INDRAPRASTHA INSTITUTE OF INFORMATION TECHNOLOGY,DELHI V. ASSESSMENT UNIT INCOME TAX DEPARTMENT, DELHI

ITA 1165/DEL/2024

AI Insights

The case involves the Indraprastha Institute of Information Technology, Delhi, appealing against the order of the National Faceless Appeal Centre (NFAC), which upheld the disallowance of a provision made for leave encashment. The provision, amounting to Rs. 1,41,11,525, was based on actuarial valuation and claimed as an application of income derived from the trust's educational activities. The Assessing Officer had disallowed it, arguing it was not an actual expenditure. The Tribunal, referencing a similar case (DIT(E) vs NASSCOM), ruled in favor of the Institute, recognizing the provision as a legitimate application of income for charitable purposes.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470198 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2021-2022
• Other Referred Cases: DIT(E) vs NASSCOM
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARKASH
• Assessee Lawyers: LALITHA KRISHANMURTHY
• Keywords: Question of law; Bad and doubtful debts; Charitable institution
• Section: 143(3); 11

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “C”: NEW DELHI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 1165/Del/2024 (Assessment Year: 2021-22) Indraprastha Institute of Information Technology, Delhi Okhla Industrial Area, Phase III, New Delhi 110020 Vs. Assessment Unit, Income Tax Department (Appellant) (Respondent) PAN:AALI0123Q Assessee by : Ms. Lalitha Krishanmurthy, CA Revenue by: Shri Parkash, Sr. DR Date of Hearing 12/03/2025 Date of pronouncement 19/03/2025 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.1165/Del/2024 for AY 2021-22, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. NFAC’, in short] in Appeal No. ITBA/NFAC/S/250/2023-24/1060445318(1) dated 02.02.2024 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 13.01.2023 by the Assessing Officer, Assessment Unit, Income Tax Department (hereinafter referred to as ‘ld. AO’). 2. The only issue to be decided in this appeal is as to whether the provision made for leave encashment on the basis of actuarial valuation ITA No. 1165/Del/2024 Indraprastha Institute of Information Technology Page | 2 could be considered as an application of income in the facts and circumstances of the instant case. 3. We have heard the rival submissions and perused the material available on record. The assessee is a State University created by an Act of Govt. of NCT of Delhi and functions under the aegis of the Department of Training and Technical Education, Govt. of NCT of Delhi. The Institute is operating from its permanent campus at Okhla Phase-III New Delhi. The Hon'ble Lieutenant Governor of Delhi is the Chancellor of the Institute and presides over the General Council, having members from the Central and State Govt. The Institute imparts education in the field of engineering to Undergraduate, Postgraduate and Ph.D. Scholars. In line with the educational objects of the Institute, the Institute has been conducting B. Tech and M.Tech Programs in Computer Science, Electronics Engineering, Computational Biology, Artificial Intelligence, Computer Science & Design, Computer and Social Sciences, etc. apart from imparting knowledge to Ph.D. Scholars in these areas. The Institute has also been undertaking research in the domain areas for the Central and State Govt. and their departments, etc. Education and research are the only activities and there are no other segments. 4. It is not in dispute that the assessee trust is duly registered u/s 12AA of the Act enjoying exemption u/s 11 of the Act. The assessee during the year made provision for leave encashment on actuarial basis to the tune of Rs. 1,41,11,525/- and claimed the same as a charge or application of income derived from the objects of the trust. This leave encashment is an employee benefit payable to its employees and the same has been charged to income and expenditure account on the basis of actuarial valuation adopted from the registered valuer. The ld AO disallowed the said provision for leave encashment on the ground that ITA No. 1165/Del/2024 Indraprastha Institute of Information Technology Page | 3 the same was not actually expended by the assessee and hence cannot be treated as application of income. It is not in dispute that the assessee trust is following accrual system of accounting and had actually funded the leave encashment liability separately. Under accrual system of accounting, the assessee would be eligible to claim an expenditure as an application of income irrespective of its actual payment. In any event, the provision made for leave encashment on the basis of actuarial valuation is a genuine and ascertained liability as on 31.03.2021 and hence, in our considered opinion, it becomes a item eligible to be treated as an application of income for charitable purposes. In this regard, the decision of the Hon’ble Jurisdictional High Court in the case of DIT(E) vs NASSCOM reported in 345 ITR 362 (Del) comes to the rescue of the assessee wherein, it was held as under:- “40. As regards the provision for bad and doubtful debts, the question again is whether in computing the income of the trust on commercial principles, the provision can be deducted or where the deduction can be allowed only in accordance with the provisions of Section 36(i)(vii) read with Section 36(2)(i) of the Act. We have already held that the income of the trust available for application to charitable purposes in India should be computed not in accordance with the strict provisions of the Income Tax Act but should be computed in accordance with commercial principles and it is on this footing that the payment of Income Tax Act under the VDIS was treated as a deduction and as proper application of the income of the trust. The same line of reasoning holds good for the provision for bad and doubtful debts. Even under the computation provision of the Act such a provision was considered allowable up to and including the assessment year 1988-89 and it was only from the assessment year 1989-90 that the Act required that a mere provision would not be allowable as a deduction and the actual writing off of the debt was a necessary pre-condition. Be that as it may, under the commercial principles it has always been recognized that a provision, reasonably made for a loss or an outgoing, can be deducted from the income if there is apprehension that the debt might become bad. There is nothing brought on record to show that the provision was not made bonafide. In such a situation, the ratio of the decisions cited by us while dealing with the deductibility of the taxes paid under the VDIS will equally apply. We accordingly hold that while computing the income available to the trust for application to charitable purposes in ITA No. 1165/Del/2024 Indraprastha Institute of Information Technology Page | 4 India in accordance with Section 11(1)(a) the provision for doubtful debts must be deducted. Accordingly, we frame the following substantial question of law and answer the same in the affirmative in favour of the assessee and against the Revenue: - \"\"Whether the Tribunal was right in law in holding that the provision for doubtful debts must be deducted from the income of the trust on commercial principles, for the purposes of Section 11(1)(a) of the Act?\" 5. In view of the above observations and respectfully following the judicial precedent relied upon herein above, we hold that provision of leave encashment on the basis of actuarial valuation would be eligible to be treated as application of income for charitable purposes while computing exemption u/s 11 of the Act. Accordingly, ground raised by the assessee is allowed. 6. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 19/03/2025. -Sd/- -Sd/- (ANUBHAV SHARMA) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 19/03/2025 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "