BOMBAY SCOTTISH ORPHANAGE SCOEITY,MUMBAI vs. ITO (E) 1(1), MUMBAI

The facts in brief are that assessee is a charitable trust registered under Section 12A(a) of the Income Tax Act and also under the Bombay Public Trust Act. Object of the assessee is to provide education to children of all communities and religions. During the course of assessment, the AO declined assessee’s 2 Bombay Scottish Orphanage Society claim of depreciation and provision for gratuity. AO also reduced deduction claimed under Section 11(1)(a). In one of the assessment year i.e. 2009-10, the AO declined carry forward of deficit. Assessee is in appeal before us in respect of all the years under consideration.

Common grounds have been taken by assessee in all years under consideration. The first grievance of assessee relate to disallowance of gratuity payment. At the outset learned AR placed on record order of the Tribunal in assessee’s own case for the assessment year 2007-2008 dated 27/04/2016, wherein exactly similar claim was dealt with by tribunal and matter was restored back to file of AO after having the following observation. It is noted that the year before us is assessment year 2007-08 and the ld.CIT(A) has also mentioned the assessment year of the order of his predecessor relied upon by him as 2007-08. There seems to be some confusion on the part of the CIT(A). None of the parties was able to bring before us the correct facts nor any information was given about the ultimate fate the order which has been relied upon by the Id.ClT(A}. It is further noted that assessee's counsel was asked during the course of hearing by us to show us the evidences with regard to basis of computation of amount of gratuity provided for in the books of account. The Id. Counsel was unable to readily show us the required details and evidences in this regard. It is also noted by us that the Id.AO has also not commented anything in the assessment order with regard to computation of gratuity. It has been submitted by the Id.counsel that if the amount of gratuity payable has accrued during the year and the amount has been correctly computed, then the claim of gratuity should be allowed. We are inclined to agree with submission of the assessee, principly. In our view, an expense incurred or accrued during the year should be allowed as an expense of that year, even if paid subsequently. But since requisite facts, details and evidences are not available before us, we find it proper to send this ground back to the file of the Assessing Officer. The assessee shall submit requisite details and evidences to the Assessing Officer showing the basis of computation and the Assessing Officer shall decide this issue afresh keeping in view the guidelines given above after giving adequate opportunity of hearing to 3 Bombay Scottish Orphanage Society the assessee. Thus, with these directions this ground is sent back to the Assessing Officer and may be treated as allowed for statistical purpose' 4. We have gone through the order of the Tribunal in assessee's own case wherein claim on account of deduction of gratuity was restored back to AO by observing that expenses incurred or accrued during the year should be allowed as an expense of that year, even if paid subsequently. Since requisite facts, details and evidences were not available before the Tribunal, matter was restored back to the file of the AO with a direction to the assessee to file requisite details and evidences and direction to the AO for deciding the issue afresh keeping in view guidelines laid down by the Tribunal in the said order.

As the facts and circumstances during all the years under consideration are same, respectfully following the order of the Tribunal in assessee’s own case, the issue with regard to deduction on account of gratuity is restored back to the file of the AO for deciding afresh in terms of the direction given by Tribunal in the above mentioned order.

In the assessment years 2003-2004 and 2005-2006, assessee is aggrieved for reducing the deduction of deemed accumulation under Section 11(1)(a). We have considered rival contentions and found that the A.O. has computed the deduction u/s. 11(1)(a) @15% of the income arrived at after deducting depreciation from the gross income. However, in the 4 Bombay Scottish Orphanage Society Assessment Year 2003-2004, the AO has computed deduction u/s. 11(1)(a)@15% on Rs.5,66,86,794/- and allowed deduction of Rs.85,03,019/- only. In the assessment year 2005-2006 deduction allowable u/s 11(1)(a) works out to Rs.1,02,73,180/- being 15% of Rs.6,84,87,870/-, however, the Assessing Officer has allowed deduction of Rs.96,13,803/- which is 15% of total income after depreciation i.e., 15% of Rs.6,40,92,021 which is income after depreciation. As per the provisions deduction u/s 11(1)(a) is allowable on income as computed before depreciation.

In view of the above discussion, we direct the AO to recompute the allowable deduction u/s 11(1)(a) on the income so computed before allowing claim of depreciation. We direct accordingly.

In the assessment year 2009-2010, assessee is aggrieved for not allowing carry forward of deficit of Rs.8,65,36,862/-. We have considered rival contentions. The issue with regard to carry forward of deficit is covered by the decision of Jurisdictional High Court in case of Institute of Banking Personnel Selection (264 ITR 110) wherein it was held that incase of charitable trust whose income is exempt under Section 11, excess of expenditure in the earlier years can be adjusted against income of subsequent years and such adjustment would be application of income for subsequent years. Respectfully following the decision of Jurisdictional High

As we have already decided all the three issues on merit, we are not touching the legal ground taken by assessee on account of reopening of assessment for the Assessment Year 2003-04 to 2006-07 of I.T. Act.

In the result, appeals of the assessee are allowed in part in terms indicated hereinabove.