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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO, HON’BLE & SHRI D.S. SUNDER SINGH, HON’BLE
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER ITA No. 394/VIZ/2017 (Asst. Year : 2008-09) Andhra Pradesh Capital vs. ACIT, Circle-3(1), Region Development Authority Vijayawada. (Formerly VGTM Urban Development Authority), UDA Complex, Lenin Centre, Governorpet, Vijayawada. PAN No. AAALV 0067 E (Appellant) (Respondent)
Assessee by : Shri S. Rama Rao, Adv. Department By : Shri T.S.N. Murthy, Sr.DR
Date of hearing : 26/09/2019. Date of pronouncement : 04/10/2019. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Vijayawada, dated 28/02/2017 for the Assessment Year 2008-09. 2. Facts of the case, in brief, are that the assessee-Vijayawada Guntur Tenali Mangalagiri Urban Development Authority, now known as APCRDA is a statutory authority constituted u/sec.3 of
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Andhra Pradesh Urban Areas Development Act, 1975. It is non- profit oriented organization established for the development of urban areas by implementing the provisions of the master plan. For the A.Y. 2002-03, the assessee had filed its return of income on 29/09/2008 by declaring NIL income. The case of the assessee was selected for scrutiny and a notice u/sec. 143(2) dated 18/08/2009 was issued. Subsequently, a notice u/sec. 142(1) dated 27/01/2010 was issued for calling information. In response to the notice, the assessee filed all the relevant details. The Assessing Officer after considering the reply and the material available on record, assessment was completed u/sec. 143(3) of the Act dated 31/12/2010. 3. Subsequently, a notice u/sec. 148 dated 19/03/2015 was issued to the assessee on the ground that income of the assessee is chargeable to tax for the A.Y. 2008-09 as escaped within the meaning of section 147 of the Act and asked the assessee to file reply within 30 days from the date of receipt of the notice. Subsequently, change of incumbent again notice u/sec. 143(2) dated 01/03/2016 was issued to the assessee calling explanation. In response, the assessee has filed a detailed reply vide letter dated 08/03/2016 wherein submitted that the case of the assessee was selected for scrutiny and assessment was completed
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with an addition of Rs. 33,00,541/- for non-deduction of tax at source (TDS). The assessment was completed after detailed verification of various items including the allowability of development/sinking fund. During the course of proceedings, the Assessing Officer had issued a notice u/sec. 142(1) dated 16/12/2010 calling for explanation and submission of relevant information on various issues including development/sinking fund. In response, the assessee submitted all the relevant information and assessment was completed without any addition on the matters referred in the notice. Later basing on the internal audit objection of the Income-tax Department, the case was reopened without any additional evidence or information. It was submitted that this is nothing but a mere change of opinion and also submitted that the issue was examined by the Assessing Officer and did not find any reason to make addition hence, reopening is not warranted. Even during the course of assessment proceedings also, the assessee strongly objected for reopening of the assessment. However, the Assessing Officer not agreed with the explanation of the assessee and observed that as per section 147 it is clear that there should a „reason‟ and „belief‟ and such reasons must be recorded. The assessee must have disclosed fully and truly all material facts necessary for his assessment for that
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assessment year. Here in the case on hand, the then Assessing Officer has rightly recorded his reasons believed. Basing on the material evidence that was cropped up during the subsequent assessment years (A.Y. 2011-12 & 2012-13) i.e. claim of unincurred sinking fund in the profit & loss account. The same issue is also there in the year under scrutiny. The Assessing Officer in his reasons has clearly mentioned that an amount of Rs.19,27,95,540/- is debited to the profit & loss account which is not maintainable. For the A.Y. 2008-09, the assessee credited amounts to the extent of Rs. 3,40,22,738/- instead of actual income of Rs. 22,68,18,283/-. However, after netting of the expenditure towards sinking fund at Rs. 19,27,95,540/- only Rs.3,40,22,738/- was credited. Therefore, there is a valid reason to believe. Accordingly, the objections raised by the assessee for reopening was rejected and assessment was completed by disallowing Rs. 19,27,95,540/-. 4. On being aggrieved, assessee carried the matter in appeal before the ld. CIT(A). The ld. CIT(A) upheld the reopening and also confirmed the additions. 5. On being aggrieved, assessee carried the matter in appeal before this Tribunal.
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Ld. counsel for the assessee has submitted that the assessment in this case was completed u/sec. 143(3) on 31/12/2010 and a notice for reopening was issued u/sec. 148 on 19/03/2015 which is beyond four years and therefore assessment cannot be reopened unless assessee has failed to disclose fully and truly all material facts. In this case, the assessee has disclosed all the material facts, therefore reopening of assessment is not valid. By pointing out at page No. 133 of the paper book, which is a notice u/sec. 142(1) dated 16/12/2010 and also reply filed at page No. 141, ld.AR submitted that all the details are furnished before the Assessing Officer. The Assessing Officer after examining all the facts, completed the assessment. Even in the assessment order, the Assessing Officer himself has recorded that the case of the assessee was examined and discussed with the concerned material available on record. Therefore, the reopening is not valid. He further submitted that assessment was reopened by issuing a notice u/sec. 148 after four years and submitted that to reassess the escapement of income after four years, the Assessing Officer has to establish that there is a failure on the part of the assessee to disclose fully and truly all the material facts necessary to complete the assessment. In this case, the Assessing Officer has raised an objection in respect of sinking
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funds and a detailed reply was filed. After examining the reply filed by the assessee and also books of account, assessment is completed u/sec. 143(3) dated 31/12/2010. It was further submitted that the very same assessment is reopened by issuing notice u/sec. 148 and assessment is completed on 11/03/2016 which is invalid and not correct according to law. 7. On the other hand, ld.DR strongly supported the orders of the authorities below. 8. We have heard both the sides, perused the material available on record and orders of the authorities below. 9. The assessee is engaged in the development of projects in the area of VGTM UDA working under the control of Government of Andhra Pradesh. During the course of assessment proceedings, the Assessing Officer has issued a notice u/sec. 142(1) dated 16/12/2010 where the Assessing Officer has specifically asked about the sinking funds of Rs. 19,27,95,540/- debited to profit & loss account and called for explanation from the assessee, which is at page No.133 of the paper book. For the sake of convenience, the notice issued by the Assessing Officer u/sec. 142(1) dated 16/12/2010 is extracted verbatim as under:
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Notice U/S 142(1) OF THE I.T.ACT, 1961. Office of the Asst. Commissioner of Income Tax, Circle-2(1), Vijayawada. Date :- 16/12/2010 To The VGTM Urban Development Authority, UDA Complex, Lenin Centre, Governorpet, Vijayawada-2 1) During the course of assessment proceedings for the A.Y. 2008- 09 and the information furnished by you authorized representative, it is observed that the following amounts were kept under the hedd Other Liabilities (Words) in the balance sheet:
1) Scheme‟s Receipts Rs. 27,67,19,475/- 2) 50% contribution for the Cental Lighting, Rs. 3,32,750/- Broadipet, Guntur 3) Regularization fee under BPS & LRS Rs. 2,44,32,931/- 4) 50% contribution to the CC Drains, Gannavaram Rs. 10,37,260 5) Contribution for the Central Lighting, NH5, Rs. 21,56,000/- Atmakur 6) 50% contribution for the Central Lighting, GMC Rs. 30,84,500/- 7) Sinking Fund (85% of the Development Charges Rs. 19,27,95,540/- collected) 2) It is very clear that all the above amounts were received during the current assessment year except the liability mentioned under the head 7 Sinking Fund which is 85% of the Development Charges collected amounting to Rs. 19,27,95,540/- has been transferred from the Income & Expenditure account with a view to incur the Development expenditure towards the Infrastructure, as mentioned in the G.O. (Government Order) relevant to the Urban Development Authority. The relevant portion of the G.O. is reproduced as under:- “In the Government Order it is stated that while enhancing the collection of the development Charges it was indicated there in that the amount collected by the Urban Development Authorities shall be kept it in a separate account of Vice Chairman of Urban Development Authorities and the Urban Development Authorities shall utilize 85% of the income to implement the provisions of Master Plan Viz. (a) Traffic improvement (b) Construction of the Bridges (c) Development of Green Belt and parks etc. and remaining 15% can be utilized for the administration and other maintenance.” 3) The details of the Expenditure as Furnished in the P & L account are as follows:-
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Sl. Nature of Expenditure Amount Administrative No. Expenditure/ Development Expenditure 1 Salaries to Staff & 3,01,37,107.90 Administrative Expenses Officers (UDA Staff) 2 Pay & Allowances (LA 505874.00 -do- Wing) 3 Travelling Allowance 659321.00 -do- 4 Office Expenses 3702797.00 -do- 5 Vehicle Maintenance 1254639.00 -do- 6 Advocate / Legal Fees 435428.00 -do- 7 Demolition Charges (Net) 128893.00 -do- 8 Audit Fee (Internal) 17980.00 -do- 9 Uniform to Drivers & 11346.00 -do- Attenders 10 Provisions for 22,04,007.36 -do- Depreciation Reserve 11 Rent for Project Office, 60500.00 -do- Guntur. 12 Cremation Charges 10000.00 -do- 13 Telecharges and Postal 686504.00 -do- Charges 14 Expenditure for 30749344.50 Master Plan Expense developmental Works (Works in progress) 15 Sorts & Games 44453.00 -do- 16 Advertisement charges 32,10,095 -do- 4) As could be seen from the above Income & Expenditure, the assessee incurred Expenditure of Rs. 7,38,18,289.76 during the current assessment year, includes an amount of Rs. 3,40,03,892.5/- expenditure towards Development Expenditure as qualified to be in the Master Plan Expense and an amount of Rs. 3,98,14,397.76/- expenditure towards the Administration & Other Maintenance Expense. 5) As can be seen in paragraph No.1, the various heads numbered from 1 to 6 are in the nature of revenue receipts and should be treated as Income received during the year, instead of treating it as capital receipt and placing it as outstanding liability within the balance sheet as claimed. 6) The Hon'ble ITAT vide order ITA No. 321/H/07, dated 24/08/2007 held as under:- “As regards the plea taken by the learned counsel for the assessee that the said transfer to development fund account is allowable under section 36(1)(xii) of the Act we find that under section 36(1)(xii) expression “any expenditure incurred” means that it should have been incurred in the accounting year. Since the assessee vide his letter dated 13th August, 2004 admittedly stated that he was unable to utilize the funds transferred to development fund account during the year under consideration, therefore, we do not find any merit in the plea of the learned counsel for the assessee that the same is allowable under section 36(1)(xii) of the I.T. Act.”
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7) As can be seen from the para No.3, the expenditure towards the On the basis of the findings given by the Hon'ble ITAT, Hyderabad, why the entire amounts kept under the head Other Liabilities in the balance sheet amounting to Rs. 50,05,58,456/- after giving set off of Rs.3,39,59,439.5/- incurred as expenditure in the nature of Master Plan Development cannot be treated as Income earned during the year and brought to the tax net. Please state your explanations in this due regard. 8) Please furnish the TDS Reconciliation with respect to the expenses claimed in the profit & loss account viz. Advocate / legal fee, Advertisement Charges, Rents. 9) Please furnish the confirmation letters with respect to the Fresh Liabilities introduced during the year viz. Sri O.S.R. Mukherjee, Contractor – Rs. 89,217/- Sri K. Ravindrababu, Contractor – Rs. 1,33,239/- Sri S.V. Harikrishna, Contractor – Rs. 1,29,908/- Building Permission Fee Details – Rs. 27,67,082/- 10) Reasons for increase in the liability of NEDCAP Solar System Deposit (Plg. Wing) along with their proofs and confirmation’s within the relevant Financial Year i.e. Rs. 1,69,50,320/- 11) Reasons for increase in the liability of the Corpus Fund and the relevant proofs for that i.e. Rs. 20,78,980/- You are requested to submit your explanations in this due regard, by 22nd December, 2010. Failure to do so may lead to the Assessment proceedings and levy of penalty u/s. 271(1)(c).”
In response to the above notice, the assessee has filed a detailed reply in respect of sinking funds. The relevant portion of the reply is extracted as under:- “During the previous year the assessee has received Development charges (Net) Rs. 17,19,94,857/-, Compounding Fees Rs. 41,28,117/-, Application fees Rs. 1,06,64,493/-, Open space charges Rs. 2,21,53,592/-, Road development charges Rs. 13,90,016/-, Recommendation fees Rs. 14,91,030/-, Conversion fees Rs. 1,30,69,953/-, Impact fees Rs. 19,26,225/-, resulting to a total of Rs. 22.68 crores. In view of the statutory obligation as per GoMS No. 530, dated 28/09/1998, 85% of these development charges i.e. 19.28 crores is to be utilized for development activities. As the authority is not able to utilize the same in the current year, the same is transferred to development or sinking fund a/c and will be utilized in the coming years.”
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The Assessing Officer after considering the explanation of the assessee, assessment was completed u/sec. 143(3) on 31/12/2010. From the above, it is clear that the Assessing Officer has asked the assessee about the sinking funds of Rs.19,27,95,540/-. The assessee has replied and furnished books of account before the Assessing Officer. The Assessing Officer after examining all the details, assessment is completed. From the above facts and circumstances of the case, it cannot be said that the assessee has failed to disclose all the material facts fully and truly to complete the assessment. Notice u/sec. 148 is issued after 04 years of the relevant assessment and as per proviso to section 147, to reopen the assessment on the ground of escapement of income, the Assessing Officer has to establish that the assessee has failed to disclose the fully and truly of the material facts to complete the assessment. In the present case, the assessee has disclosed all the facts in respect to the notice issued by the Assessing Officer u/sec. 142(1) dated 16/12/2010. For the sake of convenience, the 1st proviso to section 147 is reproduced as under:- “Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped
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assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.”
We therefore, by considering the above proviso to section 147 and also by considering the facts of the case we find that the assessee has disclosed all the material facts truly and fully before passing the assessment order u/sec. 143(3) and the Assessing Officer by considering the same, assessment was completed on 31/12/2010. Thus, the notice issued u/sec. 148 dated 19/03/2015 is invalid and subsequent order passed u/sec. 143(3) r.w.s. 148, dated 11/03/2016 is bad in law. Therefore, we quash the assessment order passed u/sec. 143(3) r.w.s. 148 dated 11/03/2016 and partly allow the appeal of the assessee. 13. In the result, appeal filed by the assessee is partly allowed. Order Pronounced in open Court on this 04th day of Oct., 2019.
Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated: 04th Oct., 2019. vr/-
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Copy to: 1. The Assessee – Andhra Pradesh Capital Region Development Authority (Formerly VGTM Urban Development Authority), UDA Complex, Lenin Centre, Governorpet, Vijayawada. 2. The Revenue – ACIT, Circle-3(1), Vijayawada. 3. The Pr.CIT, Vijayawada. 4. The CIT(A), Vijayawada. 5. The D.R., Visakhapatnam. 6. Guard file. By order
(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.