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Income Tax Appellate Tribunal, “A”, BENCH KOLKATA
Before: SHRI A. T. VARKEY, JM & DR. A.L. SAINI, AM
IN THE INCOME TAX APPELLATE TRIBUNAL “A”, BENCH KOLKATA BEFORE SHRI A. T. VARKEY, JM & DR. A.L. SAINI, AM ITA No.593/Kol/2016 (Assessment Year: 2010-11) ITO(E), Wd-1(3), Kolkata Vs. The Institute of Indian Foundrymen 6th Floor, 10B, Middleton Row, Kolkata IIF Center, 335, Rajdanga Main – 700 071. Road, East Kolkata Township, P.O. Kolkata – 700 107. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAATT 6606 M (अपीलाथ� /Appellant) (��यथ� / Respondent) ..
Appellant by : Smt. Pinaki Mukherjee, Addl. CIT Respondent by : Shri Miraj D. Shah, AR सुनवाई क� तार�ख / Date of Hearing : 13/06/2018 घोषणा क� तार�ख/Date of Pronouncement: 12/09/2018 आदेश / O R D E R Per Dr. A. L. Saini, AM: The captioned appeal filed by the Revenue, pertaining to Assessment Year 2010-11, is directed against the order passed by ld. Commissioner of Income Tax (Appeals)-25, Kolkata in Appeal No.151/2014-15 dated 27.01.2016, which in turn arises out of an assessment order passed by Assessing Officer u/s 143(3)/11 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), dated 28.03.2013.
The grounds of appeals raised by the Revenue are as follows:
“1. That on the facts and circumstances of the case, the CIT(A) has erred in deleting addition of Rs.1,93,02,985/- made on difference in credit of income as per 26AS statement and income credited in I/E accounts without reconciliation of the same. 2. That on the facts and circumstances of the case, the CIT(A) has erred in considering the provisions of Rule 37BA(3) without appreciating the mercantile system of accounting as per section required to be credited on accrual basis. 3. That on the facts and circumstances of the case, the CIT(A) has erred in allowing relief to the assessee ignoring the fact that TDS of Rs.4,94,685/- was claimed in the return of income while the income on such TDS was not credited in the I/E accounts as required in accordance to provisions of Rule 37BA(3).
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That on the facts and circumstances of the case, the CIT(A) has erred in allowing relief on provision made on accrual basis for future expense to be applied by the chapters ignoring the fact that provision cannot be treated as application of money 5. That on the facts and circumstances of the case the CIT(A) has erred in granting relief on account of depreciation claimed without appreciating the fact that the cost of acquisition earlier years thereby reducing written down value to nil. 6. That the assessee craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing.”
Ground No.1, 2 and 3 raised by the Revenue relate to addition of Rs.1,93,02,985/- made on account of difference in credit of income as per 26AS statement and income credited in Income and Expenditure accounts.
The brief facts qua the issue are that during the assessment proceedings, the assessing officer noted that in the previous year, the assessee received Tax deductible income of Rs.3,17,86,998/- as per the 26AS details against TDS of Rs.7,40,203/- whereas the assessee claimed TDS credit to the tune of Rs.6,72,449/-. The assessee was asked to submit the details of such income in light of the anomaly and also due to the fact that the TDS were for Contractual receipts. Even after many adjournments, the assessee failed to submit the details of its Contractual receipts. It also admitted that income related to TDS amounting to Rs. 4,94,685/- was not credited in its income for the year. Therefore, the nature of the Contractual receipts remained unverified. As a matter of fact, the assessee failed to come forward with its Books of accounts wherefrom it can be verified that the income is incorporated in accounts or the nature of such receipts. Therefore, the assessing officer disallowed the corresponding income of Rs.1,93,02,985/- and added to total income of the assessee. The assessing officer also rejected book result u/s 145(3) of the Act as he was not satisfied with its correctness and completeness.
On appeal, ld CIT(A) deleted the addition made by the assessing officer. Aggrieved by the order of ld CIT(A), the Revenue is in appeal before us.
Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated
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for the sake of brevity. On the other hand, ld Counsel for the assessee relied on the order passed by the ld CIT(A).
We have given a careful consideration to the rival submissions and perused the material available on record, we note that the assessee is an Institute being an All India Body comprising of various Chapters located across the Country, and also Centres of Excellence, and, Committees, in pursuit of development and excellence in Foundry Engineering. The assessee had been granted registration u/s 12AA of the Act vide No. S-45/88-89 dated 30.03.1989. In addition to its regular activities, during the relevant previous year, the Institute had held its 58th Indian Foundry Congress and IFEX 2010 at Ahmedabad. All the respective Chapters located across the country pursue and conduct various programmes, etc., and in the year end send their activity report and accounts to the head office for consolidation. We note that issue before us is related to the TDS Annual Statement in the Form 26AS and the reconciliation thereof with the TDS and the income accounted for in the assessee's accounts. Obviously, as the assessee has to get the accounts of the respective Chapters located across the Country, and thereafter to consolidate, thus, there is bound to be some differences, because of timing of recognition of receipts/income.
We note that the in Form 26AS, there are 721 number of entries running into 39 number of pages. In the assessee`s case under consideration, the TDS are mostly u/s 194A [Interest other than ‘interest on securities’] and, u/s 194C [payments to contractors]. We note that the difference arises because of timing of the transactions, which is the common issue in TDS matters. The relevant comparative facts and figures are given below:
As per form 26AS As per assessee Difference Income 3,17,86,998/- 2,62,77,323/- 55,09,675/- TDS 7,40,203/- 6,72,449/- 67,754/-
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As we explained that Form 26AS is only the statement of the tax deducted during the F.Y; and therefore, the accounting of the income, as also the TDS by the receiver may not exactly tally with the Form 26AS because of timing of recognition. At this juncture it is relevant to quote the provisions of section 199 of the Act and Rule 37BA (3) of the I.T. Rules, which read as follows:
Sub-section (3) of Section 199 of the Act reads as follows:
“The Board may, for the purposes of giving credit in respect of tax deducted or paid in terms of the provisions of this Chapter, make such rules as may be necessary and also the Assessment Year for which such credit may be given”. By virtue of this sub-section the Board has framed Rule 37BA and the relevant sub-rule is sub-rule (3) which reads: “(3) (i) Credit for tax deducted at source and paid to the Central Government, shall be given for the Assessment Year for which such income is assessable. (ii) Where tax has been deducted at source and paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax.”
We note that in practical scenario, the above section 199 of the Act and rule 37BA(3) require reconciliation and in reality involve a lot of painstaking reconciliation efforts. As stated earlier, in this instant case, the Form 26AS itself has 721 number of entries running over 39 number of pages. From the basic table of facts as above, at first glance itself it is that the assessee has at large adhered to the laid down rule in the Rule 37BA(3)(ii) of proportionate claim for credit of TDS vis-a-vis the income recognized. As against the Form 26AS TDS at Rs.7,40,203/- the assessee has recognized for the year at Rs.2,62,77,323/-. In percentage terms, the TDS in the Form 26AS is at around 2% of the incomes
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therein, and the assessee claim of TDS of the incomes accounted. So by and large, applicable Rule 37BA(3)(ii) has been adhered to, therefore, taking a macro picture, as the TDS details are voluminous, and that the assessee has to consolidate all the accounts of its Chapters and the seeming difference is not of much concern, for the facts and circumstances are that it is the case for Rule 37BA(3)(ii), and applied in principle, therefore there is no cause for concern for the difference.
We note that these timing differences in recognition of revenue with corresponding TDS, will get adjusted in future years and hence there is no tax evasion on the part of the assessee. Moreover, the details of the impugned addition at Rs.1,93,02,985/- made by the AO is not available, that is, on what basis he worked out the addition at Rs.1,93,02,985/-, therefore, we do not agree with the addition made by assessing officer. Apart from this, we rely of the judgment of the coordinate Bench on the same issue in the case of B.S. Consultancy Services Vs. ITO, ITA no.345/Kol/2017 order dated 06.09.2017, wherein it was held as follows:
“4. We have heard rival submissions and gone through the facts and circumstances of the case. Before us the main plea of the assessee is that the receipt in the return is shown after netting of service tax and, therefore, the difference in receipt shown in Form 26AS vis-à-vis that shown in the return cannot justify the addition made by the AO. According to the Ld. AR, based on the AIR information addition cannot be made. According to the ld. AR, the assessee has no control over Form 26AS which is generated by the department after the payer makes the payment in the name of assessee in Government account; and if Form 26AS is to be believed and the assessee's books of account is to be disbelieved then the assessee should be given an opportunity to confront the payer who made the credit in the assessee's name which formed the basis of generation of Form 26AS, which is not tallying with the books of account of the assessee. Admittedly, the assessee's books of account are audited and the AO could not find any discrepancy in the same. Merely because the 26AS when
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compared with the service value as reflected in the P&L Account of the assessee cannot be the ground to make the addition. In such cases, we should take note that the assessee has no control over the Form 26AS which is generated by the department when the payer credits the tax deducted at source electronically by entering the PAN details of the assessee, where mistake during entering the PAN details or figures cannot be ruled out. The assessee maintained its books of account in the regular business which is audited and has received its receipts through banking channel. In such a scenario, in order to disbelieve the assessee's P&L Account when there is discrepancy with Form 26AS, then it is the bounden duty of the AO to give opportunity to the assessee to confront the payer and to find out the correct figure, without doing so, the addition made simply believing the Form 26AS will be an arbitrary exercise of power which cannot be sustained and, therefore, we direct deletion of the same. This ground of appeal of assessee is allowed.”
Hence, considering the facts and circumstances of the assessee, we are of the view that ld CIT(A) has rightly deleted the impugned addition at Rs.1,93,02,985/-. That being so, we decline to interfere in the order passed by the ld CIT(A), his order on this issue is hereby upheld and grounds of appeal raised by the revenue is dismissed.
Ground No. 4 raised by the revenue relates to allowing of relief on provision made on accrual basis for future expense to be applied by the chapters ignoring the fact that provision cannot be treated as application of money.
The brief facts qua the issue are that in the books of account, the assessee made a provision of Rs.23,71,990/- for entitlement by debiting the income expenditure account. During the assessment proceedings, the assessee submitted before the assessing officer that although the assessee debited a major port of such expenses to the Chapters but such expenses were not finally adjusted with total amount of claim in the books of head office. The assessing officer noted that it was apparent from the statement of the assessee that the assessee could not defend its own accounts. Hence, provision being not an actual application, the entire provision of Rs.23,71,990/-was disallowed.
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On appeal, the ld CIT(A) deleted the addition. Aggrieved by the order of ld CIT(A), the Revenue is in appeal before us. Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, ld Counsel for the assessee relied on the order passed by the ld CIT(A).
We have given a careful consideration to the rival submissions and perused the material available on record, we note that this ground of appeal is in respect of disallowance of Rs.23,71,990/- claimed by the assessee as provisions for entitlement. The said amount represents entitlements due to respective chapters computed on the basis of collections from membership subscription under their control. The ld. Assessing Officer has disallowed the amount because provision is not an actual application. However, these amounts should be applied by the respective chapters and the assessee had made the provisions on accrual basis concept. We note that so as per the Form No.10B is concerned, the application of income is at Rs.1,92,30,669/-, and as per the Income and Expenditure Account the expenditure is at Rs.1,68,23,970/-. Therefore, the application of income is much more than the income accounted for during the year; and therefore, obviously the debit in the Income and Expenditure Account styled as 'Provision for Entitlement' has been applied. The DDIT AO has not found fault with the Form No.10B.
We note that the amount represents entitlements due to the respective Chapters computed on the basis of collections from membership subscription under the control, and that these amounts should be applied by the respective Chapters. Therefore, it is an ascertained expenditure which obviously must be applied by the Chapters. As far as the Head Office is concerned, obviously in the Consolidated Income and Expenditure Account this is styled as 'Provision', but in effect it is not so, and for the application of the expenditure is done by the respective Chapters. Also, as seen in the Consolidated Income and Expenditure Account, this item of expenditure/style of narration has also been there in earlier years. So it has been a regular feature, being expenditure applied by the Chapters
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and hence it is not a ‘provision’. That being so, we decline to interfere in the order passed by the ld CIT(A), his order on this issue is hereby upheld and grounds of appeal raised by the revenue is dismissed.
Ground No.5 raised by the Revenue, relates to granting of relief on account of depreciation claimed without appreciating the fact that the cost of acquisition earlier years thereby reducing written down value to nil.
The brief facts qua the issue is that the main grievance of the revenue in this ground is that depreciation on capital assets should not be allowed. Whereas the grievance of the assessee is that the amount of Rs.12,97,180/- claimed by the assessee on account of depreciation on capital assets ought to have been allowed by the learned Assessing Officer in computation of income u/s. 11(1)(a) of the said Act following the normal rules of accountancy. There is no discussion on this issue in the impugned assessment order; but has been directly done by the assessing officer in the computation of income part.
On appeal, ld CIT (A) held that depreciation should be allowed on the fixed assets owned by the trust. Aggrieved by the order of ld CIT(A), the Revenue is in appeal before us. Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, ld Counsel for the assessee relied on the order passed by the ld CIT(A).
We have given a careful consideration to the rival submissions and perused the material available on record, we note that the assessee is entitled to the claim for depreciation on the assets owned by it. If depreciation is not allowed as a necessary deduction in computing the income of the assessee, then there would be no way to preserve the corpus of the trust. Reliance is placed on CIT vs. Shri Gujrati Samaj (Regd.) (2011) 64 DTR 76 (MP).
We are of the view that the depreciation needs to be allowed. This is a primary accepted principle of accounting. The assets obviously undergo wear and tear/diminution in value and therefore the decline in value has to be accounted for
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on a systematic way. Be as it may, there has been an insertion in the Act vide Finance (No. 2) Act, 2014, w.e.f. 01.04.2015, being sub-section (6) to section 11 whereby the provisions of section 11 shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset. This insertion is w.e.f. 01.04.2015, and therefore is not applicable to the AY 2010-11 to the assessee under consideration.
We also rely of the judgment of the Hon`ble Supreme Court in the case of CIT vs. Rajasthan and Gujarati Charitable Foundation Poorna, (2017) (12) TMI 1067 (SC) wherein it was held as follows:
“4. Question No. 2 herein is identical to the question which was raised before the Bombay High Court in the case of Director of Income-tax (Exemption) v. Framjee Cawasjee Institute [1993] 109 CTR 463. In that case, the facts were as follows: The assessee was the Trust. It derived its income from depreciable assets. The assessee took into account depreciation on those assets in computing the income of the Trust. The ITO held that depreciation could not be taken into account because, full capital expenditure had been allowed in the year of acquisition of the assets. The assessee went in appeal before the Assistant Appellate Commissioner. The Appeal was rejected. The Tribunal, however, took the view that when the ITO stated that full expenditure had been allowed in the year of acquisition of the assets, what he really meant was that the amount spent on acquiring those assets had been treated as ‘application of income’ of the Trust in the year in which the income was spent in acquiring those assets. This did not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account. This view of the Tribunal has been confirmed by the Bombay High Court in the above judgment. Hence, Question No. 2 is covered by the decision of the Bombay High Court in the above Judgment. Consequently, Question No. 2 is answered in the Affirmative i.e., in favour of the assessee and against the Department.”
After hearing learned counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and there is no need to interfere with the same.
It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in ‘Lissie Medical Institutions v. Commissioner of Income Tax’.
It may also be mentioned at this stage that the legislature, realising that there was no specific provision in this behalf in the Income Tax Act, has made amendment in Section 11(6) of the Act vide Finance Act No. 2/2014 which
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became effective from the Assessment Year 2015-2016. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature.”
That being so, we decline to interfere in the order passed by the ld CIT(A), his order on this issue is hereby upheld and grounds of appeal raised by the revenue is dismissed.
In the result, the appeal filed by the Revenue, is dismissed.
Order pronounced in the open court on this 12/09/2018. Sd/- Sd/- (A. T. Varkey) (A. L. Saini) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; Dated:12/09/2018 RS, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant- ITO(E), Wd-1(3), Kolkata 1. ��यथ� / The Respondent.- The Institute of Indian Foundrymen 2. 3. आयकर आयु�त(अपील) / The CIT(A)- आयकर आयु�त / CIT 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 5. गाड� फाईल / Guard file. 6.
//True Copy// By Order
Senior Private Secretary, Head of Office/D.D.O, I.T.A.T, Kolkata Benches, Kolkata.