TMI Blog2012 (4) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... passed on or is liable to be passed on - Held that: there is no diversion of income arising from the commercial exploitation of land owned by the assessee by an overriding title in favour of the Chandigarh Administration - it is held that the impugned sums accruing to the assessee in pursuance of the Development Agreement did not stand diverted at source by any over-riding title, which is antecedent in point of time, in favour of the Chandigarh Administration - The application or destination of the income has nothing to do with its accrual or taxability. . Whether the AO is right in holding that the impugned amount has accrued to the assessee in the year under appeal and taxing the same as such in the year under appeal - The case of the AO is that the assessee follows mercantile system of accounting and hence the entire bid price amounting to Rs. 821.21 crores being consideration for granting the leasehold and development rights to the Developer has accrued to the assessee in the year under appeal and therefore is chargeable to tax in the year under appeal - assessee has followed accrual system of accounting, the AO has rightly taxed the impugned sum in the year of accrual, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance of interest amounting to Rs. 6,45,33,684/-as a result of capitalization under the head 'Work in Process', and ( d ) Addition of Rs. 10,02,268/- on account of closing stock. 4. The AO has given detailed reasons for making the aforesaid additions/disallowances in his assessment order running into 343 pages. On appeal by the assessee, the ld. CIT(A) has confirmed major portion of the additions/disallowances made by the AO against which the assessee is now in appeal before this Tribunal. The ld. CIT(A) has granted some relief to the assessee against which the Department is in appeal before this Tribunal. ITA No. 1075/Chd/2010 : Appeal by the assessee 5. Ground No. 1 taken by the assessee-Board is general in nature and therefore does not require adjudication. 6. Ground Nos. 2, 3 and 4 taken by the assessee-Board are inter-related. They are directed against the order passed by the ld. CIT(A) confirming addition of Rs. 800,89,75,168/-, being taxable surplus in RGCTP account on sale of development rights to M/s Parsvnath Developers Ltd., made by the AO. They read as under: "2 That the CIT(A) has fallen in error while upholding the addition of Rs. 800,89,75,168/-ln ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the personnel employed in Rajiv Gandhi Chandigarh Technology Park, the Chandigarh Administration introduced a scheme called Rajiv Gandhi Chandigarh Technology Park (RGCTP) Habitat Project on public private partnership basis. For giving shape to the aforesaid projects, the assessee-Board was required to start the process for a joint venture with a private developer without forming a joint venture and therefore the Chandigarh Administration, according to the assessee, directed the assessee-Board to engage SBI Caps Ltd. as consultants to fine tune the financial package and to prepare the bid documents. To facilitate the development, the assessee-Board purchased 123.79 acres of land from Chandigarh Administration on payment of Rs. 18.50 crores by the assessee-Board in addition to payment of stamp-duty amounting to Rs. 1.11 Crores. After completing the process of bidding, M/s Parsvnath Developers Ltd. was selected by the assessee-Board as developer of RGCTP as a result of which Lease Agreement and Development Agreement were simultaneously executed on 6.10.2006 between the assessee-Board and M/s Parsvnath Developers Ltd. The assessee-Board leased 83.119 acres of land to the Developer fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of the assessee in the year under appeal. The findings of the AO in his assessment order in so far as they relate to the aforesaid two issues are, in brief, as under: ( i ) According to the AO, the assessee is engaged in the business of executing housing schemes and therefore the acquisition of land by it against payment of consideration as also its lease and grant of development rights on the said land in favour of the Developer are part of its business and hence the amount accruing to it as a result thereof was liable to be taxed as trading receipts. ( ii ) According to the AO, the assessee follows mercantile system of accounting and therefore the amount accruing to it on sale of development rights is liable to be considered for levy of income-tax in the year of accrual and not in the year of actual receipt. ( iii ) The AO has further held that the Development Agreement and Lease Agreement were executed by the assessee in the under appeal by which the assessee had not only conveyed leasehold rights but also development rights on the said land to the Developer on agreed consideration of Rs. 821.21 crores and therefore the assessee had acquired right to recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract were absent. 9. On appeal, the ld. CIT(A) has confirmed the order of the AO in this behalf. 10. Aggrieved by the order passed by the CIT(A), the assessee-Board is now in appeal before this Tribunal. In support of appeal, the ld. counsel for the assessee, apart from filing written submissions, has made detailed submissions at the time of hearing. The main plank of his submission was that the assessee-Board was acting as an agent of the Chandigarh Administration in implementing the RGCTP project and therefore all receipts/expenses relating to the aforesaid project belonged to the Chandigarh Administration and not to the assessee-Board and hence the assessee-Board was not liable to be taxed in respect of surplus/profits arising from the said project. In support of his argument that the assessee-Board was an agent of the Chandigarh Administration, the ld. counsel for the assessee submitted as under: ( i ) Referring to section 20 of the Haryana Housing Board Act, the ld. counsel for the assessee submitted that the assessee-Board, in terms of section 20 of the said Act, was authorized to "undertake works in any area for the framing and execution of such housing schemes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme did not belong to the assessee but to the Chandigarh Administration. ( ii ) Referring to clause 3( i ) of the Notification dated 6-11-2006 issued by the Chandigarh Administration (Finance Department) notifying "The Chandigarh Small Flats Scheme 2006", the ld. counsel for the assessee submitted that the term "Nodal Agency" in that clause has been defined to mean "Chandigarh Housing Board or any other agency prescribed by the Chandigarh Administration as such". According to him, the nomination of the assessee as a "Nodal Agency" in the said Scheme amply clarified that the assessee-Board was acting merely as an agent of the Chandigarh Administration in so far as that scheme was concerned. ( iii ) It was further submitted that the Chandigarh Administration had simultaneously decided to create Rajiv Gandhi Chandigarh Technology Park (RGCTP) for development of residential, commercial and other infrastructure facilities. Referring to 2nd paragraph of the Order dated 15.11.2005 (endorsements are dated 1.12.2005) issued by the Chandigarh Administration (Finance Department), he submitted that the Chandigarh Administration had nominated the assessee-Board as its nodal agency for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing purchasers of residential units, the developer and the assessee-Board was required to be executed on completion of the construction of residential units. The procedure for transfer of 40.67 acres of land was enumerated in clause No. 4.1.5 of the Development Agreement in which it was mentioned that the assessee-board was acting as a nodal agency for the development of the project. ( vii ) He also relied upon the Office Order dated 31.10.2006 issued by the assessee-Board constituting a steering group for the purpose of guiding, monitoring and taking all operational level decisions in respect of RGCTP project. He also referred to the letter dated 15.12.2006 issued by the Finance Secretary, Chandigarh Administration to the Chief Executive Officer of the assessee-Board by which it was desired that any surplus out of the said project was to be utilized and kept apart as directed by the Chandigarh Administration and was not to be utilized as per plans of the assessee-Board. ( viii ) It was further submitted that the assessee-Board had maintained, as an agent of the Chandigarh Administration, a separate account for all the receipts arising from the execution and development of RG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the provisions of section 182 of the Indian contract Act. Referring to section 230 of the Indian Contract Act, he submitted that it was not necessary for an agent to always disclose the factum of agency to third parties. Relying upon the judgments reported in AIR 1960 SC 1269; AIR 1954 SC 364; AIR 1962 538; AIR 1977 SC 1275; AIR 1958 SC 269; AIR 1953 SC 140; and AIR 1973 SC 637, he submitted that a person appointed u/s 182 of the Indian Contract Act was different from a servant working under the general directions of the principal in that the principal directs what work is to be done and not how it is to be done. He also referred to sections 186, 187 and 188 of the said Act and submitted that the authority of an agent may be express or implied and that an agent has the necessary authority to do every lawful thing which is necessary to carry out the work as an agent. According to him, no separate agreement appointing the assessee as agent was necessary in view of the nomination of the assessee-Board as nodal agency by the Chandigarh Administration for the RGCTP project. He submitted that the ld. CIT(A) has failed to consider the cumulative effect of the aforesaid facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eit the bid amount but the assessee had no right to enforce the payments of the remaining consideration. According to him, the right of the assessee to receive the amount taxed by the AO was inchoate and subject to the aforesaid limitations and therefore the said amount could not be said to have accrued to the assessee. In support of his submissions, the ld. counsel for the assessee relied upon the judgments in ED Sassoon Co. v. CIT , 26 ITR 27 (SC) and CIT v. Hindustan Housing Land Development , 161 ITR 524 (SC). He also relied upon the decision in CIT v. Chandigarh Industrial and General Development Corporation , 319 ITR 91 (P H) for the proposition that "till the assessee received payment of annual instalments during the year it is inchoate right in favour of the assessee as in the event of failure on the part of the allottee/lessee the Managing Director of the Corporation has only a right to resume but cannot enforce the payment of the balance amount". ( iv ) Application of doctrine of diversion of income by overriding title: The ld. counsel submitted that the doctrine of diversion of income by overriding title has been misconstrued by the AO. According to him, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t nor has the Development Agreement been signed by the assessee-Board as an agent of the Chandigarh Administration nor has the Chandigarh Administration anything to do with that project and therefore Development Agreement cannot be construed as a document constituting the assessee as agent of the Chandigarh Administration. ( iii ) The plea of the assessee that the funds of RGCTP were to be utilized as per the directions of the Chandigarh Administration is not of much consequence for the reason that all the schemes are required to be implemented as per the directions of the Chandigarh Administration and funds have to be utilized after getting sanction of the Chandigarh Administration. ( iv ) According to section 3 of the Haryana Housing Board Act, the assessee-Board is a body corporate and therefore it has independent and separate existence of its own. Though the activities of the assessee are regulated by the Chandigarh Administration, it does not dilute the status of the assessee as a taxable entity under the I-T Act. ( v ) The assessee has only one legally established fund, namely, the "Housing Board Fund" created u/s 56(1) of the Haryana Housing Board Act. The act of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( ix ) Referring to section 71 of the Haryana Housing Board Act on which reliance was placed by the assessee-Board, the ld. DR submitted that the assessee-Board being a body corporate under the administrative control of the Chandigarh Administration was subject to its control and directions but that does not mean that the assessee-Board does not have its own legal existence or that its income belongs to the Government. ( x ) As regards the provisions contained in sections 23 to 25, 38, and 63 in the Haryana Housing Board Act as referred to by the ld. counsel for the assessee, the ld. DR submitted that they merely provided for administrative arrangement between the Chandigarh Administration and the assessee-Board. According to him, none of the aforesaid provisions would affect either the ownership of the property by the assessee or accrual of income arising from commercial exploitation of such property in the hands of the assessee. ( xi ) Referring to the provisions of section 39 of the Haryana Housing Board Act, he submitted that the assessee-Board was authorized by law to acquire, purchase, exchange or take on lease any land whether from any person including Chandigarh Admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s accrued to the assessee in the year under appeal and taxing the same as such in the hands of the assessee? 14. The ld. counsel for the assessee has relied upon sections 20, 23-25, 38 and 63 of the Haryana Housing Board Act in support of his submission that the said Act envisages two types of schemes, namely, ( i ) the schemes framed by the Chandigarh Administration and implemented assessee-Board, and ( ii ) the schemes framed as well as implemented by the assessee-Board. According to him, the assessee-Board acts as mere agent for the Chandigarh Administration in respect of the schemes framed by the Chandigarh Administration like the RGCTP and implemented by it and therefore income arising from such schemes does not belong to the assessee but to the Chandigarh Administration and, in that view of the matter, it would not be taxable in the hands of the assessee. The Revenue, on the other hand, claims that the assessee-Board cannot be treated as agent of the Chandigarh Administration as none of the provisions in the said Act declares the assessee-Board as agent of the Chandigarh Administration. According to the Revenue, the said Act merely defines the objects of the assessee-Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact there is no provision in the said Act which declares the assessee-Board as an agent of the Chandigarh Administration. In this view of the matter, all the submissions made by the ld. counsel for the assessee in this behalf are rejected. 16. We have also perused the documents referred to by the ld. counsel for the assessee at the time of hearing before us. In "The Chandigarh Small Flats Scheme-2006" notified by the Chandigarh Administration, the assessee-Board has been mentioned as "Nodal Agency" for the implementation of the Scheme, which, in simple terms, means that it was held out to be a body responsible for implementing the Scheme and not as a body for the actions of which the Chandigarh Administration would be legally liable. As regards the Development Agreement, the Chandigarh Administration is not a party to the said Agreement and hence it cannot form the basis for creating agent-principal relationship between the assessee and the Chandigarh Administration. Though the assessee-Board has been described in several documents, e.g. , Order dated 15th November, 2005 (endorsements are dated 1.12.2005) issued by the Chandigarh Administration (Finance Department), as "nodal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an agent is his power of making the principal answerable to third persons, i.e. , enabling the principal to sue third parties directly, and render him liable to be sued directly by the third party. The test of agency is whether the person is entering into transaction on behalf of the principal or not so as to create, modify or terminate contractual obligations between his principal whom he represents, and some third parties. Representative character and derivative authority may briefly be said to be the distinguishing features of an agent. The function of an agent is to enter into contractual relations on behalf of his principal with third parties, No document has been placed before us to show that the assessee-Board had the legal capacity to make the Chandigarh Administration in its capacity as principal answerable and legally liable to third persons, viz. , enabling the Chandigarh Administration to sue third parties directly or render it liable to be sued directly by the third parties. The documents and the materials placed before us clearly indicate that the assessee-Board has entered into the transactions with the Developer and other parties in its own right and on its own st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract of sale is the transfer of title to the goods for a price paid or promised to be paid. The transferee in such a case is liable to the transferor as a debtor for the price to be paid; and not as agent for the proceeds of the sale. The essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds." It is clear from the observations made by this Court that the true relationship of the parties in such a case has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the said relationship. This Court relied on a decision in W.T. Lamb Sons v. Goring Brick Company Ltd. , L.R. [1932] I K.B.D. 710, 717 where despite the fact that the buyer was designated as sole selling agent, the Court held that it was a contract of Sale. Lord Scrutton, with whom other Lords agreed, observed as follows: "Now it is well known that in certain trades the word "agent" is often used without any reference to the law of principal an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arh Administration either in relation to Developer/third parties or the Developer/third parties in relation to the Chandigarh Administration. Secondly, no document has been placed before us to show that the assessee-Board has ever acted or executed any document/deed for and on behalf of the Chandigarh Administration or as its agent. Thirdly, even the tripartite agreements required to be executed on allotment of flats under the Chandigarh Small Flats Scheme 2006 are required to be signed by the assessee-Board in its own right as its owner and not on behalf of the Chandigarh Administration or as its agent. Fourthly, the entire RGCTP project has been carried out by the assessee-Board in its own right and in its own name. Fifthly, no document has been placed before us to show that the assessee-Board has been given the authority to act as an agent of the Chandigarh Administration so as to bind the Chandigarh Administration in relation to third parties or third parties in relation to third parties or third parties in relation to the Chandigarh Administration. Sixthly, the use of the words "nodal agency" in the documents placed before us merely denote that the assessee-Board was to exclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal position, we confirm the finding of the AO/CIT(A) that the assessee-Board was not an agent of the Chandigarh Administration in so far as the said project is concerned. All the pleas taken by the assessee in this behalf are therefore rejected. 22. The more pertinent question than the question of agency is whether the documents including the Development Agreement and the Chandigarh Small Flats Scheme referred to by the ld. counsel for the assessee create overriding title so as to the divert the receipts/income arising from the aforesaid project at source itself from the hands of the assessee to Chandigarh Administration before it reaches the assessee. While the case of the assessee is that the income from the aforesaid project stood diverted at source in favour of the Chandigarh Administration, the case of the Department is just opposite. According to it, it is a case of application of income and not of diversion of income at source by any overriding title. 23. We have considered the rival submissions. Sometimes, a portion of the income arising out of the corpus held by the assessee is consumed at the source itself for the purpose of meeting some recurring or non-recurri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation the income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable. 23. If this test is applied, it will be seen that there has been no diversion of income by an overriding title at all. The amount appropriated to the contingencies reserve was collected by the assessee as its revenue from sale of electricity. The amount remained at the disposal of the assessee and for the benefit of the assessee. It could be used only for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. The amount in question was collected by the assessee as its revenue from commercial exploitation of development rights. The amount remained at the disposal of the assessee and for the benefit of the assessee. Though it could be used only in the manner and for the purposes specified by the Chandigarh Administration yet the purposes for which the funds could be used were all business purposes of the assessee-Board. in terms of section 20 of the Haryana Housing Board Act. This is not a case of diversion of income before it reaches the assessee, but only a case of setting apart a portion of the assessee's income under compulsion of directions issued by the Chandigarh Administration for the use and benefit of the assessee and that too for the purposes specified in section 20 of the said Act. In this view of the matter, it is held that the impugned sums accruing to the assessee in pursuance of the Development Agreement did not stand diverted at source by any over-riding title, which is antecedent in point of time, in favour of the Chandigarh Administration. The directions issued by the Chandigarh Administration in this behalf after the income from sale of development rights has accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated in Article 5.2 that the "Bid Price" means the total amount payable by the Developer to the assessee-Board, i.e. , Rs. 821,21,21,210/-, being the consideration payable by the Developer for receiving the right to develop the project land. The assessee-Board has acknowledged in the Development Agreement to have received Rs. 100 crores being a part of the bid price required to be paid upfront by the Developer. By the said Article, the Developer agreed to pay the balance amount to the assessee-Board as per timelines specified in Schedule IV of the said Agreement. Schedule IV to the Agreement gives Break-up of the Bid Price according to which the Developer has paid Rs.100 crores as upfront bid price and the remaining part of the bid price was to be paid in six quarterly instalments as per time schedule given therein. Article 5.2.2 stipulated that the assessee-Board could charge interest in case of delay on the part of the Developer to pay any instalment of bid price as specified in Schedule IV. Article 13 specifies events of default on the part of the Developer. Article 13.2 lays down the procedure for termination of contract. The fact that a sum of Rs. 100 crores was paid as upf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be paid in six quarterly instalments out of which first instalment was paid in the year under appeal. Remaining instalments required to be paid fell in the succeeding years. The action of the AO in taxing the entire consideration in the year under appeal is subject matter of dispute between the parties. 31. The assessee follows accrual method of accounting. In the accrual method, income and expenses are recognized as they occur, regardless of whether or not cash has actually changed hands. An excellent example is a sale on credit. The sale is entered into the books when the invoice is generated rather than when the cash is collected. Likewise, an expense occurs when materials are ordered or when a workday has been logged in by an employee and not when the cheque is actually written or cash is paid. The downside of this method is that one pays income tax on revenue before he has actually received it. Thus income may accrue to an assessee without actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained: CIT v. Shri Goverdhan Ltd., 69 ITR 675 (SC); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts on the said land to the developer on agreed consideration of Rs. 821.21 crores. The right to receive consideration has thus vested in the assessee upon signing of the Agreement. The assessee-Board has acquired simultaneously with the signing of the said Agreement a legal right to receive Rs.821.21 crores from the developer and the developer was also simultaneously placed under a legal liability to pay the aforesaid amount to the assessee-Board. It is in pursuance of the right acquired by the assessee under the said Agreement to receive the agreed consideration and the corresponding liability of the developer to pay the same to the assessee-Board that the developer was obliged to pay the same on due date(s). If the liability to pay had not been created by the said Agreement, the developer would not have been obliged to pay/discharge the same later. In this connection, reference also deserves to be made to Article 5.2 of the Development Agreement. Article 5.2 of the Development Agreement specifically contains a recital, which reads thus: "Under no circumstances, except provided in this Agreement, the Bid price accepted shall be altered and this is the essence of this Agreement". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar year, to ignore the accrual and thereafter to tax it as income of another year on the basis of receipt: Laxmipat Singhania v. CIT 72 ITR 291 (SC); ITO v. Bachu Lai Kapoor 60 ITR 74 (SC). Since the assessee has followed accrual system of accounting, the AO has rightly taxed the impugned sum in the year of accrual, i.e. , the year under appeal, and not on the basis of receipt or in the years of actual receipt. 36. It was contended by the ld. counsel for the assessee that the agreed amount of consideration was not liable to be taxed in the year under appeal as the right to receive the agreed consideration was inchoate and subject to certain limitations. In support of the aforesaid submission, the ld. counsel has relied upon the judgment in CIT v. Hindustan Housing Land Development 161 ITR 524 (SC). We have perused the aforesaid judgment. The facts in that case were that an award was made by the arbitrator on 29th July 1955, enhancing the amount of compensation payable to the assessee but the entire amount was in dispute in the appeal filed by the State Government. The dispute was regarded by the Court as real and substantial, because the assessee was not permitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o receive had crystallized upon signing of the Agreement. Perusal of the assessment order shows that substantial part of consideration had already been paid by the time the assessment order was passed. 38. It was submitted by the ld. counsel that the right of the assessee to receive agreed consideration was inchoate and subject to certain limitations and therefore could not be said to have accrued in favour of the assessee. In this connection, he has referred to various "Conditions Precedent" enumerated in Article 3 of the Development Agreement and to Article 5.2.2 which stipulates that in case of delay on the part of the Developer to pay any instalment of the Bid Price, then, without prejudice to the assessee's rights of termination and reversion, the assessee may charge interest on such delayed payments. The aforesaid stipulations in the Development Agreement do not, in our view, make the right of the assessee to receive the amount of agreed consideration inchoate. They are in the nature of consequences that would follow in the event of breach of agreement. They do not therefore defeat the right of the assessee to receive consideration arising from the execution of the Agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in pursuance thereof the amount of agreed consideration has been promised to be paid. In this view of the matter, the aforesaid judgment does not help the assessee before us. 41. It was also submitted by the ld. counsel for the assessee that the AO has found no infirmity in the accounts of the assessee-Board and that the only reason given by the AO for rejecting the books of account was that the funds relating to RGCTP project were not included by the assessee in its accounts without appreciating the fact that the assessee-Board was acting as nodal agency for the Chandigarh Administration in implementing the said project. He submitted that the rejection of the books of account by the assessee was incorrect on the facts of the case as also in law. We have considered the submissions made on behalf of the assessee in this regard. It is true that the Supreme Court has very often referred to accounting practice for ascertainment of profit made by an assessee or value of the assets of an assessee. But when the question is whether a particular receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant in Ground No. 2. As per my findings and conclusions in Ground No. 2, I have held that the RGCTP Habitat Project belonged to the Appellant and it is the Appellant who sold the land to the developer and earned the income from the sale of land and other shared revenue and therefore, the funds generated from such transactions belonged to the Appellant and the Appellant did not act as an agent/Nodal Agency of Chandigarh Administration. In view of my findings and conclusions in Ground No. 2, the interest income on such funds is the income of the Appellant not the income of Chandigarh Administration." 45. We have heard both the parties. The assessee has not credited the impugned interest income on FDRs taken out of funds lying in the RGCTP project a/c on the plea that the assessee was a mere agent of the Chandigarh Administration in so far as the RGCTP Project was concerned and hence both the interest income as well as the principal amount on which the impugned interest was received belonged to the Chandigarh Administration. We have confirmed the finding of the CIT(A) that the assessee was not an agent of the Chandigarh Administration. In this view of the matter, the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out before the Departmental authorities was that the amounts taken from the overdraft a/c were utilized to fund the on-going projects. The said stand was later changed by the assessee and it was submitted original FDRs carried interest @ 6% while the rate of interest had gone up to 10-11% in the year under appeal. In order to maximize the interest income, the assessee claimed to have taken overdraft against the old FDRs with the result that it had to pay interest which was 1% higher than the rate of interest carried by the old FDRs. According to the assessee, the overdraft so taken was utilized for investment in the new FDRs which carried higher rate of interest. The assessee claimed before the Departmental authorities that it had acted wisely and decided to pay interest on overdraft in order to invest the same in the new FDRs carrying higher rate of interest. According to the assessee, it has offered the excess interest so earned to tax. 49. Perusal of para 28.9 of the assessment order shows that the assessee had first submitted before the AO that the funds overdrawn were utilized for funding various works. The assessee changed its stand later and submitted that the funds ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving details of FDRs relating to conversion of industrial plots into commercial plots as per which FDRs for a sum of Rs. 54,68,48,520/- were taken by the assessee. The aforesaid letter was perceived by the ld. CIT(A) as a document supporting the claim of the assessee that it acted as agent of the Chandigarh Administration. According to her, the Principal-Agent relationship between the Chandigarh Administration and the assessee has not been as clearly, forcefully and conclusively demolished by the AO as it has been done in the case of RGCTP Project. She therefore held that the FDRs as well as interest thereon belong to Chandigarh Administration and not to the assessee. Consequently, she deleted the impugned addition. 54. Aggrieved by the order passed by the CIT(A) the Department is now in appeal before this Tribunal. In support of appeal, it was submitted that there was no evidence on record to hold that the assessee was acting as an agent of the Chandigarh Administration while carrying out the conversion of industrial plots into commercial plots and therefore the order passed by the CIT(A) holding that the impugned interest belongs to the Chandigarh Administration should be v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e account of closing stock of material in hand." 58. The CIT(A) has dealt with the issues under appeal in paras 40 and 41 of the appellate order as under:- "40. There are two issues involved in this ground. One relates to addition of Rs. 9,30,632/- on account of difference in the account of stock of houses and booths. The AO relied upon the auditor's report dated 30.10.2007 which is part of the assessment record where the auditor pointed out that a difference of Rs. 9,30,632/- in the account of stock of houses and booths need to be reconciled with the records of the colony branch. The AO further made a finding that the auditors have physically verified the difference in the stock and pointed out in the audit report. On the other hand, the Appellant submitted that the difference was due to the fact that closing stock value of stock of booths and houses was taken at Rs. 6,96,30,390/- on 31.3.2007 while the same was Rs. 6,86,99,758/- as intimated by the concerned section and there were further sale of houses to slum dwellers of colonies amounting to Rs. 74,30,005/- since 01.04.2006. Despite sale of houses of Rs. 74,30,005/- which were sold at no profit no loss, the closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X
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