Housing Board Haryana , Panchkula vs Department Of Income Tax

The appeal by the Revenue is directed against the separate orders dated

27.12.2013 and 18.7.2014 respectivel y of CIT(A), Panchkula.

2. Since the issue involved in both the appeals is identical, therefore, the

appeals were heard together and are being disposed of by this common and

consolidated order.

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3. We shall deal with the grounds raised in ITA No. 246/Chd/2014 wherein

Revenue has raised the following grounds:-

1. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition made by the Assessing Officer on account of disallowance of expense incurred by the assessee on maintenance of colonies amounting to Rs.

3,25,96,429/-.

2. It is prayed that the order of the Ld. CIT(A) be set-aside and that of Assessing Officer be restored.

3. After hearing both the parties we find that during assessment proceedings

the Assessing Officer noticed that assessee has incurred various expenses for

maintenance of various colonies. According to Assessing Officer such expenses

could not be said to be incurred for the purpose of business and, therefore, the

same was disallowed.

4. On appeal, it was mainl y submitted that assessee procured land from various

government agencies and after construction of houses; the colonies were handed

over to the concerned municipal committee or local authorit y for future

maintenance. Since the colonies at Chakkparpur (Gurgaon) did not fall in the

municipal limit, therefore, Board has to maintain the same. The same was in the

nature of Revenue expenditure as assessee has not acquired any fixed assets by

incurring such expenses. It is further not clear how Assessing Officer can say that

assessee would obtain enduring benefit out of such expenditure. The Ld. CIT(A)

agreed with these submissions and deleted the addition.

5. Before us Ld. DR strongl y supported the order of Assessing Officer.

6. On the other hand Ld. Counsel for the assessee submitted that identical issue

has been decided by the Bench in the case of Punjab Urban Development 3

Authorit y, Mohali v ACIT, Chandigarh in ITA No. 759/Chd/2008 for assessment

year 2004-05 wherein it was held that expenses incurred on maintenance of

colonies is of Revenue nature.

7. We have considered the rival submissions carefull y and find that identical

issue came up before the consideration of the Tribunal in the case of Punjab Urban

Development Authorit y, Mohali v AC IT, Chandigarh in ITA No. 759/Chd/2008

This issue was decided vide paras 110 to 115, which reads as under:-

"110 Ground no. 4 - After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee authority was in the business of acquiring land and developing it and after development the land, same was sold in auction. It was maintaining various sectors even after completion, for different time period ranging from 5-13 years depending on the same. That means that maintenance and development in respect of developed sectors and undeveloped sectors was being done by PUDA. Staff and infrastructure available with the PUDA was jointly shared by the developed and undeveloped sectors. The assessee had debited entire cost in respect of this expenditure and claimed the same as revenue expenditure. The assessee was asked to bifurcate these expenses into two parts i.e. the expenditure on developed and developing sector. It was submitted that as per accounting standard AS7, general administration cost and finance cost were to be allowed as revenue expenditure. The Assessing Officer noted that if the assessee was following cash system of accounting whereas AS7 provides that accounting for such contract has to be on accrual system. Therefore, according to him the expenses in relation to developing the sectors were to be capitalized. He further observed that the total administrative expenses were 34,40,02,391/-. Since a separate addition on account of CPF contribution was made and this amount was reduced from total 4

expenditure and out of balance amount 50% expenditure was disallowed being of capital nature.

111 On appeal before the ld. CIT(A) it was mainly submitted that addition made by the Assessing Officer was not in accordance with AS7 as well as general accounting principles. It was submitted that administrative expenses which could not be identified were required to be shown in the profit and loss account and should not be made as part of the contract.

112 The ld. CIT(A) after considering the submissions observed that as per the decision of Hon'ble Supreme Court in case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT, 227 ITR 172 (S.C) Accounting Standard were made for general guidelines and accounting purposes and the same can not be used for determining tax liability. He further observed that no project can be completed without general administration expenses and accordingly confirmed the addition.

113 Before us, the ld. counsel of the assessee reiterated the submissions made before the ld. CIT(A). He further submitted that the assessee was following cash system of accounting and the Assessing Officer has himself held that installments 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 ld. DR 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 5

assessee was following cash system of accounting and when the assessee was not showing receipt from a particular project then the expenses against the same could not be allowed.

115 We have heard the rival submissions carefully. We have already discussed the implications of cash system of accounting while adjudicating ground No. 5 of revenue's appeal in ITA No. 762/Chd/2008. Basically once the cash system of accounting is followed then all receipts which relate to the revenue filed, have to be taxed. Similarly all cash outgoings which are in the revenue field, had to be allowed as expenditure. Since the assessee is in the business of purchase and developing the land and selling the same after the development of the same and therefore, administrative expenses incurred is clearly in the field of revenue. Further the assessee was following cash system of accounting, therefore, once cash has been spent or outgone from the assessee same has to be treated as expenditure. Therefore, we set aside the order of the Ld. CIT(A) and delete the addition."

8. Though in that case the issue was mainly decided on the basis that assessee

has followed cash s ystem of accounting, therefore, all expenses are to be allowed.

There is further an observation that expenses involved are of Revenue nature. In

the present case also the nature of expenses is upliftment of street lighting,

development and laying of roads, underground tanks etc. These assets would never

belong to the assessee but would belong to the communit y living in the colony and

therefore, it cannot be said that assessee has derived enduring benefit from such

expenses, therefore, in our opinion, the assessee was under obligation to maintain

this colony for which such expense is a necessit y. Therefore, we find nothing

wrong with the order of Ld. C IT(A) and confirm the same. 6

8. ITA No. 741/Chd/2014 - In this case, the facts and issues involved are

identical to the facts in the case of Revenue for assessment year 2010-11 in ITA

No. 246/Chd/2014 which we have adjudicated above. Following the above order,

we dismiss the appeal of the Revenue.

8. In the result, both the appeals of the Revenue are dismissed.

Order pronounced in the open Court on 05/06/2015.

Sd/- Sd/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 5 t h June, 2015 Rkk Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR