TMI Blog2018 (2) TMI 2013X X X X Extracts X X X X X X X X Extracts X X X X ..... method of accounting followed by the appellant, the AO proceeded to compute appellant's income keeping in view the past history of the case as well as by adjudicating the new issues which arose during the year - HELD THAT:- Both the parties regarding the commercial sector the main contention and ratio resorted by the Ld. CIT(A) to reduce the profits from 50% to 45% are that all the areas are commercial sectors are not equally developed so as to determine average higher profits. Similarly the compensation paid and the expenses incurred for development of commercial sectors and the extent of land utilized and salability thereof have been duly considered. Hence we decline to interfere with the order of the CIT(A) on this aspect. Regarding the sale of residential sectors the remission given by the Ld. CIT(A) has already considered the submission of the assessee that license fee, conversion charges ,scrutiny fee and service charge and reduced the profit by more than 7.68% which has been claimed by the assessee to be payable to the State Government by statute and reduced profit percentage from 30% to 20% hence, the 2.04% variation on account of unforeseen circumstances claimed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... geographical area, utilization of funds pending execution of the work , the intention of the HUDA to utilize and the tangible examination and visible implementation of the intention on the ground over a period of ten years or so needs to be examined to treat the EDC as income or not. In this connection the additional evidences held by the Ld. DR are needed to arrive at a correct decision. Annual Maintenance Charge - addition on account of Annual Maintenance Charges was made for the first time in the AY 2003-04 by disallowing the 50% of the expenses claimed and thereafter the disallowance was made in all the years - For the first ten years of development of sectors the maintenance development charges are capitalized as work in progress. For subsequent 10 years, the entire amount of maintenance is charged to P L Account claimed as expenditure - HELD THAT:- As decided in own case [ 2008 (12) TMI 331 - PUNJAB HARYANA HIGH COURT] The plots for which the securities were forfeited were not shown at lesser value by adjusting the forfeited amount in the closing stock. Therefore it cannot be said that there was any link of the security forfeited with the plots shown in the clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been used for the business purpose, the disallowance made is liable to be deleted. Disallowance of demarcation / survey expenses - revenue or capital expenditure - HELD THAT:- The survey and demarcation is an ongoing, continuous exercise being undertaken by the assessee. The plots have to be physically marked before handing over to the allottees which requires proper survey and lining of contours. Since the allotment of plots is a regular and recurring activity so as the expenses incurred hence the expenses are to be allowed as revenue expenditure. Ground of assessee is allowed. Contribution to Delhi Metro - expenditure claimed on account of contribution was disallowed treating the same as not for their business in all the years from AY 2006-07 onwards - CIT(A) held that the provision of Metro or other transport services in Gurgaon is neither the responsibility of the appellant nor one of the objects for which it has been constituted - Revenue or capital expenditure - HELD THAT:- The contribution to Delhi Metro can be treated as step in furtherance of the business of the assessee as it improves the accessibility and facilities for the public at large and increases th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... require to pay them accordingly. Keeping in view the functions performed by the employees for HUDA the expenses out of salary cannot be treated as non business expenditure. The principle whether to allow these expenditure are not when the profits are estimated and the arguments taken by both the parties on this aspect are found to be not applicable in the peculiarities of the facts emerging out of the issue of drafting of employees of Department of Estates to work for HUDA. The addition confirmed by the Ld. CIT(A) is hereby directed to be deleted. Disallowance of Town Planning Expenses - AO treating the expenditure as capital in nature - HELD THAT:- This issue has been dealt while dealing with Office maintenance and office expenses. Hence the entire issue relating is remanded back to the file of Assessing Officer for the limited purpose of verification of type of expenses. It is hereby directed that the Assessing Officer would allow as Revenue expenses on the amount is spent for software purchases and due depreciation would be allowed in the case of hardware purchases. Disallowance under section 40(a)(ia) - interest payment made to different people as per the Court order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instant case. Hence we decline to interfere in the order of the Ld. CIT(A). Regarding the disallowances under section 14A the issue is being remanded back to the file of Assessing Officer for the limited purpose of determining the disallowances, keeping in view the expenses incurred by the assessee to earn the dividend income. As a result the grounds of the Revenue may be treated as partly allowed. Office maintenance and office expenses - HELD THAT:- From the records it is not clear that the computation expenses involved are for software up gradation or for up gradation of hardware and purchase of new computers or augmenting the capability of the existing computers. Hence this issues is remanded back to the file of Assessing Officer for the limited purpose of verification of type of expenses. It is hereby directed that the Assessing Officer would allow as Revenue expenses on the amount is spent for software purchases and due depreciation would be allowed in the case of hardware purchases. Disallowance of Sales Tax paid - Nature of expenses - HELD THAT:- Irrespective of the reasons the amount paid as taxes (in this particular instance sales tax) is undisputedly eligible fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Haryana conveys administrative approval for acquisition of land to Director General Urban Estate Department, Haryana and asks LAO to acquire land in question as per law. HUDA authorizes its bank to disburse payment for award for land to the LAO who further transfers the ownership and possession of land to HUDA. The HUDA maintains accounts as per Old Accounting Standards-7 which prescribes that profit or loss of an organization is to be worked out after the completion of the project. For this HUDA has fixed for it a period of 20 years. During this period, HUDA receives almost entire payments from the allottees of the plots like [(1) Cost of Land + (2) Development Cost + (3) Administrative Cost]. The receipts under all these three heads have been capitalized. On the other hand, regarding expenditure, the assessee has capitalized first two components for a period of 20 years but third one i.e. Administrative Cost/expenditure has been claimed as revenue expenditure in each year and shown loss year after year. Rejection of Books 3. Ground No. 1 for the Assessment years 2004-05, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15 of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the buyer. Once the plots are handed over, no further work remains with the assessee to complete except maintenance and development of the completed sectors for some time. iii) The method of arbitrarily taking the period at 20 years before the sale consideration received from customers is recognized as a revenue receipt has no basis at all. This is more so as the assessee begins to debit expenses after a period of 10 years in relation to such incomplete sectors to the Income and Expenditure a/c as annual maintenance and development charges. This further establishes the inconsistency in the accounts whereby receipts or recoveries from sectors older than 10 years have been capitalized and kept as liability but the expenses of annual maintenance etc. on the same sectors are charged to the income and expenditure account. iv) In addition to this, the assessee has staff which is working both for completed sectors and incomplete sectors. Their salaries, allowances, traveling, contingencies and all administrative expenses are being debited to the income and expenditure account. As a result of this inconsistency again, it is clear that the accounts of the assessee do not show a corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant's own case for the A.Y. 2003-04 wherein the Hon'ble Bench observed as under :- We have heard both the parties and perused the material available on record. In the instant case the assessee was engaged in the business of acquiring the land and after developing the land, residential / commercial plots were allotted / auctioned to the general public . In the instant case the assessee considered the expenses which were incurred during the period of last 10 years after acquisition of the land as capital in nature while the expenses incurred for the subsequent 10 years were considered as revenue in nature. The said period has been adopted for capitalizing on the hypothesis that in the first 10 years, the plots would be occupied and ready for inhabitation. The stand of the assessee with regard to the accounting treatment of expenses is that AS-7 issued by the Institute of Chartered Accountants of India is applicable. The said Accounting Standard deals with accounting for construction contracts in the financial statement of the contractors. The main feature which characterises a construction contract is secured and the date when the contract activities are completed fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore minimized. Therefore, selection of method should have been made by considering the nature of work undertaken by the assessee, however, this exercise has not been done by the Assessing Officer neither any detail has been furnished by the assessee. Thus, as per the AO Hon'ble ITAT Chandigarh has concluded as under:- (a) Assessee is not a contractor in true sense. (b) The assessee is not following the complete contract method in toto. (c) Only cost or expenses which are directly attributable to a specific contract can be capitalized, and that too upto the date when plots are ready to be sold/allotted/auctioned. The AO further referred to the decision of Hon'ble ITAT in the case of appellant itself while deciding the ground of appeal relating forfeiture of security. The Hon'ble ITAT rejected the appellant's arguments that the income from forfeiture of securities will be accounted after 20 years as it accounts for its income only after 20 years. The Hon'ble Bench held that the amount received on account of forfeiture of securities is to be taxed during the year in which it had been forfeited. The Hon'ble Bench took note of the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed. vi) The assessee is not maintaining proper accounts and there is no internal control on the accounting process and accounting system. The statutory Auditors in the notes to Accounts at page-36 have made a similar observation in para 3 of their notes as under in the previous year:- 3.1 The Authority was maintaining its account on cash basis. As such, amount recoverable from/payable to various Government Departments, Colonizers, allotees etc. was neither being worked out nor depicted in accounts. Keeping in view the multifarious activities of HUDA involving development of land, construction of buildings, roads and other public amenities including water supply, sewerage system, parks, electrification, etc., it is desirable that HUDA should maintain its accounts on accrual basis. 3.2 Party wise details of creditors and debtors have not been indicated in Schedule Cpertaining to 'Other liabilities' and Schedule 'J' pertaining to 'Loans and Advances'. All the basic three contentions of the assessee are held to be incorrect on facts: i) Assessee is not a construction contractor. iij Assessee does not work on no-profit-no-loss basis. Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee is not a contractor AND/ OR is not following the revised AS 7. In fairness of situation or circumstances, it will be just and appropriate to reject the stance of the Income tax department that the AS 7 is not applicable to the assessee. Hon'ble ITAT while deciding the appeal for assessment year 2003-04 held in clear words that the although the assessee is not a contractor in real sense, yet applicability of AS 7 should be made in the manner prescribed by the same. PLEASE READ HIGHLIGHTED PORTIONS ABOVE. It is yet another matter that the same was not done by the Income tax department while giving effect to the orders of Hon'ble ITA T, for which an appeal is pending before the office of CIT(A), Panchkula. By virtue of its objectives, the assessee is engaged in activities of creating assets / combination of assets which are offered to public for sale on allotment basis. The activities are in the same nature as that of a builder, developer and promoter who creates building/ flats, plots and other structures and offer these to public for sale. In case of contractors offering built up flats for sale to potential buyers, there is no contract involved betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veloper. The Ld. CIT(A) held that , the assessee can with reasonable accuracy estimate its income from various projects which are at different stages of completion. The assessee has simply deferred the recognition of income by 20 years. Therefore, the appellant's method of keeping accounts by following AS-7 and completed contract method is held to be not reflecting the true profits of the appellant. The Ld. CIT(A) held that the method employed by the assessee is not suitable for the nature of business/activities and the assessee is not following even AS-7 in true sense and upheld the action of the Assessing Officer rejecting the books of accounts. 5. Aggrieved with the order of the Ld. CIT(A) the assessee has appealed before us. 6. During the hearing the assessee has submitted that the books of accounts of the assessee were rejected by the AO for the first time in AY 2004-05. Thereafter, the books of accounts were rejected in AY 2004-05 onwards in all the years. 7. The Ld. AR argued that the assessee since inception is engaged in the activities of acquisition of land, development, and .after selling the plots. The books of accounts of the assessee are maintained on cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l extension fees for construction on the plot. Therefore, normally it takes a time period of twenty years to complete construction on plots developed in any new urban estates. The Sectors are thereby, treated as complete sectors after the expiry of 20 years from the date of its floating. The auction in the commercial sectors is commenced after inhabitation in residential part of the sectors is done. The Ld. AR argued that the assessee had the choice to adopt any method of accounting but it should be adopted consistently according to mandate of Section 145 department is bound by the assessee's choice of method and it could not be rejected as improper merely because it gives assessee benefit in certain years or merely because another method is preferable by the department. When books are maintained on certain principles or basis there is no reason why the same should be rejected on the ground of postponement of income. As regards the issue that the assessee is claiming expenses relating to both the completed uncompleted sector from the sum received during the year. In this regard it is stated that the Honorable ITAT in the case of assessee itself for AY 2003-04 has given a fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is notified by the Central Government u/s 145(2) of the Act in the Finance Act 1995. Rather it has chosen to adopt outdated Accounting Standard-7 . The same has since been revised as Revised Accounting Standard-7 w.e.f. 01.04.2003 which has been formulated on the lines of Indian Accounting Standarad-11. ii. The annual profit cannot be deduced from the method adopted by assessee as assessee has taken a period of 20 years for charging profit to tax whereas section 3 of the IT Act prescribes previous year should be a period of 12 months only. AO relied on CIT v. K.Sirinivasan and K. Gopalan, (1953) 23 ITR 87,99 (SC). The assessee is postponing its' income to after 20 years when the project is taken to be completed while full payment is received in most cases within 6 years of allotment and by charging interest if the payment is made in installment. Under the Scheme of IT Act 1961, immediately after receipt of the income by the assessee, the assessee is subject to an ambulatory charge. AO relied on Chowgule Co Ltd V. CIT (1992) 195 810,818-19 (ITR) Bom. iii. The period of 20 years has been taken arbitrarily hypothetically because the assessee received total paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from various projects which are at different stages of completion. The appellant has simply deferred the recognition of income by 20 years. Therefore the appellant's method of keeping accounts by following 'AS-7' and Completed Contract Method is held to be not reflecting the true profits of the appellant. Moreover, there is merit in AO's observations that the assessee is not following even 'AS-7' in true sense. The said order was followed by CIT (A) in all the years. Every assessment year is a separate assessment year and principle of res-judicata is not applicable in the Income Tax proceedings. Reliance is placed on (a) H.A. Shah Co. vs. Commissioner of Income-tax (30 ITR 618, Bom.), (b) The Amalgamated Coalfields Ltd. vs. The Janapada Sabha Chhindwara (AIR 1964 SC 1013), (c) CIT vs. Brij Lai Lohia and Mahabir Prasad Khemka (84 ITR 273, SC), (d) C.l.Tvs. Micro Land Ltd. (347 ITR 613, Karn.), and (e) Dharmesh R. Shah vs. JCIT (60 SOT 182, Mum.). AO is free to form an independent opinion as per Income Tax provisions especially when there is notification issued by the Central Government u/s 145(2) of the Act in the Finance Act 1995 and the outdated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcentage Completion Method. The Bangalore Bench decided in favour of the assessee by application of section 211(3A) of the Companies Act. Further the change in the year was found to be revenue neutral. In the instant case, the appellant is neither a Construction Contractor nor in true sense a Real Estate Developer. It is also not following either the Complete Contract Method or the Percentage Completion Method. The Revenue recognition is being deferred for a period of 20 years. Therefore, the decision is not applicable in the instant case. The Commissioner of Income Tax vs. Haryana State Industrial Development Corporation Ltd. (2010) 326 ITR 640 (P H) is also distinguishable on the facts that in that case the Tribunal found that the assessee's stand was not controverted when it had claimed that methodology adopted in the assessment year in question was consistent with the past whereas, in the instant case, the methodology adopted by the appellant has been found by the AO to be inconsistent with the revenue recognition for each year. Further, in the instant case, in the past the appellant has been claiming exemption for its activities as for charitable purposes which has su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned in the past. There is no estoppel in these matters, and the officer is not bound by the method followed in the earlier years. Section 145 confers sufficient power upon the officer - nay, it imposes a duty upon him - to make such computation in such manner as he determines for deducing the correct profits and gains. This means that where accounts are prepared without disclosing the real cost of the stock-in-trade, albeit on sound expert advice in the interest of efficient administration of the company, it is the duty of the ITO to determine the taxable income by making such computation as he thinks fit. Any system of accounting which excludes, for the valuation of the stock-in-trade, all costs other than the cost of raw material for the goods in process and finished products, is likely to result in a distorted picture of the true state of the business for the purpose of computing the chargeable income. Such a system may produce a comparatively lower valuation of the opening stock and the closing stock, thus showing a comparatively low difference between the two. In a period of rising turnover and rising prices, the system adopted by the assessee, as found by the Tribunal, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e number of decisions of the High Courts, the Privy Council and also this Court. It is well-settled that income attracts tax as soon as it accrues. The application or destination of the income has nothing to do with its accrual or taxability. It is also well-settled that interest income is always of a revenue nature unless it is received by way of damages or compensation. ACIT Vs. Alcon Developers (2015) 54 Taxmann.com 54 wherein it is held that 'The Assessing Officer has noticed that the assessee has accounted the accrual of the sale proceeds on the basis of registration of sale deed in favour of the intended buyer. This method adopted by the assessee, cannot be regarded to be in accordance with the mercantile system of accounting. The assessee is engaged in construction business. As observed by the Commissioner (Appeals), AS-9 is not applicable to a person who is engaged in construction business. Even this accounting standard does not lay down that the sale proceeds should be accounted for when the sale deed is registered. In the case of the assessee it is not disputed that the assessee is following mercantile system of accounting as well as project completion method. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be regarded to be either cash or mercantile system of accounting. Therefore, the order of Commissioner (Appeals) is set aside and the order of the Assessing Officer is restored.' 14. The Ld. DR has thus distinguished the case laws relied upon by the Ld. AR. 15. We have gone through the arguments in detail and also the observation of the Assessing Officer and the Ld. CIT(A). We find that the matter has been examined by the Coordinate Bench of ITAT Chandigarh vide order dt. 31/03/2008 in ITA No. 742/CHD/2007 upholding the action of the Assessing Officer rejecting the books of accounts which also finds place in the order of the CIT(A) while adjudicating the issue mentioned above. Hence following the order of the coordinate Bench of ITAT Chandigarh on the similar issue in assessee s own case, we decline to interfere in the order of the Ld.CIT(A). 16. As a result this ground of appeal of the assessee is dismissed. Addition on account of In-direct Charges of the Residential Sectors and Commercial Sectors: 17. Ground No. 2 for the Assessment years 2004-05, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11, 2011-12, and ground No. 2 3 for the Assessment years 201213, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and services charges totaling to 22.2% are not retained by the assessee at all and are parted by it either with the government or with the plot owner under directions of the court. 18.1 The AO however rejected the appellant's contention observing that the same cannot be accepted because the indirect charges comprises of commercial interest, which is nothing but notional commercial interest calculated on development cost, which comprises of nearly l/3rd of the total development cost. Further, price escalation and unforeseen charges which comprises of nearly l/4th of the total indirect charges are also purely on estimate basis. Thus the contention of the assessee that 22.2% of the total indirect charges of 29.79 % are not retained by it is factually incorrect. Further, as per the AO other charges at 11.36% are also adhoc and have nothing to do with actual expenses incurred. 18.2 The AO further observed that the total land developed and sold by the appellant consist of both residential and commercial area. The indirect charges received on account of the same vary on residential and commercial properties. The AO noted that the cost sheet of the assessee just takes the salea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the commercial part of the sector comes to ₹ 5500/- per sq. mtr (approx) as loss of EWS plots is already absorbed in residential plots. However, the commercial plots are not sold at the cost price, but instead auctioned. The selling price of the commercial plots is higher than the residential plots by in the range of 5 to 40 times. The appellant was asked to submit the details with regard to detail of auction of commercial property during the year. Though, complete details were not filed by the appellant. The AO observed that the auction price of commercial property invariably is double the reserve price in most of the cases. The AO noted that in Gurgaon the reserve price as high as ₹ 1.25 lacs per sq. mt. and the actual auction price in case of single story booth without basement for Sector- 21 worked out to be more then ₹ 2 lacs per sq. mt. as detailed below :- Sector Particular Site No. Area Reserve Price Auction Price Sale price / meter A 21 Single Storey Booth 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier assessment year held that 30% of the recoveries from sale of projects which correspond to the heads of expenditure which are booked by the assessee directly to his income and expenditure is to be taken as income from residential sectors. However, with regard to the recoveries from sale of commercial plots, 60% of these receipts were proposed to be taken as income of the assessee during the year. The higher rate was estimated far commercial properties keeping in view the fact that the income from sale of commercial plots for exceeds the income from sale of residential plots. 20.1 The AO worked out the income from receipts as under: Recoveries from commercial sites From New Sales ₹ 289.53 Cr. From Old Sales (50% of ₹ 805.96) ₹ 402.98 Cr Total ₹ 692.51 Recoveries from residential sites ₹ 676.30 Cr. Income of the assessee during the year Residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.79percent as rounded off to 30%. It has been understood and believed by the AO that costs appearing at a, b and d above are parted by HUD A towards cost of the plot which is sold by it to the plot allottee. The percent age of the amount parted by HUDA has been assumed to be an out go and the remaining percent age amount of the total amount received during the year from allottees is treated as income by the AO. Further, it is reiterated that the cost sheet which was taken as the basis for adopting an assumptive NP rate is a projection of the cost expected to be incurred for developing a sector. This cost was based upon the historical data and the past figures and as per PWD estimates, which are based in scientific postulates and calculations. The Indirect Charges include some amounts which are compulsorily payable by the assessee to other departments/persons and are not retained by the assessee at all. For the purpose of making these charges, the assessee is treated at par with private colonizers and are to be paid to various departments. Thus, even if the presumption of the AO that Indirect charges are to be taxed as income, expenditure incurred under the head commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py of the statutory notification has already been brought on record, which prescribe the rate per acre to be paid by HUD A to the state Government. These charges are also paid to the State Govt., of Haryana and is a statutory levy and cannot by any stretch of imagination be included or deemed to contain any element of profit and contributing to the surplus of organization, as has been held by the AO. Out of indirect charges taken as 29.79%, commercial interest, escalation charges, license fees, conversion charges, security fees and service charges totaling to 21.17 % are not retained by the assessee at all and are parted by it either with the government or with the plot owners under directions of the Court. In respect of the year under question, the assessee has paid a sum of ₹ 50 cores to the State Government of Haryana on account of license fee, conversion charges and infrastructure development charges. The amount has paid to the State Government on account of License Fee, Conversion Charges, Infrastructure Development Charges and Scrutiny Fee as per the circular of the State Government applicable at that time. The amount of ₹ 5000.00 lacs was paid on this ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33 Kama I has been taken as a basis for assuming that the profits earned by commercial sectors are higher than the profit embedded in the recoveries made in respect of residential area. A bare reading of the cost sheet reveals as under; In the sample taken for considering the matter and arriving at the conclusion it has been observed that total areas dedicated for developing sector 33 Karnal was 240 acres. Out of this area, 30.54 acres, was released from the total occupation. In the sample cost sheet taken into account while completing the assessment, the land in possession of HUDA to be developed for the whole sector was 209.46 acres. Out of the total land earmarked for the sector, 46.75 acres of land was earmarked for area under shopping and 1.10 acres was reserved for institutions. Accordingly, balance area available for development and sale towards residential plots was 158.75 acres. This fact clearly appears in the cost sheet. It is also evident from a reading of the cost sheet that out of the total 158.75 acres of land proposed to be developed for residential plots, land measuring 105.17 acres was to be left as common utility area viz. parks, roads, rain water disposal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmercial areas fetch better price than the residential plots. But the cost of developing the commercial properties is very high and there is not such a huge profit element as envisaged by the 'AO in this transaction. It is submitted as under 2. Addition @ 60% on commercial properties is on a very high side due to the following reasons:- i) The development cost of commercial sectors is 3 to 4 times higher than the development cost of the residential sectors. ii) The saleable area in the commercial sectors is only 25% to 30%, as against the saleable area of 50 to 55%, in the residential sectors. iii) The enhanced compensation awarded by the Courts in respect of commercial sectors is not recovered from the allottees of commercial sectors unlike the residential sectors as the commercial sites are sold by way of auction. iv) The license fee, conversion charges, infrastructure development charges are much higher in the case of commercial sectors than the residential sectors. The Chart showing these charges is enclosed at Annexure A'. Therefore, the commercial sites have a huge cost and addition @ 60% on the commercial sites is not justified. 21.2 The appellant furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial relief in this regard. 6.10 The appellant has further contended that the amount of recoveries 6.10directed to re-compute the addition after excluding the receipts on account of include the amount received from the allottees on account of enhanced compensation granted by the Courts. Therefore such receipts cannot have any element of income and the same needs to be excluded from the taxable income. The appellant's contention is found to be valid. Therefore, the AO is enhanced compensation after duly verifying the details 6.11 As regards, the appellant's contention with regard to application of rate of fetch more price while the cost of acquisition is the same. Therefore profit margin 6. 1 60% with regard to commercial property, it is held that the same is on the higher side. First of all the application of higher rate is approved in principle as one does not need to go into the details of the rates of commercial property and residential property. There is no denying the fact that the commercial properties is definitely high in case of commercial properties. There is merit in appellant's submission that all these towns of Haryana are not commercially as advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO's action of applying a net profit rate does not have much impact on the receipts so shown. The appellant may however work out the details of the receipts relatable to the completed projects the income from which has been shown in the PAL account and which have been included by the AO also for net profit rate purposes and claim appropriate relief. The AO is directed to allow the relief in this regard after due verification. 6.13 In conclusion, it is held that the income of the appellant be determined by applying a net rate of 20% in the case of residential property and ki% in case of commercial property. The amount recovered by the appellant on account of enhanced compensation with regard to residential property also be reduced from the total receipts for working out the net profit with regard to residential properties after due verification by the AO. The appellant' gets appropriate relief in this regard. The ground of appeal is partly allowed. 23. Before us the Ld. AR strongly relied on the arguments taken before the Ld. CIT(A). It was further argued that on perusal of cost sheet it will be observed that out of the land earmarked for the sector 46.75 acres of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, it is clear that mainly risks are transferred after 20 years. Since after 20 years assessing is showing income on its own, estimating income @ 60 45 % of the recoveries is highly unjustified. 26. The Ld. AR has also put forth alternate argument without prejudice to the above, that it is a fact beyond doubt that the commercial areas fetch better price than the residential plots. But at the same time another fact cannot be ignored that cost of developing the commercial properties is very high as compared to residential properties and there is no such huge profit element of 60% as envisaged by the AO due to the following reasons; - The site development cost varies depending on various factors such as site, development plan, local fees, permitting costs etc. o The development cost of commercial sectors is much higher than development cost of the residential area. - The saleable area in the commercial sectors is only 25% to 30% as against the saleable area of50% to 55% in the residential sectors - The enhanced compensation awarded by the Courts in respect of commercial sectors is not recovered from the allottees of commercial sectors unlike the residential sectors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognized method of accounting but the condition is that the same method has to be followed consistently. Reliance in this regard is placed on Daikin Airconditioning India Private Ltd. vs. Deputy Commissioner of Income Tax (2014) 146 ITD 335 (Delhi), Nandi Housing (P) Ltd. vs. Deputy Commissioner of Income Tax (2003) 80 TTJ (Bang) 750 : (2004) 2 SOT 395 (Bang), R. Natarajan vs. Assistant Commissioner of Income Tax (2012) 135 ITD (Chennai) (TM) (Trib) 0055 28. The assessee has taken an alternate argument that there would be unforeseen charges and also estimated expenses of 2.04% of the total cost to meet the variations and 6.13% can be treated as cost of administration maintenance and establishment expenses. It was argued that Commercial interest/ escalation charges are part of development cost, the outflows of which are compulsorily required to be incurred for the purpose of developing selling a sector and are not claimed in Income Expenditure. Therefore it is requested that since commercial interest escalation charges are to cover the contingencies of the development cost, the same should be clubbed with the Development Cost. Therefore in view of the above, it was pleade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of the project as revenue expenditure the corresponding proportion of the receipt of recovery from allottees also needs to be taken. The addition on account of administrative charges claimed by the assessee in Income Expenditure Account was made by the AO for the first time in AY 2004-05 by estimating the 30% of the total recoveries as income. Thereafter from AY 2004-05 onwards, the income was estimated @ 30% of the total recoveries from residential sector on account of indirect charges claimed by the assessee in all the years. 4.1. AO has also discussed that HUDA is not an organization working on a No Profit No Loss as it is generating following profits: i. Total Sector is divided into plots and the value is fixed after including all development and administrative expenditure. Residential plots are allotted at cost price but commercial plots are sold on auction, which generated profits in several hundred crores. ii. HUDA receives the entire charges on account of future developments and the maintenance of sectors from its allottees within a period of 5/6 years, but development is carried out in a period of 20 years meaning thereby that it is receiving maintenance/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial sectors and old recovery to be given separately'. The AR of the assessee has given breakup of the same. As discussed in the preceding paras, the profit generated and therefore, the income from sale of commercial plots far exceeds the income from the sale of residential plots. Hence, 30% recoveries from sale of projects which correspond to the heads of expenditure which are booked by the assessee directly to his income and expenditure is taken with regard to income from residential sector. Thus adopting a consistent view of accounting, it is seen that receipts for the same heads ought to be income of the assessee. The CIT(A) has accepted assessee's contention on indirect charges claimed compulsorily payable to other departments without calling for comments from the AO and properly appreciating the reasoning given by the Assessing Officer. 4.4 Every assessment year is a separate assessment year and principle of res- judicata is not applicable in the Income Tax proceedings. Reliance is placed on (a) H.A. Shah Co. vs. Commissioner of Income-tax (30 ITR 618, Bom.), (b) The Amalgamated Coalfields Ltd. vs. The Janapada Sabha Chhindwara (AIR 1964 SC 1013), (c) C.l.T vs. Br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ON ON ACCOUNT OF INDIRECT CHARGES OF COMMERCIAL SECTORS: The addition on account of indirect charges claimed by the assessee in Income Expenditure Account of Commercial Sectors was made by the AO for the first time in AY 2007-08 by estimating the 60% of the total recoveries as income. AO points out that the cost sheet of the assessee takes into the saleable area of residential plots in any sector into consideration and the cost of residential plot is worked out on the same. Assessee has submitted that the cost of commercial sites is not included while preparing in cost sheet in respect of residential sectors. Thus, what the assessee is doing smartly in its computation sheet is excluding the commercial Area from saleable Area and the computing the rate of saleable area for residential plots. Thereafter, land carved out for commercial purpose like shopping centre and Institutions is not even taken into consideration by the assessee in its' computation sheet for sector, though it claims to be running its' activities on No Profit No Loss . The selling price of the commercial plots are higher than the residential plots within the range of 5 to 40 times the cost of residential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gurgaon, (ii) The cost of developing commercial area is more than residential area, and (iii) Enhanced compensation is not recovered in case of commercial sectors from allottees without calling for comments from the AO and appreciating the reasons recorded by the AO. 5.3 Even if for the sake of argument's sake it is accepted that saleable area of commercial sectors is 25% to 30% as against the saleable area of residential sectors about 50% to 55% and development cost for commercial sectors is 3 to 4 times higher than the development of residential sectors, the contention of the assessee's is not acceptable as commercial plots are put to auction to the highest bidder fetching 5 to 40 times more profit corresponding to the residential sector. No evidence was placed before the AO regarding enhanced compensation awarded by the courts. Assessee's contention that the CIT (A) in AY 2007-08 has accepted the contention of the assessee that the cost of developing commercial area is more than that of the residential plots reduced the percentage of profit to 45% and it requests the Hon'ble ITAT to kindly further reduce the percentage of profit to 20% considering the submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing before us the assessee argued that the profits already declared needs to be excluded while computing the profits estimated on rejection of books of accounts. The ground of the assessee is technical in nature and the Assessing Officer is directed to exclude the profit already declared by the assessee from the profits computed by rejecting the books of accounts. 35. As a result this ground of appeal of the assessee is allowed. External Development Charges 36. Ground No. 5 for the Assessment years 2004-05, 2006-07, 2007-08, 2008-09, and ground No. 3 for the Assessment years 2009-10, 2010-11, 2011-12 and Ground No. 4 for A.Y. 2012-13, 2013-14 and 2014-15 of the assessee appeal and Ground No. 2 for the Assessment years 2006-07, 2007-08, 2008-09, 2009-10, 201011, 2011-12, 2012-13 and 2013-14 of the Revenue appeal pertains to the issue of external development charges. 37. The assessee has claimed liability in the Balance Sheet under the head Other Liabilities' on account of External Development Charges. It is seen that the liability shown is increasing year after year and is constantly progressing. The assessee did not show any details regarding the utilization of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent cities and the basis of working out the same. The appellant justified the treatment given to the EDC charges by making the following submissions:- 1. EDC are charges recovered from colonizers proposing to develop residential and other colonies is the state of Haryana. 1. EDC is charged solely with the intent to provide external service to the colonizers who develop colonies in private land acquired by them. The services proposed to be provided are wide area varied and cover from sewerages, roads, electricity, horticulture, rain water disposal and other such services. The amount received from colonizes is solely and purely with a view to provide services over a period of time depending on there such and status of the colony developed by HUDA. Although, EDC is charged from the initial date when the colonizer begins to undertake colonization, these are spent at later stage. In the meantime, or during the period the amount is not spent, the amount is retained b HUDA in liability account to be discharged at a later date. The amount of EDC is thus purely in the nature of liability and cannot be said to be income of from any stretch of imagination. 2. During the course of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leges, hospitals, stadium/ sports complex, fire station, grid sub stations etc. and any other work which the Directory may specify to be executed in the periphery of or outside colony/area for the benefit of the colony/area; HUDA has been assigned the responsibility of executing the external development works in the Urban Estate of Haryna. Again HUDA works out the EDC for a particular Urban Estate on 'No profit no loss basis'. The cost of external development services such as Master Water Supply, Master sewage, Master roads, Master storm water drainage, Master horticulture, Master community buildings and other services on the basis of a price index of a particular year in respect of a particular Urban Estate. The cost is worked out by the Engineering Wing of HUDA keeping in view the requirement of the Development Plan of the Urban Estate. In the development cost worked out by the Engineering Wing, the direct and indirect charges are added on the same pattern as explained in Para1 above. Since these are the common services for the sectors/colony for whole of the Development Plan, the cost of these services including the direct/indirect charges are spreaded over the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther to submissions made on the last date of hearing in which the concept of EDC was elaborated, it is brought out that EDC is collected from colonizers with a view to undertake development in the area proposed to be colonized. Although the EDC are being collected from the colonizers since a long time, the State of Haryana underwent a spate of colonization in recent years and prior to that there was no such activity incurred on the development of area. Hence the same resulted in accumulation of funds at the disposal of the assessee. These funds were kept as earmarked funds and were retained for the purposes of undertaking external development. There has been a major change in the thrust on developing the colonies in the state and in recent past, on account of colonization undergoing at a fast pace, the expenditure is being incurred heavily on the external development works/ activities etc. Furthermore the issue of spending EDC on areas under control of HUDA has been under surveillance of High Court, who is constantly monitoring the deployment of EDC in various Urban Estates. We are placing hereunder relevant data evidencing the above submissions and which also proves that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant and have also gone through the reason given by the AO forr making the additions. It is gathered from the details submitted that the EDC is basically a statutory fee which is chargeable by HUDA from Colonizers. The fee is supposed to be for the development works carried out by HUDA. However, it is seen that very little of it has been actually spent. The basic fact which remains is that this fee in the nature of EDC is collected by the assessee from the colonizers. It is statutory fee which is to be paid by the purchaser of plots sold through colonizers. This statutory payment has been received by the assessee and has been kept as a liability. It needs to be noted that the said amount is not refundable in any event. It is further seen that the amount is subject to upward revision. Therefore, if the actual expenditure is more than the recoveries, the same is recoverable from the developers and if the expenditure is less then the recoveries the same constitute the income of the appellant as by very nature the amount is not refundable. It is seen that the appellant has kept complete record of EDC charges received and spent with regard to each Urban Estate. As per the details fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, which is as under:- Where, in the opinion of the State Government, it is necessary that the amenties provided by the Authority in an urban estate should be extended to any land or building situated within the said area or within such distance front the said area it may deem expedient, such amenities shall be extended to such land or building and the owner of such land or building shall be liable to pay to the Authority, in the manner prescribed, such development charges therefore, as may be fixed by the State Government having regard to the expenses to be incurred for providing such amenities and the benefits to be extended to the land or building. 42. The Ld. AR argued that the above clearly shows that EDC is fixed by the State Government for amenties extended as per the directions of state government. In order to involve the private sectors in the process of urban development, the Department of Town Planning Department, Haryana grants licenses to the private colonizers for the development of Residential, Commercial, Industrial IT Park/ Cyber Park Colonizers, in accordance with the provisions of the Haryana Development and Regulation of Urban Areas Act, 1975, and rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is given in Section 2(g) of this Act. It is as follows: 'External Development Works include water supply, sewerage, drains, necessary provisions of treatment and disposal of sewage, sullage and storm water, roads, electrical works, solid waste management and disposal, slaughter houses, colleges, hospitals, stadium/sports complex, fire stations, grid sub-stations etc. and any other work which the Directory may specify to the executed in the periphery of or outside colony/area for the benefit of the colony/area'. 6.2. HUDA charges EDC as per Section 3(3)(a)(ii) of HDRUA, which reads as under: ' To pay proportionate development charges if the external development works as defined in clause (g) of Section 2 are to be carried out by the Government or any other local authority. The proportion in which and the time within which, such payment is to be made, shall be determined by the Director. 6.3. HUDA charges EDC for EDWs by issuing letters/ circulars. The content of these letters/ circulars is that EDC are levied as per Section 2(g) for EDW on the beneficiaries to whom the change of land use permission is granted for various purposes in the Agricultural/ Rural Z ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturnable and would never be returned because it is a consideration paid by EDW users. EDC is worked out for a particular urban estate on the basis of the cost of External Development Services such as Master Water Supply, Master Sewage, Master Roads, Master Storm Water Drainage, Master Horticulture, Master Community building and other services is determined on the basis of a price index of a particular year in respect of a particular urban estate. The cost is determined by the Engineering Wing of HUDA keeping in view the requirement of development plan of an urban estate. EDC is charged from sectors floated by HUDA or the license granted by the Town Country Planning Department to the developers. To say that there is no element of profit in EDC because EDC varies depending upon requirement of development in each urban estate, therefore, it is in the nature of liabilities is incorrect, because the pavers of EDC are allowed to use EDWs for payment of fees worked out on the basis of investments in EDWs. EDC is charged from colonizers for using the developed urban infrastructure in urban estates wherein they are allowed to establish their commercial set ups. The EDC is a user fee char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, (ii) It can never be classified as liability. The assessee is hardly spending this receipt but put in the banks as FDRs or other investments, (iii) EDC charges are not uniform in the state but are charged at different rates depending on the location i.e Zonal basis, hence there is no basis on which EDC charges can be linked with actual amount spent, (iv) A proportion of the total cost recovered in the financial year is to be taken for the purpose of indirect charges. The assessee here has received EDC as a part of the total recoveries. Further, in the absence of any basis for determining the EDC charged by colonizers, an estimation has to be done with regard to the addition made on this account, (v) Thus it is logical to include the total received EDC of ₹ 602,23,48,336/- in the recoveries from allottees. In doing so a percentage of 30% is liable to be treated as recovery on account of indirect charges from this receipt, as has been done in the past. It was further argued by the Ld. DR that the CIT (A) in his order for AY 2007-08 was adjudicated first the rate was reduced from 30% to 20% on the reasons that there is merit in appellant's submission tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head EDC for the pi is collected, (v) EDC has never been part of State Govt. Revenue, (vi) The claim that HUDA is required to pay back the EDC to the State Govt, is misrepresentation actual facts. 48.1 The Ld. DR argued that the truth is that EDC is charged on the facilities of use of External Development Works provided by the developers/builders. This fact does not establish that HUDA does not have absolute title on EDC. The CIT (A) has reduced the addition of 30% on the basis that income on indirect charges has been reduced to 20%. The CIT(A) has accepted assessee's contention on indirect charges claimed compulsorily payable to other departments without calling for comments from the AO and appreciation of the facts and circumstances discussed by the AO, the reduction of addition on account of EDC from 30% to 20% is also without any definite basis. 48.2 The Ld. DR argued that the Ld. CIT(A) has erred in applying a net rate of 20% and AO's rate of 30% is requested to be restored. Further, The Ld. DR vide letter dt. 17/11/2017 has filed the details of the survey report and other relevant details (total pages 1 to 149), For the sake of convenience Rule 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and treating the surplus as income, the intention of the HUDA to utilize and the tangible examination and visible implementation of the intention on the ground over a period of ten years or so needs to be examined to treat the EDC as income or not. In this connection the additional evidences held by the Ld. DR are needed to arrive at a correct decision. Since these facts were not before the first appellate authority, it is hereby directed that the issues may be examined in the light of the directions and guidelines issued above in tandem, examination of the additional evidences filed and to pass a speaking order by the Ld. CIT(A). 51. This ground of appeal of both the parties are treated as allowed for statistical purposes. Annual Maintenance Charge 52. Ground No. 6 for the Assessment years 2004-05, Ground No. 7 for AY 200607, 2007-08, 2008-09, and ground No. 4 for the Assessment years 2009-10, 201011, 2011-12 Ground No. 5 for A.Y. 2012-13, 2013-14 and 2014-15 pertains to disallowance of Annual Maintenance Charges. 53. Brief facts are that HUDA is engaged in the work of developing Urban Estates which involves acquisition of land, its development into plots, laying do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand at 20% in respect of residential properties 50% in respect of commercial properties and it is a well settled principle that where income has been estimated by applying profit rate, no separate additions / disallowances can be made by the AO. In this regard reliance is placed on the ratio of the following cases, Assistant Commissioner of Income Tax vs. Lakshmi Industries (2011) 135 TTJ (Chennai) 112 : 7 ITR 0495 Commissioner of Income Tax vs. Aggarwal Engg. Co. (Jal.) (2006) 302 ITR (P H) 0246 Commissioner of Income Tax vs. Smt. Santosh Jain (2008) 296 ITR 324 (P H) Assistant Commissioner of Income Tax vs. Sarv Prakash Kapoor* (2009) 119 ITD (Agra)(TM) 197 56.1. The Ld. AR further argued that there has been justification for the period of ten years as major chunk of development expenditure is incurred during the initial stage of the project itself. The development of the projects is completed in most of the cases in the minimum time frame of 6 -7 years i.e. before the possession of the plot is handed over to the assessee. In some cases, depending on situational factors it takes 2 - 3 years more for the development. Accordingly, the assessee treats the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istant Commissioner of Income Tax vs. Lakshmi Industries (2011) 135 TTJ Chennai) 112 : 7 ITR 0495 facts are different in that case as compared to the instant case as that case belongs to search and seizure assessment. Hence this case is not applicable, (ii) Commissioner of Income Tax vs. Aggarwal Engg. Co. (Jal.) (2006) 302 ITR (P H) 0246 facts are different in that case as compared to the instant case as in that case after addition on the basis of net profit rate other additions were made on account purchase and introduction of cash. Hence this case is also not applicable; (iii) Commissioner of Income Tax vs. Smt. Santosh Jain (2008) 296 ITR 324 (P H) facts are different in that case as compared to the instant case as that case belongs to search and seizure assessment. Hence this case too is not applicable, and (iv) Assistant Commissioner of Income Tax vs. Sarv Prakash Kapoor (2009) 119 ITD (Agra)(TM) 197 facts are different in that case as compared to the instant case as in that case assessee is in Civil Construction Business, whereas in the instant case the assessee is not in construction business in true sense. Hence this case is not applicable. In view of the above, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific plan. Subsequently the plots of various sizes both commercial and residential were allotted sold or auctioned. Subsequent to this sale / allotment, the assessee maintained sectors for a period of 20 years, for that period all expenses in relation and maintenance were made by the assessee. After the period of 20 years, the developed sectors wore handed over to the Municipal Council / Corp etc. The Assesse was not snowing any profit on those projects of sectors for a period of 20 years staring from the cquisition to the date of handing over the sector to the Municipal Council / Corp etc. Further for the first 10 years of any development of a sector, the maintenance and development charges were capitalized as work in progress and for the period subsequent to 10 years, the entire amount of maintenance and development was charged to the P L Account and being claimed as expenditure. The Assessing Officer observed that the assessee was declaring profit in the P L Account only on completion of 10 years and the: expenses related to some incomplete projects were debited to P L Account as expenditure in the period between 10 years and 20 years of acquisition . The Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee was a contractor engaged in construction since its inception and for the purpose of maintaining its accounts the assessee was following contract accounting system under which the accounts were maintained as per prescription laid down in the Accounting Standard (in short AS) 7, as per the said Standard in general administrative cost. selling cost research an development, depreciation cost of idle plant equipment, cost incurred in securing contract and por-contract cost if it was not probable that the contract will be obtained are not the part of the contract cost. However, the cost which related directly to the contract and were incurred in securing contract if they could be separately identified and it was probable that contract would be obtained such costs are also included in the contract cost. After considering the submissions of the assessee, the Assessing Officer observed that the assessee bi-furcated the expenses in the sector which were more than 10 years, or less than 10 years old. However the recoveries / enhancements etc, or the profit from sectors which were more than 20 years old were being reflected in the P L Account, therefore, the expense for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en by the Assessing Officer at page No. 9 of assessment order dated 30.11.2005. The Assessing Officer asked the assessee to furnish bifurcation of expenses. According to the Assessing Officer the assessee was unable to furnish the bifurcation of expenses but only submitted that the expenses were of general administrative nature. The Assessing Officer held that since the entire expenditure related to completed / incomplete sectors, besides administrative expenditure of the Head Office in Panchkula the one and half of the entire expenditure being equally allocatable to the developed and undeveloped parts of the activity of the assessee at ₹ 75,45,72,832/- was added in the total income being of capital nature i.e. relating to the projects not completed. He accordingly made a disallowance of ₹ 37,72,86,416/-. 12 When the matter was taken to the Ld. CIT(A), the assesse submitted that it. i.e the Haryana Urban Development Authority (HUDA) was constituted in 1977 for ensuring speedy and economical development of urban areas in the State of Haryana. It was further stated that the assessee provided planned and fully developed residential, commercial, institutional and indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and prior to the said period of 10 years all payments / receipt were capitalized and treated either as an asset or as a liability. It was submitted that the years in which the receipts are high the profit o the sector would be high and on the other hand where in a year refunds are in excess than the amount received there would be losses for the sector and this position has been duly accepted by the Income tax department. It was contended that the assessee is a contractor engaged in the construction contract and contract accounting standard has been followed since its inception. It was 'emphasized that the account were maintained by the assessee as per prescription laid down. Accounting Standard 7 (in short AS-7'). The said AS-7. defines and prescribes the mode of calculation of the contract revenue and contract cost it was pointed out that AS-7 further lays down the manner of arriving at the contract cost which is not written off on year to year basis. It was explained that the AS-7 lays down two methods for accounting, one method is percent of completion method and another one is completed contract method. It, was submitted that the assessee is following the policy of trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a (P) Ltd. (2005) 3 SOT 617 (Mum) CIT Vs. Lokhandwala Construction Inds Ltd. (2003) 180 CTR (Bom) CIT Vs. V. S. Dempo Co. Pvt. Ltd. (1996) 131 CTR (Bom) 203 CIT Vs. Advance Construction Co. (P) Ltd. (2005) 193 CTR (Guj) 127 Wall Street Construction Ltd. Vs. JCIT S.R. 12(2006) 5 SOT 103 (MUM) (SB) DCIT Circle 8(1) V. Ranka Developers (2006) 6 SOT 815 (Bang) 13 Ld CIT(A) after considering the Submissions of the assesses observed that AS 7 (New) clearly says that a contract accounting has to be accrual system of accounting and only allows part completion of method, so. the assessee cannot selectively claim the benefit of AS-7 which it was not following. He distinguished the case relied on by the assessee in the case of Raheja Builders stating that the said case was relating to finance cost and not administration cost and that case was for a period prior to revision of Accounting Standard. He further pointed out that the assessee was asked to furnish the bifurcation of expenses which the assessee was unable to do but only submitted that the expenses were of the nature of general administrative nature. According t him the revised AS 7 did not allow any person to foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the earlier 10 years, there was no direct relation of the expenditure incurred with the development of sector a reference was made to para 2 of assessment order in support of his contention. He further submitted that the Assessing Officer asked the assessee to give detail bifurcation of the expenses claimed in respect of complete and incomplete sectors but no such data was furnished by the assessee. He pointed out that the assessee not a contractor and also not following the project complete method and that in the preceding year no expenses were claim since total income was claimed exempt u/s 10(20A) of income Tax Act, 1961. He also stated that certain project might have been completed and some remained incomplete in the first 10 year: however. the expenses were capitalized in the completed sectors as well as for incomplete sectors, it was submitted that only the cost attributable to the contract activity could have been allocated to the specific contract and since the assessee has not given the bifurcation, the Assessing Officer rightly estimated the capital expenditure and made the disallowance @ 50% of the claim made by the assessee considering that 50% of the sectors wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the date of completion upto that date the expenses can be capitalized and when the sector is fully developed and plots are allotted / auctioned to the applicant, the expenses incurred thereafter are not capital in nature because the stock i.e. the plot is ready to be disposed off without making any further development. In the instant case the assessee is not following the complete contract method and capitalizing certain expenses which were not related to particular sector e.g. interest etc which might have been for a sectors and not for all the sectors. In our opinion, the only cost of expenses which are directly attributable to a specific contract carried only be capitalized and that too upto the date when the plots are ready to be sold / allotted / auctioned. In AS 7, completed contract method has been prescribed in Para 10 according to which the principle advantage of the completed contract method is that it is based on the results as determined when the contract is completed or substantially completed rather than on estimated which may require subsequent adjustment as a result of unforeseen costs and possible losses, the risk of recognizing profits that may not have been ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been taken by the Hon ble Jurisdictional High Court in the case of CIT Vs Patwal Co-operative Sugar Mills Ltd (2006) 284 ITR 153 wherein it has been held that - Every judicial / quasi judicial body / authority must pass a reasoned order which should reflect the application of mind of the concerned authority to the issues / points raised before it. The requirement of recording reasons is an important safeguard to ensure observance of the rule Of law. It introduces clarify, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision making process. Another reason which makes it imperative or quasi judicial authorities to give reasons is that their orders are not only subject to the right of the aggrieved persons to challenge them by filing statutory appeal and revision but also by filing writ petition under article 226 of the Constitution. Such decisions can also be challenged by way of appeal under article 136 of the Constitution of India. The High Courts have the power to issue writs of certiorari to quash the orders passed by quasi judicial authorities / Tribunals. Likewise in appeal the Supreme;* Court can nullify such ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermine the allowable expenditure, failing which the assessee would be allowed the expenditure of maintenance expenses only on pro -rata basis. 60. The appeal of the assessee on this ground is treated as allowed for statistical purposes. Forfeiture of security 61. Ground No. 7 for the Assessment years 2004-05 and ground no. 8 for assessment year 2006-07 of the assessee relates to forfeiture of security. 62. The assessee has shown an amount of ₹ 8,67,58,348/- (for AY 2006-07) on account of receipt from forfeiture of security. However in the computation of income the security forfeited was reduced from the income returned. The Assessing Officer made addition of the amount forfeited which was upheld by the Ld.CIT(A). 63. Before us the Ld. AR argued that while floating the sector, 10% of the total amount of a particular plot offered for draw is received as earnest money and after draw of that particular sector whole of the 10% amount taken as earned money is refunded to unsuccessful applicants and from successful applicants/allottee 15% more amount s demanded which is required to be deposited in HUDA office within 30days of allotment letter. If the allottee fails ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs which accrued to the assessee at the time of sale of those plots is not acceptable because the amount was not reduced by the assessee in the value of the closing stock rather it was shown as income in the P L Account however while filing the return of income the amount was reduced from the income in the computation of income. We are therefore of the view that the Assessing Officer rightly made the addition and the Ld. CIT(A) was fully justified in confirming the addition made by the Assessing Officer. 67. On careful consideration of the facts of the case and keeping in view the decision of Coordinate Bench of ITAT in appellant s own case in ITA No. 742/CHD/2007 for A.Y. 2003-04, the addition made by the Assessing Officer is hereby upheld. Sale of Plants 68. Ground No. 8 for the Assessment years 2004-05 and 2007-08 and ground no. 9 for the Assessment Year 2006-07of the assessee , relates to disallowance on account of sale of plants. 69. The Assessing Officer while framing the assessment noted that the assessee has shown income from sale of plants grass and trees and claimed it as agriculture income. The assessee contended that the receipt would be shown when the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurred with a view to show case the activities of the assessee and is thus attributable to the business activities of the appellant. 76. It is noted that the Coordinate Bench of ITAT Chandigarh while adjudicating a similar disallowance for the A.Y. 2003-04 in appellant s own case has upheld the disallowance so made observing that the assessee is not getting any direct benefit from the IAG and the payment has been made voluntarily. On careful consideration of the facts of the case and keeping in view the decision of Coordinate Bench of ITAT in appellant s own case in ITA No. 742/CHD/2007 for A.Y. 2003-04, the disallowance made by the Assessing Officer is hereby upheld. 77. The ground of appeal is dismissed. Payment to Pension and Gratuity Fund 78. The application for registration of the Gratuity fund has been made on 03/08/2004. Since the fund was not recognized during the assessment year the Assessing Officer has disallowed the amount claimed and the same addition has been confirmed by the Ld. CIT(A). Since the fund was recognized with effect from 20/01/2004 the Assessing Officer has directed to verify the bare facts of approval of the fund and allow accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urvey, this amount was incurred for marking of the plots and mapping of the area while and before handing over of the plots. The Assessing Officer has treated this expenditure as capital expenditure. 87. The Ld. CIT(A) has confirmed the addition. 88. Before us the Ld. AR argued that at the time of allotment of plot demarcation is not done physically on the ground but based on the survey maps and land records. At the time of handing over the possession of the plot the demarcation measuring the size of plot as per the allotment is done. Accordingly the expenditure incurred on such activities are debited under demarcation / survey expenditure. It was argued that these are purely incidental to the business and this expenditure is routine expenditure and should be allowed as Revenue expenditure. Once the demarcation is completed then only the allottee would be able to start the construction on the plot. 89. Ld. DR argued that this expenditure is to be relatable to completed sectors but the same does not appear to be correct as per the accounting policy followed by the appellant. A project is treated completed only after 20 years of its launch. The plots are handed over to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expense for which is to be booked under the head EDC. It was argued that HUDA has been constituted by the government of Haryana as per Section 3 of the Haryana Urban Development Authority Act, 1977 The Objects functions of the authority are envisaged u/s 13 of the Act which provides that the objects of the Authority shall be to promote and secure the Objects and development of all or any of the areas comprised in the urban area and for that purposes to provide other services and amenities and generally to do anything, with the prior approval, or on direction, of the State Government for carrying out the purposes of this Act. Amenties has been defined in Section 2(a)as under:- amenties includes roads, water-supply, street-lighting, drainage, [sewerage, treatment and disposal of sewerage, sullage and storm water] public works, tourist spots, open spaces, parks, landscaping and play fields, and such other conveniences as the State Government may, by notification, specify to be an amenity for the purposes of this Act; Section 21 of the HUDA Act provides that the funds of the authority shall be applied towards meeting expenditure for such other purposes which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ots. The contribution to the metro is akin to construction of the road which will be used by the residents approaching through the road hence the expenditure can be treated as an allowable expenditure laid down for wholly and exclusively for the business purpose. 100. The appeal of the assessee on this ground is treated as allowed. Salary to PF Staff 101. Ground No. 12 of the appeal of the Assessee for the Assessment years 2007-08 relates to disallowance on account of ₹ 50,00,000/-. 102. The assessee has not pressed this ground before us therefore need no adjudication on this ground. Disallowance of advertisement on buses: 103. Ground No. 13 of the appeal of the Assessee for the Assessment years 2007-08 relates to disallowance on account of advertisement expenses on buses of ₹ 6,000,0000/-. 104 Brief facts are that the assessee has paid ₹ 6 crores to Transport department Haryana for the purchase of CNG Buses and the same was debited to P L Account under the head Advertisement expenses. It has been submitted by the assessee that this amount was given to the Transport Department for the purchase of buses with the condition that busses will ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 108. We have perused the matter and also the order sheet and the approval placed before us. imag From the perusal of the above it is observed that the busses have been purchased by Transport Department of Haryana and it was allowed to be charged to advertisement expenses. One time funds to be provided by HUDA after which the facility may be extended through private operators. 109. On going through the above events it can be said that while spending is the prerogative of the assessee, whether it makes the expenditure elligible under the head of allowable expenditure or not, is to be decided on the facts of the case as there is no clear cut test on the base of expenditure which may be distinguished from revenue expenditure or otherwise. The question has to be decided from the practical and business point of view. In the instant case whether funding the purchase of busses so that advertisement can be had on this buses purchased doesn t fit on the lines of expenditure incurred fully and exclusively for the purpose of the business. After paying the amounts the assessee has not even got the ownership of the buses which have been purchased totally from the funds provided b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent years by taking opening stock at zero and closing stock at ₹ 2,66,38,000/-. 115. Ld. DR has relied on the order of the lower authorities. 116. We have perused the facts before us and find that there has been error in computation of closing stock which needs to be corrected in the instant year. At the same time the assesee will get the benefit of increased opening balance in the subsequent years. 117. Hence the appeal of the assessee on this ground is dismissed. Salary of Employees of Department of Urban States 118. Ground No. 4 of the appeal of the Revenue for the Assessment years 2012-13 2013-14 and 2014-15 and Ground No. 8 of the Assessee appeal for the Assessment Years 2012-13, 2014-15 and Ground No. 7of the Assessee appeal for the Assessment Year 2013-14 deals with disallowance of ₹ 3,96,79,223/- and confirming of ₹ 82,19,472/- by the Ld. CIT(A) out of the total amount claimed in P L Account of ₹ 4,10,97,364/-. Thus this issue is involved in Revenue as well as Assessee s appeal. 119. During the assessment the Assessing Officer has held that the administrative expenses were paid to various employees of Department of Urban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elongs to search and seizure assessment. Hence this case is not applicable, similarly in the case of Commissioner of Income Tax vs. Aggarwal Engg. Co. (Jal.) (2006) 302 ITR (P H) 0246 facts are different in that case as compared to the instant case as in that case after addition on the basis of net profit rate other additions were made on account of purchase and introduction of cash. Hence this case also is not applicable; In the case of Commissioner of Income Tax vs. Smt. Santosh Jain (2008) 296 ITR 324 (P H) facts are different in that case as compared to the instant case as that case belongs to search and seizure assessment. Hence this case too is not applicable, and in the case of Assistant Commissioner of Income Tax vs. Sarv Prakash Kapoor (2009) 119 ITD (Agra)(TM) 197 facts are different in that case as compared to the instant case as in that case assessee is in Civil Construction Business, whereas in the instant case the assessee is not in construction business in true sense. Hence this case is not applicable. The Department of Urban Estate is a separate department of State Government workings under the administrative control of Director General Town and Country Planning. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue expenditure which was paid to Rolta India Ltd. and allowed depreciation on ₹ 58,68,928/- being the computer items purchased from M/s Hartron. 128. This issue has been dealt while dealing with Office maintenance and office expenses. Hence the entire issue relating to ₹ 1,79,11,266/- is remanded back to the file of Assessing Officer for the limited purpose of verification of type of expenses. It is hereby directed that the Assessing Officer would allow as Revenue expenses on the amount is spent for software purchases and due depreciation would be allowed in the case of hardware purchases. Disallowance under section 40(a)(ia) 129. Ground No. 9 of the appeal of the Assessee for the Assessment years 2014-15 relates to disallowance U/s 40(a)(ia) due to default of TDS on the interest payment made to different people as per the Court order. The assessee has paid interest of ₹ 1,97,29,877/- without observing the provisions of TDS. The Assessing Officer has disallowed this amount under section 40(a)(ia). 130. The Assessing Officer has also given alternate finding that this interest paid should be capitalized. The Assessing Officer observed that if at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 36(l)(iii). 133. The Ld. DR argued that since the interest has been paid to the allottees TDS needs to be deducted and failure of which will attract provisions of 40(a)(ia). He further argued that Assessing Officer made addition on account of 32.35 lacs under section 14A too. 134. Regarding the deductability of the TDS on the amounts paid to various allottees, we find that the interest has been paid by the assessee to allottees for payment of compensation due to delaying offer of the possession after allotment has been squarely covered by judgment in case of Ghaziabad Development Authority vs. Dr. NK. Gupta ( NCDRC) 258 ITR 0337 and Delhi Development Authority vs Income-Tax Officer (1995) 53 ITD 19 Delhi the amount of compensation do not fall under the meaning of 2(24) of Income Tax Act. Hence assessee is not liable to the provisions of TDS on these payments. Since assessee has not borrowed any funds and no interest has been paid the Assessing Officer s alternate observation also stands dismissed. 135. The ground of the assessee is allowed. 136. Regarding the addition made under section 14A of ₹ 32,35,885/- by the assessee we find that the provisions of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Said claim not refuted by the AO-Revenue contending that even if the assessee had made investment in shares out of its own funds, the assessee had taken loans on which interest was paid and all the money available with the assessee was in common kitty-Said contention not acceptable-In the present base} 'the assessee did not make any claim for exemption-In such a situation s. 14A could have no application. CITvs. Corrtech Energy (P.) Ltd 223 Taxman 130(Guj) Income-Expenditure Incurred In Relation To Income Not Includible in Total Income- AO made disallowance of expenditure of specified amount under section 14A-Disallowance was confirmed by CIT (Appeals)- Tribunal held that Assessee did not make any claim for exemption and in such situation, Section 14A could have no application-Held, S. 14A(1) provides that for the purpose of computing total income under chapter IV of the Act, no deduction shall be allowed in respect of expenditure incurred by the Assessee in relation to income which does not form part of the total income-Assessee did not make any claim for exemption and in such a situation, S. 14A could have no application and Revenue's Appeci was dismissed. Princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is to be disallowed. The window for disallowance is indicated in Section 14A of the Act, and is only to the extent of disallowance of expenditure 'incurred by the assessee in relation to tax exempt income'. Accordingly, the tax exempt income cannot be disallowed entirely. Thus following this logic also, where the exempt income is zero, the disallowance cannot exceed the exempt income which is zero. 137. In a nutshell, going through the facts and submissions and various judicial pronouncements on the issue, it is clearly observed that the issue is to be decided in favour of the assessee as in the case of CIT Vs. Lakhani Marketing (P H) (supra), CIT Vs. Winsome Textile Industries Ltd. (P H) (supra), CIT Vs. Holcim India Pvt. Ltd. (Del.) ITA No. 486 299/2014 dated 05.09.2014 , Cheminvest India Ltd. Vs. CIT (Del) ITA No. 749/2014 dated 02.09.2015. 138. Thus the addition made under section 14A stands deleted (ground of Disallowance under section 40(a)(ia) and 14A together ). INCOME FROM HOUSE PROPERTY VS. BUSINESS INCOME 139. Ground No. 2 of the appeal of the Revenue deals with addition of ₹ 58,42,157/- for the AY 2004-05 and similar ground is invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on the judgment the income received by the assessee cannot be treated as dividend but only as business income. The Assessing Officer further held that in case the income is treated as exempt, the provisions of Section 14 would be applicable. 146. The Ld. CIT(A) held that the investments were made in the equity shares of Gurgaon Technology Park Ltd. and these investments(shares) were or held as capital investment and not as stock in trade and hence the amount received would be treated as dividend. 147. Before us the Ld. DR relied on the order of the Assessing Officer. 148. The Ld. AR argued that these investments are made to earn dividend and also that the assessee does not have any business relationship with M/s. Gurgaon Technology Park Ltd. or the investments made in this company is not incidental to carrying out the business of the assessee and hence argued that the dividend received is eligible for exemption under section 10(34) of the Income Tax Act. 149. We have gone through the records and perused the material before us. 150. In the case of M/s Brooke Bond Co. Ltd. the issue was regarding the holding of shares in subsidiary Tea Companies wherein the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lized whereas the Ld. AR relied on the order of the Ld. CIT(A). computerization of Department of Town and Country Planning to prepare layout plan of HUDA. 155. From the records it is not clear that the computation expenses involved are for software up gradation or for up gradation of hardware and purchase of new computers or augmenting the capability of the existing computers. Hence this issues is remanded back to the file of Assessing Officer for the limited purpose of verification of type of expenses. It is hereby directed that the Assessing Officer would allow as Revenue expenses on the amount is spent for software purchases and due depreciation would be allowed in the case of hardware purchases. Sales Tax 156. Ground No. 5 of the appeal of the Revenue for the Assessment years 2012-13 2013-14 and 2014-15 relates to disallowance of Sales Tax paid. 157. During the year the assessee has claimed sales tax (Haryana VAT) of ₹ 7,98, 36,527/- the assessee explained that the amount has been paid against the sales tax assessment made by the Sales Tax Department in the past. The Assessing Officer held that the assessment must be relating to cost of supply of materials a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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