TMI Blog2015 (8) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... f the properties of the assessee-authority around the location where underbridge was constructed.The learned Commissioner of Income-tax (Appeals), therefore, correctly decided the issue in favour of the assessee holding that the amount is spent for the purpose of business activities of the assessee. There is, therefore, clear nexus between the amounts spent and the business activity of the assessee - Decided against revenue. Disallowance of payment made by the assessee to Punjab Mandi Board, Ludhiana for construction of bridge on the Sidhwan Canal at Dugari Road, Ludhiana - CIT(A) deleted the addition - Held that:- The assessee has correctly claimed deduction under section 37 of the Act. Therefore, following the reasons for decision on ground No. 1, we dismiss this ground of appeal of the Revenue.- Decided against revenue. Addition on account of treatment of external development charges as revenue receipts - Held that:- It was liability of the assessee to pay back the amount as per direction of the State Government or local authority. CIT(Appeals) admitted that external development charges kept pending and not used pending clearance from the State Government would prove it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per notification dated March 17, 2008 (paper book page 36). When the State Government has directed by way of notification to the assessee to deposit 5 per cent. of the bid amount on sale of the properties with the State Government towards the Punjab State Development Funds in the public account of the State, it is definitely connected with the business activity of the assessee on sale of properties. The assessee-authority is bound to follow the directions of the Punjab Government and has to act accordingly. The payment in question is, therefore not voluntary or gratuitous but is an obligation and primary charges as per the notification issued by the State Government. The amount of 5 per cent. is, therefore, directly related to the sales activities of the assessee-authority. The assessee has followed the directions of the State Government as per the existing laws and the notification as issued by the State Government. The non-compliance of the directions of the State Government would directly affect the business activities of the assessing authority. Therefore, the contributions to the welfare fund is in the nature of commercial expediency and has a nexus with the business activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with the approved plans and often there is some violation of the plan even if it is minor violation. In such circumstances builder does not apply for a completion certificate and prefers to forfeit the building plan security rather than inviting closure/ demolition of building. This is evident from the fact that during the period of eight years from 2006-07 to 2012-13, only ₹ 3,75,000 were refunded in the year 2009-10 and the balance in this account as on March 31, 2013, was ₹ 2,27,87,338. Thus although, initially the amounts of building plan security were received as refundable security, with passage of time these amounts have become a part of the appellant's funds with no likelihood of any claim for refunds. This amount would accordingly partake the character of the appellant's income under section 28(iv) of the Income-tax Act - Decided against assessee. Addition being deposits received by the appellant - Held that:- With respect to these receipts appellant has merely submitted that status was not clear and therefore these have been kept in suspense account. The appellant has not explained or given any evidence to show that these receipts were not revenue rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration at the level of the Assessing Officer. - Decided in favour of assessee for statistical purposes. Addition on certain deposits - Held that:- The deposits received by the assessee and taken into suspense account due to certain confusions regarding the allotment of the property or the amount received from the concerned parties when amount is taken into suspense account would not prove that the amount lying in the suspense account has become income of the assessee. The decisions relied upon by the learned Commissioner of Income-tax (Appeals) are therefore, not applicable to the facts of the case and this matter also requires clarification from the side of the assessee and investigation by the Assessing Officer as to in how many cases, the clarification has been received and how further treatments have been given on this matter. Therefore, this issue also requires reconsideration at the level of the Assessing Officer. - Decided in favour of assessee for statistical purposes. Security amount received from different departments treated as income of the assessee - Held that:- This issue is same as is considered on building plan security on which the matter requires reconsidera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. The appeals are decided as under. I. T. A. No. 319/CHD/2013 (Departmental appeal) (assessment year 2009-10) 3. This appeal by the Revenue is directed against the order of the learned Commissioner of Income-tax (Appeals)-I, Ludhiana, dated January 2, 2013, for the assessment year 2009-10. 4. On ground No. 1, the Revenue challenged the deletion of addition of ₹ 13.84 crores on account of payments made by the assessee to northern railways for construction of railway underbridge near Lodhi Club, Ludhiana. In the same ground, the Revenue also challenged the deletion of addition of ₹ 1.57 crores on account of payment made by the assessee to Punjab Mandi Board, Ludhiana, for construction of bridge on Sidhwan Canal at Dugri Road, Ludhiana. 5. We first deal with the addition of ₹ 13.84 crores which was made by the Assessing Officer on the ground of disallowance of expenditure debited by the assessee for construction of railway underbridge in Ludhiana. The Assessing Officer in this regard has observed that the assessee had made a payment of ₹ 13.84 crores to northern railways for construction of railway underbridge and the same had been claimed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... frastructure development in the road sector in the State of Punjab. Its purpose is to act as a nodal agency to plan and monitor all aspects relating to construction and improvement of roads and bridges in the State. This Board is responsible for planning and deployment of funds on State roads, fiscal management, project management, interdepartmental co-ordination and the other key areas. The PRBDB is responsible for development of roads and bridges on state highways, district roads, etc. Roads and bridges within city limit are responsibility of local authority or Municipal Corporation. The PRBDB deals only in state highways and district roads which are of strategic importance to the State. The same is clear from the list of projects undertaken by the PRBDB which has been downloaded from the website of PRBDB. The Board has under taken projects on roads or area which do not fall under any local authority or municipal corporation. (ii) GLADA is a statutory body constituted by the Government of Punjab under the Punjab Regional and Town Planning and Development Act, 1995 and its objects and functions are as per section 28 of the Punjab Regional and Town Planning and Development Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd construction of houses ; and (iv) the expenditure for such other purposes as the State Government may direct or permit. (iv) GLADA is not a commercial organisation. It has been specifically incorporated for the development and better planning of the areas of the State. It has to work according to the Act under which it has been constituted. No other object or activity can be carried on by GLADA. Its business purpose means the objects for which it has been constituted, i.e., development and better planning of the area of the State. The construction of railway underbridge will help the development of the areas developed by GLADA. GLADA is a statutory body constituted by the Government of Punjab. The governing body consists of Senior Government Officials and the Chief Minister as its Chairman. The decisions of GLADA are taken by the governing body in its meeting. It cannot be compared with the private colonisers. Activities of private colonisers are undertaken with profit motive whereas the activities of GLADA are undertaken with overall development and better infrastructure of area under its jurisdiction. (v) It has been decided by the Government of Punjab (photocopy e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 (SC) has laid down following principles for allowablility of expenditure : (a) It is not necessary to show that the expenditure was profitable one or not that in fact any profit was earned. (b) It is enough to show that the money was expended not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency and in order indirectly, to facilitate the carrying on of the business. (xii) The Bombay High Court in the case of CIT v. State Bank of India [2003] 261 ITR 82 (Bom) and CIT v. State Bank of India [2003] 262 ITR 662 (Bom), has held that subsidy given by the bank to its subsidiaries towards opening of new branches was considered as an expenditure in the hands of State Bank of India. It was held that though by giving subsidy assets were created, but these assets belong to the subsidiaries and assets did not belong to the State Bank of India and the profits earned by subsidiaries are not profits of SBI. It was held that expenditure incurred by the SBI was a normal revenue expenditure and while holding so the hon'ble Bombay High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Lakshmiji Sugar Mills Co. P. Ltd. v. CIT [1971] 82 ITR 376 (SC) in which it has been held that apart from the element of compulsion, the roads which were constructed and developed were not the property of the asses see nor was it the case of the Revenue that the entire cost of development of those roads was defrayed by the assessee. It only made certain contribution for road development between the various cane producing centres and the mills. The apparent object and purpose was to facilitate the running of its motor vehicles or other means employed for transportation of sugarcane to the factory. From the business point of view and on a fair appreciation of the whole situation the assessee considered that the development of the road in question could greatly facilitate the transportation of sugarcane. This was essential for the benefit of its business of manufacturing sugar in which the main raw material admittedly consisted of sugarcane. These facts would bring it within the principle, that the expenditure was incurred for running the business or working it with a view to produce the profit without the assessee getting any advantage of an enduring benefit to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax (Appeals), considering the object of the assessee and construction of railway underbridge made for the business purposes, deleted the addition. His findings in paragraph 5 of the appellate order are reproduced as under : I have considered the basis of disallowance made by the Assessing Officer and arguments of the authorised representative during the assessment as well as appellate proceedings. It is apparent that the payment made by the assessee for construction of railway under bridge in its jurisdiction/area of activity, i.e., Ludhiana is intended to improve the traffic situation especially in areas which are falling in and around the colonies developed by GLADA. It is also important to appreciate that the construction of the said bridge would improve the connectivity between Ferozepur Road to Pakhowal Road leading to smooth flow of traffic and therefore would definitely serve the purpose of GLADA in creating better civic amenities in the area of its operation. Even from purely commercial point of view the said bridge would go to add to the quality of life so as to eventually lead to appre ciation in the market rates in respect of properties situated in that area. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee's Constitution. Paper book pages 31 to 33 are the minutes and meetings with the Chief Minister who is also Chairman of the Managing Committee and other authorities were also present at the time of meeting for giving approval for construction of railway underbridge. The letter regarding estimate of construction of bridge dated March 31, 2005, is also filed on record. 10. Learned counsel for the assessee also filed the map of the railway underbridge to show that the railway underbridge was constructed to connect the properties developed by the assessee. He has, therefore, submitted that the learned Commissioner of Income-tax (Appeals) on proper appreciation of the facts and material on record, correctly deleted the addition. 11. We have considered the rival submissions. It is not in dispute that the assessee made payments for construction of railway underbridge in its jurisdiction and area of activity in Ludhiana with the purpose to improve the traffic situation, specially in the areas which are falling in and around the colonies developed by the assessee. Learned counsel for the assessee filed the map of the underbridge constructed by the assessee to show th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the learned Commissioner of Income-tax (Appeals) support the findings of the assessee. 13. The learned Commissioner of Income-tax (Appeals), therefore, correctly decided the issue in favour of the assessee holding that the amount is spent for the purpose of business activities of the assessee. There is, therefore, clear nexus between the amounts spent and the business activity of the assessee. We, therefore, do not find any justification to interfere with the order of the learned Commissioner of Income-tax (Appeals) in deleting the addition. This ground of Departmental appeal is dismissed. 13.1. In the same ground, the Revenue challenged the deletion of addition of ₹ 1.57 crores on account of payment made by the assessee to Punjab Mandi Board, Ludhiana for construction of bridge on the Sidhwan Canal at Dugari Road, Ludhiana. The learned Commissioner of Income-tax (Appeals) noted that the Assessing Officer disallowed these expenditure on the same reason as payments have been made to northern railway. Therefore, the learned Commissioner of Income-tax (Appeals) following his order on the above issue, deleted this addition as well. 14. Both parties stated that iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had received and shown ₹ 91.36 crores under the head external development charges (EDC) as on March 31, 2009, as liability in its books of account and out of same, an amount of ₹ 71,45,25,006 had been received during the year under consideration. The amount of interest of ₹ 5.53 crores earned on the same had been shown as interest income in the profit and loss account. The external development charges are collected from the promoters/developers of colonies as per the stipulated rates and are meant to be spent on the external development of the said colonies. The assessee claimed before the Assessing Officer that amount received as external development charges did not belong to GLADA but to the State Government and hence had been treated as liability. The Assessing Officer analysed the provisions of sections 2(p) and 5(5) of the Punjab Apartment and Property Regulation Act, 1995, to hold that it, is nowhere envisaged that amount received as external development charges was collected on behalf of the Government and was to be treated as a liability. The said amount received as external development charges should have been treated as income on the same li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PWD, etc. (iv) As per section 5(5) of the Punjab Apartment and Property Regulation Act, 1995, the promoter is required to deposit external development charges with GLADA for external development works to be carried out by the Government itself or other local authority. (v) As per section 5(6) of the Punjab Apartment and Property Regulation Act 1995, the GLADA (Competent Authority) shall pay the external development charges to the Government or a local authority. (vi) These charges are deposited by the promoters for development works to be carried out in or outside their colonies by the Government, or local authorities. The amount received is kept in a separate bank account and is transferred to the State Government or local authorities as and when required. (vii) The GLADA itself does not carry out any development work. The GLADA is only acting as a nodal agency. It has no control over the fund. When the amount has to be incurred, the same is given to the other authorities for carrying out the work. Therefore, these charges are not the income of the authority but it is a fund/liability collected on behalf of other agencies. (viii) The Delhi High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. The court/authorities must determine the nature and character of the receipts before the amount can be taxed as income. This part of the sale consideration, i.e., other general economic services was kept in a deposit unrelated to the business of the assessee and the assessee did not exercise dominion over the said fund/deposit and deal with the said fund/deposit. Keeping in view the aforesaid elucidation of law and applying the same to the factual matrix, noting the nature and character of the other general economic services it was to be held that the same was not taxable income of the assessee. The same has to be excluded from the profit. The aforesaid receipts were not income earned and do not have character of income earned by the assessee over which it had dominion or right. (paragraph 36) (ix) The Karnataka High Court in the case of CIT v. Karnataka Urban Infrastructure Development and Finance Corporation [2006] 284 ITR 582 (Karn) has held that these funds are not the income of the assessee. (x) Also the hon'ble Supreme Court in the case of Motilal Chhadami Lal Jain v. CIT [1991] 94 CTR (SC) 195 has held that when no income accrues to the assessee, he cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of trade or business, clause (2) shall come to life, which according to clause, shall be applicable towards the State, i.e., if an activity which is in the nature of trade or business, run by the State itself, the liability for tax will arise, a typical example is that of service tax collected by the State on events being conducted by the vendors, have to be deposited by the State, in the Government exchequer, making the State an assessee under the service tax. This is only possible where there is an activity of trade or business , but, if, confined towards development, either of a new township or betterment of the functions of the local authority, article 289(2) shall remain in the oblivion and shall not come into play. The only clause left for consideration then would be clause (3), which comes into play once clause (2) is dis banded. As soon as clause (2) becomes disbanded, clause (3) come to life, which operates only if, Parliament may by Law declare to be incidental to the ordinary functions of Government . Here, in the instant case, one has to read Parliament as State Government because in the instant case, it is the State Government which has authorised the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (paragraph 42) In tune with these observations, read with sections 113 and 113A of the Maharashtra Regional and Town Planning Act along with articles 289(1) and 289(3) and holding that the assessee corporation is not doing any trade activity on its own, it is to be held that the assessee is an agent of the State Government. Further, the fact that the department has been assessing the assessee as a State Government undertaking for the last three years, cannot also be ignored and, therefore, even this cannot be called as an afterthought and applying the rule of consistency , if is held that the Department cannot be allowed to take a distinctive approach in the current year. (paragraph 43) The Revenue authorities were thus, clearly in error in assessing the business income in the hands of the assessee. This income is deleted, as not belonging to the assessee. 21. The learned Commissioner of Income-tax (Appeals), however, confirmed the addition and dismissed this ground of appeal of the assessee. His findings in paragraph 9 of the appellate order are reproduced as under : 9. I have considered the basis of disallowance made by the Assessing Officer and arguments of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te revenues but part of the revenue receipts of the corporation for the purposes of making external development and if such external development is already done then the surplus thereof would only amount to profits. Even the reliance placed by the appellant on the judgment of hon'ble apex court in the case of CIT v. Sitaldas Tirath das [1961] 41 ITR 367 (SC) is of no help as the impugned judgment only lays down the rules with regard to the accessibility of a particular receipt as income. In the instant case if the amount did not belong to the assessee the interest income on the same would not be its income as well. The claim of the appellant that there was diversion by overriding title is not admissible as the external development charges are being collected for a specified purpose are as per the facts of the case which have already been taken care of, leading to the said surplus. It is a different matter that the said surplus had not been used pending clear directions from the State Government but the interest on the same has been treated as income. In the circum stances, it becomes apparent that the funds representing collected external development charges belong to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artmental representative also submitted that as per provisions of PUDA Act, all amounts vest in the assessee-authority and in the assessment year 2010-11, the learned Commissioner of Income-tax (Appeals) found that no expenses have been incurred by the assessee. Therefore, the receipts in the hands of the assessee is income and has to be taxed accordingly. 24. We have considered the rival submissions. The assessee explained that the assessee-authority received the external development charges from the promoters of private colonies and the charges were deposited by the promoters for development work to be carried out at the periphery of the colonies by the Government or local authority. The amounts are collected as per specified rates and were meant to be spent on the external development of the colonies. These charges are for providing infrastructure, the facilities like roads, water supply and civic system, etc. The assessee explained that these amounts are collected as per the Punjab Apartment and Property Regulation Act, 1995 and provisions of the same are also reproduced in the impugned order. The assessee, therefore, submitted that external development charges does not belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment charges kept pending and not used pending clearance from the State Government would prove it was not money of the assessee. Further, the facts disclose that the assessee may be a custodian of the amount of external development charges, therefore, how it could be treated as income of the assessee, is not explained by the authorities below. The assessee also in the paper book, filed certain correspondence to show that since external development charges were lying unutilised, therefore, due to financial constraints, request was made to the State Government to permit the assessee-authority to use external development charges for development projects in the larger public interest. This correspondence would reveal that the assessee was not entitled even to use this amount of its own for any purpose. It may also be noted here that since the amount in question itself is shown as outstanding since long, would prove that the amount did not belong to the assessee and was shown as liability in the accounts. The above facts would clearly disclose that the assessee cannot use the external development charges account for any purposes unless it is approved by the State Government. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stical purposes. 28. On ground No. 1, the assessee challenged the addition of ₹ 1,86,77,600 made by the Assessing Officer on account of amount paid to Punjab State Development and Welfare Fund as per notification of Punjab Government for the welfare activities in the field of education, health and welfare. It is seen that the same amount has been disallowed being expenditure debited as payment towards Punjab State Development and Welfare Fund. The assessee claimed before the Assessing Officer that the said amount had been as per notification dated March 31, 2008 and had been paid on the auctioned value of the properties for the welfare activities in the field of education, health and social welfare. The Assessing Officer held that the said amount was mere application of income but not an expenditure as none of the objects of the assessee-authority require it to make payment to the State Welfare Fund. The learned Commissioner of Income-tax (Appeals) agreed with the findings of the Assessing Officer and dismissed this ground of appeal of the assessee. 29. Learned counsel for the assessee relied upon submissions made before the authorities below and referred to paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act. 32. We have considered the rival submissions and perused the material available on record. The assessee has paid the amount in question, i.e., ₹ 1.86 crores to the Government of Punjab as per notification dated March 17, 2008 (paper book page 36). When the State Government has directed by way of notification to the assessee to deposit 5 per cent. of the bid amount on sale of the properties with the State Government towards the Punjab State Development Funds in the public account of the State, it is definitely connected with the business activity of the assessee on sale of properties. The assessee-authority is bound to follow the directions of the Punjab Government and has to act accordingly. The payment in question is, therefore not voluntary or gratuitous but is an obligation and primary charges as per the notification issued by the State Government. The amount of 5 per cent. is, therefore, directly related to the sales activities of the assessee-authority. The assessee has followed the directions of the State Government as per the existing laws and the notification as issued by the State Government. The non-compliance of the directions of the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound of appeal of the assessee holding that this amount is not spent wholly and exclusively for the business purpose of the assessee nor it was revenue expenditure. 37. Learned counsel for the assessee submitted that the learned Commissioner of Income-tax (Appeals) in preceding assessment year 2009-10 has allowed the appeal of the assessee on the similar issue and it is identical issue on which Departmental appeal is filed, the same may be decided accordingly. He has submitted that the assessee is not specialised in building bridges and payments have been made to this agency for business purposes. 38. The learned Departmental representative relied upon the submissions made in preceding assessment year 2009-10 and also submitted that it is capital expenditure because it is not the work of the assessee to raise the construction of underbridge over railways. 39. On consideration of the rival submissions and facts of the case, we find that issue is identical which is decided in the assessment year 2009-10 in the Departmental appeal and the Departmental appeal has been dismissed. Therefore, following the reasons for decision in the Departmental appeal, we set aside the orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Ludhiana. The ownership of the sewerage plant vests with the Punjab Water Supply and Sewerage Board and it is their responsibility to maintain the same and there is no formal agreement between these two independent authorities. The learned Commissioner of Income-tax (Appeals), following the orders on ground No. 1 above held that the amount in question was not wholly and exclusively incurred for business purpose and accordingly dismissed the appeal of the assessee. 43. Learned counsel for the assessee reiterated the submissions made before the authorities below and submitted that object of the assessee is to promote and secure better planning and development of any area of the State as per the provisions of section 28(1) of PRTPD Act under which assessee-authority is constituted, it is specifically mentioned that the assessee shall carry out other operations like supply of water, disposal of sewerage, control of pollution and other services. He has submitted that the assessee is not an expert in carrying out sewerage work. Therefore, it was done through the independent agency who is specialised in that field. The payment is also covered by section 28(2)(ii) of the said Act w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Project and State Government has contributed as their shares. Therefore, State Government directed the assessee-authority to contribute the ULB share. Therefore, it was a contribution of the assessee-authority only towards sewerage treatment plant and sewerage system. Therefore, it was capital expenditure in nature. 45. We have considered rival submissions and material available on record. As per section 28(1) of the PRTPD Act under which the assessee-authority is constituted, it is specifically mentioned that the assessee-authority shall carry out other operations like supply of water, disposal of sewerage, control of pollution and other services. The object of the assessee is to promote and secure better planning and development of the areas of the State of Punjab. The assessee is created by the Government of Punjab under the abovesaid Act for the development of the areas especially the jurisdiction which lies with Ludhiana. Copy of the minutes of executive committee of the assessee-authority is filed at page 48A in which the executive committee has approved payment in question the Punjab Water Supply and Sewerage Board for construction of sewerage disposal system providing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-authority. It is, therefore, clearly revenue in nature and has to be allowed as expenditure incurred wholly and exclusively for the purpose of business activities of the assessee. No capital is generated by assessee-authority for incurring the expenditure on this issue. We, therefore, set aside the orders of the authorities below and delete the addition of ₹ 28 crores. In the result, ground No. 2 of appeal of the assessee is allowed. 47. On ground No. 3, the assessee challenged the addition of ₹ 40 crores on account of amount paid to Punjab Infrastructure Development Board (PIDB) for construction of flyovers and bridges within the jurisdiction of the assessee-authority as per the objects of the assessee-authority. 48. The brief facts are that the assessee paid the aforesaid amount to Punjab Infrastructure Development Board for four-laneing of the roads and construction of flyovers and underbridges along southern bypass and it debited the same to the profit and loss account. The Assessing Officer disallowed the same amount as discussed in earlier grounds. The assessee, once again reiterated before the learned Commissioner of Income-tax (Appeals) that amount in qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is filed at page 57. Copies of the proceedings of the meeting held by the Punjab Infrastructure Development Board are filed at pages 58 to 63. Copy of the letter issued by the Chief Administrator by the assessee-authority confirming the amount to be paid to the Punjab Infrastructure Development Board is filed at pages 64 and 65 of the paper book. The assessee, as per special law, was under obligation to construct the roads and flyovers. The Punjab Infrastructure Development Board Department in their letter (paper book pages 197 and 198) mentioned the cost sharing by the Punjab Infrastructure Development Board and the assessee-authority. Therefore, it was the expenditure incurred by the assessee. Learned counsel for the assessee relied upon the same submissions as were made on grounds Nos. 1 and 2 above and also submitted that the assessee is not expert in raising the flyovers and the bridges, therefore payment is made to Punjab Infrastructure Development Board for construction of flyovers/bridges for the benefit of colonies developed by the assessee-authority. It is, therefore, not capital expenditure in nature. 51. On the other hand, the learned Departmental representative re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter obtaining necessary approval. The construction/development of roads and bridges is within the objectives of the assessee and thus, allowable deduction. The Assessing Officer submitted before the learned Commissioner of Income-tax (Appeals) that the assessee had transferred the funds to MCL. It may be a loan or gift for contribution from his own capital and it has no connection with the business activities of the assessee. No proper contracts have been entered into. The learned Commissioner of Income-tax (Appeals), on the same reasoning, as given on grounds Nos. 1 to 3 above, dismissed the appeal of the assessee and held that expenditure is capital in nature and not spent wholly or exclusively for business purposes. 54. Learned counsel for the assessee reiterated the submissions made before the authorities below and submitted that the amount in question was paid to MCL for construction of flyovers and overbridge, stadium and other development work. The copy of the minutes approving the payment to MCL is filed at page 46 of the paper book, copy of the letter issued by MCL to the assessee-authority specifying the project-wise contribution requirement is filed at page 54 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en paid to the Punjab State Development and Welfare Fund as per the State Government's notification. The Assessing Officer disallowed the amount. The learned Commissioner of Income-tax (Appeals) confirmed the addition. 59. Learned counsel for the assessee submitted that this ground is same as is considered in the assessment year 2009-10 and submitted that the decision on the same may be followed here also. The learned Departmental representative also submitted that issue is same as is considered in the assessment year 2009-10. 60. On consideration of the facts of the case, we find that this issue is same as is considered and decided in the assessment year 2009-10 in which we have allowed the claim of the assessee for deduction of the expenditure. By following the same reasons for decision on identical issue, we set aside the orders of the authorities below and delete the addition. 61. In the result, ground No. 5 of the appeal of the assessee is allowed. 62. On ground No. 6, the assessee challenged the addition of ₹ 15,12,89,222 as income which have been received on account of external development charges which are lying with the assessee on behalf of the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sits' on the liability side of the balance-sheet. 69. The Assessing Officer also noted that Schedule B of the balance-sheet shows an amount of ₹ 116,72,81,185 under the head securities and deposits . The Assessing Officer was of the view that as the assessee was following the cash system of accounting these receipts ought to have been shown as income of the assessee during the period under consideration. The Assessing Officer further pointed out that in column 1(a) of Form 3CD of the audit report, the appellant had mentioned its method of account employed in the previous year as generally cash except as mentioned in the note on accounts attached to the balance-sheet . The Assessing Officer observed that under section 145(1) the appellant was required to compute its income in accordance with either cash or mercantile system of accounting. In view of these facts, the Assessing Officer asked the appellant to explain why amount received on account of allotment of the flats may not be added to the income of the assessee. 70. Regarding the amounts received against flats under construction the appellant submitted that it had received ₹ 6,49,43,225 during the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of State and other Departments. 73. The Assessing Officer considered the appellant's reply but found the same unsatisfactory. Referring to the two decisions relied upon the assessee in support of its contention that project completion method is an accepted method, the Assessing Officer pointed out that these decisions have been delivered with respect to the assessment years 1987-88 to 1988-89 and 1991-92 to 1997-98, respectively, whereas, the Finance Act, 1995 has amended the provisions of section 145 with effect from April 1, 1997. The Assessing Officer observed that with effect from April 1, 1997, the appellant was required to follow either cash or mercantile system of accounting and therefore these decisions were not applicable in the assessee's case. As the appellant was following the cash system of accounting, the Assessing Officer held that the receipts shown under Schedule B attached to the balance-sheet were required to be shown as income of the appellant. Following additions were made to the total income of the appellant : (i) Addition of ₹ 75,42,113 being 10 per cent. of the earnest money received. (ii) Addition of ₹ 1,69,49,493 received on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age 495) : 'Lastly, there is a concept in accounts which called the concept of contract accounts. Under that concept, two methods exist for ascertaining profit for contracts, namely, 'completed contract method' and 'percentage of completion method'. To know the results of his operations, the contractor prepares what is called a contract account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting.' This view was reiterated by the Supreme Court in CIT v. Bilahari Investment P. Ltd. [2008] 299 ITR 1 (SC). After the above judgments of the Supreme Court it cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income-tax Act. Therefore, the method of accounting followed by GLADA i.e. project completion method is permissible under the Income-tax Act. 75. Copy of the appellant's submissions was provided to the Assessing Officer, who was present during the course of the appellate procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of security deposits from others. In this regard it is submitted that the assessee, has shown receipts of ₹ 14,03,859 against the land used by various authorities and other depart ments. The assessee has failed to prove that it is a refundable security deposit. Till date no such amount has been refunded back. Hence this amount should be added to the income of the assessee as the assessee is following the cash system of accounting. 12. Addition of ₹ 74,30,334 on account of deposits against pending adjustments. The assessee had shown deposits pending adjustment amounting to ₹ 74,30,344 about which the assessee had stated that the status of these receipts is not clear due to (no) proper documentation. As the assessee has failed to explain these receipts during the year, these are treated to be the income of the assessee and should be added to its income. 76. Copy of the Assessing Officer's report was provided to the assessee. The assessee made no further submissions on these issues. 77. The learned Commissioner of Income-tax (Appeals), considering the submission of the assessee, confirmed all the above four additions on which the assessee has p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of building plan security The details of building plan security received/refunded during the last five years is as under : S. No. Year Building plan security received Building plan security refunded Balance 1. 2005-06 Nil Nil Nil 2. 2006-07 5,40,000 Nil 5,40,000 3. 2007-08 16,44,500 Nil 16,44,500 4. 2008-09 13,33,500 Nil 13,33,500 5. 2009-10 1,34,31,493 3,75,000 1,69,49,493 Out of the balance amount of ₹ 1,69,49,493 under this head, no amount was refunded during the year 2010-11 as well as during the years 2011-12 and 2012-13. The total balance lying in this account as on March 31, 2013 was ₹ 2,27,87,338. During the course of appellate proceedings, the auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. In other words, the principle appears to be that if an amount is received in the course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, common sense demands that the amount should be treated as income of the assessee. In the present case, the money was received by the assessee in the course of carrying on his business. Although it was treated as deposit and was of capital nature at the point of time it was received, by efflux of time the money has become the assessee's own money. What remains after adjustment of the deposits has not been claimed by the customers. The claims of the customers have become barred by limitation. The assessee itself has treated the money as its own money and taken the amount to its profit and loss account. There is no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was somebody else's money. In fact, as Atkinson J. pointed out that what the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 3. 2007-08 1,99,500 1,14,000 85,500 4. 2008-09 7,10,000 44,500 25,500 5. 2009-10 12,63,859 20,000 12,43,859 14,03,859 Facts on this issue are similar to the facts on the issue of building plan security. Substantial amount of security has not been refunded by GLADA. On similar grounds as in the case of building plan security the balance lying under this head is income of the appellant. Keeping in view the aforesaid facts, the addition by the Assessing Officer is confirmed. (v) Addition of ₹ 4,04,48,216 being deposits received from customers against flats On this issue the appellant's contention is that it was following project completion method. The Assessing Officer has pointed out that after the amendment to section 145(1) with effect from April 1, 1997, the appellant could follow either mercantile or cash m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-when the question is whether a 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 decided according to the principles of law and not in accordance with accountancy practice. (b) Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) The matter of taxability cannot be decided on the basis of the entries which the assessee may choose to make in his accounts, but has to be decided in accordance with the provisions of law. (c) CIT v. U. P. State Industrial Development Corporation [1997] 225 ITR 703 (SC) Principles of commercial accounting should be applied in ascertaining profits and gains. (d) CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC) It is not only the right, but the duty of the Assessing Officer to consider whether or not the books disclose the true statement of accounts and the correct income can be deduced therefrom-even if method of accounting is regularly followed, the Income-tax Officer can reject it since there is no estoppel on these matters-each year being a self-contained unit, taxes of a particular year is payable with reference to the income of that year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted right arose on that day even though some payments were received subsequently assessable in the assessment year 1983-84 Reference may also be made to the following case law : (i) The decision of the hon'ble Delhi High Court in the case of Tirath Ram Ahuja (P.) Ltd. v. CIT [1976] 103 ITR 15 (Delhi), in which it was pointed out that one need not wait for completion of the project in order to ascertain the income. It will be open to the Revenue to estimate the profit on the basis of receipts of each year even though the contract is not completed in that year. (ii) The hon'ble Patna High Court in the case of Sri Sukhdeodas Jalan v. CIT [1954] 26 ITR 617 (Patna), in which it was pointed out that profits in uncompleted contract are also taxable in the relevant accounting year. (iii) The decisions of the hon'ble Supreme Court in the cases of E.D. Sassoon and Company Ltd. v. CIT [1954] 26 ITR 27 (SC) and Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC), in which it was, inter alia, pointed out that the accrual of income does not depend upon entries made in the books of account as it occurs at the time of making the transaction. Thus, the income embedded in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. The judgments relied upon by the learned Commissioner of Income-tax (Appeals) are clearly distinguishable on facts. 80. On ground No. 9, learned counsel for the assessee submitted that the amount is security deposits received against the land used by different departments and it is security refundable in nature and the assessee has refunded time to time, separate detail of which is filed at page 210 of the paper book to show that in the year under consideration, ₹ 20,000 has been refunded. It is not the income of the assessee. 81. On the other hand, the learned Departmental representative relied upon orders of the authorities below. 82. The learned Departmental representative submitted that since only ₹ 3,75,000 as building plan security has been refunded, therefore, non-submission of the completion certificate by various colonisers/builders would show it is income in the hands of the assessee. 83. We have considered rival submissions and material available on record. The assessee, on account of building completion security has refunded ₹ 3,75,000 in the assessment year under appeal. The security amount is received as per the letter issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived from the concerned parties when amount is taken into suspense account would not prove that the amount lying in the suspense account has become income of the assessee. The decisions relied upon by the learned Commissioner of Income-tax (Appeals) are therefore, not applicable to the facts of the case and this matter also requires clarification from the side of the assessee and investigation by the Assessing Officer as to in how many cases, the clarification has been received and how further treatments have been given on this matter. Therefore, this issue also requires reconsideration at the level of the Assessing Officer. 85. On ground No. 9 also, the position is same because the security amount received from different departments is treated as income of the assessee. This issue is same as is considered on building plan security on which the matter requires reconsideration at the level of the Assessing Officer. In view of the above and in absence of any specific finding by the authorities below, we set aside the orders of the authorities below and restore all these three issues on grounds Nos. 7, 8 and 9 to the file of the Assessing Officer with direction to redecide these g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.' The above provision was substituted by the Finance Act, 1995 with effect from April 1, 1997. Before this substitution the assessee had choice to follow mercantile or cash or even hybrid system of accounting, i.e., the assessee could choose cash system of accounting for one source of income and mercantile system of accounting for other sources. This choice have been removed and now the assessee could follow either cash system of accounting or mercantile system of accounting. Plain reading of the provision shows that the assessee could follow only one system of accounting in respect of income under the head 'profits and gains of business or profession or income from other sources'. These restrictions have not been prescribed for other heads of business. In case before us, income of the assessee is chargeable under the head 'profits and gains of business' therefore, the assessee could have adopted only one system of accounting. Before the present assessment year the assessee was following mercantile system of accounting and in this year system has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on cash system of accounting. The assessee commenced an action in civil court for a decree for recovery of ₹ 2,58,000. Ultimately Judicial committee of the Privy Council decreed in favour of the assessee. Shri Nisar Ahmad Khan obtained under the Uttar Pradesh Encumbered Estates Act, 1934 (25 of 1934) an order applying the provision of the Act to him. The Special Judge, Sultanpur, passed an order for payment of ₹ 5,00,992 to the asses see. Pursuant to the order the assessee received in 1946, ₹ 1,54,692 from the debtor and for the balance the Government of the United Provinces gave to the assessee Encumbered Estate Bonds of the face value of ₹ 3,46,300. The amount received in the year 1946 was appropriated by the assessee towards the principal due. The assessee split up the amount of the face value of the bonds into two sums of ₹ 2,22,097-9-11 and ₹ 1,24,202-6-1 and credited the first amount in the books of account towards the balance of principal and the second amount to an account styled 'interest accrued'. In submitting the return of his taxable income for the assessment year 1948-49 the assessee did not disclose any receipt of income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are maintained according to the mercantile system, whenever the right to receive money in the course of a trading transaction accrues or arises, even though income is not realized, income embedded in the receipt is deemed to arise or accrue. Where the accounts are maintained on cash basis receipt of money or money's worth and not the accrual of the right to receive is the determining factor. Therefore, if commercial 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 : the receipt of income is not deferred till the asset is realised in terms of cash or money. It makes 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 received 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 Trayner in dealing with a case of assessment to Income-tax of a company, formed for the purpose, inter alia, of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by learned counsel of the assessee that before taxing an item the same has to pass through the test of charging section. Section 4 of the Act which is charging section, reads as under : 'Section 4.-(1) Where any Central Act enacts that Income-tax shall be charged for any assessment year at any rate or rates, income- tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional Income-tax) of, this Act in respect of the total income of the previous year of every person : Provided that where by virtue of any provision of this Act Income-tax is to be charged in respect of the income of a period other than the previous year, Income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-section (1), Income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.' The 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 the Finance Act in every year by Parliament. Such tax can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt the capital gain arising out of sale of goodwill. The assessee maintained that no sale took place to attract the tax on capital gain under section 45 of the Income-tax Act. The Tribunal allowed the appeal. When the matter travelled to the hon'ble Supreme Court the matter was argued in great detail. One of the issue arose whether there was transfer and it was held yes it was a transfer. Another issue arose whether the gain of such transfer of goodwill would be taxed under section 45 of the Act. It was found that goodwill is a self-generated asset and no cost of acquisition can be attributed to self-generated assets. Since section 48 which is mode of computation of capital gain prescribes reduction of cost of acqui sition from the sale consideration it was held that in the absence of cost of acquisition computation of capital gain, was not possible. Therefore, the same was held to be not taxable. This clearly shows that computation provision which is again a machinery provision, had lot of bearing on the taxability of gain received on transfer of good will. Therefore, even if section 145 being machinery section has its own implications. Implications are very clear that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 emphasised that it is accrual of 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 the assessee in view of section 145 of the Act, because the substance of the matter is income . There fore, there is an infirmity in the order of the 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 income, has to be shown as income under the cash system of accounting.' The highlighted portion of the above paragraph clearly shows that in cash system of accounting the receipt of money whether arrears or advance, has to be shown as income, therefore, this decision is totally distinguishable. 65. Another decision relied on was that of CIT v. Shoorji Vallabhdas and Co. [196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome because the assessee has clearly agreed to reduce the rate of commission on conversion of the agency in the name of private companies. In the case before us, nowhere it has been denied that instalments received by the assessee- firm from the allottees of the houses isnot in the nature of the income. Therefore, the proposition laid down in the case of CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144 (SC) are not applicable. 66. We would also like to note that in original return filed by the assessee, was for income of ₹ 21.19 crores whereas in the revised return a loss of ₹ 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 cost of plots and there fore, sale which was not there in the original income and expenditure account. Result of these figures is as under : (Rs.) (Rs.) Cost of plots 1,05,42,88,169 Sale of plots 65, 18,29,803 Loss 40,24,58,366 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Rules has been shown at ₹ 7,67,61,289, In the revised return, the income as per the profit and loss account and after deducting depreciation as per the Income-tax Rules has been shown at ₹ 39,50,14,907. There is a steep rise of ₹ 31,82,53,618 in the income for the assessment year 2004-05 which is mainly on account of recognising revenue on purchase and sale of plots on cash method of accounting.' This explanation of the assessee was found to be convincing and accepted. Thus it is clear that the assessee itself contended that sale of plots has to be accepted on the basis of actual cash receipt on sale effected during the year. Therefore, the assessee could not take a different stand in respect of sale of houses and flats. 67. Coming to the facts of the case, the assessee sold certain houses and flats under the hire purchase agreement. The allottees were treated as tenant during the completion of such hire purchase agreement till all the instalments were paid by such allottees. The instalments as well as expenditure incurred by the assessee, was being accumulated in various schemes and was reflected in the balance-sheet because the assessee was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Department, but for the assessment years 1991-92 to 1997-98 the Assessing Officer came to the conclusion that the completed contract method for chit discount was not accurate in recognising/identifying income and that the percentage of completion method was to be preferred. The High Court held that the completed contract method of accounting adopted by the assessees for chit discount was valid and the Department erred in spreading the discount over the remaining period of the chit under the percentage of completion method on proportionate basis. On appeal by the Department to the Supreme Court. it was held as under (headnote) : 'Held accordingly, affirming the decision of the High Court, that, since, from the various statements produced, the entire exercise arising out of the change of method from the completed contract method to deferred revenue expenditure was revenue neutral, the completed contract method was not required to be substituted by the percentage of completion method.' In our opinion, the above case is not very relevant because in this case the assessee was continuously following the method of completed contract under mercantile system of accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and gains of the business of the appellant, under section 10(1) of the Act, there being no prohibition against it, express or implied, in the Act. The expression profits or gains in section 10(1) of the Income- tax Act has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted there from-whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date.' 70. Thus from the above it is clear that for determining true profits cost incurred by the assessee towards the construction of the houses and flats which has been accumulated in the schemes is also to be recognised. However, it has to be noted that in the case of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) the assessee was following mercantile system of accounting and had credited whole amount received or receivable towards sale of proceeds, i.e., why the amount still to be incurred on development was allowed as expenditure but still the principle is there. Therefore, in case were cash system of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar treatment as observed by us, should be given in each of the year. 89. By following the above order, the Assessing Officer is directed to follow the above order for the purpose of making addition against the assessee. In the result, this ground of appeal of the assessee is, therefore, disposed of accordingly in view of the findings given in the case of Punjab Urban Development Authority [2014] 32 ITR (Trib) 481 (Chandigarh). 90. On ground No. 11, the assessee challenged order of the learned Commissioner of Income-tax (Appeals) in confirming the contention of the Assessing Officer in rejecting the method of accounting regularly followed by the assessee, which has been accepted by the Department in previous years. This issue is connected with ground No. 10 of the appeal of the assessee in which the learned Commissioner of Income-tax (Appeals) has given a categorical finding that the assessee was following the cash system of accounting and, therefore, income is to be computed accordingly. Since, ground No. 10 is disposed of in terms of the order of the Tribunal in the case of Punjab Urban Development Authority (supra), therefore, this ground stands disposed of accordingly an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer further held that judicial pronouncements cited by the appellant are not applicable as the assessee was virtually keeping and investing the provident fund contribution at its will. The contribution of ₹ 61,41,511 made by the appellant to the contributory pension fund was accordingly disallowed by the Assessing Officer. On similar ground, an amount of ₹ 61,41,511 being provident fund deducted from the employees was added to the total income of the assessee. 94. The assessee vide written submissions dated July 1, 2013, once again reiterated submissions made during the course of the assessment proceedings. The assessee submitted that : 1. In this regard, it is submitted that GLADA is a statutory body constituted under the Punjab Regional and Town Planning and Development Act, 1995 in the year 2006. Earlier, it was a part of Punjab Urban Planning and Development Authority which was managed by the Department of Housing and Urban Development of Punjab Government as per powers of notification issued by the housing department on August 12, 1983, PUDA/ GLADA can manage its provident fund independently but this notification has been challenged by the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowable keeping in view the provisions of section 36(1)(iv) of the Income-tax Act, 1961 which reads as under : 'any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be ; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head Salaries or to the contributions or to the number of members of the fund. In the case of the assessee, the conditions required under the provisions of section 36(1)(iv) of the Income-tax Act, 1961, are not being fulfilled, as the provident fund is neither approved by the Chief Commissioner nor by the Commissioner of Income-tax nor it is a provident fund established under a scheme framed under the Employees Provident Funds Act, 1952. It is also noteworthy that the Regional Provident Fund Commissioner wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) considering the material on record confirmed the addition. His findings in paragraphs 11.5 to 11.10 are reproduced as under : 11.5. I have carefully considered the rival submissions. Whether such contributions are allowable as deduction or not is governed by the provisions of section 40A and section 36(1)(iv) of the Income-tax Act. Section 40A(9) reads as under : (9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of I860), or other institution for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause (iv) 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. Therefore, it is evident that conditions prescribed under section 36(1)(iv) have to be fulfilled in order to claim the deduction on account of contribution to provident fund. 11.6 It is seen from the facts on record that in the case of the appellant, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees.' In this case, the appellant is in control of the amount of provident fund contribution of both employers and employees and its interest. There fore, the conditions of section 36(1)(iv) are not fulfilled. The appellant is therefore not eligible for deduction claimed on this account. 11.8 Reliance is placed on the following judgments : (i) Raasi Cement Ltd. v. CIT (No. 1) [2005] 275 ITR 579 (AP) ; Aspinwall and Co. (Travancore) Ltd. v. Deputy CIT (Assess ment) [2007] 295 ITR 553 (Ker). Only contribution towards reorganised provident fund for the purpose and to the extent provided under section 36(1)(iv) or (v) or as required by any law are allowable as deduction under section 40A(9). In view of section 40A(9) no deduction can be allowed under section 37. 2. Brooke Bond India Ltd. v. Joint CIT [2011] 337 ITR 482 (Cal) On a conjoint reading of the provisions contained in sections 36 and 40A(9), the amount of liability alleged to have accrued to the employer towards an unapproved scheme of superannuation fund for the payment of the employees would not be entitled to deduction-section 40A(9) over rides provisions of section 36-It is preposterous to suggest th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted December 6, 2013, in paragraphs 84 to 86 of the order. Therefore, issue is covered in favour of the assessee. 97. The learned Departmental representative also stated that issue is decided now in the case of Punjab Urban Development Authority (supra). 98. On consideration of the rival submissions, we find that issue is now decided by the Income-tax Appellate Tribunal, Chandigarh Bench, in the case of Punjab Urban Development Authority (supra) in which in paragraphs 111 to 124 the issue is decided that the assessee is entitled to claim deduction in respect of contributions made towards provident fund even if such fund is not recognised. However, Assessing Officer was directed to examine this issue clearly and allow the payment on cash basis. The findings of the Tribunal in this case in paragraphs 111 to 124 are reproduced as under : 84. We have heard the rival submissions carefully. First of all we would like to point out that this issue is arising in all the years in which the appeals were heard by us, therefore, the decision in these paras would be applicable in all the years wherein appeals are being adjudicated through this order. The assessee-authority was formed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the contribution should not be allowed because the assessee has not got its funds recognised or contribution was not made towards recognised provident fund. This also leads to the conclusion that section 36(1)(iv) which was for contribution towards recognised provident fund, is not applicable. However, as far as section 36(1)(va) is concerned, the same is still applicable because section 36(1)(va) reads as under : '36(1). The deductions provided for in the following clauses 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 notification issued thereunder or under an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee as an employer towards the setting up or formation of, or as contribution 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, except 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.' A plain reading of this provisions shows that the contribution made by an assessee as an employer towards various funds for the benefit of the employees are not allowable except for contribution provided in this section itself. Therefore, the learned Departmental representative for the Revenue is correct that contribution which are not mentioned in this section cannot be allowed because this provisions starts with non obstante clause which is made clear by starting of section 40A(1) which reads as under : '40A.(1) The provisions of this section shall have effect not withstanding anything to the contrary contained in any other provision of this Act relating to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect 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.' A 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 the assessee the same is still not allowable unless and until such expenditure is paid. This means that this section provides further restriction on allowability of an expenditure which are otherwise allowable under sections 30 to 44. In other words even if an expendi ture is allowable under various provisions under the head 'Profits and gains of business or profession' the same is not allowable because of section 43B unless such expenditure is actually paid. In case before us, the assessee is following the cash system of accounting which we have already discussed while adjudicating ground No. 5. Therefore, any expenditure in the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of any particular provision of the Act (see Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 (SC). From a bare reading of section 36(1)(v) of the Act, it is manifest that the 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 for various funds for employees is that employer should not have control over the funds which has been contributed by the assessee or the workers. In this regard learned 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 clauses (a), (b), (c), (d) or (e) of section 20 of the Indian Trusts Act, 1882 (Central Act 2 of 1882) or in the post office savings bank accounts or in long-term fixed deposits with 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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