9911796707
TMI Blog2018 (2) TMI 2013X X X X Extracts X X X X X X X X Extracts X X X X ..... rial, commercial and institutional purposes, (c) To make available developed land to Haryana Housing Board and other bodies for providing houses to Economically Weaker Sections of the society; and (d) To undertake building works and other engineering works. HUDA is developer of urban areas. It develops urban infrastructure. It is doing business of development of large real estate projects. HUDA is the entity which is acquiring land, developing and finally handing it over to consumers for a price. Lands developed by HUDA is though identified and acquired by the Urban Estate Department, Haryana Government, yet the ownership and possession of land is transferred to HUDA for consideration paid by HUDA. Land to be developed is identified and surveyed by the Director General Town & Country Planning, Haryana. The land so identified and surveyed is ready for acquisition by LAO (Land Acquisition Officer) of the Urban Estate Department, Haryana. LAO requests its superior authority, Director General, Urban Estate Department, Haryana for administrative approval for acquiring the land. The Urban Estate Department, Haryana conveys administrative approval for acquisition of land to Director Gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is taken to the profit and loss account. In other words, no income is shown by the assessee even after the plots are sold and full amount of installments has been received by it. The entire recoveries from the allotees of sold plots and auctioned areas continue to be shown as Advance from Customers'. Over the years, the assessee has not declared income in its returns filed from several such projects (each sector is taken as a project), but generated huge surplus which is shown from the surplus of cash and bank balance of as on 31.03:2006 among other current assets. Thus, method of accounting is totally contradictory to normal accounting procedure. Once a sector has been plotted and sold, the receipts from the plots should be a revenue receipt. It is even contradictory to the assessee's own cash system of accounting. ii) The total payment in the form of installments for the plots auctioned by HUD A by calling for applications through the newspapers etc., are received within three to six years. Once the full installments are given, possession is handed over to the buyer. Once the plots are handed over, no further work remains with the assessee to complete ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of contract-even if assessee's claims of being a contractor is considered for a moment though not allowed- is totally known and predictable with full certainty. It has a clause for even recovering the enhanced cost of acquisition of land from the buyers in case it is so granted by the courts at any future stage. The AO further referred to the Central Govt, ry /^V1-: notification u/s 145(2) for assessees following mercantile system of accounting to make it compulsory to follow uniformly two standards of accountancy i.e. AS-1 and AS-2. As per the notification, accounting policy followed by the assessee will be deemed to represent a true and fair view of the state of affairs of business only if it is governed by substance and not merely by the legal form. The AO observed that the assessees case is even stronger to fall under These notified guidelines as in assessee's case not only has the income accrued, it has been actually received. There can be no deferment of income thereafter, as done by the assessee. The AO referred to the decision of Hon'ble ITAT in the appellant's own case for the A.Y. 2003-04 wherein the Hon'ble Bench observed as under :- "W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped 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 a particular sector e.g. interest etc which might have been for a few sectors and not for all the sectors. In our opinion, the only cost or expenses which are directly attributable to a specific contract can only be capitalized and that too upto the date when the plots are ready to be sold/allotted/auctioned. In AS7 completed contract method has been prescribed in para 10 according to which the principal 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 earned is therefore minimized. Therefore, selection of method should have been made by considering the nature of work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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. For Income-tax Act, each previous year is a self contained period. Income-tax is an annual levy. The accounting standards may guide the assessee how to keep accounts but these do not over-ride the provisions of IT Act. iv) The period of 20 years has been taken arbitrarily & hypothetically without any basis. The assessee receives total payments from the allottees of plots within a period of six years. The project is also completed almost in that period. After receipt of the payment, the assessee deposit this amount in the bank which results in huge accumulation. This postponement of profit without any reason is in contravention to Section 3& 4 of the Income tax Act. v) During the year under reference assessee has received a sum of from allotees. Against it, the expenses for both the completed sectors and incomplete sectors are being claimed. vi) The assessee is not maintaining proper accounts and there is no internal control on the accounting p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly developed. Besides the period of twenty years is taken as the period taken for completion of the project and the time frame when the project is treated to be fully completed. As has been stated in the opening paras, the assessee is following the AS7 being a contractor, and as an option following completed contract method. Since in the right state of circumstances, the period when the project is deemed to be completed is twenty years, the period of twenty years is taken by the assessee for treating its sectors to eb complete. It is further argued that a bare reference to the AS 7 reveals that the same applies to the contracts of creating composite assets. It is not applicable to building contracts only. It is argued that the contracts which result in creation of an asset or a group of assets also qualifies to be contractor as per AS 7. Further more in respect of assessment year 2003-2004 to 2006-07, the Income tax department has accepted the applicability of AS 7 to the assessee, but have denied the benefit of the same to the assessee on the ground that the assessee is not a contractor AND/ OR is not following the revised AS 7. In fairness of situation or circumstances, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. The AO has erred in holding that the accounting standards prescribed under Section 145 of the IT Act have not been followed by the assessee. It needs to be noticed from the statute book that Section 145 of IT Act has not yet prescribed for any accounting standard in respect of construction activities. Only accounting standard prescribed by the said section are AS1 and AS2, which have been followed by the assessee in true letter and spirits. The appellant also relied upon the decision of (2007) 15 SOT 1 (DELHI) SNC Lavalin/Acres Inc. and(2008) 4 DTR (Mumbai)(Trib) 547ITO Vs. Pratiksha Enterprises ITAT, Mumbai D' Bench in support of its contention in this regard. 4. The Ld. CIT(A) while confirming the action of the Assessing Officer held that it is seen that the appellant's method of keeping its account has been found to be not in order by the Hon'ble ITAT Chandigarh also. The AO has rightly mentioned that the appellant is not a construction contractor but the nature of its activities is akin to that of a builder/developer. The Ld. CIT(A) held that , the assessee can with reasonable accuracy estimate its income from various projects which are at differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ults as determined when the contract is complete rather than on estimates which may require subsequent adjustment as a result of unforeseen cost & possible losses. This method minimizes the risk of recognizing profits that may not have been earned. Therefore the contention of the AO that annual profits cannot be deduced is not tenable. As regards the issue that assessee is postponing its income to after 20 years we submit that the applications are invited and after the allotment of residential plots, a total time period of six years is allowed to the allottee to make the payment in installments. Allottee is allowed a period of 2 years for construction from the date of offer of possession which is offered after creating basic infrastructure facilities. To provide basic infrastructure facilities such as roads, water electricity sewerage etc. a period of 6 - 7 years is taken so possession can be offered only after 6-7 years from the date from which a new estate is planned. Further period of thirteen years is allowed on payment of nominal extension fees for construction on the plot. Therefore, normally it takes a time period of twenty years to complete construction on plots developed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r) (URO) 12. The Ld. AR further argued that the method followed by the taxpayer cannot be called as an unreasonable method where any change in the method is revenue neutral. The assessee is following completed contract method & accordingly on completion i.e. 20 years, the assessee transfers the profit from the project to the Profit & Loss Account. Till that time the receipts & expenditure are capitalized in the uncompleted sector account. Thus, there is no concealment or understatement of profit, but the difference is only about the year in which the income is to be assessed. In nutshell, there is no loss of revenue to the department. Indeed, the method adopted by AO is leading to double taxation as the department is assessing income prior to being shown by assessee and also in the years in which it has been disclosed by the assessee. 13. The Ld. DR vide his submission dt. 17/11/2017 argued that the assessee claims that it is following cash system of accounting. "i. The assessee has not adopted method of accounting which 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts on cash basis. It is desirable that HUDA should maintain its accounts on accrual basis. viii. In view of the detailed facts mentioned above, books of accounts of the assessee were rejected u/s 145(3) of the IT. Act, 1961. The Hon'ble ITAT Chandigarh in appellant's own case for AY 2003-04 has concluded that (a) Assessee is not a contractor, (b) the assessee is not following the complete contract method in toto, and (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 CIT (A) held that the appellant's method of accounting has not been found in order by the Hon'ble ITAT Chandigarh also. He further held that the AO has rightly mentioned that the appellant is not a "Construction Contractor" but the nature of its activities is akin to that of a Builder/Developer. He agrees with the AO that if assessee desires, it can with reasonable accuracy, estimate its income 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 me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter 01.04.2003. In the revised Accounting Standard, it is not permissible to capitalize the receipt and claim expenditure in the revenue side. Hence, assessee's contention is not acceptable that he has the choice to adopt any method of accounting. Assessee is not a contractor in true sense. [AO's Order page 7 818 for AY 2004-05]. Change in the method of accounting will not be revenue neutral as it will reflect true nature of income in each relevant Previous Year as per the intent of the legislation and provisions of the Income Tax Act. 3.4. Assessee has placed reliance on the following cases which are distinguishable on facts with reference to the instant case: > Prestige Estate Projects (P) Ltd. (2010) 129 TTJ (Bang) 0680 is distinguishable as under: This case is distinguishable on the facts from the facts of the present case. In that case Assessee Company was a real estate developer which maintained its accounts by adopting Completed Contract Method. The AO assessed the case by following Percentage 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessee by saying that same results can be attained by any one of the method of accounting. 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. 3.5. On the other hand the reliance is placed on the following decisions by the Revenue. The Hon'ble Supreme Court in the case of CIT Vs British Paints India Ltd 188 ITR 44 wherein it is held as under: "It is not only the right but the duty of the Assessing Officer to consider whether or not the books disclose the true state of accounts and the correct income can be deduced therefrom. It is incorrect to say that the officer is bound to accept the system of accounting regularly employed by the assessee. the correctness of which had not been Questioned 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive .one way or the other...." Tuticorin Alkali Chemicals & Fertilizer Ltd vs CIT 93 Taxmann.com 502 wherein it is held that "It is true that the Supreme Court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But 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. Accounting practice cannot override section 56 or any other provision of the Act. ....Whether a particular receipt is of the nature of income and falls within the charge of section 4 is a question of law which has to be decided by the Court on the basis of the provisions of the Act and the interpretation of the term 'income' given in a large 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee on the ground that it had not followed AS-7 for recognition of revenue on the basis of percentage completion method. The method as has been followed by the assessee, is neither project completion method nor percentage completion method. Percentage completion method is not linked with the consideration received by the assessee from the intended buyer. The assessee has recognized the revenue only when the registration of the sale deed has been done in favour of the buyer. Under AS-7 this is not a recognized method of recognizing the revenue. This method is neither project completion method nor percentage of completion method. The method adopted by the assessee, therefore, cannot be regarded to comply with the ingredients as laid down under section 145. Section 145 makes it mandatory on the part of the assessee to follow either cash or mercantile system of accounting regularly. Recognizing the revenue when the sale deed had been registered by the assessee in favour of the buyer could 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to furnish the costs sheets of other Urban Estates. The assessee however informed that the cost ratios are the same for all the costs sheets for various Estates as worked out in the earlier year i.e. 2005-06 & 2006-07. The AO noted that addition on these lines has been made by the AO in the earlier years also by taking the ratio of indirect charges received @ 30% of total recoveries. The appellant however contested the proposed addition and submitted as under :- " The AO has bifurcated the sums received by HUDA from plots as under:- a) Land Cost- 14.02% b) Development Cost- 44.61% c) Indirect charges- 29.79% d) Others- 11.30% Out of indirect charge at 29.79%, commercial interest escalation charges, license fees, conversion charges, security fees 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 devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 'No profit No Loss' basis. In the above computation, the AO noted land for commercial purposes is equivalent to residential land which may vary in other cases. The land cost of the commercial part of the sector comes to Rs. 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 Rs. 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 Rs. 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 22.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 289.53 Cr. From Old Sales (50% of Rs. 805.96) Rs. 402.98 Cr Total Rs. 692.51 Recoveries from residential sites Rs. 676.30 Cr. Income of the assessee during the year Residential Sites -30% of Rs. 676.30 Cr = Rs. 202.89 Cr Commercial Sites - 60% of Rs. 692.51 Cr = Rs. 415.50 Cr Total Income = Rs. 618.39 Cr 20.2 The AO thus worked out a total addition of Rs. 618,39,00,0008/- on account of revenue generated from residential site and commercial site applying a rate of 30% & 60% respectively. 21. The assessee has challenged the addition before he Ld.CIT(A) and has submitted that the addition is totally uncalled for. ""The addition was made taking off the addition on same premise made in respect of assessment year 2004-05, where it was held as under while making t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained 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 commercial interest, escalation charges, License Fees, Conversion Charges, Security fee and service charges (totaling to 21.17%) is not retained by the assessee and is paid to various departments and only 6.13 %, which is administrative charges can only be considered (though incorrectly) for the purpose of calculation of profit in this manner. Fifteen percent of development cost is included in the cost of plots towards administrative charges which are the charges designated to meet day to day cost of administration, maintenance, establishment and other related costs. HUDA meets its day to expenditure from the element contained the expenditure against the head administrative charges (15% of O.C.) and unforeseen charges 5% of D.C External development charges are paid under statute to State Govt, of Haryana. Copy of the statutory notification has already been brought on record, which prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Rs. 5000.00 lacs was paid on this account during the financial year 2006-07, the details of which is given as under:- License Fee Rs. 968.16 Con version Charges Rs. 1231.84 Infrastructure Dev.Charges Rs. 2699.52 Scrutiny Fee Rs. 100.48 Total Rs. 5000.00 Further, while completing the assessment, the Assessing Officer applied a G.P. Rate which was estimated by the Assessing Officer from the cost sheet produced before AO for verification on the total sums recived by the assessee during the year under question. It is argued that the said assumptive NP rate of 29.93 pc was applied on the total amount received from the allottees during the year under question and was treated to be income of the assessee from sale of plots. It is further brought out that while arriving at an assumed income element of Rs. 42.88 crores comprised in the sums received from the allottees, the Assessing officer failed to consider a very pertinent fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s common utility area viz. parks, roads, rain water disposal and other such facilities. Therefore only 51.88 acres was left to be offered for sale by way of residential plots. Thus, out of the total saleable area of 158.75 acres, earmarked towards residential areas, only 33.75 %> was to be recovered from the residential plots to be sold by the assessee. Resultantly the cost of developing 158.75 acres of land in the RESIDENTIAL AREA was to be charged to the plots carved out of 51.88 acres of land. Technically talking, the yield out of the total land proposed developed for residential colony was therefore 33.75 %>, i.e. 51.88 acres divided by 158.75 acres. Thus out of per acre or 4840 sq yds of land developed, the net area available was only 1634 sq yards (yieldper acre & 33.75%). The total cost of developing per acre of RESIDENTIAL land i.e. Rs. 7585660 was divided by NET yield in sq yds per acre to arrive at the cost of land and developing land, per square yard. It is reiterated that Rs. 7585660 is cost of developing only one care of RESIDENTIAL LAND AND DOES NOT AT ALL INCLUDE COST FACTOR OR ELEMENT OF COMMERCIAL AREA AT ALL, FOR WHICH A SEPARATE COS T SHEET IS PREPARED. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t justified. 21.2 The appellant further referred to the assessment order for the year 2008-09 wherein the AO himself has computed the income from sale of commercial plots by applying a rate of 50% as compare to 60% taken during the year under appeal. 22. The Ld. CIT(A) adjudicated on this issue which is as under: I have carefully considered the submission made by the appellant. It is seen that the appellant has challenged the AO's action of treating 30% & 50% of its receipts as taxable on account of indirect charges received mainly by relying on the AS-7 method being followed by the appellant. It is mentioned that the AS-7 method followed by the appellant has been rejected by the AO and the AO's action in this regard has been upheld in the preceding para. The appellant has, first of all challenged the working of 29.79% as, as per the appellant the same is actually 27.3%. As regards, the other arguments taken by the appellant, it has been stated that the indirect charges received by the appellant are on various accounts and 22.177o out of 27.3% is passed on and is not retained by the assessee at all. The assessee has elaborated on the various components of indirect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s submission that the cost of developing commercial area is more than that of residential area as proportion of land utilization in case of commercial property is less. It has also been mentioned that the enhanced compensation by the Court in respect of commercial sectors is not recovered from the allottees as done in the case of residential sectors. It is seen that the AO himself has taken the proportion of profit as 50% during the year 2008-09. Therefore, it is held reasonable to apply a rate of 45% in the case of commercial property for estimating the income derived from sale of commercial property. 6.12 The appellant has made an alternate submission that the amount of Rs. 84,60,72,183/- as income from completed sector as shown in the P&L account should be reduced while computing the taxable income of the appellant as the AO has applied a net profit rate of 30% with regard to receipts from residential area and 60% with regard to receipts commercial area. As per the appellant as the AO has rejected the book results with regard to income by way of development of sectors & plots and has applied a net profit rate as mentioned above. The profit derived by the appellant from the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for development and sale towards residential plots was 158.75 acres. The commercial area has been rightly excluded from the total area for earmarking specified areas for residential purposes because the cost of commercial area is calculated separately. The cost of developing the commercial sector is different from cost arrived at in the cost sheet of residential property as the development of commercial area is much higher & costlier than the development of residential area. Therefore, the development cost of the commercial area cannot be loaded on to the residential area. Therefore, it was argued that the contention of the AO in this regard that assessee is smartly excluding commercial area from the saleable area is without any basis. 24. The Ld. AR argued that the commercial plots are sold by way of auction after determination of the Reserve Price. The assessee earns profit from the sale of commercial plots. Therefore, when the assessee himself accepts that profit is earned on commercial plots, the contention of the AO that it is claimed by the assessee that it is running its activities on "No Profit No loss" is without any basis in respect of shopping centre & institutional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dential sectors. - The auction in the commercial sectors is commenced only after inhabitation in residential part of the sectors is done therefore, the cost of development of commercial sectors is very high, -HUDA does not only offers commercial properties at Gurgoan. It has major transactions arising from other areas as well & there are certain places where the auction does not take place at all or at such low prices that sometimes it results in losses also. All the towns of Haryana are not commercially as advanced as Gurgoan or Panchkula. Therefore, the cost of development of commercial sites is much higher and addition @ 60% on the commercial sites is not justified. Moreover, it is pertinent to mention 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%. 26.1 Ld. AR further argued to reduce the percentage of profit to 20% based on the above facts. 26.2 Regarding the residential sectors the Ld. AR argued that the assessee has been consistently following AS - 7 issued by ICAI which provides for an exception in respect of expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of administrative & unforeseen charges. Our prayer is that the addition made @ 30% be reduced to 8.17 % (6.13%+2.04%). 29. Ld. DR has relied on the rationale of the CIT(A), however strongly contested against the reduction of profits from 30% to 20% in residential sector and reduction from 60% /50% to 45% in commercial sectors. These submissions of the Ld. CIT(DR) are as under: 4. ADDITION ON ACCOUNT OF INDIRECT CHARGES OF RESIDENTIAL SECTORS: After rejection of books of accounts, AO in order to ascertain the basis of calculation of the correct profit asked assessee to elaborate the method of calculation of Cost of Plots and working of distribution of the same to the allottees over a period of 20 years. In response, assessee furnished a Cost Sheet with respect to the Sectors of Jagadhari and explained how HUDA calculated the cost of plots for fixing sale price. AO asked cost sheets for other Urban estates for which assessee submitted that cost ratios are the same for all the cost sheets for various estates. It explained that there are three components of the total cost (1) Cost of Land + (2) Development Cost + (3) Indirect Charges including Administrative Expenses. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Forfeiture of Security while working out the cost of each sector. This is also generating several crores of rupees. [The issue of Forfeiture of Security has been settled in favour of revenue by the IT AT in assessee's own case for AY 2003-04] iv. HUDA does not include sale of Trees and Malbas in costing of plots. v. HUDA receives several lakhs of applications with earnest money which is interest free deposit for six months and in turn earns interest of several crores of rupees on this earnest money. vi. HUDA has worked out various administrative charges on estimate basis whereas actual expenditure is much less that again generates profit. Commercial properties, Malls, School sites etc are put to auction which are sold above reserve price. There is clear intention to earn profit. 4.2 The CIT(A) order for AY 2007-08 was adjudicated first & the rate was reduced from 30% to 20% on the following reasons: (a) There is a merit in assessee's submission that license fee, conversion charges, scrutiny fee and service charges [10.17%] cannot be taken to be income of the assessee as same are directly parted/given to the State Govt., (b) Similarly, the appellant is correct in sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 "Accounting Standard-7" has oeen revised as "Revised Accounting Standard-7" w.e.f. 01.04.2003 even if a wrong method of accounting is followed for the last 30 years. When HUDA is providing residential and commercial plots on market rate, the contention of the assessee that it undertakes an overall development of towns by providing suitable & required facilities without any intent to earn profit and the residential plots are offered to the public on "no profit no loss" basis is devoid of truth. It has itself accepted that the commercial plots are auctioned on which profit is generated. The auction in the commercial sectors is commenced after inhabitation in residential part of the sectors is done has not been demonstrated with any evidence. Reliance placed by the assessee in the case of Joint Commissioner of Income Tax vs. K. Raheja (P.) Ltd. (2005) 102 ITD 414 (Mum.), Nandi Housing (P) Ltd. vs. Deputy Commissioner of Income Tax (2003) 80 TTJ (Bang) 750 : (2004) 2 SOT 395 (B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ots. However, with regard to the recoveries from sale of commercial plots, 60% of these receipts are taken as income of the assessee during the year. This figure is taken as higher than 30% taken for sale of residential plots. 5.1 The CIT(A) reduced the rate to 45% in AY 2007-08 on the reasons that (i) There is merit in appellant's submission that all these towns of Haryana are not commercially as advanced as Faridabad & 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. This order was followed by CIT(A) in all the years. 5.2 A portion of the recoveries made by the assessee during the year is relatable to indirect charges by the assessee. Since the assessee is debiting all the indirect charges i.e. charges in the nature of administrative charges, interest charges etc. to the Income & Expenditure a/c the amount of receipt on account of such charges is liable to be included to the income of the assessee. During the assessment proceedings, the assessee was asked to give details of Total Recoveries from allottees with break up regarding new sale procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cussion, the CIT(A) has erred in applying a net rate of 45% without giving definite findings, hence AO's rate of 50% requested to be restored. 30. The Ld. DR has also submitted that the Grounds of Appeal in the RECTIFICATION appeal in ITA No.415/Chd/2012 and 414/Chd/2012 for AY 200809 & 2004-05 respectively will be taken care on adjudication of above issue. 31. We have perused the material before us and the arguments taken by 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% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected by the assessee from the colonizers, 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 shown as a liability in the Balance Sheet. It needs to be noted that the said amount is chargeable at a rate which is revised periodically and is non refundable in any event. Consequently, it can never be classified as liability. The Assessing Officer on examination found that the assessee is hardly spending the amount received on account of EDC. Moreover the receipt of EDC is basically being utilized by depositing the same into banks in the form of FDRs or other investments made by the assessee. 38. The Assessing Officer has estimated that 30% of the EDC as income of the assessee on the grounds that the amounts have never been spent by the assessee for the purpose for which EDC has been collected. 39. The Ld. CIT(A) held that the EDC charges constitute revenue receipts treating them at par with indirect charges recovered which have been taxed at 20% and restricted the addition also to 20% on the lines of the EDC Charges. The verbatim of the Ld. CIT(A) is as under: " The AO while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any basis or adoption of any rate of any particulars year cannot be blindly applied to the subsequent years" 7.1 The AO however rejected the appellant 'submissions observing as under :- The assessee has not given the details of how the EDC is worked out though specifically asked for. In absence of any details, it is assumed that there is no basis and it is imposed on adhoc basis. EDC is charged from colonizers who are developing residential colonies Urban Estate. b) and other colonies, but has hardly been spent till date, as reflected from books of Further as per submission given by the assessee, the EDC charges are not The high potential Zone(s) are charged at a far higher rate than others, which its c) uniform in the state but are charged at different rates from the 4 categories of accounts of the assessee. a) self proves that a premium amount is charged from some areas from where maximum EDC is realized by the assessee. This itself proves that there is no basis on which EDC charged can be linked with actual amount spent. d) Lastly, the accumulation of EDC receipts in the Balance sheet over the years proves the points of revenue." After having reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure on EDC by HUDA is met out of the recovery of EDC from the allotters of HUDA or from the private developers to whom the licenses granted by the Town d Country Planning Department. The EDC will vary from Urban Estate to Urban Estate as the requirement of development in respect of each Urban Estate will vary. In some Urban Estate the ground water is available, therefore, the cost of tube well is taken into account while working out the EDC. In other Urban Estate no ground water is available and water is arranged through Canal based system, the cost of which is much higher than the tube well. Similarly, the width of the road may vary from Urban Estate to Urban Estate. The requirement of water per person may also vary from Urban Estate to Urban Estate. Therefore, the EDC for different Urban Estate will be different. The very basis of the levy of profit on an assumed rate of 30% is misunderstood by the AO. In the quotes reproduced above from order of assessment, it is noticed that the AO has stated that no documents were produced. This is incorrect. Addition on account of NP on EDC was made for the first time in the assessment year 2005-06, All relevant details were furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the assessee is receiving money from EDC and continues to receive the same. The other objection of the AO for treating the income is that the EDCamount is varying from area to area and also no details were furnished during course of assessment proceedings, is incorrect and in any case the same cannot be basis for making addition of such huge amount to income of the assessee. Furthermore, there is no basis of arriving at 30 pc as profit element in the EDC receipts. Necessary details have been furnished during course of appellate proceedings with a copy marked to Assessing Officer for seeking their comments thereon. It is thus summed up that the expenditure on EDCwas not incurred in the initial years but is now being incurred and is under constant surveillance of High Court and who is constantly monitoring the expenditure incurred on EbC. The enclosed statement also evidences the fact that the expenditure, in the subsequent years on EDCmuch more than the past years. The addition on account of 30% on EDCwhich is without any basis is unjust unfair and illegal deserves to be deleted. "7.4 It has been further stated that there is no element of profit/income in these charges as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to provide external development like treatment and disposal of 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 station, grid sub stations etc with regard to the areas being developed by it. Therefore, the amounts so recovered has to be spent. The EDC charges are fixed keeping in view the likely expenditure. Therefore, the possibility of actual expenditure being less or more then the amount spent is always there. By the very scheme the excess expenditure is recoverable from the developer/plot holders while the surplus is not refundable. Therefore, the proportion of amount which remains un-spent definitely forms in the income of the appellant which needs to be accounted for. As the appellant is not transferring the surplus, if any to the receipts and also because the projects are on going, the AO is justified to make an estimate of the income element in the same. The AO has treated 30% of the EDC charges as constituting the revenue receipts treating them at PAR with indirect charges recovered. As the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out by the government or any local authority, in this case by-the HUDA.Even HUDA is required to pay EDC at the same rate as any other developer. This in itself proves that the contention of the AO/CIT(A) is wrong. HUDA cannot have any element of profit in the amount being paid by it. 44. The Ld. AR summed up that since HUDA being an executing agency carries out all external development works throughout the licensed areas granted to the colonizers, as per the master plans prepared by Department Town & Country Planning, Haryana, treats the amount of EDC collected as liabilities in the books of accounts.EDC are in the nature of liabilities and have been charged from colonizers for the purpose of developing Urban Estate in which the colonizers proposes to establish their sets up. The Amount is being spent on periodical basis and is subject matter of surveillance by Honorable Punjab and Haryana High court. The Hon'ble Court is seeking production of annual accounts of the amounts spent on EDC as collected from the colonizers. There is no justification in holding any element of profit in receipts which are in the nature of liabilities. Under the provisions of the Act itself, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribute towards the expenditure incurred on EDW by HUDA. This proportionate contribution is called EDC. Determination of EDC to be paid by participating private persons/ builders, colonizers etc. A participating private builder is required to pay EDC as provided in the license for setting up a commercial colony on urbanisable land held by it in vicinity of land owned and developed (EDWs) by HUDA. The license is issued by the Directorate of Town and Country Planning, Haryana, subject to the undertaking as per the relevant conditions like- To submit an undertaking to the effect that it shall make arrangement for water supply, sewerage, drainage etc. to the satisfaction of DGTCP till these services are made available from external infrastructure to be laid by HUDA. A sample license in the case of M/s Sky High Land Con Pvt Ltd dated 03.06.2011 regarding External Development Charges (EDC) is enclosed and discussed hereunder: A) Charges for Commercial area (@ Rs. 162.14 lac/acre) = Rs. 334.333 Lac B) Total cost of Development = Rs. 334.333 Lac C) 25% bank guarantee required = Rs. 83.58325 Lac 6.4. The license dated 03.06.2011 containing these details is enclosed as ANNEXURE-A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue receipt having character of income of HUDA. This is also a finding of assessing officer of HUDA, which stands confirmed by CIT (A) too. 6.5. It is to submit that a survey/inspection u/s 133A of the I.T. Act, 1961 was carried out on 09.02.2017, 10.02.2017 & 14.02.2017 by the DCIT (TDS), Panchkula at the business/office premises of Haryana Urban Development Authority, Panchkula. A Survey report dated 27.02.2017 has been received from the DCIT (TDS), Panchkula. HUDA is primarily a new urban area development instrumentality. It undertakes large green field urban area development projects. It develops urban infrastructure. It also maintains such developed urban infrastructure. The books of accounts and relevant documents were examined by the DCIT (TDS). It was found that HUDA is receiving money for External Development Charges (EDC). In the Survey Report, it is concluded that the EDC is a user fee charged by HUDA from colonizers. Therefore, showing EDC as current liability by HUDA is incorrect for the reasons narrated in the survey report at paras 1 & 2 page no 1 to 23 based on specific nature and flow of transactions, supported by specific evidences in form of sample letters/ d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing less or more than the amount spent is always there. By the very scheme, the excess expenditure is recoverable from the developer / plot holders while the surplus is not refundable. Therefore, the proportion of amount which remains un-spent definitely forms the income of the appellant which needs to be accounted for. As the appellant is not transferring the surplus, if any, to the receipts and also because the projects are ongoing, the AO is justified to make an estimate of the income element in the same. The AO has treated 30% of the EDC charges as constituting the revenue receipts treating them at PAR with indirect charges recovered. As the income element in the indirect charges has been held to be 20% of the charges so recovered, it is considered fair if the same percentage is applied to the EDC charges also. The addition made by the AO is therefore, restricted to 20% of the EDC recovered during the year. 48. The Ld. DR argued that (i) HUDA has full control or dominion on the EDC as defined under section 2(g) of the Haryana Development and Regulation of Urban Areas Act, 1975 and charges EDC as per Section 3(3)(a)(ii) of HDRUA. Assessee is misinterpreting the above said prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to adduce evidence either on points specified by them, or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced". 49. Ld. AR has been given a copy of the additional evidences and did not contest on the admission of additional evidences. The additional evidences have been admitted by us under Rule 29 of the ITAT Rules being the evidences necessary to adjudicate the issue and the requirements stipulated for admission have been met. 50. We have gone through the entire gamut of the issue the addition made by the Assessing Officer @ 30% of the charges received and restriction of the addition to 20% by the Ld. CIT (A) have to be revisited in totality as the addition was based on the finding that the EDC Charges have been collected progressively and not much work has been done by the HUDA in meeting the obligation of work to be executed after collection of EDC. The points needs to be examined are the relevant provisions of the HUDA Act empowering the collection of EDC, the obligations of the HUDA to utilize the funds, the statutory power given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gic by which the expenses can be allowed for sectors which are still incomplete and income from which is not shown in P & L Account. Hence, the AO disallowed 50% of the AMC expenditure. 54. The 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 and taken up in the grounds as above . The ITAT in AY 2003-04 had restored the issue back to the file of AO for fresh adjudication. Amongst other years, the order of CIT(A) for AY 2007-08 was passed upholding the addition which was followed in all the years by CIT(A) from AY 2004-05 onwards. 55. While confirming the addition the Ld.CIT(A) has observed that 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. Hence, there is no logic by which the expenses can be allowed for sectors which are still incomplete and income from which is not shown in P & L Account. Ld. CIT(A) held that the AO while taxing 20% indirect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year in which they are incurred and added that the AO had made the addition ignoring the fact that the expenses claimed under the head "Annual Maintenance of various sectors" pertains only to maintenance expenses. This does not include expenditure incurred on development. It was further argued that rule of consistency is also applicable as the method of accounting has been accepted by the department in the past. 56.3. The Ld. AR further argued that once the AO has estimated the income on account of recoveries from allottees, thereby treating all the sectors as completed sectors, therefore there is no justification for disallowance of maintenance sectors. 57. Ld. DR has argued that the assessee could not provide any justification for claim of maintenance and development of sectors which are in purview of development and do not form part of the P&L A/c (between 10-20 years). Similarly, there is no justification for claiming the amount of maintenance and development relatable to sectors which are deemed to be completed but have not been handed over to Municipal Corporation. It can be an application of profit, but it is definitely not an expenditure incurred for business purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt conditions. It is not the case of the assessee that the forfeiture was not made during the year under consideration. It is also not the case that the amount so forfeited was utilized to develop the sectors or to make improvement in other plots. 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 inthe closing stock so the contention of the Ld. Counsel for the assessee that the amount of security had been reduced from the value of the closing stock and had been duly accounted for in the profits in the following years 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the submissions of the assessee held that the total amount of development charges debited to P&L Account for both complete and incomplete sectors was at Rs. 51,49,24,656. He therefore, askedthe assessee -vide letter dated 26.10.2005 to furnish the bi-furcation of the expenses claimed in respect of complete and incomplete sectors. In response to the above the assessee submitted that while calculating and preparing cost of sectors, the cost expected to be incurred for next 10 years was debited to the capital cost which included cost like maintenance, administration cost and finance cost. It was further submitted that the cost incurred after a period of 10 years was to be considered to be revenue in nature and that the period of 10 years was taken as basis, on the hypothesis that the sector would be ready for inhabitation and would start generating revenue / yield revenue income. It was also submitted that the receipts yielded after 10 years would be treated as revenue income and credited to P & L Account. It was further submitted that for the year under consideration, a sum of Rs. 65.49 crores was incurred on maintenance of essential services like water supply, maintenanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounting to Rs. 25,74,62,328/- to the total income of the assessee. The Assessing Officer also observed that the administration and administrative cost were pertaining to expenditure incurred for administrative development in both developed as well as developing sectors and the assessee had debited the entire cost towards administration in the P & L Account as revenue expenditure. The Assessing Officer asked the assessee to establish-as to why the administrative cost not be bifurcated in two parts and only the part pertaining to developed sectors be allowed as revenue expenditure. The assessee. in its reply, submitted that as per contract. Accounting Standard for Contract AS-7. general administrative cost and finance cost was tobe allowed as a revenue expenditure and it did not form part of the contract cost According to the Assessing Officer the assessee was following the cash system of accounting and it was also following the project completion method wherein the project completion period was 20 years. He further observed that the AS 7 (New) clearly says that a contract accounting has to be accrual system of accounting and AS-7 (revised) does not allow the project completion meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses off the plots of land for various uses like residential / commercial institutional and industrial etc in all cities o Haryana. It was pointed out that the assessee formulated different procedure for allotment of plots which all under the category of residential plots, commercial sites for charitable bodies / societies & hospitals etc and the procedure has been described adequately in the guide book. The procedure for allotment of residential sites commercial sites industrial plots / religious & social/ Charitable/ institutional sites schools and nursing homes etc has been discussed by the Ld CIT(A) in the para 2.0 of the impugned order under the head main objects of HUDA It was submitted before the Ld CIT(A) that the assessee is working on no profit no loss" basis and carrying out its activities by circulation of funds which were generated out of sale of residential / industrial / commercial and institutional plot and the investment had been made in acquisition of new areas which enabled the assessee to generate more plots for the public and more funds for the development works and new acquisitions, the price fixed on no profit no loss" basis was charged from the plot Holders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absolved itself from the responsibility of maintenance of sector since the sectors are primary responsibility of the assessee who has to maintain the areas where other authorities cannot do needful. The assessee with reference to the procedure /policy regarding costing of sectors, recovery of money from allottees amortization of expenditure and treatment of the expenditure as revenue and capital etc., submitted that the cost expected to be incurred for next 10 years are added to the capital cost which included maintenance, administrative and financial cost and that the cost incurred after a period of 10 years, are considered as revenue in nature. The period of 10 years is taken as basis on the hypothesis that the sector would be ready for inhabitation and would start generating revenue and yield revenue income therefore the receipts yielded after 10 years are treated as revenue income and credited to the Profit & Loss Account. It was stated that the administrative expenditure / financial expenditure are general expenditure and not specific expenditure for a project and accordingly those were to be claimed and allowed as revenue expenditure. It was explained that the administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x department the same cannot be altered to change the nature of expenditure from revenue to capital just because there is no profit inspite of the high level of activities. The Ld. CIT(A) pointed out that AS7 was prescribed initially in December , 1983 since then the assessee was following this method consistently and that the assessee had charged expenditure as revenue without bifurcating the same between the period of years to which those were related, therefore. the Assessing Officer rightly made the addition to the extent of 50% of the amount c h a r g e d to the revenue account as expenditure Accordingly the addition made by the Assessing Officer was sustained. Now the assessee is in appeal. 14 Ld. Counsel-tor the assessee reiterated the submissions made before the authorities below. He further submitted that the assessee was following the method prescribed in AS 7 consistently and showing the receipt from the allottees / applicants in the first 10 years 'The expenditure incurred were treated as revenue in nature and the income earned from the a allottees is treated as revenue income from the very beginning, thereto. Th e Assessing Officer written submissions of the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 is 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 dealt with in the statement is the fact that the date on which the contact is secured and the date when the contract activities are completed fail into different accounting periods and the specific duration of the contract performance is not used as a distinguishing feature of the construction contract. According to AS 7 the construction contract generally fall into two basic types: (i) Fixed price contracts - The contractor agrees to a fixed contract price or rate in some cases subject to cost escalation clauses (ii) Cost plus contracts - The contractor is reimbursed for allowable or otherwise defined costs and is also allowed a percentage of these costs or a fixed fee In the present case, the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer. In fact he has passed the order in a slip shod manner and without giving any cogent reason. 16.1 It is well settled that the reason must be given while deciding the matter. In this regard judgment passed by the Hon'ble Jurisdiction High Court in the case of CIT Vs. Vikas Chemi Gum India (2005) 276 ITR 32 can be referred wherein it has been held that- The requirement of recording of reasons and communication thereof has been read as an integral part of .the concept of fair procedure. The necessity of giving reasons flows from the concept of rule of Iaw which constitutes one of the corner stones of our constitutional set up. The administrative authorities changed with the duty to act judicially cannot decide the matters on considerations of policy or expediency The requirement of recording of reasons by such authorities is an important safeguard to ensure observance of the rule of law. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision making process Another reason which makes it imperative for the quasi judicial authorities to give reasons is that their orders are no: only subject to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls asked for by the Assessing Officer We therefore, considering the totality of the facts of the present case. are of the opinion mat the present issue requires a fresh adjudication at the level of Assessing Officer, in that view of the matter, we set aside the order of Ld. CIT(A) on this issue and remand the same back to the file of Assessing Officer for fresh adjudication in accordance with law after providing due and reasonableopportunity of being heard to the assessee 58. We have gone through the arguments put before us. The directions given by the ITAT after detailed reasoning to the Assessing Officer was to support the estimate while disallowing 50% of the claim of the assessee and also to the assessee to file the details of completed sectors and uncompleted sectors which it is observed have not been followed by both the parties. 59. The main contention of the Assessing Officer is that the maintenance is being claimed in cases where sectors are more than 20 years but have not been handed over to local authorities need not be maintained by the assessee which the assessee could not explained cogently. Similarly no explanation has been given rather rational to claim expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. This amount is also booked under this head. The 10% amount so forfeited is a part of project/sector and is to be deducted out of the total cost of the project. Therefore, it is not an revenue income and is to be treated as capital receipt. 64. The Ld. AR relied on the orders of Ld. CIT(A) and the order of ITAT for the AY 2003-04. 65. 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 engaged in any agricultural activity and there was no basis or any cogent reason to consider the current income in future. 66. While adjudicating the issue the Coordinate Bench of ITAT Chandigarh observed as under: "9. After considering the submissions of both the parties it is noticed that the assessee accounted for the amount of forfeited security in the P&L Account by following the cash system of accounting. The amount was forfeited when the allottees or the applicants did not fulfill the relevant conditions. It is not the case of the assessee that the forfeiture was not made during the year under consideration. It is also not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced from the cost of acquisition of plot. It was further stated that since the cost of acquisition of land got reduced resulting in profit element getting build in immediately but it was realized only when the land was to be sold in the form of complete sectors i.e. after a period of 20years this addition was unjustified, illegal and has no basis. 71. 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 engaged in any agricultural activity and there was no basis or any cogent reason to consider the current income in future. 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. 72. The ground of appeal is dismissed. Contribution to IAG 73. Ground No. 9 for the Assessment years 2004-05, 2006-07, 2007-08 of the assessee relates to disallowance of contribution to IAG. 74. The Assessing Officer made an addition of Rs. 9,50,000/- under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that since the loan has been taken for development work the interest should have been capitalized. 82. Before us the Ld. AR argued that the loan from NCR Planning Board was taken for purchase of land and for propagating the business of the assessee. The loan is in the nature of working capital loan to procure stock and deal in stock. Since the interest is an working capital loan it is an allowable expenditure as per provisions of Section 36 of the Income Tax Act. The AR further argued that the NCR Planning Board is financing projects in the region through Central & State Plan Funds and the loan is utilized by the assessee for the purposes of business carried on by the assessee on the activities of acquisition and development of land. 83. The Ld. DR strongly relied on the order of Ld. CIT(A). 84. We have heard the rival contention and find that the loan has been received from NCR Planning Board which is meant for acquisition and development of land and as per section 36(1)(iii) the interest on capital borrowed for the purpose of the business has to be allowed. In the absence of any contrary finding by the Revenue that the funds have not been used for the business purpose, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure. 91. As a result this ground of assessee is allowed. Contribution to Delhi Metro 92. Ground No. 12 for the Assessment years 2006-07, ground No. 11 for the Assessment year 2007-08, ground No. 9 for the Assessment years 2008-09, ground no. 6 for the Assessment Years 2009-10, 2010-11, 2011-12, 2012-13 and Ground No. 10 for the Assessment Year 2014-15 of the assessee relates to Contribution to Delhi Metro 93. The 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. The order of CIT(A) for 2007-08 --holding the addition was adjudicated first and was followed by CIT(A) in all the years. 94. Brief facts During the year, the assessee has claimed an expenditure of Rs, 71,17,55,000/- under the head "Grant for extension of Delhi Metro to Gurgaon". This amount has been paid to Delhi Metro Railway Corp. for the Metro Project at Gurgaon. The assessee was asked to give details regarding Grant for extension of Delhi Metro to Gurgaon and the basis on which it has been claimed as an expenditure during the year. No reply was furnished by the assessee in this regard. Before the AO In absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the fact same would assist the movement of people living in the area, upgrading the quality and facilitate the trade & profession of the people and thus is directly related to the object of considering the business expediency. The assessee is involved in activities of purchasing land, developing it i.e. erecting certain basic infrastructure such as roads etc. carving out plots and delivering them to public at large. Therefore the expenditure incurred being directly related to the business of the assessee is an allowable expenditure. Moreover, since the assessee is not acquiring any assets, the expenditure incurred cannot be held as capital expenditure. 97.1 The Ld. AR relied on the ratio of the following cases: * GLADA vs. Addl. CIT 39 ITR 100 (Chd Tri) * L. H. Sugar Factory Mills (P) Ltd. Vs. CIT 125 ITR 293 (S.C.) * Panipat Coop. Sugar Mills Ltd. Vs. CIT 108 ITR 111 (P&H) * CIT Vs. Dart Manufacturing India (P) Ltd. 175 Taxmann 6 (Del.) * INCOME TAX OFFICER vs. VELUMANICKAM LODGE (2010) 123 ITD 25 Chennai * National Aluminum Co Ltd. Vs DCIT101 TTJ 948 (Cuttuck) * SRI VENKATA SATYANARAYNA RICE MILL CONTRACTORS CO. vs. COMMISSIONER OF INCOME TAX 98. Ld. DR strongl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no stretch of imagination be treated as responsibility of HUDA. The expenditure incurred on buses therefore cannot be termed as incidental to the business of the assessee. Reliance placed by the assessee on following cases is misplaced: (i) Adani Export Ltd. Vs JCIT(2014) 39CCH 140 Ahd Trib facts of that case are entirely different as expenses were made on Cricket Pavillion, (ii) DCIT Vs. Cooperative Sugars Ltd. (2003) 84 ITD237 (Coch) facts of that case are entirely different as expenses were made on cement lining of Right Bank Canal, and (iii) Honda Siel Power products Ltd. Vs DCIT(2007) 112 TTJ 0702 facts of that case are entirely different as expenses were made on vendors who will supply the assessee mould and dies. 106. Before us the assessee has argued that the amount of Rs. 6 crores has been paid so that the busses will carry advertisement of HUDA. It was also approved by the Chief Minister of Haryana to charge this amount to advertisement expenses. The Ld. AR argued that no asset was created nor any benefit of lasting nature was brought into existence. It was argued that though HUDA did not have any ownership right on the busses the fact cannot be denied that the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comments of the statutory auditors that the closing stock of Rs. 3,25,00,000/- has been taken as excess of expenditure of over receipts in Sector-14 Sonepat which has resulted in under statement of income to that extent. The assessee however informed the Assessing Officer that there was an error in the closing stock which has been corrected in the subsequent financial year. However the same did not have any impact on the income of the appellant. The Assessing Officer however rejected the assessee's contention in this regard and made on addition of Rs. 3.25 Crores. 113. Ld. CIT(A)confirmed the addition by holding that perusal of the details filed reveal that net of income over expenditure in each completed project is taken to the P&L account as income. Therefore by treating the closing stock as excess of expenditure over income, the income shown in the P&L account at Rs. 84,60,72,183/- has thus got reduced. Therefore, the income of the assessee is understand by Rs. 3,25,00,000/- on account of treating the closing stock as excess of expenditure over income. 114. Before us the Ld. AR argued that the addition has been made on the grounds that the closing stock has not been taken into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incur expenditure on salary & allowances & other contingent expenditure of the Urban Estate. The Ld. AR further argued that it is not out to place to mention that the HUDA is bearing such expenses since past so many years & claiming the same as such in the Income & Expenditure Account and the same have been accepted as such by the Income Tax Department. It was also argued that moreover it is an expenditure on salary, allowances and other contingent expenditure on staff which is allowable as office & administrative expenditure. The genuineness of expenditure, quantum of expenditure is not in doubt nor it has been held to be expenditure for non business purpose. The Ld.AR further argued that having estimated the profits on account of indirect charges no separate addition or disallowances can be made by the Revenue. 122. The Ld. CIT DR argued that the Assessee's contention that no separate addition is called for when income has been estimated is not acceptable. Assessee has not followed appropriate method of accounting hence these expenses cannot be colored as revenue expenses. He argued that every assessment year is a separate assessment year and principle of res-judicata is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly. 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. Town Planning Expenses 124. Ground No. 7 of the appeal of the Assessee for the Assessment years 2014-15 relates to disallowance of Town Planning Expenses of Rs. 78,42,338/-out of Rs. 1,79,11,266/-. 125. The Assessing Officer has disallowed Rs. 1,79,11,266/- claimed by the assessee by treating the expenditure as capital in nature. 126. The Ld. AR argued that these expenses related to day to day expenses of routine nature and similar expenses had been accepted by the department in earlier years. It was submitted that the expenses relates to completed projects in Haryana and therefore should be treated as Revenue. The Ld. AR further argued that these expenses in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lities Not provided - Refusing to take possession and demanding refund of amounts paid- State Consumer Dispute Redressal Commission-Directing Authority to refund amounts paid by complainant with interest at 18%- Interest ordered to be paid- is in the nature of damages though for convenient standardization specified as interest - deduction of TDS not Permissible - Income Tax Act, 1961, Section 2(28A), 194A." * Thus in view of the above, there was no requirement for deduction of TDS on the amounts being awarded by the court. Therefore where no TDS was required to be deducted, no disallowance u/s 40a(ia) be made. Thus addition made is liable to be deducted. * Further the AO has taken an alternative plea that since there is huge amount of capital work in progress, the interest paid is disallowable u/s 36(l)(iii). In this regard we submit that the provisions provide that the only the interest paid in respect of capital borrowed for acquisition of an asset shall not be allowed as deduction. * In the case at hand, firstly the assessee has not borrowed any funds, secondly has not paid any interest on amount borrowed. Thus the assessee is not covered under the proviso to Section 36(l) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onding expenditure incurred in earning that income is to be disallowed and where there is no exempt income, there cannot be any disallowance as no corresponding expenditure were incurred to. earn a particular tax free income. It is well settled that that where there is no exempt income, no disallowance u/s 14A be worked out. Reliance is placed on the following:- CIT Vs. Lakhani Marketing Incl 111 DTR 149 (P&H) "We do not find any merit in this submission. Judgment of this Court 'n Abhishek Industries (supra) was on the issue of allowability of interest paid on loans given to sister concerns, without interest. It was held that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. Observations made therein have to be read in that context. In the present case, admittedly, the assessee did not make any claim for exemption. In such a situation, section 14A could have no application.'" CIT Vs. Winsome Textile Industries Limited 319ITR 204 (P&H) Business expenditure-Disallowance under s. 14A-Investment in shares-Interest on borrowed funds-Disallowance under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere are no borrowed funds and the investment are made out of surplus funds. Thus the AO has erred in invoking provisions of Section 14A misplacing the reliance on Abhishek Industries (Supra) which also provides that only such amount can be disallowed for which the AO has relevant material on record for satisfaction that borrowed funds were used to earn interest free income. Thus where there are no borrowed funds, no disallowance is called for. When there is no exempt income and no claim for exemption, s. 14A and Rule 8D have no application and no disallowance can be made. It is pertinent to mention further that it may be noted that Rule 8D is only a machinery/ mechanism to compute the disallowance. The Rules can never prevail over the provisions of the Act. If the facts of the case demand no disallowance, the computational provision does not come into picture atall. Also, the reliance placed by the Ld.DR on the circular issued by the CBDT which do not have binding force on the assessee. Accordingly it is well settled that where no exempt income is received or receivable during the relevant previous year, provisions of Section 14A shall not apply. Further it is also well settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, but of development and sale of the property. In such a situation, no fault can be found with the view of the Tribunal that the assessee could claim the head to be income from property instead of income from business. The view of the Tribunal is consistent with the view taken by the Supreme Court in East India Housing & Land Development Trust Ltd. Vs. CIT(1961) 42 ITR 49 (Supreme Court)." 143. Keeping in view the judgment of the Hon'ble High Court the decision of the CIT(A) is acceptable and we decline to interfere in the order of the Ld. CIT(A). Dividend Income 144. Ground No. 4 of the appeal of the Revenue deals with disallowance of Rs. 2,32,80,000/ for the AY 2006-07: " Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in giving relief in respect of Dividend income despite the fact that the dividend received by the assessee is not dividend and thus not exempt from tax ?" 145. Brief facts relevant to the case are that the assessee has claimed dividend income of Rs. 2,32,80,000/- as exempt. The Assessing Officer has held that in the case of Brook Bond & Co. Ltd. Vs. CIT 162 ITR 373 (Supreme Court) the Hon'ble Supreme Court laid down that if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 4 of the appeal of the Revenue deals with disallowance of Rs. 85,00,000/ for the AY 2007-08 on account of Office maintenance and office expenses. 152. Based on the observation of the Accountant General Audit the Assessing Officer has enquired the assessee about the allowability office contingencies and maintenance claimed at Rs. 2.67 Crores which includes Rs. 85,00,000/- given to M/s Rolta India Ltd. for computerization of Department of Town and Country Planning to prepare layout plan of HUDA. The assessee has explained before the Assessing Officer that the payment made to M/s Rolta India Ltd. has not been claimed as expenditure. It was submitted before the Assessing Officer that it is factual incorrect and the amount paid to M/s Rolta India Ltd. has been treated as capital expenditure. 153. The Ld. CIT(A) has deleted the addition on the grounds that the Assessing Officer has not doubted the genuineness of the expenditure and the fact of having it been incurred for the purposes of business. The Assessing Officer has disallowed the expenditure treating it to be a capital expenditure. The Ld. CIT(A) held that the expenditure incurred for the purposes of computerization of record ..... X X X X Extracts X X X X X X X X Extracts X X X X
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