1.  S.2(15): Charitable Purpose – Executing works in connection with the supply of water, disposal of sewerage, and provision of other services and amenities, fall under the general public utility services, eligible for the benefit of section 11.</strong >

The assessee filed its return declaring total

income after claiming deduction under section 11, read with section 2(15). The Assessing Officer held that the activities of the assessee could not be said to be for “charitable purpose” in light of the proviso to section 2(15) and, therefore, the assessee was not entitled to deduction claimed under section 11. The CIT(A) as well as the Tribunal confirmed the disallowance made under section 11 on the ground that the case of the assessee was covered by proviso to section 2(15). The said issue that came up for consideration was whether the activities of the assessee, AUDA could be said to be in nature of trade, commerce, and business and, hence, it could not be regarded as an activity for charitable purposes given the proviso to section 2(15). The High Court observed and held that, the assessee is a statutory body – Urban Development Authority constituted under the provisions of the Act, constituted to carry out the object and purpose of Town Planning Act and collects regulatory fees for the object of the Acts; no services are rendered to any particular trade, commerce or business; whatever the income is earned/received by the assessee even while selling the plots (to the extent of 15 per cent of the total area covered under the Town Planning Scheme) is required to be used only for the purpose to carry out the object and purpose of Town Planning Act and to meet with expenditure while providing general utility service to the public such as electricity, road, drainage, water etc. and even the entire control is with State Government and even accounts are also subjected to audit and there is no element of profiteering at all, the activities of the assessee cannot be said to be in the nature of trade, commerce and business and, therefore, proviso to section 2(15)of the Act shall not be applicable so far as assessee is concerned and, therefore, the assessee is entitled to exemption under section 11 of the Act. Ahmedabad Urban Development Authority vs. ACIT (Exemption) [2017] 396 ITR 323 (Guj)(HC),

The Revenue filed an SLP, and the Honorable Supreme Court dismissed the same following ACIT (Exemption) v. Ahmedabad Urban Development Authority 449 ITR 389 (SC) holding that the urban development authority executing works in connection with the supply of water, disposal of sewerage and provision of other services and amenities, providing general public utility services, and hence eligible for benefit of section 11.

CIT (Exemptions) v. Gandhinagar Urban Development Authority [2023] 454 ITR 43 (SC).</em >

2.  2(47): Capital gains – Transfer (Reassessment) – Reopening notice on the ground that capital gains income had arisen on the transfer of development rights in land to a developer, since the assessee had merely granted a license to permit construction on land to such developer but not given any possession in the land as contemplated u/s. 53A of T.P. Act, 1882, hence there was no transfer as per section 2(47) (v), no capital gain. (r.w.s. 147 and 148)</strong >

The Assessee challenged the notice issued u/s.148 for the reasons that, the Assessee has land plots, and as per details of immovable properties. It is seen that the assessee has not offered capital gain during the year under consideration. Since the assessee transferred, land to the builder, the assessee should have offered capital gain on the land transfer during the year. On information received, prima facie, it is clear that profit arising from the said land transfer is chargeable to tax under capital gain. The Contention of the Assessee before the High Court was, section 2(47)(v), which was invoked to reopen had no application as granting a license to the developer, who entered into the land for development did not amount to ‘allowing the possession of the land’ as contemplated u/s. 53A of the Transfer of Property Act, 1882, and, therefore, section 2(47)(v) would not apply. They have further relied on the decision of Seshasayee Steels (P.) Ltd. vs. ACIT [2020] 115 taxmann.com 5(SC). The High Court held that the development agreement permitted construction on the land in question only as a licensee which did not have the effect of transmitting possession in favor of the licensee within the meaning and spirit of  </em >Section 53A of T.P. Act. If that is so, then there would be neither any tangible material nor any reason for the assessing officer to believe that ‘any income chargeable to tax had escaped assessment’ and the action of the assessing officer, therefore, would be without jurisdiction. Late Bharat Jayantilal Patel (since deceased) through Legal Heir Smt. Minal Bharat Patel v. Dy. CIT, WP 1612 of 2022 dt.10/02/2022 (Bombay)(HC)

The Department filed an SLP, and the Honorable Supreme Court dismissed the same holding that, merely granted a license to permit construction on land to such developer but not given any possession of the land, there was no transfer as per section 2(47)(v) giving rise to any capital gain in hands of the assessee.

Dy. CIT v. Bharat Jayantilal Patel, SLP (CIVIL) Diary No. 36498 of 2023, 03/11/2023 (SC)</em >

3. S. 37: Revenue Expenditure – Security deposit paid for leased premises forgone by the assessee in dispute with the lessor is not a revenue expenditure even though it was incurred for business purposes.</strong >

The assessee entered into a lease agreement with M/s.Anand Automotive Systems Ltd. As part of the lease agreement, it was required to pay ₹ 5.8 crores as a security deposit. This amount was reflected in its balance sheet and in the capital under assets, as “receivables”. On account of unforeseen circumstances i.e. sealing of the premises on account of non- conforming user by directions of the Supreme Court through the Monitoring Committee, the premises could not be used. The Assessee, therefore, sought to vacate it; this resulted in a dispute between the lessor and the Assessee. To end the dispute, the assessee agreed not to claim the security deposit of ₹ 5.8 crores, it sought to claim the amount as deduction. However, the AO disallowed this holding that such disallowance was impermissible. The CIT(A) and the ITAT rely upon the decision of CIT v. Triveni Engg. & Industries Ltd. 343 ITR 245 (Del.)(HC) upheld the disallowance. The High Court held that the character of the amount was of a capital nature and remained so. The said amount should not be treated as revenue expenditure merely because it was paid during a dispute. Mahle Anand Filter Systems Pvt. Ltd. (Formerly Known As Mahle Filter Systems Pvt. Ltd.) v. ACIT, ITA No.159/2019 dt.15/02/2019 (2019) 13 ITR-OL 406 </em ></em >(Delhi)(HC)

The Assessee filed an SLP, and the Honorable Supreme Court dismissed the same stating that the security deposit for leased premises forgone by the Assessee in dispute with the lessor, is not revenue expenditure.

Mahle Anand Filter Systems Pvt. Ltd. (formerly known as Mahle Filter Systems India Pvt. Ltd.) v. ACIT [2023] 456 ITR 29 (SC)</em >

4.  S. 37(1): Allowability of (Commission) – failed to prove the claim of expenditure, rule of consistency would not preclude the Assessing Officer, disallowance is justified.</strong >

The Assessee carries business in pipes sanitary wares and other fittings used in the construction of buildings. The Assessee also engaged in the trading of irrigation pipes and fittings. The AO carried scrutiny under section 143(c), and disallowed commission expenditure. The assessee’s appeal was rejected by the CIT (A) as well as ITAT. The Assessee before the High Court points out that in all the previous years, especially in the last three years, similar commission expenditure was claimed and though the disallowance was made, it was only marginal. The rationale for the disallowance of 100% in respect of the commission paid to ten parties, was entirely arbitrary, since all the relevant documents, such as ITR, the amount paid as well as documentary evidence on each party were made available. The High Court held that, since the commission paid by the Assessee was comparatively higher than normal trade and parties to whom the commission was paid failed to appear for verification and inquiry, disallowance of commission payment was proper. Shree Govind Buildneed (P.) Ltd. v. ACIT, D.B. ITA 24 OF 2019, dt.16/07/2019 (Raj) (HC)

The Assessee filed an SLP, and the Honorable Supreme Court dismissed the same holding that, even though in earlier assessment years disallowance was marginally made, the rule of consistency would not preclude the Assessing Officer from conducting inquiry in relevant assessment year as the Assessee failed to prove its claim. Hence, where the assessee failed to prove its claim of commission payment, the same was rightly disallowed

Shree Govind Buildneed (P.) Ltd. v. ACIT [2023] 452 ITR 212 (SC)

5. S. 142: Inquiry before assessment (Special audit) – failed to furnish necessary details, notice for special audit under section 142(2A) was justified.</strong >

The Assessee filed its original return of income. The return was revised on 28-3-2018 and 27-2-2019 to provide for subsequent TDS credits and to update details of post- retirement benefits to employees. The Department issued notice u/s. 143(2) of the Act and initiated scrutiny proceedings. The Assessing Officer raised queries regarding several issues such as interest passed on to clients where details furnished in terms of the period of holding of advance, rate, and calculation of interest amount were complex and voluminous, TDS deductions on advances made to a company for construction which did not match with profit enduring out of works done utilizing these advances, the huge reduction in sales turnover during year, etc. However, the assessee had not submitted a satisfactory reply to these queries and failed to produce its ledger, accounts, and documents as called for – the non-specific reply of the assessee revealed complexity in the accounts of the assessee and raised doubts about the correctness of transactions and lead Assessing Officer to seek further verification. The assessee was unable to answer the queries raised by the respondent to the satisfaction of the AO. The AO has threadbare considered each response to the queries raised and concluded that the accounts of the petitioner are voluminous and complex. The essential mandate of section 142(2A) requires an opportunity of a hearing, which has been met for the reasons discussed in detail hereinbefore. The Assessee does not dispute that notice dated 13-9-2019 was served upon. As a result, it had an opportunity to put forth its case and objections for ordering a special audit. Notice issued for a special audit under section 142(2A) was justified. NBCC (India) Ltd. v. Addl. CIT [2020] 422 ITR 429(Delhi)(HC)

The Assessee filed an SLP, and the Honorable Supreme Court dismissed the same holding that, where on queries raised by AO regarding several issues such as interest passed on to clients, TDS deductions on advances made to a company for construction, reduction in profit ratio of sales turnover, etc., the assessee failed to furnish necessary details and reconcile books of account and several replies of assessee to queries of AO revealed complexity in accounts of assessee, impugned notice for special audit under section 142(2A) was justified.

NBCC (INDIA) Ltd. v. Addl. CIT [2023] 294 Taxman 339 (SC)