The Little Tradition, New Delhi V. ADIT, New Delhi

ITA 1920/DEL/2011

• Counselvise Citation: 192020114 RSA 2011
• Duration Of Justice: 3 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 20-01-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 19-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DA MKAUNAJMA
• Assessee Lawyers: R RAJA KUMAR ARS
• Keywords: Depreciation; Opportunity of being heard; Capital expenditure
• Section: 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI B.C. MEENA ITA NO.2550/DEL/2008 ASSESSMEN T YEAR: 2002-03 ITA NO. 1920/DEL/2011 ASSESSMENT YEAR: 2003 -04 THE LITTLE TRADITION, VS. ADIT, A-708, ANAND LOK, TRUST CIRCLE-IV, MAYUR VIHAR, PHASE-I, NEW DELHI. NEW DELHI. (PAN: AAATT5526G) (APPELLANT) (RESPONDENT) REVENUE BY: SHRI P. DA MKAUNAJMA, SR. DR ASSESSEE BY: S/SHRI K. S AMPATH & R. RAJA KUMAR, ARS DATE OF HEARING : 20 .01.2015 DATE OF PRONOUNCEMENT: .03.2015 ORDER PER I.C. SUDHIR: JUDICIAL MEMBER THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS: GROUND IN ITA NO.2550/DEL/2008 ( A.Y. 2002-03) : 1. THE LEARNED ASSESSING OFFICER HAS ERRED IN DISALLOW ING THE ENTIRE EXPENSES OF RS.28,15,520.68 ON THE BASIS OF APPLIC ATION OF INCOME AND NOT AN EXPENDITURE. 2. THE LEARNED ASSESSING OFFICER HAS NOT ALLOWED THE E XPENSES WHICH ARE ALLOWED FOR A NORMAL ASSOCIATION OF PERSONS ALS O. 2 3. THE LEARNED ASSESSING OFFICER HAS ERRED IN NOT ALLO WING THE EXPENSES INCURRED FOR BASIC ACCOUNTING MATTER OF AU DITING OF RS.15,750.00. 4. THE LEARNED ASSESSING OFFICER HAS ERRED IN DISALLOW ING THE DEPRECIATION AS PER THE INCOME-TAX ACT, 1961 TO THE TUNE OF RS.42,641.30, WHICH IS BAD IN LAW AND FACT. 5. THE LEARNED ASSESSING OFFICER HAS ERRED IN ENHANCIN G THE TAXABLE INCOME WITHOUT ANY VALID REASONS. ITA NO. 1920/DEL/2011 (A.Y. 2003-04) : 2. THE ASSESSEE HAS QUESTIONED FOLLOWING ACTION OF THE AUTHORITIES BELOW: I) IN DETERMINING THE DEFICIT AT RS.1,73,140 AS AGA INST RETURNED DEFICIT OF RS.12,28,708; II) IN DENYING EXEMPTION CLAIMED UNDER SECTION 11 A ND 12 OF THE INCOME-TAX ACT, 1961 BY WRONGLY INVOKING THE SECTIO N 13(1)(C) OF THE ACT; III) IN ALLOWING SALARY EXPENSES ONLY AT RS.1,70,00 0 AS AGAINST EXPENDITURE CLAIMED AT RS.7,23,733 3. AT THE OUTSET OF HEARING, THE LEARNED AR SUBMITT ED THAT IN THE ABOVE ASSESSMENT YEARS I.E. 2002-03 AND 2003-04, THE ASSE SSING OFFICER HAS DENIED THE CLAIMED EXPENDITURE FOLLOWING ITS ASSESSMENT OR DER IN THIS REGARD FOR THE ASSESSMENT YEAR 2001-02 TREATING THE WHOLE OF THE A MOUNT OF THE GRANT RECEIVED FROM FORD FOUNDATION AS INCOME OF THE ASSE SSEE AND COMPUTING THE 3 INCOME ERRONEOUSLY. HE POINTED OUT THAT IN THE ASSE SSMENT YEAR 2001-02, THE ITAT IN THE APPEAL PREFERRED BY THE ASSESSEE NUMBER ED AS ITA NO. 4542/DEL/2004 VIDE ORDER DATED 221.10.2013 HAS SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO COMPUTE THE INCOME OF THE ASSESSEE IN TERMS OF THE DECISIONS OF IN THE CASES OF NIRMAL EDUCATIO N SOCIETY, 71 ITD 152 (HYD.), SOCIETY FOR INTEGRATED DEVELOPMENT IN URBAN AND RURAL AREAS 90 ITD 493. THE ITAT HAS DIRECTED THE ASSESSING OFFICE R TO RECOMPUTED THE INCOME OF THE ASSESSEE DE NOVO IN ACCORDANCE WITH L AW AFTER GIVING OPPORTUNITY TO THE ASSESSEE. THE ITAT HAD ALSO HELD THAT WHEN FUTURE INCOME IS CONSIDERED IN THIS YEAR ON RECEIPT BASIS, THEN T HE LIKELY EXPENDITURE TO BE INCURRED CORRESPONDING TO THIS RECEIPT IN THE FUTUR E YEARS IS ALSO TO BE PROVIDED AND ALLOWED. MATCHING PRINCIPLE HAS TO BE FOLLOWED. THE LEARNED AR REFERRED THE CONTENTS OF PARA NOS. 5 OF THE ASSE SSMENT ORDER FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION WHEREIN THE AS SESSING OFFICER FOLLOWING ITS ORDER FOR ASSESSMENT YEAR 2001-02 HAS DENIED THE CLAIMED EXPENDITURE. NO OTHER ISSUE RAISED IN THE ABOVE GR OUNDS HAS BEEN PRESSED. 4. THE LEARNED SR. DR HAS PLACED RELIANCE ON THE OR DERS OF THE AUTHORITIES BELOW. 5. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW AS WELL AS THE ORDER DATED 21.10.2013 OF THE ITAT RECTIFYING ITS E ARLIER ORDER DATED 4 30.4.2008 VIDE MA NO.66/DEL/2012 FOR THE ASSESSMENT YEAR 2001-02. WE FIND THAT THE ITAT HAS DECIDED AN IDENTICAL ISSUE A S UNDER: 6. COMING TO THE ISSUE AS TO WHETHER THE MISTAKE A PPARENT ON RECORD HAS CREPT INTO THE ORDER OF THE TRIBUNAL ON THE ISSUE OF MODE OF COMPUTATION OF INCOME, I.E. CATEGORY (B), WE FIND THAT THE ARGUMENT OF THE ASSESSEE WAS THAT WHEN DEDUCTION IS DENIED U/S 11, 12 AND 13 OF THE ACT TO AN ASSESSEE THEN THE IN COME OF THE ASSESSEE HAS TO BE DETERMINED BY APPLYING THE CORRE CT ACCOUNTING PRINCIPLES, AND THAT THE ENTIRE RECEIPT CANNOT BE TREATED AS INCOME. THESE SUBSTANTIVE ARGUMENTS WERE NOT CONSI DERED BY THE BENCH. 7. THE HYDERABAD B BENCH OF THE TRIBUNAL IN THE C ASE OF SOCIETY FOR INTEGRATED DEVELOPMENT IN URBAN AND RUR AL AREAS (SIDUR) VS. DCIT, 90 ITD 493 HELD AS FOLLOWS. 24. COMING TO THE SECOND LIMB OF THE ARGUMENT OF T HE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ENTIRE RECEIPTS C ANNOT BE TAXED, WE FIND THAT THE ISSUE IS COVERED BY THE JUDGMENT OF THIS BENCH IN NIRMAL AGRICULTURAL SOCIETYS CASE (SUPRA). IN TH AT CASE, IT HAS BEEN HELD (AS PER HEAD NOTE) AS UNDER:- 'THE ASSESSEE HAD NOT BEEN GRANTED REGISTRATION U/S 12A, AS THE COMMISSIONER THOUGHT IT FIT TO REFUSE TO CONDONE TH E LONG DELAY CAUSED BY THE ASSESSEE IN APPLYING FOR THE REGISTRA TION. THEREFORE, THE ASSESSING OFFICER HAD NO OTHER OPTION BUT TO CO MPLETE THE 5 ASSESSMENTS IN THE STATUS OF AOP ALSO CLOSING HIS E YES TOWARDS SECTION 11 AND SECTION 13. TO THAT EXTENT, THE AS SESSING OFFICER WAS RIGHT AS HE HAD ACTED ONLY ACCORDING TO WILL OF LAW. BUT AS FAR AS THE CONTENTS OF THE ASSESSMENTS WERE CONCERNED, EVEN WHEN THE ASSESSEE HAD BEEN ASSESSED AS AOP AND DEP RIVED OF SECTION 11 BENEFITS, THE ASSESSING OFFICER COULD AS SESS ONLY NET INCOME OF THE ASSESSEE AND NOT GROSS RECEIPTS. AS F AR AS THE ASSESSEE WAS CONCERNED, CONSTRUCTION OF HOUSES, REC LAMATION OF LAND , ETC. WERE PART OF ITS REGULAR ACTIVITIES. HO USES WERE BUILT ON THE LAND OF POOR AGRICULTURISTS. THE ASSESSEE-SOCI ETY HAD NO LEGAL TITLE OR RIGHT OVER THE LAND OR HOUSES OF THOSE VIL LAGERS/AGRICULTURISTS WHO WERE THE BENEFICIARIES. THE PURPOSE AND ACTIVI TY OF THE ASSESSEE-SOCIETY WAS TO ENGAGE IN SUCH CHARITABLE ACTIVITIES. WHATEVER AMOUNT HAD BEEN SPENT ON THOSE PROGRAMMES /PROJECTS IT WAS SPENT IN THE USUAL COURSE OF CARRYING ON ITS AC CLAIMED HOLD THAT THE AMOUNTS SPENT BY THE ASSESSEE IN CONSTRUCTING H OUSES OR RECLAIMING LAND WERE CAPITAL EXPENDITURE. AS FAR AS THE ASSESSEE WAS CONCERNED, THOSE EXPENSES WERE REVENUE EXPENSES . THE ASSESSEE HAD NO RIGHT OR TITLE OVER THOSE PROPERTIE S. THOSE EXPENSES WERE INCURRED AS PART OF ITS NORMAL ACTIVITIES FOR WHICH THE SOCIETY WAS FORMED. THEREFORE, THE MONEY SPENT BY THE ASSE SSEE-SOCIETY IN CONSTRUCTING HOUSES, RECLAIMING THE LAND, FOR NON-F ORMAL EDUCATION, ETC. HAD TO BE ALLOWED AS DEDUCTION IN THE COMPUTAT ION OF INCOME. THE GRANTS RECEIVED FROM FOREIGN DONOR WERE FOR SPE CIFIC PURPOSES. THE GRANTS WHICH WERE FOR SPECIFIC PURPOSES DID NOT BELONG TO THE ASSESSEE SOCIETY, SUCH GRANTS DID NOT FORM CORPUS O F THE ASSESSEE OR ITS INCOME. THOSE GRANTS WERE NOT DONATIONS TO THE ASSESSEE SO AS TO BRING THEM UNDER THE PURVIEW OF SECTION 12. VOL UNTARY CONTRIBUTIONS COVERED BY SECTION 12 ARE THOSE CONTR IBUTIONS FREELY AVAILABLE TO THE ASSESSEE WITHOUT ANY STIPULATION, WHICH THE 6 ASSESSEE CAN UTILIZE TOWARDS ITS OBJECTIVES ACCORDI NG TO ITS OWN DISCRETION AND JUDGEMENT. TIED-UP GRANTS FOR A SP ECIFIED PURPOSE WOULD ONLY MEAN THAT THE ASSESSEE WHICH WAS A VOLUN TARY ORGANIZATION, HAD AGREED TO ACT AS A TRUSTEE OF A S PECIAL FUND GRANTED BY DONOR WITH THE RESULT THAT IT NEED NOT B E POOLED OR INTEGRATED WITH THE ASSESSEES NORMAL INCOME OR COR PUS. IN THE INSTANT CASE, THE ASSESSEE WAS ACTING AS AN INDEPEN DENT TRUSTEE FOR THAT GRANT, JUST AS SAME TRUSTEE COULD ACT AS A TRU STEE OF MORE THAN ONE TRUST. TIED UP AMOUNTS NEED NOT, THEREFORE, BE TREATED AS AMOUNTS WHICH WERE REQUIRED TO BE CONSIDERED FOR AS SESSMENT FOR ASCERTAINING THE AMOUNT EXPENDED OR THE AMOUNT TO B E ACCUMULATED. THE ASSESSEE SHOULD HAVE ACTUALLY CREDITED THE GRAN T IN THE PERSONAL ACCOUNT OF THE DONOR AND ANY AMOUNT SPENT AGAINST T HAT GRANT SHOULD HAVE BEEN DEBITED TO THAT SEPARATE ACCOUNT O F THE DONOR. THAT INCOMING AND OUTGOING NEED NOT BE REFLECTED IN THE INCOME AND EXPENDITURE ACCOUNT OF THE ASSESSEE. AT THE END OF THE PROJECT, THE BALANCE, IF ANY, AVAILABLE TO THE CREDIT OF THE DON OR, COULD BE TREATED AS INCOME OF THE ASSESSEE, IF THE DONOR DID NOT INS IST FOR THE REPAYMENT OF THE BALANCE AMOUNT. THEREFORE, THE ASSESSING OFFICER WAS TO BE DIRECTED TO RE-DO THE ASSESSMENT ON THE FOLLOWING LINES : (1) THE TIED-UP GRANTS RECEIVED FROM THE DONOR, BRE AD FOR THE WORLD, WILL BE TAKEN OUT OF THE COMPUTATION OF INCOME FROM THE INCOME-SIDE. (2) ALL THE MONEY SPENT UNDER THE TIED-UP PROGRAMME S DIRECTED BY THE DONOR ALSO WILL BE TAKEN OUT OF THE COMPUTATION OF INCOME FROM THE EXPENSES-SIDE. (3) ANY NON-REFUNDABLE CREDIT BALANCE IN THE PERSON AL ACCOUNT OF BREAD FOR THE WORLD WILL BE TREATED AS INCOME IN TH E YEAR IN WHICH SUCH NONREFUNDABLE BALANCE WAS ASCERTAINED. (4) THE EXPENSES INCURRED BY THE ASSESSEE FOR HOUSE CONSTRUCTION, RECLAMATION OF LAND, NON-FORMAL EDUCATION PROGRAMME (OTHER THAN COVERED BY THE TIED-UP GRANTS) WILL BE DEDUCTED AS REVENUE EXPENSES. 7 25 . HONOURABLE RAJASTHAN HIGH COURT IN THE CASE OF SUKH DEO CHARITY ESTATE (SUPRA), HELD AS FOLLOWS (AS PER HEA D NOTE) : IT WAS FOR THE SPECIFIC PURPOSE OF IMPLEMENTATION OF THE WATER SUPPLY SCHEME THAT THE REQUEST FOR CONTRIBUTION HAD BEEN MADE BY THE ASSESSEE TRUST AND IT WAS IN RESPONSE TO THAT R EQUEST THAT THE AMOUNT HAD BEEN GIVEN BY THE CALCUTTA TRUST. IT WAS CLEAR THAT THE INTENTION OF THE DONOR AND THE DONEE WAS TO TREAT T HE MONEY AS CAPITAL TO BE SPENT FOR THE WATER SUPPLY SCHEME. TH E FACT THAT THE AMOUNT HAD NOT BEEN PAID OVER TO THE STATE GOVERNME NT AND WAS KEPT UNUTILISED IN THE ACCOUNT OF THE ASSESSEE-TRUS T WAS NOT RELEVANT. THE AMOUNT COULD NOT BE SAID TO BE INCOME AND COU LD NOT BE INCLUDED AS PART OF THE ASSESSABLE INCOME OF THE TR UST UNDER THE PROVISIONS OF SECTION 12(2). IN YET ANOTHER JUDGMENT IN THE CASE OF SUKHDEO CHAR ITY ESTATES VS. ITO, 192 ITR 615 (RAJ.) THE HONOURABLE RAJASTHAN H IGH COURT HELD AS FOLLOWS (AS PER HEAD NOTE) : THE INTENTION OF THE DONOR-TRUST AS WELL AS THE DO NEE-TRUST WAS TO TREAT THE MONEY AS CAPITAL TO BE SPENT FOR THE LADN U WATER SUPPLY SCHEME. IT WAS OF NO SIGNIFICANCE WHETHER THE AMOU NT HAD SINCE BEEN PAID TO THE STATE GOVERNMENT OR KEPT IN THE AC COUNT OF THE SAID SCHEME BY THE ASSESSEE-TRUST. THE AMOUNT OF RS. 70, 000 DID NOT CONSTITUTE INCOME OF THE PETITIONER. THE REASSESSME NT PROCEEDINGS WERE NOT VALID AND WERE LIABLE TO BE QUASHED. THIS BENCH OF THE TRIBUNAL IN THE CASE OF ARYA VYSY A ABHYUDAYA SANGHAM (SUPRA) FOR ASSESSMENT YEAR 1998-99, IN ITS ORDER DATED 25-6-2002 TO WHICH ONE OF US WAS A PARTY WAS INCLIN ED TO UPHOLD THE VIEW OF THE COMMISSIONER (APPEALS) IN THAT CASE BY HOLDING IN PARA 15 OF THAT ORDER AS FOLLOWS : THOUGH WE FIND CONSIDERABLE FORCE IN THE OTHER ARG UMENT OF THE ASSESSEES COUNSEL I.E. THE INCOME SHOULD BE COMPUT ED ON COMMERCIAL PRINCIPLES, AS WE HAVE HELD THAT THE ASS ESSEE-SOCIETY IS ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT AND WE HAVE ALSO HELD THAT THE OBJECTS OF THE SOCIETY WERE OF CHARIT ABLE NATURE WITHIN THE MEANING OF SECTION 2(15) OF THE ACT, AND AS WE HAVE FURTHER HELD THAT THERE IS NO VIOLATION, WHATSOEVER OF THE PROVI SIONS OF SECTION 13(1)(C) AND (D) OF THE INCOME-TAX ACT, 1961, THE O THER GROUNDS OF THE ASSESSEE NEED NOT BE GONE INTO, AS IT WOULD BE OF A CADEMIC INTEREST ONLY. THE REVENUE HAS NOT BROUGHT TO OUR NOTICE ANY JUDGM ENT FROM ANY HIGH COURT WHICH HAS DEALT AT LENGTH ON THIS ISSUE AND WHICH IS IN 8 ITS FAVOUR. IT IS ALSO NOT CLEAR WHETHER THE REVENU E HAS ACCEPTED OR GONE ON APPEAL AGAINST THE JUDGMENT OF THIS BENCH I N THE CASE OF NIRMAL AGRICULTURAL SOCIETY(SUPRA). (EMPHASIS OURS ). 8. THE ASSESSING OFFICER IS REQUIRED TO FOLLOW TH E WELL SETTLED PRINCIPLES OF COMPUTATION OF INCOME MENTIONED IN T HE ABOVE DECISION. AS THESE ARGUMENTS OF THE ASSESSEE AND T HE CASE LAWS CITED ON THE ISSUE OF COMPUTATION OF TOTAL INCOME H AD NOT BEEN CONSIDERED IN THE ORDER OF THE TRIBUNAL DT. 30.4. 2008, WE ARE OF THE CONSIDERED OPINION THAT A MISTAKE APPARENT ON R ECORD HAS CREPT INTO THE ORDER OF THE TRIBUNAL. HENCE THE OR DER IS RECTIFIED AS FOLLOWS:- THE A.O. IS DIRECTED TO COMPUTE THE INCOME OF THE ASSESSEE IN TERMS OF THE FOLLOWING DECISIONS. * NIRMAL EDUCATION SOCIETY, 71 ITD 152 (HYD.) * SOCIETY FOR INTEGRATED DEVELOPMENT IN URBAN & RUR AL AREAS, 90 ITD 493. THE A.O. IS DIRECTED TO RECOMPUTE THE INCOME OF T HE ASSESSEE DE NOVO IN ACCORDANCE WITH LAW AFTER GIVING OPPORTUNIT Y TO THE ASSESSEE. WHEN FUTURE INCOME IS CONSIDERED IN THIS YEAR ON RECEIPT BASIS, THEN THE LIKELY EXPENDITURE TO BE INCURRED C ORRESPONDING TO THIS RECEIPT IN THE FUTURE YEARS IS ALSO TO BE PROV IDED AND ALLOWED. MATCHING PRINCIPLE HAS TO BE FOLLOWED. TIED UP GRA NTS SHOULD BE REMOVED FROM THE COMPUTATION. DOCTRINE OF OVERRIDI NG TITLE ETC. 9 SHOULD BE CONSIDERED. THE INTENTION AND SPECIFIC D IRECTIONS OF THE DONOR HAVE TO BE CONSIDERED TO KNOW THE NATURE OF R ECEIPT. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS SET ASIDE AND ALLOWED FOR STATISTICAL PURPOSES. 6. RESPECTFULLY FOLLOWING THE ABOVE DECISION ON AN IDENTICAL ISSUE, WE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING O FFICER TO COMPUTE THE INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEARS 200 2-03 AND 2003-04 AFRESH IN VIEW OF THE ABOVE DIRECTION OF THE ITAT AFTER AF FORDING PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE REL ATED GROUNDS ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN RESULT, THE APPEALS ARE ALLOWED FOR STATISTIC AL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 19 .03.20 15 SD/- SD/- ( B.C. MEENA ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 19 /03/2015 MOHAN LAL 10 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR DATE DRAFT DICTATED ON COMPUTER 18.03.2015 DRAFT PLACED BEFORE AUTHOR 19.03.2015 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 20.03.2015 KEPT FOR PRONOUNCEMENT ON 19.03.2015 FILE SENT TO THE BENCH CLERK 20.03.2015 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER. 11