MAHARASHTRA JEEVAN PRADHIKARAN,MUMBAI vs ADIT (E) 1(I), MUMBAI

Income Tax Appellate Tribunal, “B” BENCH, MUMBAI

Before: SHRI D KARUNAKARA RAO, AM & SHRI RAVISH SOOD, JM

For Appellant: Shri Jagdeesh Dhongde

For Respondent: Smt. R.M. Madhavi

Pronounced: 16/12/2016

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI D KARUNAKARA RAO, AM AND SHRI RAVISH SOOD, JM I.T.A. No. 2971/Mum/2012 Assessment Year: 2008-09 M/s. Maharashtra Jeevan Pradhikaran DDIT (E) –1(1), 4th Floor, Express Tower, Nariman Mumbai. Vs. Point, Mumbai – 400 021. PAN/GIR No. AAAJM0462A (Appellant) (Respondent) :

I.T.A. No.5868/Mum/2015 Assessment Year: 2009-10

M/s. Maharashtra Jeevan Pradhikaran ADIT (E) – 1(1), 4th Floor, Express Tower, Nariman Mumbai. Vs. Point, Mumbai – 400 021. PAN/GIR No. AAAJM0462A ( Appellant) ( Respondent) :

Appellant by : Shri Jagdeesh Dhongde Respondent by : Smt. R.M. Madhavi

22/09/2016 Date of Hearing : Date of Pronouncement 16/12/2016 :

2 I.T.A. No.2971/Mum/2012 & 5868/Mum/2015 (A.Y. 2008-09 & 2009-10) M/s. Maharashtra Jeevan Pradhikaran

O R D E R PER RAVISH SOOD, JUDICIAL MEMBER: The present appeals involving some common issues, pertaining to A.Y. 2008-09 and 2009-10 are directed against the orders passed by the CIT(A)-1, Mumbai, dated 13.02.2012 and CIT(A)-7, Mumbai, dated. 18.09.2015, respectively, which originate from the respective assessment orders passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961, (for short ‘Act’). I.T.A. NO. 2971/MUM/2012 ASSESSMENT YEAR: 2008-09

The assessee assailing the order of the CIT(A), had raised the following grounds of appeal before us. “1. Disallowance u/s 43B a. The learned Dy. Director of Income Tax erred in adding back the amount of Rs. 1,33,682/- under section 43B of the Income Tax Act, 1961. b. The learned Dy. Director ought not have made any addition as the assessment in case of trust is done as per provision of section 11,12 & 13 of the I.T. Act. 2. Disallowance u/s 40(a)(i) a. The learned Dy. Director of Income Tax erred in adding back an amount of Rs. 4,08,36,561/- under section 40(a)(i) of the Income Tax act, 1961.

3 I.T.A. No.2971/Mum/2012 & 5868/Mum/2015 (A.Y. 2008-09 & 2009-10) M/s. Maharashtra Jeevan Pradhikaran b. The learned Dy. Director ought not have made any addition as the assessment in case of trust is done as per provision of sec 11, 12 & 13 of the I.T. Act.

The learned Dy. Director ought not have made additions under section 43B & 40(a)(ia) of Income from business or profession (i.e. section 28 to 44) as the assessee was assessed under income from other sources, being a Trust, (i.e. u/s 11, 12 & 13).

The assessee craves leave to add, amend and delete any of the above grounds of appeal.”

The brief facts of the case are that the assessee is a statutory authority created by a special enactment of the Government of Maharashtra under the Maharashtra Jeevan Pradhikaran Act, 1976. The main object of the assessee is to provide rapid development and proper regulation of water supply and sewerage services in the State of Maharashtra and other matters connected thereto, in the course of which it carries out planning, designing and execution of water works throughout the state of Maharashtra, as well as renders service of project management and implementation of water projects on behalf of the Municipal councils/Corporations and maintains the water works for and on behalf of the Municipal corporations in the State of Maharashtra. The assessee was registered u/s 12A of the ‘Act’ by the Director of Income-tax (Exemptions), Mumbai (for short ‘DIT (E)’), pursuant whereto the income of the assessee was computed as per the provisions of Sections. 11, 12 and 13 of the ‘Act’.

4 I.T.A. No.2971/Mum/2012 & 5868/Mum/2015 (A.Y. 2008-09 & 2009-10) M/s. Maharashtra Jeevan Pradhikaran

The assessee computing its income for the year under consideration as per the provisions of Sec. 11, 12 and 13 of the ‘Act’, filed its return of income as on 30.09.2009 for the year under consideration, i.e A.Y.2008-09, declaring Nil income, which was accompanied with ‘Form No. 10B’, audited ‘Income & Expenditure a/c’, ‘Balance sheet’ and schedules. The case of the assessee was taken up for scrutiny proceedings, wherein the A.O after carrying out certain disallowances/additions computed the income of the assessee at Rs. 460,22,63,013/-, which after being subjected to exemption u/s 11 of the ‘Act’ was reduced to Rs. 65,34,06,423/-. The assessee being aggrieved with the assessment, therein carried the same in appeal before the CIT(A), who partly allowed the appeal.

The assessee being aggrieved with the following additions which had been sustained by the CIT(A):- S.No. Particulars Amount 1. Disallowance u/s 40(a)(ia). Rs. 4,08,36,561/- 2. Disallowance u/s 43B. Rs. 1,33,682/-

, had therein assailed the order of the CIT(A) before us. The Ld. Authorized representative of the assessee (for short ‘A.R’) at the very outset submitted that now when the income of the assessee was computed and assessed as per Sec. 11,

5 I.T.A. No.2971/Mum/2012 & 5868/Mum/2015 (A.Y. 2008-09 & 2009-10) M/s. Maharashtra Jeevan Pradhikaran 12 and 13 of the ‘Act’, therefore no disallowance u/s 40(a)(ia) or Sec. 43B of the ‘Act’, which are attracted only in cases where the income of an assessee is computed under the head ‘Profits and gains of business or profession’ under Sec. 28 to 44 of the ‘Act’, was thus liable to be made in the hands of the assessee, and the said disallowance as such had wrongly been made by the A.O, and thereafter sustained by the CIT(A). The Ld. A.R in support of his aforesaid contention that the provisions of Sec. 28 to Sec. 44 were only applicable to those assesses who were having income from business or profession, and as such could not be applied to Public Charitable Trusts, therein submitted that though the said issue was covered by the following orders of the Tribunal:-

(i). Baba Farid Vidyak Society Vs. ACIT (ITA No. 180/ASR/2010, A.Y: 2005-06, Dt. 31.01.2011) (Asr)

(ii). ACIT Vs. Jalandhar Improvement Trust (ITA No. 155/ASR/2010, A.Y: 2005-06)(Asr)

, which were relied upon during the course of the appellate proceedings before the CIT(A), however the same were most arbitrarily and erroneously distinguished by the said appellate authority. The Ld. A.R further in support of his contention that the disallowances contemplated in Section 40(a)(ia) and Section 43B of the ‘Act’ are liable to be restricted only in the course of computing of the income of an

6 I.T.A. No.2971/Mum/2012 & 5868/Mum/2015 (A.Y. 2008-09 & 2009-10) M/s. Maharashtra Jeevan Pradhikaran assessee under the head ‘Profits and gains of business or profession’, therein relied on the order of the ITAT, Mumbai Bench ‘B’, in the case of :-

Mahatama Gandhi Seva Mandir Vs. DDIT (E) 1(2), Mumbai (2012) 52 SOT 26 (Mumbai)

That on the other hand the Ld. Departmental representative (for short ‘D.R’) relied on the orders of the lower authorities.

We have heard both the parties, perused the material on record and have given a thoughtful consideration to the issue before us. We find ourselves to be in agreement with the contention of the Ld. A.R that the issue involved in the present case as to whether the disallowance contemplated u/s 40(a)(ia) of the ‘Act’ would be applicable while computing the income in the case of a charitable trust, is squarely covered by the order of a coordinate bench of the Tribunal in the case of : Mahatama Gandhi Seva Mandir (supra), wherein it has been held as under:-

“7.2 The profits and gains from business or profession are computed under Section 28 and section 29 states that “the income referred to in Section 28 shall be computed in accordance with the provisions contained in Section 30 to 43D”. Thus, Section 30 to 43 provides various kinds of deductions which are to be made while computing the profit of the assessee from business or profession. Section 40 provides an exception to such

7 I.T.A. No.2971/Mum/2012 & 5868/Mum/2015 (A.Y. 2008-09 & 2009-10) M/s. Maharashtra Jeevan Pradhikaran deductions which have been provided in Section 30 to 38 and starts with a non obstante clause reading as under:-

‘notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “profits and gains of business or profession”.

Thus, Section 40 is applicable only when deduction under Sections 30 to 38 are being made in computing the income chargeable under the head “profits and gains of business or profession” under Section 28. The exception in Section 40 is carved out, only for the purpose of Section 28 and not for computing the exemption of income of a charitable trust under section 11. The disallowance made under Section 40(a) will only go to enhance the business profit of an assessee whose income is assessable under section 28 and not otherwise. Hence, provisions of section 40(a) are not applicable in case of charitable trust or institution where income and expenditure is computed in terms of section 11.

Accordingly, we do not find any merit in the orders passed by the Assessing Officer as well as by the CIT(A) and delete the

8 I.T.A. No.2971/Mum/2012 & 5868/Mum/2015 (A.Y. 2008-09 & 2009-10) M/s. Maharashtra Jeevan Pradhikaran disallowance made under Section 40(a)(ia) on account of non- deduction of TDS for sum of Rs. 3,06,457/- and the Ground No. 1 as raised by the assessee stands allowed.”

We are of the considered view that as the aforesaid order of the Tribunal was passed subsequent to the order of the CIT(A), therefore in all fairness we herein restore the matter to the file of the CIT(A) with a direction that the issue pertaining to disallowance u/s 40(a)(ia), to the extent the same had been sustained by the CIT(A), may therein be adjudicated afresh in the backdrop of the aforesaid order of the Tribunal. The ‘Ground of appeal No. 2’ so raised by the assessee, in light of our aforesaid observations is thus allowed for statistical purposes.

5.1 We are further of the considered view that the disallowance u/s 43B of the ‘Act’ of Rs. 1,33,682/- so made by the A.O, which thereafter had been sustained by the CIT(A), as stands gathered from a perusal of the said statutory provision, relevant extract of which reads as under:-

“……shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him.”

9 I.T.A. No.2971/Mum/2012 & 5868/Mum/2015 (A.Y. 2008-09 & 2009-10) M/s. Maharashtra Jeevan Pradhikaran

, therein reveals beyond any scope of doubt that the said disallowance contemplated u/s 43B, alike the disallowance provided in Sec. 40(a)(ia) of the ‘Act’, comes into play only in the course of computing the income of an assessee under the head ‘Profits and gains of business or profession’. We thus on the basis of the reasoning adopted by us while restoring the issue as regards the disallowance u/s 40(a)(ia) to the file of the CIT(A) for the purpose of fresh adjudication, thus on the same footing restore the issue as regards disallowance u/s 43B of Rs. 1,33,682/- (supra) to the file of the CIT(A), with a direction for fresh adjudication in light of the order passed by the coordinate bench of the Tribunal in the case of : Mahatama Gandhi Seva Mandir (supra). The ‘Ground of appeal No. 1’ so raised by the assessee, in light of our aforesaid observations is thus allowed for statistical purposes.

5.2 The ‘Ground of appeal No. 3’ so raised by the assessee, we find being inextricably interwoven and interlinked with the ‘Ground of appeal No. 1’ and ‘Ground of appeal No. 2’, the same is thus allowed for statistical purposes in light of our observations recorded hereinabove while disposing of the aforesaid respective grounds of appeal.

10 I.T.A. No.2971/Mum/2012 & 5868/Mum/2015 (A.Y. 2008-09 & 2009-10) M/s. Maharashtra Jeevan Pradhikaran 6. The appeal of the assessee marked as I.T.A. No. 2971/Mum/2012, for A.Y: 2008-09 is thus allowed for statistical purposes, in light of our aforesaid observations.

I.T.A. NO. 5868/MUM/2015 ASSESSMENT YEAR: 2009-10

We now advert to the appeal filed by the assessee, marked as ITA No. 5868/Mum/2015 for A.Y. 2009-10, directed against the order of the CIT(A)-7, Mumbai, which in turn have arisen out of the order passed by the Assessing Officer u/s. 143(3) of the ‘Act’. The assessee assailing the order of the CIT(A), had therein raised the following grounds of appeal before us:-

Disallowance u/s 43B a. The Dy. Director (Exemption) has erred in adding back the amount of Rs. 5,58,978/- under section 43B of the Income Tax Act, 1961.

b. The learned Commissioner ought not have made any addition as the assessment in case of trust is done as per provision of section 11,12 & 13 of the I.T. Act.

Disallowance u/s 40(a)(i):- a. The learned Dy. Director (Exemption) erred in adding back an amount of Rs. 3,05,44,986/- under section 40(a)(i) of the Income Tax act, 1961.

11 I.T.A. No.2971/Mum/2012 & 5868/Mum/2015 (A.Y. 2008-09 & 2009-10) M/s. Maharashtra Jeevan Pradhikaran b. The learned Assessing Officer ought not have made any addition as the assessment in case of trust is done as per provision of sec. 11, 12 & 13 of the I.T. Act.

The learned Assessing Officer ought not have made additions under section 43B & 40(a)(ia) of Income from business or profession (i.e. section 28 to 44) as the assessee was assessed under income from other sources, being a Trust, (i.e. u/s 11, 12 & 13).

Addition u/s 2(24)(x):-

The learned Asssessing Officer has erred in adding back an amount of Rs. 5,99,27,358/- under section 2 (24)(x) of the Income Tax Act, 1961.

The assessee craves leave to add, amend and delete any of the above grounds of appeal.

The learned Assessing Officer failed to take into account that debit balane of Government was allowed to be adjusted against liability and should have been treated as payment to Government. The assessee claimed that it was payment to Government and should not have been added back to income.

The assessee craves leave to add, amend and delete any of the above grounds of appeal.”

That adverting to the ‘Ground of appeal No.1’ , ‘Ground of appeal No. 2’ and ‘Ground of appeal No. 3’, the Ld. A.R. had brought to our notice that the identical issues were involved in the appeal of the assessee for A.Y. 2008-09, marked as ITA No. 2971/Mum/2012, which factual position had been admitted by

12 I.T.A. No.2971/Mum/2012 & 5868/Mum/2015 (A.Y. 2008-09 & 2009-10) M/s. Maharashtra Jeevan Pradhikaran the Ld. D.R. Thus in light of the aforesaid facts, we adjudicate the present issue in terms of our order passed in context of the aforesaid issues, while disposing of the ‘Ground of appeal No. 1’, ‘Ground of appeal No. 2’ and ‘Ground of appeal No. 3’, respectively, in the appeal of the assessee for A.Y. 2008-09, marked as ITA No. 2971/Mum/2012, and thus on the same terms and reasoning adopted by us, therein restore the respective issues to the file of the CIT(A), with a direction that the same be adjudicated afresh in light of the order of the coordinate bench of the Tribunal passed in the case of : Mahatama Gandhi Seva Mandir (supra), which though was available at the time when the CIT(A) had passed the order for the year under consideration, but had remained omitted to be considered by him. The ‘Ground of appeal No. 1’,‘Ground of appeal No. 2’ and ‘Ground of appeal No. 3’ so raised by the assessee before us are thus allowed for statistical purposes in light of our aforesaid observations.

We now take up the ‘Ground of appeal No.4’ and ‘Ground of appeal No. 5’, both of which are found to emerge from the same issue. The Ld. A.R. averred that the lower authorities had erred in adding back an amount of Rs. 5,99,27,358/- in the hands of the assessee u/s 2(24)(x) of the ‘Act’. It is the case of the assessee that the lower authorities had failed to take into account the very fact that as the ‘debit balance’ of the Government was allowed to be adjusted against the outstanding liability, the same thus should have been treated as payment to government, as a

13 I.T.A. No.2971/Mum/2012 & 5868/Mum/2015 (A.Y. 2008-09 & 2009-10) M/s. Maharashtra Jeevan Pradhikaran result whereof no addition on the said count was called for in the hands of the assessee. We though are in agreement with the aforesaid contention of the assessee, and rather find that such a claim of the assessee emerging from similar facts was accepted by the CIT(A) while disposing of the appeal of the assessee for A.Y. 2008-09, however during the year under consideration, the CIT(A) had upheld the said addition not for any other reason, but rather only for the reason that the assessee itself had added back the said amount to its income. That the facts pertaining to the issue under consideration before us are not clear and for fair adjudication would require further verification. We are thus of the considered view that in light of the aforesaid facts as they so remain, now when on one hand the assessee is challenging the said addition before us, while for on the other hand it is claimed by the CIT(A) that the said amount was suo motto added by the assessee itself, the matter requires to be examined in the backdrop of the facts involved therein. That as we had already restored the appeal of the assessee to the file of the CIT(A) for fresh adjudication on the issues emerging from ‘Ground(s) of appeal No. 1 to 3’, we therefore in all fairness restore the present issue also for fresh adjudication to the file of the CIT(A), who shall readjudicate the same after seeking clarification of the facts pertaining to the same. That needless to say, the CIT(A) in the course of fresh adjudication shall afford reasonable opportunity of being heard to the assessee, who shall be at a liberty to substantiate his claim before the CIT(A). The ‘Ground of appeal No. 4’ and ‘Ground of appeal No. 5’

14 I.T.A. No.2971/Mum/2012 & 5868/Mum/2015 (A.Y. 2008-09 & 2009-10) M/s. Maharashtra Jeevan Pradhikaran are thus restored to the file of the CIT(A) for fresh adjudication, in light of our aforesaid observations. The ‘Ground of appeal No. 4’ and ‘Ground of appeal No. 5’ are thus allowed for statistical purposes.

The appeal of the assessee marked as I.T.A. No. 5868/Mum/2015, for A.Y: 2009-10 is thus allowed for statistical purposes, in light of our aforesaid observations.

Order pronounced in the open court on 16/12/2016

Sd/- Sd/- (D.KARUNAKARA RAO) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated.16/12/2016 Copy of the Order forwarded to : 1. The Appellant , 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai Guard file. 6.

BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai

MAHARASHTRA JEEVAN PRADHIKARAN,MUMBAI vs. ADIT (E) 1(I), MUMBAI