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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI KUL BHARAT & SHRI MANISH BORAD
आयकर अपील�य अ�धकरण, इ�दौर �यायपीठ, इ�दौर
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA No.847/Ind/2016 Assessment Years: 2011-12 Indore Development Authority, DCIT-5(1) बनाम/ IDA Building,7, Race Course Indore Vs. Road, Indore (Appellant) (Revenue) PAN: AAAJI0103J
ITA No.870/Ind/2016 Assessment Year: 2011-12 DCIT- Indore Development Authority, बनाम/ (Exemption) IDA Building,7, Race Course Vs. Road, Indore Bhopal (Revenue) (Respondent) PAN: AAAJI0103J
ITA No.1355/Ind/2016 Assessment Years: 2012-13 Indore Development Authority, DCIT-5(1) बनाम/ IDA Building,7, Race Course Indore Vs. Road, Indore (Appellant) (Revenue)
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 PAN: AAAJI0103J
Appellant by Shri Anil Kamal Garg & Arpit Gaur, CAs Revenue by Smt. Ashima Gupta, CIT- DR Date of Hearing: 23.09.2019 Date of Pronouncement: 31.10.2019 आदेश / O R D E R PER MANISH BORAD, A.M: The above captioned cross appeals for A.Y. 2011-12 & Assessees appeal for 2012-13 are directed against the order of Ld. Commissioner of Income Tax(Appeals)-II, Indore, (in short ‘CIT(A)’), dated 31.05.2016 and 16.09.2016 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(hereinafter called as the ‘Act’) framed on 30.03.2014 and 26.03.2015 by DCIT-5(1), Indore & ACIT (Exemption) (Circle) Bhopal respectively.
As the issue raised in all these appeals are similar, these were heard together and are being disposed off by this common order for the sake of convenience and brevity.
For the purpose of adjudication of the common issue we will take the facts for A.Y. 2011-12 as the basis.
Brief facts of the case as culled out from the records are that the assessee is a local authority constituted u/s. 38 of the ‘Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973’. The main object of the assessee Authority [Indore Development Authority or in 2
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 short, ‘the IDA’] is to prepare and implement schemes for development, improvement and maintenance of land and other real estate in the notified town i.e. ‘Indore’. The assessee Authority furnished its Return of Income for the assessment year 2011-12, u/s. 139 of the Income-Tax Act, 1961, on 13-03-2012 declaring Total Income of Rs. Nil after claiming exemption under sec. 11 & 12 of the Act.
The case of the assessee was selected for scrutiny and Notices u/s. 143(2) and 142(1) were served upon the assessee. The assessee made compliance of all such Notices by making written submissions and by producing books of account and other documents. Assessee furnished copy of Audit Report in Form No. 10B obtained by it under section 12A(b) of the Income-Tax Act, 1961 and copy of Audited Financial Statements pertaining to the year under consideration. The Assessing Officer completed the assessment u/s.143(3) of the Income-Tax Act, 1961, on 30-03- 2014, by determining Total Income of the assessee authority at Rs.36,88,67,656/- as against the returned Income of Rs. Nil thereby resulting into additions of Rs.36,88,67,656/- in the returned income of the assessee Authority on following counts:
Sno. Description Amount 1 Disallowance of the exemption under ss. 18,81,37,048 11 & 12 by holding the entire Net Profit shown in P&L Account as the taxable income of the appellant Authority 2 Addition by making 4/5th disallowance 15,73,65,419
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 out of City Environmental Expenses claimed at Rs.19,67,06,774/- by holding the same as in the nature of capital expenditure 3 Addition on account of disallowance of 1,67,93,500 Government Audit Fees by holding the same as pertaining to earlier years 4 Addition by way of disallowance of 31,27,208 Donation Expenses 5 Addition by disallowing Employees 21,27,835 Remuneration and Benefits by holding the provision made as in the nature of contingent liability 6 Addition on account of Depreciation 13,10,185 7 Addition on account of Disallowance u/s. 6,461 14A TOTAL ADDITIONS 36,88,67,656
Against the Order of the AO, the assessee preferred an appeal before the ld. CIT(A)-II, Indore. The ld. CIT(A) disposed off the appeal of the assessee giving partial relief.However, in respect of claim of exemption under ss.11 & 12, the ld. CIT(A), at para 3.2, page no. 6 of his Order, has given a finding that the issue regarding grant of exemption of income shall be re-examined if the Hon'ble MP High Court gives a decision in favour of the appellant authority for grant of exemption under s. 12A/12AA of the Act. Likewise, in respect of the issue of depreciation, the ld. CIT(A) dismissed the ground by giving a finding that the similar issue for earlier years is pending for adjudication before the Hon'ble MP High Court.
Now both the revenue and assessee are in cross appeal before us for A.Y.2011-12. 4
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 7. We will first take up revenue’s appeal vide ITANo.870/Ind/2016 wherein following grounds are as under: “1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting addition of Rs.15,73,65,419/- made by the Assessing Officer on account of disallowance of some expenses being capital in nature. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting addition of Rs.21,27,835/- made by the Assessing Officer on account of disallowance of provisional expenses claimed under head Employees Remuneration and Benefits. 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting addition of Rs.6,461 made by the assessing officer on account of disallowance of expenses u/s 14A. 4. The revenue reserves the right to add, urge or alter all or any other ground/grounds on or before the date of hearing.
As regards Ground No.1 of revenue’s appeal for A.Y.2011-12 relating to deletion of addition of Rs.15,73,65,419/- made by the Ld. AO on account of disallowance of sum expenses being capital in nature. Brief facts are that in the profit and loss account an amount of Rs.19,67,06,774/- is debited under the head City Environmental Development and Preservation Expenses. It was contended by the assessee before the Ld. AO that these expenses are done for the development of the City Environmental Development and Preservation on the direction of the State Government and thus these are part of the revenue expenditure. Ld. AO however was not satisfied and treated the expenditure as capital in nature and allowed the expenses to the extent of 1/5th of the
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 total expenses, thereby giving benefit of expenditure of Rs.3,93,41,355/- and disallowed the remaining 4/5th amount at Rs.15,73,65,419/-. The assessee succeeded in getting relief from Ld. CIT(A) and the impugned disallowance was deleted.
Ld. DR vehemently argued supporting the order of the Ld. AO and it was also submitted that the assessee is engaged in development of colonies. None of the alleged expenses are having any nexus with the projects undertaken by the assessee i.e. Indore Development Authority (IDA). The claim of expenses is allowed only if they are incurred for earning the revenue. Since the alleged expenses have no correlation with the project undertaken by the assessee, the same should have been disallowed.
Per Contra Ld. counsel for the assessee vehemently argued referring to the following written submissions:
That, the assessee Authority is a Statutory Authority constituted under section 38 of 'Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973', under a Notification No. 1688- XXXII-77 issued by the Government of Madhya Pradesh w.e.f. 13-02-1974. 2. That, the prime object of the assessee is to implement development plan, prepare one or more town development schemes and development of land for the purpose of expansion or improvement of the area specified in the Notification.
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 3. That, in furtherance of its objects of development and implementation of various schemes, the assessee Authority acquires land from public under the provisions of Land Acquisition Act, 1894 for the compensation determined in accordance with such Land Acquisition Act, 1894. After development of the schemes, the assessee Authority part with the land and building so developed in the schemes in accordance with the rules made by the State Government in this behalf by virtue of section 58 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973. The assessee Authority also undertakes to carry out the development work of general in nature which is utilized by public at large. 4. That, one of the prime objectives of the assessee authority is to ensure preservation of environment and development of the notified area in a planned manner. In pursuance of such objective, the assessee authority had consistently been incurring expenditure on building of bridges, development of roads, gardens, street lighting, construction of administrative offices for the government, etc in the notified area. 5. That, during the relevant previous year, the assessee authority incurred and claimed expenses under the head 'City Environmental Development & Preservation Expenses', aggregating to Rs.19,67,06,774/- under various sub-heads as per the details given at Schedule-20 of the audited financial statements [kindly refer PB page No. 24]. 6. Your Honours, the AO grossly erred in holding that the expenses incurred by the assessee Authority under the head ‘City Environmental & Development Expenses’ are of capital nature. The AO further held that such expenditure is not an item of sale or revenue generating item. After giving these findings, the AO disallowed the entire expenditure claimed by the assessee authority under the head 'City Environmental Expenses' at Rs.23,10,17,503/- and added to the total income of the assessee authority. 7. Being aggrieved with the addition made by the AO, the assessee preferred appeal before the ld. CIT(A). The ld. CIT(A), vide para 4.2 to 4.2.3 at page no. 9 to 11 of his Order, was pleased to delete the entire addition made on this count.
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 8. The addition so deleted by the ld. CIT(A) deserves to be maintained in view of the following :
i) The AO has not disputed that the assessee authority has genuinely incurred these expenditure in pursuance of its objectives for which it has been constituted under an enactment of State Legislation. The AO has also not doubted the genuineness of the incurrence of expenditure as claimed by the assessee authority.
ii) The expenses incurred by the assessee Authority under the head City Environmental & Development Expenses do not have any connection with the various schemes developed by the assessee. In other words, by incurring such expenditure, the stock of the assessee Authority does not get affected. Further, the entire expenditure have been incurred for the development of the notified area without having any accretion to its asset or without creating any benefit of enduring nature.
iii) The assessee Authority is required to incur these expenses for the general development and maintenance of the city of Indore. For example, the development of roads such as MR-3, MR-10 etc., Central Lighting on various main roads, Plantation on various roads, ROB Juni Indore Railway Crossing, Construction of OPD at M.Y. Hospital, Construction of Collectorate Administrative Block etc. Your Honours, by no stretch of imagination, the expenditure incurred by the assessee Authority on construction of OPD at MYH or construction of Administrative Building of Collectorate can be considered to be an expenditure giving enduring benefit to the assessee authority. Likewise, after constructing Auditorium and having it handed over to the Municipal Corporation, the assessee Authority was not having vested interest or ownership in the said Auditorium. The assessee Authority is neither eligible nor it is deriving any revenue from such Auditorium.
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 v) It shall be pertinent to note that the expenses under the head ‘City Environmental & Development Expenses’ have been regularly incurred by the assessee Authority from the past several years. For such assertion, kind attention of Your Honours is invited to the copies of the relevant Schedule of ‘City Environmental & Development Expenses’ as appearing in the audited financial statements of the assessee Authority for the previous years relevant to A.Y. 2009-10, A.Y. 2010-11, A.Y. 2012-13 and A.Y. 2013-14, as placed at Page No. 238 to 241 of our Paper Book. It shall also be worthwhile to note that the assessee vi) Authority is consistently undergoing scrutiny assessments under s.143(3) of the Act for other assessment years as well and in all such years, the expenses incurred by the assessee Authority under the head ‘City Environmental & Development Expenses’ have been held as that of revenue in nature by the Department and, consequently, the same have fully been allowed without any interference. It shall be appreciated that even for the subsequent assessment years i.e. A.Y. 2012-13 and A.Y. 2013-14, no disallowance on this count has been made by the concerning AOs. For such assertion, kind attention of Your Honours is invited to the copies of the Assessment Orders for two years before and after the assessment year under consideration i.e. for the A.Y. 2009-10, A.Y. 2010-11, A.Y. 2012-13 and A.Y. 2013-14 which have been placed in our Compilation at Page No. 71 to 117]. vii) It shall be pertinent to note that there has been no change in the facts and circumstances of the case prevailing in the assessment year under consideration and those prevailing in the aforesaid assessment years. In such a situation, taking an adverse view in the assessment year under consideration by the learned AO is completely unjustified and unwarranted. For such proposition, we place reliance on the decision of the Hon'ble Supreme Court in the case of Radha Soami Satsang Vs. CIT (1992) 193 ITR 321 (SC).
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 11. Ld. counsel for the assessee also requested for admission of additional evidences under Rule 29 read with Rule 18(4) of the Appellate Tribunal Rules,1963 filed in support of the claim that the expenditure incurred under the City Environmental Development and Preservation Expenses are revenue in nature. The prayer made by the assessee requesting for deletion of additional evidences reads as follows: In the above context, it is most humbly submitted and prayed as under: 1. That, two separate appeals against the Appellate Orders dated 31-05-2016 and 16- 09-2016 passed by the learned Commissioner of Income-Tax (Appeals)-II, Indore, have been preferred by the Revenue before this Hon'ble Bench for the captioned assessment years. One of the grounds of appeal raised by the Revenue in both the appeals pertains to the & disallowance of City Environmental Development Preservation Expenses deleted b the ld. CIT(A). 2. That, during the course of last hearing this Hon'ble Bench had directed the undersigned to furnish documentary evidences (work orders from State/ Central Government etc.) in support of the claim for 'City Environmental Development & Preservation Expenses' . 3. Accordingly, in compliance of the directions issued b this Hon'ble Bench, the assessee Authority, in order to establish its claim for deduction of the aforesaid expenses, wish to furnish certain documentary evidences. These documentary evidences arc quite relevant for adjudicating the issue in hand by Your Honours and therefore, the appellant wish to file such documents as additional evidences under Rule 29 read with Rule 18(4) of the Appellate Tribunal Rules, 1963.
From perusal of the additional evidences placed before us, we are inclined to admit then for adjudication since 10
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 they go to the root cause of the issue which will enable us to adjudicate the facts relevant to the grounds raised before us.
We have heard rival contentions and perused the record placed before us. The revenue has challenged the finding of Ld. CIT(A) deleting, the disallowance of Rs.15,73,65,419/- on account of 4/5th disallowance out of City Environmental Development and Preservation Expenses.
We observe that the primary object of the assessee is to implement development plan, prepare one or more town development schemes and develop of land in accordance with Rules made by the State Government, by virtue of section 58 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973. The assessee authority also undertakes to carry out the development work of general in nature which is utilized by the public at large. Such expenses have been consistently incurred by the assessee in the past also and such claim have been allowed by the revenue authorities after conducting scrutiny assessment proceedings u/s 143(3) of the Act for the year under appeal.
We observed that Ld. CIT(A) deleted the impugned disallowance giving following of facts:
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 4.2 I have considered the facts and circumstances of the case, the finding of the AO, the written submissions filed by the appellant and also various documents placed on record. After considering the entirety of facts and circumstances, the AO has not been justified in making the impugned addition. It is found that in the instant case, the AO has not doubted the genuineness of the City Environmental Development and Preservation Expenses aggregating to Rs.19,67,06,774/- claimed by the appellant. It is also not the case of the AO that these expenses have not been incurred by the appellant in pursuing its core activities. The AO has only disputed the nature of the expenditure claimed by the appellant as revenue. According to the AO, the expenditure is that of capital in nature. The AO without assessing any basis held that only 1/5th of the, total expenditure of Rs.19,67,06,774/- claimed by the appellant 1S allowable for the assessment year under consideration. According to the appellant, the remaining 4/5th part of the expenditure has never been allowed to it in the subsequent years. 4.2.2. I have gone through the audited Income & Expenditure Account of the appellant for the relevant assessment year which is placed on ' record. I find that in the audited accounts, the appellant has claimed expenditure aggregating to Rs 4,10,97,853/ - and Rs.82,78,48,077/respectively under the head 'Land Acquisition and Diversion Expenses for Schemes' and 'Development and Implementation Expenses for chemes'. Besides claiming these expenditure, the appellant has also claimed expenditure aggregating to Rs.19,67,06,774/ - under & the head City Environmental Development Preservation Expenses'. Ongoing through the details of Development & Implementation Expenses for Schemes, as given in Schedule 19 of the audited financial statements, it is found that the appellant has claimed expenses under the various sub-heads 12
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 such as Roads, Culverts, Underground Services, Landscaping and Garden Development, Construction of Building, Architect Fees etc. The contention of the appellant has been found tenable to the extent that whenever expenditure of development of various schemes promoted by the appellant authority are incurred, the same are classified under a different head viz. 'Development and Implementation Expenses for Schemes' and while making the valuation of the Inventory, these expenses, being of recoverable nature, are taken into consideration. It is also observed that under the head 'City Environmental Development and Preservation Expenses' also, the appellant has claimed the expenditure on Roads, Culverts, Street Lighting, Construction of Building, Fees to Architects, etc .. It is also observed that the AO himself in the body of the assessment order, has given a finding that the facilities on which such City Environmental Development and Preservation Expenses have been incurred are not an item of sale or revenue generating item. Thus, by giving this finding, the AO has impliedly accepted the claim of the appellant that these expenditure are in the nature of sunk cost in the hands of the Appellant. I find force in the contention of the appellant that these expenditure have been incurred by the appellant in pursuance of' its main objective of development of notified area. Further, by incurring these expenditure, the appellant authority would not be deriving any revenue in future as is the finding of the AO himself. Further, these expenditure cannot be said to be income generating apparatus of the appellant authority and in my view, by incurring these expenditure, the appellant would not be deriving any benefit of enduring nature. 4.2.3 I also find that these expenditure have consistently been claimed by the appellant for the last many years and even in the subsequent ears these expenditure have been claimed by the appellant. It 13
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 has been claimed that the assessments of the appellant since A.Y. 2003-04 are consistently being framed under s. 143(3) of the I.T.Act,1961 and in none of the assessments, any adverse view on this issue has been taken by any of the AOs. It has further been contended that all these assessment orders were also subject matter of appeals before the appellate authorities. From the copies of the assessment orders of various other assessment years filed by the appellant before me, I found that in none of the other assessment years, any part of these expenditure have been disallowed for the reasons has brought down by the AO in the instant case. I find merit in the contention of the appellant that in the income-tax proceedings, the principle of resjudicated does not apply but certainly the principle of consistency applies. Accordingly, in absence of any change in the facts and circumstances of the case, an Assessing Officer cannot be permitted to take a different view from that consistently taken by his predecessors. In view of the above discussion, I am of the view that there was no justification on the part of AO In making addition of Rs.15,73,65,419/- in the appellant's income by making ad-hoc disallowance of 4/5th of City Environmental Development and Preservation Expenses claimed by the appellant. Accordingly, the addition is directed to be deleted and this ground of appeal is allowed.
From perusal of the finding of the Ld. CIT(A) and the undisputed fact that in the assessment proceedings completed for the preceding years such claim of expenses have been consistently allowed and applying such principle of consistency ought to be allowed since there is no change in the facts and circumstances of the case in
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 the year under appeal before us. Ld. Departmental Representative also failed to rebut the finding of Ld. CIT(A) and also could not controvert the fact that the Ld. AO has himself allowed 1/5th of the expenses as revenue in nature without mentioning the provisions of law which allows such claim. The alleged expenses are not preoperative expenditure which needs to be allowed @ 1/5th for 5 years. The said expenses can be either termed as non business expenses or business expenditure. If they are termed as business expenditure then they can be either termed as revenue or capital expenditure. No such distinction has been made by the Ld. AO about the alleged expenses.
Further, it is noteworthy that the assessee company is working under the direction of State Government. It gets the power to acquire the land, develop housing project and other amenities for the public at large. Such land are acquired on concessional rates. Major reason for giving such wide powers and providing of precious land to the assessee authority is to develop the City in a well- organized manner keeping the interest of public at large. Construction of Flyover, Parks, Central Lighting on various main roads, Plantation on various roads, Construction of OPD at M.Y. Hospital are few of such work which are for the overall development of the City and
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 provides facility for the public. Incurring of such expenses increases the ‘brand’ value of IDA and also poses confidence of public at large in the working of IDA.
We, therefore, in the given facts and circumstances of the case and also looking to the consistency of such expenses allowed by the revenue authorities in the past as well as in the future assessment proceedings and also because the impugned expenses have direct bearing with the overall business model of the assessee, find no reason to interfere in the finding of Ld. CIT(A) who has deleted the impugned disallowance. Ground No.1 of Revenue’s appeal stands dismissed.
Now we take the ground no.2 of revenue appeal relating to deletion of addition of Rs.21,27,835/- made by the Assessing Officer on account of disallowance of provisional expenses claimed under the head ‘Employees Remuneration and Benefits’.
Brief facts relating to this issue are that during the year under appeal under the head Employees Remuneration and Benefits, the assessee made certain adjustment by adding an amount of Rs.72,70,135/- as provision of salary and thereafter reduced the actual expenditure of Rs.51,42,300/-. The net effect of increases
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 in provision at Rs.21,27,835/- was disallowed by the Ld. AO treating it to be a contingent liability. Ld. CIT(A) deleted the addition. Now Revenue is in appeal before the Tribunal.
Ld. DR vehemently argued supporting the order of the Ld. AO.
Per Contra Ld. counsel for the assessee vehemently argued referring to the following written submissions: “During the relevant previous year, the assessee Authority has claimed an expenditure on account of Employees Remuneration & Benefits for Rs.11,89,51,088/- which is shown under Schedule-23 of Employees Remuneration & Benefits of the audited Income & Expenditure Account for the relevant previous year. The head-wise break-up of such expenditure is given under Schedule-23 of the audited Income & Expenditure Account [kindly refer PB Page no. 25]. 16.02 Further, a provision of Rs.21,27,835/- on account of salary expenses for the March month of the relevant previous year at Rs.72,70,135/- net of the provision for the March month of the immediately preceding previous year at Rs.51,42,300/-, has been added to the aforesaid expenditure of Rs.11,89,51,088/-, thereby making a total expenditure of Rs.12,10,78,923/- on account of Employees Remuneration & Benefits during the relevant previous year. 17.00 The AO made an addition of Rs.21,27,835/- on account of creation of provisions by totally misconstruing the facts of the case that these are contingent liabilities and only ascertained liabilities are allowed under the provisions of the Income-Tax Act, 1961.
18.00 Being aggrieved with the addition made by the AO, the assessee preferred appeal before the ld. CIT(A). The ld. 17
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 CIT(A), vide para 7.2 at page no. 19 of his Order, was pleased to delete the entire addition made on this count. 19.00 The addition so deleted by the ld. CIT(A) deserves to be maintained in view of the following :
i) The assessee authority has not debited any contingent liability on account of salary or on any other account in its audited Income & Expenditure Account for the relevant previous year. The amount of Rs.21,27,835/- is only an ascertained liability of the assessee Authority which is explained in the ensuing paras. ii) It is submitted that the payment policy of the assessee authority in respect of salary to its employees is ‘March paid in April’, ‘April paid in May’ and so on. The assessee Authority under separate ledger accounts of salary heads with various GL-Codes viz. 927110-257 : Salary to Management Staff, 927316-475 : Salary to Project Staff, 927512-671: Salary to Planning Staff, 927718-811: Salary to Finance Staff, 927914-8072: Salary to Administration Staff, 928119-278: Salary to Legal Staff and 928315-474: Salary to Estate Staff, used to record the salary only on payment basis. In other words, the Salary to all the staff shown under Part-A of Schedule-23 pertains to the salary of March month of preceding previous year and does not include the salary of March month of relevant previous year. iii) Thus, in order to record the correct expenditure on mercantile system of accounting, the assessee Authority has made an addition of Rs.72,70,135/- on account of provision of salary for the month of March, 2011 and reduced a sum of Rs.51,42,300/- on account of provision of salary for the month salary of March, 2010, thereby giving a net increase of Rs.21,27,835/- to the overall expenditure of salary.
iv) Your Honours, it shall be observed that the assessee Authority, in order to maintain the accounting method, has given such treatment to the Salary Expenses consistently over the last many years and such treatment, being 18
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 perfectly in accordance with the accounting method followed by the assessee, has duly been accepted and allowed by the Income-Tax Authorities in the scrutiny assessments of the assessee framed under s.143(3) of the Act for the earlier assessment years as well as for the succeeding assessment years and in v) none of the assessment years, the treatment given by the assessee Authority has been doubted by the Department [kindly refer the assessment orders placed at PB Page No. 71 to 117]. It shall be appreciated that even for the subsequent assessment years, no disallowance on this count has been made by the concerning AOs. vi) The provisions so created by the assessee Authority are not contingent liabilities but these are actual and ascertained liabilities which have been paid off by the assessee Authority during the next month from the end of the relevant previous year. 20.00 It shall thus be appreciated by Your Honours that the assessee Authority has given a correct treatment to the salary expenses incurred by it and the treatment given by it as regard to provision of the salary expenses. Needless to state that the entire salary expenses shown in the audited Income & Expenditure Account of the assessee Authority are ascertained liabilities of the assessee Authority which have been paid-off during the next month from the end of the relevant previous year.”
We have heard rival contentions and perused the record placed before us. The issue relates to disallowance of provision of Rs.21,27,835/-. The Ld. AO has treated as contingent liability whereas the assessee has claimed it to be ascertained liability.
The Ld. CIT(A) deleted the impugned addition observing as follows: 7.2 I have gone through the contents of the assessment
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 order and also the written submissions filed by the appellant. On considering the entire facts and circumstances of the case, I find that the appellant has made a provision on account of salary for the month of March 2011 at Rs.72,70,135/- and reversed the provision of salary made by it in preceding previous year for the month of March 2010 at Rs.51,42,300/-, thereby giving a net effect on the provision of Rs.21,27,835/-. I found that such treatment on account of provision for salary is given by the appellant consistently on year to year basis which is perfectly in accordance with the accounting method followed by it. I also find that the provision so made by the appellant is an ascertained liability of the appellant and not a contingent liability as wrongly construed by the AO. I found that the accounting treatment of provision for salary has duly been accepted and allowed by the Revenue in the scrutiny assessments of the appellant under s.143(3) of the I.T.Act,1961 for the earlier assessment years as well as for the subsequent assessment years. Therefore, the addition so made by the AO by treating the provision for salary as contingent liability of the appellant is baseless and devoid of merit has such the same IS directed to be deleted. Accordingly, this ground of appeal is allowed.
From perusal of the finding as well as going through papers filed in the paper book, we observe that such working of making provision for the expenses and reversing the actual expenses incurred has been carried out consistently from year to year basis and the provisions are made as per the well calculated ascertained liability. There may be some excess provision in some years and may be less provision in same years but the process keeps on going
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 because for the purpose of maintaining accounts on mercantile basis provisioning of expenses has to be made by the assessee in the books of account. Therefore, finding of Ld. CIT(A) needs no interference. Thus, ground no.2 of the revenue’s appeal is stands dismissed.
Apropos Ground No.3 against the deletion of addition of Rs.6,461/- u/s 14A of the Act. At the outset, Ld. counsel for the assessee submitted that the issue stands squarely covered in favour of the assessee by the judgment of Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT-VI (20 15) 9 TMI 238 (Del.) since no exempt income was earned during the year. Thus, no disallowance was called for u/s 14A of the Act.
Ld. DR could not controvert the submissions made by the Ld. Counsel for the assessee.
We have heard rival contentions and perused the record placed before us. In ground No.3 revenue has challenged the deletion of disallowance u/s 14A at Rs.6,461/-. The Ld. CIT(A) deleted the disallowance observing as follows:
9.2 I have gone through the contents of the assessment order and also the written submissions filed by the appellant. After considering the totality of the facts and circumstances of the case, I find that the investment in shares have been made by the appellant in the earlier years. I also find force in the contention of the appellant 21
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 that the interest expenses of Rs.12,36,761/ - incurred by the appellant during the year under consideration have no nexus with the investment made b . it in the shares. I have also taken a note of the decision of the Hon'ble High Court of Delhi in the case of Cheminvest Ltd. Vs. CIT-VI (20 15) 9 TMI 238 (Del.) as relied upon by the appellant that no disallowance under the provisions of section 14A can be made in a year in which no exempt income has been earned by the assessee. Considering the entire set of facts, the AO has not been justified In making the addition by invoking the provisions of section 14A of I.T.Act, 1961. Accordingly, this ground of appeal is allowed.
We find force in the contention of the Ld. counsel for the assessee and the finding of Ld. CIT(A) who was rightly followed the judgment of Hon'ble Delhi High Court in case of Cheminvest Ltd. (supra). Since there is no exempt income earned by the assessee during the year disallowance u/s 14A of the Act was uncalled for. Thus, there is no infirmity in the finding of Ld. CIT(A). Ground No.3 of revenue’s appeal stands dismissed.
Ground No.4 is general in nature which needs no adjudication.
In the result appeal of the Revenue for A.Y. 2011-12 stands dismissed.
Now we take up assessee’s appeal in ITANo.847/Ind/2016 for A.Y. 2011-12 wherein following grounds have been raised: “Grounds of Income-Tax Appeal before the Hon'ble Income-Tax Appellate Tribunal, Indore Bench, Indore, against Order under section 250 of the Income-Tax Act, 1961 passed by the learned
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 Commissioner of Income-Tax (Appeals)-II, Bhopal, pertaining to the assessment year 2011-12 in response to the appeal filed against the Assessment Order passed by the Assistant Commissioner of Income- Tax, 5(1) Exemption, Bhopal 1.That, the Ld. CIT(A) grossly erred, in confirming the disallowance of Rs.5,99,000/- made by the Assessing Officer, out of the Local Fund (Government Audit Fees of Rs.2,23,92,500/- claimed by the appellant. 2(a) That, the learned CIT(A) grossly erred, both on facts and in law, in confirming the addition of Rs. 13,27,208/- made by the Assessing Officer in the appellant's income by disallowing the expenditure incurred by it in respect of Aid given for 'Jhanki- Pradarshani' & Seminar. (b) That, the learned CIT(A) grossly erred, both on facts and in law, in confirming the addition of Rs.10,00,000/- made by the Assessing Officer in the appellant's income by disallowing the expenditure incurred by it in respect of Donation made for 'Devi Ahilya Utsav'. (c) That, the learned CIT(A) grossly erred, both on facts and in law, in confirming the addition of Rs.8,00,000/- made by the Assessing Officer in the appellant's income by disallowing the expenditure incurred by it in respect of Donation made for 'Malwa Utsav'. 3. That, the appellant further craves leave to add, alter, omit and/or amend any of the above stated grounds of appeal as and when considered necessary.”
Apropos ground No.1 relating disallowance of Audit fees of Rs.5,99,000/-. Brief facts are that during the year under appeal expenditure of Rs.2,23,92,500/- was claimed as payment made to the local fund/Audit Department of the State Government which included fees of Rs.1,67,93,500/- pertaining to F.Y. 2009-10. Ld. AO disallowed this sum of Rs.1,67,93,500/- as prior period expenses. When the matter travel before the Ld. CIT(A), assessee
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 was able to get major relief as only the disallowance of Audit fees of Rs.5,99,000/- was sustained by Ld. CIT(A) observing as follows:
5.2.1 I have gone through the findings of the AO, written submissions and the documentary evidences filed by the appellant. It is observed that during the relevant previous year, the appellant has claimed a sum of Rs.2,23,92,500/- as expenses on account of Government Audi Fees. The appellant claims that out of such audit fees 0f Rs.2,23,92,500/-, only a sum of Rs.5,99,000/- pertains to audit fees for F.Y. 2009- 10 [A.Y. 2010-11} and the entire remaining sum of Rs.2,17,93,500/- pertains to the relevant previous year only. The appellant has contended that due to inadvertent mistake in the last para of the submission made before the AO on the subject issue, the amount of audit fees pertaining to earlier year i.e. F.Y. 2009-10 has got misstated at Rs.1 ,61,94,500/ - but the fact remains that the audit fees pertaining to prior period was only of Rs.5,99,000/-. It was submitted that for the financial year 2009-10, Government Audit Fees amounting to Rs. 1,55,95,500/ - has been shown as payable in the audited financial statements. In support of such contention, the grouping of the expenses was filed which is placed at Page No. 96 of the Paper Book. It has been contended that during the previous year relevant to the assessment year under consideration, a sum of Rs.1,61,94,500/- was paid towards Government Audit Fees for F.Y. 2009-10 and out of such fees payment, the provision of Rs.1,55,95,500/- was already made in F.Y. 2009-10 and accordingly, the expenditure to that extent was claimed in F.Y. 2009-10 only. It was contended that towards the prior period audit fees i.e. for F.Y. 2009-10, only a sum of Rs.5,99,000/- has been debited and claimed in Income & Expenditure Account for the assessment
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 year under consideration and it is included in the fees of Rs.2,23,92,500 [: claimed in Income & Expenditure Account. It was reiterated that due to inadvertent mistake in the submission made before the AO, instead of mentioning the amount of Rs.5,99,OOO/-, the entire sum of Rs.1,61,94,500/- [Rs.1,55,95,500 + Rs.5,99,000] has got misstated. 5.2.2 I find that for the assessment year under consideration, the appellant has made a provision for payment of government audit fees at Rs.2,17,93,500/-. It is also observed that for F.Y. 2009-10, the appellant has shown provision for payment of audit fees at Rs.1,55,95,500/- towards Government Audit Fees which is forming part of the total provisions of Rs.2,09, 90,927/ - as shown in the Schedule-vl of previous year's figures of audited balance sheet as of 31-03-2011. Thus, the explanation of the appellant regarding commitment of mistake in the submission letter before the AO stands verified. It is also found that the advice issued by the Assistant Resident Director, Local Fund Auditors for their fees for F.Y. 2010-11 for Rs.2,33,42,500/- as placed at Page no. 98A of the Paper Book. I find that as against such advice of Rs.2,33,42,500/-, the appellant has passed the bill for a sum of Rs.2,17,93,500/ - vide their proceeding sheet entry dated 23-08-2011 as placed at Page no. 97 & 98B of the Paper Book. Therefore, I find that out of the total audit fees of Rs.2,23,92,500/-, the audit fees amounting to Rs.2,17,93,500/- pertained to the assessment year under consideration only and accordingly, the same is eligible for deduction for the assessment year under consideration. However, since the sum of Rs.5,99,000/- pertains to the F.Y. 2009-10 .which falls in A.Y. 2010-11, and further since the appellant follows mercantile system of accounting, such expenses cannot be allowed in A.Y. 2011-12. In nutshell, out of the total disallowance of Rs.1,67,93,500/-, only a sum of Rs.5,99,000/- is 25
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 found pertaining to prior period and the remaining sum has been found pertaining to the assessment year under consideration. Accordingly, out of the total addition of Rs.1,67,93,500/- made by the AO, the addition to the extent of Rs.1 ,61,94,500/- is deleted and the addition to the extent of Rs.5,99,000/- is sustained. These grounds of appeal are allowed partly.
Now the assessee is in appeal before the Tribunal, Ld. counsel for the assessee submitted that liability for paying the audit fees of Rs.5,99,000/- crystalized during the year under appeal because the claim of audit fees was settled during the year and therefore, the Ld. CIT(A) erred in confirming the disallowance of Rs.5,99,000/-.
Per contra Ld. DR supported the orders of both the lower authorities.
We have heard rival contentions and perused the record placed before us. Through Ground No.1 the assessee has challenged the finding of Ld. CIT(A) confirming the disallowance of audit fees of Rs.5,99,000/-. We observe that the alleged amount relates to audit fees for F.Y. 2009-10 i.e. A.Y. 2010-11. The instant appeal relates to A.Y.2011-12. The assessee being a quasi-Government Authority all its financial transactions are subject to verification and audit by the Local fund Auditor of the State Government of Madhya Pradesh. In consideration of providing such services, audit fees is charged by the Department of Local Fund on year to year basis. Generally the bills are raised in the subsequent financial year i.e. after the 26
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 completion of the audit work. The assessee makes the provision for the Government Audit fees and when the actual amount is paid the same is adjusted from the provisional account. For F.Y.2009-10, the assessee made a provision of Rs.1,55,95,500/-. The actual bill was settled at Rs.1,61,94,500/-. The difference of the actual bill less the provisions worked out to Rs.5,99,000/-. This amount was debited to profit and loss account. There remains no dispute to the fact that the liability of the Government Audit Fees pertaining to F.Y. 2009-10 got settled and crystalized during the F.Y. 2010-11. Therefore, the assessee has rightly claimed it as business expenditure eligible for deduction u/s 37(1) of the Act, the proposition of allowing the expenses of prior period on the basis of liability getting crystalized in subsequent year, have been consistently hold by Hon'ble Courts. Few of such judgments referred and relied by the assessee are mentioned below:
CIT vs. Bagalkot Town Development Authority (2015) 12 TMI 1422 (Kar) 2. Hoshiarpur Improvement Trust and others vs. ITO (2015) 9 TMI 902 (I.T.A.T., Amr) 3. CIT vs. Jodhpur Development Authority (2016) 139 DTR (Raj.) 1 4. ACIT vs. Modipon Ltd. & Vice-versa (2015) 12 TMI 460 (I.T.A.T., Del.)
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 37. We, therefore, in the given facts and circumstances of the case and following the judicial precedence as well as looking to the fact that Local Government Audit Fees bill of preceding year was settled during the year and genuineness of business expenditure is not in doubt, were are of the view that lower authorities erred in denying the claim to the assessee. Thus, we delete the disallowance of Audit Fees of Rs.5,99,000/- and allowed ground no.1 raised by the assessee for A.Y. 2011-12.
Apropos to ground no.2 which relates to disallowance of three expenses at Rs.13,27,208/-, Rs.10,00,000/- & Rs.8,00,000/- incurred towards Jhanki-Pradarshani & Seminar, Devi Ahilya Utsav & Malwa Utsav respectively, Ld. AO treated these amounts as donation and charity and not for business purpose. Ld. CIT(A) also confirmed the view of the Ld. AO observing as follows: “I have gone through the contents of the assessment order and also the written submissions filed by the appellant. After considering the entire facts and circumstances of the case, I do not find any merit in contention of the appellant. If find that the status of the appellant has not been taken as that of a charitable organization or institution and its income is assessable as business income. Once this being the position, any charity or donation, made for any purpose, is not allowable under the provisions of section 37(1) of the I.T. Act, 1956. Accordingly, I do not find any infirmity in the action of AO in making disallowance of Rs.31,27,208/-. Therefore, this ground of appeal is dismissed.
Ld. counsel for the assessee referred to the following written submissions:
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 1. That, during the previous year relevant to the assessment year under consideration, the appellant Authority has incurred a sum of Rs.13,27,208/-, Rs. 8,00,000/- Rs.1O,00,000/- and respectively on account of contribution made towards 'Aid for Jhanki Pradarshani & Seminars', 'Donation for Deui Ahilya Utsav' and 'Donation for Malwa Utsav' under 'Schedule-21 of Contribution & Grant-in-Aids Made' of the Income & Expenditure Account for the relevant previous year. 2. The learned AO, without even affording any single opportunity as regard to the aforesaid issue, made an addition of Rs.13,27,2081-, Rs.8,00,0001- and Rs. 10,00,0001 - in the hands of the appellant merely on his guess work, surmises and conjectures without even going into merits of the case. The learned AD, while giving his finding on the captioned issue, held that the objects of the appellant Authority does not include financing or funding of the cultural activities and it is not the statutory obligation of the appellant to incur such expenses. The learned AD finally held that the amount has not been expended to meet the statutory or business interests of the appellant and therefore the same is disallowed. 3. Your Honour, in this context, at the outset, it is submitted that the finding of the learned AD that the expenses do not meet the objects of the appellant Authority is factually incorrect. It is submitted that the objects of the appellant Authority are that of charitable in nature and the same are covered under the last limb of the expression 'Charitable Purpose' as defined under s.2(1S) of the Act i.e. 'General Public Utility'. Therefore, it cannot be said that the aforesaid contributions made by the appellant Authority are not in consonance with the objects of the appellant Authority. 4. Your Honour, it is submitted that the appellant Authority is required to make contributions toward such Pradarshanis and Utsavs in order to maintain and continue the proud tradition of the city of Indore. 29
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 Further, every year, the closed mills of Indore make request to the Commissioner, Indore and to the Chairman of the appellant Authority for making contribution towards construction of Jhankis. Therefore, the appellant Authority, being a Statutory Authority constituted under section 38 of 'Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973~ is also statutorily required to make such contributions on such counts. Xerox copies of note sheets prepared by the appellant Authority before making sanction of such contributions to the concerning Jhankis are being submitted herewith for kind perusal and record of Your Honour, as Annexure A-9. 01 to A-9. 06 [PB Page no. 103 to 108}. 5.00 Your Honour, it is submitted that the appellant Authority has been making its contributions towards Jhanki Pradarshani & Seminars, Devi Ahilya Utsav, Malwa Utsav etc. over the last many years and such contributions have duly been accepted and allowed by the Income-T'ax Authorities in the scrutiny assessments of the appellant framed under s.143(3) of the Act and in none of the previous assessment years, the claim of the appellant Authority as regard to the aforesaid contributions have been doubted by the Department. It is submitted that there is no change in the circumstances of the case for the assessment year under consideration and, therefore, considering the decision of the Hon'ble Apex Court in the case of Radha Soami Satsang (supra) the claim of the appellant for the present year too deserves to be allowed fully. In view of the above facts and circumstances of the case, the addition of Rs.31,27,208/- so made by the Ld. AO on account of contribution made to various Jhanki and Utsav deserves to be deleted in toto.
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 40. Per contra Ld. Departmental Representative (DR) supported the orders of the lower authorities.
We have heard rival contentions and perused the record placed before us. The issue relates to disallowance of expenses of Rs.31,27,208/-incurred towards the following: 1. Jhanki-Pradarshani & Seminar, Rs.13,27,208/- 2. Devi Ahilya Utsav Rs.10,00,000/- 3. Malwa Utsav Rs.8,00,000/- Total Rs.31,27,208/-
The only issue which needs to be decided is that whether the alleged amount is liable to be disallowed as donation and charity or whether such amount incurred by the assessee is allowable as business expenditure. The objects of the appellant authority is that of charitable in nature and the same are covered under the last limb of the expression ‘ Charitable Purpose’ as defined under section 2(15) of the Act i.e. ‘ General Public Utility’. The assessee has also claimed exemption u/s 11 & 12 of the Act. However, in view of the decision of the Tribunal in assessee’s own case vide order dated 06.07.2010 in ITANo.366/Ind/2008 the claim of exemption u/s 11 & 12 of the Act was declined. The matter is pending before the Hon'ble Jurisdictional High Court. Thus, the assessee authority has treated the activities carried out by the assessee in the course of business and not for the purpose of charity.
Indore Development Authority ITANos.847 870 & 1355/Ind/2016
Now looking to the nature of alleged expenditure which have been incurred towards Jhanki-Pradarshani & Seminar, Devi Ahilya Utsav & Malwa Utsav which primarily are not directly related to the business activity of the assessee but as we discuss earlier in the preceding paras that the assessee authority is working as a quasi- Government Authority and works under the directions of the State Government. Against the benefits of getting the premium lands, housing projects, other development project from the Government assessee is also casted with the responsibility of incurring expenditure on the public utility programs. The assessee is able to earn profits because the State Government give the benefit of providing powers to acquire urban and rural land for various projects at concessional rates. Government is able to gets land at concessional rates because it has to work in public interest and also provide various facilities, such as public amenities flyovers, tree plantation, street lights, cultural events, business seminars, etc.
It was brought to our notice that the alleged expenses were not incurred by the authority suo moto but it was incurred as per the directions of the State Government. The events i.e. Jhanki- Pradarshani & Seminar, Devi Ahilya Utsav & Malwa Utsav are events where public at large participate. It is well evident that for such events the assessee is sponsoror. Such type of expenses are in the nature of advertisement since it gives name and fame to the IDA
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 and increase the ‘Brand’ value which indirectly helps in getting more business.
We observe that similar issue came up before the Hon'ble Delhi High Court in the case of Pr. CIT vs. M/s Indian Farm Forestry Development dated 31st October 2018 wherein Hon'ble Court held as follows:
In the facts of the present case, the object and purpose of the respondent-assessee' is, to engage and work for social and economic upliftment of the rural poor, construct water reservoirs .etc. It is established for this purpose and receives grants and donations from third parties with the said objective and purpose. M/s Indian Farmers Fertilizer Cooperative Ltd. had sold' and supplied fertilizer that was marketed/sold by the respondent-assessee to earn profit income, because the respondent-assessee was engaged, in social and economic development activities, Association and business relationship with MIs' Indian Farmers Fertilizer Cooperative Ltd. was predicated and connected on the respondent-assesse~ performing and undertaking the social-welfare economic activities. Grants received from government and foreign' agencies were to be utilized for the specific purpose i.e. the object and purpose of social and economic upliftment etc. If the respondent assessee was not engaged in and had not undertaken the aforesaid activities, it would not have received the grants and would not have undertaken sale and marketing of fertilizers. The respondent-assessee was therefore required to incur the said expenditure, in order to run, operate and continue its business. 14. We perceive that there is a degree of contradiction in the plea raised by the Revenue, when they claim that the respondent-assessee was not engaged in 'business' or the expenditure incurred was not on account of business 33
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 expediency. Income earned by the respondent-assessee has been treated and taxed under the head profits and gains of business and profession. In the given facts, it would be incongruous for the Revenue to urge that the purpose and goal behind the activities undertaken by the respondent-assessee was not commercial but charity as the intent and motive behind them was not to earn profit. The expenditure incurred to carry out social and economic development would in this background constitute a 'business' or 'commercial' activity undertaken by the respondent assessee. It would be a, contradiction in terms, if we hold that the expenditure would be non-deductible expenditure or expenditure without business expediency, Under section 37 of the Act it does not matter whether or not the expenditure was in the nature of donation or Section BOG of the Act was not attracted. The conditions stated in Section 37 of the Act matter and constitute the test. Expenditure incurred in furtherance of and connected with the business and commercial activities for which the respondent-assessee was established cannot be disallowed as expenditure not relatable and incurred for 'business' purposes. 15. On the question of capital expenditure, the assessing officer did not refer to or examine whether the capital assets created ,were for third party villagers. The respondent- assessee was not the owner of the assets created and develops, The, assets created were not-capital assets in the hands of the respondent-assessee. The respondent assessee had contributed, developed, financed and created assets which belonged to third persons. The expenditure incurred therefore would not be 'capital' in nature in the hands of the respondent assessee: 16. Accordingly, the appeal filed by the Revenue has no merit and is dismissed, without any order as to costs.
The facts of the above referred judgment and similar to the facts placed before us. We, therefore, respectfully following the judgment of Hon'ble Delhi High Court in the case of Pr. CIT vs. M/s. Indian
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 Farm Forestry Development, are of the considered view that the alleged amount should be allowed as business expenditure as it indirectly help to increase business of the assessee authority. Thus, disallowance of Rs.32,27,208/- stands deleted and the ground no.2 of the assessee is allowed.
Ground No.3 is general in nature which needs no adjudication.
In the result, appeal of the assessee for A.Y. 2011-12 is allowed.
Now we take up assessee appeal for A.Y. 2012-13 vide ITA No. 1355/Ind/2016 following grounds of appeal are as under: 1. That, the learned CIT(A), grossly erred in law, in not giving a specific finding/direction to the effect that in the event of ultimate grant of registration to the appellant Authority under the provisions of section 12AI12AA of the Income Tax Act, 1961, the income of the appellant Authority should be computed in accordance with the provisions of ss. 11 & 12 of the Income- Tax Act, 1961. 2(a) That, the learned CIT(A) grossly erred, both on facts and in law, in confirming the addition of Rs.l6,18,275/- made by the Assessing Officer in the appellant's income by disallowing the expenditure incurred by it in respect of Aid given for 'Jhanki-Pradarshani' & Seminar. (b) That, the learned CIT(A) grossly erred, both on facts and in law, in confirming the addition of Rs.1O,OO,OOO/- made by the Assessing Officer in the appellant's income by disallowing the expenditure incurred by it in respect of Donation made for 'Devi Ahilya Utsav'. (c) That, the learned CIT(A) grossly erred, both on facts and in law, in confirming the addition of Rs.2,00,000/- made by the Assessing Officer in the appellant's income by disallowing the expenditure incurred by it in respect of Donation made for 'Malwa Utsav'. 35
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 (d) That, the learned CIT(A) grossly erred, both on facts and in law, in confirming the addition of Rs.3,75,065/- made by the Assessing Officer in the appellant's income by disallowing the expenditure incurred by it in respect of Other Donations. 3. That, the appellant further craves leave to add, alter, omit and/or amend any of the above stated grounds of appeal as and when considered necessary.
Apropos to ground 1 relating to denial of exemption u/s 11 & 12 of the Act, at the outset, Ld. counsel for the assessee fairly conceded that the I.T.A.T., Indore Bench in its order dated 06.07.2010 vide ITA No.366/Ind/2008 dismissed the appeal of the assessee thereby upholding the order of Ld. CIT-I Indore rejecting the assessee’s application for registration u/s 12AA of the Act.
Ld. counsel for the assessee further submitted that against the order of Hon'ble I.T.A.T.,Indore assessee preferred an appeal before the Hon'ble Jurisdictional High Court which is pending.
We find that since the issue is squarely decided against the assessee by the Coordinate Bench confirming the rejection of assessee’s application for rejection u/s 12AA of the Act, both the lower authorities were justified in denying the benefit of exemption u/s 11 & 12 of the Income Tax Act. We, therefore, dismiss ground no.1 raised by the assessee for A.Y. 2012-13.
Now we take up Ground No.2(a) (b )(c) & d for the disallowance of following expenses totalling to Rs. 31,93,340/- 36
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 1. Jhanki –Pradarshani & Seminar Rs.16,18,275/- 2. Devi Ahilya Utsav Rs.10,00,000/- 3. Malwa Utsav Rs.2,00,000/- 4. Other donation Rs.3,75,065/-
We have heard rival contentions and perused the record placed before us. We observe that the issue raised in ground no.2 of the assessee’s appeal for A.Y. 2012-13 also came for adjudication before us in the assessee’s appeal for A.Y.2011-12 wherein we have decided the issue in favour of the assessee holding that such expenses which are incurred on the direction of the State Government for various events in which public at large takes part, are the expenses in the nature of advertisement and brand building of the assessee namely ‘IDA’. Such expenses should be considered to have been incurred in the normal course of business allowable u/s 37(1) of the Act. Reliance was also placed by us on the judgment of Hon'ble Delhi High Court in the case of Pr. CIT vs. M/s. Indian Farm Forestry Development(supra). However, in the instant appeal for A.Y. 2012-13 disallowance of impugned amount also includes the disallowance for Rs.3,75,065/- debited by the assessee under the head of other donation. No details have been placed before us about the actual purpose of this amount. It is also not emanating from the record that the alleged amount of Rs.3,75,065/- has been paid on the direction of the State Government. We, therefore, are of the considered view that out of total disallowance of Rs. 31,93,340/-, disallowance for ‘other
Indore Development Authority ITANos.847 870 & 1355/Ind/2016 donation’ of Rs.3,75,065/- stands confirmed. The assessee gets partial relief. Thus, ground no.2 of the assessee’s appeal is partly allowed.
Ground No.3 is general in nature which needs no adjudication.
As a result, appeal of the assessee for A.Y. 2012-13 is partly allowed.
In the result, appeal of the revenue for A.Y. 2011-12 is dismissed, appeals of the assessee for A.Y. 2011-12 is allowed and that for A.Y. 2012-13 is partly allowed. Order was pronounced in the open court on 31.10.2019.
Sd/- Sd/- (KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore; �दनांक Dated : 31/10/2019 ctàxÄ? P.S/.�न.स.
Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file.
By order Assistant Registrar