ACIT, Sonepat V. The Hariyana State Agricultural Market Committee, Sonepat

ITA 1416/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3771 (ITAT-DELHI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 01-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: N O N E
• Keywords: Capital asset; Depreciation; Charitable institution; Revenue expenditure; Set aside
• Section: 32; 27; 6; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH C DELHI ] BEFORE SHRI C. L. SETHI, JM & SHRI K. D. RA NJAN, AM I. T. APPEAL NO. 1415 (DEL) OF 2010. ASSESSMENT YEAR : 200708. ASSTT. COMMISSIONER OF INCOME-TAX, THE HARYANA ST ATE AGRICULTURAL SONEPAT CIRCLE, VS. MARKET COMMITTEE, S O N E P A T. GANAUR [ SONEPAT]. PAN / GIR NO. AAALH 0128 E. A N D I. T. APPEAL NOS. 1416 & 1417 (DEL) OF 2010. ASSESSMENT YEAR : 200708 & 2008-09 ASSTT. COMMISSIONER OF INCOME-TAX, THE HARYANA ST ATE AGRICULTURAL SONEPAT CIRCLE, VS. MARKET COMMITTEE, S O N E P A T. S O N E P A T. PAN / GIR NO. AAAHE 0737 N. ( APPELLANT ) ( RESPONDENTS ) ASSESSEES BY : N O N E. DEPARTMENT BY : MS. MONA MOHANTY, SR. D.R.; O R D E R. PER K. D. RANJAN, AM : THESE THREE APPEALS BY THE REVENUE FOR ASSESSMENT Y EARS 2007-08 AND 2008-09 ARE DIRECTED AGAINST TWO SEPARATE ORDERS DATED 20/01/2010 AND 5/ 02/2010 PASSED BY THE LD. CIT (APPEALS), 2 I. T. APPEAL NOS. 1415, 1416 & 1417 (DEL) OF 2010. ROHTAK. THESE APPEALS WERE HEARD TOGETHER AND FOR THE SAKE OF CONVENIENCE ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. WHEN THESE CASES CAME UP FOR HEARING BEFORE US, NONE APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER, KEEPING IN VIEW T HE NATURE OF THE ISSUE INVOLVED THE APPEALS ARE BEING DECIDED AFTER HEARING THE LD. SR. DR. ITA. NOS. 1415 & 1416 (DEL) OF 2010 : 2. THE COMMON GROUNDS OF APPEAL [EXCEPT FOR THE AMO UNTS] TAKEN BY THE REVENUE IN BOTH THE APPEALS ARE AS FOLLOWS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.77,31,749/- / RS.14099257/- WITHOUT GIVING ANY CONCRETE FINDING. THE CIT (APPE ALS) HAS ALSO IGNORED THE FACTS THAT THE EXPENDITURE ARE NOT COVERED BY ITS AIMS AN D OBJECTS AS THE RURAL ROADS ARE NOT COVERED BY THE DEFINITION OF APPROACH / LINK RO AD BETWEEN MANDI AND MAIN ROAD. IT IS PERTINENT TO NOTE THAT THE ASSESSEE DID NOT S PENT THE ABOVE AMOUNT AS PER ITS AIMS AND OBJECTS, AS THERE IS NO PROVISIONS TO REPAIR AN D CONSTRUCT THE RURAL AND PWD ROADS IN SECTION 28 OF PUNJAB AGRICULTURAL MARKETIN G PRODUCE ACT, 1961, WHICH TRHE MARKETING COMMITTEE IS GOVERNED; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.124 0049 / RS.522396/- WITHOUT GIVING ANY CONCRETE FINDING. THE CIT (APPEALS) HAS ALSO I GNORED THE FACTS THAT THIS SURPLUS EXPENDITURE OUT OF CLASS-III EXPENDITURE HAS NOT BE EN INCURRED BY THE ASSESSEE. MOREOVER THE LD. CIT (APPEALS) HAS CONFIRMED THE SA ME ADDITION IN THE A.Y. 2008-09 IN THE CASE OF THE MARKET COMMITTEE SONEPAT. THE A O HAS MADE THE ADDITION OUT OF CONTRIBUTION TO BOARD WHICH WAS NOT UTILIZED BY THE ASSESSEE AND MOREOVER NOT PAID TO THE BOARD; 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.701 801/- / RS.2123067/- ON ACCOUNT OF DEPRECIATION WHICH WAS NOT ADMISSIBLE TO THE ASSESS EE IN THE UTILIZATION OF INCOME UNDER SECTION 11 OF THE I. T. ACT. MOREOVER THE LD . CIT (APPEALS) HAS CONFIRMED THE SAME ADDITION IN THE CASE OF THE MARKET COMMITTEE S ONEPAT FOR THE A.Y. 2008-09. THE GUIDING PRINCIPAL ON THIS ISSUE HAS BEEN LAID D OWN BY THE HONBLE SUPREME COURT IN THE CASE OF ESCORT LTD. VS. UNION OF INDIA 199 ITR 43 WHEREIN THE HON. SUPREME COURT OPINED THAT DOUBLE DEDUCTION FOR AN I TEM SHOULD NOT BE INFERRED. FURTHER, UNDER THE SCHEME OF THE ACT DEPRECIATION I S ALLOWABLE ON AN ASSET EMPLOYED IN INCOME-EARNING ACTIVITIES LIKE BUSINESS. THE DE PRECIATION IS NOT A TANGIBLE OUTGO, THERE IS NOT MONEY GOING OUT OF THE HANDS OF THE TR UST. 3 I. T. APPEAL NOS. 1415, 1416 & 1417 (DEL) OF 2010. ITA. NOS. 1417 (DEL) OF 2010 : 3. THE GROUND OF APPEAL TAKEN BY THE REVENUE IS AS FOLLOWS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.21371616/- WITHOUT GIVING ANY CONCRETE FINDING. THE CIT (APPEALS) HAS ALSO IGNOR ED THE FACTS THAT THIS EXPENDITURE ARE NOT COVERED BY ITS AIMS AND OBJECTS AS THE RURA L ROADS ARE NOT COVERED BY THE DEFINITION OF APPROACH / LINK ROAD BETWEEN MANDI AN D MAIN ROAD. IT IS PERTINENT TO NOTE THAT THE ASSESSEE DID NOT SPENT THE ABOVE AMOU NT AS PER ITS AIMS AND OBJECTS, AS THERE IS NO PROVISIONS TO REPAIR AND CONSTRUCT THE RURAL AND PWD ROADS IN SECTION 28 OF PUNJAB AGRICULTURAL MARKETING PRODUCE ACT, 19 61, WHICH THE MARKETING COMMITTEE IS GOVERNED. 4. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT T HE ASSESSEE COMMETTEES ARE STATUTORY BODIES. THE SUPERINTENDENCE AND CONTROL OVER THESE COMMETTEES IS EXERCISED BY THE HARYANA STATE AGRICULTURAL MARKETING BOARD AND STATE GOVERN MENT. THE MAIN OBJECT OF THE ASSESSEE COMMITTEES IS TO PROVIDE ALL TYPES OF FACILITIES TO THE FARMERS FOR SELLING THEIR AGRICULTURAL PRODUCE IN MANDIES AT THE MAXIMUM RATES AS WELL AS TO ENSUR E THE PROPER WEIGHING OF THEIR PRODUCE; COLLECTION OF MARKET FEES FROM VEGETABLE COMMISSION AGENTS, FOOD-GRAIN AGENTS AND OTHERS. THE MARKET FEES ARE COLLECTED AT THE RATE OF 2 PER CENT ON SALE OF COMMISSION AGENTS. THE MARKET FEES SO COLLECTED IS BEING UTILIZED FOR THE DEVELOPMENT OF MANDIES, CONSTRUCTION OF LINK ROADS BETWEEN MANDIES AND THE MAIN ROAD, PROVIDING COVERED PLATFO RMS FOR STORAGE OF PRODUCE LYING IN THE MANDIES, TO PROVIDE ELECTRICITY AND WATER FOR THE B ENEFIT OF FARMERS AND WORKERS, TO MAKE AVAILABLE THE FACILITY OF VETENARY HOSPITAL FOR ANI MALS ETC. 5. THE FIRST ISSUE FOR CONSIDERATION, WHICH IS COMM ON IN ALL THE APPEALS, RELATES TO DELETING THE ADDITION ON ACCOUNT OF EXPENDITURE INCURRED ON CONSTRUCTION / REPAIR OF RURAL ROADS BETWEEN MANDI AND THE MAIN ROAD. THE ASSESSING OFFICER DIS ALLOWED THE AMOUNT ON THE GROUND THAT THE EXPENDITURE INCURRED ON CONSTRUCTION / REPAIR OF RO ADS DID NOT FALL UNDER THE AIMS AND OBJECTS OF THE COMMITTEES. THE LD. CIT (APPEALS) DELETED THE ADDITION FOLLOWING HIS DECISION FOR EARLIER YEARS. 4 I. T. APPEAL NOS. 1415, 1416 & 1417 (DEL) OF 2010. 6. WE HAVE HEARD THE LD. SR. DR AND GONE THROUGH TH E MATERIAL AVAILABLE ON RECORD CAREFULLY. WE FIND THAT SIMILAR ISSUE CAME UP FOR HEARING BEFO RE THIS TRIBUNAL IN THE CASE OF ASSESSEE FOR AY 2005-06 IN I. T. APPEAL NO. 3008 (DEL) OF 2 008 WHEREIN IT HAS BEEN HELD AS UNDER :- 7. WE HAVE HEARD THE LD. SR. DR AND PERUSED THE MA TERIAL AVAILABLE ON RECORD. THE ASSESSEES HAVE CLAIMED DEDUCTION ON ACCOUNT OF EXPE NDITURE INCURRED BY THE MARKETING BOARD ON BEHALF OF THE MARKET COMMITTEES ON CONSTRU CTION / REPAIRS OF ROADS. THE ASSESSEE HAD NOT PRODUCED THE BILLS AND VOUCHERS ON THE GROUND THAT THEY WERE AVAILABLE WITH CONSTRUCTION DIVISION OF HSAMB. THE ASSESSEE HAD NOT PRODUCED THE BILLS AND VOUCHERS FOR VERIFICATION EVEN BEFORE THE LD. CIT ( APPEALS). IN THE ABSENCE OF BILLS AND VOUCHERS FOR EXPENDITURE INCURRED BY THE MARKETING BOARD ON BEHALF OF THE MARKET COMMITTEES COULD NOT BE VERIFIED BY THE ASSESSING O FFICER. THE ASSESSEES ARE REQUIRED TO PRODUCE THE EVIDENCE OF INCURRING THE EXPENDITURE F OR THE PURPOSE OF COMPUTING THE APPLICATION OF INCOME UNDER SECTION 11 OF THE ACT. THEREFORE, WE SET ASIDE THIS ISSUE IN ALL THE THREE APPEALS TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTIONS TO EXAMINE THE ISSUE ABOUT THE APPLICATION OF INCOME AFTER GOING T HROUGH THE BILLS AND VOUCHERS. THE ASSESSEES ARE DIRECTED TO PRODUCE THE RELEVANT BILL S AND VOUCHERS BEFORE THE ASSESSING OFFICER SO AS TO ENABLE HIM TO DECIDE THE ISSUE ON MERITS. THE ASSESSING OFFICER WILL ALSO EXAMINE WHETHER THE EXPENDITURE INCURRED ON CONSTRU CTION / REPAIR OF ROADS BY THESE COMMITTEES ARE IN ACCORDANCE WITH THE PROVISIONS OF LAW. THE ASSESSING OFFICER WILL DECIDE THE ISSUE AFTER AFFORDING A REASONABLE OPPOR TUNITY OF BEING HEARD TO THE ASSESSEES. SINCE IDENTICAL ISSUE RELATING TO CONSTRUCTION / RE PAIR OF ROADS IS INVOLVED IN THESE APPEALS, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICE R WITH THE DIRECTIONS TO EXAMINE THE CLAIM OF THE ASSESSEE IN THE LIGHT OF DECISION OF THE ITAT REFER RED TO ABOVE. NEEDLESS TO SAY THE ASSESSING OFFICER WOULD PROVIDE NECESSARY OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. 7. THE NEXT ISSUE, WHICH IS COMMON IN IT APPEAL NOS . 1415 AND 1416 (DEL) OF 2010 RELATES TO DELETING THE ADDITION ON ACCOUNT OF SURPLUS EXPE NDITURE. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMMITTEES HAD MADE CONTRIBUTION TO BOARD AND DEBITED THE SAME TO THE INCOME AND EXPENDITURE ACCOUNT. THE ASSESSEE WAS ASKED ABOUT THE NATURE AND PURPOSE OF THE CONTRIBUTION TO THE BOARD. IT WAS STATED THAT THE ASSESSEE WAS REQ UIRED TO GIVE 30 PER CENT OF THE MARKET FEE BEING SHARE OF MARKET IN BOARD OUT OF WHICH THE AMO UNT OF SALARY, TA, LIVERIES AND MEDICAL REIMBURSEMENTS TO CLASS-III EMPLOYEES POSTED WAS TO BE REIMBURSED. IF ANY EXCESS AMOUNT OF SALARIES WAS PAID TO CLASS-III EMPLOYEES BY THE COM MITTEE, IT WAS SHOWN AS AMOUNT EXCESS 5 I. T. APPEAL NOS. 1415, 1416 & 1417 (DEL) OF 2010. DEBITED UNDER SECTION 27(2) IN THE BALANCE SHEET ON ASSET SIDE. THE ASSESSEE WAS ALSO REQUIRED TO FURNISH THE REQUISITE DETAILS AND TOTAL AMOUNT OF S ALARY, TA, LIVERIES AND MEDICAL REIMBURSEMENTS PAID TO CLASS-III EMPLOYEES, DURING THE RELEVANT PE RIOD. SINCE THE AMOUNT WAS NOT UTILIZED BY THE ASSESSEE AND WAS PAID TO THE BOARD, THE ADDITION WA S MADE IN BOTH THE YEARS. THE LD. CIT (APPEALS) DELETED THE ADDITION FOLLOWING THE ORDER OF EARLIER YEARS. 8. WE HAVE HEARD THE LD. SR. DR AND GONE THROUGH TH E MATERIAL PLACED ON RECORD. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION OF THE ITAT, DELHI BENCH F VIDE ORDER DATED 8/05/2009 IN ITA. NO. 1526 (DEL) O F 2007 IN THE CASE OF INCOME-TAX OFFICER VS. MARKET COMMITTEE, ANAJ MANDI, BHIWANI, FOR ASSESSME NT YEAR 2004-05 WHEREIN IT HAS BEEN HELD AS UNDER :- 6. ON APPEAL, IT WAS PLEADED THAT THE ASSESSE E MADE PAYMENT OF RS.10 LAC AS PER SECTION 27 OF PUNJAB AGRICULTURE PRODUCE MARKET ING ACT. THIS AMOUNT HAS NOT BEEN CONSIDERED BY THE ASSESSING OFFICER AS APP LICATION OF INCOME FOR CHARITABLE PURPOSES. THE ASSESSEE WAS GOVERNED BY PUNJAB AGRICULTURE PRODUCE MARKETING ACT, 1961 AND AS PER SECTION27 OF THE SAI D ACT THE ASSESSEE WAS REQUIRED TO PAY TO THE BOARD CONTRIBUTION AS PERCEN TAGE OF ITS INCOME DERIVED FROM LICENSE FEES, MARKET FEES AND FINES AS PRESCRI BED IN THE SAID SECTION. THEREFORE, THE CONTRIBUTION TO HSAMB WAS APPLICATIO N OF INCOME. LD. CIT (APPEALS) AFTER CONSIDERING THE PROVISIONS OF SECTI ON27 OF PUNJAB AGRICULTURE PRODUCE MARKETING ACT HELD THAT THE CONTRIBUTIONS M ADE BY THE ASSESSEE TO THE BOARD WAS APPLICATION OF INCOME AND, THEREFORE, ALL OWABLE AS DEDUCTION. SINCE THE FACTS OF THE CASE ARE IDENTICAL TO THE FA CTS IN THE CASE OF MARKET COMMITTEE, BHIWANI (SUPRA) RESPECTFULLY FOLLOWING THE PRECEDENT, WE SE T ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTIONS TO EXAMINE THE CLAIM OF THE ASSESSEE IN THE LIGHT OF DECISION OF THE ITAT REFERRED TO ABOVE. NEEDLESS TO SAY THE ASSESS ING OFFICER WOULD PROVIDE NECESSARY OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. 9. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION ON ACCOUNT OF DEPRECIATION CLAIMED ON THE ASSETS, WHICH WERE TREA TED AS APPLICATION OF INCOME UNDER SECTION 11 6 I. T. APPEAL NOS. 1415, 1416 & 1417 (DEL) OF 2010. OF THE ACT. THE ASSESSING OFFICER DISALLOWED THE D EPRECIATION ON THE GROUND THAT THE ENTIRE COST OF THE FIXED ASSETS WAS TREATED AS APPLICATION OF INCO ME. THEREFORE, THE DEPRECIATION WAS NOT ALLOWABLE. HE PLACED RELIANCE ON THE DECISION OF H ONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. VS. UNION OF INDIA 199 ITR 43 (SC) WHEREIN IT HAS BEEN HELD THAT DOUBLE DEDUCTION FOR AN ITEM WAS NOT ALLOWABLE. HE ALSO NOTED THAT THE DEP RECIATION IS ALLOWABLE ON AN ASSET EMPLOYED AS INCOME EARNING ACTIVITIES LIKE BUSINESS. THE DEPRE CIATION BEING NOT A TANGIBLE OUT-GO THERE COULD NOT BE ANY MONEY GOING OUT OF THE HANDS OF THE TRUS T. THEREFORE, DEDUCTION WAS NOT ALLOWABLE. THE LD. CIT (APPEALS), HOWEVER, ALLOWED DEDUCTION O N THE GROUND THAT THE ASSESSEE WAS ENTITLED TO EXEMPTION UNDER SECTION 11 WITHOUT ASSIGNING ANY REASONS. 10. BEFORE US THE LD. SR. DR SUBMITTED THAT THE LD. CIT (A) HAD CONFIRMED SIMILAR ADDITION IN THE CASE OF MARKET COMMITTEE, SONEPAT FOR ASSESSMEN T YEAR 2008-09. THEREFORE THE LD CIT(A) WAS NOT JUSTIFIED IN ALLOWING APPEAL IN FAVOUR OF A SSESSEE ON THIS ISSUE. 11. WE HAVE HEARD THE LD. SR. DR AND GONE THROUGH T HE MATERIAL AVAILABLE ON RECORD. IN THE CASE OF A CHARITABLE INSTITUTION REGISTERED UNDER S ECTION 12-A OF THE ACT, THE BENEFIT OF SECTION 11 WILL BE AVAILABLE IF THE ASSESSEE APPLIES 85 PER CE NT OF INCOME IN THE YEAR UNDER CONSIDERATION OR ACCUMULATE SUCH INCOME FOR SPECIFIED PURPOSE IN ACC ORDANCE WITH THE PROVISIONS OF SECTION 11(2) OF THE ACT. IN THE CASE OF A CHARITABLE INSTITUTI ON WHAT IS TO BE SEEN IS THE APPLICATION OF INCOME. THE LAW DOES NOT DISTINGUISH BETWEEN THE CAPITAL AN D REVENUE EXPENDITURE. THE AMOUNT INCURRED ON ACQUISITION OF CAPITAL ASSET IS APPLICATION OF I NCOME. ONCE THE EXPENDITURE IS TREATED AS ALLOWED ON CAPITAL ASSET AS APPLICATION OF INCOME, QUESTION OF ALLOWING DEPRECIATION ON SUCH ASSET WOULD AMOUNT TO DOUBLE DEDUCTION I.E. IN OTHE R WORDS, AT THE TIME OF APPLICATION OF INCOME AND NOTIONALLY BY WAY OF DEPRECIATION. FURTHER, UN DER SECTION 11 OF THE ACT, THERE IS NO PROVISION FOR ALLOWANCE OF DEPRECIATION. THE DEPRECIATION IS ALLOWABLE ONLY IN RESPECT OF CASES WHERE A BUSINESS IS HELD AS A PROPERTY. IN THE INSTANT CA SE, IT IS APPLICATION OF INCOME AND, THEREFORE, NO DEPRECIATION IS ALLOWABLE AS PROVISIONS OF SECTION 32 ARE NOT APPLICABLE TO THE TRUST AND INSTITUTION WHOSE INCOME IS EXEMPT UNDER SECTION 11(1) OF THE A CT. THEREFORE, THE LD. CIT (A) WAS NOT JUSTIFIED IN ALLOWING THE DEPRECIATION ON CAPITAL A SSETS IN RESPECT OF WHICH THE AMOUNT INCURRED ON 7 I. T. APPEAL NOS. 1415, 1416 & 1417 (DEL) OF 2010. ACQUISITION WAS TREATED AS APPLICATION OF INCOME. WE, THEREFORE, REVERSE THE ORDER OF THE LD. CIT (A) ON THIS ISSUE AND RESTORE THE ORDER OF THE ASSE SSING OFFICER. 12. IN THE RESULT, ALL THE APPEAL FILED BY THE REVE NUE ARE ALLOWED, FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON : 02 ND JUNE, 2010. SD/- SD/- [ C. L. SETHI ] [ K. D. R ANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 02 ND JUNE, 2010. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENTS. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.