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TMI Blog2018 (4) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... make difference in case of assessee. In our considered opinion, Clause-3 will come in the help of the assessee. In that view of the matter, we are considered opinion, that the authority assessee is a local authority for the purpose of carrying out of the improvement and development function of the State. - Decided in favour of assessee. - D.B. Income Tax Appeal No. 643 / 2008, D.B. Income Tax Appeal No. 706 / 2008, D.B. Income Tax Appeal No. 294, 326 / 2009, D.B. Income Tax Appeal No. 73 , 357, 392/ 2011 - - - Dated:- 25-7-2017 - K. S. Jhaveri And Inderjeet Singh, JJ. For the Appellant : Mr. Sameer Jain with Ms. Mahi Yadav Mr. Daksh Pareek (respondent in appeal no. 294/09, 73/11 357/11) For the Respondent : Mr. Sanjay Jhanwar with Mr. Prakhul Khurana Ms. Archana (appellant in appeal no. 294/09, 73/11 357/11) JUDGMENT In all these appeals common questions of law and facts are involved, hence, they are decided by this common judgment. 1. By way of these appeals, the assessee as well as the department have assailed the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal preferred by the department reversing the view taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 18,31,68,938/- made in the value of closing stock was reduced arbitrarily to ₹ 10,87,50,513/-thereby granting a whopping relied ₹ 7,44,18,425/- without appreciating that the value of opening stock has to be taken as closing stock of preceding year? D.B. ITA No. 294/2009 Whether on the facts and circumstances of the case and in law, the Ld. ITAT was right in holding that the appellant is not a local authority as contemplated u/s 10(20) of the Income Tax Act, 1961 and therefore, it was not exempt from income tax? D.B. ITA No. 326/2009 (1) Whether on the facts and in the circumstances of the case, Hon ble ITAT was justified in ignoring the para 6 of the Accounting Standard-2 of ICAI for valuation of inventories to be inconsonance with section 145 of the Income Tax Act, 1961? (2) Whether on the law and facts of the case Hon ble ITAT was justified in deleting the disallowance of the depreciation ignoring the Explanation 6 of Section 43(6) of I.T. Act, 1961 inserted by the Finance Act, 2008 with retrospective effect from 1.4.2003? D.B. ITA No.357/2011 (1) Whether on the facts and circumstances of the case and in law, the Ld. ITAT w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that ultimately its fund has to be merged into local authority namely Municipal Corporation Board. 5. He has also pointed out in view of item 5 of State list which reads as under:- 5.Local government, that is to say, the constitution and powers of municipal corporations, improvement trusts, district boards, mining settlement authorities and other local authorities for the purpose of local self-government or village administration. 6. It clearly indicated that this authority will fall under explanation 3 and the benefit of local self government is to be granted. This is supported by Article 243 read with Schedule 1, Schedule 12 Item (1) of the Constitution which clearly establish that the urban planning including term plan is to be covered under the Chapter 243 and recently in view of amendment in Chapter 9. 7. He has also relied upon the decision of the Supreme Court in the case of Union of India Ors. vs. Shri R.C. Jain Ors. reported in AIR 1981 SC 951 wherein it has been held as under:- 3. Let us, therefore, concentrate and confine our attention and enquiry to the definition of 'Local Authority' in Section 3(31) of the General Clauses Act. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. However, counsel for the respondent-assessee Mr. Jhanwar contended that in view of the definition of the person under Section 231 Sub-clause (iv) read with explanation, it is clear that the present local authority is included. 10. He has also taken us to the provisions of Section 10(20A) and Section 10(20) which was made effective from different dates and contended that in view of this the intention of legislation was very clear and Article 289 which reads as under:- 289. Exemption of property and income of a State from Union taxation (1) The property and income of a State shall be exempt from Union taxation (2) Nothing in clause ( 1 ) shall prevent the Union from imposing, or authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith (3) Nothing in clause ( 2 ) shall apply to any trade or business, or to any class of trade or business, which Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er amount as per the Rule 6(2) of Rajasthan Improvement Trust (Disposal of Urban Land) Rules, 1974 as referred to above. He worked out the total value of opening stock at ₹ 432,98,69,111 and closing stock at ₹ 446,26,09,367/-. He accordingly made an addition of ₹ 18,31,68,398/- in the income of the appellant. 5.1 During the appellate proceedings the AR of the appellant objected to the aforesaid action of the AO and made the following submissions:- From the above it can be noted that the dispute is in respect of the following:- (i) Whether the AO has correctly calculated the closing stock even as per his method. (ii) Whether administrative, establishment and maintenance cost is to be included in the valuation of stock in trade. (iii) Whether closing stock is to be further increased by the addition of ₹ 11,74,15,986/- during the year. (iv) Whether the increase in the value of opening and closing stock by 147% is justified. The assessee has taken the value of opening stock of lands at ₹ 1,12,11,12,783/-. The AO have increased the value of the opening stock by 147.57% and further made addition of 30% for administration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. Para 13 In determining the cost of inventories in accordance with Para 6, it is appropriate to exclude certain costs and recognize them as expenses in the period in which they are incurred. Examples of such costs are: (a) Abnormal amounts of wasted materials, labour or other production costs. (b) Storage cost, unless those costs are necessary in the productions process prior to a further production stage. (c) Administrative overheads that do not contribute to bringing the inventories to their present location and condition. (d) Selling distribution costs. From the above it is clear that the administrative, establishment and maintenance cost does not form part of the closing stock. The same has to be charged to profit loss account in the year in which it is incurred. Therefore the addition of ₹ 6,57,52,952/- (3,52,24,796+3,05,28,156) made by the AO in the valuation of closing stock in trade as well as ₹ 1,48,43,97,609/-(79,52,13,005+68,91,84,604) in opening stock is incorrect and be deleted. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C2552 Board of Trustees for the Visakhapatnam Port Trust v. State of A.P. and Ors. and submitted that this Court has consistently taken the view that a Corporation having the attributes of a Company must be held to be distinct from the Central Government, and not eligible for exemption from taxation under Article 285. The High Court also in its impugned judgment and order has referred to several decisions of this Court wherein this Court dealing with cases arising under Article 285 of the Constitution of India, which exempts properties of the Union from State taxation, took a similar view. We may usefully refer to the cases reported in: : AIR1999SC2573 Food Corporation of India v. Municipal Committee, Jalalabad and Anr., : (1995)5SCC251 Municipal Commissioner of Dum Dum Municipality and Ors. v. Indian Tourism Development Corporation and Ors., MANU/SC/1179/1994 Central Warehousing Corporation v. Municipal Corporation and : [1982]2SCR1 Western Coalfields Ltd. v. Special Area Development Authority, Korba and Anr. and Bharat Aluminium Company Ltd. v. Special Area Development Authority, Korba and Ors. MANU/MP/0056/1978 Having considered all aspects of the matter we hold that the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) enumerates the Local Authority which do not cover the Authority. The assessee i.e. Jammu Development Authority subsequently claimed that its objects falls under the provisions of section 2(15) of the Act and has complied with all the eligibility criteria for grant of registration u/s 12A of the Act, which was allowed vide property which make the Authority a commercial organization. Therefore, the objects pursued by the Authority cannot be said to be charitable in view of the fact that the authority being a commercial organization with no restriction as to the application of the assets on dissolution or winding up of for charitable purposes. In order to find out whether organization is a charitable one, tests have been laid down by the B Hon'ble Supreme Court in the case of CIT vs. Surat Art Silk Cloth Manufacturers Association (1997) 121 ITR and CIT vs. Andhra Pradesh State Road Transport Corp. (1986) 159 ITR 1. In the case of Surat Art Silk Cloth Manufacturers Association, it was held as under:- Since the income and property of the assessee were liable to be applied solely and exclusively for the promotion of the objects set out in the Memorandum and no part of such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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