2015 (8) TMI 924 - AT - Income Tax

Disallowance of expenditure debited by the assessee for construction of railway under-bridge in Ludhiana - CIT(A) deleted the addition - Held that - We agree section 28 may not determine the allowability of expenditure under section 37 of the Income- tax Act, however, the amount in question is entirely paid to the northern railway for construction of underbridge as per the minutes duly approved by the authority. The assessee has furnished complete details for it. The project was approved by the assessee-authority and execution with its funds. Since the assessee has constructed the railway underbridge to overcome the traffic problem in Ludhiana and for creating access of the projects undertaken by the assessee, therefore, the purpose of raising construction of railway underbridge was commercial in nature for the purpose of achieving the objects of the assessee- authority. This expenditure has also made the marketability of the properties of the assessee-authority around the location where underbridge was constructed.The learned Commissioner of Income-tax (Appeals), therefore, correctly decided the issue in favour of the assessee holding that the amount is spent for the purpose of business activities of the assessee. There is, therefore, clear nexus between the amounts spent and the business activity of the assessee - Decided against revenue. Disallowance of payment made by the assessee to Punjab Mandi Board, Ludhiana for construction of bridge on the Sidhwan Canal at Dugari Road, Ludhiana - CIT(A) deleted the addition - Held that - The assessee has correctly claimed deduction under section 37 of the Act. Therefore, following the reasons for decision on ground No. 1, we dismiss this ground of appeal of the Revenue.- Decided against revenue. Addition on account of treatment of external development charges as revenue receipts - Held that - It was liability of the assessee to pay back the amount as per direction of the State Government or local authority. CIT(Appeals) admitted that external development charges kept pending and not used pending clearance from the State Government would prove it was not money of the assessee. Further, the facts disclose that the assessee may be a custodian of the amount of external development charges, therefore, how it could be treated as income of the assessee, is not explained by the authorities below. The assessee also in the paper book, filed certain correspondence to show that since external development charges were lying unutilised, therefore, due to financial constraints, request was made to the State Government to permit the assessee-authority to use external development charges for development projects in the larger public interest. This correspondence would reveal that the assessee was not entitled even to use this amount of its own for any purpose. Since the amount in question itself is shown as outstanding since long, would prove that the amount did not belong to the assessee and was shown as liability in the accounts. The above facts would clearly disclose that the assessee cannot use the external development charges account for any purposes unless it is approved by the State Government. The assessee since referred to the provisions of the Punjab Apartment and Property Regulation Act, 1995 by which external development charges are collected by the assessee and the provisions thereon state that the competent authority shall transfer the funds to the State Government or local authority (through authority) is competent authority and it did not carry out any development work of its own and only acts as nodal agency. These provisions have not been properly appreciated by the authorities below. The authorities below should also ascertain whether the similar type of authority like the assessee, how they have given the treatment of the external development charges in their records and what is the stand of the Revenue Department in the cases of the similar other authorities. The nature and character of receipt is not examined by the authorities below. Thus restore the issue to the file of the Assessing Officer with direction to re-decide the issue.- Decided in favour of assessee for statistical purposes . Addition on account of amount paid to Punjab State Development and Welfare Fund as per notification of Punjab Government for the welfare activities in the field of education, health and welfare - Held that - The assessee has paid the amount in question, i.e., ₹ 1.86 crores to the Government of Punjab as per notification dated March 17, 2008 (paper book page 36). When the State Government has directed by way of notification to the assessee to deposit 5 per cent. of the bid amount on sale of the properties with the State Government towards the Punjab State Development Funds in the public account of the State, it is definitely connected with the business activity of the assessee on sale of properties. The assessee-authority is bound to follow the directions of the Punjab Government and has to act accordingly. The payment in question is, therefore not voluntary or gratuitous but is an obligation and primary charges as per the notification issued by the State Government. The amount of 5 per cent. is, therefore, directly related to the sales activities of the assessee-authority. The assessee has followed the directions of the State Government as per the existing laws and the notification as issued by the State Government. The non-compliance of the directions of the State Government would directly affect the business activities of the assessing authority. Therefore, the contributions to the welfare fund is in the nature of commercial expediency and has a nexus with the business activity of the assessee. We, therefore, hold that the amount in question is spent and incurred by the assessee wholly and exclusively for the purpose of business. Therefore, same is allowable as deduction - Decided in favour of assessee. Addition on account of amount paid to the Punjab Water Supply and Sewerage Board for sewerage work within the jurisdiction of assessee-authority as per its objects - Held that - Commissioner of Income-tax (Appeals) considering the issue in the light of railway underbridge constructed by the assessee and following his findings on that issue, dismissed the appeal of the assessee. However, on said issue, we have already dismissed the Departmental appeal in the assessment year 2009-10 and allowed the appeal of the assessee in this year. Therefore, considering the totality of the facts and circumstances and aims and objects of the assessee in the light of the special Act under which the assessee-authority is created, it is clear that amount in question is incurred by the assessee for sewerage work within the jurisdiction of the assessee-authority. It is, therefore, clearly revenue in nature and has to be allowed as expenditure incurred wholly and exclusively for the purpose of business activities of the assessee. No capital is generated by assessee-authority for incurring the expenditure on this issue. - Decided in favour of assessee. Addition on account of amount paid to Punjab Infrastructure Development Board (PIDB) for construction of flyovers and bridges within the jurisdiction of the assessee-authority as per the objects of the assessee-authority. Addition being 10 per cent. of the earnest money received - Held that - The earnest money collected is purely refundable amount which is duly refunded from time to time. It cannot be held to be the income of the appellant. In case any amount out of earnest money is adjusted towards sale in any year, it will be liable to be included in the income of that year. The addition made by the Assessing Officer on this account is deleted. - Decided in favour of assessee. Addition on account of building plan security - Held that - The condition for refund of this security is that the construction should be in accordance with the approved plan and the person has to furnish a completion certificate. It is a matter of common knowledge that in most of the cases, construction is not in accordance with the approved plans and often there is some violation of the plan even if it is minor violation. In such circumstances builder does not apply for a completion certificate and prefers to forfeit the building plan security rather than inviting closure/ demolition of building. This is evident from the fact that during the period of eight years from 2006-07 to 2012-13, only ₹ 3,75,000 were refunded in the year 2009-10 and the balance in this account as on March 31, 2013, was ₹ 2,27,87,338. Thus although, initially the amounts of building plan security were received as refundable security, with passage of time these amounts have become a part of the appellant s funds with no likelihood of any claim for refunds. This amount would accordingly partake the character of the appellant s income under section 28(iv) of the Income-tax Act - Decided against assessee. Addition being deposits received by the appellant - Held that - With respect to these receipts appellant has merely submitted that status was not clear and therefore these have been kept in suspense account. The appellant has not explained or given any evidence to show that these receipts were not revenue receipts. Merely because these receipts have been kept in suspense account it does not imply that these receipts do not form part of income. Reliance in this regard is placed on the case of CIT v. Tamil Nadu Industrial Investment Corporation Ltd. 1998 (4) TMI 78 - MADRAS High Court . In this case it was held that interest, guarantee commission and commitment charges collected by the assessee and kept in suspense account is income.Keeping in view the aforesaid facts, the addition made by the Assessing Officer is confirmed. - Decided against assessee. Addition being security received from different departments - Held that - Facts on this issue are similar to the facts on the issue of building plan security. Substantial amount of security has not been refunded by GLADA. On similar grounds as in the case of building plan security the balance lying under this head is income of the appellant. Keeping in view the aforesaid facts, the addition by the Assessing Officer is confirmed.- Decided against assessee. Addition being deposits received from customers against flats - Held that - The income embedded in the receipts, carried to the balance- sheet in respect of the aforesaid kind of contracts, was liable to be taxed in this year. Keeping in view the aforesaid facts, the addition made by the Assessing Officer is confirmed - Decided against assessee. Building completion security refunded - Held that - The refund of the security is to be done as per guidelines issued by the Punjab Urban Planning and Development Authority. No details have been brought on record if after passing of certain period, whether the assessee would be entitled to forfeit the amount in question. No detail is also brought on record as to how many parties have submitted completion certificate and in how many cases, some actions have been taken by the assessee-authority. Merely because only a small amount is refunded to the parties it would not prove that the assessee has forfeited the amount in question and earned it as income. The assessee has continuously shown the security amount as liability in the books of account and has never taken the amount in its profit and loss account. In the absence of complete details brought on record, the learned Commissioner of Income-tax (Appeals) was not justified in dismissing this ground of appeal of the assessee. Therefore, the matter requires reconsideration at the level of the Assessing Officer. - Decided in favour of assessee for statistical purposes. Addition on certain deposits - Held that - The deposits received by the assessee and taken into suspense account due to certain confusions regarding the allotment of the property or the amount received from the concerned parties when amount is taken into suspense account would not prove that the amount lying in the suspense account has become income of the assessee. The decisions relied upon by the learned Commissioner of Income-tax (Appeals) are therefore, not applicable to the facts of the case and this matter also requires clarification from the side of the assessee and investigation by the Assessing Officer as to in how many cases, the clarification has been received and how further treatments have been given on this matter. Therefore, this issue also requires reconsideration at the level of the Assessing Officer. - Decided in favour of assessee for statistical purposes. Security amount received from different departments treated as income of the assessee - Held that - This issue is same as is considered on building plan security on which the matter requires reconsideration at the level of the Assessing Officer. In view of the above and in absence of any specific finding by the authorities below, we set aside the orders of the authorities below and restore it to the file of the Assessing Officer with direction to redecide the grounds in detail considering the factual aspect by giving reasonable sufficient opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes. Addition being deposit received from the customers against flats - Held that - Decided against the assessee by order of in the case of Punjab Urban Development Authority 2015 (3) TMI 681 - ITAT CHANDIGARH in which on identical issue, the Tribunal in principle, confirmed the orders of the authorities below with regard to addition maintained on account of advances received from the customer by following cash system of accounting. - Decided against assessee. Treating share of employees to provident fund as income of the assessee under section 2(24)(x) - Held that - Assessee is correct that since provident fund established by the assessee was in terms of the Indian Provident Funds Act, 1925, therefore, this has to be read into the exceptions and accordingly fetter for not allowing the deduction under section 40A(9) would not be applicable for the funds contributed towards provident fund as the employer share in terms of the Indian Provident Funds Act, 1925 which was adopted by the assessee. Therefore, we hold that the assessee is entitled to claim deduction in respect of contributions made towards provident fund even if such fund is not recognised. Whether deduction can be allowed even if the contribution was paid after the end of the year - Held that - Assessing Officer is directed to follow the order of the Tribunal in the case of Punjab Urban Development Authority (supra) and pass consequential order accordingly.

Summary

Issues Involved:
1. Deletion of addition on account of payments made for construction of railway underbridge and bridge.
2. Treatment of external development charges as revenue receipts.
3. Addition on account of amount paid to Punjab State Development and Welfare Fund.
4. Addition of receipts from customers against flats.
5. Addition of various security deposits and pending adjustments as income.
6. Allowability of contributions to unrecognized provident fund and employees' share of provident fund.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Payments Made for Construction of Railway Underbridge and Bridge:
The Revenue challenged the deletion of Rs. 13.84 crores paid for the construction of a railway underbridge and Rs. 1.57 crores paid for a bridge on Sidhwan Canal. The Assessing Officer (AO) disallowed these expenditures, arguing they were not within the functions of GLADA as per the Punjab Regional and Town Planning and Development Act, 1995. However, the Commissioner of Income-tax (Appeals) [CIT(A)] found that these expenditures were for improving traffic and civic amenities in areas developed by GLADA, thus serving its business purpose. The ITAT upheld the CIT(A)'s decision, emphasizing the commercial nature and business purpose of these expenses.

2. Treatment of External Development Charges as Revenue Receipts:
The AO added Rs. 71.45 crores received as external development charges (EDC) to the assessee's income, arguing these should be treated as revenue receipts. The assessee contended that EDCs were collected on behalf of the State Government and were liabilities, not income. The CIT(A) upheld the AO's decision, stating that these funds were not part of State revenues but were meant for external development. The ITAT, however, remanded the issue back to the AO for reconsideration, directing a detailed examination of relevant statutory provisions and notifications.

3. Addition on Account of Amount Paid to Punjab State Development and Welfare Fund:
The AO disallowed Rs. 1.86 crores paid to the Punjab State Development and Welfare Fund, considering it an application of income rather than an expenditure. The CIT(A) upheld this view. The ITAT, however, allowed the deduction, noting that the payment was made as per a State Government notification and was directly related to the assessee's business activities, thus qualifying as a business expenditure.

4. Addition of Receipts from Customers Against Flats:
The AO added Rs. 4.04 crores received from customers for flats under construction to the assessee's income, arguing that under the cash system of accounting, these receipts should be recognized as income. The CIT(A) upheld this addition. The ITAT, following its decision in a similar case involving Punjab Urban Development Authority, directed the AO to include these receipts as income but also allow corresponding expenditures incurred in cash.

5. Addition of Various Security Deposits and Pending Adjustments as Income:
The AO added various security deposits and pending adjustments, totaling Rs. 2.58 crores, to the assessee's income. The CIT(A) upheld these additions, reasoning that these amounts had become part of the assessee's funds. The ITAT remanded these issues back to the AO for reconsideration, directing a detailed examination of the factual aspects and the nature of these deposits.

6. Allowability of Contributions to Unrecognized Provident Fund and Employees' Share of Provident Fund:
The AO disallowed Rs. 61.41 lakhs contributed to an unrecognized provident fund and added the same amount as income under section 2(24)(x) of the Income-tax Act. The CIT(A) upheld these additions. The ITAT, however, following its decision in the case of Punjab Urban Development Authority, held that the employer's contribution to the provident fund is allowable under section 37, and the employees' share is allowable under section 36(1)(va), provided the payments were made before the due date of filing the return. The ITAT directed the AO to examine the issue and allow the deductions accordingly.

Conclusion:
The ITAT provided a detailed analysis and directions on each issue, ensuring a thorough examination of facts and relevant statutory provisions, ultimately remanding several issues back to the AO for reconsideration and proper adjudication.