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TMI Blog2015 (3) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee being located at Mohali lies with the Assessing Officer, Circle 6(1). In view of these facts and the above detailed discussion, we set aside the order of the learned Commissioner of Income-tax (Appeals) and hold that the Assessing Officer Circle 6(1) holds jurisdiction over the assessee. We also hold that the learned Commissioner of Income-tax (Appeals) has no power to entertain the additional ground in respect of the jurisdiction. In the result, ground raise by the Revenue in this regard is allowed. Change in accounting policy - whether Commissioner of Income-tax (Appeals) has failed to appreciate the fact that the assessee has adopted cash system of accounting, and as such its income from different sources is required to be computed under cash system of accounting - Held that:- It is a settled position of law that whenever a system of accounting is changed such change has to be bona fide and the system should clearly reflect the income of the concerned year. It has not been explained before us why the profit in respect of two schemes was not recognised in the assessment year 2002-03 earlier simply by saying that it was not done by mistake, is not enough. Even if assuming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hon'ble Supreme Court in the case of Southern Technologies Ltd. v. Joint CIT [2010 (1) TMI 5 - SUPREME COURT OF INDIA]. Therefore, the instalments received against such sales which are in the nature of revenue receipts, are required to be taken into consideration for determination of income in this year because the assessee has adopted cash system of accounting during the year. The next contention was that the assessee was following continuously project completion method and therefore, no income can be determined unless the projects are completed. Again as discussed above in detail the issue of system of accounting and the meaning of cash system of accounting, this contention cannot be accepted because the assessee cannot follow two different systems of accounting under the same head. Therefore, in our opinion, the Assessing Officer has correctly included all the instalments received from the allottees of the houses and flats in the income of the assessee. set aside the order of the learned Commissioner of Income-tax (Appeals) and direct the Assessing Officer to include instalments received on sale of various houses and flats under hire purchase agreement and at the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notes issued by the committee where FDRs have been made only for one year and justification for the same has been given that presently interest is on lower side and interest is likely to go up therefore, FDR was made for one year. This aspect also need further examination by the Assessing Officer where regularly FDRs have been made for a period of one year or longer period and where no justification for such shorter period is there or not ? Therefore, the Assessing Officer should examine this matter further and decide the issue in accordance with law.- Decided in favour of revenue for statistical purposes. Addition made being interest income on FDRs - CIT(A) deleted addition - Held that:- provisions of section 145 which mandates that the assessee can follow either cash system of accounting or mercantile system of accounting in respect of the profits and gains of the business or profession and income of other sources. Thus the assessee had the right to follow the cash system of accounting even in respect of income to be assessed under the head "Income from other sources". Though in the assessment order income has not been computed head-wise but even if assuming that the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt can be made merely by writing off the amount which has become bad but this claim cannot be made by writing off the good debt. In the case of South India Surgical Co. Ltd. v. Asst. CIT [2006 (1) TMI 111 - MADRAS High Court ] the assessee was carrying on the business of manufacturing and marketing of surgical instruments. The assessee has sold the goods to Government hospitals during the year and made the claim for bad debts. It was observed that the concerned hospital has in fact delayed the payment of dues to the assessee on account of paucity of funds and the claim was not paid during the year. Therefore, such claim cannot be said to have become bad. In our opinion, this decision is still valid because what can be written off is only bad debt and not good debt. In view of this discussion, we find nothing wrong in the order of the learned Commissioner of Income-tax (Appeals) and confirm the same. - Decided against assessee. Addition on earnest money from prospective buyers - Held that:- While adjudicating the Revenue's appeal for the assessment year 2003-04, it was observed that once houses and flats, etc. were allotted to the allottees and possession was given, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibution the assessee could have faced legal problems because the manufacturing facility of the assessee was causing pollution in the surrounding villages. Therefore, this case is distinguishable. But as we have already observed in the case of PUDA that the assessee has basically contributed towards acquisition of land which was contributed to the joint venture against which the Government of Punjab through GMADA was to receive 24.5 per cent. stake and therefore, the expenditure was in nature of capital expenditure. As observed earlier an identical issue in the case of PUDA has been decided by us for the assessment year 2008-09 and following the same we decide this issue against the assessee. - ITA No. 762/Chd/2007, ITA No. 759/Chd/2008, ITA No. 765/Chd/2008, ITA No. 760/Chd/2008, ITA No. 769/Chd/2008, ITA No. 744/Chd/2009, ITA No. 745/Chd/2009, ITA No. 524/Chd/2011, 545/Chd/2011, 390/Chd/2012, 484/Chd/2012, ITA No. 1220/Chd/2011 - - - Dated:- 6-12-2013 - SHRI T.R. SOOD AND Ms. SUSHMA CHOWLA, JJ. For the Appellant : S/Shri Satish Bansal /Prikshit Aggarwal, Shri Sudhir Sehgal, Shri Satish Bansal, Shri Ashwani Kumar For the Respondent : Smt. Jyoti Kumari , CIT OR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax (Appeals) has erred in deleting the addition of ₹ 19,78,70,924 (i.e., the difference between the total instalments received at ₹ 23,00,77,465 and the total amount recog nised as the Revenue during the year at ₹ 3,22,06,541). 6. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in deleting the addition of ₹ 51,91,164 (an amount received from the hire purchase debtors). 7. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in deleting the disallowance made at ₹ 3,51,33,507 on account of C.P.F and interest on C.P.F. contribution. The disallowance was made for the reason that the contributions have neither been made to a provident fund approved by the Chief Commissioner or Commissioner of Income-tax nor to a provident fund established under a scheme framed under the Employees Provident Funds Act, 1952. 8. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in deleting the addition made at ₹ 2,24,04,923 being interest inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, 2005. This return was again transferred to the Assistant Commissioner of Income-tax, Circle 2(1) on February 17, 2005. In May 2005, Assistant Commissioner of Income-tax, Circle 2(1) transferred the case back to the Assistant Commissioner of Income-tax, Circle 6(1). The assessment was finally completed by the Assistant Commissioner of Income-tax, Circle 6(1). During the assessment proceedings the assessee never objected to the jurisdiction of the Assistant Commissioner of Income-tax, Circle 6(1). However, when the assessee was not satisfied with the assessment order and an appeal was filed against the same an additional ground was taken before the learned Commissioner of Income-tax (Appeals) which reads as under : That the Assessing Officer being the Assistant Commissioner of Income-tax, Circle 6(1), Chandigarh, has erred in assuming jurisdiction from the Deputy Commissioner of Income-tax, Circle 2(1), Chandigarh on the direction of the Joint Commissioner of Income- tax, Range 6, Chandigarh. He proceeded to assess the appellant without receiving the order under section 127 from the hon'ble Commissioner of Income-tax-I/II, Chandigarh. The said order was not commu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... you have referred to section 128, it appears that the Deputy Commissioner of Income-tax-Circle 2(1), Chandigarh, had jurisdiction and he ceased to exercise the jurisdiction. However, Deputy Commissioner of Income- tax, Circle 2(1), Chandigarh, can cease to have jurisdiction only if there is an order under section 127 transferring the case to the Assistant Commissioner of Income-tax, Circle 6(1), Chandigarh. This order can only be passed by the Chief Commissioner of Income-tax or the Commissioner of Income-tax and not by Additional Commissioner of Income-tax/Joint Commissioner of Income-tax. Hence you are requested to inform as to how the Deputy Commissioner of Income- tax, Circle 2(1), Chandigarh, ceases to have jurisdiction. It seems initially no reply was given but later on some reply was given which has been summarised by the learned Commissioner of Income-tax (Appeals) at pages 84 to 86 which read as under : The Assessing Officer has sent a letter mentioning the assessee PUDA's work relates to development of plots and construction of buildings in Punjab. The assessee has its registered office at sector 62, Mohali. Thus it is clear that the territorial jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letters dated February 11, 2007, May 14, 2007 and May 15, 2007, which are also on the same issues which have been clarified in the above paragraphs above. It may be further noted that at the time of framing the assessment order the jurisdiction of the case was transferred to Circle 6(1), Chan digarh. It appears from the record, that the PAN was transferred through AST well before the date of assessment order. A PAN history of the case is being generated to verify the transfer of PAN in this case. Our office in Mohali is on a dial up network because of which the Patiala office has been asked to provide the PAN history at the earliest. I would request you to grant me another two weeks time, i.e., till June 8, 2007, as generation of PAN history may take some time. I would also request you that if any view, which is against the Revenue, is considered on the ground of jurisdiction, it must be considered only after verifying the PAN history of the case, as the case involves a substantial tax effect. The learned Commissioner of Income-tax (Appeals) adjudicated the issue vide following paras : As far as the assessee is concerned, territorial jurisdiction over its ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circle 2(1), Chandigarh, had no jurisdiction, then the assessment order is liable to be cancelled on the ground that notice under section 143(2) for the first time within the limitation date prescribed under the proviso to section 143(2) was issued by the Deputy Commissioner of Income-tax, Circle 2(1), Chan digarh, and not by the Assistant Commissioner of Income-tax, Circle 6(1), Chandigarh. Therefore, it will serve no purpose to argue that the Assistant Commissioner of Income-tax Circle 6(1), Chandigarh, had all along jurisdiction over the assessee. The Assessing Officer had mentioned that at the time of framing of the assessment order, the jurisdiction of the case was transferred to the Assistant Commissioner of Income-tax, Circle 6(1), Chandigarh. It appears from the statement of the Assessing Officer that there was no need to transfer the juris diction but he has not mentioned under which provisions of the Act the case was transferred to him. The Assessing Officer has referred to some standing instructions which I may mention are not binding on the Commissioner of Income-tax (Appeals) under section 119. The arguments relating to so called PAN history are irrelevant as the onus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Punjab and Haryana High Court in the case of Smt. Jaswinder Kaur Kooner v. CIT (Appeals) [2007] 291 ITR 80 (P H). Since in this case notices under sections 143(2) and 142(1) were issued by the Assistant Commissioner of Income-tax, Circle 2(1) and case was transferred to Circle 6(1) because PAN of the assessee was transferred under section 127 of Income-tax Act. In this regard she filed copies of the order passed under section 127 of the Income-tax Act. In this regard she also submitted that transfer of the cases within various Commissionerate takes place by consolidated transfer order in computers and ultimately transfer issues are passed through the assessee information system (in short AIS). Updation and transfer of PAN has been mandatorily required to be processed through computer software and no separate orders are required to be passed. The transfer orders are passed under the code of Commissioner only. In this regard she filed copies of the necessary instructions issued by the Additional Director of Income-tax systems. Moreover notices were also issued under sections 143(2) and 142(1) by the Assistant Commissioner of Income-tax, Circle 6(1), within the limitation from the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be said to have waived the objection regarding jurisdiction if such party has participated in the proceedings. In this regard she relied on the decision of the hon'ble Punjab and Haryana High Court in the case of CWT v. Siri Paul Oswal [2007] 293 ITR 273 (P H). According to her the ratio of this decision is fully applicable to the case of the assessee. 11. In any case the learned Commissioner of Income-tax (Appeals) should have appreciated that after insertion of section 292B with effect from October 1, 1975 in the Act, no assessment can be treated invalid merely because of any mistake, defect or omission. The learned Commissioner of Income- tax (Appeals) has also failed to appreciate that the assessee has not suffered any hardship because the jurisdiction was not transferred to a city outside Chandigarh. 12. On the other hand, learned counsel of the assessee submitted that originally jurisdiction of the assessee was with the Assessing Officer, Circle 2(1), Chandigarh, and who has exercised the jurisdiction by issuing notice under section 143(2) within the limitation period, i.e., on January 5, 2004 and that is why the assessee did not raise any objection. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer. As far as provisions of section 292B are concerned, firstly they were brought on the statute with effect from March 31, 2008, and secondly since the Revenue has not compiled with the scheme of the Act, i.e., by passing an order under section 127 for transfer of the case, jurisdiction was not properly exercised by the Assessing Officer. In this regard he relied on the decision of the Delhi Tribunal in the case of Impsat P. Ltd. v. ITO [2005] 276 ITR (AT) 136 (Delhi). 14. It was further submitted that notice under section 143(2) by the Assessing Officer, Circle 6(1), on July 12, 2005, was not in pursuance of the revised return but it was to comply with the provisions of section 129 as it is clearly mentioned in the assessment order itself. This means no proper notice was given by the Assessing Officer, Circle 6(1) and the proceedings were continued from where they were left by the Assessing Officer, Circle 2(1). 15. It was further submitted that in the enclosure annexed with the written submissions by the Revenue it was stated to be an order passed under section 127 is merely an order for transfer of PAN and cannot be construed an order under section 127. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the said Assessing Officer, i.e., why it was held that the learned Commissioner of Income-tax (Appeals) was not competent to entertain the ground of jurisdiction. The case of CWT v. Siri Paul Oswal [2007] 293 ITR 273 (P H) is also distinguishable because in that case the Assessing Officer was not lacking the inherent jurisdiction whereas in the case before us, there was a lack of inherent jurisdiction and that question being a legal question which was challenged before the learned Commissioner of Income-tax (Appeals). 18. We have heard the rival submissions carefully in the light of material on record, case law cited by parties as well as the written submissions furnished before us. Originally the assessee was filing returns in Circle 2(1) because the assessee's head office was situated in Sector 17, Chandigarh. Later on the office was shifted to PUDA Bhawan, Mohali, therefore, the assessee itself filed the returns for the present years, i.e., 2003-04 with Circle 6(1) declaring income of ₹ 21,15,46,295 on November 28, 2003. It was noticed that since the assessee was regularly assessed by the Assistant Commissioner of Income-tax, Circle 2(1), Chandigarh, the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard to any one or more of the following criteria, namely : (a) territorial area ; (b) persons or classes of persons ; (c) incomes or classes of income ; and (d) cases or classes of cases, (4) Without prejudice to the provisions of sub-sections (1) and (2), the Board may, by general or special order, and subject to such conditions, restrictions or limitations as may be specified therein,- (a) authorise any Director General or Director to perform such functions of any other Income-tax authority as may be assigned to him by the Board ; (b) empower the Director General or Chief Commissioner or Commissioner to issue orders in writing that the powers and func tions conferred on, or as the case may be, assigned to, the Assessing Officer by or under this Act in respect of any specified area or persons or classes of persons or incomes or classes of income or cases or classes of cases, shall be exercised or performed by a Joint Commis sioner or a Joint Director, and, where any order is made under this clause, references in any other provision of this Act, or in any rule made thereunder to the Assessing Officer shall be deemed to be references to such Joint Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a question arises under this section as to whether an Assessing Officer has jurisdiction to assess any person, the question shall be determined by the Director General or the Chief Commis sioner or the Commissioner, or where the question is one relating to areas within the jurisdiction of different Director General or Chief Commissioners or Commissioners, by the Directors General or Chief Commissioners or Commissioners concerned or, if they are not in agreement, by the Board or by such Director General or Chief Commissioner or Commissioner as the Board may, by notification in the Official Gazette, specify. (3) No person shall be entitled to call in question the jurisdiction of an Assessing Officer- (a) where he has made a return under sub-section (1) of section 139, after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or after the completion of the assessment, whichever is earlier ; (b) where he has made no such return, after the expiry of the time allowed by the notice under sub-section (1) of section 142 or under section 148 for the making of the return or by the notice un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to another after providing for the reasonable opportunity to the assessee. However, sub- section (3) of this section carves out an exception which provides that no such opportunity is required to be given where a case is transferred within the same city. Since in the case before us, the case has been transferred within the same city, therefore, no opportunity was required to be given to the assessee. 20. The learned Departmental representative for the Revenue has furnished an enclosure showing transfer of PAN of the assessee from Circle 2, Chandigarh, to Circle 6 of Chandigarh. She has submitted that this has to be construed an order passed under section 127 because after computerisation such orders were required to be passed through the computer software known as assessee information system. In this regard she had referred to a letter dated May 24, 1999, through which the orders under sections 120 and 127 were directed to be passed on system using the assessee information system (AIS). The relevant letter reads as under : Dated : 24-05-1999 Sir, Sub : Transfer of jurisdiction of cases under sections 120 and 127 of the Income-tax Act-procedure regarding. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction AAALP0045J 09.07.2002 25.11.2002 15.09.2005 WI(2)CHD Circle 2 CHD On request by R.C.C. Under section 127 AAALP0056D 11.01.2003 Not transferred N.A N.A N.A N.A The above clearly shows that this order was passed under section 127. 21. In this regard, learned counsel of the assessee has objected by citing the decision of Ajantha Industries [1976] 102 ITR 281 (SC). A careful perusal of this judgment shows that the assessments were being made in the Nellore District and files were sought to be transferred to Hyderabad which means the case was transferred from one city to another city and therefore the same would not be covered by the exception provided under section 127(3). As noted earlier sub-section (3) of section 127 clearly provides that no opportunity is required to be provided to the assessee if the case is transferred within the city because in such cases the assessee is not inconvenienced and therefore reasons may not be require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 143(2) which read as under : (2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall,- (i) where he has reason to believe that any claim of loss, exemp tion, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim : Provided that no notice under this clause shall be served on the assessee on or after the 1st day of June, 2003 ; (ii) notwithstanding anything contained in clause (i), if he con siders it necessary or expedient to ensure that the assessee has not under-stated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al is a statutory right and no appeal can be entertained which has not been provided in a particular statute. In other words, the remedy has been provided to the assessee by making a provision for raising the objection regarding jurisdiction by section 124(3)(a) and that is why no appeal has been provided in the Act. 22. One more objection was raised in respect of the issue of notice by the Assessing Officer Circle 6(1), i.e., this notice was issued only to comply with the provisions of section 129. No doubt, the assessing authority has clearly mentioned that notice under section 143(2) and section 142(1) dated July 12, 2005, were issued to comply with the requirement of provisions of section 129 but this is not correct position (We have already observed earlier that even the Revenue has not handled the issue properly). We have already reproduced section 129. This provision would come into operation where the incumbent officer in a particular office ceases to exercise the jurisdiction. Thus it is clear that this provision is not required to be used where a particular case is transferred from one particular jurisdiction to another jurisdiction. Even if assuming for the argument s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is under a factual impression or has no knowledge of the order of transfer in a partic ular case and if he is to raise any objection regarding jurisdiction, he should do so within 30 days and not beyond that and the same having not been done in the present case, we are of the considered opinion that the Tribunal was not justified in annulling the assess ment on this ground alone. 23. From the above it becomes clear that once a notice is issued by a particular officer and if the assessee wishes to object to such jurisdiction then objection has to be raised in terms of section 124(3)(a) within 30 days of issue of such notice. Now in the case before us, once the notice was issued to the assessee by the Assessing Officer, Circle 6(1) and if the assessee had any objection to the jurisdiction he should have raised such objection within 30 days of issue of such notice. In the absence of such objection the assessee cannot challenge the jurisdiction later on. 24. In the case of Smt. Jaswinder Kaur Kooner [2007] 291 ITR 80 (P H), the hon'ble Punjab and Haryana High Court was concerned with a case where the assessment was completed at income of ₹ 2,44,243 on account of undis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a return of his income with the Income-tax Officer, GHQ Ward 4(3), Pune. The assessment for the year in question was completed by the Income-tax Officer, Pune, under section 143(1) of the Income-tax Act, 1961. The order of assessment was communicated to the petitioner and the amount payable was paid by the petitioner. After his retirement from the army, the petitioner shifted to Jalandhar in the State of Punjab and settled there. In March, 1995, the Income-tax Officer, Jalandhar, issued a notice of reassessment for the assessment year 1988-89. The assessee filed return of income which was filed before the Income-tax Officer, Pune, with a note thereon that the assessment proceedings for the relevant assessment year had already been completed by the Income-tax Officer, Pune and the tax found payable was also paid. It was further submitted that notice issued was time barred and the Assessing Officer had no jurisdiction to proceed in the matter. It was also cited that the proceedings had been initiated at the instance of the father of the son-in-law with a view to harass the assessee because there was some matrimonial disputes between his daughter and her husband. The assessee also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derjit Singh and Co. v. State of Punjab. In this case it was held as under : Where the Excise and Taxation Officer, Ludhiana, within whose jurisdiction the petitioner was carrying on its business, on his own transferred the file of the petitioner's case to the Additional Excise and Taxation Officer, Bhatinda, who had been given jurisdiction throughout the State : Held, that unless there was a proper or lawful order transferring the petitioner's assessment proceedings or file from the records of the assessing authority, the Additional Excise and Tax ation Officer, Bhatinda, though had been conferred jurisdiction throughout the State, could not deal with the case. However, it has to be noted that the above decision has been rendered under the provisions of the Punjab General Sales tax Act. The hon'ble High Court has not referred to relevant provisions of the Punjab General Sales tax Act in the order. Even at the time of hearing learned counsel of the assessee has not made any efforts to show us the relevant provisions. Therefore, it is not clear what were the provisions relating to the transfer of the cases under the Punjab General Sales tax Act and whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer, he was required to continue to exercise that power till his jurisdiction in the matter was over. His jurisdiction in the matter was not over merely on the passing of the assessment order but continued in terms of section 220(6) of the Act in dealing with the petition for stay. The Additional Commissioner after passing the assessment order had washed his hands of the matter and left it to the Deputy Commissioner to decide the stay petition filed under section 220(6) of the Act which was not permissible in law. The power under section 220(6) of the Act being a statutory power, the Additional Commissioner could not abdicate or relinquish it. The Additional Commissioner had no authority in law to delegate his power to the Deputy Commissioner when he was conferred a statutory power by the Central Board for Direct Taxes. The application filed by the assessee was required to be dealt with only by the Assessing Officer, which in this case was the Additional Commissioner. The mere fact that the letters were addressed to the Deputy Commissioner did not mean that the Deputy Commissioner had jurisdiction over the matter. The assessee could not confer juris diction on the Deputy Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion has been made but the way this fact has been discussed it seems that the assessee had also raised his objection under section 124(3)(a), i.e., why the jurisdiction was not correct. Therefore, this decision is not relevant. 30. The next case relied on by learned counsel of the assessee is P. A. Ahammed v. Chief CIT [2006] 282 ITR 334 (Ker). In that case the assessee has challenged the order issued by the Chief Commissioner of Income-tax regarding transfer of the assessee's file from the Income-tax Officer, Ward (1), Trivendrum to Central circle. It seems that the assessee had moved the hon'ble High Court earlier also regarding this issue because after some search the cases of 18 assessees were transferred to Central circle. It was contended that the transfer order was made without informing the assessee and giving reasons and the hon'ble High Court has directed the learned Chief Commissioner of Income-tax to consider the matter afresh. The assessee filed the returns with the Income-tax Officer, Ward (1), Trivendrum. However, these orders were later recalled by the Assessing Officer. It was mainly contended that the case can be transferred under section 127 bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that she had contended before the Income-tax Officer, Calcutta, she could not be assessed again at Jorhat. The Income-tax Officer, Jorhat, did not accept that contention and made an assessment order on March 24, 1965, for the assessment year 1960-61. The petitioner's appeals to the Appellate Assistant Commissioner and the Appellate Tribunal were unsuccessful. The Tribunal also refused to make a reference to the High Court. Thereafter, the petitioner filed a writ petition praying for a writ of certiorari quashing the order of assessment of the Income-tax Officer, Jorhat, dated March 24, 1965, and the consequent notice of demand and also a writ of mandamus directing the return of ₹ 10,000 collected from the petitioner under the notice of demand : Held, per Baharul Islam J. and Pathak J. (Sadanandaswamy J., dissenting), that the point urged for the petitioner was that the income of the petitioner for the assessment year 1960-61 having been assessed by the Income-tax Officer, Calcutta, the Income-tax Officer, Jorhat, had no jurisdiction to assess the income of the petitioner for the same year. If the petitioner had raised before the Income-tax Officer, Jorhat, the content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... writ of certiorari can be issued if there be, inter alia, an error of law apparent on the face of the record. The petitioner had not been able to show that there was any error of law apparent on the face of the record. Which of the two Income-tax Officers had jurisdiction was dependant on facts. There fore, no writ of mandamus could be issued and the application had to be rejected. A combined reading of the above observations show that if no objection is raised in respect of the jurisdiction before the Income-tax Officer then later validity of the assessment cannot be challenged. 32. The learned Departmental representative for the Revenue has referred to one more aspect of the case, i.e., in this case orders passed under section 120 fixing the jurisdiction would show that Mohali area would fall under Circle 6(1) and therefore, in terms of section 124(5), the inherent jurisdiction was with the Assessing Officer Circle 6(1). The Notification No. CCIT/ NWR/Tech/Juri/2001-02/617 issued on May 11, 2001, by Chief Commissioner of Income-tax, NW Region, Chandigarh, clearly shows that areas falling within the Revenue district of SAS Nagar (Mohali) Punjab excluding the areas falling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arries on the business and that too only in respect of income falling within the area covered by that jurisdiction. It will be appreciated that this is a very limited saving clause. It applies in a case such as the following : suppose an assessee is carrying on a jewellery business within a particular area in Delhi and his entire income from that business accrues, arises or is received within that area. Suppose cases of all jewellers in Delhi are assigned by the Commissioner of Income-tax to an Assessing Officer heading a special circle but over looking that special order of assignment, the Assessing Officer exercising territorial jurisdiction over the place where the assessee's shop is situated completes an assessment. The validity of such an assessment is completely protected by the provisions of sub-section (5). The sub-section has no wider scope. It will not cover the case of the assessees who are having business in several places and whose income accrues, arises or is received in several areas. The above makes it clear that the assessment which has been made by an assessing authority who holds territorial jurisdiction over the assessee in terms of notification issued u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer, Circle 6(1), had inherent jurisdiction over the assessee and therefore, assessment made by him was protected in terms of section 124(5). 34. One more aspect was hotly contested by both parties whether the learned Commissioner of Income-tax (Appeals) had power to adjudicate the issue regarding exercise of jurisdiction. The main submission of the Department is that even after the decision of the hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. [1998] 229 ITR 383 (SC) the issue could not be raised because many facts were involved and additional ground can be raised in respect of legal issues and for which the facts were already on record. In this regard she had further relied on the observations of the hon'ble Punjab and Haryana High Court in the case of Aravali Engineers P. Ltd. v. CIT [2011] 335 ITR 508 (P H). She also contended that there was no provision in section 246A of the Act to challenge the question of jurisdiction. In this regard reliance was also placed on the decision of the hon'ble Allahabad High Court in the case of CIT v. British India Corporation Ltd. [2011] 337 ITR 64 (All). 35. On the other hand, learned counsel of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. CIT [1945] 13 ITR 39 (FC). On these facts the hon'ble High Court made following observations and held as under (headnote of 337 ITR) : The question of jurisdiction of the assessing authority cannot be disputed after the completion of the assessment proceedings. Alter natively, if such a question arises the question can be addressed by the Commissioner or the Board, as the case may be, in view of sub- section (4) of section 124 of the Income-tax Act, 1961, and this by necessary corollary excludes the jurisdiction of the first appellate authority or the court. An appeal to an appellate authority under the Act lies on the grounds as enumerated in section 246 of the Act. None of its clauses shows that an appeal on the question of jurisdiction of the assessing authority is maintainable. Unless some prejudice is caused to a party by a wrong or irregular exercise of jurisdiction by a court, no interference in appeal or revision is legally permissible. Held, allowing the appeal, that the burden was upon the assessee to state specifically when the order of the transfer was received by it, which it failed to discharge. There was no plea even in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice as well as section 124(5) with respect to inherent jurisdiction which have been both adjudicated by the hon'ble Punjab and Haryana High Court which we have discussed in detail earlier and therefore, the decision is of no help to the assessee. 37. We would again like to refer to the observations of the hon'ble Punjab and Haryana High Court in the case of CWT v. Siri Paul Oswal [2007] 293 ITR 273 (P H) at paragraph 16, it was observed (page 278) : Para 16 -A distinction has to be made between a situation when there is inherent lack of jurisdiction and a situation where jurisdiction is irreg ularly assumed and plea of want of jurisdiction can be waived by a party. In the latter situation, the question arises whether party who could waive the plea of jurisdiction, raised such a plea and whether such a party had been prejudiced on account of erroneous assump tion of jurisdiction. The present case, in our view, falls in the second category. The assessee participated in assessment proceedings by the Assessing Officer to whom assessment proceedings under the Income-tax Act were transferred and who exercised jurisdiction to assess wealth-tax also with the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the result, ground raise by the Revenue in this regard is allowed. 39. Ground No. 2 is of general nature and does not require any separate adjudication. 40. Ground No. 3-The learned Departmental representative for the Revenue submitted that during the year the assessee had changed the method of accounting from mercantile to cash, however, the learned Commissioner of Income-tax (Appeals) while adjudicating various issues, has not considered change of method of accounting and has not given any finding in this regard. Therefore, impugned order suffers from infirmity. 41. On the other hand, learned counsel of the assessee submitted that this ground is of general nature, however, he admitted that the assessee had changed method of accounting from mercantile, i.e., accrual to cash system of accounting. 42. After considering the rival submissions we find that no specific finding is required to be given in this regard. However, we shall take notice while adjudicating other grounds on merit that the assessee had admittedly followed the cash system of accounting in the present year. 43. Ground No. 4-After hearing both parties we find that during the assessment proceedings t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net effect from deviation from accrual system to cash system of recognising the interest in the cases of interest on instal ments of houses could not be qualified. (ii) Loan from HUDCO is still under reconciliation. (iii) A sum of ₹ 1,10,65,281 has been shown in the books of account as the amount in transit. Out of this, ₹ 8,55,117 is pending for reconciliation since long. (iv) A difference of ₹ 19,23,188 exists in the inter-division accounts. The assessee was confronted with these issues. In response vide letter dated August 23, 2005, it was explained that these changes are not on account of any figure which has been imported in the books of account but rather they are on account of only grouping and regrouping of figures of the earlier years so that the accounts show a clear picture of the state of affairs. No new figure of any amount have been introduced in the revised accounts. In the original statement of affairs, the figures were shown of net value (i.e., credits were deducted from deposits whereas in the revised returns the credits which were earlier reduced from the deposits have been taken to the credit side as a result of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,44,150 Total increase 8,05,94,63,041 44. Regarding the increase, it was explained that the same was due to increase of following figures : (Rs.) Increase of profit from scheme 2,54,98,723 Increase in interest income from instalments 16,683 Total increase 2,55,15,406 45. It was further contended that revision of accounts by switching from mercantile system to cash system of accounting would have consequential effect on the figures of income for preceding assessment year 2002-03 but the increase in income pertaining to the assessment year 2002-03 will not have any taxable implications because the income in the assessment year 2002-03 was exempt under section 10(20A) of the Act. 46. The Assessing Officer after considering these submissions observed that main contention of the assessee is that it had been working out income from purchase and sale of plot right from the beginning up to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese submissions and agreed with the same and allowed relief vide following paras : The Assessing Officer made an addition of ₹ 2,55,15,046 at point No. 8 of his order on account of difference in the figures of net profit from schemes for the financial year 2001-02 as per original profit and loss account and for the same financial year as per revised balance- sheet. It is seen that the authority had not worked out and recognized profitability on two of the housing schemes up to March 31, 2002. The accounts for the financial year 2001-02 were reopened and audited and the profit from those schemes were inducted into the books appertaining to the financial year 2001-02. It was submitted by the learned authorised representative that it did not have any impact on the income chargeable to Income-tax as the authority was exempt from tax up to March 31, 2002, due to the applicability of the provisions of section 10(20A) of the Income-tax Act. A copy of statement of com putation of net profit from schemes were examined with the original balance-sheet pertaining to the assessment year 2002-03 and the same was enclosed with the revised balance-sheet for the same year w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the earlier year. The assessee could not have filed revised return for the assessment year 2002-03 because section 139(5) prescribes only two situations where the revised return can be filed, i.e., if there is an omission or wrong statement in the original return. In this regard she relied on the decision of the hon'ble Delhi High Court in the case of Golden Insulation and Engg. Ltd. v. CIT [2008] 305 ITR 427 (Delhi). In any case on principle also if some increase of income was not shown by the assessee in the earlier years and if due to certain reclassification there is a change in the amount of income, the same should be taxable during the current year only. In this regard she placed reliance on the decision of the hon'ble Supreme Court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC). Further it was submitted that the way accounting entries have been made, is not determinative of the amount of real income and the same is required to be taxed on the basis of provisions of the Act. In this regard reliance was placed on the decision of the hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC). She also ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38,95,596 Sale 452 MIG sector 66 Mohali - 10,59,09,156 696 LIG sector 66 Mohali - 4,73,67,015 Total (B) - 15,32,76,171 Closing stock 452 MIG sector 66 Mohali 10,68,87,543 2,68,48,535 696 LIG sector 66 Mohali 5,70,08,053 92,69,613 Total (C) 16,38,95,596 3,61,18,148 Profitability (B+C-A) - 2,54,98,723 Learned counsel of the assessee referred to various documents in the form of balance-sheet and pointed out how the figures have been reworked. The Assessing Officer has clearly accepted the fact that income belongs to the assessment year 2002-03 and simply because return for that year cannot be revised now, does not mean that the income can be assessed now in the present year. 51. We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils and it was again stated that in such cases buyer would not become owner of the property till all the hire purchase instalments are paid and till then such houses and flats continued to rest with the seller, i.e., the assessee authority. Therefore, in a legal sense sale cannot be said to have been completed unless the property passes on to the buyer. However, the Assessing Officer observed that this can not be treated as hire purchase if the allottees were termed as tenant till all the instalments are paid by him. He further observed that as per section 145 of the Act the assessee can compute his income either on mercantile system or cash system of accounting regularly employed by him and the assessee had option either to adopt cash system or mercantile system as long as it is feasible to compute the income through different activities by different methods. Since the assessee had adopted cash system of accounting, therefore, income has to be computed on the basis of instalments received during the year minus any amount which has already been accounted for as revenue receipt during the year under consideration. Accordingly from the details it was observed that total instalments r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint CIT [2010] 320 ITR 577 (SC). 55. It was further submitted that the hon'ble Punjab and Haryana High Court in the case of CIT v. Chandigarh Industrial and General Development Corporation Ltd. [2009] 319 ITR 85 (P H) has clearly held that in the similar circumstances that amount received on account of instalments are taxable during the year. Similarly the same view was taken in the case of CIT v. Fair Deal Traders [2010] 327 ITR 34 (P H) by the hon'ble Punjab and Haryana High Court wherein the assessee after purchasing the land divided the same into plots and received instalments but the same was held to be taxable because possession of the flats had already been given. She also referred to the decision of the hon'ble Delhi High Court in the case of Tirath Ram Ahuja (P.) Ltd. v. CIT [1976] 103 ITR 15 (Delhi) where contract was not complete but it was held that it was open to the Revenue to estimate the profit on the basis of receipt in each year of consideration even when the contract is not complete. She also relied on the decision of the hon'ble Punjab and Haryana High Court in the case of CIT v. Dhir and Co. Colonisers P. Ltd. [2007] 288 ITR 561 (P H) wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ethod as per accounting standard AS 7 which was enforced for all the contracts entered up to March 31, 2003 and therefore, the same would not violate the charging section and true profit can still be worked out by following this method. Moreover this method was consistently followed by the assessee in the earlier year when the income was exempt under section 10(20A) of the Act. No doubt there is change in the system of accounting to cash system from mercantile system followed earlier, however, the method of recognition of the income from housing schemes continued to remain the same as in the past and receipt as well as expenditure were accumulated in the scheme and in this regard reliance was made to schedule F of the balance-sheet filed in the paper book. He also referred to the definition of hire purchase in the Hire Purchase Act, 1972, as well as other relevant provisions. This definition clearly shows that allottee of a house would become owner of the same only on the completion of the terms of the agreement. 58. Learned counsel of the assessee further submitted that addition on account of instalments have mainly been made because the assessee was following cash system. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal representative for the Revenue that income of one particular year cannot be deferred to future years because first of all no income has materialised and secondly profit of each year being determinable at the year end is one thing and profit of each year are required to be essentially determined at the end of the year, is another thing. Simply because the method of accounting exists for determination of profit of each year, it cannot be followed that the profits of the project must be determined when the whole project got completed in the future and this method was consistently followed. He also placed reliance on the decision of the Special Bench of the Tribunal in the case of Deputy CIT v. Nagarjuna Investment Trust Ltd. [1998] 65 ITD 17 (Hyd) [SB] and Taparia Tools Ltd. v. Joint CIT [2003] 260 ITR 102 (Bom). 61. In the rejoinder the learned Departmental representative for the Revenue submitted that there is no force in the submissions that section 145 cannot override the charging section because in the present case instalments received would come under the purview of income under the charging section also. She also submitted that decision in the case of CIT v. Realest Buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... system has been changed from mercantile system of accounting to cash system of accounting. Though it is very surprising how a large organisation such as the assessee, could follow cash system of accounting but it is admitted fact that the assessee followed cash system of accounting. In fact in respect of other additions like receipt of interest from bank and receipt of interest from the Government of Punjab, it was vehemently argued on behalf of the assessee that these receipts can be taxed only when the same have been actually received by the assessee because the assessee was following the cash system of accounting. Therefore, admitted position is that the assessee is following cash system of accounting. 63. Normally people other than the traders keep accounts in cash system, i.e., people like doctors, advocates or other professionals keep their accounts in cash basis because they are not selling any merchandise and it is very easy to follow cash system for them. As we have already observed that it is surprising that the assessee had followed cash system of accounting. Therefore, when the traders follow cash system and whenever such traders sell any merchandise on credit he wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from interest due on the loans advanced to Nisar Ahmad Khan. The assessee was duly assessed to tax on the income disclosed by him. In October 1948, the assessee sold the Encumbered Estates Bonds and realised a total sum of interest received during the year on account the difference between the amount realised by sale of the bonds and the amount due as principal. The Income-tax Officer issued a notice under section 34(1)(a) of the Indian Income-tax Act and brought to tax the difference between the face value of the bonds and the amount due as principal as escaped income of the previous year relevant to the assessment year 1948-49. The order was confirmed by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. The High Court also decided the issue against the assessee. On further appeal before the hon'ble Supreme Court it was mainly contended that the assessee was maintaining books of account on cash system of accounting and until the assessee realised the value of bonds, no interest can be said to have been received by the assessee because it was further submitted that when the accounts are maintained on cash system of accounting, receipt of money alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, formed for the purpose, inter alia, of acquiring and reselling mining property, which resold the whole of its assets to a second company and received payment in fully paid shares of the purchasing company, observed : 'A profit is realised when the seller gets the price he has bargained for. No doubt here the price took the form of fully paid shares in another company, but, if there can be no realised profit, except when that is paid in cash, the shares were realisable and could have been turned into cash, if the appellants had been pleased to do so. I cannot think that Income-tax is due or not according to the manner in which the person making the profit pleases to deal with it'. The other observations have been summarised in the headnote which read as under : If accounts are maintained according to the mercantile system, whenever the right to receive money in the course of a trading trans action accrues or arises, even though income is not realised, income embedded in the receipt is deemed to accrue or arise. Where the accounts are maintained on cash basis, receipt of money or money's worth and not the accrual of the right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing of the Finance Act in every year by Parliament. Such tax can be charged in respect of total income of the previous year. Total income has been defined in section 5 of the Act. The word income has been defined in section 2(24) so therefore, before charging tax it has to be seen that an item is in the nature of income and covered by the definition of income given in section 2(24) of the Act. It is further to be noted that income has been defined in inclusive manner. This is very complex issue and without going into the details we would simply take the simple meaning of the income . In the normal commercial parlance an item which is of revenue nature, is taken as income. Now in a case where an organisation which is carrying out the business of construction and development of houses and if such organisation sells the same outrightly or on instalments basis then such instalments would be in nature of income. Therefore, there is no force in the submissions of learned counsel of the assessee that instalments received by the assessee do not come under the charging section and therefore, same cannot be taxed simply because under section 145 the receipt under cash system has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. Implications are very clear that the assessee has a right to follow either mercantile system of accounting or cash system of accounting for determination of the income. The assessee has been given a choice and in the case before us, the assessee has deliberately and after applying its mind decided to follow cash system of accounting, therefore, the assessee has to bear the consequences of such system of accounting. 64. Learned counsel of the assessee has strongly relied on the decision of K.K. Khullar v. Deputy CIT [2008] 304 ITR (AT) 295 (Delhi). In this case the assessee was an advocate and received certain amounts for services to be performed over a period of time. The amount received from the client in respect of services rendered in the year under consideration, was shown as income and the balance amount was shown as advance. The Assessing Officer held that as per the provisions of section 145 the assessee was following cash system of accounting and therefore, whole amount was taxable. The Tribunal decided the issue in favour of the assessee vide following paras (page 301): We have considered the facts of the case and rival submissions. We may refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision relied on was that of CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144 (SC). In that case the assessee-firm was the managing agent of two shipping companies and under the managing agency agreement, the assessee was entitled for commission at 10 per cent. of the freight charges. Between April 1, 1947 and December 31, 1947 an amount of ₹ 1,71,885 from one company and ₹ 2,56,815 from other company became due to the assessee as commission at 10 per cent. This amount was credited in the books of account and debited to managing agent. In November 1947, the assessee desired to have managing agency transferred to two private companies and in this connection agreed in December, 1948 to accept 2 per cent. as commission and gave up 7 per cent. of its earnings. The Revenue sought to assess the amounts to ₹ 1,36,903 and ₹ 2,00,625 being 7 per cent. of the foregone amount as income. On these facts it was held as under (headnote): Held, that the subsequent agreement had altered the rate of commission in such a way as to make the income which really accrued to the assessee different from what had been entered in the books of account. This w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,24,58,366 ₹ 1,05,42,88,169 ₹ 1,05,42,88,169 This matter was investigated in detail and ultimately the reason for these entries was analysed and discussed by the Assessing Officer as mentioned in the assessment order as under : As regards the reason for huge loss from purchase and sale of plots, it was explained by counsel, during discussion and also explained by the assessee in its letter No. 1567 dated March 8, 2006, that since the assessee has changed its system to cash system of accounting, only the amount actually received out of total sale amount has been shown as sale whereas the plots which have been sold but only a part of the sale amount of which has been received are not reflected in the closing stock which is the reason for the loss in the purchase and sale of plots for the assessment year 2003-04. But in the subsequent years, i.e., assessment year 2004-05 onwards, there is profit from purchase and sale of plots. During discussion, it was explained by counsel by giving an example. Suppose the cost of plot is ₹ 1,00,000 and it is sold for ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heet because the assessee was following mercantile system of accounting till the assessment year 2002-03. However, in this year the assessee has changed accounting system and now adopted cash system of accounting. We have already expressed our surprise on adoption of cash system by the assessee but admittedly this system has been adopted and therefore, the assessee has to bear the consequences. The first contention was that houses and flats were sold on hire purchase basis and under the Hire Purchase Act, 1972, the buyer does not get the ownership right till the completion of the purchase as provided in the agreement and as per the agreement till all the instalments are paid such buyer or allottees will not become the owners. However, we find no force in this contention because no other Act can override the provisions of the Act and this has been clarified by the hon'ble Supreme Court in the case of Southern Technologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC). Therefore, the instalments received against such sales which are in the nature of revenue receipts, are required to be taken into consideration for determination of income in this year because the assessee has adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the mercantile system of accounting which was found to be correct. However, the matching principle was laid down in the case of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) by the hon'ble Supreme Court. In that case the assessee purchased certain lands and developed the same for building purposes by laying roads, providing drains system and installing lights, etc. The flats were sold on instalment basis. At the time of sale the assessee undertook to carry out more developments. In the relevant year the assessee received a sum of ₹ 29,392 towards sale price of land. However, the assessee was following mercantile system of accounts and credited to its account a sum of ₹ 43,692 representing full sale price of the land. At the same time the assessee also debited an estimated sum of ₹ 24,809 as expenditure for the developments. This was disallowed by the Revenue. On appeal it was held as under (headnote) : Held, (i) that the undertaking to carry out the developments within six months from the dates of the deeds of sale (which, in view of the fact that time was not of the essence of the contract, meant a reasonable time) was uncondition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle is there. Therefore, in case were cash system of accounting is followed then whatever expenditure has been incurred in cash during the year, has to be allowed. In the case before us, the assessee has neither offered the instalments as income nor claimed expenditure incurred. Since we have already held that instalments received have been rightly included in the income of the assessee, therefore, corresponding expenditure which has been incurred in cash towards construction of such houses and flats sold under hire purchase is also to be allowed. 71. One more angle needs to be considered that is what would happen to the opening stock as well as closing stock. In the cash system of accounting closing stock is not considered, therefore, what has been accumulated in the schemes is also required to be considered. Considering the contentions of the parties and the principles we have already discussed, we are of the opinion that whatever instalments were accumulated in the schemes needs to be considered along with the opening stock whenever a particular scheme was completed. This is so because it was pointed out by learned counsel of the assessee that the profit in each of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artmental representative for the Revenue made similar arguments as in respect of ground No. 5. On the other hand, learned counsel of the assessee also reiterated the arguments which were made in respect of ground No. 5. However, he further submitted that even if it is held that instalments are to be taxed on receipt basis then it should be noted that no fresh instalments are received in the year under consideration. In fact this amount represents the amounts received in the earlier year which remain unreconciled. He filed a chart showing the position of instalments actually received out of the total amount unreconciled. 76. We have heard the rival submissions carefully. On principle the issue remains the same as in ground No. 5 and since the facts as well as the arguments are same principally we decide this issue against the assessee following our decision in ground No. 5 in paragraphs 62 to 72. However, the chart regarding these unreconciled instalments filed by learned counsel of the assessee reads as under : Balance as on Amount (Rs.) Fresh amount recd. during the year Addition made by the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) Authority is depositing the employees and the employer contribution towards provident fund for the year in bank account in the form of bank fixed deposit receipt after finalisation of the balance- sheet. Provident fund contribution of 2002-03 is yet to be deposited in separate bank account. (b) In the absence of non-creation of separate trust to which contribution of both employer and employee are made periodically or remittance of such contribution to the employee provident fund administrated by the Central Government renders PUDA provident fund scheme as unrecognised. No. provident fund was deducted/ contributed on the salary of staff which work on contract basis. From the above the Assessing Officer concluded that the assessee has not created any separate provident fund which is approved by the prescribed authority and therefore, PUDA provident fund scheme was unrecognised. Secondly provident fund contribution of the employer and the employees was being deposited in the fixed deposit and thirdly these contributions were not being regularly deposited on the dates of their receipt but were being deposited after finalisation of the balance-shee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43B would override section 37. Further the employees share of provident fund is initially treated as income under section 2(24)(x) and later on when the same is deposited, deduction can be claimed under section 36(1)(va). He also observed that section 36(1)(va) did not mention anything about recognition of the provident fund. Similarly section 43B also does not refer to the recognised provident fund. He also referred to decision of CIT v. J and J Dechane Labs P. Ltd. [1995] 216 ITR 383 (AP) wherein it was held that when provident fund is debited under statute no further recognition was required. Since the assessee had established provident fund as per the provisions of law there was no necessity for approval of the Commissioner. Further since the amounts have been credited to the accounts of the employees on or before the due date, the disallowance was not maintainable and accordingly he deleted the addition. 80. Before us, the learned Departmental representative for the Revenue mainly submitted that the contribution was not made to approved provident fund. It was further submitted that contributions were not deposited in a separate bank account even after finalisation of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees in provident fund or other funds. Since the assessee have full control over the funds, therefore, the deduction was not allowable. While concluding her arguments, she submitted that in any case the assessee is following the cash system of accounting and therefore, the deduction cannot be allowed if actual cash payment has not been made during the year. 82. On the other hand, learned counsel of the assessee submitted that through a notification gazette on August 12, 1983, the Punjab Government implemented the provisions of the Provident Funds Act, 1925, to the Punjab Housing Development Board under section 16 of the Punjab Housing Development Act, 1972. He referred to this Act and pointed out that housing board was mandated by the State Government to implement provident fund scheme. Later on the assessee authority, i.e., PUDA was constituted somewhere in 1995 and the rules of the erstwhile Board were adopted by the PUDA. Therefore, the assessee was governed by the Provident Funds Act, 1925. He further submitted that part A of the Fourth Schedule clearly excludes the application of the rules contained in Part A in respect of the Provident Funds Act, 1925. This means that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that this issue is arising in all the years in which the appeals were heard by us, therefore, the decision in these paras would be applicable in all the years wherein appeals are being adjudicated through this order. The assessee authority was formed in 1995 prior to which this organisation was known as Punjab Housing Development Board which was stated to have been formed in 1972. Through a gazette notification dated August 12, 1983 (copy placed at paper book at pages 135-136) Government of Punjab made certain rules for Punjab Housing Development Board through GSR No. 70/PA6z/73/S/98/83. Rule 16 of this notification reads as under : Provident Fund.-(1) The State Government shall establish a provident fund for the employees of the Board and such provident fund shall be deemed to be a Government Provident Fund for the purpose of the Provident Funds Act, 1925 (Central Act XIV of 1925) and notwithstanding anything contained in section 8 thereof, such fund may be administered by such officers of the State Government or of the Board as the State Government may specify in that behalf. The above clearly shows that Government through this notification was mandated to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this clause, 'due date' means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise ; The above provision deals with employees share of the contribution. According to the scheme of the Act the employee's share is treated as income when some contribution is received by the assessee and when same is contributed to provident fund then same is allowed as deduction under this provision. At the same time receipt of such contribution is treated as deemed income under section 2(24)(x) which reads as under : any sum received by the assessee from his employees as contri butions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees ; In this clause which is part of the definition of income, there is no mention of the word recognised provident fund therefore, any contribution raised fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non obstante clause which is made clear by starting of section 40A(1) which reads as under : 40A.(1) The provisions of this section shall have effect notwith standing anything to the contrary contained in any other provision of this Act relating to the computation of income under the head Profits and gains of business or profession . However, a careful reading clearly shows that exception provided in this section are in respect of deduction allowed under section 36(1)(iv) or 36(1)(iva) or 36(1)(v). There is another exception which reads as under : or as required by or under any other law for the time being in force Therefore, learned counsel of the 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 resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting which we have already discussed while adjudicating ground No. 5. Therefore, any expenditure in the case of the assessee has to be allowable only if actual cash has been paid during the year. Therefore, if no cash has been paid expenditure is not allowable. No doubt section 43B has carved out an exception by way of the proviso that even if expenditure is paid before due date of filing of return then the same shall be allowed and the hon'ble Punjab and Haryana High Court in the case of CIT v. Nuchem Ltd. in I. T. A. No. 323 of 2009 following the decision of the hon'ble apex court in CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) has clearly held that if such payments are made before the due date of filing of return then the same has to be allowed. However, as observed earlier this benefit could not be given to the assessee because the assessee is following the cash system of accounting and allowability of expenditure itself depends on actual cash payment. However, we would like to observe that at the beginning of this issue we have clearly mentioned that this issue relates to many years, therefore, if the payment for this year was made in the next year the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in the Post office savings bank accounts or in long-term fixed deposits with Scheduled Banks. Post Office National Saving Certificates or kept as a deposit with the State Government beating interest. Further the assessee also issued office order copy of which is placed at page 70 of the paper book which reads as under : In pursuance to rule 3(1)(2) of the Punjab Housing Development Board (Provident Fund) Rules, 1983 and further adopted PUDA in its meeting held on 17th July, 1995 vide Agenda item No. 17 a com mittee, is hereby constituted to administer and manage the contrib utory provident fund of the employees of PUDA. The committee shall include : (a) The Chief Administrator as ex officio chairman of the committee or his nominee (b) Accounts Officer (Pension) as Secretary of the Committee (c) Administrative Officer (Admin-I) -Member (d) Sh. Karam Chand, Senior Assistant and Sh. Shishu Pal, Senior Assistant-Members (representing the employees of PUDA, approved vide item No. 9,10 in the meeting of the Authority held on November 29, 2002). Rakesh Singh Vice Chairman, PUDA Thus it is clear that separate committee has been constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was following cash system of accounting, therefore, if interest was not received the same cannot be taxed in this year. 89. The learned Commissioner of Income-tax (Appeals) found force in the submissions because the assessee was following the cash system of accounting and accordingly deleted the addition. 90. Before us, the learned Departmental representative for the Revenue strongly supported the order of the Assessing Officer. 91. On the other hand, learned counsel of the assessee submitted that the Assessing Officer has himself accepted that the assessee was following cash system of accounting and made addition in respect of instalments received on account of sale of houses and flats then how can the Assessing Officer deny the same system in respect of interest on FDRs. It was further submitted that similar submissions were made for the assessment year 2004-05 which has been accepted by the Assessing Officer and in this regard he referred to the assessment order for the assessment year 2004-05 wherein no addition has been made on account of accrued interest. 92. We have heard the rival submissions carefully and find force in the submissions of learned counsel of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to a provident fund approved by the Chief Commissioner of Income-tax nor to a provi dent fund established under a Scheme framed under the Employees Provident Funds Act, 1952. 3. It is prayed that the order of the learned Commissioner of Income-tax (Appeals) be set aside and that of the Assessing Officer may be restored. 95. After hearing both parties, we find that the facts and arguments of both parties are identical to the issue raised regarding disallowance on account of contribution to provident fund raised in ground No. 7 in the assessment year 2003-04 by the Revenue which we have adjudicated above vide paragraphs 84 to 86. Following the same we set aside the order of the learned Commissioner of Income-tax (Appeals) and remit the matter back to the file of the Assessing Officer to decide the issue in accordance with the directions contained in the above paragraph. 96. In the result, Appeal No. 765/Chd/2008 is allowed for statistical purposes. I. T. A. No. 759/Chd/2008-Assessee's appeal for 2004-05 97. In this appeal the assessee has raised the following grounds : 1. That the learned Commissioner of Income-tax (Appeals) has erred in confirming t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revised return. It was mainly submitted that it was due to regrouping of the accounts. Variation had occurred because of the reclassification in various groups but totals in the final had been tallied with each other. Further that accounts had not been prepared fully by the time the return was to be filed. It was also stated that up to the assessment year 2002-03 the assessee was exempt under section 10(20A) and therefore, it only recognized the Revenue on sale of plots by due date of filing. This required calculation from the inception of the authority for last 20 years and took sometime by the time return was filed. Financial statements were also violative of AS 9 but the violation was of bona fide nature which has also been mentioned by the statutory auditor. Basically the fact has been discussed during the assessment proceedings for the assessment year 2003-04 which had implications in this year also. However, the Assessing Officer observed that for increase of income from sale of houses will belong to the year to which it pertains and accordingly he added a sum of ₹ 6,78,007 from sale of houses and plots as income of this year. 101. On appeal, written submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in the case for the assessment year 2003-04 in respect of ground No. 5. 107. After considering the rival submissions we find that the facts in respect of this issue are identical to the facts of ground No. 5 in appeal filed by the Revenue in the assessment year 2003-04 which we have adjudicated above. This issue was decided in paragraphs 62 to 72 and following the same order we decide this issue against the assessee. 108. Ground No. 3-After hearing both parties we find that the facts of this issue are identical to the facts of ground No. 6 of the Revenue's appeal for the assessment year 2003-04 in I. T. A. No. 762/Chd/2008. 109. After considering the rival submissions we find that the facts and the arguments are identical in the Revenue's appeal in I. T. A. No. 762/Chd/ 2008 in ground No. 6 for the assessment year 2003-04. This issue has been decided by us against the assessee vide paragraph 76. Following that order we decide this issue against the assessee. However, we again clarify as observed in the assessment year 2003-04 that whatever instalments which have been included in the earlier year should not be included again in this year. 110. Ground No. 4-Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without general administration expenses and accordingly confirmed the addition. 113. Before us, learned counsel of the assessee reiterated the submissions made before the learned Commissioner of Income-tax (Appeals). He further submitted that the assessee was following cash system of accounting and the Assessing Officer has himself held that instalments received in cash on account of sale of houses and flats under hire purchase agreement were taxable which means he has totally followed cash system of accounting and therefore, he cannot take a U turn and deny the deduction on account of administrative expenses which have been incurred in cash. Alternatively it was submitted that if these expenses are held to be on capital account then value of the opening stock and closing stock should be adjusted accordingly. 114. On the other hand, the learned Departmental representative for the Revenue submitted that administrative expenses were incurred jointly for developed and developing sectors. The Assessing Officer has asked for bifurcation of the same which was not given. She further submitted that even if the assessee was following the cash system of accounting and when the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue is identical to the issue raised by the Revenue in ground No. 7 in I. T. A. No. 762/Chd/2008 for the assessment year 2003-04 which we have adjudicated above. Since the facts as well as the arguments of both parties remained same, we decide this issue following our order in I. T. A. No. 762/Chd/2008 at paragraphs 84 to 86 and the issue is remitted back to the file of the Assessing Officer with similar directions. 119. Ground No. 3-After hearing both parties we find that during assessment proceedings the Assessing Officer noticed that the assessee has claimed depreciation on flats/SCOs/booths as well as PUDA building at Sector 62, Mohali and PUDA building at Ludhiana, PUDA building at Patiala, community centre, swimming pool and store shed. The assessee was asked to clarify whether the cost of above sites includes the cost of land or not ? The assessee was further asked to clarify if the cost of land is not included in the building then the detail of cost of land be mentioned separately. In response it was stated that cost of land is not included in the building, on which depreciation has been claimed. However, the Assessing Officer after examining these details noted that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch 31, 2000. Most of the lands have been acquired during the tenure of the Housing Development Board prior to 1995. In 1995, when the authority was formed, the authority took over the figures of the PHDB as its balances in consonance with the PUDA Act and the Government notification for takeover of assets and liabilities of the PHDB. Hence the claim of depreciation on building is legitimate. Since the land portion on which buildings in question have been erected have not been charged to the profit and loss account of the authority during the year in question or during the last 7 years, no question of understatement of income could be conceived. The amount included in the balance-sheet in Schedule E under the head PUDA Building at Mohali, Ludhiana and Patiala represents only the amount of construction of such buildings. It does not include any cost of land. The land value was taken as zero in this case as the concerned land was transferred authority namely PHDB and Directorate of Housing and Urban Development, etc. These land was transferred by the order of the Government and PUDA has not booked any amount as cost of such land. The amount depicted in the balance-sheet is only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectly adjudicated this issue. The Revenue has not shown anything to prove that the value of the land was also included in the cost of building, when the first appellate authority has decided the issue in favour of the assessee, the burden was on the Revenue to prove otherwise. In this case the assessee came into existence in 1995 after inheriting Punjab Housing Development Board. The assessee is being a Government authority, may have large chunks of land and it is not possible to identify only plots used for buildings for capitalisation and therefore, there is merit in the argument that value of land was considered in various schemes. In these circumstances, we find nothing wrong with the order of the learned Commissioner of Income-tax (Appeals) and confirm the same. 125. In the result, I. T. A. No. 769/Chd/2008 is partly allowed for statistical purposes. I. T. A. No. 760/Chd/2008-assessee's appeal for 2005-06 126. In this appeal the assessee has raised the following grounds : 1. That the worthy Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in making the addition of ₹ 4,90,51,888 on account of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76 of I. T. A. No. 762/Chd/2007. 130. Ground No. 3-After hearing both parties we find that the facts in respect of this issue are identical to the facts in respect of ground No. 4 in the assessee's appeal in I. T. A. No. 759/Chd/2008 for the assessment year 2004-05. Since the facts and arguments of both parties are identical, this issue has been decided by us in favour of the assessee vide paragraph 115 and following the same we decide this issue in favour of the assessee. 131. Ground No. 4-After hearing both parties we find that during assessment proceedings the Assessing Officer noticed that the assessee has claimed a sum of ₹ 3,63,74,569 as bad debt. This amount was recoverable on account of 50 per cent. of the salary payable to the employees of erstwhile Urban Estate Department which was merged with the PUDA. In response to the query raised it was submitted that this amount represented recoverables on account of establishment and contingency expenses from the assessment years 1992-93 to 1998-99 when the Urban Estate Department was continuing. Department of Housing, Government of Punjab has agreed to pay 50 per cent. of salary of the Department of Urban Estate s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Madras High Court has been wrongly relied on by the learned Commissioner of Income-tax (Appeals) because in that case, it was held that it was not sufficient for making a claim that a bad debt has been written off particularly in view of the decision of the hon'ble Supreme Court. 134. On the other hand, the learned Departmental representative for the Revenue submitted that for making a claim for bad debt first it has to be proved that same has been accounted for computing the income of the earlier year and the assessee has not proved that this amount was accounted for under section 36(2)(i) of the Act. Further the assessee was following the cash system of accounting, therefore, unless and until real outgoing of cash happens the same cannot be allowed. Further the decision of the hon'ble Madras High Court has been correctly relied on by the learned Commissioner of Income-tax (Appeals) because what is allowable under section 36(1)(vii) is bad debt and only because it was held that a debt from Government Department cannot be construed to be bad debt. 135. We have heard the rival submissions carefully and agree with the submissions of the learned Departmental represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, such claim cannot be said to have become bad. In our opinion, this decision is still valid because what can be written off is only bad debt and not good debt. In view of this discussion, we find nothing wrong in the order of the learned Commissioner of Income-tax (Appeals) and confirm the same. 137. In the result, I. T. A. No. 760/Chd/2008 is partly allowed for statistical purposes. I. T. A. No. 744/Chd/2009-Revenue's appeal for 2006-07 138. In this appeal through ground No. 2 which is the effective ground the Revenue has raised two issues namely (i) deletion of addition amounting to ₹ 5,42,40,683 on account of contribution to CPF and (ii) deletion of addition on account of depreciation amounting to ₹ 2,14,17,794. 139. First issue-After hearing both parties we find that the facts relating to this issue are identical to the facts of ground No. 7 in the Revenue's appeal for the assessment year 2003-04 in I. T. A. No. 762/Chd/2008. Since the facts and arguments of both parties are identical, following that order in paragraphs 84 to 86 we set aside the issue to the file of the Assessing Officer with similar directions is contained in above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quire any separate adjudication. 144. Ground No. 2-After hearing both parties we find that the facts are identical to the facts in ground No. 5 in the Revenue's appeal for the assessment year 2003-04. Since the facts and arguments of both parties are identical, therefore, following the decision in the Revenue's appeal for ground No. 5 in I. T. A. No. 762/Chd/2008 in paragraphs 62 to 72 we decide this issue against the assessee. 145. Ground No. 3-After hearing both parties we find that during the assessment proceedings the Assessing Officer noticed that the assessee has received a sum of ₹ 10,89,77,227 which was reflected in Schedule C to the balance-sheet and the same was shown as earnest money from prospective buyers. On enquiry it was mainly submitted that this money represented advance receipt from customers but no allotment has been made and therefore, the same cannot be recognised as income. The Assessing Officer did not find the reply convincing and added this amount to the income of the assessee. 146. On appeal the learned Commissioner of Income-tax (Appeals) confirmed the disallowance raised in ground No. 2 in respect of the instalments received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the same is received from public without making any allotment of the house/flat/plot then the same cannot be brought to tax. However, if allotments have been made then the situation would change. Therefore, the Assessing Officer should inquire these facts in detail and then decide the issue in accordance with law. 150. In the result, I. T. A. No. 745/Chd/2009 is partly allowed. I. T. A. No. 545/Chd/2011-Revenue's appeal for 2007-08 151. In this appeal the Revenue has raised the following effective grounds : 2. On the facts and in the circumstances of the case and law, the learned Commissioner of Income-tax (Appeals) has erred in deleting the disallowance made at ₹ 5,75,23,367 on account of CPF and interest on CPF contribution. The disallowance was made for the reasons that the contributions have neither been made to a provident fund approved by the Chief Commissioner of Income-tax or to a 'provident fund' established under a Scheme framed under the Employees Provident Funds Act, 1952. 3. On the facts and in the circumstances of the case and law, the learned Commissioner of Income-tax (Appeals) has erred in de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 23,96,45,249 (Rs. 26,84,06,932- ₹ 2,87,61,683) on the ground that the appellant failed to produce evidence regarding each expense classified under the administrative head of account, despite the fact that all the relevant ledger accounts duly supported by self-explanatory vouchers were before the authorities below. 4. That the learned Commissioner of Income-tax (Appeals) has erred on facts and in law in increasing the value of closing stock hypothetically and arbitrarily just to set off the enhanced value of opening stock which is only the brought forward closing stock of the previous year which had to be recalculated as a consequence of capitalisation of disallowance of expenditure out of administrative expenses of previous years and thus enhancing the value of stock. 5. That the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in disallowing the 50 per cent. expenses on account of maintenance of urban estates amounting to ₹ 4,81,09,536, included in the disallowed administrative expenses of ₹ 23,96,45,249, on the ground that the appellant failed to establish that these expenses related to completed pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, there is no need to adjudicate ground No. 2 separately. 160. Grounds Nos. 3, 4 and 5-The facts in respect of this ground are identical to the facts of ground No. 4 in the assessee's appeal in the assessment year 2004-05 in I. T. A. No. 759/Chd/2008. Since the facts and arguments are identical to ground No. 5 in I. T. A. No. 759/Chd/2008 which we have decided vide paragraph 124 and following our order we decide this issue in favour of the assessee. 161. In respect of disallowance of depreciation it seems that this contention was not raised before the learned Commissioner of Income-tax (Appeals) that if such expenses are allowed and are held to be on capital account then effect should be given to the opening stock. These contentions have been dismissed by the learned Commissioner of Income-tax (Appeals) by observing that the details of expenses are not available. 162. Before us, both parties raised identical arguments as in ground No. 5 of the assessee's appeal in the assessment year 2004-05 in I. T. A. No. 759/ Chd/2008. Further, learned counsel of the assessee reiterated the alternative submission which were made in the assessment year 2004-05 that if thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here also, we set aside the order of the learned Commissioner of Income- tax (Appeals) and remit the matter back to the file of the Assessing Officer with identical directions. 165. Ground No. 2-After hearing both parties we find that the facts in respect of this ground are identical to ground No. 3 in the Revenue's appeal for the assessment year 2005-06 in I. T. A. No. 769/Chd/2008. Both parties made identical arguments as in respect of ground No. 3 of I. T. A. No. 769/Chd/2008. 166. After considering the rival submissions we find that the facts as well as arguments of the parties are identical to the issue raised in ground No. 3 of the Revenue's appeal in the assessment year 2005-06 in I. T. A. No. 769/ Chd/2008. This issue was decided by us against the Revenue and in favour of the assessee in that appeal vide paragraph 164. Following the same we decide this issue against the Revenue and accordingly confirm the order of the learned Commissioner of Income-tax (Appeals). 167. In the result, I. T. A. No. 484/Chd/2012 is partly allowed. I. T. A. No. 390/Chd/2012-assessee's appeal for 2008-09 168. In this appeal the assessee has raised the following grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on accrual. 170. Ground No. 1-After hearing both parties we find that in this case a notice under section 143(2) was issued on September 30, 2009. The learned Commissioner of Income-tax (Appeals) had adjudicated this issue vide paragraph 3.1 which is as under : Brief facts of the issue are that the return of income in this case was filed on September 29, 2008 and as per the assessment order, notice under section 143(2) was issued on September 30, 2009. The appellant has not filed any reply in response to this ground of appeal and so it is presumed that the dated given in the assessment order are correct and the notice under section 143(2) had been issued within the prescribed time limit. Ground of appeal No. 2 is dismissed. 171. Before us, learned counsel of the assessee submitted that this notice was issued to the assessee on September 30, 2009. Requirement of the Act is to serve the notice before the expiry of 12 months from the end of the month in which the return was furnished. Since the return was furnished on September 29, 2008, the notice was required to be served before September 30, 2009, which has not been done and therefore, the assessment itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e served on or before September 30, 2009. First of all the assessee has not given any argument before the learned Commissioner of Income-tax (Appeals), therefore, it cannot be said that the issue was not pressed before him and therefore, the assessee cannot be allowed to agitate this issue before the Tribunal for the first time. However, when similar issue came up for consideration before the hon'ble Punjab and Haryana High Court in the case of V. R. A. Cotton Mills P. Ltd. v. UOI [2013] 359 ITR 495 (P H). Headnote of the decision reads as under : Notice-'Issue' vs. 'Service of notice'-Petitioner contended that notice was not served on the assessee till the last date of limitation for the initiation of proceedings for the assessment year 2009-10-Ques tion is, what is the meaning of expression 'served'-Whether such expression is to be used literally, so as to mean actual physical receipt of notice by the addressee or the expression is interchangeable with the word 'issue'-The case of learned CIT v. Avi-Oil India P. Ltd. [2010] 323 ITR 242 (P H) relied on by the assessee, suffers from per incuriam-Date of receipt of notice by the add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. amounting to ₹ 2,15,79,657, therefore, in our opinion, both issues relate to similar facts, i.e., disallowance of administrative and maintenance expenses. The issues have been decided by us in favour of the assessee in the assessment year 2004-05 in I. T. A. No. 759/ Chd/2008 in paragraph 115. Following that order we decide this issue in favour of the assessee. 177. Ground No. 4-After hearing both parties we find that during the assessment proceedings the Assessing Officer noticed that the assessee has claimed expenses of ₹ 225 crores for land for International Air Port (AAI) at Mohali. The assessee was show caused as to why this amount should not be disallowed as capital expenditure. In response it was submitted by the assessee as under : 1. By making payment of ₹ 225 crores, the assessee authority has not acquired any capital asset nor made any donations or charity to any organisation. It was purely and purposely or say wholly and exclusively for the purpose of developing the area for all round economic growth resulting into manifold increase in the rates of the stocks of land and other properties held by the assessee as stock-in- trade. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains have really proved beyond doubt, that the assessee, as a wise businessman, has rightly foreseen the necessity of making expenditure of ₹ 225 crore as its business expediency on top priority which has proved beyond doubt a gainful business activity. Therefore on a common commercial norms and as per accounting principle, the expenditure of ₹ 225 crores could be charged or debited to no other account, except only and only to income and expenditure account. Therefore, the ratio laid by the hon'ble Supreme Court in S. A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1 (SC) fully applies to this case on all the fours beyond any doubt or second opinion that wherein it was held : '. . . once it is established that there was nexus between the expenditure and the purpose of the business (which need not neces sarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circum stances of the case. No businessman can be compelled to maximise his pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... totality. It is a general accounting principle and commercial necessity that any expenditure incurred in furtherance of objects of the assessee has to be claimed and allowed as a legitimate business expenditure. 3. Further the issue in question is not res integra. Similar issues have already been tried by the various courts of the country. To quote in a recent judgment of CIT v. Karnataka Financial Corporation (I. T. Appeal No. 161 of 2005) [2010] 326 ITR 355 (Karn) wherein it has been held as under : 'The amount of ₹ 15 lakhs spent by the assessee has to be considered towards its business promotion. Since the Zila Panchayath under a scheme known as Swasthi Grama Yojana was trying to develop model villages by providing facilities liked develop roads to new markets organising self help groups, community centres and development of infrastructural facilities. If the assessee has spent amount towards the development of infrastructural facilities of villages and construction of a new market to organise self help groups, it would certainly promote the business of the assessee as the assessee can lend the loan only if such establishments are there in villag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the powers to acquire by way of purchase, transfer, exchange or gift or to hold, manage, plan, develop and mortgage of otherwise dispose of land or other property or to carry out itself or in collaboration with any other agency on its behalf, building, engineering, mining and other operations to execute works in connection with supply of water, disposal of sewerage, control of pollution and other services and amenities and generally to do anything with the prior approval or on direction of the State Government, for carrying out the purposes of this Act. (2) In particular and without prejudice to the generality of the fore going provisions, the Authority itself in collaboration with any other Agency or through any other agency on its behalf : (i) If so required by the State Government of the Board, take up the works in connection with the preparation and implementation of regional plans, master plans and new township plans and town improvement scheme ; (ii) undertake the work relating to the amenities and services to be provided in the urban areas, urban estates, promotion of urban development as well as construction of houses ; (iii) promote research, development of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the cost of it from the public at large and the money is coming from the coffer of the Government. It cannot be said that objectives/ activities of the assessee are more of commercialised nature and we do not find any charity in it. At the same time if these facilities are not provided, then nobody will purchase a plot. It can be said that it is a means of attracting the people so that maximum people may apply for the same and the hidden cost is already added, so no charity is involved. It is a known fact that the assessee is acquiring the land at very low prices and selling the same land at very higher rates and is earning a profit therefrom. Learned counsel of the assessee during argument raised a plea that totality of circumstances has to be seen specially that all money goes with the State Government and not in private hands, the prices are fixed and the assessee is not commercial organisation and the predominant activity of the assessee is to develop infrastructure and contended that rule of constituency has to be seen for which reliance was placed upon the decisions pronounced in Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219 (SC). If all the objects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in the joint venture company and therefore, expenditure of ₹ 225 crores should have been charged to the account of the Punjab Government which is beneficial owner of the shares in the joint venture for the airport. Ultimately it was held that the expenditure is of capital nature and not allowable. 180. On appeal before the learned Commissioner of Income-tax (Appeals), it was mainly submitted that a sum of ₹ 225 crores was paid by the assessee as non-refundable amount towards contribution of development of the airport in Mohali area. The expenditure was incurred on the principle of commercial necessity and the same was incurred in furtherance of the objects of the assessee. The same was exclusively for the purpose of development of the airport area for economic growth which was leading to increase in rates of land manifold which would be beneficial to the assessee. Certain examples were given to show the rates of some of the properties. It was also submitted that once the assessee starts earning more profits, it would pay more taxes in the long run. It was submitted that the Assessing Officer is wrong in observing that the assessee contended that expenditure was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authority was mainly engaged in the business of colonisation. It acquired land, developed the same and then selling the same by process of auction. When the proposal for expansion of International Airport at Mohali came up it was felt that this airport will have lot of benefits to the authority by way of increase in the value of land. When Government of Punjab instructed the authority to make contribution of ₹ 225 crores same was made because the same was thought to be beneficial to the assessee. Reference was also made to sections 28 and 49 of Punjab Regional and Town Planning and Development Act, 1995. Section 28 of this Act lays out the objects of the authority which was to promote and secure better planning and development of the city for which the authority was further empowered to acquire land and develop the same and then such developed lands would be sold to the general public. Section 49 provided that the authority was to maintain its own funds which were received from various sources. Section 49(2) clearly provides for application of funds and clause (d) of section 49(2) clearly mandates that the authority was obliged to incur such expenditure for such purposes as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and exclusively for the purpose of the assessee's business. He has further observed that the decision for development of airport area was taken by the Government of Punjab along with Government of Haryana and Airport Authority of India and ultimately JVA was entered into. The contribution was mainly for acquisition of land for airport. For such acquisition compensation was required to be paid within the stipulated period in view of Land Acquisition Act and since the Government of Punjab did not have funds it asked various organization in the State Government to make contribution which would be construed as expenditure for the purpose of business. The assessee has made statement that the purpose of business would be served due to increase in land prices but no specific instances have been given to show that the assessee has purchased huge lands immediately before the contribution prices of which, may have risen because of such contribution. In any case if any benefit arose it would arise to all the builders in the area and the same is not restricted exclusively to the assessee. 184. It cannot be said that the expenditure was for the benefit of the assessee because no delibera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation and co-operation between PUDA and other development authorities. Therefore, it cannot be said that the assessee has incurred this expenditure in view of section 49(2)(a) read with section 29 because the Government should have directed the GMADA and not the assessee. She further submitted that there is no force in the contention that the expenditure has been incurred for the objects of the assessee in terms of Punjab Regional and Town Planning and Development Act, 1995. The contention that this expenditure was claimed as per the instructions of Government of Punjab has no force because the State Government cannot give any instructions in violation of any Central law passed by Parliament. 186. She also referred to JVA and pointed out that ultimately the contribution by PUDA has been made towards purchase of land against which PUDA has been allotted 24.5 per cent. stake in the proposed new airport through GMADA. This means the expenditure has been incurred because the contribution was to be used by the proposed airport for the purpose of acquisition of land and accordingly such expenditure is not allowable because the same is of capital in nature and in violation of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture ; and (iv) The expenditure has been made out or expanded wholly and exclusively for the purpose of business. 189. Clearly the expenditure is not covered by sections 30 to 36 and it is not also in nature of personal expenditure and therefore, condition Nos. 1 and 3 are complied. Now we have to test whether the expenditure incurred by the assessee also meets other two requirements, i.e., it is not capital expenditure and it has been expended wholly and exclusively for the purpose of business. Firstly we shall examine whether the expenditure was incurred wholly and exclusively for the purpose of business. The main contention of the assessee was that the assessee was engaged in the business of acquisition of land, development of the same and sale of such developed lands to the general public. By incurring this expenditure there would have been general development of the area of greater Mohali leading to general appreciation of the land prices which would result in the benefits to the assessee in terms of value of land. We do not find any merit in this contention. Firstly if the assessee thought that this contribution would lead to general appreciation of land and it would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds at the disposal of Department of Civil Aviation, as already directed by CMM, under section 49(2) of the Punjab Regional and Town Planning and Development Act, 1995. As per this decision, PUDA, GMADA, and GLADA are to provide funds in the ratio of 75 per cent., 12.5 per cent. and 12.5 per cent. respectively. Chief Secretary asked CA/PUDA on telephone to comply with these orders immediately. Since CMM has already issued directives under section 49(2) of the Punjab Regional and Town Planning and Development Act, 1995, the chartered accountants are fully competent and were directed to comply with these orders without any further unnecessary paper work. The three chartered accountants may inform their respective authorities in their next meetings. In the light of the above the proposal was put up to the Chief Administrator, PUDA on March 7, 2008, for approval by the following note : Thus PUDA should also finance the project as above and decision in this regard has been taken by Chief Secretary, Punjab in the meeting referred to above. Following points need clarification : Amount has not been mentioned anywhere in the decision in order to workout the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e available with these Authorities, therefore the Council of Ministers decided that the Punjab Infrastructure Development Board (PIDB) will make available ₹ 160 crores to these authorities so that the expenditure at the rates approved by the Council of Ministers could be incurred on the acquisition of land. (sic) In view of the above decision following proposal was again put up before the Chief Administrator, PUDA : Since the funds of PUDA are lying in fixed deposits with different banks, premature encashment of the same may result in loss of interest. It is therefore, proposed that ₹ 225 crores being PUDA's 75 per cent. share of ₹ 300 crore for acquisition of land for Mohali International Airport may be paid to the Government by raising short-term loan from banks against the fixed deposit receipt's which shall be repaid on maturity of FDRs of otherwise and senior accounts officer, PUDA, may be authorised to sign the loan documents with banks. Ex-post facto approval of the authority will be taken in the next meeting. (sic) The chief administrator had put up following note to the Secretary Housing and Urban Development for approva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3 of the proposal regarding participation of the PUDA. Question was raised whether it will be in the form of Government to the GMADA or it will be a contribution under OUVGL scheme or it will be PUDA's own share to the project. Thus it is clear that nowhere it is being proposed or discussed that the contribution will be beneficial to the PUDA rather the proposal was that it may be treated as loan by PUDA to the Government of Punjab or it will be utilisation of funds under OUVGL. Thus it is very clear that the theory of benefit to the assessee in the form of appreciation in the value of land has been taken only during the assessment proceedings whereas at the time of decision making no such discussion or deliberations were made. When all the doubts were put up before the Chief Secretary wherein it was reiterated that the payment was being made for compensation of acquisition of land for setting up of the Internationals Airport at Mohali and the decision has been taken that such expenditure should be incurred by PUDA, GMADA and GLADA. It seems that total expenditure was more than ₹ 300 crores which was not available with PUDA, GMADA and GLADA, therefore, further instructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the persons whose land was to be acquired. Under the provisions of the Land Acquisition Act, the payment to the persons, whose land is acquired, has to be made within the stipulated period. Now the position was that Government wanted to establish international airport and it had entered into an agreement with the Airport Authority of India, but it had no funds to pay the for acquisition of land. Therefore, the Government had to find some source from where the acquisition could be funded. The Government realised that some organisations under its control had surplus funds available and these organisations could be asked to provide the necessary funds for acquisition of land. In fact, as is clear from the noting of the files of the PUDA, the officers of PUDA were against bearing the financial burden, which the Government had imposed on it. The selection of the organisa tions was purely on the basis of the availability of surplus funds, which is clear from the fact that one of the organisations required to contribute was Greater Ludhiana Area Development Authority (GLADA), which by no stretch of the imagination could be consid ered as having anything to do with the airport at Mohali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enormous profits to the authority. The above clearly shows that no specific instances have been given regarding value of land before making this contribution and after this contribution. Therefore, the learned Commissioner of Income-tax (Appeals) has correctly held that these are general statements and cannot lead to the conclusion that the assessee has derived any benefit from the said contribution to the airport. 192. Before us, learned counsel of the assessee has filed certain evidences by way of examples to show that the properties in and around Mohali had appreciated after this contribution. Strictly speaking this evidence cannot be admitted at this stage because no reason have been given for not filing these documents before the lower authorities. However, we have still perused the same and find that these documents do not prove that the rates have really increased in the absence of details. For example auction rates of various properties given at paragraph 1 of the additional paper book reads as under : Auction rates of various properties in Punjab Rates per sq yds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Punjab Regional and Town Planning and Development Act, 1995 and further under section 49 the Government can issue directions to the authority for making any expenses and therefore, the assessee was duty bound to incur such expenses as directed by the Government. Relevant portion of sections 28, 29 and 49 of Punjab Regional and Town Planning and Development Act, 1995 are reproduced hereunder : 28(1). The object of the Authority shall be to promote and secure better planning and development of any area of the State and for that purpose the authority shall have the powers to acquire by way of purchase, transfer, exchange or gift or to hold, manage, plan, develop and mortgage or otherwise dispose of land or other property or to carry out itself or in collaboration with any other agency on its behalf, building, engineering, mining and other operations to execute works in connection with supply of water, disposal of sewerage, control of pollution and other services and amenities and generally to do anything with the prior approval or on direction of the State Government, for carrying out the purposes of this Act. In particular and without prejudice to the gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the authority. The objects are generally development of land and other services. Section 29 clearly provides that for development of such adjacent area where it is considered necessary separate authorities may be constituted therefore, there is force in the contention of the learned Departmental representative for the Revenue that PUDA had nothing to do with the development of this airport because as per Notification No. 13/ 52/2006-07 HG2/7443 dated August 14, 2006, GMADA was notified for the development of Greater Mohali area. Further reading of section 49 shows that various authorities were authorised to incur expenditure for such other purposes which were directed or permitted by the State Government. In our opinion, such other purposes, first of all have to be related to general purpose of the authority, i.e., development of land. For example State Government perhaps cannot direct the assessee authority to start providing subsidies in food items. Secondly, even if same expenditure is incurred because of statutory compulsions, it is not necessary that same would become allowable business expenditure for the purpose of section 37 of the Act because for allowability the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of the business'. The payments had nothing to do with the conduct of its business. The fact that on its default, if any, in the payment of the dues, the Revenue might realise the amounts from the business assets was a consequence of the default of the company in not discharging its statutory obligation, but that did not make the expenditure any the more expenditure incurred in the conduct of the business. The obligation of the company to pay estate duty under section 84 of the Estate Duty Act, 1953, was a statutory duty unconnected with the business, though the occasion for the imposition arose because of the territorial nexus afforded by the accident of its doing business in India. The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide ; it may take in not only the day to day running of a business but also the rationalisation of its administration and modernisation of its machinery ; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile tit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be capitalised and shall count towards the equity contribution of GMADA and HUDA. The AAI would be responsible for creating the terminal building and other airside facilities for the JVC without seeking any cash consideration form other joint venture partners which would be subsequently capitalised at a value to be determined by the AAI at the time of transfer and shall count towards the equity contribution of the AAI ; and The cost of land would be counted towards the 49 per cent. equity contribution of GMADA and HUDA and the cost of International Civil Air Terminal and other aeronautical assets to be built by AAI will be counted towards the 51 per cent. equity contribution of AAI as per the provisions in the shareholders agreement to be executed by the joint venture parties and the joint venture company. As per recitation clause it is further agreed that same (JVC) is for the following purposes : to form a joint venture company which will undertake the operation and maintenance of Chandigarh International Airport to be built by AAI at Chandigarh ; to subsequently take over the existing infrastructure belonging to AAI at the civil encla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as high tension/low tension power lines, canal, gas pipeline, structures, buildings, chimneys, trees, etc. at their cost. In clause 3.1 it has been specifically noted that JVC will be incorporated as a private limited company. Clause 3.2 deals with shareholders agreement which is as under : Shareholders' agreement A shareholders' agreement will be executed by and between AAI, GMADA, HUDA and the JVC, after the joint venture company is incorporated. Till such time the shareholders' agreement is executed and articles of association is approved by the parties, it is agreed by the parties that the regulations contained in table A in Schedule I to the Indian Companies Act, 1956, may be applied to the proposed JVC. In the event of any inconsistency between the provisions of this agreement and the memorandum of association or articles of associa tion, the parties shall take all steps to alter or amend the memorandum of association and articles of association to make it consistent with the terms of this agreement. Clauses 4.2 and 4.3 deals with share capital which is as under : 4.2 Initial subscribed/paid up capital At the time of incorporation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mains that the contribution was made only in terms of land for which the Government of Punjab through GMADA would acquire shares to the tune of 24.5 per cent. This is clear because of capital contribution for starting a new business venture of running airport. It has further to be noted that name of PUDA does not appear in the joint venture agreement despite PUDA making the biggest chunk of the contribution, i.e., ₹ 225 crores out of ₹ 300 crores of total contribution. When the money has been spent only for acquisition of land that is for ultimately purchasing of land for the proposed airport, this cannot be called a revenue expenditure. It is clearly a case of capital expenditure which is not allowable under section 37 because it clearly provides that expenditure in the nature of capital is not allowable for the purpose of computing profits and gains of business or profession . In view of the above clauses, we hold that this expenditure, i.e., the contribution made by PUDA is not for the business purposes and it is in the form of capital contribution and in the nature of capital expenditure and therefore, same is not allowable under section 37. We fail to understand w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfrastructural facilities by the village and construction of a new market to organise self-help groups which would promote the business of the assessee. The assessee was lending money to the self-help groups and therefore, the purpose was directly related to the business of the assessee. In any case this decision is not applicable to the facts of the assessee's case. In case before us, the assessee has made contribution for promoting of airport in which Government of Punjab through GMADA has acquired staking of 24.5 per cent. which is clearly in the nature of capital contribution of new venture. 202. The next case relied on is in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT [1997] 223 ITR 101 (SC). In that case the assessee was carrying on the business of exporting rice from the State of Andhra Pradesh. The rice could not be exported without the assessee's obtaining a permit from the District Collector. The permits were given only if a payment was made to welfare fund which has been established. This payment was disallowed by the Income-tax Officer by observing that the said amount was neither mandatory nor statutory but was only discretionary a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es concerned, when made to a Chief Minis ter's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee's business, cannot be regarded as payment opposed to public policy. The mere fact that making of a donation for a charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under section 37(1) of the Act when such payment had been made for the purpose of the assessee's business. Thus it is clear that a small contribution of 0.50 paise per quintal was being contributed towards welfare fund which was established by the Rice Millers Association in consultation with the District Collector for general development of State which was held to be directly connected to the business of the assessee. This is so because the scheme was framed by the Rice Miller's Association and involved small contribution. In case before us, the contribution is made for development of the Airport through joint venture agreement between AAI and State Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot confined to the assessee but was open to all who wanted to participate could not alter the char acter of expenses incurred by way of contribution to such fund by the assessee from his benefit to others benefit. None of the objects of the fund could be said to be unrelated to the business activities of the assessee or without any nexus to the interest of the assessee's business. Thus, the Tribunal had rightly reached the conclusion that contribution to the export promotion fund was made by the assessee in its business expediency for promoting its business interest by augmenting exports. Such expenses were incurred and laid out wholly and exclusively for the purpose of the assessee's business, and were hence allowable as deduction under section 37(1) of the Act. Thus it is clear that the funds were directly related to the business of the assessee. Few mills which were exporting have made contribution of funds and that contribution was shared among various participating companies on the basis of actual export. The Tribunal found that in order to augment its own export sales and give competitive edge to its marketing the assessee- company has contributed to the fund in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts in the case before us. 207. The next decision relied on is in the case of CIT v. Cheran Transport Corporation Ltd. and the issue which has been cited before us is regarding disallowance of a sum of ₹ 5 lakhs contribution by the assessee to the Cheran Welfare Trust. The hon'ble High Court has decided this issue on the basis of the earlier decision which is reported in the case of Cheran Engineering Corporation Ltd. v. CIT [1999] 238 ITR 892 (Mad). In that decision it was held that once it was labour welfare expenditure, it was allowable. We may note that this decision was rendered for the assessment year 1978-79 when section 40A(9) was not there which mandates that no expenditure contributed towards any fund for the benefit of the employee except for certain funds provided in the provisions, will be allowable under section 40A(9) which has been inserted by the Finance Act, 1984, with effect from April 1, 1980. Therefore, this provision was not applicable and since the expenditure was strictly related to the welfare of the labour and it was held to be allowable. The facts are totally distinguishable. 208. The next decision relied on was in the case of CIT v. Ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf allowed the Corporation to earn extra money which was mandated to be utilised for infrastructure in Delhi but in the case before us no such benefit has been given by the State Government to the assessee which was specifically earmarked for the purpose of making contribution towards development of the airport. 210. Second question is not relevant for the purpose of case before us and therefore, we are not dealing with the same. 211. Therefore, it is clear that all the case law relied on by the assessee are totally distinguished and we find that none of these case law help the case of the assessee. 212. Now, we come to the cases cited on behalf of the Revenue. 213. First decision relied on behalf of the Revenue is in the case of Oil Industry Development Board v. Asst. CIT [2009] 318 ITR (AT) 327 (Delhi). In this case the assessee is a public sector undertaking. The assessee disbursed certain grants to different entities of the State. The question arose whether such expenditure was in the nature of grants and royalty and deductible under section 37(1). In this case it was also contended that since the grants of royalty was one of the objects of the undertaking and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the profit of the business, but they must also be for the purpose of earning profits of the business. (paragraph 22) It has to be remembered that the words 'wholly and exclusively' both refer to the expenses incurred by the assessee for the purpose of his business. While determining as to whether the deduction claimed has been wholly and exclusively spent on such business, it is permissible to find out whether the amount has really gone for the purpose of business or not. (paragraph 23) The word 'business' used in section 37(1) connotes some real, substantial and systematic or organized course of activity or conduct with a set purpose which is carried on with the end in view of making or earning profit. Thus, in order to be deductible under section 37(1), the expenditure must be incurred for the purpose of the business which was in existence in the accounting year and the profits of which are under assessment. (paragraph 24) In view of the above discussion, the grants by the assessee even though they were in accordance with the objects stated in the Oil Industry (Development) Act, 1974 and they were made or disbursed as per directions of the Central Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in the case of Andhra Pradesh Housing Board v. Deputy CIT in I. T. A. No. 717/H/12 and others. This case, in our opinion, is identical as that of the assessee. The assessee board was constituted under the Andhra Pradesh Housing Board Act, 1956, and was engaged in the business of purchase and sale of land and construction of houses . During the year the assessee had made a contribution of ₹ 1,180 crores under the directions of the Andhra Pradesh Government towards a scheme known as Rajiv Greha Kalpa for providing houses to the urban poor. Beneficiaries were to provide 10 per cent. of cost of house and balance was to be financed by banks as contribution for expenditure in providing infrastructure facilities like drainage, water supply, internal roads, power supply, etc. The expenditure was not allowed by the Assessing Officer. In this case also learned counsel of the assessee contented that the expenditure was incurred because it was to meet one of the objects of the Andhra Pradesh Housing Board Act, 1956, as well as the expenditure was incurred on the direction of the State Government. The Tribunal considered the issue in detail and ultimately held that this expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the case of Government Corporations is allowable if the same are established under some enactment of the Central or State. However, at the same time under this provision, the capital expenditure is not allowable. Since we have already observed that the expenditure is of capital nature, therefore, the same is not allowable under this section. In view of the above discussion it becomes absolutely clear that firstly the expenditure has not been incurred for the purpose of business. In any case the expenditure is in the nature of capital expenditure and therefore, the same is not allowable. 218. The assessee has raised one additional ground in this appeal. Learned counsel of the assessee submitted that originally addition of ₹ 107.20 crores was made by the Assessing Officer on account of instalments received pending allotment. The issue was raised before the learned Commissioner of Income-tax (Appeals) vide ground No. 3. However, in the meantime the assessee had also moved an application under section 154 and vide order passed on March 23, 2001, under section 154, the contention of the assessee was accepted and addition was reduced to ₹ 46,15,584. It was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax (Appeals) against addition of the facts and circumstances of the case. 3. That detailed submissions made during the course of hearing before the Assessing Officer and also before the Commissioner of Income-tax (Appeals) has not been considered properly. 4. That learned Commissioner of Income-tax (Appeals) has erred in not considering that M/s. GLADA is development authority constituted under the Punjab Regional and Town Planning and Development Act, 1995, which has to act as per guidelines and directions of the Punjab Government. As such, confirming of disallowance of ₹ 60 crores by the learned Commissioner of Income-tax (Appeals) on account of contribution for construction of International Airport at Mohali is not justified. 5. That the learned Commissioner of Income-tax (Appeals) has failed to appreciate properly the objects of GLADA which provides for incurring of expenditure for development of the state of Punjab as per direction of the Punjab Government and the above expenditure had been incurred for promotion of infrastructure for the development of area which is the main objects of the GLADA. 6. That the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arguments made by Shri Ashwani Kumar, learned counsel of the assessee in the case of PUDA for the assessment year 2008-09 in I. T. A. No. 390/Chd/ 2012 wherein identical issue of contribution of ₹ 225 crores was involved. He also filed written submissions in which identical arguments have been made and particularly a reference has been made to sections 28, 29 and 49 of Punjab Regional and Town Planning and Development Act, 1995. It was also submitted that Ludhiana was famous for hosiery, textile, bicycle, auto industry, motor cycle industries, etc. which attracts international customers. Development of international airport at Mohali would make it convenient to go to Ludhiana and trade and industry would further prosper once International Airport at Mohali was established. It was further contended that the Assessing Officer has observed that there was a small airport in Ludhiana, therefore, no benefit would come by development of international airport at Mohali because the assessee could have made contribution to Ludhiana airport which is not feasible because development of the airport at a particular place is decided by the Central Government. Various case law have also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s factory. This expenditure was allowed by the hon'ble Madras High Court. The decision is very clear that when the expenditure is directly linked to the business of the assessee, the same has to be allowed. As we have already observed by deciding this issue in the case of PUDA that contribution for development of Mohali Airport has no direct connection with the business of the assessee, therefore, this decision is of no assistance to the assessee. 233. The second decision relied on is in the case of CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971] 82 ITR 166 (SC). In this case the dispute arose whether the expenditure incurred for engaging an eminent lawyer for assessee-company before the investigation commission was allowable as general expenses or not. Clearly the lawyer has been engaged for defending the assessee and therefore, it was decided that this was allowable as general expenses. We fail to understand how this proposition is of any help to the assessee. 234. The third decision relied on is the case of CIT v. Madras Refineries Ltd. [2004] 266 ITR 170 (Mad). In this case the assessee-company incurred an expenditure for providing drinking water facilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been decided by us for the assessment year 2008-09 in I. T. A. No. 390/Chd/2012 and following the same we decide this issue against the assessee. 235. In the result, I. T. A. No. 1220/Chd/2011 filed by the assessee is dismissed. 236. In the result, the appeals are disposed of as under : S. No. I. T. A. No. Appeal by 1. 762/Chd/2007 Revenue Partly allowed 2 759/Chd/2008 Assessee Partly allowed 3 765/Chd/2008 Revenue Allowed for statistical purposes 4 760/Chd/2008 Assessee Partly allowed 5 769/Chd/2008 Revenue Partly allowed 6 744/Chd/2009 Revenue Partly allowed 7 745/Chd/2009 Assessee Partly allowed 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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