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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 ..... nsequent 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 Rs. 2,16,00,123/- out of the disallowance of Rs. 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 Contingency and Equalization Reserve (in short CER) of Rs. 5,27,66,150/- and addition of undisclosed profit from auctioned property of Rs. 3,21,15,960/- thereby, computing the total income of Rs. 9,56,79,740/-. Aggrieved by this order, assessee preferred an appeal before ld. CIT (A), who after considering the submissions partly allowed the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 facts necessary for his assessment, for that assessment year. This is a jurisdictional requirement which must be fulfilled where an assessment is sought to be reopened beyond a period of four years. The existence of the jurisdictional condition must be indicated in the reasons which are furnished to the assessee. The fulfillment of the condition is a pre-requisite and if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11/- 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 Rs. 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 freezing of cost of property which may be necessitated in some cases, awards to be paid as result of litigation etc in property disposal, to compensate loses on account of sick contracts, if required. Thus this CER is not ascertained liability. It is contingent liability which I not allowable. Thus apparently income to the extent of Rs. 52766150/- has escaped assessment. This escapement was on account of failure of the assessee to disclose the accounts in proper Income from auction of plots- Besides this it is also seen that the assessee does not show profit from auction of plots. It is seen that substantial part of sale is from auction of properties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 assessment. Therefore, respectfully following the judgment of the Hon'ble Bombay High Court rendered in the case of Dynacraft Air Controls vs. Sneha Joshi & Others, 355 ITR 102 (Bom.), we hereby quash the assessment being invalid. This ground of the assessee is allowed. 7. Ground No. 2 relates to confirming disallowance of Rs. 2,16,00,123/- out of disallowance of Rs. 5,27,66,150/- made by the AO. 7.1. This ground is not survived as the AO has already assessed the income at Nil. This ground is rejected as infructuous. 8. Ground Nos. 3 and 4 are general in nature and needs no adjudication. 9. The appeal of the assessee is partly allowed. ITA No. 902/JP/2014 (Revenue's appeal ): 10. This is revenue's appeal for the same assessment year 2005-06. As we have quashed the assessment in assessee's appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 disclose fully and truly all material facts necessary for assessment for that assessment year. In the present case, the assessee in the course of original assessment filed the Balance Sheet and the Revenue account (PB 67-69). In course of these proceedings, assessee furnished the works account in which sale value of auction of plots and the contingency charged to work is separately mentioned (PB 65-66). The contingency equalization and reserve fund is also appearing in the Balance Sheet (PB 67) where the opening balance in such fund, addition during the year, utilization from the same and the closing balance of the fund is reflected. The AO after considering the same has completed the assessment without drawing any adverse inference. In the reasons recorded, for issue of notice u/s 148, it is nowhere mentioned that these facts were not disclosed to the AO. Rather, the AO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 and 12 shall apply in respect of any income derived from the property held under trust for which assessment proceedings are pending before the AO on the date of such registration. Hon'ble ITAT, Jaipur Bench, Jaipur in case of Shyam Mandir Committee Vs. ACIT order dated 02.06.2016 reported at 138 DTR 367 has held that this proviso has retrospective application as it is inserted to remove the hardship of charitable trust/institutions and therefore assessee is entitled to benefit of section 11 and 12 for A.Y. 07-08 on account of the fact that assessment proceedings were pending though the Tribunal has granted registration w.e.f. 01.04.2008. Hon'ble Rajasthan High Court in case of CIT Vs. Jodhpur Development Authority 139 DTR 1 has also held that such authority are entitled to registration u/s 12A r.w.s. 12AA as they fall within the expression "advancement of any other object of general public utility". Therefore, once the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Act, 1961 despite it being registered u/s 12AA by the CIT and therefore it is not entitled for benefit of exemption u/s 11. (iii) Not appreciating the fact that even if the assessee was registered u/ 12AA by the CIT in pursuance of order of Hon'ble ITAT dated 31.03.2009 & 04.05.2012, the AO could deny to allow benefit of section 11 to the assessee in view of newly inserted proviso to section 2(15) and the AO did not allow benefit of section 11 observing that the assessee is hit by the proviso to section 2(15). (iv) Deleting the disallowance of Contingencies and Equalization Reserve amounting to Rs. 26,99,65,069/- made by the AO. (v) Deleting the disallowance of depreciation of Rs. 1,73,53,269/- by the AO. (vi) Deleting the addition of undisclosed profit from auctioned property amounting to Rs. 15,24,58,828/- made by the AO. (vii) Deleting the disallowance of expenses on Haj Yatris amounting to Rs. 4,08,483/-. 20. Briefly stated the facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see 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 is framing various housing accommodation schemes related to schedule castes, schedule tribes and other economically backward classes. These schemes are subsidized and in the entire activity there is no profit motive involved. The AO merely on the basis that the assessee is auctioning some of its plots, therefore, held that the assessee is engaged in the activity of trade and commerce. He submitted that such basis is fallacious as the AO ought to have appreciated the entire activities being undertaken by the assessee. He submitted that under the identical facts, the Hon'ble Jurisdictional High Court in the case of CIT vs. Jodhpur Development Authority, 139 DTR 1 (Raj.) has held that the authority is carrying out charitable activities. He further placed reliance on the decision of Coordinate Bench in the case of Hoshiarpur Improvement Trust & Others vs. ITO in ITA No. 200/Asr/2010. Therefore, he supported the order of ld. CIT (A). 23.2. We have heard rival contention, perused the material availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (approx) taken by the appellant and Deposits made by the persons interested in buying houses of Rs. 360 crores odd and alo income of Rs. 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 Rs. 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." Since we have affirmed the view of the ld. CIT (A) regarding entitlement of exemption u/s 11, the ld. CIT (A) has given a finding of fact in respect of application of income by the Board. Therefore, we do not see any reason to interfere in the order of ld. CIT (A), which is hereby confirmed. The ground of the revenue is rejected. 25. Ground No. (v) is against deleting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Punjab & Haryana High Court in the case of Tiny Tots Education Society (supra). Therefore, we do not see any reason to interfere in the order of ld. CIT (A), the same is hereby upheld. 26. Ground No. (vi) is against deleting the addition of undisclosed profit from auctioned property amounting to Rs. 15,24,58,828/-. The ld. D/R supported the order of AO and submitted that the ld. CIT (A) was not justified in deleting the disallowance. 26.1. On the contrary, the ld. Counsel for the assessee submitted that the AO has made the 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. 26.2. We have heard rival contentions and perused the material available on record. We find that the ld. CIT (A) has given a finding of fact that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that the case of the assessee is covered by the first proviso to section 2(15). 3. 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 Rs. 7,22,21,715/- out of the disallowance of Rs. 24,36,53,857/- made by the AO. 4. The assessee craves right to add, alter or amend any of the grounds of the appeal. 5. The appropriate cost be awarded to the assessee. 29. Ground no. 1 is against reopening of the assessment. 29.1. The ld. Counsel for the assessee reiterated the submissions as made in the written submissions. The contention of the assessee as made in the written submissions are reproduced herein below :- 1. "It is submitted that assessee filed the return declaring Nil income on 01.10.2010. There is no assessment made u/s 143(3). The notice u/s 148 was issued on 08.02.2013, i.e. before the expiry of 4 years from the end of the relevant AY. As per section 151 as applicable prior to its amendment w.e.f 01.06.15, in a case where assessment is not made u/s 143(3)/147 i.e., where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment which is against the principle laid by the Supreme Court in case of GKN Driveshafts (India) Ltd. Vs. ITO & Ors. 259 ITR 0019. Therefore, for this reason also, the reopening is bad in law. It is also submitted that Hon'ble ITAT vide its order dt. 31.03.2009 (PB 95-102) directed the Ld. CIT to grant registration to the assessee u/s 12AA. Thereafter, the Ld. CIT vide order dated 29.05.09 (PB 103) has granted registration to the assessee u/s 12AA of the Act w.e.f. 27.03.08. Thereafter, because of insertion of proviso to sec. 2(15) w.e.f. 01.04.2009, the registration granted to the assessee was withdrawn from AY 2009-10 but the Hon'ble ITAT vide order dt. 04.05.2012 (PB 104-109) set aside the order of Ld. CIT and restored the registration already granted u/s 12AA of the Act. All these orders were with AO before he initiated the proceedings u/s 148. Therefore, the reasons given by him for reopening the assessment that activities of the assessee are in nature of trade, commerce or business and therefore provision of section 2(15) is not applicable on it is bad in law. It may be noted that Hon'ble Rajasthan High Court in case of CIT Vs. Jodhpur Development Authority 139 DTR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch has considered various judgments and came to the conclusion that as long as broader public cause is served, whether by the State funding or by efficient regulation of the affairs, it is an object of general public utility. Authorities below 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). The year under appeal is 2009-10, therefore, respectfully following the decision of the Coordinate Bench in the case of Hoshiarpur Improvement Trust & Others vs. ITO in ITA No. 200/Asr/2010, we do not see any reason to interfere in the order of ld. CIT (A). Ground Nos. (ii) and (iii) are rejected." In the light of above facts, the grounds of the assessee are allowed. 31. Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... large. For this purpose it works out the cost of housing project by adding to the cost of land, the cost of development, the cost of construction, other direct cost, interest cost, tools & plants charges, administrative charges and CER. The CER is added for working out the cost of the houses for different income groups as per the principal of costing approved by its Costing & Finance Committee as under:- Income Group Rate of CER upto 2010 Rate of CER after 2010 (PB 74) (PB 88) EWS NIL Nil LIG 5% 2% MIG - I 7% 7% MIG - II 8% 7% HIG 9% 8% Commercial 10% 10% 1. The purpose for charging CER to the cost of the work is to cover the following exigencies in execution of the work:- i) To compensate various losses on account of unforeseen circumstances; ii) For losses on account of freezing of cost of property which may be necessitated in some cases; iii) To compensate for concessions given to EWS and LIG Houses; iv) For development of Park, construction of Govt. primary schools, dispensaries and community centres, etc.; v) Awards to be paid as a result of litigation, etc. in property disposal; vi) Maintenance and upkeep of colonies after h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld ARs that source of application of Rs. 232 crores are capital loans of Rs. 27 crores (approx) taken by the appellant and deposits made by the persons interested in buying houses of Rs. 360 crores odd and also income of Rs. 98 crores odd shown in the return. The appellant has been held as charitable organization following Hon'ble ITAT Jaipur Bench order dt. 04.05.2012 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 Rs. 26,99,65,069/- especially 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 view of above, the disallowance confirmed by the CIT(A) be deleted and the ground of the department be dismissed. 32.2. On the contrary, the ld. D/R supported the order of the authorities below. 32.3. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. We have decided this issue in the revenue's appeal in ITA No. 21/JP/2013 in favour of the assessee by taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the existing CER provision account. 2.(i) deleting the addition made on account of disallowance of depreciation of Rs. 2,44,51,074/-. (ii) ignoring the fact that the depreciation claimed needs to be examined in two parts (a) depreciation on assets purchased in current year (b) depreciation on assets purchased in earlier years when the assessee was enjoying benefit u/s 11 & 12. (iii) ignoring the fact that in the year of benefit u/s 11 & 12 the cost of assets have been allowed as application and therefore any further deduction will amount to double deduction. 3. deleting the addition made on account of undisclosed Profit from auctioned property Rs. 7,66,87,588/-. 34. As regards Ground nos. 1(i) to (iii) of the revenue's appeal, we have already decided identical issue, in the assessee's appeal herein above by setting aside the order of the ld. CIT (A) thereby deleting the disallowance. As no change into facts and circumstances is pointed out by the Revenue, therefore, in conformity with the decision taken in the assessee's appeal in ITA No. 864/JP/2014, we dismiss the grounds of the revenue. 35. As regards Ground Nos. 2(i) to (iii) and Ground No. 3 of the revenue's appeal, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 39. Ground No. 2 relates to confirming the disallowance of Rs. 15,76,30,855/- on account of Contingency and Equalization Reserve. We have decided this issue in the revenue's appeal in ITA No. 21/JP/2013 in favour of the assessee by taking into consideration 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 deleting the disallowance. This ground of the assessee is allowed. 40. Ground No. 3 relates to confirming the disallowance of Haz Yatri expense claimed at Rs. 5,24,970/-. We have decided the identical issue in the revenue's appeal in ITA No. 21/JP/2013 by observing as under :- 27.2. We have heard rival contentions and perused the material available on record. We find that the ld. CIT (A) has accepted the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by setting aside the order of the ld. CIT (A) thereby deleting the disallowance. In conformity with the decision taken in the assessee's appeal, we dismiss the grounds of the revenue. 44. As regards Ground Nos. 2(i) to (iii) and Ground No. 3 of the revenue's appeal, we have already decided the identical issues in the Revenue's appeal in ITA No. 21/JP/2013 above by rejecting the grounds of the revenue. We, therefore, find no merit in the grounds raised the revenue. Accordingly, the same are dismissed. 45. In the result, appeal of the revenue is dismissed. ITA NO. 866/JP/2014 (Assesee) ITA NO. 906/JP/2014 (Revenue) 46. These two cross appeals ITA No. 866/JP/2014 and ITA No. 906/JP/2014 by the assessee and revenue respectively arise against the order of ld. CIT (A)-II, Jaipur dated 21.10.2014 pertaining to assessment year 2012-13. First we take up assessee's appeal in ITA No. 866/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 the case of the assessee is covered by the first proviso to section 2(15) of the I.T. Act and therefore its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of Contingencies and Equalization Reserve (CER) fund to Rs. 15,03,12,173/- in place of Rs. 27,06,31,918/-. (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 Rs. 1,98,20,335/-. (ii) ignoring the fact that the depreciation claimed needs to be examined in two parts (a) depreciation on assets purchased in current year (b) depreciation on assets purchased in earlier years when the assessee was enjoying benefit u/s 11 & 12. (iii) ignoring the fact that in the year of benefit u/s 11 & 12 the cost of assets have been allowed as application and therefore any further deduction will amount to double deduction. 3. deleting the addition made on account of undisclosed Profit from auctioned property Rs. 33,16,88,919/-. 51. As regards Ground nos. 1(i) to (iii) of the revenue's appeal, we have already decided identica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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