTRIBUTION TO CPF AND (II) DELETION OF ADDITION ON ACCOUNT OF DEPRECIATION AMOUNTING TO RS. 2,14,17,794/-. 139 FIRST ISSUE AFTER HEARING BOTH THE PARTIES WE FIND THAT THE FACTS RELATING TO THIS ISSUE ARE IDENTICAL TO THE F ACTS OF GROUND NO. 7 IN REVENUES APPEAL FOR ASSESSMENT YEAR 2003-04 IN ITA NO. 762/CHD/2008. SINCE THE FACTS AND ARGUMENTS OF BO TH THE PARTIES ARE IDENTICAL, FOLLOWING THAT ORDER IN PARA NO. 84 TO 86 WE SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICER WITH SIM ILAR DIRECTIONS IS CONTAINED IN ABOVE NOTED PARAS. 140 SECOND ISSUE AS FAR AS SECOND ISSUE IS CONCER NED, THE FACTS ARE IDENTICAL TO THE FACTS OF GROUND NO. 3 OF REVEN UES APPEAL IN ASSESSMENT YEAR 2005-06 IN ITA NO. 769/CHD/2008. S INCE THE FACTS AND ARGUMENTS OF BOTH THE PARTIES ARE IDENTICAL, T HEREFORE, FOLLOWING THE DECISION IN REVENUES APPEAL FOR GROU ND NO. 3 IN ITA NO. 769/CHD/2008 IN PARA NO. 124 WE DECIDE THIS IS SUE IN FAVOUR OF ASSESSEE. 141 IN THE RESULT, ITA NO. 744/CHD/2009 IS PARTLY A LLOWED. ITA NO. 745/CHD/2009 ASSESSEES APPEAL FOR 2006- 07 142 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS: 1. THAT THE ORDER PASSED BY LD. ASSESSING OFFICER I S ILLEGAL, IMPUGNED AGAINST FACT & LAW AND ACTED IN HASTE. 2. THAT THE LD. ASSESSING OFFICER HAS ERRED IN MAKI NG AN ADDITION OF RS. 20,29,29,142.00 ON ACCOUNT OF INSTALLMENTS FOR SALE OF HOUSES / FLATS RECEIVED DURING THE YEAR. AS PER THE POLICY OF THE APPELLANT AND IN TERMS OF HIRE PURCHASE AGREEMENT E NTERED IN TO BETWEEN THE ASSESSEE AND ALLOTTERS OF HOUSES/FLATS, THE OWNERSHIP RIGHTS OF THE SAID PREMISES REMAIN WITH THE APPELLANT TILL THE COMPLETION OF THE SCHEME AND THE ALLOTTEES ONLY ENJOY THE TENANCY RIGHTS TILL THEN. THE OWNERSHIP OF THE PREMISES IS TRANSFERRED TO THE ALL OTTEES ONLY ON THE RECEIPT OF LAST INSTALLMENT THERE FROM. THIS FACT WAS BROUGHT TO THE NOTICE OF THE LD. ASSESSING OFFICER BUT WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER IGNORED THE SAID FACTS HAS ACTED IN THE ARBITRARY MANNER TO THE TOTAL DISREGARD OF LAW. 3. THAT THE LD. ASSESSING OFFICER HAS ERRED IN MAKI NG AN ADDITION OF RS. 10,89,77,227/- ON ACCOUNT OF EARNEST MONEY RECEIVED FROM THE PROSPECT IVE BUYERS AGAINST PLOTS/FLATS. DURING THE CASE PROCEEDINGS THIS WAS BROUGHT TO THE NOTICE OF LD. ASSESSING OFFICER THAT DURING THE YEAR NOTHING WAS RECEIVED AS EARNEST MONEY AGAINST PLOTS /FLATS. BUT THIS IS THE OUTSTANDING BALANCE STATED IN BOOKS AS AGAINST EARNEST MONEY RECEIVED D URING EARLIER YEARS AFTER DEDUCTING REFUNDS MADE TO CERTAIN PERSONS (TO WHOM ALLOTMENT WAS NOT MADE). SO, THERE IS NOT A SINGLE POINT TO ADD BACK THIS OUTSTANDING AMOUNT, THE ASSESSING OFFICER HAS IGNORED THE SAID FACTS AND HAS ACTED IN THE ARBITRARY MANNER TO THE TOTAL DISREGARD OF LAW. 143 GROUND NO. 1 IS OF GENERAL NATURE AND DOES NOT REQUIRE ANY SEPARATE ADJUDICATION. 83 144 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES W E FIND THAT THE FACTS ARE IDENTICAL TO THE FACTS IN GROUND NO. 5 IN REVENUES APPEAL FOR ASSESSMENT YEAR 2003-04. SINCE THE FACTS AND ARGUMENTS OF BOTH THE PARTIES ARE IDENTICAL, THEREFORE, FOLLOWI NG THE DECISION IN REVENUES APPEAL FOR GROUND NO. 5 IN ITA NO. 762/CH D/2008 IN PARA NO. 62 TO 72 WE DECIDE THIS ISSUE AGAINST THE ASSE SSEE. 145 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES W E FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS RECEIVED A SUM OF RS. 10,89,77,227/- WHICH WAS REFLECTED IN SCHEDULE C TO THE BALANCE SHEET AND THE SAME WAS SHOWN AS EARNEST MONEY FROM PERSPECTIVE BUYERS. ON ENQUIRY IT WAS MAINLY SUBMITTED THAT THIS MONEY REPRESENTED ADVANCE RECEI PT FROM CUSTOMERS BUT NO ALLOTMENT HAS BEEN MADE AND THEREF ORE, THE SAME CANNOT BE RECOGNIZED AS INCOME. THE ASSESSING OFFI CER DID NOT FOUND THE REPLY AS CONVINCING AND ADDED THIS AMOUNT TO THE INCOME OF THE ASSESSEE. 146 ON APPEAL THE LD. CIT(A) CONFIRMED THE DISALLOW ANCE RAISIED IN GROUND NO. 2 IN RESPECT OF THE INSTALLMENTS RECEIV ED BY THE ASSESSEE WITHOUT GIVING ANY FURTHER REASONING. 147 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER. HE F URTHER SUBMITTED THAT DURING THE YEAR NOTHING HAS BEEN REC EIVED. IN FACT THE EARNEST MONEY WAS OUTSTANDING ON 31.3.2005 AMOU NTING TO RS. 11,71,39,423/-. DURING THE YEAR IT REDUCED TO RS. 10,89,77,227/- WHICH MEANS THERE WAS A REDUCTION DURING THE YEAR A MOUNTING TO R. 87,62,196/-. IT WAS FURTHER SUBMITTED THAT IN RESP ECT OF THIS EARNEST MONEY NO ALLOTMENT WAS MADE AND THEREFORE, SAME CA NNOT BE TREATED AS SALES. IN ANY CASE NO MONEY WAS RECEIVE D DURING THE YEAR, THEREFORE, THIS COULD NOT BE TAXED EVEN UNDE R THE CASH SYSTEM OF ACCOUNTING. 148 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE REITERATED THE SUBMISSIONS MADE IN RESPECT OF GROUND NO. 1 WHICH ARE IDENTICAL TO THE SUBMISSIONS IN RESPECT OF GROUND NO. 5 OF REVE NUES APPEAL FOR ASSESSMENT YEAR 2003-04 IN ITA NO. 762/CHD/2008. 149 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AND FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL OF THE ASSESSE E. WHEN WE ADJUDICATED THE ISSUE REGARDING INSTALLMENTS IN DET AIL WHILE 84 ADJUDICATING REVENUES APPEAL FOR ASSESSMENT YEAR 2 003-04, IT WAS OBSERVED THAT ONCE HOUSES AND FLATS ETC. WERE ALLOT TED TO THE ALLOTTEES AND POSSESSION WAS GIVEN, THE SAME WAS IN THE REVENUES FIELD. HOWEVER, SAME LOGIC CANNOT BE APPLIED IF NO ALLOTMENT HAS BEEN MADE AT ALL. ASSESSEE AUTHORITY MAY HAVE INVIT ED THE APPLICATION FOR ALLOTMENT OF PROPOSED HOUSES AND SO ME OF THE PUBLIC MEMBERS MAY HAVE APPLIED FOR THE SAME AND AUTHORITY MAY NOT HAVE ALLOTTED THE HOUSES/FLATS THEREFORE, UNLESS THE AL LOTMENT IS MADE SAME CANNOT BE CALLED SALES. FURTHER IF NO MONEY H AS BEEN RECEIVED DURING THE YEAR THEN NO ADDITION IS POSSIBLE UNDER CASH SYSTEM OF ACCOUNTING BECAUSE UNDER CASH SYSTEM OF ACCOUNTING ADDITION CAN BE MADE ONLY IF THE MONEY WAS RECEIVED DURING THE Y EAR. AT THE SAME TIME ALL THESE DETAILS ARE NOT AVAILABLE ON RE CORD AND EVEN THE LD. COUNSEL OF THE ASSESSEE DID NOT FILE THESE DETA ILS BEFORE US, THEREFORE, IN THE INTEREST OF JUSTICE, WE SET ASID E THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER TO FIND OUT THE EXACT NATURE OF EARNEST MONEY RECEI VED BY THE ASSESSEE. IF THE SAME IS RECEIVED FROM PUBLIC WITH OUT MAKING ANY ALLOTMENT OF THE HOUSE/FLAT/PLOT THEN THE SAME CANN OT BE BROUGHT TO TAX. HOWEVER, IF ALLOTMENTS HAVE BEEN MADE THEN TH E SITUATION WOULD CHANGE. THEREFORE, THE ASSESSING OFFICER SH OULD INQUIRE THESE FACTS IN DETAIL AND THEN DECIDE THE ISSUE IN ACCORDANCE WITH LAW. 150 IN THE RESULT, ITA NO. 745/CHD/2009 IS PARTLY A LLOWED. 85 ITA NO. 545/CHD/2011 REVENUES APPEAL FOR 2007-08 151 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLO WING EFFECTIVE GROUNDS: 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE AT RS. 5,75,23,367/- ON ACCOUNT OF CPF AND INTEREST ON CPF CONTRIBUTION . THE DISALLOWANCE WAS MADE FOR THE REASONS THAT THE CONTRIBUTIONS HAV E NEITHER BEEN MADE TO A PROVIDENT FUND APPROVED BY THE CHIEF COMMISSI ONER OF INCOME TAX OR TO A PROVIDENT FUND ESTABLISHED UNDER A SCHEME FRAMED UNDER THE EMPLOYEE PROVIDENT FUND ACT, 1952. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE AT RS. 2,76,73,633/- ON ACCOUNT OF DEPRECIATION DESPITE THE FACTS THAT THE A E DOES NOT FULFILL THE CONDITIONS AS LAID DOWN IN SECTION 32 REGARDING OWNERSHIP OF LAND AND THE COST OF LAND ON WHICH BUILDINGS HAVE BEEN E RECTED AND THE TIME WHEN THE LAND WAS ACQUIRED. 152 GROUND NO. 2 - AFTER HEARING BOTH THE PARTIES W E FIND THAT THE FACTS RELATING TO THIS ISSUE ARE IDENTICAL TO THE F ACTS OF GROUND NO. 7 IN REVENUES APPEAL FOR ASSESSMENT YEAR 2003-04 IN ITA NO. 762/CHD/2008. SINCE THE FACTS AND ARGUMENTS OF BO TH THE PARTIES ARE IDENTICAL, FOLLOWING THAT ORDER IN PARA NO. 84 TO 86 WE SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICER WITH SIM ILAR DIRECTIONS AS CONTAINED IN ABOVE NOTED PARAS. 153 GROUND NO. 3 - AS FAR AS SECOND ISSUE IS CONCER NED, THE FACTS ARE IDENTICAL TO THE FACTS OF GROUND NO. 3 OF REVEN UES APPEAL IN ASSESSMENT YEAR 2005-06 IN ITA NO. 769/CHD/2008. S INCE THE FACTS AND ARGUMENTS OF BOTH THE PARTIES ARE IDENTICAL, T HEREFORE, FOLLOWING THE DECISION IN REVENUES APPEAL FOR GROU ND NO. 3 IN ITA NO. 769/CHD/2008 IN PARA NO. 124 WE DECIDE THIS IS SUE IN FAVOUR OF ASSESSEE. 154 IN THE RESULT, ITA NO. 545/CHD/2011 IS PARTLY A LLOWED. ITA NO. 524/CHD/2011 ASSESSEES APPEAL FOR 2007-0 8 155 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLL OWING EFFECTIVE GROUNDS: 1. THAT THE LD. C.I.T(APPEALS) HAS ERRED N LAW AND ON FACTS IN ASSESSING RS. 6,36,07,891/- 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 PU RCHASER ONLY AFTER THE PAYMENT OF LAST INSTALLMENT, WHEN THE INCOME IS FIN ALLY CREDITED BY THE APPELLANT ON ITS ACCRUAL. 2. THAT THE LD. C.I.T(APPEALS) HAS ERRED IN LAW AND ON FACTS IN ASSESSING AS RENTAL INCOME, THE INSTALLMENTS RECEIVED AT RS. 6,3 6,07,891/- UNDER HIGHER- PURCHASE AGREEMENT COMPRISING OF PRINCIPAL AMOUNT, WHEREAS THE ISSUE OF 86 RENTAL INCOME WAS NEITHER BEFORE HER 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 50% OF ADMINISTRATIVE EXPENSES AMOUNTING TO RS. 23, 96,45,249/- (RS. 26,84,06,932-RS. 2,87,61,683) ON THE GROUND THAT TH E APPELLANT FAILED TO PRODUCE EVIDENCE REGARDING EACH EXPENSE CLASSIFIED UNDER THE ADMINISTRATIVE HEAD OF ACCOUNT, DESPITE THE FACT THAT ALL THE RELE VANT LEDGER ACCOUNTS DULY SUPPORTED BY SELF EXPLANATORY VOUCHERS WERE BEFORE THE AUTHORITIES BELOW. 4. THAT THE LD. C.I.T (APPEALS) HAS ERRED ON FACTS AND 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 EXPENDITURE OUT O F ADMINISTRATIVE EXPENSES OF PREVIOUS YEARS AND THUS ENHANCING THE VALUE OF STOC K. 5. THAT THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON FACTS IN DISALLOWING THE 50% EXPENSES ON ACCOUNT OF MAINTENANCE OF URBAN ESTATES AMOUNTING TO RS. 4,81,09,536/- , INCLUDED IN THE DISALLOWED ADMI NISTRATIVE EXPENSES OF RS. 23,96,45,249/-, ON THE GROUND THAT THE APPELLANT FA ILED TO ESTABLISHED THAT THESE EXPENSES RELATED TO COMPLETED PROJECTS / AREAS DESP ITE THE FACT THAT ALL THE RELEVANT LEDGER ACCOUNTS DULY SUPPORTED BY SELF EXP LANATORY VOUCHERS WERE BEFORE THE AUTHORITIES BELOW. 156 GROUNDS NO. 1 & 2 - AFTER HEARING BOTH THE PART IES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS RECEIVED A SUM OF RS. 7,01,10,584/- ON ACCOUNT OF INSTALLMENTS AGAINST THE HOUSE SOLD UNDER HIRE PURCHASE AGREEMEN T. IT WAS FURTHER NOTICED THAT ONLY A SUM OF RS. 65,02,693/- WAS RECOGNIZED AS REVENUE RECEIPT AND BALANCE WAS SHOWN AS CAPITAL RE CEIPT. THE ASSESSING OFFICER ASSESSED THE BALANCE SHEET AT RS. 6,36,07,891/- AS INCOME OF THE ASSESSEE BECAUSE THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING. 157 ON APPEAL IT WAS OBSERVED THAT DURING LIFE OF H IRE PURCHASE AGREEMENT THE ALLOTTEES WERE TREATED AS TENANTS BY THE ASSESSEE. THE LD. CIT(A) FURTHER OBSERVED THAT THE DECISION O F HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. DHIR & CO. COLONISER (P) LTD, 288 ITR 561 (PH) ON THE BASIS OF WHICH THE ADD ITION HAS BEEN MADE, WAS REVIEWED BY HON'BLE SUPREME COURT IN CASE OF CIT VS. REALEST BUILDERS & SERVICES LTD. 170 TAXMAN 218. A CCORDING TO HER BOTH THE DECISIONS WERE APPLICABLE. ACCORDING TO H ER THE ASSESSEE HAS ITSELF ACCEPTED THAT SUCH ALLOTTEES WERE TREATE D AS TENANT AND THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTIN G AND THEREFORE, THESE AMOUNTS WOULD BE TREATED AS RENT AND ACCORDINGLY SHE DECIDED THE ISSUE AGAINST THE ASSESSEE. 158 BEFORE US, BOTH THE PARTIES MADE IDENTICAL ARGU MENTS AS HAVE MADE IN RESPECT OF GROUND NO. 5 IN ASSESSMENT YEAR 2003-04 IN ITA NO. 762/CHD/2008. 159 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE FACTS IN THIS CASE ARE IDENTICAL TO THE FACTS OF REVENUE S APPEAL IN GROUND 87 NO. 5 OF ITA NO. 762/CHD/2008. SINCE THE FACTS ARE ARGUMENTS ARE SIMILAR TO ASSESSMENT YEAR 2003-04 IN ITA NO. 762/C HD/2007 WHICH WE HAVE DECIDED VIDE PARA 62 TO 72. FOLLOWING THAT ORDER WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. WE CLARIFY THAT AD DITION HAS BEEN CONFIRMED BY THE LD. CIT(A) AS RENTAL INCOME BUT IN VIEW OF THE DETAILED DISCUSSION IN RESPECT OF ISSUE REGARDING INSTALLMENTS WHICH WE HAVE DECIDED THROUGH PARA 62 TO 72 OF THIS ORDER AGAINST THE ASSESSEE, THEREFORE, THERE IS NO NEED TO ADJUDICAT E GROUND NO. 2 SEPARATELY. 160 GROUNDS NO. 3, 4 & 5 THE FACTS IN RESPECT OF THIS GROUND ARE IDENTICAL TO THE FACTS OF GROUND NO. 4 IN ASSESSEE S APPEAL IN ASSESSMENT YEAR 2004-05 IN ITA NO. 759/CHD/2008. S INCE THE FACTS AND ARGUMENTS ARE IDENTICAL TO GROUND NO. 5 IN ITA NO. 759/CHD/2008 WHICH WE HAVE DECIDED VIDE PARA NO. 12 4 AND FOLLOWING OUR ORDER WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 161 IN RESPECT OF DISALLOWANCE OF DEPRECIATION IT SEEMS THAT THIS CONTENTION WAS NOT RAISED BEFORE THE LD. CIT(A) THA T IF SUCH EXPENSES ARE ALLOWED AND ARE HELD TO BE ON CAPITAL ACCOUNT T HEN EFFECT SHOULD BE GIVEN TO THE OPENING STOCK. THESE CONTENTIONS H AVE BEEN DISMISSED BY THE LD. CIT(A) BY OBSERVING THAT THE D ETAILS OF EXPENSES ARE NOT AVAILABLE. 162 BEFORE US, BOTH THE PARTIES RAISED IDENTICAL AR GUMENTS AS IN GROUND NO. 5 OF ASSESSEES APPEAL IN ASSESSMENT YEA R 2004-05 IN ITA NO. 759/CHD/2008. FURTHER THE LD. COUNSEL OF T HE ASSESSEE REITERATED THE ALTERNATIVE SUBMISSION WHICH WERE MA DE IN THE ASSESSMENT YEAR 2004-05 THAT IF THESE EXPENSES ARE NOT ALLOWED THEN THE EXPENSE WHICH HAVE BEEN DISALLOWED, SHOULD BE ADDED TO THE VALUE OF THE STOCK. 163 AFTER CONSIDERING THE RIVAL SUBMISSIONS SINCE W E HAVE ALREADY ALLOWED THE ADMINISTRATIVE EXPENSES VIDE GROUND NO. 4 OF THIS APPEAL BY FOLLOWING OUR EARLIER ORDER FORAY 2004-05 IN ITA NO. 759/CHD/2008 88 ALTERNATIVE GROUND BECOME INFRUCTUOUS AND ACCORDING LY THE SAME ARE DISMISSED. 161 IN THE RESULT, ITA NO. 524/CHD/2011 IS PARTLY A LLOWED. ITA NO. 484/CHD/2012 REVENUES APPEAL FOR 2008-09 162 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLO WING EFFECTIVE GROUNDS: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE OF RS. 5,56,59,077/- ON ACCOUNT OF CONTRIBUTION TO UNRECOGNIZED PROVIDEN T FUND AND INTEREST ON CPF CONTRIBUTION. THE DISALLOWANCE WAS MADE FOR THE REASON THAT THE CONTRIBUTIONS HAVE NEITHER BEEN MADE TO A PROVIDENT FUND APPROVED BY THE CHIEF COMMISSIONER OR CIT NOR TO A PROVIDENT F UND ESTABLISHED UNDER A SCHEME FRAMED UNDER THE EMPLOYEE PROVIDENT FUND ACT, 1952. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE OF RS. 2,17,91,333/- ON ACCOUNT OF DEPRECIATION, DESPITE THE FACT THAT T HE ASSESSEE DOES NOT FULFILL THE CONDITIONS AS LAID DOWN IN SECTION 32 R EGARDING OWNERSHIP OF LAND AND THE COST OF LAND ON WHICH BUILDING HAS BEE N ERECTED AND THE TIME WHEN THESE LANDS WERE ACQUIRED, THE ASSESSEE I S NOT ELIGIBLE FOR THE CLAIM OF DEPRECIATION. 163 GROUND NO. 1 AFTER HEARING BOTH THE PARTIES W E FIND THAT THE FACTS IN RESPECT OF THIS GROUND ARE IDENTICAL TO T HE FACTS OF GROUND NO. 7 IN REVENUES APPEAL IN ASSESSMENT YEAR 2003-0 4 IN ITA NO. 762/CHD/2008. BOTH THE PARTIES MADE IDENTICAL ARGUM ENTS AS WERE ADVANCED IN ASSESSMENT YEAR 2003-04. 164 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE FACTS AND ARGUMENTS ARE IDENTICAL TO THE ISSUE ADJUDICATE D VIDE GROUND NO. 7 IN REVENUES APPEAL IN ASSESSMENT YEAR 2003-04 IN ITA NO. 762/CHD/2008. IN THAT APPEAL THIS ISSUE HAS BEEN R EMITTED BACK TO THE FILE OF ASSESSING OFFICER VIDE PARA 84 TO 86 AN D FOLLOWING THAT DECISION HERE ALSO, WE SET ASIDE THE ORDER OF THE L D. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFI CER WITH IDENTICAL DIRECTIONS. 165 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES W E FIND THAT THE FACTS IN RESPECT OF THIS GROUND ARE IDENTICAL TO GR OUND NO. 3 IN REVENUES APPEAL FOR ASSESSMENT YEAR 2005-06 IN ITA NO. 769/CHD/2008. BOTH THE PARTIES MADE IDENTICAL ARGUM ENTS AS IN RESPECT OF GROUND NO. 3 OF ITA NO. 769/CHD/2008. 89 166 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE FACTS AS WELL AS ARGUMENTS OF THE PARTIES ARE IDENTICAL T O THE ISSUE RAISED IN GROUND NO. 3 OF REVENUES APPEAL IN ASSESSMENT Y EAR 2005-06 IN ITA NO. 769/CHD/2008. THIS ISSUE WAS DECIDED BY US AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE IN THAT APPE AL VIDE PARA NO. 124. FOLLOWING THE SAME WE DECIDE THIS ISSUE AGAIN ST THE REVENUE AND ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT(A ). 167 IN THE RESULT, ITA NO. 484/CHD/2012 IS PARTLY A LLOWED. ITA NO. 390/CHD/2012 ASSESSEES APPEAL FOR 2008- 09 168 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS: 1 THAT THE ORDER U/S 250(6) PASSED BY THE LD. CIT(A), CHANDIGARH IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF ETH DCIT, CIRCLE 6(1), MOHALI DELHI IN FRAMING THE ASSESSMENT ORDER U/S 143(3) OF THE INCOME TAX ACT EVEN THOUGH THE STATUTORY NOTICE U/S 143(2) OF THE INCOME TAX ACT WAS SERVED BEYOND THE STATUTORY TIME PRESCRIBED UNDER THE ACT. 2 THAT THE ORDER U/S 250(6) PASSED BY THE LD. CIT(A), CHANDIGARH IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE DCIT, CIRCLE 6(1), MOHALI DELHI IN MAKING ADDITION OF RS. 16,42,01,257/- BY DISALLOWING 50% O F ADMINISTRATIVE EXPENSES. 3 THAT THE ORDER U/S 250(6) PASSED BY THE LD. CIT(A), CHANDIGARH IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF DCIT, CIRCLE 6(1), MOHALI IN M AKING AN ADDITION OF RS. 2,15,79,657/- BEING 50% OF RS. 4,31,59,314/- WH ICH IS AMOUNT PAID TOWARDS MAINTENANCE OF URBAN ESTATES. 4 THAT THE ORDER U/S 250(6) PASSED BY THE LD. CIT(A), CHANDIGARH IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE DCIT, CIRCLE 6(1) MOHALI I N MAKING ADDITION OF RS. 225 CRORES BEING EXPENDITURE FOR LAND AT INTERN ATIONAL AIRPORT AT MOHALI BY IGNORING THE FACT THAT THE SAME WAS INCUR RED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND NO CAPITAL ASSETS OR BENEFIT OF ENDURING NATURE IN THE CAPITAL FIELD HAD BEEN CREATED AS A RESULT OF THE SAME. 169 IN ADDITION TO ABOVE THE ASSESSEE HAS ALSO RAIS ED AN ADDITIONAL GROUND AS UNDER: THAT THE ASSESSING OFFICER GRAVELY ERRED IN TREATI NG THE AMOUNT OF RS. 46,15,584/- AS RENTAL INCOME WHICH IN FACT IS NOTHI NG BUT AMOUNT OF INSTALLMENTS RECEIVED AS PER HIRE PURCHASE AGREEMEN T ACCORDING TO WHICH THE OWNERSHIP OF HOUSES/FLATS IS TRANSFERRED TO THE PURCHASER ONLY AFTER THE PAYMENT OF LAST INSTALLMENT WHEN THE INCO ME CREDITED BY THE APPELLANT ON ACCRUAL. 170 GROUND NO. 1 - AFTER HEARING BOTH THE PARTIES W E FIND THAT IN THIS CASE A NOTICE U/S 143(2) WAS ISSUED ON 30.9 .2009. THE LD. CIT(A) HAD ADJUDICATED THIS ISSUE VIDE PARA 3.1 WHI CH IS AS UNDER: 90 BRIEF FACTS OF THE ISSUE ARE THAT THE RETURN OF IN COME IN THIS CASE WAS FILED ON 29.9.2008 AND AS PER THE ASSESSMENT ORDER, NOTICE U/S 143(2) WAS ISSUED ON 30.9.2009. THE APPELLANT HAS NOT FI LED ANY REPLY IN RESPONSE TO THIS GROUND OF APPEAL AND SO IT IS PRES UMED THAT THE DATED GIVEN IN THE ASSESSMENT ORDER ARE CORRECT AND THE N OTICE U/S 143(2) HAD BEEN ISSUED WITHIN THE PRESCRIBED TIME LIMIT. GROU ND OF APPEAL NO. 2 IS DISMISSED. 171 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUB MITTED THAT THIS NOTICE WAS ISSUED TO THE ASSESSEE ON 30.9.2009. RE QUIREMENT OF THE ACT IS TO SERVE THE NOTICE BEFORE THE EXPIRY OF 12 MONTHS FROM THE END OF THE MONTH IN WHICH THE RETURN WAS FURNIS HED. SINCE THE RETURN WAS FURNISHED ON 29.9.2008, THE NOTICE WAS R EQUIRED TO BE SERVED BEFORE 30.9.2009 WHICH HAS NOT BEEN DONE AND THEREFORE, THE ASSESSMENT ITSELF IS VOID. 172 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUBMITTED THAT THE ASSESSEE HAS NOT PERUSED THIS GROUND BEFORE THE LD. CIT(A), THEREFORE, NOW THE ASSESSEE CANNOT AGITATE THIS IS SUE BEFORE THE TRIBUNAL. IN THIS REGARD, SHE STRONGLY RELIED ON T HE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN CASE OF THISTLE PRO PERTIES (P) LTD. VS. ACIT, 134 ITD 6. SHE ALSO REFERRED TO THE DECI SION OF MADHYA PRADESH HIGH COURT IN CASE OF CIT V. 275 ITR 260 WH EREIN IT WAS HELD THAT THE QUESTION OF VALIDITY OF NOTICE MAY NO T BE ALLOWED TO BE RAISED FIRST TIME BEFORE THE TRIBUNAL IF THE ASSESS EE HAS SUBMITTED TO THE JURISDICTION OF THE ASSESSING OFFICER AND PARTI CIPATED IN THE PROCEEDINGS. IN THIS CONNECTION SHE REFERRED TO TH E DECISION OF V.R.A. COTTON MILLS (P) LTD. VS. UNION OF INDIA AND ORS, 250 CTR 188 : 70 DTR 439 (COPY OF JUDGMENT ENCLOSED WITH THE PA PER BOOK) WHEREIN IT WAS CLEARLY HELD THAT THE PURPOSE OF THE STATUTE WILL BE BETTER SERVED IF THE ISSUE OF NOTICE IS CONSIDERED AS COMPLIANCE OF THE REQUIREMENT OF THE PROVISO TO SECTION 143(2) OF THE ACT. 173 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. SECTION 143(2)(II) READS AS UNDER: [(2) WHERE A RETURN HAS BEEN FURNISHED UNDER SECTION 139 , OR IN RESPONSE TO A NOTICE UNDER SUB- SECTION (1) OF SECTION 142 , THE ASSESSING OFFICER SHALL, (I) ------------------- (II) NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE (I), IF HE CONSIDERS IT NECESSARY OR EXPEDIENT 18 TO ENSURE THAT THE ASSESSEE HAS NOT UNDERSTATED THE IN COME OR HAS NOT COMPUTED EXCESSIVE LOSS OR HAS NOT UNDER-PAID THE TAX IN ANY MANNER, SERVE ON THE ASSESSEE A NOTICE REQUIRING HIM, ON A DATE TO BE SPECIFIED THEREIN, EITHER TO ATTEND HIS OFFICE OR TO PRODUCE, OR CAUSE TO BE PRODUCED, ANY EVIDENCE ON WHICH THE ASSESSEE MAY RELY IN SUPPORT OF THE RETURN: [ PROVIDED THAT NO NOTICE UNDER CLAUSE (II) SHALL BE SERVED O N THE ASSESSEE AFTER THE EXPIRY OF SIX MONTHS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE RETURN IS FURNISHED.]] 91 FROM ABOVE IT BECOMES CLEAR THAT NOTICE IS REQUIRED TO BE SERVED BEFORE THE EXPIRY OF 12 MONTHS FROM THE END OF THE MONTH FOR WHICH THE RETURN HAS BEEN FILED. IN THIS CASE RETURN HAS BEEN FILED ON 29.9.2009 WHICH MEANS THE NOTICE WAS REQUIRED TO BE SERVED ON OR BEFORE 30.9.2009. FIRST OF ALL THE AS SESSEE HAS NOT GIVEN ANY ARGUMENT BEFORE THE LD. CIT(A), THEREFORE, IT CANNOT BE SAI D THAT THE ISSUE WAS NOT PRESSED BEFORE HIM AND THEREFORE, THE ASSESSEE CANNOT BE ALLOWED TO AGITATE THIS ISSUE BEFORE THE TRIBUNAL FOR THE FIRST TIME. HOWEVER, WHEN SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF V.R.A. COTTON MILLS (P) LTD. VS. UNION OF INDIA AND ORS, 250 CTR 188 : 70 D TR 439. HEAD NOTE OF THE DECISION READS AS UNDER: NOTICE ISSUE VS. SERVICE OF NOTICE PETITIO NER CONTENDED THAT NOTICE WAS NOT SERVED ON THE ASSESSEE TILL THE LAST DATE OF LIMITATION FOR THE INITIATION OF PROCEEDINGS FOR THE ASSESSMENT YE AR 2009-10 QUESTION IS, WHAT IS THE MEANING OF EXPRESSION SERVED WH ETHER SUCH EXPRESSION IS TO BE USED LITERALLY, SO AS TO MEAN A CTUAL PHYSICAL RECEIPT OF NOTICE BY THE ADDRESSEE OR THE EXPRESSION IS INT ER CHANGEABLE WITH THE WORD ISSUE - THE CASE OF LD. COMMISSIONER OF INC OME TAX VS. AVI-OIL INDIA P. LTD. (2010) 323 ITR 242 RELIED ON BY THE ASSESSEE, SUFFERS FROM PER INCURIAM DATE OF RECEIPT OF NOTICE BY THE ADD RESSEE IS NOT RELEVANT TO DETERMINE, AS TO WHETHER THE NOTICE HAS BEEN ISS UED WITHIN THE PRESCRIBED PERIOD OF LIMITATION THE PURPOSE OF TH E STATUTE WILL BE BETTER SERVED, IF THE DATE OF ISSUE OF NOTICE IS CONSIDERE D AS COMPLIANCE OF THE REQUIREMENT OF PROVISO TO SECTION 143(2) OF THE ACT PETITION DISMISSED. FROM ABOVE IT BECOMES CLEAR THAT EVEN IF NOTICE IS ISSUED WITHIN TIME LIMIT PROVIDED UNDER CLAUSE (II) OF SECTION 143(2) EVEN THEN THE SAME WOULD BE CONSIDERED AS COMPLIANCE WITH THE PROVISIO NS OF SECTION 143(2). IN ANY CASE THE ASSESSEE HAS APPEARED BEFO RE THE ASSESSING OFFICER AND PARTICIPATED IN THE PROCEEDIN GS. IN THE SIMILAR CIRCUMSTANCES IN CASE OF THISTLE PROPERTIES (P) LTD . VS. ACIT, 134 ITD 6: 138 TTJ 538 MUMBAI TRIBUNAL HAD FOLLOWED TH E DECISION IN CASE OF CIT VS. REGENCY EXPRESS BUILDERS P. LTD. 29 1 ITR 55 (DELHI) AND HELD THAT THE ASSESSEE SHALL BE PRESUMED TO HAV E SERVED NOTICE BECAUSE OTHERWISE THERE WAS NO OCCASION FOR THE ASS ESSEE TO APPEAR BEFORE THE ASSESSING OFFICER. IN VIEW OF THIS DECI SION THIS GROUND IS REJECTED.. 174 GROUND NO. 2 & 3 AFTER HEARING BOTH THE PARTI ES WE FIND THAT THE FACTS IN THIS CASE ARE IDENTICAL TO THE FACTS I N GROUND NO. 4 OF ASSESSEES APPEAL IN ASSESSMENT YEAR 2004-05 IN ITA NO. 759/CHD/2008. 175 BOTH THE PARTIES MADE IDENTICAL ARGUMENTS AS IN RESPECT OF THIS GROUND AS IN GROUND NO. 4 IN ASSESSMENT YEAR 2004-0 5 IN ASSESSEES APPEAL IN ITA NO. 759/CHD/2008. 92 176 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE FACTS AS WELL AS THE ARGUMENTS ARE IDENTICAL TO THE FACTS OF GROUND NO. 5 IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2004-05. THE ONLY DISPUTE IS THAT DURING THE ASSESSMENT PROCEEDINGS THE ADMINIST RATIVE EXPENSES HAVE BEEN TREATED SEPARATELY UNDER THE HEAD ADMINI STRATIVE EXPENSES AMOUNTING TO RS. 28,52,43,200/- AND MAINT ENANCE OF URBAN ESTATE CLAIMED AT RS. 4,31,59,314/-. IT WAS EXPLAINED BY THE LD. COUNSEL OF THE ASSESSEE THAT BOTH THESE AMOUNTS HAVE BEEN ULTIMATELY CLUBBED AS DISALLOWANCE OF ADMINISTRATIV E AND MAINTENANCE EXPENSES AT RS. 16,42,01,257/-. IT WAS FURTHER EXPLAINED THAT BY MAKING TOTAL AMOUNT OF RS. 16,42, 01,257/- HAS BEEN TAKEN IN GROUND NO. 2. IN FACT THAT AMOUNT SH OULD BE 50% OF RS. 28,52,43,200/- BECAUSE SEPARATE GROUND NO. 3 HA S BEEN TAKEN FOR DISALLOWANCE OF MAINTENANCE EXPENSES OF 50% AMO UNTING TO RS. 2,15,79,657/-, THEREFORE, IN OUR OPINION, BOTH THE ISSUES RELATE TO SIMILAR FACTS I.E. DISALLOWANCE OF ADMINISTRATIVE A ND MAINTENANCE EXPENSES. THE ISSUES HAVE BEEN DECIDED BY US IN FA VOUR OF THE ASSESSEE IN ASSESSMENT YEAR 2004-05 IN ITA NO. 759/ CHD/2008 IN PARA NO. 115. FOLLOWING THAT ORDER WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 177 GROUND NO. 4 AFTER HEARING BOTH THE PARTIES W E FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE ASSESSEE HAS CLAIMED EXPENSES OF RS. 225 CRORES FOR LAND FOR INTERNATIONAL AIR PORT (AAI) AT MOHALI. THE ASSESSEE WAS SHOW CAUSED THAT WHY THIS AMOUNT SHOULD NOT BE DISALLOWED AS CAPITAL EXPENDIT URE. IN RESPONSE IT WAS SUBMITTED BY THE ASSESSEE AS UNDER: 1. BY MAKING PAYMENT OF RS. 225 CRORE, THE ASSESSEE AUTHORITY HAS NOT ACQUIRED ANY CAPITAL ASSET NOR MADE ANY DONATIONS O R CHARITY TO ANY ORGANIZATION. IT WAS PURELY AND PURPOSELY OR SAY WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF DEVELOPING THE AREA FOR ALL ROUND ECONOM IC GROWTH RESULTING INTO MANIFOLD INCREASE IN THE RATES OF THE STOCKS OF LAN D AND OTHER PROPERTIES HELD BY THE ASSESSEE AS STOCK IN TRADE. THEREFORE, ON THE S UGGESTIONS OF PUNJAB GOVT., IT WAS DECIDED BY THE ASSESSEE TO CONTRIBUTE TOWARD S THE DEVELOPMENT OF AN INTERNATIONAL AIRPORT IN THE STATE OF PUNJAB, SO TH AT THE OBJECTS FOR WHICH THE AUTHORITY HAS BEEN CONSTITUTED ARE ACHIEVED. THIS H APPENED AS THIS GAVE A BOOST TO THE ECONOMY AND TO THE HUMAN PSYCHE TO INV EST IN THE ENTIRE STATE BY ACQUIRING AND DEVELOPING PLOTS. IT WAS ENVISAGED TH AT THE UPGRADATION OF CHANDIGARH AIRPORT TO INTERNATIONAL STATUS WILL CER TAINLY BOOST THE LOCAL ECONOMY WITH MORE BUSINESS INFLOW IN THE TOURIST, COMMERCIA L, MANUFACTURING AND LOGISTICS SECTORS AND THIS IS GOING TO OPEN THE STA TE OF PUNJAB TO THE INTERNATIONAL ARENA WITH RIGHT MARKETING STRATEGY A ND MORE FOREIGN INVESTMENT WILL FLOW IN THE STATE DUE TO ITS WORLD WIDE PUNJAB I NRI NETWORK. IT HAS NOW BEEN RECOGNIZED THAT AVIATION, FAR FROM BEING A MERE MOD E OF TRANSPORTATION IS A BOOST TO SUSTAINABLE DEVELOPMENT OF TRADE, TOURISM, COMMERCE AND INDUSTRY. THIS IS WHAT HAS HAPPENED IN SINGAPORE BY THE DEVEL OPMENT OF CHANGI AIRPORT, INHEON IN SOUTH KOREA AND ALSO THE HONGKONG INTERNA TIONAL AIRPORT. TO HIGHLIGHT THE MAIN REASON WHICH HAS COME TRUE IS BASICALLY TH E INCREASE IN THE RATES OF PROPERTIES OF THE AUTHORITY ONLY BECAUSE OF THE STA TE BEING DEVELOPED DUE TO 93 THE EARLY ESTABLISHED OF INTERNATIONAL AIRPORT FOR WHICH THE ASSESSEE CONTRIBUTED AS A WISE BUSINESSMAN FOR THE BUSINESS EXPEDIENCY W HICH IS FURTHER AUTHENTICATED FROM THE FOLLOWING FACTS BASED ON STA TISTICS WHICH SPEAK LOUDER. FOR INSTANCE, THE RATES OF LANDS OF THE AUTHORITY I N THE ENTIRE STATE OF PUNJAB INCREASED MUCH MORE AFTER THE LAUNCH OF UPCOMING IN TERNATIONAL AIRPORT IN THE STATE. TO QUOTE FEW INSTANCE LIKE THE RATES OF COMM ERCIAL PROPERTIES IN SAMRALA AFTER THIS WERE SOLD @RS. 39600 VIZ A VIZ @RS. 2960 0, SIMILARLY THE RESIDENTIAL PLOTS IN NABHA WERE SOLD @RS. 9500 VIZ A VIZ @ RS. 5300, SIMILARLY IN PATHANKOT THE NEW SELLING RATES WERE RS. 9100 AS AG AINST RS.4700. THESE ARE ONLY FEW INSTANCES, THERE ARE MUCH MORE GAINS IN OT HER AREAS ALSO. IN OTHER WORDS, BY SPENDING RS. 225 CRORE ONLY, THE IMMEDIAT E ONE TIME GAIN, IN TERMS OF SALE OF PROPERTIES OF THE AUTHORITY WAS MORE THA N 2 TIMES AND IT WAS IN ADDITION TO THE OTHER GAINS WHICH ARE LIKELY TO BE EARNED IN THE NEAR FUTURE IN TERMS OF SALE OF COMMERCIAL / INSTITUTIONAL PLOTS. THESE HUGE GAINS HAVE REALLY PROVED BEYOND DOUBT, THAT THE ASSESSEE, AS A WISE B USINESSMAN, HAS RIGHTLY FORESEEN THE NECESSITY OF MAKING EXPENDITURE OF RS. 225 CRORE AS ITS BUSINESS EXPEDIENCY ON TOP PRIORITY WHICH HAS PROVED BEYOND DOUBT A GAINFUL BUSINESS ACTIVITY. THEREFORE ON A COMMON COMMERCIAL NORMS AN D AS PER ACCOUNTING PRINCIPLE, THE EXPENDITURE OF RS. 225 CRORES COULD BE CHARGED OR DEBITED TO NO OTHER A/C, EXCEPT ONLY AND ONLY TO INCOME AND EXPEN DITURE A/C. THEREFORE, THE RATIO LAID BY HONBLE SUPREME COURT IN S.A BUILDERS LTD. VS. CIT 288 ITR 1(SC) FULLY APPLIES TO THIS CASE ON ALL THE FOURS BEYOND ANY DOUBT OR SECOND OPINION THAT WHEREIN IT WAS HELD: ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CAN NOT JUSTIFIABLY C LAIM TO PUT ITSELF IN THE ARM CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EX PENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CA N BE COMPELLED TO MAXIMIZE HIS PROFITS. THE INCOME TAX AUTHORITIES MU ST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINES SMAN WOULD ACT. QUITE INTERESTINGLY, THE ASSESSEES EFFORTS TO MAXI MIZE ITS PROFITS COUPLED WITH FULFILLING THE OBJECTS FOR WHICH IT HAS BEEN CONSTI TUTED BY MAKING CONTRIBUTION WHICH IS AN ALLOWABLE EXPENDITURE ON FACTS AND IN L AW BECAUSE OF ITS BEING NOT BEING OF CAPITAL NATURE NOR IS ILLEGAL NOR AGAINST THE PUBLIC POLICY. MORE IMPORTANTLY, IN THE CASE OF THE ASSESSEE AUTHO RITY, IT IS NOT A CASE OF SPECULATION BUT A DELIBERATE AND CONSCIOUS MOVE TO EARN MORE AND MORE PROFITS IN ADDITION TO IMPROVE THE AREA IN A PLANNED MANNER , WHICH HAS PROVED TRUE ALSO AS PER THE STATISTICS MADE IN PARA 1 ABOVE. SO IT I S SUBMITTED EVEN AT THE COST OF REPETITION TO STRESS THAT THIS EXPENDITURE IS TO BE ALLOWED PARTICULARLY WHEN IT IS NEITHER ILLEGAL NOR CAPITAL NOR AGAINST PUBLIC P OLICY AND AT THE SAME TIME HAS STARTED YIELDING HUGE PROFITS AND OVERALL GROWTH OF THE AREA AND RISE IN THE RATE OF STOCK OF THE ASSESSEE. 2. THAT THE EXPENDITURE WAS ALSO INCURRED AS PER TH E DIRECTIONS OF THE PUNJAB GOVT. AND THE OBJECTS OF THE AUTHORITY AS PROVIDED IN SECTION 28 THE DETAILS OF WHICH ARE DISCUSSED HEREUNDER. THIS AUTHORIZE THE A UTHORITY TO DO THE OBJECTS AND FUNCTIONS WITH THE PRIOR APPROVAL OR ON DIRECTI ON OF THE STATE GOVT., FOR CARRYING OUT THE PURPOSES OF THIS ACT. FURTHER AS PER SECTION 49(2), THE FUNDS OF THE AUTH ORITY SHALL BE APPLIED TOWARDS 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 PURPOSE S 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 GOVT. MAY DIRECT OR PERMIT. IN FULFILLMENT OF ABOVE OBJECTS ESPECIALLY AS MENTI ONED IN CLAUSE(A) AND CLAUSE (D) THE AUTHORITY HAS PAID THE AMOUNT OF RS. 225 CR ORES AND CLAIMED THE SAME AS EXPENDITURE BY WAY OF DEBIT TO PROFIT & LOSS ACC OUNT. FURTHER, THE PAYMENT MADE IS NON-REFUNDABLE BECAUSE IT IS NEITHER A LOAN NOR DEPOSIT, NOR IT IS FOR ACQUISITION OF ANY CAPITAL ASSET OR PROPERTY. THE S AME HAS BEEN MADE IN FURTHERANCE OF DEVELOPMENT OBJECTS OF THE AUTHORITY AS MENTIONED ABOVE INCLUDING ECONOMIC DEVELOPMENT OF THE LAND AND ALSO OF THE AREA IN TOTALITY. IT IS A GENERAL ACCOUNTING PRINCIPLE AND COMMERCIAL NECES SITY THAT ANY EXPENDITURE 94 INCURRED IN FURTHERANCE OF OBJECTS OF ASSESSEE HAS TO BE CLAIMED AND ALLOWED AS AND LEGITIMATE BUSINESS EXPENDITURE. 3. FURTHER THE ISSUE IN QUESTION IS NOT RES-INTEGRA . SIMILAR ISSUES HAVE ALREADY BEEN TRIED BY THE VARIOUS COURTS OF THE COUNTRY. TO QUOTE IN A RECENT JUDGMENT OF CIT AND ANOTHER VS. KARNATAKA FINANCIAL CORPORAT ION (IT APPEAL NO. 161 OF 2005)33 DTR (KAR)145(2010) WHEREIN IT HAS BEEN HELD AS UNDER:- THE AMOUNT OF RS. 15 LAKHS SPENT BY THE ASSESSEE HAS TO BE CONSIDERED TOWARDS ITS BUSINESS PROMOTION. SINCE THE ZILA PANC HAYATH UNDER A SCHEME KNOWN AS SWASTHI GRAMA YOJANA WAS TRYING TO DEVE LOP MODEL VILLAGES BY PROVIDING FACILITIES LIKED DEVELOP ROADS TO NEW MAR KETS ORGANIZING SELF HELP GROUPS, COMMUNITY CENTRES AND DEVELOPMENT OF INFRAS TRUCTURAL FACILITIES. IF THE ASSESSEE HAS SPENT AMOUNT TOWARDS THE DEVELOPMENT O F INFRASTRUCTURAL FACILITIES OF VILLAGES AND CONSTRUCTION OF A NEW MARKET TO ORG ANIZE SELF HELP GROUPS WOULD CERTAINLY PROMOTE THE BUSINESS OF THE ASSESSEE AS T HE ASSESSEE CAN LEND THE LOAN ONLY IF SUCH ESTABLISHMENTS ARE THERE IN VILLA GES. IF THE ASSESSEE CAN SPREAD ITS ACTIVITIES TO RURAL PARTS OF THE STATE, IT WOULD CATER THE NEED OF THE PEOPLE AND WOULD SATISFY THE PURPOSE FOR WHICH IT I S CREATED BY THE STATE. THEREFORE, THE QUESTION OF LAW FRAMED IN THIS APPEA L HAS TO BE ANSWERED AGAINST THE REVENUE. THE RELIANCE IS ALSO PLACED IN THE CASE OF CIT VS. CHETAN TRANSPORT CORPORATION LTD 134 CTR (MAD.) 466 IN WHICH THE REVENUE CONCEDE D BEFORE THE TRIBUNAL BANGALORE THAT IN THIS CASE WHERE THE TRANSPORT COR PORATION ON THE REQUEST OF THE STATE GOVT. SPENT THE AMOUNT AND IT WAS HELD TH AT THE AMOUNT SPENT BY THE OTHER CORPORATION WAS FOR THE BENEFIT OF THE PUBLIC AND DOES NOT VIOLATE THE PUBLIC POLICY. THEREAFTER THE ASSESSEE RELIED ON THE DECISION OF H ON'BLE KARNATKA HIGH COURT IN CASE OF CIT VS. KARNATKA FINANCIAL CO RPORATION, 33 DTR 145 AND CIT VS. 134 CTR 466 (MAD). IT WAS FURT HER SUBMITTED AS UNDER: THE EXPENDITURE HAS BEEN RIGHTLY CLAIMED AND DEBIT ED TO INCOME & EXPENDITURE ACCOUNT OF THE AUTHORITY. THE PAYMENT HAS BEEN RIGHTLY CLAIMED AS EXPENDITURE U/S 37(1) OF THE ACT. FURTHER ALTERNATIVELY THE ASSESSEE HAS FILED AN APP LICATION U/S 36(1)(XII) OF THE ACT BEFORE THE HONBLE CBDT WHICH IS PENDING ADJUDI CATION SINCE LONG. AS REGARDS THE CLAIM OF DEDUCTION U/S 37(1) OF THE ACT , IT IS SUBMITTED THAT THE WORDS USED IN THE SAID SECTION ARE WHOLLY AND EXCL USIVELY AND THERE IS NO MENTION OF THE WORD NECESSARILY. THE WORD WHOLLY REFERS TO QUANTUM OF EXPENDITURE WHILE THE WORD EXCLUSIVELY REFERS TO MO TIVE, OBJECTIVE OR PURPOSE WITH WHICH THE PARTICULAR EXPENSE HAS BEEN INCURRED . PUDA IS THE DEVELOPMENT AUTHORITY IN THE STATE OF P UNJAB. THE AUTHORITY HAS BEEN CONSTITUTED UNDER PUNJAB REGIONAL & TOWN PLANN ING & DEVELOPMENT ACT, 1995. SECTION 28 OF THAT ACT LAYS DOWN THE OBJECTS AND FUNCTIONS OF THE AUTHORITY. THE SAME ARE REPRODUCED AS UNDER: OBJECT AND FUNCTIONS OF THE AUTHORITY SECTION 28 OF PUNJAB REGIONAL & TOWN PLANNING & DEV ELOPMENT ACT, 1995 WHICH IS REGARDING OBJECT AND FUNCTIONS IS REPRODUC ED AS UNDER; THE OBJECT OF THE AUTHORITY SHALL BE TO PROMOTE AND SECURE BETTER PLANNING AND DEVELOPMENT OF ANY AREA OF THE STATE AND FOR THAT P URPOSE THE AUTHORITY SHALL HAVE THE POWERS TO ACQUIRE BY WAY OF PURCHASE, TRAN SFER, EXCHANGE OR GIFT OR TO HOLD, MANAGE, PLAN, DEVELOP AND MORTGAGE OF OTHERWI SE DISPOSE OF LAND OR OTHER PROPERTY OR TO CARRY OUT ITSELF OR IN COLLAB ORATION WITH ANY OTHER AGENCY ON ITS BEHALF, BUILDING, ENGINEERING, MINING AND OTHER OPERATIONS TO EXECUTE WORKS IN CONNECTION WITH SUPPLY OF WATER, DISPOSAL OF SEW ERAGE, CONTROL OF POLLUTION AND OTHER SERVICES AND AMENITIES AND GENERALLY TO DO ANYTHING WITH THE PRIOR APPROVAL OR ON DIRECTION OF THE STATE GOVERNMENT, F OR CARRYING OUT THE PURPOSES OF THIS ACT. 95 IN PARTICULAR AND WITHOUT PREJUDICE TO THE GENERALI TY OF THE FOREGOING PROVISIONS, THE AUTHORITY ITSELF IN COLLABORATION WITH ANY OTHE R AGENCY OR THROUGH ANY OTHER AGENCY ON ITS BEHALF; A. IF SO REQUIRED BY THE STATE GOVERNMENT OF THE BO ARD, TAKE UP THE WORKS IN CONNECTION WITH THE PREPARATION AND IMPLEMENTATI ON OF REGIONAL PLANS, MASTER PLANS AND NEW TOWNSHIP PLANS AND TOWN IMPRO VEMENT SCHEME; UNDERTAKE THE WORK RELATING TO THE AMENITIES AND SE RVICES TO BE PROVIDED IN THE URBAN AREAS, URBAN ESTATES, PROMOTION OF URBAN DEVE LOPMENT AS WELL AS CONSTRUCTION OF HOUSES; PROMOTE RESEARCH, DEVELOPMENT OF NEW TECHNIQUES OF PLANNING, LAND DEVELOPMENT AND HOUSE CONSTRUCTION AND MANUFACTURE OF BUILDING MATERIAL. PROMOTE COMPANIES, ASSOCIATION AND OTHER BODIES FOR CARRYING OUT THE PURPOSE OF THE ACT; AND PERFORM ANY OTHER FUNCTIONS WHICH A RE SUPPLEMENTAL, INCIDENTAL OR CONSEQUENTIAL TO ANY OF THE FUNCTIONS REFERRED T O IN THIS SUB-SECTION OR WHICH MAY BE PRESCRIBED. IN FULFILLMENT OF ABOVE OBJECTS, THE AUTHORITY HAS PAID THE ABOVE AMOUNT AND CLAIMED THE SAME AS EXPENDITURE BY WAY OF DEBIT TO ITS I&E A/C. FURTHER, THE PAYMENT MADE IS NON-REFUNDABLE. THE SAME HAS BEEN M ADE IN FURTHERANCE OF DEVELOPMENT OBJECT OF THE AUTHORITY. IT IS A GENERA L ACCOUNTING PRINCIPLE THAT ANY EXPENDITURE INCURRED IN FURTHERANCE OF OBJECTS OF ASSESSEE MAY BE ALLOWED AS EXPENDITURE. FURTHER RELIANCE WAS PLACED ON THE FOLLOWING CASE L AWS: CIT VS. VELUMANICKAM LODGE (MAD) (2009) 32 DTR 246 SRI VENKATA SATYANARAYNA MILL CONTRACTORS CO.V CIT (1997) 223 ITR 101 (S.C) CIT VS. INDIA RADIATORS LTD. (1999) 236 ITR 719 (MA D) ADDL CIT VS. RAJASTHAN SPINNING & WEAVING MILLS LTD . (2005) 274 ITR 463 (RAJ) CIT VS. CHEMICALS & PLASTICS INDIA LTD. (2007) 292 ITR 115 (MAD) PANIPAT CO-OP SUGAR MILLS LTD. VS. CIT (1977) 108 I TR 111 (PH) 178 THE ASSESSING OFFICER EXAMINED THE SUBMISSIONS AND OBSERVED THAT THE ASSESSEE WAS IN THE BUSINESS OF ACQUIRING LAND AND SELLING THE PLOTS AND IT WAS FURTHER CLAIMED THAT THE ASSES SEE WAS BOUND BY THE DIRECTIONS OF THE PUNJAB GOVERNMENT BECAUSE THE ASSESSEE WAS RESPONSIBLE FOR INFRASTRUCTURE DEVELOPMENT. THE AS SESSING OFFICER OBSERVED THAT THE ASSESSEE HAS TO KEEP IN MIND THAT THE ASSESSEE IS A TAXABLE ENTITY AND BOUND TO FOLLOW THE MANDATE OF INCOME TAX ACT. HE THEN REFERRED TO THE DECISION OF THE TRIBUNAL IN ASSESSEES CASE REPORTED IN 103 TTJ 988 WHEREIN FOLLOWING OBSERVATI ONS WERE MADE BY THE TRIBUNAL: IF THE ACCOUNTS OF HE ASSESSEE ARE ANALYSED, IT HA S TURNED INTO A HUGE PROFIT MAKING AGENCY FOR WHICH IT IS TAKING MONEY FROM THE GENERAL PUBLIC. IN SUCH A SITUATION, WE ARE OF THE VIEW THAT NO CHARITY IS IN VOLVED AND IF ANY INSTITUTION OF PUBLIC IMPORTANCE LIKE SCHOOLS, COMMUNITY CENTRES A RE CREATED/DEVELOPED, THE ASSESSEE IS CHARGING THE COST OF IT FROM THE PUBLIC AT LARGE AND THE MONEY IS COMING FROM THE COFFER OF THE GOVERNMENT. IT CANNO T BE SAID THAT 96 OBJECTIVES/ACTIVITIES OF THE ASSESSEE ARE MORE OF C OMMERCIALIZED NATURE AND WE DO NOT FIND ANY CHARITY IN IT. AT THE SAME TIME I F THESE FACILITIES ARE NOT PROVIDED, THEN NOBODY WILL PURCHASE A PLOT. IT CAN BE SAID THAT IT IS A MEANS OF ATTRACTING THE PEOPLE SO THAT MAXIMUM PEOPLE MAY AP PLY FOR THE SAME AND THE HIDDEN COST IS ALREADY ADDED, SO NO CHARITY IS INVO LVED. IT IS A KNOWN FACT THAT THE ASSESSEE IS ACQUIRING T HE LAND AT VERY LOW PRICES AND SELLING THE SAME LAND ON VERY HIGHER RATE SAND IS EARNING A PROFIT THEREFROM. THE LD. COUNSEL OF THE ASSESSEE DURING ARGUMENT RAI SED A PLEA THAT TOTALITY OF CIRCUMSTANCES HAS TO BE SEEN SPECIALLY THAT ALL MON EY GOES WITH THE STATE GOVERNMENT AND NOT IN PRIVATE HANDS, THE PRICES ARE FIXED AND THE ASSESSEE IS NOT COMMERCIAL ORGANIZATION AND THE PREDOMINANT ACT IVITY OF THE ASSESSEE IS TO DEVELOP INFRASTRUCTURE AND CONTENDED THAT RULE OF C ONSTITUENCY HAS TO BE SEEN FOR WHICH RELIANCE WAS PLACED UPON THE DECISIONS PR ONOUNCED IN UNION OF INDIA & ORS VS. KAUMUDINI NARYAN DALAL & ANR (2001) 168 C TR 3: (2001) 249 ITR 219 (S.C). IF ALL THE OBJECTS AND ACTIVITIES ACTUALLY CARRIED OUT BY THE ASSESSEE ARE ANALYSED AND KEPT IN JUXTAPOSITION WITH THE AFORESA ID JUDICIAL PRONOUNCEMENT, WE ARE OF VIEW THAT ACTIVITIES OF THE ASSESSEE ARE MORE OF COMMERCIAL NATURE WITH PROFIT ORIENTED INTENT, SO NO LENIENCY SHOULD BE SHOWN TO THE ASSESSEE. HOWEVER, IF THE ARGUMENT OF THE ASSESSEE IS ANALYSE D ON POINT OF GENERAL PUBLIC UTILITY, STILL IT CAN BE SAID THAT COMMERCIA L ANGLE WITH PROFIT MOTIVE IS INVOLVED WHICH HAS BECOME PREDOMINANT OBJECT OF THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER THE ABOVE OBSERV ATIONS CLEARLY SHOW THAT THE ASSESSEE IS A HUGE PROFIT MAK ING ENTITY AND WAS MAINLY ENGAGED IN THE BUSINESS OF REAL ESTATE D EVELOPER. IT WAS POINTED OUT THAT JOINT VENTURE COMPANY (IN SHORT JV C) HAS BEEN FORMED FOR THE PURPOSE OF CONSTRUCTION OF AIRPORT A T MOHALI IN WHICH GREATER MOHALI AREA DEVELOPMENT AUTHORITY (IN SHORT GMADA), HARYANA URBAN DEVELOPMENT AUTHORITY (IN SHORT HUDA) AND AIRPORT AUTHORITY OF INDIA (IN SHORT AAI) HAVE JOINED HANDS AND HAD DEFINED SHARES IN THE JOINT VENTURE, THEN IN WHAT CAPACITY PUDA (ASSESSEE AUTHORITY) HAS MADE CONTRIBUTION OF RS. 225 CRORES. THE ASSESSING OFFICER ALSO QUOTED VARIOUS CLAUSES OF THE AGREEMEN T SHOWING THAT CONTRIBUTION OF AAI TOWARDS CONSTRUCTION WILL BE CO UNTED TOWARDS THE 51% EQUITY CONTRIBUTION AND GMADA AND HUDA WERE ALL OTTED 24.5% EACH IN THE SAID VENTURE FOR DEVELOPMENT OF THE INT ERNATIONAL AIR PORT AT MOHALI. IN THIS REGARD STATEMENT OF ADDITIONAL C HIEF ADMINISTRATOR, PUDA WAS ALSO RECORDED. ACCORDING TO THE ASSESSING OFFICER ANSWERS GIVEN BY THE ADDITIONAL CHIEF ADMINISTRATOR , PUDA CLEARLY SHOWED THAT PUDA HAD NOTHING TO DO WITH THE AIRPORT . 179 THE ASSESSING OFFICER THEN REFERRED TO THE PROV ISIONS OF SECTION 37 OF INCOME TAX ACT AND OBSERVED THAT THE EXPENDIT URE OF RS. 225 CRORES WAS FOR ACQUISITION OF LAND FOR AIRPORT MOH ALI WHICH WAS NOT RELATED TO THE INCOME EARNED IN FINANCIAL YEAR BY S ELLING OF PLOTS ETC AND MAINLY REDUCING ITS ACTUAL PROFIT. THE LAND WA S NOT INCLUDED IN THE FIXED ASSETS OF THE ASSESSEE WHICH CLEARLY SHOW THAT IT IS NOT 97 RELATED TO THE BUSINESS OF THE ASSESSEE, THEREFORE , THIS EXPENDITURE WAS NOT OF REVENUE NATURE AND NOT ALLOWABLE U/S 37. HE ALSO DISTINGUISHED THE JUDGMENTS RELIED ON BY THE ASSESS EE AND ULTIMATELY HELD THAT THE ASSESSEE IS NOT THE BENEFICIAL OWNER OF THE SHAREHOLDING IN THE JVC AND THEREFORE, EXPENDITURE OF RS. 225 CRORES SHOULD HAVE BEEN CHARGED TO THE ACCOUNT OF PUNJAB GOVERNMENT WHICH IS BENEFICIAL OWNER OF THE SHARES IN THE JOINT VENTURE FOR THE AIRPORT. ULTIMATELY IT WAS HELD THA T THE EXPENDITURE IS OF CAPITAL NATURE AND NOT ALLOWABLE. 180 ON APPEAL BEFORE THE LD. CIT(A), IT WAS MAINLY SUBMITTED THAT A SUM OF RS. 225 CRORES WAS PAID BY THE ASSESSEE AS N ON REFUNDABLE AMOUNT TOWARDS CONTRIBUTION OF DEVELOPMENT OF THE A IRPORT IN MOHALI AREA. THE EXPENDITURE WAS INCURRED ON THE PRINCIPL E OF COMMERCIAL NECESSITY AND THE SAME WAS INCURRED IN FURTHERANCE OF THE OBJECTS OF THE ASSESSEE. THE SAME WAS EXCLUSIVELY FOR THE PURP OSE OF DEVELOPMENT OF THE AIRPORT AREA FOR ECONOMIC GROWTH WHICH WAS LEADING TO INCREASE IN RATES OF LAND MANIFOLD WHICH WOULD BE BENEFICIAL TO THE ASSESSEE. CERTAIN EXAMPLES WERE G IVEN TO SHOW THE RATES OF SOME OF THE PROPERTIES. IT WAS ALSO SUBMIT TED THAT ONCE THE ASSESSEE STARTS EARNING MORE PROFITS, IT WOULD PAY MORE TAXES IN THE LONG RUN. IT WAS SUBMITTED THAT THE ASSESSING OFFI CER IS WRONG IN OBSERVING THAT THE ASSESSEE CONTENDED THAT EXPENDIT URE WAS INCURRED FOR GENERAL PUBLIC UTILITY ACTUALLY THE AS SESSEE ONLY RAISED THE CONTENTION THAT THIS EXPENDITURE WAS NOT AGAINS T PUBLIC POLICY. THE OBSERVATION OF THE ASSESSING OFFICER THAT THE A SSESSEE FAILED TO PAY ADVANCE TAX INSTALLMENTS, IS NOT CONNECTED IT I S WRONG TO SAY THAT CONTRIBUTION WAS TOWARDS ALLOTMENT OF SHARES B ECAUSE TILL DATE NO SHARES HAVE BEEN ALLOTTED. FURTHER REGARDING TH E JVA OF AIRPORT AUTHORITY OF INDIA, GOVERNMENT OF PUNJAB AND GOVERN MENT OF HARYANA, IT WAS SUBMITTED THAT GMADA/PUDA HAD ONLY ACTED AS A TRUSTEE FOR THE PUNJAB GOVERNMENT WHERE ALL THE ACT S TO BE DONE BY GOVERNMENT OF PUNJAB WERE ONLY THROUGH THIS DEVELOP MENT AGENCY AND THE ASSESSEE AUTHORITY BY ACQUIRING/PROMOTING T HE JVC IS NOT THE BENEFICIAL OWNER OF ANY OF THE SHAREHOLDING OF THE SAID JVC. THIS WAS CLEAR FROM PAGE 1 OF THE JVA WHEREIN IT IS CLEARLY WRITTEN THAT THE WORD (GOVERNMENT OF PUNJAB) THROUGH GMADA AND ALSO GOVERNMENT OF HARYANA THROUGH HUDA. THE INTENTION OF THE JVA IS CLEAR FROM THIS CLAUSE THAT THE ROLE OF GMADA/PUDA IS NOTHING MORE THAN A MERE AGENT OF ITS PRINCIPLE WHICH IS THE GOV ERNMENT OF PUNJAB 98 AS IT HAS NO VOLITION OF ITS OWN. EVEN IF SOME SH ARES ARE ALLOTTED THEY ARE GOING TO BE THE IN THE ACCOUNT OF GOVERNME NT OF PUNJAB AS THE ASSESSEE AUTHORITY IS ACTING ONLY AS AN AGENT O F GOVERNMENT OF PUNJAB. THEREAFTER RELIANCE WAS PLACED ON VARIOUS CASE LAWS. THE LD. CIT(A) DISCUSSED THE ISSUE IN DETAIL. HE ALSO REFERRED TO PROVISIONS OF SECTION 37 AS WELL AS MINUTES OF THE MEETING OF THE CABINET AND VARIOUS CLAUSES OF JVA. HE ALSO DISCUS SED THE CASE LAWS CITED BY THE PARTIES AND ULTIMATELY THE ISSUE WAS DECIDED BY HIM AGAINST THE ASSESSEE VIDE PARA 11.26 OF HIS ORD ER AS UNDER: IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT T HE AMOUNT PAID FOR ACQUISITION OF LAND FOR AIRPORT OF RS. 225 CRORES WAS NOT WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND HENCE THE SAME IS NOT ALLOW ABLE U/S 37(1) OF THE ACT. THE ADDITION MADE ON THIS ACCOUNT IS ACCORDINGLY U PHELD. 181 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE MA INLY REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AS WELL AS THE LD. CIT(A).HE FURTHER EMPHASIZED THAT T HE ASSESSEE AUTHORITY WAS MAINLY ENGAGED IN THE BUSINESS OF COL ONIZATION. IT ACQUIRED LAND, DEVELOPED THE SAME AND THEN SELLING THE SAME BY PROCESS OF AUCTION. WHEN THE PROPOSAL FOR EXPANSIO N OF INTERNATIONAL AIRPORT AT MOHALI CAME UP IT WAS FELT THAT THIS AIRPORT WILL HAVE LOT OF BENEFITS TO THE AUTHORITY BY WAY O F INCREASE IN THE VALUE OF LAND. WHEN GOVERNMENT OF PUNJAB INSTRUCTED THE AUTHORITY TO MAKE CONTRIBUTION OF RS. 225 CRORES SAME WAS MAD E BECAUSE THE SAME WAS THOUGHT TO BE BENEFICIAL TO THE ASSESSEE. REFERENCE WAS ALSO MADE TO SECTION 28 AND 49 OF PUNJAB REGIONAL & TOWN PLANNING & DEVELOPMENT ACT, 1995. SECTION 28 OF THIS ACT LA YS OUT THE OBJECTS OF THE AUTHORITY WHICH WAS TO PROMOTE AND S ECURE BETTER PLANNING AND DEVELOPMENT OF THE CITY FOR WHICH THE AUTHORITY WAS FURTHER EMPOWERED TO ACQUIRE LAND AND DEVELOP THE S AME AND THEN SUCH DEVELOPED LANDS WOULD BE SOLD TO GENERAL PUBLI C. SECTION 49 PROVIDED THAT THE AUTHORITY WAS TO MAINTAIN ITS OWN FUNDS WHICH WERE RECEIVED FROM VARIOUS SOURCES. SECTION 49(2) CLEAR LY PROVIDES FOR APPLICATION OF FUNDS AND CLAUSE (D) OF SECTION 49(2 ) CLEARLY MANDATES THAT THE AUTHORITY WAS OBLIGED TO INCUR SU CH EXPENDITURE FOR SUCH PURPOSES AS THE STATE GOVERNMENT MAY DIREC T OR PROMOTE. THEREFORE, IT IS CLEAR THAT THE STATE GOVERNMENT HA D THE POWER TO DIRECT THE AUTHORITY TO EXPEND A PARTICULAR AMOUNT AS WAS DIRECTED BY THE STATE GOVERNMENT. SINCE THE CONTRIBUTION TOW ARDS THE DEVELOPMENT OF MOHALI INTERNATIONAL AIRPORT WAS MAD E AT DIRECTION OF THE STATE GOVERNMENT, THEREFORE, THE SAME HAS TO B E CONSTRUED FOR 99 THE PURPOSE OF BUSINESS OF ASSESSEE AUTHORITY. THE LD. COUNSEL OF THE ASSESSEE ALSO REFERRED TO VARIOUS CLAUSES OF JV A AND POINTED OUT THAT THE ASSESSEE AUTHORITY HAS NEITHER ACQUIRED AN Y LAND AS ALLEGED BY THE FIRST APPELLATE AUTHORITY NOR ANY SHARES IN THE PROPOSED AIRPORT PROJECT HAVE BEEN ALLOTTED TO THE ASSESSEE . THEREFORE, THE EXPENDITURE WAS CLEARLY INCURRED FOR THE PURPOSE OF BUSINESS. MONEY WAS BASICALLY SPENT TO IMPROVE THE INFRASTRUC TURE IN AND AROUND MOHALI AREA AND DEVELOPMENT OF THE STATE WHI CH WOULD IN TURN LEAD TO INCREASE THE VALUE OF THE PROPERTIES H ELD BY THE AUTHORITY WHICH IS CLEARLY A BUSINESS PURPOSES. TH E LD. COUNSEL OF THE ASSESSEE RELIED ON THE FOLLOWING CASE LAWS: SRI VENKATA SATYANARAYNA MILL CONTRACTORSW CROSS-OB JECTIONS VS. CIT, .223 ITR 101 (S.C) CIT VS. INDIA RADIATORS LTD, 236 ITR 719 (MAD) ADDL CIT VS. RAJASTHAN SPINNING & WEAVING MILLS LTD . 274 ITR 463 (RAJ) CIT VS. CHEMICALS & PLASTICS INDIA LTD. 292 ITR 115 (MAD) PANIPAT COOP SUGAR MILLS LTD. VS. CIT, 108 ITR 111 (PH) CIT VS. CHERAN TRASNPORT CORPORATION LTD, 241 ITR 1 37 (MAD) CIT VS. VELUMANICKAM LODGE, 317 ITR 338 (MAD) CIT VS. D.T.T.D.C. LTD. 350 ITR 1 (DEL) 182 THE LD. COUNSEL OF THE ASSESSEE HAD ALSO FILED COPIES OF CERTAIN DOCUMENTS SHOWING CHANGE IN THE RATES OF LANDS IN A UCTION, AT COLLECTOR RATE BASIS AND HELD ON VARIOUS DATES. THE SE DOCUMENTS HAVE BEEN FILED DURING THE HEARING AS IT TRANSPIRED THAT NO SPECIFIC INSTANCES HAVE BEEN GIVEN FOR INCREASE IN PRICES, A ND THEREFORE, THE LD. COUNSEL OF THE ASSESSEE SOUGHT THE PERMISSION T O FILE THESE DOCUMENTS. 183 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE R EFERRED TO VARIOUS OBSERVATIONS OF FIRST APPELLATE AUTHORITYS ORDER AND SUBMITTED THAT IT HAS BEEN CLEARLY HELD BY THE LD. CIT(A) THAT THE EXPENDITURE HAS NOT BEEN INCURRED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF ASSESSEES BUSINESS. HE HAS FURTHER OBS ERVED THAT THE DECISION FOR DEVELOPMENT OF AIRPORT AREA WAS TAKEN BY THE GOVERNMENT OF PUNJAB ALONG WITH GOVERNMENT OF HARYA NA AND AIRPORT AUTHORITY OF INDIA AND ULTIMATELY JVA WAS E NTERED INTO. THE CONTRIBUTION WAS MAINLY FOR ACQUISITION OF LAND FO R AIRPORT. FOR SUCH ACQUISITION COMPENSATION WAS REQUIRED TO BE PAID W ITHIN THE 100 STIPULATED PERIOD IN VIEW OF LAND ACQUISITION ACT A ND SINCE THE GOVERNMENT OF PUNJAB DID NOT HAVE FUNDS IT ASKED VA RIOUS ORGANIZATION IN THE STATE GOVERNMENT TO MAKE CONTRI BUTION WHICH WOULD BE CONSTRUED AS EXPENDITURE FOR THE PURPOSE O F BUSINESS. THE ASSESSEE HAS MADE STATEMENT THAT THE PURPOSE OF BUS INESS WOULD BE SERVED DUE TO INCREASE IN LAND PRICES BUT NO SPECIF IC INSTANCES HAVE BEEN GIVEN TO SHOW THAT THE ASSESSEE HAS PURCHASED HUGE LANDS IMMEDIATELY BEFORE THE CONTRIBUTION PRICES OF WHICH , MAY HAVE RISEN BECAUSE OF SUCH CONTRIBUTION. IN ANY CASE IF ANY B ENEFIT AROSE IT WOULD ARISE TO ALL THE BUILDERS IN THE AREA AND THE SAME IS NOT RESTRICTED EXCLUSIVELY TO THE ASSESSEE. 184 IT CANNOT BE SAID THAT THE EXPENDITURE WAS FOR THE BENEFIT OF THE ASSESSEE BECAUSE NO DELIBERATIONS HAVE BEEN DONE BY THE AUTHORITY TO SHOW THAT IT WOULD GET SUCH BENEFIT. IN FACT TH E EXPENDITURE HAS BEEN INCURRED AT THE DIRECTION OF THE STATE GOVERNM ENT AND EVEN THE AMOUNT OF CONTRIBUTION WAS DECIDED BY THE STATE GOV ERNMENT AND NOT BY THE CHIEF ADMINISTRATOR OF PUDA. IN FACT CHIEF ADMINISTRATOR, PUDA IN HIS NOTE TO THE SECRETARY HOUSING AND URBAN DEVELOPMENT, WHICH IS REPRODUCED AT PARA 11.10 OF LD. CIT(A)S O RDER HAS REQUESTED FOR RECONSIDERATION OF THE SHARE OF PUDA WHICH WAS TO BE CONTRIBUTED AS HE WAS OF THE VIEW THAT THE FUNDS CO ULD HAVE BEEN PROVIDED BY GMADA & HUDA. SAME DID NOT GET THE AP PROVAL OF THE GOVERNMENT AND PUDA WAS FORCED TO MAKE THIS CONTRIB UTION. THIS CLEARLY SHOWS THAT THE EXPENDITURE HAS BEEN INCURRE D AT BEHEST OF THE STATE GOVERNMENT AND THEREFORE, SAME CANNOT BE SAID TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SHE ALSO REFERRED TO THE PROVISIONS OF SECTION 28 & 49(2) OF PUNJAB REGIONAL & TOWN PLANNING & DEVELOPMENT ACT, 1995 AND SUBMITTED THAT SECTION 49 IS AT BEST ENABLING PROVISION AND DOES NOT MAKE EXPENDITURE INCURRED AS PER SECTION 49(2)(D) IFSO FACTO ALLOWAB LE U/S 37 OF THE ACT. FOR CLAIMING DEDUCTION U/S 37 THE EXPENDITURE HAS TO BE INCURRED FOR THE PURPOSE OF THE BUSINESS. EVEN REA DING OF SECTION 28 WOULD SHOW THAT THE EXPENDITURE WAS NOT INCURRED FOR THE OBJECTS OF THE AUTHORITY WHICH HAVE BEEN PRESCRIBED IN SECT ION 28 BECAUSE PUDA HAS NOT ACQUIRED ANY LAND IN ITS OWN NAME. TH EREFORE, IT CANNOT BE SAID THAT SOME ADVANTAGE WOULD ACCRUE TO THE ASSESSEE THROUGH THIS CONTRIBUTION. 185 SHE ALSO SUBMITTED THAT SECTION 28 OF THE PUNJA B REGIONAL & TOWN PLANNING & DEVELOPMENT ACT, 1995 IS A GENERAL PROVISION 101 GIVING THE OBJECTS WHEREAS SECTION 29 OF THE SAME A CT IS SPECIFIC PROVISION UNDER WHICH VARIOUS AUTHORITIES HAVE BEEN ESTABLISHED FOR DEVELOPMENT OF SPECIFIC AREAS WHICH IS DEMARCATED F OR DEVELOPMENT AND MAINTENANCE. FOR EXAMPLE GMADA HAS BEEN ESTABL ISHED TO MANAGE AND DEVELOP THE AREA IN AND NEARBY AREA VID E NOTIFICATION NO. 13/52/2006/1 HF2/7443 DATED 14.8.2006 AND IT HA S BEEN SPECIFICALLY MENTIONED IN THIS NOTIFICATION THAT AL L THE POWERS OF PUDA RELATING TO DEVELOPMENT OF MOHALI AND ADJOININ G AREAS WOULD BE LOOKED AFTER BY GMADA. THEREFORE, PUDA IS ONLY NODAL AGENCY OF THE GOVERNMENT FOR POLICY FORMATION AND COOPERAT ION BETWEEN PUDA AND OTHER DEVELOPMENT AUTHORITIES. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAS INCURRED THIS EXPENDITUR E IN VIEW OF SECTION 49(2)(A) R.W.S. 29 BECAUSE THE GOVERNMENT S HOULD HAVE DIRECTED THE GMADA AND NOT THE ASSESSEE. SHE FURTHE R SUBMITTED THAT THERE IS NO FORCE IN THE CONTENTION THAT THE E XPENDITURE HAS BEEN INCURRED FOR THE OBJECTS OF THE ASSESSEE IN TERMS O F PUNJAB REGIONAL & TOWN PLANNING & DEVELOPMENT ACT, 1995. THE CONTE NTION THAT THIS EXPENDITURE WAS CLAIMED AS PER THE INSTRUCTIONS OF GOVERNMENT OF PUNJAB HAS NO FORCE BECAUSE THE STATE GOVERNMENT CA N NOT GIVE ANY INSTRUCTIONS IN VIOLATION OF ANY CENTRAL LAW PASSED BY THE PARLIAMENT. 186 SHE ALSO REFERRED TO JVA AND POINTED OUT THAT U LTIMATELY THE CONTRIBUTION BY PUDA HAS BEEN MADE TOWARDS PURCHASE OF LAND AGAINST WHICH PUDA HAS BEEN ALLOTTED 24.5% STAKE IN THE PROPOSED NEW AIRPORT THROUGH GMADA. THIS MEANS THE EXPENDIT URE HAS BEEN INCURRED BECAUSE THE CONTRIBUTION WAS TO BE USED B Y THE PROPOSED AIRPORT FOR THE PURPOSE OF ACQUISITION OF LAND AND ACCORDINGLY SUCH EXPENDITURE IS NOT ALLOWABLE BECAUSE THE SAME IS OF CAPITAL IN NATURE AND IN VIOLATION OF SECTION 37. 187 SHE REFERRED TO THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT VS. MALAYALAM PLANTATIONS LTD., 53 ITR 140 W HEREIN THE EXPRESSION FOR THE PURPOSE OF BUSINESS, WAS DISCUSS ED AND IT WAS OBSERVED THAT THE PURPOSE OF BUSINESS WOULD NOT INC LUDE SUMS SPENT BY THE ASSESSEE AS THIRD PARTY WHETHER THE AGENCY I S VOLUNTARY OR STATUTORY. SHE ALSO RELIED ON THE DECISION OF OIL INDUSTRIES DEVELOPMENT BOARD VS. CIT, 123 ITD 67. SHE ALSO S UBMITTED THAT THE BURDEN WAS ON THE ASSESSEE TO PROVE THAT THE EX PENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS WAS ON THE ASS ESSEE AND FOR THIS PROPOSITION SHE RELIED ON THE DECISION OF HON' BLE SUPREME COURT IN CASE OF LAKSHMIRATAN COTTON MILLS CO. LTD. VS. C IT, 73 ITR 634. 102 SHE ALSO REFERRED TO VARIOUS DECISIONS CITED BY TH E LD. COUNSEL OF THE ASSESSEE AND DISTINGUISHED THE SAME. 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 TOWARDS THE DEVELOPMENT OF AIRPORT AT MOHALI. THE MAIN CONTENT ION OF THE ASSESSEE IS THAT THE AMOUNT WAS SPENT FOR THE PURPO SE OF BUSINESS AND THIS WAS ALLOWABLE EXPENDITURE U/S 37. THE REL EVANT 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 H AVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE.] ABOVE PROVISION SHOWS THAT FOLLOWING CONDITIONS HAD TO BE COMPLIED FOR ALLOWABILITY OF EXPENDITURE UNDER THIS SECTION: 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 AN D THEREFORE, CONDITION NO. 1 AND 3 ARE COMPLIED. NOW WE HAVE TO TEST WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE ALSO MEETS OT HER TWO REQUIREMENTS I.E. IT IS NOT CAPITAL EXPENDITURE AND IT HAS BEEN EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. FIRSTLY WE SHALL EXAMINE WHETHER THE EXPENDITURE WA S INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. MAIN CONTENTION OF THE ASSESSEE WAS THAT THE ASSESSEE WAS ENGAGED I N THE BUSINESS OF ACQUISITION OF LAND, DEVELOPMENT OF THE SAME AN D SALE OF SUCH DEVELOPED LANDS TO THE GENERAL PUBLIC. BY INCURRIN G THIS EXPENDITURE THERE WOULD HAVE BEEN GENERAL DEVELOPMENT OF THE AR EA OF GREATER MOHALI LEADING TO GENERAL APPRECIATION OF THE LAND PRICES WHICH WOULD RESULT IN THE BENEFITS TO THE ASSESSEE IN TE RMS OF VALUE OF LAND. WE DO NOT FIND ANY MERIT IN THIS CONTENTION. FIRSTLY IF THE 103 ASSESSEE THOUGHT THAT THIS CONTRIBUTION WOULD LEAD TO GENERAL APPRECIATION OF LAND AND IT WOULD BE BENEFICIAL TO THE ASSESSEE THEN THERE WOULD HAVE BEEN SOME DELIBERATION ON THE PART OF THE ASSESSEE BEFORE INCURRING THIS EXPENDITURE. DURING THE COURSE OF HEARING WE HAVE SPECIFICALLY ASKED HOW THE AUTHORIT Y WAS BEING MANAGED AND IT WAS POINTED OUT THAT MAJOR DECISIONS WERE BEING TAKEN BY THE COMMITTEE OF SECRETARIES AND DAY TO DA Y BUSINESS WAS BEING LOOKED AFTER BY THE CHIEF ADMINISTRATOR OF PU DA. IF THE ASSESSEE THOUGHT THAT BY INCURRING HUGE EXPENDITURE OF RS. 225 CRORES, THE SAME WOULD BE BENEFICIAL TO THE ASSESSE E THERE WOULD HAVE BEEN SOME DELIBERATIONS ON THE PART OF THE COM MITTEE OF SECRETARIES WHICH CAN BE EQUATED WITH BOARD OF DIRE CTORS IN CASE OF CORPORATE ASSESSEES BUT NO SUCH DELIBERATIONS HAVE BEEN MADE AND IT WAS NOT SHOWN TO US BY WAY OF RESOLUTIONS OR MIN UTES OF THE COMMITTEE THAT THIS ISSUE WAS EVEN DELIBERATED/DISC USSED BY SUCH COMMITTEE OR HOW SUCH DECISION WAS ARRIVED AT BEFOR E INCURRING THE EXPENDITURE. RATHER THE EXPENDITURE HAS CLEARLY BE EN INCURRED ON DIRECTIONS OF THE STATE GOVERNMENT AND THIS FACT HA S 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 EXTRACTED THE MINUTES OF THE MEETING OF THE COUNCIL OF MINISTERS OF STATE GOVERNMENT 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 ACCORDED. IT HAS ALSO BEEN DECIDED BY THE COUNSEL OF MINISTER S THAT FOR THIS PURPOSE PUNJAB HOUSING AND URBAN DEVELOPMENT DEPARTMENT SHA LL ARRANGE FUNDS FOR ACQUISITION OF 300 ACRE LAND INCLUDING INCIDENTAL C HARGES. FOR THIS PURPOSE, PUDA, GMADA AND GLADA WILL BEAR EXPENDITURE IN THE RATIO .75%, 12.5% AND 12.5% RESPECTIVELY UNDER SECTION 49(2)(D) OF THE PU NJAB REGIONAL AND TOWN PLANNING AND DEVELOPMENT ACT 1995.(SIC) IN ANOTHER MEETING HELD UNDER THE CHAIRMANSHIP OF CHIEF SECRETARY, GOVERNMENT OF PUNJAB ON 5.3.2008, THE DE CISION TAKEN WAS AS UNDER: THE ISSUE OF IMPLEMENTATION OF DECISION OF COUNCIL OF MINISTERS, DATED 2.1.2008, REGARDING PROVISIONING OF FUNDS WAS DISCU SSED. CHIEF SECRETARY, PUNJAB IMPRESSED UPON THE URGENCY TO MAK E AVAILABLE THE APPROPRIATE FUNDS AT THE DISPOSAL 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 DE CISION, PUDA, GMADA, AND GLADA ARE TO PROVIDE FUNDS IN THE RATION OF 75%, 12.5% AND 12.5% RESPECTIVELY. CHIEF SECRETARY ASKED CA/PU DA ON TELEPHONE TO COMPLY WITH THESE ORDERS IMMEDIATELY. 104 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 COMPETENT AND WERE DIRECTED TO COMPLY WITH THESE ORDERS WITHO UT ANY FURTHER UNNECESSARY PAPER WORK. THE THREE CAS MAY INFORM TH EIR 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 ME ETING REFERRED ABOVE. FOLLOWING POINTS NEED CLARIFICATION:- 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 PUDA. IT MAY BE DECIDED WHETHER THE SAME BE UTILIZED FOR FUNDING TH E 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 PERUS ED. 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% RESP ECTIVELY UNDER SECTION 49(2) (D) OF THE PUNJAB REGIONAL & TOWN PLANNING AN D 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 RESPECTIVE 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 COMPENSATION AND SO THE QUANTUM OF CONTRIBUTION WAS NOT KNOWN. 105 HOWEVER, SUBSEQUENTLY THE COUNCIL OF MINISTERS HAS DECIDED IN THE MEETING HELD ON 20.3.2008 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 WILL BE INCURRED BY PUNJAB URBAN DEVELOPMENT AUTHORITY (PUDA) AND GREAT ER MOHALI AREA DEVELOPMENT AUTHORITY (GMADA) AND GREATER LUDHIANA AREA DEVELOPMENT AUTHORITY (GLADA). AS ONLY RS. 300.00 CRORES ARE A VAILABLE WITH THESE AUTHORITIES, THEREFORE THE COUNCIL OF MINISTERS DEC IDED THAT PUNJAB INFRASTRUCTURE DEVELOPMENT BOARD (PIDB) WILL MAKE A VAILABLE RS. 160.00 CRORES TO THESE AUTHORITIES SO THAT THE EXPENDITURE AT THE RATES APPROVED BY THE COUNCIL OF MINISTERS COULD BE INCURRED ON THE ACQUI SITION 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 INTEREST. 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 BAN KS AGAINST THE FDRS WHICH SHALL BE REPAID ON MATURITY OF FDRS OF OTHERWISE AN D SENIOR ACCOUNTS OFFICER, PUDA MAY BE AUTHORIZED TO SIGN THE LOAN DOCUMENTS W ITH 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. 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 C ORES IN MOHALI AND LOGICALLY, THE SHARE OF GMADA SHOULD BE MUCH MORE O N THE ENTIRE FUNDS COULD HAVE BEEN PROVIDED BY GMADA. THE DIRECTION OF THE G OVERNMENT TO UPDA TO CONTRIBUTE 75% OF THE SHARE NEEDS RE-CONSIDERATION. IF GOVERNMENT DEEMS IT PROPER, THE FILE CAN BE RE-SUBMITTED AFTER MAKING T HE PAYMENT. HOWEVER, AS DESIRED BY THE GOVERNMENT, FILE IS SUBM ITTED FOR APPROVAL TO DEPOSIT FUNDS AMOUNTING TO RS. 225.00 CRORES IN GOV ERNMENT 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 DELIBERA TED BY CHIEF SECRETARY, GOVERNMENT OF PUNJAB AND CHIEF ADMINISTR ATOR, PUDA CLEARLY SHOW THAT INITIALLY ON 2.1.2008, PUNJAB GOV ERNMENT TOOK THE 106 DECISION FOR MAKING OF CONTRIBUTION FOR THE PURPOSE OF ACQUISITION OF 300 ACRES OF LAND AS CONTRIBUTION FOR MOHALI AIRPOR T. THEREAFTER CHIEF SECRETARY IN A MEETING TOOK THE DECISION THAT THIS CONTRIBUTION WAS REQUIRED TO BE MADE U/S 49(2) OF PUNJAB REGIONA L & 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 W HEN THE PROPOSAL WAS PUT UP BEFORE THE CHIEF ADMINISTRATOR, PUDA HE RAISED MANY DOUBTS ON THE PROPOSAL. FIRST DOUBT IS CLEAR REGAR DING THE QUANTUM OF AMOUNT. SECOND DOUBT IS THAT NO FORMAL DIRECTION HAS BEEN GIVEN BY THE GOVERNMENT OF PUNJAB EXCEPT FOR DRAFT PROCEE DINGS ABOVE. DOUBT WAS FURTHER EXPRESSED VIDE ITEM NO. 3 OF THE PROPOSAL REGARDING PARTICIPATION OF THE PUDA. QUESTION 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 PUDA S OWN SHARE TO THE PROJECT. THUS IT IS CLEAR THAT NOWHERE IT IS B EING 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 UTILIZATION OF F UNDS UNDER OUVGL. THUS IT IS VERY CLEAR THAT THE THEORY OF BENEFIT 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 D ECISION MAKING NO SUCH DISCUSSION OR DELIBERATIONS WERE MADE. WHE N ALL THE DOUBTS WERE PUT UP BEFORE THE CHIEF SECRETARY WHEREIN IT W AS REITERATED THAT THE PAYMENT WAS BEING MADE FOR COMPENSATION OF ACQU ISITION OF LAND FOR SETTING UP OF THE INTERNATIONALS AIRPORT A T MOHALI AND THE DECISION HAS BEEN TAKEN THAT SUCH EXPENDITURE SHOUL D BE INCURRED BY PUDA, GMADA AND GLADA. IT SEEMS THAT TOTAL EXPENDI TURE WAS MORE THAN 300 CRORES WHICH WAS NOT AVAILABLE WITH P UDA, GMADA AND GLADA, THEREFORE, FURTHER INSTRUCTIONS WERE GIV EN THAT PUNJAB INFRASTRUCTURE DEVELOPMENT BOARD WILL MAKE A CONTRI BUTION OF RS. 160 CRORES BECAUSE THE FUNDS WERE AVAILABLE WITH TH AT BOARD. THIS CLEARLY SHOWS THAT NO ANALYSIS HAVE BEEN MADE ON TH E BASIS OF THE BENEFITS WHICH WOULD HAVE ACCRURED TO VARIOUS AUTH ORITIES I.E. THE ASSESSEE (PUDA), GMADA AND GLADA. IT IS NOT CLEAR H OW PUNJAB INFRASTRUCTURE DEVELOPMENT BOARD WOULD DERIVE ANY B ENEFIT. RATHER THE CONTRIBUTION WAS DECIDED BY THE GOVERNMENT ON T HE BASIS OF AVAILABILITY OF FUNDS. THIS FACT CLEARLY SHOW THAT AT NO POINT OF TIME THE CONTRIBUTION WAS CONSIDERED AS A BENEFICIAL TO THE ASSESSEE. IN 107 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 C ORES IN MOHALI AND LOGICALLY, THE SHARE OF GMADA SHOULD BE MUCH MORE O N THE ENTIRE FUNDS COULD HAVE BEEN PROVIDED BY GMADA. THE DIRECTION OF THE G OVERNMENT TO PUDA TO CONTRIBUTE 75% OF THE SHARE NEEDS RE-CONSIDERATION. IF GOVERNMENT DEEMS IT PROPER, THE FILE CAN BE RE-SUBMITTED AFTER MAKING T HE PAYMENT. 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 AIRPOR T WAS COMING UP AND THEREFORE, CONTRIBUTION SHOULD BE MADE BY GMAD A. WHEN THESE OBSERVATIONS WERE MADE IN THE NOTE PUT UP BY THE CH IEF ADMINISTRATION THEN HOW IT CAN BE SAID THAT THE CON TRIBUTION MADE WAS FOR THE PURPOSE OF BUSINESS BECAUSE THIS WOULD HAVE LED TO GENERAL APPRECIATION IN THE VALUE OF THE LANDS. IN THIS REGARD THE LD. CIT(A) HAS MADE FOLLOWING OBSERVATIONS VIDE PARA 11 .12 TO 11.14 WHICH 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 MOHALI. IT APPEARS THAT NO PROVISION OF FUNDS WAS AVAILABLE IN THE BUDGET OF THE PUNJAB GOVERNMENT. IN ORDER TO GIVE IMMEDIA TE EFFECT TO THE DECISION FOR ESTABLISHMENT OF INTERNATIONAL AIRPORT , A SUITABLE PIECE OF LAND HAD TO BE ACQUIRED. THE GOVERNMENT HAD THE NE CESSARY POWER TO ACQUIRE THE LAND, BUT IT REQUIRED FUNDS FOR PAYMENT TO THE PERSONS WHOSE LAND WAS TO BE ACQUIRED. UNDER THE PROVISIONS OF L AND 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 AGREEMENT WITH THE AIRPORT AUTHORITY OF INDIA, BUT IT HAD NO FUNDS TO PAY THE FOR ACQUISITION OF LAND. THEREFORE, THE GOVERNMENT HAD TO FIND SOME SOURCE FROM WHERE THE ACQUISITION COULD BE FUNDED. THE GOV ERNMENT REALIZED THAT SOME ORGANIZATIONS UNDER ITS CONTROL HAD SURPLUS FU NDS AVAILABLE AND THESE ORGANIZATIONS COULD BE ASKED TO PROVIDE THE N ECESSARY 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, WHI CH THE GOVERNMENT HAD IMPOSED ON IT. THE SELECTION OF THE ORGANIZATIO NS WAS PURELY ON THE BASIS OF THE AVAILABILITY OF SURPLUS FUNDS, WHICH I S CLEAR FROM THE FACT THAT ONE OF THE ORGANIZATIONS REQUIRED TO CONTRIBUTE WAS GREATER LUDHIANA AREA DEVELOPMENT AUTHORITY (GLADA), WHICH BY NO STR ETCH OF THE IMAGINATION COULD BE CONSIDERED AS HAVING ANYTHING TO DO WITH THE AIRPORT AT MOHALI. IT CAN CLEARLY INFERRED THAT THE CONTRI BUTION WAS NOT EVEN VOLUNTARY. HENCE, THE CONTENTION OF THE LD. COUNSE LS THAT THE EXPENDITURE IN THE FORM OF CONTRIBUTION WAS FOR BUSINESS PURPOS ES TOTALLY LACKS CONVICTION. 108 191 WE FURTHER FIND THAT BEFORE THE LD. CIT(A) WHEN THIS CONTENTION OF THE APPRECIATION OF LAND WAS MADE FOLLOWING EXAM PLES WERE 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 PROPOSED INTERNATIONAL AIRPORT. FOR THE PROSPECTIVE BUYERS WHO ENTHUSIASTI CALLY APPLIED, THE RATE OF ALLOTMENT PER SQ. YARD WAS FIXED @ RS. 12000 PER SQ . YARD. EVEN AFTER TAKING INTO CONSIDERATION THE DEVELOPMENT COST OF THESE PL OTS, THE IMMEDIATE ONE TIME GAIN, IN 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 AUCTION OF THE COMMERCIAL SITE WAS @RS. 300000 PER SQ. YARD. HOWEVER THE AFTE R EFFECT WAS THAT FOR AUCTIONS CONDUCTED IN SECTOR 69 AND SECTOR 70 THE P ER SQ. YARD RESERVE PRICE OF COMMERCIAL PLOTS WAS FIXED AT @ RS. 400000 AND EVEN THE ACTUAL SELLING WENT MUCH ABOVE THIS. THUS THERE WAS A STRAIGHTWAY ONE T IME GAIN OF MORE THAN 25%-30% OF THE 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 WHER E THE ONE TIME GAIN IS LIKELY TO BE MORE THAN 25% TO 30% IN TERMS OF SALE OF COMMERCIAL PROPERTIES. (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 FR OM SALE OF MORE THAN 150 ACRES OF COMMERCIAL LAND IN HAND IN SECTOR 62 WHERE A CITY CENTRE HAS BEEN PROPOSED AND THE SALE OF MORE THAN 150 ACRES OF COM MERCIAL LAND IN HAND IN SECTOR 62 WHERE A CITY CENTRE HAS BEEN PROPOSED AN D THE SALE OF MORE THAN 600 ACRES OF LAND IN SECTOR 88-89 WILL BRING IN ENO RMOUS PROFITS TO THE AUTHORITY. THE ABOVE CLEARLY SHOWS THAT NO SPECIFIC INSTANCES HAVE BEEN GIVEN REGARDING VALUE OF LAND BEFORE MAKING THIS CONTRIBU TION AND AFTER THIS CONTRIBUTION. THEREFORE, THE LD. CIT(A) HAS CORRE CTLY HELD THAT THESE ARE GENERAL STATEMENTS AND CANNOT LEAD TO THE CONCL USION THAT THE ASSESSEE HAS DERIVED ANY BENEFIT FROM THE SAID CONT RIBUTION TO THE AIRPORT. 192 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE HAS FILED CERTAIN EVIDENCES BY WAY OF EXAMPLES TO SHOW THAT THE PROPE RTIES IN AND AROUND MOHALI HAD APPRECIATED AFTER THIS CONTRIBUTI ON. STRICTLY SPEAKING THIS EVIDENCE CANNOT BE ADMITTED AT THIS S TAGE BECAUSE NO REASON HAVE BEEN GIVEN FOR NOT FILING THESE DOCUMEN TS BEFORE THE LOWER AUTHORITIES. HOWEVER, WE HAVE STILL PERUSED THE SAME AND FIND THAT THESE DOCUMENTS DO NOT PROVE THAT THE RATES HA VE REALLY INCREASED IN THE ABSENCE OF DETAILS. FOR EXAMPLE A UCTION RATES OF VARIOUS PROPERTIES GIVEN AT PARA 1 OF THE ADDITIONA L PAPER BOOK READS AS UNDER: AUCTION RATES OF VARIOUS PROPERTIES IN PUNJAB 109 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 A T PHULKIAN ENCLAVE, PATIALA. EVEN IF ASSUMING FOR THE SAKE OF ARGUMENT THAT IN SOME POCKETS THE RATES HAVE INCREASED THE SAME MAY BE BE CAUSE OF GENERAL APPRECIATION OF THE PROPERTY VALUES. NO LIN K HAS BEEN ESTABLISHED TO SHOW THAT CONTRIBUTION MADE BY THE A SSESSEE RESULTED DIRECTLY IN INCREASE OF LAND PRICES. FURTHER IT IS VERY IMPORTANT TO NOTE AS POINTED OUT BY THE LD. DR FOR THE REVENUE T HAT INCREASE, IF ANY, WAS AVAILABLE TO ALL THE BUILDERS AND PROPERTY DEVELOPERS OPERATING IN THE AREA AND WAS NOT RESTRICTED EXCLUS IVELY TO THE ASSESSEE ONLY. THEREFORE, LOGICALLY ALL SUCH ORGAN IZATIONS DEALING IN THE PROPERTY SHOULD HAVE BEEN ASKED TO CONTRIBUTE T O THE DEVELOPMENT OF AIRPORT. 194 WE FIND FORCE IN THE CONTENTION OF THE REVENUE THAT EVEN THE CONTRIBUTION WAS NOT CONSIDERED AND QUANTIFIED BY T HE PUDA AND IT WAS DECIDED BY THE PUNJAB GOVERNMENT AS IT BECOMES CLEAR FROM THE NOTE OF SECRETARY, HOUSING AND URBAN DEVELOPMENT TH EN HOW THE ASSESSEE CAN SAY THAT SUCH CONTRIBUTION WOULD HAVE BEEN BENEFICIAL TO THE ASSESSEE WHEN EVEN THE DECISION REGARDING QU ANTUM 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 AUTHORIT Y AS PER SEC 28 OF PUNJAB REGIONAL & TOWN PLANNING & DEVELOPMENT ACT, 1995 AND 110 FURTHER U/S 49 THE GOVERNMENT CAN ISSUE DIRECTIONS TO THE AUTHORITY FOR MAKING ANY EXPENSES AND THEREFORE, THE ASSESSE E WAS DUTY BOUND TO INCUR SUCH EXPENSES AS DIRECTED BY THE GOV ERNMENT. RELEVANT PORTION OF SECTIONS 28, 29 & 49 OF PUNJAB REGIONAL & TOWN PLANNING & DEVELOPMENT ACT, 1995 ARE REPRODUCED HER EUNDER: 28(1) THE OBJECT OF THE AUTHORITY SHALL BE TO PROMOTE AND SECURE BETTER PLANNING AND DEVELOPMENT OF ANY AREA OF THE STATE A ND FOR THAT PURPOSE THE AUTHORITY SHALL HAVE THE POWERS TO ACQUIRE BY WAY O F PURCHASE, TRANSFER, EXCHANGE OR GIFT OR TO HOLD, MANAGE, PLAN, DEVELOP AND MORTGAGE OF OTHERWISE DISPOSE OF LAND OR OTHER PROPERTY OR TO CARRY OUT I TSELF OR IN COLLABORATION WITH ANY OTHER AGENCY ON ITS BEHALF, BUILDING, ENGINEERI NG, MINING AND OTHER OPERATIONS TO EXECUTE WORKS IN CONNECTION WITH SUPP LY OF WATER, DISPOSAL OF SEWERAGE, CONTROL OF POLLUTION AND OTHER SERVICES A ND AMENITIES AND GENERALLY TO DO ANYTHING WITH THE PRIOR APPROVAL OR ON DIRECT ION OF THE STATE GOVERNMENT, FOR CARRYING OUT THE PURPOSES OF THIS ACT. IN PARTICULAR AND WITHOUT PREJUDICE TO THE GENERALI TY OF THE FOREGOING PROVISIONS, THE AUTHORITY ITSELF IN COLLABORATION WITH ANY OTHE R AGENCY 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. 14 THE STATE GOVERNMENT MAY, BY NOTIFICATION, CONST ITUTE AN AUTHORITY FOR SUCH AREA TO BE CALLED THE SPECIAL URBAN PLANNING AND DEVELOP MENT AUTHORITY 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. (2) EVERY NOTIFICATION ISSUED UNDER SUB-SECTION (1) SHALL 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. 111 196 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 PROVIDES THAT FOR DEVELOPMENT OF SUCH ADJACENT AREA WHERE IT IS CONSIDERED NECESSARY SEPARATE AUTHORITIES MAY BE CONSTITUTED T HEREFORE, THERE IS FORCE IN THE CONTENTION OF THE LD. DR FOR THE RE VENUE THAT PUDA HAD NOTHING TO DO WITH THE DEVELOPMENT OF THIS AIRP ORT BECAUSE AS PER NOTIFICATION NO. 13/52/2006-07 HG2/7443 DATED 1 4.8.2006 GMADA WAS NOTIFIED FOR THE DEVELOPMENT OF GREATER M OHALI AREA. FURTHER READING OF SECTION 49 SHOWS THAT VARIOUS AU THORITIES WERE AUTHORIZED TO INCUR EXPENDITURE FOR SUCH OTHER PURP OSES WHICH WERE DIRECTED OR PERMITTED BY THE STATE GOVERNMENT. IN OUR OPINION, SUCH OTHER PURPOSES, FIRST OF ALL HAVE TO BE RELATED TO GENERAL PURPOSE OF THE AUTHORITY I.E. DEVELOPMENT OF LAND. FOR EXAMPL E STATE GOVERNMENT PERHAPS CANNOT DIRECT THE ASSESSEE AUTHO RITY TO START PROVIDING SUBSIDIES IN FOOD ITEMS. SECONDLY EVEN I F SAME EXPENDITURE IS INCURRED BECAUSE OF STATUTORY COMPUL SIONS, IT IS NOT NECESSARY THAT SAME WOULD BECOME ALLOWABLE BUSINESS EXPENDITURE FOR THE PURPOSE OF SECTION 37 OF THE ACT BECAUSE FO R ALLOWABILITY THE EXPENDITURE HAS TO BE FURTHER FOR THE PURPOSE OF BU SINESS. THIS BECOMES CLEAR FROM THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT V. MALAYALAM PLANTATIONS LTD. (SUPRA). IN TH AT CASE ASSESSEE COMPANY WAS A RESIDENT COMPANY INCORPORATED OUTSIDE INDIA. MOST OF ITS SHAREHOLDERS WERE IN U.K. ON THE DEATH OF SH AREHOLDERS NOT DOMICILED IN INDIA DURING THE ACCOUNTING PERIOD END ING 31.3.1955 IT PAID POUND 1302-9-4 AND POUND 1303 TOWARDS ESTATE D UTY WHICH WAS PAYABLE ON THE DEATH OF CERTAIN SHARE HOLDERS WHO W ERE 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 ALLOW 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 ENTITLED TO DEDUCT THIS AMOUNT IN COMPUTING ITS PRO FITS. ON AN APPLICATION MADE BY THE LD. COMMISSIONER, THE TRIBU NAL 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 F OR ITS OPINION: 112 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 ASS ESSEES 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 AFFIRMA TIVE. THEREAFTER REVENUE FILED AN APPEAL BEFORE THE HON'BLE APEX COU RT. THE HON'BLE APEX COURT AFTER DETAILED DISCUSSION PARTICULARLY U /S 10 WHICH WAS FOR COMPUTING THE PROFITS AND GAINS UNDER THE OLD A CT, HELD THAT THIS EXPENDITURE WAS NOT ALLOWABLE. THE ANALYSIS HAS BE EN SUMMARIZED IN THE HEAD NOTE WHICH IS AS UNDER: HELD THAT ALTHOUGH THE AMOUNTS PAID WERE 'EXPENDITU RE', THEY WERE NOT ALLOWABLE UNDER SECTION 10(2)(XV) OF THE INDIAN INC OME-TAX ACT, 1922, AS BUSINESS EXPENDITURE BECAUSE THE PAYMENTS WERE NOT 'FOR THE PURPOSE OF THE BUSINESS'. THE PAYMENTS HAD NOTHING TO DO WITH THE CONDUCT OF ITS BUSINESS. THE FACT THAT ON ITS DEFAULT, IF ANY, IN THE PAYMEN T OF THE DUES, THE REVENUE MIGHT REALIZE THE AMOUNTS FROM THE BUSINESS ASSETS WAS A CONSEQUENCE OF THE DEFAULT OF THE COMPANY IN NOT DISCHARGING ITS STATU TORY OBLIGATION, BUT THAT DID NOT MAKE THE EXPENDITURE ANY THE MORE EXPENDITURE I NCURRED IN THE CONDUCT OF THE BUSINESS. THE OBLIGATION OF THE COMPANY TO PAY ESTATE DUTY UNDER SECTION 84 OF THE ESTATE DUTY ACT, 1953, WAS A STATUTORY DU TY UNCONNECTED WITH THE BUSINESS, THOUGH THE OCCASION FOR THE IMPOSITION AR OSE 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 A LSO THE RATIONALIZATION OF ITS ADMINISTRATION AND MODERNIZATION OF ITS MACHINERY; IT MAY INCLUDE MEASURES FOR THE PRESERVATION OF THE BUSINESS AND FOR THE PROTEC TION OF ITS ASSETS AND PROPERTY FROM EXPROPRIATION, COERCIVE PROCESS OR AS SERTION OF HOSTILE TITLE; IT MAY ALSO COMPREHEND PAYMENT OF STATUTORY DUES AND T AXES IMPOSED AS A PRE- CONDITION TO COMMENCE OR FOR THE CARRYING ON OF A B USINESS; IT MAY COMPREHEND MANY OTHER ACTS INCIDENTAL TO THE CARRYING ON OF TH E BUSINESS. HOWEVER, WIDE THE MEANING OF THE EXPRESSION MAY BE, ITS LIMITS AR E IMPLICIT IN IT. THE PURPOSE SHALL BE FOR THE PURPOSE OF THE BUSINESS, THAT IS T O SAY, THE EXPENDITURE INCURRED SHALL BE FOR THE CARRYING ON OF THE BUSINESS AND TH E 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 THIRD 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 STATU TORY 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 EXPE NDITURE. IN THE CASE BEFORE US, IT HAS BEEN HELD THAT THE EXPENDITU RE WAS INCURRED FOR THE PURPOSE OF ACQUISITION OF LAND AND THEREFO RE, BEING IN CAPITAL NATURE IS NOT ALLOWABLE. IN THIS REGARD WE HAVE PERUSED JOINT VENTURE AGREEMENT (IN SHORT JVA) CAREFULLY AND FIND THAT THE SAME WAS ENTERED ON 17 TH DAY OF SEPT, 2009 BETWEEN AIRPORT AUTHORITY OF 113 INDIA (STATUTORY AUTHORITY ESTABLISHED UNDER THE AI RPORT ACT, 1994) AND GOVERNMENT OF PUNJAB THROUGH GMADA (STATUTORY A UTHORITY CONSTITUTED BY GOVERNMENT OF PUNJAB AND HUDA (STATU TORY AUTHORITY CONSTITUTED BY HARYANA HOUSING DEVELOPMENT AUTHORIT Y). IN THE RECITATION CLAUSE IT HAS BEEN RECITED THAT MEMORAND UM OF UNDERSTANDING WAS SIGNED AMONG THOSE PARTIES ON 4.1 .2008 WHICH BROADLY PROVIDE FOR THE FOLLOWING TERMS AND CONDITI ONS: 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 OP ERATE 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 SHAR ED BETWEEN THE GOVERNMENTS OF PUNJAB & HARYANA AND WOULD BE CAPITALIZED AND SH ALL COUNT TOWARDS THE 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 CO NSIDERATION 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 CONTRIBUTION 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 TE RMINAL & OTHER AERONAUTICAL ASSETS TO BE BUILT BY AAI WILL BE COUNTED TOWARDS T HE 51% EQUITY CONTRIBUTION OF AAI AS PER THE PROVISIONS IN THE SHAREHOLDERS AGRE EMENT TO BE EXECUTED 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 DETERMINED 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 AND 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: 114 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 ACR ES AND TRANSFER TO THE JVC FOR THE DEVELOPMENT OF CHANDIGARH INTERNATION AL AIRPORT. 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 A ND THE 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 COMMENCING FROM THE DATE OF TRANSFER OF LAND TO JVC TO MINIMIZE OPE RATIONAL LOOSES. THE NEED FOR FURTHER EXTENSION OF THESE CONCESSION AND EXEMP TIONS 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 EXTEND ED RUNWAY AND TRANSITIONAL AREA SUCH AS HIGH TENSION / LOW TENSION POWER LINES , CANAL, GAS PIPELINE, STRUCTURES, BUILDINGS, CHIMNEYS, TREES ETC. AT THEI R 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 SHAREHOLDERS 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 I S INCORPORATED. TILL SUCH TIME THE SHAREHOLDERS AGREEMENT IS EXECU TED AND AOA IS APPROVED BY THE PARTIES, IT IS AGREED BY THE PARTIES THAT THE R EGULATIONS 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 ALTER OR AMEND THE MOA AND AOA TO MAKE IT CONSISTENT WITH THE TERMS OF THIS AG REEMENT. 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 CONTRIBUT ION 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 AG GREGATING TO RS. 2,45,00,000/- (RS. TWO CRORE FORTY FIVE LAC ONLY) 115 (A) THE PROPORTION IN WHICH THE PARTIES SHALL SUBS CRIBE TO THE EQUITY SHARE CAPITAL OF THE JVC SHALL BE AS FOLLOWS SUBJECT TO P ROVISIONS CONTAINED 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 CREATING THE AIRSIDE FACILITIES AND TERMINAL BUILDING FOR THE JVC, WHICH WILL BE APPROPRIATED TOWARDS SHARE CAPITAL AND SHARE PREMIUM. AT THE TIME OF VO LUNTARY WINDING UP OF THE COMPANY, THE SHARE PREMIUM PAID BY GMADA, HUDA & AA I SHALL BE CONSIDERED FOR DETERMINING THE VALUE OF ASSETS TO B E BIFURCATED / ALLOCATED TO THESE THREE PARTIES. 199 REST ALL THE CLAUSES ARE GENERAL CLAUSES AND NO T VERY RELEVANT FOR US AND THEREFORE, SAME ARE NOT BEING REPRODUCE D. COMBINED READING OF ABOVE CLAUSES CLEARLY SHOW THAT BOTH THE STATE GOVERNMENTS HAVE CONTRIBUTED TOWARDS DEVELOPMENT OF THE AIRPORT AT MOHALI IN TERMS OF ACQUISITION OF LAND AND AGAINST SUCH ACQUISITION OF LAND THE GOVERNMENT OF PUNJAB THROUGH GMADA HAS BEEN ALLOWED 24.5% EQUITY STAKE IN THE AIRPORT WHICH WOULD ULTIM ATELY BE RUN AS BUSINESS VENTURE BY FLOATING PRIVATE LTD COMPANY. THEREFORE, IT BECOMES VERY CLEAR THAT WHAT HAS BEEN CONTRIBUTED B Y THE ASSESSEE, IS ONLY LAND. IT SEEMS THAT THE LAND HAS BEEN ACQU IRED BY GOVERNMENT OF PUNJAB AND SINCE GOVERNMENT OF PUNJAB DID NOT HAVE MONEY, THEREFORE, THE ASSESSEE AUTHORITY HAS BEEN ROPED IN TO MAKE CONTRIBUTION TO MAKE THE PAYMENT FOR ACQUISITION O F LAND. IT IS NOT CLEAR IN WHOSE NAME THE LAND HAS BEEN REGISTERED FR OM THE DOCUMENTS PRODUCED BEFORE US. HOWEVER, THE FACT RE MAINS THAT THE CONTRIBUTION WAS MADE ONLY IN TERMS OF LAND FOR WHI CH THE GOVERNMENT OF PUNJAB THROUGH GMADA WOULD ACQUIRE SH ARES TO THE TUNE OF 24.5%. THIS IS CLEAR BECAUSE OF CAPITAL CO NTRIBUTION FOR STARTING A NEW BUSINESS VENTURE OF RUNNING AIRPORT. IT HAS FURTHER TO BE NOTED THAT NAME OF PUDA DOES NOT APPEAR IN THE J VA 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 I S FOR ULTIMATELY PURCHASING OF LAND FOR THE PROPOSED AIRPORT, THIS C ANNOT BE CALLED A REVENUE EXPENDITURE. IT IS CLEARLY A CASE OF CAPI TAL EXPENDITURE WHICH IS NOT ALLOWABLE U/S 37 BECAUSE IT CLEARLY PR OVIDES THAT EXPENDITURE IN THE NATURE OF CAPITAL IS NOT ALLOWAB LE FOR THE PURPOSE OF COMPUTING PROFITS AND GAINS OF BUSINESS AND PRO FESSION. IN VIEW OF ABOVE CLAUSES, WE HOLD THAT THIS EXPENDITURE I.E . THE CONTRIBUTION MADE BY PUDA IS NOT FOR THE BUSINESS PURPOSES AND I T IS IN FORM OF 116 CAPITAL CONTRIBUTION AND IN THE NATURE OF CAPITAL E XPENDITURE AND THEREFORE, SAME IS NOT ALLOWABLE U/S 37. WE FAIL TO UNDERSTAND WHY PUDA HAS NOT LOOKED AFTER ITS INTEREST EITHER BY BE COMING 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 GOVERN MENT OF PUNJAB AGAINST WHICH GOVERNMENT OF PUNJAB WAS TO RECEIVE 2 4.5% 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 ANALYZE 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 EXPE NDITURE OF RS. 15 LAKHS UNDER THE HEAD MISCELLANEOUS EXPENSES WH ICH WAS INCURRED BY THE ASSESSEE AT THE INSTANCE OF STATE T O PROMOTE ITS BUSINESS AT VILLAGE KNOWN AS MODEL VILLAGE. THIS EXPENDITURE WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND T HAT THE AMOUNT SPENT BY THE ASSESSEE, IS NOT FOR ITS BUSINESS PURP OSE. 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 LAK HS SPENT BY THE ASSESSEE HAS TO BE CONSIDERED TOWARDS ITS BUSINESS PROMOTION . SINCE THE ZILLA PANCHAYATH UNDER A SCHEME KNOWN AS 'SWASTHI GRAMA Y OJANA' WAS TRYING TO DEVELOP MODEL VILLAGES BY PROVIDING FACILITIES LIKE DEVELOPING ROADS TO NEW MARKETS, ORGANIZING SELF-HELP GROUPS, COMMUNITY CEN TRES AND DEVELOPMENT OF INFRASTRUCTURAL FACILITIES. ACCORDING TO US, IF THE ASSESSEE HAS SPENT AMOUNT TOWARDS THE DEVELOPMENT OF INFRASTRUCTURAL FACILITI ES OF VILLAGES AND CONSTRUCTION OF A NEW MARKET TO ORGANIZE SELF-HELP GROUPS THAT WOULD CERTAINLY PROMOTE THE BUSINESS OF THE ASSESSEE AS THE ASSESSE E CAN LEND THE LOAN ONLY IF SUCH ESTABLISHMENTS ARE THERE IN VILLAGES. WE AR E ALSO OF THE OPINION THAT IF THE ASSESSEE CAN SPREAD ITS ACTIVITIES TO RURAL PAR TS OF THE STATE, IT WOULD CATER TO THE NEEDS OF THE PEOPLE AND WOULD SATISFY THE P URPOSE FOR WHICH IT IS CREATED BY THE STATE. THEREFORE, WE ARE OF THE OPINION THA T THE QUESTIONS OF LAW FRAMED IN THIS APPEAL HAVE TO BE ANSWERED AGAINST THE REV ENUE. THUS IT IS CLEAR THAT IT WAS HELD THAT THE ASSESSEE HAD INCURRED THE EXPENDITURE TOWARDS DEVELOPMENT OF INFRASTRUCTURAL FACILITIES BY THE VILLAGE AND CONSTRUCTION OF A NEW MARKET TO ORGANIZ E SELF HELP GROUPS WHICH WOULD PROMOTE THE BUSINESS OF THE ASSE SSEE. 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 FAC TS OF ASSESSEES CASE. IN CASE BEFORE US, THE ASSESSEE HAS MADE CON TRIBUTION FOR PROMOTING OF AIRPORT IN WHICH GOVERNMENT OF PUNJAB THROUGH GMADA 117 HAS ACQUIRED STAKING OF 24.5% WHICH IS CLEARLY IN T HE NATURE OF CAPITAL CONTRIBUTION OF NEW VENTURE. 202 THE NEXT CASE RELIED ON IS IN CASE OF SRI VENKA TA SATYANARAYANA RICE MILL CONTRACTORS CO. VS. CIT, 22 3 ITR 101 (S.C). IN THAT CASE THE ASSESSEE WAS CARRYING ON THE BUSIN ESS OF EXPORTING RICE FROM THE STATE OF ANDHRA PRADESH. THE RICE CO ULD NOT BE EXPORTED WITHOUT ASSESSEES OBTAINING A PERMIT FROM THE DISTRICT COLLECTOR. THE PERMITS WERE GIVEN ONLY IF A PAYMEN T WAS MADE TO WELFARE FUND WHICH HAS BEEN ESTABLISHED. THIS PAYM ENT 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 A PPEAL THE TRIBUNAL ALLOWED THE EXPENSES BY OBSERVING THAT THO UGH THERE WAS NO COMPULSION ON THE ASSESSEE TO MAKE CONTRIBUTION TO WELFARE FUND STILL THE CONTRIBUTION MADE IN PURSUANCE OF A SCHEM E EVOLVED BY THE RICE MILLERS ASSOCIATION IN CONSULTATION WITH DIST RICT COLLECTOR WOULD SHOW THAT ADVANTAGE WOULD ENSURE ON THE PAYMENT OF CONTRIBUTION AND THEREFORE, SAME WAS ALLOWABLE U/S 37. WHEN THE MATTER TRAVELED TO HON'BLE HIGH COURT IT WAS DECIDED THAT THE EXPEN DITURE WAS NOT ALLOWABLE AND IT WAS OBSERVED THAT THOUGH THE CONTR IBUTION TO THE WELFARE FUND WAS A PRE-CONDITION FOR THE GRANT OF E XPORT PERMIT AND THE ASSESSEE WAS RIGHT IN CONTENDING THAT THE CONTR IBUTION WAS A COMPULSORY PAYMENT BUT THE SAME WAS DISALLOWED BY C OMING TO THE CONCLUSION THAT THIS PAYMENT WAS OPPOSED TO THE PUB LIC POLICY. WHEN THE MATTER TRAVELED TO THE HON'BLE SUPREME COU RT, THE HON'BLE APEX COURT FOUND THAT DISTRICT WELFARE FUND WAS EST ABLISHED PURSUANT TO A SCHEME WHICH HAD BEEN EVOLVED BY THE RICE MILLERS ASSOCIATION WITH THE DISTRICT COLLECTOR. ACCORDING TO THE SCHEME EACH MEMBER OF THE ASSOCIATION WAS TO DEPOSIT AN AM OUNT 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 D EPOSITED BY HIM GIVING THE PARTICULARS OF THE BANK AND CHALLAN ETC . QUOTING FROM VARIOUS JUDGMENTS IT WAS OBSERVED THAT THE MONEY EX PENDED, NOT OF NECESSITY AND WITH A VIEW TO DIRECT AND IMMEDIATE B ENEFIT TO THE TRADE, BUT VOLUNTARILY AND ON THE GROUND OF COMMERC IAL 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 118 PURPOSE OF BUSINESS. AFTER DETAILED ANALYSES THE A MOUNT WAS HELD TO BE ALLOWABLE. THE HEAD NOTE OF THE DECISION REA DS 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 ASSESSE ES 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 INSTAN CE OF THE AUTHORITIES CONCERNED, WHEN MADE TO A CHIEF MINISTERS DROUGHT RELIEF FUND OR A DISTRICT WELFARE FUND ESTABLISHED BY THE DISTRICT C OLLECTOR OR ANY OTHER FUND F OR THE BENEFIT OF THE PUBLIC AND WITH A VIEW TO SECURE BENEFIT TO THE ASSESSEES BUSINESS, CANNOT BE REGARDED AS PAYM ENT OPPOSED TO PUBLIC POLICY. THE MERE FACT THAT MAKING OF A DONA TION FOR A CHARITABLE OR PUBLIC CAUSE OR IN PUBLIC INTEREST RESULTS IN TH E GOVERNMENT GIVING PATRONAGE OR BENEFIT CAN BE NO GROUND TO DENY THE A SSESSEE 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 WA S ESTABLISHED BY THE RICE MILLERS ASSOCIATION IN CONSULTATION WIT H THE DISTRICT COLLECTOR FOR GENERAL DEVELOPMENT OF STATE WHICH WA S HELD TO BE DIRECTLY CONNECTED TO THE BUSINESS OF THE ASSESSEE. THIS IS SO BECAUSE THE SCHEME WAS FRAMED BY THE RICE MILLERS A SSOCIATION AND INVOLVED SMALL CONTRIBUTION. IN CASE BEFORE US, TH E CONTRIBUTION IS MADE FOR DEVELOPMENT OF THE AIRPORT THROUGH JVA BET WEEN AAI AND STATE GOVERNMENT OF PUNJAB & HARYANA. AIRPORT WOUL D BE RUN AS A COMMERCIAL VENTURE THOUGH THIS MAY LEAD TO THE DEVE LOPMENT OF STATES BUT STILL IT IS ANOTHER BUSINESS VENTURE AN D THEREFORE, THE FACTS OF THIS CASE CANNOT BE APPLIED TO THE FACTS O F 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 PANC HAYAT FOR UPGRADING THE SCHOOL ON ASSURANCE BY SCHOOL MANAGEM ENT OF THE SCHOOL THAT CHILDREN OF ASSESSEES EMPLOYEES WOULD BE GIVEN PREFERENCE IN ADMISSION TO SCHOOL. THEREFORE, IT I S 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 E MPLOYEES OF THE ASSESSEE-COMPANY AND THAT IS WHY THE ASSESSEES CON TRIBUTION WAS ALLOWED AS BUSINESS EXPENDITURE. THIS CASE IS TOTAL LY DISTINGUISHED FROM 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 DISPUT E RELATES TO THE CLAIM OF THE ASSESSEE THAT DEDUCTION OF RS. 15 LAKH S AS CONTRIBUTION MADE TO THE BHILWARA EXPORT FUND. THE EXPENDITURE WAS ALLOWED BY 119 THE ASSESSING OFFICER. HOWEVER, A REVISIONARY ORDE R WAS PASSED U/S 263 WHERE CIT WAS OF THE VIEW THAT THE ASSESSING OF FICER COMMITTED AN ERROR WHICH WAS PREJUDICIAL TO THE INTEREST OF T HE 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 CO NTRIBUTION TO THE EXPORT PROMOTION FUND WAS ESTABLISHED WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS. IT WAS FURTHER NOT ED THAT PARTICIPATING COMPANIES WERE REQUIRED TO MAKE CONTR IBUTION BASED ON EXPORT PERCENTAGE OF THE COMPANIES AS PER THE CRITE RIA DECIDED BY THE TRUSTEES FROM TIME TO TIME. IT WAS PROVIDED TH AT PARTICIPATING COMPANIES WOULD RECEIVE STIPULATED SUBSIDY ON EXPOR T PERCENTAGE OF THE COMPANY AS PER CRITERIA TO BE DECIDED BY THE TR USTEES. HEAD NOTE READS AS UNDER: HELD, THAT CONTRIBUTION TO THE FUND SET UP FOR EXPO RT PROMOTION OF PRODUCTS WHICH WAS ALSO THE BUSINESS OF THE ASSESSEE HAD DIR ECT NEXUS TO THE ADVANCEMENT OF THE ASSESSEES BUSINESS. THE FACT TH AT THE OBJECT OF THE EXPORT PROMOTION FUND WAS NOT CONFINED TO THE ASSESSEE BUT WAS OPEN TO ALL WHO WANTED TO PARTICIPATE COULD NOT ALTER THE CHARACTER OF EXPENSES INCURRED BY WAY OF CONTRIBUTION TO SUCH FUND BY THE ASSESSEE FROM H IS 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 TH E CONCLUSION THAT CONTRIBUTION TO THE EXPORT PROMOTION FUND WAS MADE BY THE ASSESSEE IN ITS BUSINESS EXPEDIENCY FOR PROMOTING ITS BUSINESS INTE REST BY AUGMENTING EXPORTS. SUCH EXPENSES WERE INCURRED AND LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSINESS, AND WERE HENCE ALLOWABLE AS 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 HA VE MADE CONTRIBUTION OF FUNDS AND THAT CONTRIBUTION WAS SHA RED AMONG VARIOUS PARTICIPATING COMPANIES ON THE BASIS OF ACT UAL EXPORT. THE TRIBUNAL FOUND THAT IN ORDER TO AUGMENT ITS OWN EXP ORT SALES AND GIVE COMPETITIVE EDGE TO ITS MARKETING THE ASSESSEE -COMPANY HAS CONTRIBUTED TO THE FUND IN ITS OWN BUSINESS EXPEDIE NCY, FIRST WITH THE OBJECTS OF INCREASING OPPORTUNITY OF EXPORT OF GOOD S MANUFACTURED BY IT AND SECONDLY TO EARN THE SUBSIDY OUT OF CONTRIBU TION MADE BY ALL THE PARTICIPATING COMPANIES. THE FACTS ARE TOTALLY DISTINGUISHED FROM 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 DISPU TE IS REGARDING DISALLOWANCE OF SUM OF RS. 1.5 LAKH BEING CONTRIBUT ION TO THE MADRAS CHAMBER OF COMMERCE. WITHOUT GOING INTO DETAILS TH E FACTS ITSELF SHOWS THAT THE CONTRIBUTION TOWARDS A CHAMBER OF CO MMERCE, WHICH 120 IS A BUSINESS ASSOCIATION, 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 REG ARDING DISALLOWANCE OF A SUM OF RS. 6 LAKHS WHICH WAS CONT RIBUTED BY THE ASSESSEE TO THE STATE GOVERNMENT FOR UTILIZATION TO WARDS COST OF CONSTRUCTION OF AN APPROACH ROAD CONNECTING CERTAIN VILLAGES TO THE MAIN ROAD. AFTER DETAILED DISCUSSION IT WAS HELD A S UNDER: HELD THAT THOUGH A ROAD BECOMES COMPARATIVELY MORE PERMANENTLY RESTORED BY METALLING, THE CONVERSION OF A KUTCHA R OAD INTO A METALLED ONE DOES NOT AMOUNT TO THE CONSTRUCTION OF A NEW RO AD. THE ROAD DID NOT BELONG TO THE ASSESSEE NOR COULD IT HAVE ANY CONTRO L OVER THEM. THE EXPENDITURE WAS INCURRED ON ACCOUNT OF BUSINESS EX PEDIENCY, NAMELY THE EFFORT TO GET FRESH SUGARCANE WHICH YIELDED HIG H PERCENTAGE OF SUGAR. THE KUTCHA ROAD WAS A PERMANENT INCONVENIENCE AND T HE EXPENSE INCURRED BY THE ASSESSEE TO GET RID OF THIS INCONVE NIENCE CANNOT BE HELD TO HAVE BROUGHT TO IT A LASTING ADVANTAGE. THE MET ALLING OF THE ROADS IN THE INSTANT CASE AMOUNTED TO THEIR REPAIR AND THE E XPENDITURE INCURRED WAS REVENUE EXPENDITURE ALLOWABLE 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 KUTCHA ROAD INTO A METALLED ROAD LEAD TO EASY PROCUREMENT OF SUGARCA NE. SINCE THE ROADS DID NOT BELONG TO THE ASSESSEE THE EXPENDITUR E COULD NOT BE CALLED EVEN AS CAPITAL EXPENDITURE, THEREFORE, CLEA RLY THE FACTS OF THIS CASE ARE TOTALLY DIFFERENT FROM THE FACTS IN T HE 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 US IS REGARDING DISALLOWANCE OF A SUM OF RS. 5 LAKHS CONT RIBUTION BY THE ASSESSEE TO CHERAN WELFARE TRUST. HON'BLE HIGH COUR T HAS DECIDED THIS ISSUE ON THE BASIS OF EARLIER DECISION WHICH IS REPORTED IN CASE OF CHERAN ENGINEERING CORP LTD VS. CIT, 238 ITR 892 (MAD), IN THAT DECISION IT WAS HELD THAT ONCE IT WAS LABOUR WELFA RE EXPENDITURE, IT WAS ALLOWABLE. WE MAY NOTE THAT THIS 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 PR OVIDED IN THE PROVISIONS, WILL NOT BE ALLOWABLE U/S 40A(9) WHICH HAS BEEN INSERTED BY FINANCE ACT 1984 W.E.F. 1.4.1980. THEREFORE, TH IS PROVISION WAS NOT APPLICABLE AND SINCE THE EXPENDITURE WAS STRICT LY RELATED TO THE WELFARE OF THE LABOUR AND IT WAS HELD TO BE ALLOWAB LE. THE FACTS ARE TOTALLY DISTINGUISHABLE. 121 208 NEXT DECISION RELIED ON WAS IN CASE OF CIT V. V ELUMANICKAM LODGE (SUPRA). IN THAT CASE THE ASSESSEE WAS ENGAG ED IN THE BUSINESS OF THE CONSTRUCTING HOCKEY STADIUM AND CIN EMAS. THE ASSESSEE CONSTRUCTED HOCKEY STADIUM AND CLAIMED THE AMOUNT OF RS. 24 LAKHS. IT WAS HELD THAT THE EXPENDITURE WAS INC URRED IN THE REGULAR COURSE OF BUSINESS FOR THE PURPOSE OF REVEN UE EXPENDITURE AND IT WAS NOT CAPITAL EXPENDITURE BECAUSE THE HOCK EY STADIUM BELONGS TO THE PUBLIC. IN THIS CASE ASSESSEE WAS R UNNING A CINEMA HALL, A LODGE AND WAS ALSO GOVERNMENT CONTRACTOR AN D SOME CONTRIBUTION WAS MADE TOWARDS CONSTRUCTION OF THE H OCKEY STADIUM IN THE PARK OF THE TOWN. THE EXPENDITURE BROUGHT BENEF IT TO THE ASSESSEE IN THE FORM ADVERTISEMENT ETC. AND THAT IS WHY THE SAME WAS HELD TO BE ALLOWABLE. AGAIN THE FACTS ARE TOTAL LY DIFFERENT FROM THE FACTS IN CASE BEFORE US. 209 LAST CASE RELIED ON IS CIT V. DTTDC LTD (SUPRA) . IN THIS CASE TWO ISSUES AROSE FOR CONSIDERATION BEFORE THE HON'B LE HIGH COURT. FIRST ISSUE WAS WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE ON CONSTRUCTION OF FLYOVER WAS ALLOWABLE. SOMEWHERE I N 1989 DELHI ADMINISTRATION DECIDED TO EXPAND THE SCOPE OF DELHI TOURISM DEVELOPMENT CORPORATION AND IT WAS DECIDED THAT CO UNTRY LIQUORS AND UP RUM WHICH WAS BEING SOLD BY THE EXCISE DEPAR TMENT OF DELHI ADMINISTRATION, WHICH WOULD GENERATE A SURPLUS OF R S. 100 CRORES AND SUCH SURPLUS CAN BE UTILIZED FOR CONSTRUCTION O F FLYOVER AND SUBSTANTIAL NUMBER OF PEDESTRIAN FACILITIES. IT WAS DECIDED TO HAND OVER THIS TRADE TO THE DTDC WHICH WOULD USE THIS SU RPLUS FOR CONSTRUCTION OF FLYOVER AND PEDESTRIAN OUT OF SUCH SURPLUS. AFTER GOING THROUGH ALL THE DOCUMENTS 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 WHICH THE ASSESSEE WAS ENTITLED TO RETAIN AND KEEP. THE BALA NCE 5 PAISE PER BOTTLE WAS TO MEET THE ADMINISTRATIVE EXPENSES INCL UDING CORPORATE EXPENSES BUT IT DID NOT MEAN THAT THERE WAS DIVERSI ON 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 ADMINISTRAT IVE EXPENSES AND PAISE 95 PER BOTTLE WAS TO BE UTILIZED FOR CONSTRUC TION OF FLYOVERS ETC. THEREFORE, IT IS CLEAR THAT THE GOVERNMENT I TSELF ALLOWED THE CORPORATION TO EARN 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 ASSES SEE WHICH WAS 122 SPECIFICALLY EARMARKED FOR THE PURPOSE OF MAKING CO NTRIBUTION 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 (DE LHI TRIBUNAL). IN THIS CASE THE ASSESSEE IS A PUBLIC SECTOR UNDERT AKING. THE ASSESSEE DISBURSED CERTAIN GRANTS TO DIFFERENT ENTI TIES OF THE STATE. THE QUESTION AROSE WHETHER SUCH EXPENDITURE WAS IN THE NATURE OF GRANTS AND ROYALTY AND DEDUCTIBLE U/S 37(1). IN TH IS CASE IT WAS ALSO CONTENDED THAT SINCE THE GRANTS OF ROYALTY WAS ONE OF THE OBJECTS OF THE UNDERTAKING AND THEREFORE, SUCH EXPENDITURE SH OULD BE HELD TO BE ALLOWABLE. THE TRIBUNAL AFTER DETAILED DISCUSSI ON HELD AS UNDER: SECTION 37 DEALS WITH EXPENDITURE IN GENERAL REFERR ED TO AS BUSINESS EXPENDITURE. IT LAYS DOWN THAT ANY EXPENDITURE, NOT BEING EXPENDITURE, NOT BEING EXPENDITURE OF THE NATURE AS DESCRIBED IN SEC TION 30 TO SECTION 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR P ERSONAL EXPENSES OF THE ASSESSEE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS OR PROFESSION, SHALL BE ALLOWED IN COMPUTI NG THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION. DEDUCTIONS WHICH ARE ALLOWED WHILE COMPUTING BUSINE SS INCOME HAVE BEEN LAID DOWN IN SECTIONS 30 TO 36. SECTION 37 IS A RESIDUAR Y SECTION EXTENDING THE ALLOWANCE OF EXPENSES TO ITEMS OF EXPENDITURE NOT C OVERED BY SECTIONS 30 TO 36, THE LIST OF ALLOWANCES ENUMERATED IN SECTIONS 3 0 TO 36 BEING NOT EXHAUSTIVE. AN ITEM OF EXPENDITURE, WHICH IS WHOLLY OR EXCLUSIV ELY 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 DOE S NOT FALL UNDER ANY OF THE ABOVE SECTIONS. [PARA 20] SECTION 37 STARTS WITH NEGATIVE CONDITIONS. AFTER T HE NEGATIVE CONDITIONS ARE SATISFIED, THE SECTION LAYS DOWN A POSITIVE CONDITI ON. IT IS ONLY WHEN BOTH THE NEGATIVE AND POSITIVE CONDITIONS ARE SATISFIED THAT AN EXPENDITURE CAN BE CONSIDERED AND ALLOWED UNDER THIS SECTION. THE NEGA TIVE 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 NEGATI VE 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 EX CLUSIVELY FOR THE PURPOSE OF SUCH BUSINESS. THEREFORE, THE EXPENSES WHICH ARE PERMITTED AS DEDUCTION ARE SUCH WHICH ARE MADE FOR THE PURPOSE OF CARRYING ON THE BUSINESS I.E., TO ENABLE A PERSON TO CARRY ON AND EARN PROFIT IN THAT BUSINESS. IT IS NOT ENOUGH THAT THE DISBURSEMENTS ARE MADE IN THE COURSE OF OR ARISE OUT OF OR ARE 123 CONCERNED WITH OR MADE OUT OF THE PROFIT OF THE BUS INESS, 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 PURPO SE OF HIS BUSINESS. WHILE DETERMINING AS TO WHETHER THE DEDUCTION CLAIMED HAS BEEN WHOLLY AND EXCLUSIVELY SPENT ON SUCH BUSINESS, IT IS PERMISSIB LE 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 EAR NING PROFIT. THUS, IN ORDER TO BE DEDUCTIBLE UNDER SECTION 37(1), THE EXPENDITURE MUST BE INCURRED FOR THE PURPOSE OF THE BUSINESS WHICH WAS IN EXISTENCE IN T HE ACCOUNTING 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 O IL INDUSTRIES (DEVELOPMENT) ACT, 1974 AND THEY WERE MADE OR DISBURSED AS PER DI RECTIONS OF THE CENTRAL GOVERNMENT AND IN THE PUBLIC INTEREST, YET THE SAME DID NOT FULFILL THE CRITERIA LAID DOWN IN SECTION 37 TO COME WITHIN THE PURVIEW OF ALLOWABILITY SO THE SAME COULD NOT BE SAID TO BE AN EXPENDITURE INCURRED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE, THE CLAIM OF THE AS SESSEE THAT THESE GRANTS SHOULD BE ALLOWED UNDER 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 ME ET THE REQUIREMENT OF SECTION 37 THAT THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINES S, SAME IS NOT ALLOWABLE. THEREFORE, CLEARLY THIS CASE LAW IS APP LICABLE TO THE ASSESSEE IN THE SENSE THAT EVEN IF THE EXPENDITURE IS INCURRED TO MEET THE OBJECTS OF A PARTICULAR UNDERTAKING THE SA ME IS STILL NOT ALLOWABLE UNLESS THE SAME HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS. 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 T HIS CASE THE ASSESSEE HAD INCURRED SOME EXPENDITURE FOR THE PURP OSE OF RECONSTRUCTION OF BANEGAON VILLAGE IN LATHUR DISTRI CT BY WAY OF CONTRIBUTION TO A TRUST WHICH WAS CONSTITUTED TO GR ANT RELIEF AND AID TO THE PERSONS EFFECTED BY NATURAL CALAMITIES. IT WAS CONTENDED THAT RECONSTRUCTION OF LATHUR VILLAGE WAS UNDERTAKEN BEC AUSE A MASSIVE EARTHQUAKE HAD EFFECTED LATHUR. THE COURT HELD THA T THE EXPENDITURE IS NOT ALLOWABLE. HEAD NOTED 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 PURPOSE. THE MERE FACT THAT INDIRECTLY THE ASSESSEE EARNED GOODWILL O F THE VICTIMS AND THE GENERAL PUBLIC DID NOT MEAN THAT THE EXPENDITURE IN CURRED BY THE ASSESSEE WAS WHOLLY OR EXCLUSIVELY FOR BUSINESS PUR POSE. THE CONTRIBUTION MADE BY THE ASSESSEE WOULD BE AN ALLOW ABLE DEDUCTION U/S 80G OF INCOME TAX ACT AND NOT U/S 37(1). 124 FROM ABOVE IT IS CLEAR THAT INCURRING OF EXPENDITUR E FOR EARNING GOODWILL OR INDIRECT BENEFIT TO THE ASSESSEE THEN T HE SAME CANNOT BE HELD TO BE ALLOWABLE BECAUSE THE SAME MAY NOT BE WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 215 WE HAVE ALSO GONE THROUGH THE DECISION RENDERED BY HYDERABAD BENCH OF THE TRIBUNAL IN CASE OF ANDHRA P RADESH HOUSING BOARD VS. DCIT IN ITA NO. 717/H/12 AND OTHERS. THI S 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 O F LAND AND CONSTRUCTION OF HOUSES. DURING THE YEAR THE ASSES SEE HAD MADE A CONTRIBUTION OF RS. 1180 CRORES UNDER THE DIRECTION S OF ANDHRA PRADESH GOVERNMENT TOWARDS A SCHEME KNOWN AS RAJIV GREHA KALPA FOR PROVIDING HOUSES TO THE URBAN POOR. BEN EFICIARIES WERE TO PROVIDE 10% OF COST OF HOUSE AND BALANCE WAS TO BE FINANCED BY BANKS AS CONTRIBUTION FOR EXPENDITURE IN PROVIDING INFRASTRUCTURE FACILITIES LIKE DRAINAGE, WATER SUPPLY, INTERNAL RO ADS, POWER SUPPLY ETC. THE EXPENDITURE WAS NOT ALLOWED BY THE ASSESS ING OFFICER. IN THIS CASE ALSO THE LD. COUNSEL OF THE ASSESSEE CONT ENTED 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 EXPENDITURE WAS INCURRED ON THE DIRECTION OF THE ST ATE GOVERNMENT. THE TRIBUNAL CONSIDERED THE ISSUE IN DETAIL AND ULT IMATELY HELD THAT THIS EXPENDITURE IS NOT ALLOWABLE. PARA 56 OF THIS ORDER IS IMPORTANT WHICH WE ARE EXTRACTING BELOW: 56. ON CONSIDERING THE SUBMISSIONS OF THE PARTIES I N THE LIGHT OF THE MATERIALS ON RECORD AND ALSO THE RATIOS CITED BEFORE US, WE A RE CONSTRAINED TO HOLD THAT IT IS NOT AN ALLOWABLE EXPENDITURE BUT ONLY AN APPLICA TION OF INCOME. IT IS NOT IN DISPUTE THAT THE AMOUNT OF RS. 1180 CRORES IS STATE D TO HAVE BEEN GIVEN TO THE AP STATE HOUSING CORPORATION ON THE DIRECTIVE OF TH E GOVERNMENT. HOWEVER, THAT WOULD NOT AMOUNT TO AN EXPENDITURE INCURRED FO R THE PURPOSE OF BUSINESS. AN EXPENDITURE WHICH IS EXCLUSIVELY LAID OUT FOR TH E PURPOSE OF BUSINESS IS A REVENUE EXPENDITURE AND, THEREFORE, ALLOWABLE. ON A PPRECIATION 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 PROJECTS. THE ASSE SSEE IS NO WAY CONNECTED WITH IMPLEMENTING THE PROJECT. THIS CANNOT 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 BUSI NESS OF THE ASSESSEE. THEREFORE, IN OUR VIEW THE REVENUE AUTHORITIES WERE CORRECT IN DISALLOWING SUCH EXPENDITURE. 216 THE ABOVE RATIO IN THE ABOVE CASE IS CLEARLY AP PLICABLE TO THE CASE OF THE ASSESSEE. 125 217 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 REA DS 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 ESTABLISH ED UNDER SOME ENACTMENT 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 SECTION. IN VIEW OF ABOVE DISCUSSION IT BECOMES ABSOLUTELY C LEAR THAT FIRSTLY THE EXPENDITURE HAS NOT BEEN INCURRED FOR THE PURPO SE OF BUSINESS. IN ANY CASE THE EXPENDITURE IS IN THE NATURE OF CAP ITAL EXPENDITURE AND THEREFORE, THE SAME IS NOT ALLOWABLE. 218 ASSESSEE HAS RAISED ONE ADDITIONAL GROUND IN TH IS APPEAL. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ORIGINAL LY ADDITION OF RS. 107.20 CRORES WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INSTALLMENTS RECEIVED PENDING ALLOTMENT. THE ISSUE WAS RAISED BEFORE THE LD. CIT(A) VIDE GROUND NO. 3. HOWEVER, IN THE MEANTIME THE ASSESSEE HAD ALSO MOVED AN APPLICATION U/S 154 AND VIDE ORDER PASSED ON 23.3.2001 U/S 154, THE CONTENTION OF THE ASSESSEE WAS ACCEPTED AND ADDITION WAS REDUCED TO RS. 4615584/-. IT WAS FURTHER SUBMITTED THAT THIS GROUND COULD NOT BE TAKEN BY MI STAKE. 219 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE OPPOSED THE SUBMISSIONS. 220 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE OF THE OPINION THAT THIS ISSUE HAS BEEN TAKEN BEFORE THE LD. CIT(A ). FURTHER THE ISSUE WAS RAISED IN ALL OTHER YEARS, THEREFORE, TH ERE IS FORCE IN THE SUBMISSIONS THAT THIS GROUND WAS NOT RAISED BEFORE US INADVERTENTLY AND ACCORDINGLY WE ADMIT THIS GROUND. 126 221 AFTER HEARING BOTH THE PARTIES WE FIND THAT THI S ISSUE IS IDENTICAL TO THE ISSUE RAISED IN GROUND NO. 5 OF RE VENUE APPEAL FOR ASSESSMENT YEAR 2003-04 IN ITA NO. 762/CHD/2008. S INCE FACTS AND SUBMISSIONS OF BOTH THE PARTIES ARE SAME, THEREFORE , FOLLOWING OUR ORDER IN ITA NO. 762/CHD/2008 IN RESPECT OF GROUND NO. 5 WHICH WE HAVE DECIDED VIDE PARA NO. 62 TO 72, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 222 IN THE RESULT, ITA NO. 390/CHD/2012 IS PARTLY ALLOWED. 223 BEFORE PARTING WITH THIS GROUP OF APPEALS RELAT ING TO PUNJAB URBAN DEVELOPMENT AUTHORITY, WE WOULD LIKE TO CLARI FY THAT WE HAVE CONFIRMED MAY ADDITION AND HAVE ALLOWED RELIEF ON A CCOUNT OF CERTAIN ADDITIONS. SOME OF THE ISSUES HAVE BEEN RE MITTED TO THE ASSESSING OFFICER FOR FRESH DETERMINATION IN VIEW O F THE DIRECTIONS / OBSERVATIONS CONTAINED IN VARIOUS PARAS. THE RESUL T OF THIS MAY LEAD TO VARIATION IN THE INCOME / LOSS SUBSTANTIALLY. T HEREFORE, WE WOULD LIKE TO REITERATE AND CLARIFY THAT AFTER GIVING EFF ECT TO OUR ORDERS THE ASSESSING OFFICER SHOULD MAKE IT SURE THAT IN CASE INCOME SO DETERMINED IS LESS THAN THE RETURNED INCOME IN A P ARTICULAR YEAR THEN RETURNED INCOME SHOULD BE ADOPTED AND IN CASE OF LOSS SO DETERMINED IN A PARTICULAR YEAR IS HIGHER THEN THE LOSS RETURNED BY THE ASSESSEE THEN RETURNED LOSS SHOULD BE ADOPTED. ITA NO. 1220/CHD/2011 ASSESSEES APPEAL FOR 2008- 09 224 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS: 1 THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING ADDITIO N OF RS. 60 CRORES MADE BY THE ASSESSING OFFICER BY DISALLOWING EXPENDITURE IN CURRED BY THE ASSESSEE AS CONTRIBUTION FOR THE CONSTRUCTION OF THE AIRPORT AT MOHALI. 2 THAT THE ADDITION IN RESPECT OF EXPENDITURE OF RS . 60 CRORES HAS BEEN CONFIRMED BY THE LD. CIT(A) AGAINST ADDITION OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 3 THAT DETAILED SUBMISSIONS MADE DURING THE COURSE OF HEARING BEFORE THE ASSESSING OFFICER AND ALSO BEFORE THE CIT(A) HAS NO T BEEN CONSIDERED PROPERLY. 4 THAT LD. CIT(A) HAS ERRED IN NOT CONSIDERING THAT M/S. GLADA IS DEVELOPMENT AUTHORITY CONSTITUTED UNDER THE PUNJAB REGIONAL & T OWN PLANNING AND DEVELOPMENT ACT, 1995 WHICH HAS TO ACT AS PER GUIDELINES AND DI RECTIONS OF THE PUNJAB GOVERNMENT. AS SUCH, CONFIRMING OF DISALLOWANCE OF RS. 60 CRORE S BY THE LD. CIT(A) ON ACCOUNT OF CONTRIBUTION FOR CONSTRUCTION OF INTERNATIONAL AIRP ORT AT MOHALI IS NOT JUSTIFIED. 5 THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE PROP ERLY THE OBJECTS OF GLADA WHICH PROVIDES FOR INCURRING OF EXPENDITURE FOR DEV ELOPMENT OF THE STATE OF PUNJAB AS PER DIRECTION OF THE PUNJAB GOVERNMENT AND THE ABOV E EXPENDITURE HAD BEEN INCURRED FOR PROMOTION OF INFRASTRUCTURE FOR THE DEVELOPMENT OF AREA WHICH IS THE MAIN OBJECTS OF THE GLADA. 6 THAT THE LD. CIT(A) HAS FAILED TO CONSIDER THAT T HE AO WHILE INTERPRETING PROVISIONS OF THE PUNJAB RURAL AREA TOWN PLANNING A ND DEVELOPMENT ACT, 1995 HAS 127 TAKEN VERY NARROW AND RIGID VIEW AND HAS IGNORED AC TUAL MEANING AND PURPOSE OF THE DEVELOPMENT AUTHORITY. 7 THAT THE LD. CIT(A) HAS FAILED TO TAKE INTO CONSI DERATION APPLICATION FILED BY THE APPELLANT WITH THE CENTRAL BOARD OF DEVELOPMENT TAX ES, NEW DELHI FOR NOTIFICATION U/S 36(I)(XII) OF THE INCOME TAX ACT, 1961. 225 IN THIS APPEAL THOUGH MANY GROUNDS HAVE BEEN RA ISED BUT ONLY DISPUTE IS ADDITION OF RS. 60 CRORES ON ACCOUNT OF CONTRIBUTION MADE TOWARDS CONTRIBUTION TO THE DEVELOPMENT OF AIRPORT AT MOHALI. 226 AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD C LAIMED A SUM OF RS. 60 CRORES BY WAY OF EXPENDITURE INCURRED ON CON STRUCTION OF INTERNATIONAL AIRPORT AT MOHALI. ACCORDING TO HIM S INCE THE EXPENDITURE WAS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THEREFORE, THE ASSESSEE WAS SHOW CAUSED T HAT WHY SUCH EXPENDITURE SHOULD NOT BE DISALLOWED. BEFORE THE A SSESSING OFFICER REFERENCE WAS MADE TO SECTION 28 & 29 OF PUNJAB REG IONAL & TOWN PLANNING & DEVELOPMENT ACT, 1995 AND IT WAS SUBMITT ED THAT THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF TH E OBJECTS OF THE AUTHORITY. FURTHER REFERENCE WAS MADE TO SECTION 4 9(2) OF PUNJAB REGIONAL & TOWN PLANNING & DEVELOPMENT ACT, 1995 AN D IT WAS EMPHASIZED THAT THE EXPENDITURE HAS BEEN INCURRED O N THE DIRECTION OF GOVERNMENT OF PUNJAB AND THE GOVERNMENT HAD THE POWER TO GIVE DIRECTIONS AND THEREFORE, IT WAS ALLOWABLE EXPENDI TURE. IT WAS MAINLY CONTENDED THAT EXPENDITURE WAS FOR THE PURPO SE OF BUSINESS AND VARIOUS CASE LAWS WERE ALSO RELIED. ASSESSING OFFICER DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. IT WAS OBSERVED THAT THE CONSTRUCTION OF AIRPORT AT MOHALI WHICH GAVE RE MOTE CONNECTION WITH THE BUSINESS OF ACTIVITIES OF THE ASSESSEE AND THEREFORE, SAME WOULD NOT BRING ANY BENEFIT TO LUDHIANA AND ACCORDI NGLY THE EXPENDITURE WAS DISALLOWED. 227 ON APPEAL THE ACTION OF THE ASSESSING OFFICER W AS CONFIRMED BY THE LD. CIT(A). 228 BEFORE US, SHRI SUDHIR SEHGAL, THE LD. COUNSEL OF THE ASSESSEE ADOPTED THE ARGUMENTS MADE BY SHRI ASHWANI KUMAR, T HE LD. COUNSEL OF THE ASSESSEE IN CASE OF PUDA FOR ASSESSMENT YEAR 2008-09 IN ITA NO. 390/CHD/2012 WHEREIN IDENTICAL ISSUE OF CON TRIBUTION OF RS. 225 CRORES WAS INVOLVED. HE ALSO FILED WRITTEN SUB MISSIONS IN WHICH IDENTICAL ARGUMENTS HAVE BEEN MADE AND PARTICULARLY A REFERENCE HAS BEEN MADE TO SECTION 28, 29 & 49 OF PUNJAB REGI ONAL & TOWN 128 PLANNING & DEVELOPMENT ACT, 1995. IT WAS ALSO SUBM ITTED THAT LUDHIANA WAS FAMOUS FOR HOSIERY, TEXTILE, BICYCLE, AUTO INDUSTRY, MOTOR CYCLE INDUSTRIES ETC. WHICH ATTRACTS INTERNAT IONAL CUSTOMERS. DEVELOPMENT OF INTERNATIONAL AIRPORT AT MOHALI WOUL D MAKE IT CONVENIENT TO GO TO LUDHIANA AND TRADE AND INDUSTRY WOULD FURTHER PROSPER ONCE INTERNATIONAL AIRPORT AT MOHALI WAS ES TABLISHED. IT WAS FURTHER CONTENDED THAT THE ASSESSING OFFICER HAS OB SERVED THAT THERE WAS A SMALL AIRPORT IN LUDHIANA, THEREFORE, NO BEN EFIT WOULD COME BY DEVELOPMENT OF INTERNATIONAL AIRPORT AT MOHALI B ECAUSE ASSESSEE COULD HAVE MADE CONTRIBUTION TO LUDHIANA AIRPORT WH ICH IS NOT FEASIBLE BECAUSE DEVELOPMENT OF THE AIRPORT AT A PA RTICULAR PLACE IS DECIDED BY CENTRAL GOVERNMENT. VARIOUS CASE LAWS HA VE ALSO BEEN CITED AND MOST OF THEM ARE SAME AS CITED BEFORE US IN CASE OF PUDA IN IDENTICAL ISSUE IN ASSESSMENT YEAR 2008-09. THE LD. COUNSEL OF THE ASSESSEE HAD STRONGLY RELIED ON THESE DECISIONS IN ADDITION TO THESE DECISIONS RELIANCE WAS ALSO PLACED ON THE FOL LOWING CASE LAWS: CIT VS. COATS VIYELLA INDIA LTD. 253 ITR 667 (MAD) CIT VS. BIRLA COTTON SPINNING & WEAVING MILLS LTD, 82 ITR 166 (S.C) CIT VS. MADRAS REFINERIES LTD. 266 ITR 170 (MAD) 229 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE REITERATED THE SUBMISSIONS MADE IN CASE OF PUDA FOR ASSESSMENT YEA R 2008-09 IN ITA NO. 390/CHD/2012 ON SIMILAR ISSUE. SHE ALSO PO INTED OUT THAT THERE WAS ALREADY AN AIRPORT AT LUDHIANA (SAHNEWEAL ) AND THE ASSESSEE COULD HAVE CONTRIBUTED FOR THE IMPROVEMENT OF THAT AIRPORT WHICH COULD HAVE BEEN MORE BENEFICIAL. THE CONTRIB UTION MADE FOR THE DEVELOPMENT OF MOHALI INTERNATIONAL AIRPORT WOU LD NOT PROVIDE ANY DIRECT BENEFIT TO LUDHIANA. 230 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AND FIND THAT THIS ISSUE IS IDENTICAL TO THE ISSUE OF CONTRIBUTIO N MADE BY PUDA IN ASSESSMENT YEAR 2008-09 IN ITA NO. 390/CHD/2012 WHI CH WE HAVE ADJUDICATED ABOVE. HOWEVER, SOME ADDITIONAL ARGUME NTS HAVE BEEN MADE BY BOTH THE PARTIES WHICH WE WOULD LIKE TO DEA L WITH THEM. 231 THE CONTENTION OF THE REVENUE IS THAT THERE IS ALREADY AN AIRPORT IN LUDHIANA, THEREFORE, THERE WAS NO LOGIC FOR MAKING CONTRIBUTION AT MOHALI INTERNATIONAL AIRPORT. WE A RE OF THE OPINION THAT THIS IS NOT RELEVANT AND CANNOT BE RELIED FOR DENYING THE 129 CONTRIBUTION BECAUSE THE DECISION TO MAKE CONTRIBUT ION FOR THE DEVELOPMENT OF AIRPORT HAS TO BE MADE ON THE FEASIB ILITY OF THE AIRPORT AS DETERMINATION OF GOVERNMENT OF INDIA AND BY AAI. THEREFORE, THIS IS NOT A DETERMINATIVE FACTOR FOR DECIDING WHETHER THE EXPENDITURE IS ALLOWABLE U/S 37 OR NOT? 232 THE LD. COUNSEL OF THE ASSESSEE HAS RELIED ON THREE MORE DECISIONS APART FROM THE DECISION ALREADY QUOTED BY THE LD. COUNSEL OF THE ASSESSEE FOR PUDA. FIRST DECISION IS IN CAS E OF CIT VS. COATS VIYELLA INDIA LTD. 253 ITR 667 (MAD). IN THIS CASE THE ASSESSEE HAD MADE CONTRIBUTION TO THE GOVERNMENT FOR BUILDING NE W BRIDGE IN PLACE OF OLD ONE WHICH WAS NOT SERVICEABLE. THE NE W BRIDGE WAS VERY ESSENTIAL TO PROVIDE ACCESS TO THE ASSESSEES FACTORY. THIS EXPENDITURE WAS ALLOWED BY HON'BLE MADRAS HIGH COUR T. THE DECISION IS VERY CLEAR THAT WHEN THE EXPENDITURE IS DIRECTLY LINKED TO THE BUSINESS OF THE ASSESSEE, SAME HAS TO BE ALLOWE D. AS WE HAVE ALREADY OBSERVED BY DECIDING THIS ISSUE IN CASE OF PUDA THAT CONTRIBUTION FOR DEVELOPMENT OF MOHALI AIRPORT HAS NOT DIRECT CONNECTION WITH THE BUSINESS OF THE ASSESSEE, THERE FORE, THIS DECISION IS OF NOT ASSISTANCE TO THE ASSESSEE. 233 SECOND DECISION RELIED ON IS IN CASE OF CIT V C IT VS. BIRLA COTTON SPINNING & WEAVING MILLS LTD, 82 ITR 166 (S. C). IN THIS CASE THE DISPUTE AROSE WHETHER THE EXPENDITURE INCURRED FOR ENGAGING EMINENT LAWYER FOR ASSESSEE-COMPANY BEFORE THE IN VESTIGATION COMMISSION WAS ALLOWABLE AS GENERAL EXPENSES OR NOT ? CLEARLY THE LAWYER HAS BEEN ENGAGED FOR DEFENDING THE ASSESSEE AND THEREFORE, IT WAS DECIDED THAT THIS WAS ALLOWABLE AS GENERAL E XPENSES. WE FAIL TO UNDERSTAND HOW THIS PROPOSITION IS OF ANY HELP T O THE ASSESSEE. 234 THIRD DECISION RELIED IS IN CASE OF CIT VS. MADRAS REFINERIES LTD. 266 ITR 170 (MAD). IN THIS CASE THE ASSESSEE- COMPANY INCURRED AN EXPENDITURE FOR PROVIDING DRINKING WATE R FACILITIES TO THE RESIDENTS IN THE VICINITY OF THE REFINERY AND SOME MONEY WAS ALSO PROVIDED AS AID TO THE SCHOOL RUN FOR THE BENEFIT O F THE CHILDREN OF THOSE LOCAL RESIDENTS. TOTAL AMOUNT INCURRED WAS R S. 15,32,000/- FOR THAT PURPOSE. HON'BLE HIGH COURT DECIDED THIS ISSU E IN FAVOUR OF ASSESSEE AND OBSERVED AS UNDER: THE CONCEPT OF BUSINESS IS NOT STATIC. IT HAS EVOLV ED OVER A PERIOD OF TIME TO INCLUDE WITHIN ITS FOLD THE CONCRETE EXPRESSION OF CARE AND CONCERN FOR THE SOCIETY AT LARGE AND THE PEOPLE OF THE LOCALITY IN WHICH THE BUSINESS IS LOCATED, IN PARTICULAR. BEING KNOWN AS A GOOD CORPORATE CITI ZEN BRINGS GOODWILL OF THE 130 LOCAL COMMUNITY, AS ALSO WITH THE REGULATORY AGENCI ES AND THE SOCIETY AT LARGE, THEREBY CREATING AN ATMOSPHERE IN WHICH THE BUSINES S CAN SUCCEED IN A GREATER MEASURE WITH THE AID OF SUCH GOODWILL. FOR THE ASSESSMENT YEAR 1992-93, THE ASSESSEE, A PU BLIC LIMITED COMPANY, AS A GOOD CORPORATE CITIZEN AND AS A MEASURE OF GAINING GOODWILL OF THE PEOPLE LIVING IN AND AROUND ITS INDUSTRY WHICH WAS TO SOME EXTENT A POLLUTING INDUSTRY, PROVIDED FUNDS FOR ESTABLISHING DRINKING WATER FACI LITIES TO THE RESIDENTS IN THE VICINITY OF THE REFINERY AND ALSO PROVIDED AID TO T HE SCHOOL RUN FOR THE BENEFIT OF THE CHILDREN OF THOSE LOCAL RESIDENTS. IT INCURRED AN EXPENDITURE OF RS. 15,32,000 FOR THAT PURPOSE. THE ASSESSING OFFICER D ECLINED TO ALLOW THAT EXPENDITURE ON THE GROUND THAT IT WAS NOT AN ITEM O F EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING THE INCOME IN THAT YEAR. THE T RIBUNAL ALLOWED IT. ON APPEAL TO THE HIGH COURT. THE ABOVE CLEARLY SHOWS THAT REFINERY WAS CAUSING S OME POLLUTION IN THE AREA THEREFORE, THE ASSESSEE FELT OBLIGED TO P ROVIDE CERTAIN FACILITY TO THE LOCAL RESIDENTS AND SPENT THIS MONE Y. IN THE ABSENCE OF THIS CONTRIBUTION THE ASSESSEE COULD HAVE FACED LEGAL PROBLEMS BECAUSE THE MANUFACTURING FACILITY OF THE ASSESSEE WAS CAUSING POLLUTION IN THE SURROUNDING VILLAGES. THEREFORE, THIS CASE IS DISTINGUISHABLE. BUT AS WE HAVE ALREADY OBSERVED IN CASE OF PUDA THAT THE ASSESSEE HAS BASICALLY CONTRIBUTED TOWARDS ACQUISITION OF LAND WHICH WAS CONTRIBUTED TO THE JOINT VENTURE AGA INST WHICH GOVERNMENT OF PUNJAB THROUGH GMADA WAS TO RECEIVE 24.5% STAKE AND THEREFORE, THE EXPENDITURE WAS IN NATURE OF CA PITAL EXPENDITURE. AS OBSERVED EARLIER IDENTICAL ISSUE IN CASE OF PUDA HAS BEEN DECIDED BY US FOR ASSESSMENT YEAR 2008-09 IN ITA NO . 390/CHD/2012 AND FOLLOWING THE SAME WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 235 IN THE RESULT, ITA NO. 1220/CHD/2011 FILED BY T HE ASSESSEE IS DISMISSED. 236 IN THE RESULT, APPEALS ARE DISPOSED OFF AS UND ER: S NO. ITA NO. APPEAL BY 1 762/CHD/2007 REVENUE PARTLY ALLOWED 2 759/CHD/2008 ASSESSEE PARTLY ALLOWED 3 765/CHD/2008 REVENUE ALLOWED FOR STATISTICAL PURPOSES 4 760/CHD/2008 ASSESSEE PARTLY ALLOWED 5 769/CHD/2008 REVENUE PARTLY ALLOWED 6 744/CHD/2009 REVENUE PARTLY ALLOWED 7 745/CHD/2009 ASSESSEE PARTLY ALLOWED 8 524/CHD/2011 ASSESSEE PARTLY ALLOWED 9 545/CHD/2011 REVENUE PARTLY ALLOWED 10 390/CHD/2012 ASSESSEE PARTLY ALLOWED 11 484/CHD/2012 REVENUE PARTLY ALLOWED 12 1220/CHD/2011 ASSESSEE DISMISSED 131 ORDER PRONOUNCED IN THE OPEN COURT ON 6.12.2013 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 6.12.2013 SURESH/ANUBHAV COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR