M/S BERHAMPUR DEVELOPMENT AUTHORITY vs. ITO, BERHAMPUR

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND LAXMI PRASAD SAHU, ACCOUNTANT MEMBER

ITA Nos.128 & 366/CTK/2014 Assessment Years : 2005-06 & 2008-09

Berhampur Development Vs. ITO, Ward -1, Berhampur Circle, Authority, Opp. M.K C.G. Medical Berhampur College, Berhampur PAN/GIR No.AAALB 0112 C (Appellant) .. ( Respondent)

ITA No.351/CTK/2014 Assessment Year: 2008-09

ITO, Ward -1, Berhampur Circle, Vs. Berhampur Development Berhampur Authority, Opp. M.K C.G. Medical College, Berhampur PAN/GIR No.AAALB 0112 C (Appellant) .. ( Respondent)

Assessee by : Shri D.K.Sheth, AR Revenue by : Shri Subhendu Dutta, DR

Date of Hearing : 26 /11/ 2019 Date of Pronouncement : 29/11/ 2019

O R D E R Per C.M.Garg,JM The assessee has filed appeal against the order of the CIT(A),

Berhampur dated 20.1.2012 for the assessment year 2005-06 and cross

appeals filed by the assessee and revenue for the assessment year 2008-09

against the order dated 10.6.2014 of the CIT(A), Berhampur.

P a g e 1 | 17 ITA No.128/CTK/2014: A.Y: 2005-06

additional ground of appeal, which reads as under:

“For that the assessment as made u/s.143(3) is bad in law in view of the fact that the return of income was filed on 31.10.2005 and notice u/s.143(2) was issued and served on the appellant on 26.5.2009.”

additional ground was inadvertently omitted to be taken in the

memorandum of appeal but are significant for the disposal of the appeal by

the Tribunal. It was, therefore, prayed that the same be admitted, which

was opposed by the ld. DR.

taken by the assessee, it is discernible that the same is a legal ground

involving adjudication on questions of law and, therefore, in view of the

decision of the Hon’ble Supreme Court in National Thermal Power Company

Ltd. Vs. CIT (1998) 229 ITR 383 (SC), we admit the same and proceed to

decide the same as per law.

Authority constituted under the Odisha Development Authorities Act, 1982.

The assessee filed its return of income for the assessment year 2005-06 on

P a g e 2 | 17 31.10.2005 declaring loss of Rs.29,02,540/-. The Assessing Officer

completed the assessment on 26.11.2009 u/s.144/147 of the Act, inter alia,

adding Rs.83,90,492/- to the total income of the assessee which was shown

by the assessee as excess of capital expenditure over capital receipt and

Rs.31,18,535/- which was the receipt of the assessee from sale of shop

rooms. The assessee carried the matter in appeal upto ITAT and the

matter was restored to the file of the AO by the Tribunal dated 12.9.2011 in

ITA No.299/CTK/2011 in the light of the fact that the CIT(A) rightly noted

that the application of funds were on account of revenue for claiming

application of funds of income exempt under the provisions of section 11 of

the Act. The Tribunal also observed that it is imperative whether the

assessee has preferred to apply for seeking registration u/s.12A or not. In

pursuance to the Tribunal order (supra), the Assessing officer passed his

order u/s.143(3)/254 of the Act on 6.12.2012 and determined the total

income of Rs.55,50,620/- consisting of excess of revenue receipt over

revenue expenses at Rs.54,88,250/- and profit on sale of commercial

complex amounting to Rs.62,370/- and the appeal of the assessee was

dismissed by the CIT(A).

the additional ground that the assessment u/s.143(3) /254 of the Act is

bad in law in view of the fact that the return of income was filed on

P a g e 3 | 17 31.10.2005 and notice u/s.143(2) was issued and served on the assessee

on 26.5.2009.

the assessee filed return of income for assessment year 2005-06 on

31.10.2005. The contention of the asseseee is that notice u/s.143(2) of the

Act could have been served on the assessee within six months from the

end of the financial year in which the return is furnished by the assessee.

He submitted that notice u/s.143(2) of the Act was served on the assessee

on 26.5.2009, which was not within the stipulated period. The assessee also

referred to the CBDT Circular No. 549 dated 31st October, 1989, which

clarified the legal position that when there was a failure to issue a notice to

an assessee under Section 143(2) of the Act within six months from the end

of the month in which the return is furnished or during the financial year in

which the return is furnished, whichever is later, then the Assessee can take

it that the return filed by him has become final and no scrutiny proceedings

are to be started in respect of that return.

the reassessment order dated 26.11.2009 u/s 144/147 of the Act and

submitted that originally the return for assessment year 2005-06 was filed

by the assessee showing a loss of Rs.29,02,540/- on 30.10.2005 and the

same was processed u/s.143(1) of the Act on 24.2.2006. Ld D.R. further

submitted that from para 2 of the said reassessment order, it is clear that P a g e 4 | 17 subsequently the case was reopened u/s.147 of the Act and notice u/s.148

of the Act was issued on 31.7.2008, which was served on the assessee on

4.8.2008 and despite proper service of notice, no return of income was filed

by the assessee in response to said notice issued to the assessee u/s 148 of

the Act. Ld DR further submitted that when the assessee is not filing any

return of income in response to notice u/s.148 of the Act nor submitting

any request to the AO that his earlier return filed u/s.139 of the Act may be

treated as returned filed in response to notice u/s.148 of the Act, then the

assessee cannot raise any objection towards service of notice u/s.143(2) of

the Act alleging the reassessment order as bad in law.

considered opinion that on being asked by the Bench, ld counsel for the

assessee, at Bar, in all fairness, accepted that the assessee has not filed any

return of income in response to notice issued u/s.148 of the Act. However,

in para 3 of the reassessment order dated 26.11.2009, the Assessing Officer

has mentioned that notice u/s 143(2) of the Act and notice u/s.142(1) of

the Act was served on the assessee on 26.5.2009. In absence of any return

or response to the notice u/s.148 of the Act, the assessee cannot raise any

objection or ground regarding service of notice. Therefore, the additional

ground of the assessee being devoid of merits is dismissed.

follows: P a g e 5 | 17 “The ld AO has not considered the objects of the assessee and erred in determining capital & revenue expenditure & receipts and computed the income as Rs.55,50,620/- which should be deleted.” 10. We have heard the rival submissions and perused the record of the

case. Ld counsel for the assessee submitted that the AO was not right and

justified in repeating the addition made by him in earlier reassessment

order dated 26.11.2009 keeping aside the rule of consistency. Ld counsel

vehemently pointed out that the assessee is a non-profit making local

development authority created under the Special Act and maintaining its

books of account on the same principle as is followed by the non-profiting

making organisation/authority. Ld counsel submitted that the total receipts

of the assessee were used for the purpose of object of the authority and if

the expenditure incurred by the assessee in capital and revenue account is

considered together, then there was net deficit of Rs.29,02,540/-. Ld

counsel submitted that the assessee is regularly showing revenue and

capital transaction in the income and expenditure account and there was no

requirement of segregating the same. Ld counsel submitted that the AO

was not justified in denying the fact in making addition of Rs.54,88,250/-

being excess on revenue receipts over the revenue expenditure as per

revised income and expenditure statement filed by the assessee before the

CIT(A). Ld counsel submitted that the action of the AO in rejecting the

income and expenditure account filed by the assessee showing net loss of

Rs.29,02,540/- is not justified and sustainable and the authorities below

P a g e 6 | 17 compelled the assessee to file another income and expenditure account

showing separate revenue and capital account, wherein surplus of

Rs.54,88,250 on the revenue receipt was picked up in making addition

keeping aside the fact that there was also deficit of Rs.83,90,792/- in the

capital account, which clearly reveals that in the capital account, the

assessee has incurred expenditure more than the receipts showing deficit of

Rs.83,90,792/- in the capital account. Ld counsel submitted that the

department was regularly accepting the income and expenditure account of

the assessee, wherein, capital and revenue receipts and expenditure was

clubbed together and surplus or deficit thereon was to be considered for the

purpose of taxation. Ld counsel lastly submitted that if the rule of

consistency is applied, it is clearly discernible from the income and

expenditure account that there was deficit/loss of Rs.29,02,540/- and,

therefore, no addition is called for in this regard.

well as the CIT(A) and submitted that since the assessee is not registered

u/s.12A of the Act and not claiming any exemption u/s.11 of the Act,

therefore, the general principle of accountancy has to be applied to the case

of the assessee. Ld D.R. submitted that the revenue and capital account

cannot be mixed and the amount of surplus on revenue receipts over the

revenue expenditure has to be taxed in the hands of the assessee in the

capacity of ordinary assessee or an AOP.

P a g e 7 | 17

considered opinion that undisputedly, the assessee is not registered u/s.12A

of the Act and hence, it is not claiming any exemption u/s.11 of the Act.

Further, in this situation, the assessee has to be assessed as an ordinary

assessee or in the status of an AOP. Hence, clearly the principle of

accountancy has to be applied while deciding and adjudicating the tax

liability of the assessee. The assessee wants that his capital and revenue

receipts should be mixed together and capital and revenue expenditure

should also be missed together and, thereafter, surplus or deficit whichever

is found should be taken into consideration for the purpose of calculating

the tax liability of the assessee. We are not in agreement with such

proposition as the capital receipts has to be used for the purpose of capital

assets and if any surplus or deficit is there, then same has no relevance for

the purpose of calculating tax liability of the assessee. The assessee may

claim depreciation or other incidental expenditure to maintain capital assets

but the capital expenditure incurred by the assessee over and above the

capital receipts cannot be taken into consideration while deciding the net

amount of surplus or deficit on the revenue account. We also find it

appropriate to reproduce para 4.3 of the CIT(A), wherein, the addition

made by the AO has been upheld as under:

‘ I have carefully considered the matter and gone through the assessment records. I have also gone through the assessment records of Bhubaneswar Development Authority assessed at ACIT, Circle-l(l), Bhubaneswar and looked at the published accounts of Cuttack

P a g e 8 | 17 ^Development Authority. While setting aside the matter with the file of the AO, the Hon'ble ITAT wanted the AO to verify as to whether the appellant has preferred to seek registration U/S.12AA or not. As has been mentioned by the AO and also by the appellant during the course of the appeal hearings admittedly the appellant does not enjoy any registration U/S.12AA. In other words, the appellant's accounts are not to be considered in line with the provisions of Sec. 11 to 13 which applies to trusts. The appellant strictly speaking is engaged in some revenue yielding activities which is reflected in its revenue account. In such a situation, I am unable to appreciate the grievance of the appellant in respect of the action of the AO in denying the set off of the deficit in the capital account. Admittedly the capital receipts in the current year is less than the capital expenditure and that is why the appellant has a loss and wants to be set off against its surplus in the revenue account. However, clearly this capital expenditure are either straight away capital expenditure on account of the appellant(as in the case of construction of shops) or are in the nature of expenditure in respect of assets not owned by the appellant. In the latter case, the appellant gets suitable grants/money to incur the expenditure. In either case, such expenses are neither allowable expenditure relating to the revenue account of the appellant nor such credits in the capital account which can as is clear from the grounds of appeal be loans be taken as revenue receipt. Therefore, in a year, if the appellant receives a loan or an advance from any authority say the Government or Berhampur Municipality to undertake a project and its relatable expenditure is either negligible or very less during a particular year then it will be equally unfair to tax the surplus in the capital account in the hands of the appellant. Applying this logic any deficit in the capital account also cannot be considered for the purpose of determining the total income of the appellant. In this regard I may mention here that the Bhubaneswar Development Authority, which is also governed by the same rules and the Act does not claim in its return any such set off. The same is the case with the Cuttack Development Authority. In fact, the Bhubaneswar Development Authority, on the advice of the C & AG, considers 15% of such capital receipts which it gets from entities like Government, IDCO or Bhubaneswar Municipal Corporation for developmental work as income in the revenue account (In the instant case, however, given the fact that the impugned assessment is result of a remand by Hon'ble ITAT, there is no scope to examine this angle in the case of the appellant). In view of the above discussion, I am not inclined to interfere with the action of the AO. The AO is justified in not allowing the set off the deficit in the capital account against the surplus in the revenue account. Further, in respect of income from sale of shops, I see no reason to differ from the decision of my predecessor in office who estimated the said income at 2% of the sales price. The case laws cited by the appellant are basically about what constitutes capital or revenue expenditure. I do not see the relevance of these case laws to the facts of the case. In the capital account, the appellant has either expenditure in respect of an asset which it owns or incurs expenditure in respect of an asset not owned by it out of

P a g e 9 | 17 payments/reimbursements received from the owner of such assets. In the second type of cases, the appellant is an agent who gives its expertise and infrastructure. In view of these facts, the case laws cited by the appellant are of no help to it. Accordingly, the income of Rs.55,50,620/- assessed by the AO is confirmed and the grounds are dismissed.”

expenditure over and above its capital receipts and same cannot be allowed

to be set off from the revenue surplus for the purpose of calculation of tax

liability of the assessee.

capital expenditure and that is why the assessee wants to set off against

surplus in the revenue account.

CIT(A) in confirming the addition of Rs.55,50,620/- made by the AO.

Accordingly, the sole ground on merits of the addition is dismissed.

ITA No.366/CTK/2014: A.Y. 2008-09

assessee is as under:

‘”1. For that on the facts and in the circumstances, the assessment as initiated u/s.147 and as completed u/s.144/147 is arbitrary and unjustified insofar as no new materials were available for initiation or completion of proceedings u/s.147.

P a g e 10 | 17

us that this specific ground was omitted to be taken through oversight and

that it was taken on 16.3.2018. It was pleaded that assessee may be

permitted to raise the additional ground which goes to the root of the

matter and clearly transpires from the proceedings before the lower

authorities with complete facts on record.

to the admission of the above ground.

the interest of justice, it will be necessary to admit the additional ground in

view of the decision of Hon’ble Supreme Court in the case of National

Thermal Power Company Limited vs. CIT , 229 ITR 383 (SC), we admit the

additional ground and proceed to adjudicate the same.

u/s.148(2) of the Act was issued to the assessee on 23.3.2012 and served

on the assessee on 10.4.2012 for reopening the assessment on the

following reasons( as noted by the AO in para 1 of assessment order):

“(i) It was seen from the income and expenditure account of revenue account and the capital account that Rs.3,72,23,360/- and Rs.1,36,45,546/- were claimed as revenue expenses and capital expenses respectively. In the revenue receipt and payment account there was no receipt of grant in aid where as in the capital receipt

P a g e 11 | 17 and payment account Rs.2,47,41,000/- was received towards grant in aid. (ii) It was also seen from the income and expenditure account of revenue account, the assessee had claimed the following expenses, which are capital in nature, as revenue expenditure. Cost of battery : Rs.5,400/- Cost of lawn mover : Rs.3,315/- Cost of mike : Rs.8,652/- Cost of spare parts : Rs.31,930/- Digital camera : Rs.8,700/- Pump : Rs.6,874/- Telephone : Rs.2,180/- Water supply connection: Rs.15,800/- Total: Rs.82,671/- The allowable depreciation rate for all these items are 15%. Therefore, after allowing depreciation of Rs.12,401/-, the balance amount of Rs.70,270/- should have been disallowed. iii) The assessee had claimed FBT of Rs.18,823/- in the income and expenditure account of revenue account, which is not an allowable expense under the I.T.Act. Thus, an amount of Rs.5,09,58,000/-(Rs.5,08,68,906/- plus Rs.70,270/- plus Rs.18,823/-) in the above manner chargeable to tax had escaped assessment within the meaning of section 147 of the I.T.Act, 1961.”

response to said notice, again another notice on 11.7.2013 was issued as

called for u/s.148 of the Act on or before 23.7.2013 failing which the

assessment would be completed exparte to the best of judgment. Ld

counsel submitted that there was no new tangible material available with

P a g e 12 | 17 the Assessing Officer while resorting to section 147/148 of the Act, more

specifically, while framing original assessment u/s 143(3) of the Act, there

was full disclosure of material facts by the assessee and on the basis of

those facts, assessment was completed u/s 143(3) of the Act. For this

proposition, he relied on the decision of Hon’ble Supreme Court in the case

of CIT Vs. Kelvinator India Ltd. (2010) 310 ITR 561 (SC) and also the

decision of Hon’ble Delhi High Court in the case of CIT vs Usha International

Ltd. (2012) 348 ITR 485 (Delhi)

authorities and materials available on record. We find that the assessment

was completed u/s.143(3) of the Act on 16.12.2010 accepting the returned

income. Subsequently, the Assessing Officer noticed that the assessee has

claimed Rs.3,72,23,360/- and Rs.1,36,45,546/- in the revenue and the

capital respectively as unutilised grants in aid. Therefore, the AO issued

notice u/s.148 of the Act for reopening the assessment and completed the

reassessment u/s.144/147 of the Act on 29.1.2014 determining the total

income at Rs.5,09,58,000/-, inter alia, disallowing Rs.3,72,23,360/- as

surplus in the revenue account and Rs.1,36,45,546/- as capital account.

We peruse the assessment order u/s.143(3) dated 16.12.2010 and find that

the assessee had filed balance sheet and income & expenditure account on

P a g e 13 | 17 20.7.2010 and furnished various details as required by the Assessing officer

and after verifying the same, the Assessing officer accepted the returned

income of the assessee and framed the assessment. The reassessment

proceedings u/s.144/147 of the Act was made by the Assessing Officer on

the same income and expenditure account. Hence, it cannot be said that

any new material has come to the notice of the Assessing officer.

by the decision of Hon'ble Supreme Court in the case of CIT Vs. Kelvinator

India Ltd. (2010) 310 ITR 561 (SC), wherein newly substituted provision

of section 147 of the Act with effect from 01.04.1989 is interpreted by

observing, that section 147 of the Act, as substituted w.e.f. 01.04.1989

does not postulates conferment of power upon the Assessing Officer to

initiate reassessment proceeding upon his mere change of opinion. Further,

if 'reason to believe' of the Assessing Officer is founded on an information

which might have been received by the Assessing Officer after the

completion of assessment, it may be a sound foundation for exercising the

power under section 147 r.w.s. 148 of the Act. It cannot be accepted that

only because in the assessment order, detailed reasons have not been

recorded, an analysis of the materials on the record by itself may be

justifying the Assessing Officer to initiate a proceeding u/s. 147 of the Act.

When a regular order of assessment is passed u/s 143(3) of the Act, the

P a g e 14 | 17 presumption can be raised that such an order has been passed on

application of mind.

been held as under:

“ In view of the above observations we must add one caveat. There may be cases where the Assessing Officer does not and may not raise any written query but still the Assessing Officer in the first round/ original proceedings may have examined the subject matter, claim etc, because the aspect or question may be too apparent and obvious. To hold that the assessing officer in the first round did not examine the question or subject matter and form an opinion, would be contrary and opposed to normal human conduct. Such cases have to be examined individually. Some matters may require examination of the assessment order or queries raised by the Assessing Officer and answers given by the assessee but in others cases, a deeper scrutiny or examination may be necessary. The stand of the Revenue and the assessee would be relevant. Several aspects including papers filed and submitted with the return and during the original proceedings are relevant and material. Sometimes application of mind and formation of opinion can be ascertained and gathered even when no specific question or query in writing had been raised by the Assessing Officer. The aspects and questions examined during the course of assessment proceedings itself may indicate that the Assessing Officer must have applied his mind on the entry, claim or deduction etc. It may be apparent and obvious to hold that the Assessing Officer would not have gone into the said question or applied his mind. However, this would depend upon the facts and circumstances of each case.”

same material to initiate reassessment proceedings tantamounts to change

of opinion and hence bad in law. We also find that in the present case,

there was admittedly no failure on the part of the assessee to make a

P a g e 15 | 17 return or to disclose fully and truly all material facts necessary for the

assessment. From the above facts of the case and following the decisions

quoted above, we are of the considered view that the reassessment order

u/s. 147 r.w.s. 144 dated 29.1.2014 of the Act is bad in law a hence, same

is quashed and allow the additional ground of appeal.

Act dated 29,.1.2014 while adjudicating additional ground of appeal, other

grounds raised by the assessee on merits of the additions have become

infructuous and hence, not adjudicated.

ITA No.351/CTK/2014: A.Y 2008-09- Revenue’s appeal

while deciding the additional ground in the assessee’s appeal in ITA

No.366/CTK/2014 , the appeal filed by the revenue is also dismissed.

below the limit of Rs.50 lakhs fixed by the CBDT in Circular No. 17/2019

dated 8th August, 2019. Therefore, on this count also, the appeal of

the revenue is not maintainable.

P a g e 16 | 17 Order pronounced on 29 /11/2019.

Sd/- sd/- (Laxmi Prasad Sahu) (Chandra Mohan Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER

Cuttack; Dated 29 /11/2019 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : /Assessee: , Opp. M.K C.G. Medical College, Berhampur

Sr.Pvt.secretary ITAT, Cuttack

P a g e 17 | 17