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TMI Blog2017 (1) TMI 1146X X X X Extracts X X X X X X X X Extracts X X X X ..... were not justified in declining the benefit of section 11 read with section 2(15) to the assessee, and in holding that the assessee trust was not covered by advancement of any object of general public utility. The Coordinate Bench has held that even if the activities in the nature of trade, commerce or business etc. are undertaken in the course of actual carrying out of advancement of any object of general public utility, till the end of the previous year relevant to the assessment year 2016-17, the activities will continue to be covered by the scope of Section 2(15). Addition on the basis of conjectures and surmises without any basis and the profit is estimated @ 30% on sale price which as per the AO was not accounted for in the P&L account - Held that:- Addition has been made at 30% without any basis with the presumption that the profit of 30% should have been earned on auction of commercial properties by the Board. This finding of fact is not controverted by the revenue by placing any contrary material on record. Therefore, we do not see any reason to interfere in the order of ld. CIT (A), which is hereby confirmed. Disallowance of expenses on Haj Yatris - Held that:- We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls pertaining to A.Y. 2005-06 in ITA No. 862 902/JP/2014. ITA No. 862/JP/2014 (Assessee s Appeal) : 3. The assessee has raised the following grounds of appeal :- 1. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the action of the AO in holding that notice u/s 148 and consequent order passed u/s 147/143(3) is in accordance with the provisions of the Act . 2. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in holding that the contingency and equalization reserve is in the nature of provision made on estimate and not an ascertained liability and accordingly confirming disallowance of ₹ 2,16,00,123/- out of the disallowance of ₹ 5,27,66,150/- made by the AO. 3. The assessee craves right to add, alter or amend any of the grounds of the appeal. 4. The appropriate cost be awarded to the assessee. 4. Briefly stated the facts of the case are that the assessment under section 147 read with section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act) was framed vide order dated 28th March, 2013. While framing the assessment, the AO made disallowance of claim of Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all material facts. It is not disputed by the revenue that Balance Sheets and the Revenue account were before the AO during the original assessment as well. Therefore, it cannot be inferred that the assessee has failed to disclose all material facts which were necessary for assessment. The ld. Counsel has relied upon the judgments of Hon ble Bombay High Court rendered in the case of CIT vs. Reliance Energy Ltd. 81 DTR 130 (Bom.) and also in the case of Dynacraft Air Controls vs. Sneha Joshi Others, 355 ITR 102 (Bom.). The Hon ble High Court in the case of Dynacraft Air Controls vs. Sneha Joshi Others (supra) has held that under section 147 of the Act, for the AO to reopen an assessment, he must have reason to believe that income chargeable to tax has escaped assessment for any assessment year. Under the proviso to section 147, where an assessment has been made under section 143(3), no action shall be taken under that section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng income from other activities is displayed as under Sale of property effected/accounted for ₹ 1017157933/- Factors loaded in cost Interest ₹ 89862655/- Maintenance and repairs of tools plant ₹ 4825430/- Administrative expenses ₹ 98005444/- Gross profit comprised in sales ₹ 192693529/- Net revenue surplus for the year ₹ 1863511/- Claim of Contingency Equalization Reserve (CER) However, it was found that the assessee has been claiming Contingency Equalization Reserve (CER) in works account. In this year also the assessee has debited ₹ 52766150/- as CER in works account. CER Fund is created by the assessee by charging certain percentage on development/construction of works properties as per costing principles of RHB. The liability so created is utilized to compensate for various loses on account of unforeseen circumstances, on account of freezi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ops ₹ 22440687/- Rs.10,70,53,203/- Since complete details are not available it would be reasonable to estimate that the assessee earned 30% on sale price in respect of auctioned property which is not accounted for in the P L account. Thus there was suppression of income to the extent of R. 3,21,15,960/-. This escapement was on account of assesee s failure to present account in transparent manner. The accounts submitted are prepared in convoluted manner and actual realization and costing involved are not reflected in normal style. In view of above, I have reason to believe that income to the extent of ₹ 8,48,82,110/- (Rs. 52766150/- + 3,21,15,960/-) has escaped assessment on account of failure on the part of the assessee to present its accounts in transparent manner. We find that the reasons are contrary to the records. The assessee has, during the course of original assessment furnished all its accounts, Balance Sheets and the Revenue account before the AO. Therefore, there is no material suggesting that the assessee has not disclosed the material facts fully and truly for his assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/- and addition of undisclosed profit from auctioned property of ₹ 2,75,35,863/- thereby computing the total income of ₹ 13,16,92,416/-. Aggrieved by this order, assessee preferred appeal before ld. CIT (A), who after considering the submissions partly allowed the appeal. While allowing the appeal, the ld. CIT (A) rejected the ground raised against reopening of the assessment and restricted the disallowance of CER to ₹ 93,73,063/- and deleted the addition made on account of profit on sale of property through auction. 13. Now the assessee as well as revenue are in appeal before us. 14. Ground No. 1 is against reopening of the assessment. 14.1 The ld. Counsel for the assessee reiterated the submissions as made in the written synopsis, which are reproduced as under :- It is submitted that the original assessment in this case was completed u/s 143(3). The assessment is reopened after the expiry of the four years. Hence the assessee s case falls in proviso to section 147 wherein the assessment can t be reopened unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issuance of notice u/s 148 (PB 36-66). However, the AO without disposing of those objections has proceeded to complete the assessment which is against the principle laid by the Supreme Court in case of GKN Driveshafts (India) Ltd. Vs. ITO Ors. 259 ITR 0019. Further, in the reasons recorded by the AO there is no reference of the auction sale but the AO in reassessment proceedings has considered that this is also another reason for which income has escaped assessment. The law does not provide any power to the AO to record the reason in the assessment order and thereafter to proceed to complete the assessment by considering such issue as income escaping assessment. It is also submitted that the Ld. CIT vide order dated 29.05.09 (PB 75) has granted registration to the assessee u/s 12AA of the Act w.e.f. 27.03.08. Both the order of ITAT and CIT was available with the AO before he initiated the proceedings u/s 148. It may also be noted that section 12A (PB 73-74) of the Act has been amended by Finance Act 2014 w.e.f. 01.10.2014 whereby a proviso is inserted to provide that where registration has been granted to the trust or institution u/s 12AA, then the provision of section 11 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 7,48,73,063/- made by the AO. 15.1. This ground is not survived as the AO has already assessed the income at Nil. This ground is rejected as infructuous. 16. Ground Nos. 3 and 4 are general in nature and needs no adjudication. 17. The appeal of the assessee is partly allowed. ITA No. 903/JP/2014 (Revenue s appeal) : 18. This is Revenue s appeal for the A.Y. 2006-07. As we have quashed the assessment in assessee s appeal in ITA No. 863/JP/2014, therefore, we dismiss this appeal of the revenue. Moreover, the AO subsequently, has assessed the income at Nil, in favour of the assessee. ITA No. 21/JP/2013 (Revenue s appeal) : 19. Now we take up Revenue s appeal in ITA No. 21/JP/2013 for the Assessment Year 2009-10. The revenue has raised the following grounds of appeal :- On the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in :- (ii) Allowing exemption u/s 11 of the I.T. Act, 1961 to the assessee without appreciating the fact that AO has given detailed reasons in the assessment order to establish that activities of the assessee are not charitable in view of amended provisions of section 2(15) of the I.T. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . D/R submitted that the ld. CIT (A) was not justified in granting the exemption. He submitted that the AO has given a finding of fact that the assessee is engaged in the activity of trade and commerce. The ld. D/R supported the order of the AO. The ld. D/R placed reliance on the judgment of the Hon ble Jammu and Kashmir High Court rendered in the case of Jammu Development Authority vs. Union of India and Another in ITA No. 164/2012 (CMA No. 2/2012). 23.1. On the contrary, ld. Counsel for the assesee vehemently argued that the AO was not justified in declining the exemption. The action of the AO is based on whims and fancies and contrary to the settled principle of law. He submitted that there is no dispute with regard to the fact that the activity of the assessee falls within the ambit of general public utility. He submitted that the AO has failed to appreciate the facts of the case in right perspective. He submitted that from the objectives of the assessee, it can be gathered that the assessee is engaged in the charitable activity. He submitted that housing is one of the important aspect of a man s life. The assessee is providing housing to the citizen of India. The assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) is against deleting the disallowance of Contingencies and Equalization Reserve amounting to ₹ 26,99,65,069/-. The ld. D/R supported the order of the AO. 24.1. On the contrary, the ld. Counsel for the assesee supported the order of ld. CIT (A). 24.2. We have heard rival contention, perused the material available on record and gone through the orders of the authorities below. The ld. CIT (A) has decided the issue in para 13 of his order as under :- After going through rival submissions it is seen that CER of ₹ 26,99,65,069/- is not debited in the P L account. The disallowance of the Reserve does not affect the appellant s eligibility of claiming exemption u/s 11. Section 11 states that 85% of the total income of the institution should be applied towards the objects for which it was created. As the application of income by the Board during the year of R. 232,59,28,849/- as specified in Form 10B Audit Report is much more than the total income of the appellant shown at ₹ 98,90,80,448/- in the statement of total income filed with the return. It was informed by the ld. ARs that source of application of R. 232 crores are Capital loans of R. 27 crores (appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Supreme Court in Escorts Ltd Anr. (supra) is distinguishable for the above reasons. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purpose of s. 11. The AO is directed to delete the disallowance of R. 1,73,53,269/- as depreciation is to be allowed on WDV of the accumulated assets. The AO is directed to delete the disallowance relying upon Hon ble Punjab Haryana High Court decision also, in the case of Tiny Tots Education Society (2011) 330 ITR 21 cited above where on the same issue Hon ble Court held : The income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. There is no double deduction claimed by the assessee as canvassed by the Revenue. 25.2. We have heard rival contentions and perused the material available on record. We find that ld. CIT (A) has deleted the disallowance by following the judgment of the Hon ble Punjab Haryana High Court in the case of Tiny Tots Education Society (supra). Therefore, we do not see any reason to interfere in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NO. 904/JP/2014 (Revenue) 28. Now we take up assessee s appeal in ITA No. 864/JP/2014 and revenue s appeal in ITA No. 904/JP/2014 pertaining to assessment year 2010-11. First we take up assessee s appeal in ITA No. 864/JP2014. The assessee has raised the following grounds of appeal :- 1. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the action of the AO in holding that notice u/s 148 and consequent order passed u/s 147/143(3) is in accordance with the provisions of the Act . 2. The ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the action of the AO in holding that the case of the assessee is covered by the first proviso to section 2(15) of the I.T. Act and therefore its object of advancement of general public utility shall not be a charitable purpose and accordingly holding that surplus of ₹ 30,71,09,491/- is not eligible for exemption u/s 11 12. 2.1.The ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in not distinguishing the various case laws relied by assessee in holding that the case of the assessee is covered by the first proviso to section 2(15). 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 2009-10, it was held that activities of the assessee are in the nature of trade, commerce or business and therefore provisions of section 2(15) are not applicable. It may be noted that assessment for AY 2011-12 was made on 18.03.2013. Therefore, how the AO could envisages that in AY 2011-12 the activity of the assessee has been held to be commercial while issuing notice u/s 148 on 08.02.2013. So far as AY 2009-10 is concerned, before the issue of notice u/s 148, the Ld. CIT(A) vide its order dt. 26.10.2012 (PB 110-128) has held that assessee is entitled to exemption u/s 11 12 and therefore stand of the AO in treating the assessee as not fulfilling charitable purpose is not at all justified. Thus, when before the issue of notice u/s 148, it is held by the Ld. CIT(A) that assessee is a charitable institution eligible for exemption u/s 11, the reopening of assessment is bad in law and the same be quashed. It is submitted that assessee has filed detailed letter dt. Nil to the AO objecting the issuance of notice u/s 148 (PB 37-54). However, the AO without disposing of those objections has proceeded to complete the assessment which is against the principle laid by the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow. The basis of reopening of the assessment was that the proviso 1 2 to section 2(15) of the Act were held to be applicable to the facts of the case. As per section 147 of the Act, the assessment can be reopened if the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. Therefore, the reason of the AO was based upon his belief that provisions of section 2(15) were applicable on the facts of the case. Therefore, in our considered view, the AO was justified in reopening the assessment. This ground of the assessee is dismissed. 30. Now coming to the merit of Ground nos. 2 and 2.1, the identical issue came up for hearing in the A.Y. 2009-10 in the revenue s appeal, wherein considering the submissions of the assessee, we have decided the issue as under :- 23.2. We have heard rival contention, perused the material available on record and gone through the orders of the authorities below. We find that the Coordinate Bench has dealt with the identical issue elaborately in the case of Hoshiarpur Improvement Trust Others vs. ITO in ITA No. 200/Asr/2010. The Coordinate Bench has considered various judgments and came to the conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nection is not found convincing. He, therefore, made addition of ₹ 24,36,53,857/- to the income of the assessee in A.Y. 10-11. The Ld. CIT(A) held that the CER is in the nature of provision which has been calculated on the basis of approximate rules of thumb by adopting certain percentages which have also varied over a period of time. The CER created in the preceding years has still not been utilized and there is a huge balance in this reserve of ₹ 122.81 crores, for the previous year ending 31.03.2010. This shows that this provision is an estimate and not an ascertained liability. The net amount in the CER of the years which is carried forward is ₹ 7,22,21,715/- which cannot be allowed as deduction since it has been made on an estimate basis, is not an ascertained liability and has not been incurred during the year. He, therefore, confirmed the addition of ₹ 7,22,21,715/- and deleted the balance amount. 32.1. The ld. Counsel for the assessee reiterated the submissions as made in the written brief. The submissions of the assessee are reproduced herein below :- The applicant is engaged in providing and satisfying the housing needs of the public at larg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court in the case of Calcutta Company Ltd. reported at 37 ITR 1 held that difficulty in estimation of value would not convert an accrued liability into a contingent one. In the present case incurring of expenditure is certain. Hence, amount debited under the head contingency to the works account cannot be added to the income. 3. We may further point out that the amount provided on account of contingencies to the works account is not claimed in the profit loss account. The amount provided on this account is carried forward as a part of closing WIP. Infact the entire work account is a part of Balance Sheet under the head properties in the asset side. Thus, when such amount is not claimed in the revenue account, there is no question of its disallowance. This fact is ignored by both the lower authorities even when it is specifically pointed out to them. 4. Similar disallowance made in A.Y. 2009-10 was deleted by CIT(A) vide order dated 26-10-2012 by giving the following findings:- After going through rival submissions it is seen that CER of ₹ 26,99,65,069 is not debited in the P L Account. The disallowance of the reserve does not affect the appellant s eligibility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn. It was informed by the ld. ARs that source of application of R. 232 crores are Capital loans of R. 27 crores (approx) taken by the appellant and Deposits made by the persons interested in buying houses of ₹ 360 crores odd and alo income of ₹ 98 crore odd shown in the return. The appellant has been held as a charitable organization following Hon ble ITAT Jaipur Bench order dated 4.5.2012 and its income to the extent of application as mentioned in section 11 is exempt from taxation u/s 11, therefore there is no justification for making the disallowance of ₹ 26,99,65,069/- specially when the Reserve has been informed created from the sale proceeds of houses and not appropriated from profit shown in the P L account called Revenue account as presumed by the AO. In the light of above facts, we set aside the order of ld. CIT (A) by deleting the disallowance. The ground of the assessee is allowed. 32.4. In the result, appeal of the assessee is partly allowed. 33. Now we take up the revenue s appeal in ITA No. 904/JP/2014. The revenue has raised the following grounds :- On the facts and in the circumstances of the case and in law the ld. CIT (Appeals) Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the following grounds of appeal :- 1. The ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the action of the AO in holding that the case of the assessee is covered by the first proviso to section 2(15) of the I.T. Act and therefore its object of advancement of general public utility shall not be a charitable purpose and accordingly holding that surplus of ₹ 46,83,15,889/- is not eligible for exemption u/s 11 12 of the Act. 1.1.The ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in not distinguishing the various case laws relied by assessee in holding that the case of the assessee is covered by the first proviso to section 2(15) of the Act. 2. The ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in holding that the contingency and equalization reserves is in the nature of provision made on estimate and not an ascertained liability and accordingly confirming disallowance of ₹ 15,76,30,855/- out of the disallowance of ₹ 28,07,03,370/- made by the AO. 3. The ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confir4ming the disallowance of Haz Yatri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied in confirming the disallowance. Therefore, we set aside the order of ld. CIT (A) in view of the benefit of section 11 allowed by us and thus the ground of the assessee is allowed. 41. In the result, appeal of the assessee is allowed. 42. Now we take up the revenue s appeal in ITA No. 905/JP/2014 pertaining to the assessment year 2011-12. The ground raised by the revenue are as under :- On the facts and in the circumstances of the case and in law the ld. CIT (Appeals) Jaipur-II Jaipur has erred in :- 1.(i) restricting the disallowance made on account of Contingencies and Equalization Reserve (CER) fund to ₹ 15,76,30,855/- in place of ₹ 28,07,03,370/-. (ii) ignoring the fact that the Opening Balance of Contingencies and Equalization Reserve (CER) fund was first to be utilized and then further claim can be allowed. (iii) ignoring the fact that the assessee has carried out an accounting mistake by not routing the current year credit debit of CER through the existing CER provision account. 2.(i) deleting the addition made on account of disallowance of depreciation of ₹ 2,18,54,879/-. (ii) ignoring the fact that the depreciation claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the contingency and equalization reserves is in the nature of provision made on estimate and not an ascertained liability and accordingly confirming disallowance of ₹ 15,03,12,173/- out of the disallowance of ₹ 27,06,31,918/- made by the AO. 47. Ground No. 1 and 1.1 relate to confirming the action of the AO by holding that surplus of ₹ 54,78,83,555/- is not eligible for exemption u/s 11 12 of the Act and also holding that the case of the assessee is covered by first proviso to section 2(15) of the Act. We have herein above in ITA No. 21/JP/2013 decided the identical issue came up for hearing in the A.Y. 2009-10 in the revenue s appeal, wherein considering the submissions of the assessee, we have decided the issue in favour of the assessee by upholding the order of ld. CIT (A). In the present appeal, the facts are same, therefore, following the decision taken in ITA No. 21/JP/2013, we set aside the order of ld. CIT (A) thereby allowing the grounds of the assessee. 48. Ground No. 2 relates to confirming the disallowance of ₹ 15,03,12,173/- on account of Contingency and Equalization Reserve. We have decided this issue in the revenue s appeal in IT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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