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TMI Blog2025 (2) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... 22 are cross-appeals by both sides. Since these matters involve identical/common issues, they were heard together at the request of parties and are being disposed of by this consolidated order for the sake of convenience, brevity and clarity. We first take up assessee's appeals and thereafter revenue's appeals. Assessee's appeals: 3. Ld. AR for assessee confined his submissions to the undermentioned ground No. 3 only, which is identical in all 7 appeals of assessee, reading as under: "3. That, the learned CIT(A), grossly erred in law, in not giving a specific finding/direction to the effect that in the event of ultimate grant of registration to the appellant authority under the provisions of section 12A/12AA of the Income-tax Act, 1961, the income of the appellant authority should be computed in accordance with the provisions of section 11 & 12 of the Income-tax Act, 1961." 4. Apropos to this ground, Ld. AR submitted that the assessee is a statutory authority established by State Govt. of Madhya Pradesh. The assessee, claiming to be engaged in "charitable purpose" as defined in section 2(15), applied to Income-tax Department for grant of registration u/s 12A/12AA of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-13 re-produced above. 7. Ld. DR for revenue did not have any objection to this prayer of Ld. AR. 8. After a careful consideration, we agree to the prayer of Ld. AR. Accordingly, we direct the CIT(A) to modify impugned orders for AYs 2013- 14 to 2018-19 & 2021-22 so as to include a specific finding/direction on the same lines as made in AYs 2011-12/2012-13 re-produced above. 9. The assessee's appeals are allowed accordingly. Revenue's appeals: 10. Ld. AR for assessee taking lead to make submissions in these matters with the consent of Ld. DR for revenue, submitted that there are four issues involved in revenue's appeals with varying figures for different years as under: Issue No. Issue AYs in which issue is involved (i) Deduction of City Environment Expenses (ii) Deduction of Contribution & Aids Expenses All 6 appeals for AYs 2014-15 to 2018-19 and AY 2021-22 (iii) Deduction of IMC Transfer Expenses (iv) Deduction of Land Acquisition and Diversion Expenses AY 2016-17 only Issue No. (i) - Deduction of 'City Environment Expenses': 11. The assessee claimed deduction of 'City Environment Expenses' which the AO disallowed but in first-appeal, the CIT(A) rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or improvement of the area specified in the Notification. 3. That, in furtherance of its objects of development and implementation of various schemes, the assessee Authority acquires land from public under the provisions of Land Acquisition Act, 1894 for the compensation determined in accordance with such Land Acquisition Act, 1894. After development of the schemes, the assessee Authority part with the land and building so developed in the schemes in accordance with the rules made by the State Government in this behalf by virtue of section 58 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973. The assessee Authority also undertakes to carry out the development work of general in nature which is utilized by public at large. 4. That, one of the prime objectives of the assessee authority is to ensure preservation of environment and development of the notified area in a planned manner. In pursuance of such objective, the assessee authority had consistently been incurring expenditure on building of bridges, development of roads, gardens, street lighting, construction of administrative offices for the government, etc in the notified area. 5. That, during the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of imagination, the expenditure incurred by the assessee Authority on construction of OPD at MYH or construction of Administrative Building of Collectorate can be considered to be an expenditure giving enduring benefit to the assessee authority. Likewise, after constructing Auditorium and having it handed over to the Municipal Corporation, the assessee Authority was not having vested interest or ownership in the said Auditorium. The assessee Authority is neither eligible nor it is deriving any revenue from such Auditorium. v) It shall be pertinent to note that the expenses under the head 'City Environmental & Development Expenses' have been regularly incurred by the assessee Authority from the past several years. For such assertion, kind attention of Your Honours is invited to the copies of the relevant Schedule of 'City Environmental & Development Expenses' as appearing in the audited financial statements of the assessee Authority for the previous years relevant to A.Y. 2009-10, A.Y. 2010-11, A.Y. 2012-13 and A.Y. 2013-14, as placed at Page No. 238 to 241 of our Paper Book. vi) It shall also be worthwhile to note that the assessee Authority is consistently undergoing scrutin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umentary evidences (work orders from State/Central Government etc.) in support of the claim for 'City Environmental Development & Preservation Expenses'. 3. Accordingly, in compliance of the directions issued by this Hon'ble Bench, the assessee Authority, in order to establish its claim for deduction of the aforesaid expenses, wish to furnish certain documentary evidences. These documentary evidences arc quite relevant for adjudicating the issue in hand by Your Honours and therefore, the appellant wish to file such documents as additional evidences under Rule 29 read with Rule 18(4) of the Appellate Tribunal Rules, 1963. 12. From perusal of the additional evidences placed before us, we are inclined to admit then for adjudication since they go to the root cause of the issue which will enable us to adjudicate the facts relevant to the grounds raised before us. 13. We have heard rival contentions and perused the record placed before us. The revenue has challenged the finding of Ld. CIT(A) deleting, the disallowance of Rs. 15,73,65,419/- on account of 4/5th disallowance out of City Environmental Development and Preservation Expenses. 14. We observe that the prim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad City Environmental Development & Preservation Expenses'. On going through the details of Development & Implementation Expenses for Schemes, as given in Schedule 19 of the audited financial statements, it is found that the appellant has claimed expenses under the various sub-heads such as Roads, Culverts, Underground Services, Landscaping and Garden Development, Construction of Building, Architect Fees etc. The contention of the appellant has been found tenable to the extent that whenever expenditure of development of various schemes promoted by the appellant authority are incurred, the same are classified under a different head viz. 'Development and Implementation Expenses for Schemes' and while making the valuation of the Inventory, these expenses, being of recoverable nature, are taken into consideration. It is also observed that under the head 'City Environmental Development and Preservation Expenses' also, the appellant has claimed the expenditure on Roads, Culverts, Street Lighting, Construction of Building, Fees to Architects, etc. It is also observed that the AO himself in the body of the assessment order, has given a finding that the facilities on whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition is directed to be deleted and this ground of appeal is allowed. 16. From perusal of the finding of the Ld. CIT(A) and the undisputed fact that in the assessment proceedings completed for the preceding years such claim of expenses have been consistently allowed and applying such principle of consistency ought to be allowed since there is no change in the facts and circumstances of the case in the year under appeal before us. Ld. Departmental Representative also failed to rebut the finding of Ld. CIT(A) and also could not controvert the fact that the Ld. AO has himself allowed 1/5th of the expenses as revenue in nature without mentioning the provisions of law which allows such claim. The alleged expenses are not preoperative expenditure which needs to be allowed @ 1/5th for 5 years. The said expenses can be either termed as non-business expenses or business expenditure. If they are termed as business expenditure then they can be either termed as revenue or capital expenditure. No such distinction has been made by the Ld. AO about the alleged expenses. 17. Further, it is noteworthy that the assessee company is working under the direction of State Government. It gets the po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. AO observing as follows: "I have gone through the contents of the assessment order and also the written submissions filed by the appellant. After considering the entire facts and circumstances of the case, I do not find any merit in contention of the appellant. If find that the status of the appellant has not been taken as that of a charitable organization or institution and its income is assessable as business income. Once this being the position, any charity or donation, made for any purpose, is not allowable under the provisions of section 37(1) of the I.T. Act, 1956. Accordingly, I do not find any infirmity in the action of AO in making disallowance of Rs. 31,27,208/-. Therefore, this ground of appeal is dismissed. 39. Ld. counsel for the assessee referred to the following written submissions: "1. That, during the previous year relevant to the assessment year under consideration, the appellant Authority has incurred a sum of Rs. 13,27,208/- Rs. 8,00,000/- and Rs. 1O,00,000/- respectively on account of contribution made towards 'Aid for Jhanki Pradarshani & Seminars', 'Donation for Deui Ahilya Utsav' and 'Donation for Malwa Utsav' unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellant Authority has been making its contributions towards Jhanki Pradarshani & Seminars, Devi Ahilya Utsav, Malwa Utsav etc. over the last many years and such contributions have duly been accepted and allowed by the Income-T'ax Authorities in the scrutiny assessments of the appellant framed under s.143(3) of the Act and in none of the previous assessment years, the claim of the appellant Authority as regard to the aforesaid contributions have been doubted by the Department. It is submitted that there is no change in the circumstances of the case for the assessment year under consideration and, therefore, considering the decision of the Hon'ble Apex Court in the case of Radha Soami Satsang (supra) the claim of the appellant for the present year too deserves to be allowed fully. In view of the above facts and circumstances of the case, the addition of Rs. 31,27,208/- so made by the Ld. AO on account of contribution made to various Jhanki and Utsav deserves to be deleted in toto. 40. Per contra Ld. Departmental Representative (DR) supported the orders of the lower authorities. 41. We have heard rival contentions and perused the record placed before us. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i & Seminar, Devi Ahilya Utsav & Malwa Utsav are events where public at large participate. It is well evident that for such events the assessee is sponsoror. Such type of expenses are in the nature of advertisement since it gives name and fame to the IDA and increase the 'Brand' value which indirectly helps in getting more business. 44. We observe that similar issue came up before the Hon'ble Delhi High Court in the case of Pr. CIT vs. M/s Indian Farm Forestry Development dated 31st October 2018 wherein Hon'ble Court held as follows: "13. In the facts of the present case, the object and purpose of the respondent-assessee' is, to engage and work for social and economic upliftment of the rural poor, construct water reservoirs, etc. It is established for this purpose and receives grants and donations from third parties with the said objective and purpose. M/s Indian Farmers Fertilizer Cooperative Ltd. had sold' and supplied fertilizer that was marketed/sold by the respondent-assessee to earn profit income, because the respondent-assessee was engaged, in social and economic development activities, Association and business relationship with M/s Indian Farmers Ferti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent-assessee. The respondent - assessee had contributed, developed, financed and created assets which belonged to third persons. The expenditure incurred therefore would not be 'capital' in nature in the hands of the respondent assessee. 16. Accordingly, the appeal filed by the Revenue has no merit and is dismissed, without any order as to costs." 45. The facts of the above referred judgment and similar to the facts placed before us. We, therefore, respectfully following the judgment of Hon'ble Delhi High Court in the case of Pr. CIT vs. M/s. Indian Farm Forestry Development, are of the considered view that the alleged amount should be allowed as business expenditure as it indirectly help to increase business of the assessee authority. Thus, disallowance of Rs. 32,27,208/- stands deleted and the ground no. 2 of the assessee is allowed." 14. Ld. DR for revenue did not show any change in facts or law governing the issue or non-applicability of earlier view of Co-ordinate Bench for any reason. Therefore, keeping the consistency, we adopt the view taken by Co- ordinate Bench and uphold the deletion of disallowance by CIT(A). The revenue's grounds qua this issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquires land from public under the provisions of Land Acquisition Act, 1894 for the compensation determined in accordance with such Land Acquisition Act, 1894. After development of the schemes, the appellant Authority part with the land and building so developed in the schemes in accordance with the rules made by the State Government in this behalf by virtue of section 58 of the Madhya Pradesh Nagar Tatha Gram NiveshAdhiniyam, 1973. Once the entire plots/constructed properties in the schemes are leased out by the appellant authority, the entire scheme is transferred to the Indore Municipal Corporation (IMC). That, after transferring the schemes to the IMC, the appellant authority is required to ensure the repairs and maintenance of the schemes in accordance with the directions and instructions of IMC. In pursuance of such objective, the appellant authority had consistently been incurring expenditure on development of roads, gardens, street lighting, landscaping and garden development, patchwork of the constructed roads, underground work, etc. Although the appellant Authority is not carrying out its activity with the commercial motive but even if it is presumed to be so, then too, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Authority had incurred a sum of Rs.6,81,37,829/- under such head and the entire expenses were duly allowed even in a scrutiny assessment made under s. 143(3) of the Act. For our such assertion, a reference may kindly be made to the assessment orders for the earlier assessment years, which are being submitted in this Paper Book. 5. It shall be pertinent to note that there has been no change in the facts and circumstances of the case prevailing in the assessment year under consideration and those prevailing in the aforesaid assessment years. In such a situation, taking an adverse view in the assessment year under consideration by the learned AO is completely unjustified and unwarranted. For such proposition, we place reliance on the decision of the Hon'ble Supreme Court in the case of Radha SoamiSatsang Vs. CIT (1992) 193 ITR 321 (SC). 5.2 Adjudication of ground nos. 8 to 11; The prime object of the appellant is to implement development plan, prepare town development schemes and development of land for the purpose of expansion or improvement of the area specified in the Notification. It is well established that the appellant undertakes various development and construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. As a result, grounds 8, 9, 10 and 11 are allowed. CERTIFIED TRUE COPY Chief Executive Officer. Page 10 of 15 Indore Development Authority INDORE. 16. Before us, Ld. DR for revenue/appellant made following submissions supporting the order of AO: (i) The assessee has transferred schemes to IMC. After transfer, IMC started collecting municipal tax. Therefore, it is the IMC who will incur expenses for those schemes, why the assessee shall incur expenses? (ii) The assessee has neither shown any obligation to incur impugned expenses under any law nor filed any agreement with the IMC creating any such obligation. (iii) The CIT(A) has not verified genuineness of expenses and still deleted disallowance made by AO. 17. Per contra, Ld. AR for assessee/respondent made following contentions supporting the order of CIT(A): (i) He referred Page 293-297 of Paper-Book-2 where tabular charts for different assessment-years are filed. These charts give "Scheme Numbers" transferred to Indore Municipal Corporation (IMC) and schemewise details of expenses incurred by assessee under the headings such as "land acquisition/diversion expenses (with sub- headings as survey, planning, land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in Radha Soami Satsang Vs. CIT (1992) 193 ITR 321 (SC). Ld. AR submitted that the AO has allowed the deduction of very same expenses in earlier years after due scrutiny and there is no change in nature of expenditure or the law governing deduction thereof. (iv) That the CIT(A) has rightly reversed action of AO and deleted disallowance after due consideration. The order of CIT(A) is very much correct and must be upheld. 18. We have considered rival submissions of both sides and perused the documents held on record including the orders of lower-authorities. Admittedly, the assessee is a development authority established under statue. The assessee has developed residential/commercial schemes and handed over those schemes time to time to IMC as per the system evolved by Govt. After transfer to IMC, the assessee has incurred expenses in connection with those schemes and debited in P&L A/c under a separate heading "IMC Transfer Expenses". It is this expenditure which the AO has disallowed. The main reasoning which the AO has assigned for disallowance is when the assessee is no longer owner of schemes, why the expenditure would be incurred by assessee? The Ld. AR for assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,442/- and Development and implementation Expenses for Schemes Rs. 50,81,13,027/-. Though these expenses is forming part of WIP/Stock but that include expenses in capital in nature being the part of capital assets as discussed in para no. 5.2 and 5.3. Assessee has failed to submit the details of such expenses of revenue and capital in nature. Assessee has shown inventory of Rs. 1189,82,01,986/- which includes assets which are capital in nature and assessee enduring benefits from such assets. It is also facts that inventory shown is accumulation from years to years which includes finished properties Rs. 450,93,52,820/- as on 31/03/2015 and Rs. 441,72,74,263/- as on 31.03.2016. Assessee earn income from such part of capital assets in the form of rent, hiring charges and miscellaneous income etc. Therefore capital assets forming part of inventory of finished property cannot be denied. Therefore, expenses incurred on such capital assets being part of semi-finished properties cannot be denied. During the year expenses incurred on semi- finished properties is Rs. 72,98,11,470/- which forming part of semi-finished properties as on 31.03.2016 Rs. 748,09,27,723/- in which expenses in capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if these expenditures are capitalized, then the assessee would be carrying on the cost of the project for the period till the project is sold. Naturally the cost of the project would be increased by these amounts and the revenue is duty bound to grant the deduction of this cost of project at the time of sale. The appellant has given the complete details of expenses and the AO's action in disallowing 10% is arbitrary and hence not justified. The AO has lost sight of the fact that these expenses in no way were directed to any specific asset as the objective of the appellant is development of land and building. Thus, these expenses cannot be tagged with any of the specific asset as these expenses are indirect expenses of the entire projects. Since the expenses are necessary being incurred for the development objectives of the appellant, these are allowable expenses. This view was upheld by Hon'ble Courts in the case of M/s. Godrej Tea Ltd. V. DCIT (2010) (4) ITR 649 (Mum), Southern Roadways Limited (2008) 220 CTR 298 (Mad), CIT vs. Indian Visit Com (P) Ltd. (2009) 176 Taxman 164 (Del) and Brehan Maharashtra Sugar Syndictate Ltd. Vs. DCIT (2009) 28 DTR) 265 (Bom) and Club Reso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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