ITO, KOTA vs. URBAN IMPROVEMENT TRUST, KOTA

PER BENCH :

All these appeals/cross appeals/ cross objection are filed by the revenue and

assessee against the separate orders of ld. CIT (A), Kota dated 21.03.2014,

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27.03.2015, 02.02.2017 and 15.03.2017 pertaining to assessment years 2010-11,

2011-12 and 2012-13. Identical issues are involved in all these appeals, therefore,

same are taken up together and are being decided by a consolidated order, for the

sake of convenience. The grounds taken in these appeals are as under :-

ITA No. 407/JP/2014 (Revenue) :

“ On the facts and in the circumstances of the case, the ld. CIT (A) has erred in –

(i) Treating the rental income of Rs. 32.32 lakhs assessed under the head “ Income from house property” as “Income from business”;

(ii) Allowing the expenses of Rs. 3634.99 lakhs by treating the same as revenue expenditure;

(iii) Allowing the deduction of Rs. 1599.37 lakhs by holding that ground rent, conversion charges, transfer fee etc. collected by the assessee also constituted the shares of State Government and Municipal Bodies and were never part of assessee’s income.

(iv) Allowing expenses of Rs. 3862.49 lakhs out of total expenses claimed at Rs. 7514.92 lakhs under the head “Other miscellaneous expenses” and disallowed by the AO;

(v) The appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing.

ITA No. 457/JP/2014 (Assessee) :

1) Under the facts and the circumstances of the case and in law, the ld. Commissioner of Income-tax (Appeals), Kota has erred in not declaring the reassessment proceedings, initiated under section 147/148 of the Income Tax Act, 1961, as invalid/nullity and thereby not quashing the assessment order itself passed in consequence thereof.

2) Under the facts and the circumstances of the case and in law, the ld. Commissioner of Income-tax (Appeals), Kota has erred in not quashing/nullifying the ex-parte assessment order passed under section 144 read with section 147 of the Income Tax Act, 1961.

3) Under the facts and the circumstances of the case and in law, the ld. Commissioner of Income-tax (Appeals), Kota has erred in not allowing

4 ITA NOS. 407(7)/JP/2014 Urban Improvement Trtust, Kota.

exemption under section 10(20) of the Income Tax Act, 1961 while computing the total income of the Appellant Trust.

4) Under the facts and the circumstances of the case and in law, the ld. Commissioner of Income-tax (Appeals), Kota has erred in not allowing the various expenditures incurred by the Appellant Trust in entirety.

5) Under the facts and the circumstances of the case and in law, the ld. Commissioner of Income-tax (Appeals), Kota has erred in not allowing carry forward and set off of losses for computation of the total income of the Appellant Trust.

6) Under the facts and the circumstances of the case and in law, the ld. Commissioner of Income-tax (Appeals), Kota has erred in sustaining the charging of interest under sections 234A and 234B of the Income Tax Act, 1961 as charged by the ld. Income-tax Officer, Ward 1(2), Kota.

7) The appellant craves to add, alter, amend and modify any grounds of appeal.

ITA No. 571/JP/2015 (Revenue) :

“ On the facts and in the circumstances of the case, the ld. CIT (A) has erred in –

(i) Deleting the additions so made by the Assessing Officer by rejecting the books of account under section 145(3) of the Income-tax Act, 1961 inspite the fact that the action of the Assessing Officer has been upheld by the ld. CIT (A) stating that “ the assessee has not maintained books of account on mercantile basis. The same were not maintained on Double Entry Book-keeping System”;

(ii) Treating the rental income of Rs. 56.43 lakhs assessed under the head ‘Income from house property’ as ‘income from business’;

(iii) Allowing deduction of Rs. 49,84,283/- to the assessee being deduction made out of payments made to contractors since the assessee is following cash system of accounting;

(iv) Allowing the deduction of Rs. 1087.86 lakhs to the assessee by holding that ground rent, conversion charges, transfer fee etc. collected by the assessee as share of State Government and Municipal Bodies is not part of assessee’s income since the assessee failed to produce any documentary evidence regarding payment of these amounts to the municipal authorities/State Government;

5 ITA NOS. 407(7)/JP/2014 Urban Improvement Trtust, Kota.

(v) Allowing the expenses of Rs. 9020.79 lac to the assessee by holding that the expenses are as per the objects of the assessee and are allowable as business expenditure. The ld. CIT (A) has not appreciated that the AO had disallowed these expenses since these were either capital expenditure or not related to the business income shown by the assessee during the year under consideration;

(vi) Allowing the expenses of Rs. 2238.63 lakhs to the assessee by holding that the assessee is following cash system of accounting and hence the expenses are allowable in the year in which these were incurred. The ld. CIT (A) has not appreciated that the assessee had failed to discharge the onus to prove that expenses of Rs. 2238.63 lac were incurred for the purpose of earning the income for the year under consideration;

(vii) The appellant craves liberty to raise additional ground and to modify/amend the grounds of appeal at the time of hearing.

Cross Objection No. 43/JP/2015 (Assessee) :

(1) Under the facts and circumstances of the case and in law, the ld. CIT (Appeals), Kota has erred in not allowing exemption under section 10(20) of the Income Tax Act, 1961 while computing the total income of the Appellant Trust.

(2) Under the facts and circumstances of the case and in law, the ld. CIT (Appeals), Kota has erred in holding that the Appellant Trust is engaged in carrying on business.

(3) Under the facts and circumstances of the case and in law, the ld. CIT (Appeals), Kota has erred in upholding the rejection of books of accounts of the Appellant Trust by the Ld. Assessing Officer, under section 145 of the Income Tax Act, 1961.

(4) Under the facts and circumstances of the case and in law, the ld. CIT (Appeals), Kota has erred in holding the share of Municipal Corporation in sale of certain land as the income of the Appellant Trust. The ld. CIT (Appeal), Kota has further erred in not allowing the share of Municipal Corporation as an expense to the Appellant Trust.

(5) The respondent craves to alter, amend and modify any ground of cross objection.

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ITA No. 344/JP/2017 (Revenue) :

“ On the facts and in the circumstances of the case, the ld. CIT (A) has erred in :-

(i) Deleting the addition of grant of Rs. 5,76,27,000/- received by the assessee under Urban Infrastructure Development Scheme, ignoring the fact that the expenditure incurred on the scheme was claimed by the assessee as its business expenditure in the income & Expenditure Account.

(ii) Deleting the addition of grant of Rs. 20 crore received by the assessee under Urban National River Conservation Plan Scheme, ignoring the fact that the expenditure incurred on the scheme was claimed by the assessee as its business expenditure in the income & Expenditure Account.

(iii) Deleting the addition of grant of Rs. 5 crore received by the assessee under Integrated National Housing & Slum Development Programm Scheme ignoring the fact that the expenditure incurred on the scheme was claimed by the assessee as its business expenditure in the income & Expenditure Account.

(iv) Deleting the addition of receipt of BSUP Shelter Fund of Rs. 13,54,241/-, ignoring the fact that the expenditure incurred on the scheme was claimed by the assessee as its business expenditure in the income & expenditure Account.

(v) Deleting addition of Rs. 20,22,66,568/- on account of receipts from sale of land at Rajiv Gandhi Nagar, ignoring the fact that the assessee follows single entry cash system of accounting and nothing had been paid by the assessee during the year to the Government;

(vi) Deleting addition of Rs. 407,87,711/- being addition on account of Niyeman Avam Urban Tax, ignoring the fact that the assessee follows single entry cash system of accounting and nothing had been paid by the assessee during the year to the Government;

(vii) Deleting addition of Rs. 410 lacs being addition on account of payment to RUIDP;

(viii) Deletion addition of house rent of Rs. 80,435/- without appreciating the facts mentioned by the AO in the assessment order;

(ix) Deleting addition of Rs. 1,61,554/- as income by way of Sazawati Shulk ignoring the facts mentioned by the AO in the assessment order;

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(x) Deleting addition of Rs. 8,65,80,109/- made on account of withheld money from payments out of contractors;

(xi) Deleting addition of capital expenditure of Rs. 10091.53 lakhs claimed as revenue expenditure without appreciating the facts mentioned by the AO in the assessment order;

(xii) Deleting addition or receipts of Rs. 101.30 lakhs from allottees of Prem Nagar Society;

(xiii) Deleting the addition of Rs. 1,26,132/- made on account of amount deducted from advertisement expenses and retained with it under patrakar kosh;

(xiv) Deleting the disallowance of Rs. 29,500/- made u/s 40(a)(ia) on account of non-deduction of TDS from the payments made to M/s. Mahavir Samriya towards Swimming Pool & Gym Expenses;

(xv) Deleting the disallowance of Rs. 26,894/- made u/s 40(a)(ia) on account of non-deduction of TDS from the payments to CAD centre;

(xvi) Deleting the disallowance of Rs. 13,000/- made u/s (a)(ia) on account of non-deduction of TDS from the payments to Shri S.N. Kumawat towards legal expenses;

(xvii) Deleting addition of Rs. 5,89,43,321/- on account of cheques issued, but time barred due to not being presented for payment;

(xviii) Deleting addition of Rs. 8,03,93,856.79 made u/s 69A without appreciating the facts mentioned by the AO in the assessment order;

(xix) Deleting addition of Rs. 16,652/- on account of unaccounted bank deposits;

(xx) The appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing.”

ITA No. 256/JP/2017 (Assessee) :

1) Under the facts and circumstances of the case and in law, the order passed by the ld. CIT (A) under section 250(6) of the Income Tax Act, 1961 is perverse, arbitrary and bad in law.

2) Under the facts and circumstances of the case and in law, the ld. CIT (A), Kota has erred in not allowing the benefit of exemption under Section

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10(20) of the Income tax Act, 1961 while computing the total income of the Appellant trust.

3) Under the facts and circumstances of the case and in law, the ld. CIT (A), Kota has erred in upholding the action of the ld. AO in getting the accounts audited of the appellant trust under Section 142(2A) of the Income tax Act, 1961.

4) Under the facts and circumstances of the case and in law, the ld. CIT (A), Kota has erred in confirming the disallowance of following expenditure as claimed by appellant trust by treating the same as capital expenditure :

A. Expenditure incurred on computer work at Rs. 15,81,587/-.

B. Expenditure incurred on construction of auditorium at Rs. 71,07,826/-.

C. Expenditure incurred on office equipment, furniture and computerization at Rs. 42,61,338/-

5) Under the facts and circumstances of the case and in law, the ld. CIT (A), Kota has erred in not allowing the expenditure incurred in relation to expenses paid to Municipal Corporation amounting to Rs. 13,05,89,000/-.

6) Under the facts and circumstances of the case and in law, the ld. CIT (A), Kota has erred in confirming the following additions in respect of entries reflected in the Bank Reconciliation Statement of the OBC bank account No. 11342040000010.

A. Addition of Rs. 9,14,738/- credited in the bank account which was shown in the Bank Reconciliation Statement. B. Addition of Rs. 83,307/- on account of difference in the various amounts credited by the bank and recorded as per books of accounts. C. Addition of Rs. 51,04,529/- on account of amount credited by the bank in the month of March 2012.

7) Under the facts and circumstances of the case and in law, the ld. CIT (A), Kota has erred in confirming the addition of Rs. 4,47,634/- on account of interest credited by PD TREASUERY SBBJ Bank which is already offered to tax in the return of the income for the year under consideration.

8) Under the facts and circumstances of the case and in law, the ld. CIT (A), Kota has erred in confirming the following additions on account of interest credited in bank account.

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A. Addition of Rs. 2,27,353/- on account of interest credited by Axis Bank. B. Addition of Rs. 3,43,398/- on account of interest credited by IDBI Bank. C. Addition of Rs. 859/- on account of interest credited by Axis Bank.

9) Under the facts and circumstances of the case and in law, the ld. CIT (A), Kota has erred in confirming the addition of Rs. 26,98,429/- being tax deduction at source made by the bank from the interest credited in the bank.

10) Under the facts and circumstances of the case and in law, the ld. CIT (A), Kota has erred in upholding the levy of interest u/s 234A, 234B and 234C.

11) The appellant trust craves to alter, amend and modify any ground of appeal.

ITA NO. 423/JP/2017 (Assessee) :

1) Under the facts and circumstances of the case and in law, the order passed by the ld. CIT (A) under section 250(6) of the Income Tax Act, 1961 is perverse, arbitrary and bad in law.

2) Under the facts and circumstances of the case and in law, the ld. CIT (A), Kota has erred in upholding penalty of Rs. 2,14,43,271/- under section 271(1)(c) of the Income Tax Act, 1961.

3) Under the facts and circumstances of the case and in law, the ld. CIT (A), Kota has erred in upholding the levying the penalty u/s 271(1)(c) of the Income tax Act, 1961 even though appeal for applicability of Section 10(20) of the Income tax Act, 1961, on the Appellant trust is pending before the Hon’ble Jurisdictional High Court, Jaipur.

4) The appellant trust craves to alter, amend and modify any ground of appeal.

First, we take up ITA No. 407/JP/2014.

with section 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act)

observed that the Tribunal in ITA No. 367/JP/2010 held that the assessee is not

entitled for exemption under section 10(20) of the Act. Therefore, he treated the

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receipts as business income and also made further addition of income from house

property and income from other sources. The assessee preferred appeal against this

order before ld. CIT (A), who after considering the submissions partly allowed the

appeal, thereby he upheld the action of the AO for reopening of assessment and

rejecting the claim of exemption u/s 10(20) of the Act. However, he partly allowed

the other grounds raised against the addition made by the Assessing Officer. Against

this order, both the assessee and the revenue have filed the appeal.

High Court in DB Income Tax Appeal No. 357 of 2011 in the case of UIT, Kota vs.

ITO held that the assessee is a local authority for the purpose of carrying out of

improvement and development function of State. He drew our attention to para 16

to 18 of the Judgment of Hon’ble High Court (supra). Therefore, he submitted that

the issues are to be restored to the AO for fresh determination in the light of the

judgment of the Hon’ble High Court in assessee’s own case in DB IT Appeal No. 357

of 2011.

3.1. The ld. D/R conceded that Hon’ble Jurisdictional High Court has decided the

issue of allowability of deduction u/s 10(20) of the Act, hence the assessment is

required to be framed afresh in the light of the judgment of the Hon’ble

Jurisdictional High Court (supra).

3.2. We have heard rival contentions and perused the material available on

record. The main crux of the issue involved in these appeals is whether assessee

trust discharges the functions of a ‘local authority’ as contemplated under section

10(20) of the Income Tax Act, 1961. In this regard, it is brought to our notice by

11 ITA NOS. 407(7)/JP/2014 Urban Improvement Trtust, Kota.

the ld. Counsel for the assessee that identical issues involved in the present appeals

have been adjudicated by the Hon’ble Jurisdictional High Court in DB Income Tax

Appeal No. 357/2011 titling Urban Improvement Trust, Kota vs. The Income-tax

Officer, Ward 1(2), Kota wherein the Hon’ble Jurisdictional High Court has answered

the question in favour of the assessee. The relevant para 15 to 19 of the order is

reproduced as under :-

“ 15. It is true that the functions which are carried out by the assessee are statutory functions and carry on for the benefit of the State Government for urban development therefore, in our considered opinion, the functions carried out by the authority is a supreme function and fall within the activity of the State Government. 16. In that view of the matter, the judgments which are strongly relied upon by the counsel for the department are of no help in the facts of the case as the case relied upon by the department was in respect of industrial corporation which was under the statute for the purpose of making profit. The fees and other charges which are covered are statutorily for the development of the urban area. In that view of the matter, the judgment which sought to be relied upon by the counsel for the respondents, in our considered opinion, would be of importance and the functions which are carried out by the assessee is statutory function. In our considered opinion, under clause-10(20) & Sub-clause (3) Municipal Committee and District Board are legal entity entrusted by the function of the Government within the control or management of the municipal or local authority and will try to help the assessee. 17. In that view of the matter, the reliance placed by counsel for the department regarding 10(20) and explanation A will not make any difference. Taking into consideration income of authority is under constitution of India vide order enacted either for the purpose of

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dealing with or setting up the housing scheme for the purpose of planning and development of the improvement of the cities, town and villages or both for which the authority are created to carry out the function of State which are sovereign whereas the urban development and calculation of development charges will fall under the development charges. 18. In that view of the matter, deletion of 20A will not 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. 19. In that vierw of the matter, the issue is required to be answered in favour of the assessee against the department. In view of the answer, other issues are become academic, therefore, we are not deciding those issue.”

In view of the judgment of the Hon’ble Jurisdictional High Court, we hereby set

aside the impugned order and direct the AO to make denovo assessment.

256/JP/2017 pertaining to A.Y. 2010-11 and 2012-13 respectively and Cross

Objection No. 43/JP/2015 and Revenue’s Appeal in ITA No. 571/JP/2015 &

344/JP/2017 pertaining to A.Y. 2011-12 & 2012-13 respectively.

ITA No. 407/JP/2014 above. Since we have adjudicated the identical issue in ITA

No. 407/JP/2014, therefore, following the decision arrived in that appeal, we set

aside the impugned orders and direct the AO to make denovo assessment.

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pertaining to assessment year 2010-11 challenging the imposition of penalty under

section 271(1)(a) of the Act.

407/JP/2014 and directed the AO for denovo assessment, the imposition of penalty

is also set aside and the appeal of the assessee in ITA No. 423/JP/2017 is allowed

for statistical purposes.

344/JP/2017 and appeals/cross objection of the assessee in ITA No. 457/JP/2014,

256/JP/2017, 423/JP/2017 and C.O. No. 43/JP/2015 are allowed for statistical

purposes.

Order is pronounced in the open court on 06.10.2017.

Sd/- Sd/- ( HkkxpUn ½ ( dqy Hkkjr) ( BHAGCHAND) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 06 /10/2017. Das/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- The ITO, Ward-1(2), Kota. 2. The Respondent – M/s. Urban Improvement Trust, Kota. 3. The CIT(A). 4. The CIT, 5. The DR, ITAT, Jaipur vkns'kkuqlkj@ By order, 6. Guard File (ITA No. 407(7)/JP/2014)

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

14 ITA NOS. 407(7)/JP/2014 Urban Improvement Trtust, Kota.