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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
O R D E R
Per Shri Duvvuru R.L.Reddy, Judicial Member :
These appeals are filed by the revenue against the orders of Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC) dated 24.11.2022 arising out of the orders passed u/s 143(3) of the Income Tax Act, 1961 (in short “Act”) for the Assessment Years (A.Ys.) 2014-15, 2016-17 to 2018-19. Since the grounds raised in these appeals are identical, these appeals are clubbed, heard together and a common order is being passed for the sake of convenience as under. Facts are extracted from I.T.A.No.26/Viz/2023.
2. Brief facts of the case are that the assessee, Vijayawada, Guntur, Tenali, Mangalagiri Urban Development Authority known as Andhra Pradesh Capital Region Development Authority, a statutory authority constituted under section 3 of Andhra Pradesh Urban Areas (Development ) Act, 1975 is a non profit oriented organization established for development of urban areas by implementing the provisions of the Master Plan. The assessee filed it’s return of income on 29.09.2014, admitting loss at Rs.9,79,92,786/-. The case was selected for scrutiny under CASS and notice u/s 143(2) of the Act was issued on 29.08.2015 and served on the assessee. The developmental activities and functions are carried out by the assessee out of receipts under development charges. During the year under consideration, the assessee had collected development charges of Rs.33,95,06,707/- and out of that Rs.28,85,80,701/- (being 85% of Rs.33,95,06,707/) were set aside under the head development fund for future use and was shown under direct expenses in the Income & Expenditure account. The development fund was added to the sinking fund in the subsequent years. The sinking fund was shown as “other liability (works)” in the liability side of balance sheet. During the assessment proceedings, the Assessing Officer (AO) noted that the assessee had not incurred the expenditure towards development activities whereas apportioned 85% of the development charges and had shown under expenditure. Since the assessee had not incurred any expenditure, the expenses claimed under the head development fund were disallowed by the AO and the total income of the assessee was assessed at Rs.19,05,87,916/- as against returned loss at Rs.9,79,92,785/-.
Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) after careful consideration of the facts of the case, reply uploaded by the assessee in response to the notices issued u/s 250 of the Act and the order of the Hon’ble ITAT relied by the assessee on similar ground for the A.Y.2009-10 to 2013-014 in to 399/Viz/2017 dated 30.09.2022, allowed the appeal of the assessee.
Aggrieved by the order of the Ld.CIT(A), the revenue preferred appeals before the Tribunal by raising the following grounds :
1) The order of the Ld.CIT(A) is erroneous both on facts and in law. 2) The Ld.CIT(A) erred in deleting the disallowance of Rs.28,85,80,701/- made by the Assessing Officer treating the amount as merely diverting to development fund instead of incurring actual expenditure which is being 85% of the development charges. 3) The Ld.CIT(A) ought to have considered the fact that 85% of the fee collected does not represent the expenditure of the assessee as it is debited to the development / sinking fund and cannot represent the actual expenditure of the assessee. 4) Any other ground that may be urged at the time of hearing of the case.
Ground No.1 and 4 are general in nature which do not require specific adjudication.
Ground No. 2 and 3 are related to deleting the disallowance of Rs.28,85,80,701/- made by the AO during the assessment proceedings. The Ld.DR contended that the Ld.CIT(A) is not justified in deleting the disallowance of Rs.28,85,80,701/- made by the AO, since the assessee has not spent any amount during the relevant assessment year and hence the provisions created by the assessee cannot be allowed as an expenditure u/s 37 of the Act. The Ld.DR therefore, pleaded to set aside the order passed by the Ld.CIT(A) and allow the appeal of the revenue.
Per contra, the Ld.AR relied on the order of the Ld.CIT(A), the decision of the coordinate bench of the Tribunal for the A.Y.2009-10 to 2013-14 in assessee’s own case on similar issue in 396, 397, 398 & 399/Viz/2017 dated 30.09.2022 and pleaded to uphold the order passed by the Ld.CIT(A) and dismiss the appeal of the revenue.
We have heard both the parties and perused the material available on record. It is undisputed fact that the assessee is a non-profit organisation, established for the development of urban areas by implementing the provisions of the Master Plan as per the directions of the Government of Andhra Pradesh. The assessee debited 85% of the Development Charges received to the sinking fund to meet the future formation charges as per the directions given in GO Ms.No.530 dated 28.09.1998. Coordinate Bench of the Tribunal in the assessee’s own case for the A.Y.2009-10 to 2013-14 on similar issue in 396, 397, 398 & 399/Viz/2017 dated 30.09.2022 allowed the appeal of the assessee holding that since the assessee could not expend 85% of the development charges during the relevant assessment year does not warrant disallowance of the same, as the expenditure shall be incurred in future years for the purpose of general public utilities. For the sake of 6 I.T.A. No.26-29/Viz/2023 & CO No.04-07/Viz/2023, A.Y.2014-15, 2016-17 to 2018-19 Andhra Pradesh Capital Region Development Authority, Vijayawada clarity and convenience, we extract relevant part of the order of the Tribunal as under :
“19. We have heard both the parties and perused the material available on record and the orders of the Ld. Revenue Authorities. Admittedly, the assessee is a Non-Profit Organization established for the development of Urban Areas by implementing the provisions of the Master Plan. As the assessee has been formed under section 3 of the Andhra Pradesh Urban Areas (Development) Act, 1975, it is bound by the Circular issued by the Government of Andhra Pradesh. In the instant case, even though the assessee has not spent the entire amount but debited 85% of the Development Charges received to the Sinking Fund to meet the future formation charges expenditure as per the directions given in G.O.Ms. No.530, dated 28/9/1998. The assessee being a Local Authority which acts as per the directions of the Government of Andhra Pradesh by implementing the Master Plan approved by them. It is also seen from the submission of the Ld. AR that the Institution was exempted from the Income Tax U/s. 10(20A) of the Act upto AY 2002-03. Reliance placed by the Ld. AR on the decision of the ITAT, Hyderabad in the case of HUDA in is distinguishable on the fact that HUDA in the relevant assessment year actually incurred the expenditure which was more than the Sinking Fund created during the year. It is normal accounting practice under the Accrual System of Accounting any future expenditure needs to be provided in the books of accounts in the relevant assessment year. It is not necessary that deduction shall be permissible only in case of amounts actually expended or paid. Further, it is also noticed that the assessee is supposed to expend 85% of the amount to developmental activities as approved by the Government of Andhra Pradesh in accordance with the Master Plan revised. It can be concluded that the assessee as formed under the Andhra Pradesh Urban Areas (Development) Act is bound by the directions of the Government in the collection and execution of development charges. It is also found that the assessee after getting necessary approvals and permissions from the Government of Andhra Pradesh has to expend 85% of the Development Charges collected by them to implement the provisions of the Master Plan. In view of the above discussions, we are of the considered view that the assessee being a non-profit oriented organization established for the purpose of implementing the provisions of the Master Plan is not carrying on any business activity and is only an organ of Government of Andhra Pradesh. Since the assessee could not expend 85% of the development charges during the relevant assessment year it does not warrant disallowance of the same as the expenditure shall be incurred in future years for the purpose of general public utilities. Accordingly, we allow the 7 I.T.A. No.26-29/Viz/2023 & CO No.04-07/Viz/2023, A.Y.2014-15, 2016-17 to 2018-19 Andhra Pradesh Capital Region Development Authority, Vijayawada ground raised by the assessee and hereby set aside the order of the Ld. Revenue Authorities.
Respectfully following the order of the Tribunal in assessee’ own case for the A.Y.2009-10 to 2013-14, we hold that the Ld.CIT(A) has rightly deleted the disallowance made by the AO. We are therefore, inclined to uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.
The assessee filed cross objections in support of the order of the Ld.CIT(A). Since the appeal of the revenue is dismissed, the cross objections filed by the assessee become infructuous, hence, dismissed.
In the result, appeals of the revenue as well as the cross objections of the assessee for the A.Ys. 2014-15, 2016-17 to 2018-19 are dismissed mutatis mutandis.
Order pronounced in the open court on 21st April, 2023. (एस बालाकृष्णन) (दुव्वूरु आर.एल रेड्डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयक सदस्य/JUDICIAL MEMBER Dated : 21.04.2023 L.Rama, SPS