Adhikar, Bhubaneswar V. ITO, Ward-2(1), Bhubaneswar

ITA 252/CTK/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 9725 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 27-06-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S C BHADRA
• Keywords: Gift; Charitable institution; Bad and doubtful debts
• Section: 11

Judgement Text

P A G E 1 | 8 IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO.252/CTK/2017 ASSESSMENT YEAR : 2009 - 2010 ADHIKAR , PLOT NO. - 113/2524, KHANDAGIRI VIHAR, KHANDAGIRI, BHUBANESWAR. VS. INCOME TAX OFFICER, WARD - 2(1), BHUBANESWAR PAN/GIR NO. AAATA 3160 D (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI S.C.BHADRA, AR REVENUE BY : SHRI SU BH ENDU DATTA , DR DATE OF HEARING : 0 5 /0 9 / 2018 DATE OF PRONOUNCEMENT : 26 /0 9 / 2018 O R D E R PER N.S.SAINI, AM TH E APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) - 3, BHUBANESWAR DATED 9.3.2017 FOR THE ASSESSMENT YEAR 2009 - 2010. 2 THE ASSESSEE HAS RAISED THE FOLLOWING MODIFIED GROUNDS OF APPEAL: 1. THE ASSESSMENT ORDER U/S.143 (3) OF THE INCOME TAX ACT.,1961 IS AGAINST LAW, WEIGHT OF EVIDENCES AND PROBABILITIES OF THE CASE. ITA NO.252/CTK/2017 ASSESSMENT YEAR : 2009 - 2010 P A G E 2 | 8 2. THE LEARNED ASSESSING OFFICER ACTED ARBITRARILY, MIS - INTERPRETED THE PROVISIONS AS REGARDS SECTION 11 TO 13 OF THE INCOME TAX ACT.,1961 AND ADDED THE AMOUNT OF PROVISION FOR LOAN LOSS OF RS.31,07,127/ - , CAPACITY BUILDING FUND OF RS.15,00,000/ - AND EDUCATION & CHARITY FUND OF RS.25,00,000/ - WHICH IS LIABLE TO BE DELETED BEING DEVOID OF MERIT WHEN THE ORGANIZATION HAS BEEN REGISTERED AS A CHARITABLE ORGANIZATION UNDER THE INCOME TAX ACT. SO ALSO, THE HONOURABLE 1 ST APPELLATE AUTHORITY WHO ACCEPTED THE MICRO - FINA NCE ACTIVITIES AS CHARITABLE BUT CONFIRMED TO ADDITION OF ABOVE EXPENSES AND / OR PROVISIONS ON THE GROUND THAT THE AMOU NT HAS NOT BEEN PAID WITHOUT GOING INTO THE DETAILS FILED THAT : I) THE PROVISION FOR LOAN LOSS WAS BASED ON VOLUNTARY COMPLIANCE OF RBI NOTIFICATION NO.DNBS 193BS 193DG (VL) - 2007 DTD 22 ND FEBRUARY, 2007 AS THE APPELLANT WAS INTO MICRO FINANCE ACTIVITIES AND II) THE TRANSFER OF EDUCATION AND CHARITY FUND AND CAPACITY BUILD ING FUND AMOUNTING TO RS.40,00,000/ - HAS BEEN DEDUCTED FROM THE UTILIZATION AMOUNT AS APPEARING IN THE STATEMENT OF COMPUTATION. FOR THIS REASON THE ORDER IS LIABLE TO BE QUASHED. 3. FOR THESE AND OTHER GROUNDS TO BE ARGUED AT THE TIME OF HEARING , THE OR DER OF ASSESSMENT BE QUASHED TO MEET THE END OF JUSTICE. 3 . LD D.R. HAD NO OBJECTION TO ADJUDICATING THE SAME, THEREFORE, THEY ARE BEING ADJUDICATED IN PLACE OF THE ORIGINAL GROUND OF APPEAL RAISED BY THE ASSESSEE. 4 . THE BRIEF FACTS ARE THAT T HE ASSESSING OFFICER OBSERVED THAT THE EXPENSES AMOUNTING TO RS.6,58,94,988/ CLAIMED UNDER THE MICRO FINANCE ACTIVITIES, INCLUDES THE FOLLOWING PROVISIONS : EDUCATION & CHARITY FUND RS.25,00,000 PROVISION FOR LOAN LOSS RS. 31,07,127 CAPACITY BUILDING FUND RS. 15,00,0 00 RS.71,07,127 ITA NO.252/CTK/2017 ASSESSMENT YEAR : 2009 - 2010 P A G E 3 | 8 5 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH THE DETAILS OF THE ABOVE EXPENSES CLAIMED IN INCOME & EXPENDITURE ACCOUNT. ACCORDINGLY, THE ASSESSEE SUBMITTED THE COPY OF LEDGER ACCOUNT OF THE ABOVE EXPENSES. ON PERUSAL OF THE COPY OF LEDGER ACCOUNT OF EDUCATION AND CHARITY FUND, THE ASSES SING OFFICER NOTICED THAT A SUM OF RS.1,19.343/ - HAS BEEN SPENT DURING THE FINANCIAL YEAR 2008 - 09 AND THE BALANCE AMOUNT OF RS.23.80,657/ - HAS NOT BEEN SPENT THE EXPENDITURE INCURRED ON ACCOUNT OF EDUCATION & CHARITY FUND IS NOTHING BUT AN APPLICATION OF INCOME AND THE SAME IS NOT RELATED TO THE BUSINESS ACTIVITY OF MICRO FINANCING. IN VIEW OF THIS, HE DISALLOWED RS.25,00,000/ - TOWARDS EDUCATION & CHARITY FUND, RS.31,07,127/ - TOWARDS PROVISION FOR LOAN LOSS AND RS.15,00,000/ - TOWARDS CAPACITY BUILDING FUN D FROM THE TOTAL EXPENSES OF THE ASSESSEE. 6 . ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY OBSERVING AS UNDER: THE A SSESSING OFFICER HAS ADDED BACK RS. 31,07,127/ - TOWARDS PROVISIONS FOR FUTURE LOSS. THE AVAILABLE DATA TOWARDS PROVISION FOR FUTURE LOSS ON LOANS MAKES IT EVIDENT THAT THE PROVISION MADE OVER THE YEARS IS NOT BASED ON THE ACTUAL EXPENDITURE AND REMAINS UNUTILIZED THEREFORE ANY ADDITIONAL PROVISION OF RS. 31,07,127/ - TOWARDS PROVISION FOR FUTURE LOSS O N LOANS IS NOT JUSTIFIED. THE APPELLANT IS NOT FORMALLY REGISTERED WITH RBI AND UNDER WHICH PROVISIONS OR CIRCULAR OF RBI STANDARD ASSETS ARE SUBJECT TO 1% PROVISION ITA NO.252/CTK/2017 ASSESSMENT YEAR : 2009 - 2010 P A G E 4 | 8 NEEDS TO BE EXPLAINED PROPERLY. ASSETS ARE NO T CLASSIFIED A STANDARD ASSETS, SUBS TANDARD ASSETS, DOUBTFUL ASSETS AND DETAILS OF COMPUTATION OF PROVISION ON DOUBTFUL 'ASSETS ARE NOT MADE AVAILABLE ON RECORD. FURTHER THE OTHER ISSUE IS WHETHER A PROVISION AGAINST A FUTURE ANTICIPATED LOSS CAN BE ALLOWED AS EXPENDITURE. AS PER JUDICIAL P RONOUNCEMENTS BAD DEBTS AND WRITING OFF OF UNRECOVERABLE LOAN HAS BEEN TREATED AS APPLICATION, BUT TREATING A PROVISION AGAINST A CONTINGENT FUTURE EXPENDITURE DOES NOT FIND ANY SUPPORT UNDER THE EXISTING SCHEME OF THE STATUTE SPECIFICALLY UNDER SECTION 11 ( 1 )(A). BAD LOANS AND THE NPA ARE EXPECTED IN SUCH ACTIVITY, BUT EXPENDITURE CAN BE ALLOWED ONLY WHEN THE ACTUAL LOSSES/EXPENDITURES OCCURS. UNDER THE PROVISIONS OF SECTION 11 OF THE INCOME TAX ACT ONLY ACTUAL EXPENDITURES ON COMMERCIAL PRINCIPLES, ARE PER MISSIBLE. IN OTHER WORDS, IF THERE ARE ANY ACTUAL LOSS IN ANY YEAR IT COULD BE CLAIMED BUT PROVISIONS AGAINST FUTURE ANTICIPATED LOSSES ARE NOT PERMISSIBLE AS THEY DO NOT LEGALLY OCCUR IN THE YEAR OF APPLICATION. THE PRIMARY ISSUE TO BE CONSIDERED HERE IS WHETHER PROVISIONS CAN BE TREATED AS ACTUAL EXPENDITURES AS CLAIMED BY THE APPELLANT. IN APPELLANT'S CASE, THE PAYMENTS HAVE ALREADY BEEN MADE AND THE ISSUE IS ABOUT NON - RECOVERY. EXPENDITURE WILL OCCUR WHEN THE ORGANISATION FORMALLY FORFEITS THE RIGHT TO RECOVER. A PROVISION AGAINST FUTURE NON - RECOVERY IS NOT A FORFEITURE OF RIGHT TO RECOVER. ANOTHER ISSUE TO BE CONTEMPLATED HERE IS THAT IN A CONTINUING ORGANISATION PREVIOUS YEAR'S PROVISION WOULD BECOME SUBSEQUENT YEAR'S AC TUAL EXPENDITURE AND THEREFORE, IN A COMMERCIAL SENSE THERE IS NO NEED TO TREAT NOTIONAL PROVISIONS AS CHARITABLE EXPENDITURE AS IN THE LONG RUN THE ACTUAL NON - RECOVERY WILL BALANCE IT OUT. IN OTHER WORDS, IF A PROVISION IS MADE IN ONE YEAR THEN THE ACTUAL PAYMENT SHOULD HAPPEN IN THE SUBSEQUENT YEAR, THEREFORE, UNDER SECTION 11 ( 1 )(A) IF THE ORGANISATION IS CLAIMING EXPENDITURE ON ACTUAL BASIS THEN ONLY THE REAL INCOME DETERMINED. TO CLAIM BAD DEBT THE ASSESSEE SHOULD CONCLUSIVELY WRITE OFF THE DEBT AND GIV E UP ITS RIGHTS TO RECOVER THE LOAN. AND AS AND WHEN SUCH ENTRIES ARE PASSED , THEY CAN BE CLAIMED AS APPLICATION. THE JUDICIAL PRECEDENCE IS IN FAVOUR OF ALLOWING BAD DEBTS BUT IN ALL THE CASES THE ADMISSIBILITY IS ON THE ACTUAL WRITING OFF. -- THERE ARE NO ITA NO.252/CTK/2017 ASSESSMENT YEAR : 2009 - 2010 P A G E 5 | 8 INSTANCES WHERE A PROVISION HAS BEEN TREATED AS APPLICATION UNDER ''SECTION 11 ( 1 )(A). IN THE CASE OF CIT V. SACRED HEART CHURCH [2005 ) 278 ITR 180 (GUI.) , IT WA S HELD THAT THE LOAN ADVANCED TO PERSONS BELONGING TO WEAKER SECTIONS OF PUBLIC UNDER A SCHEME FRAMED BY TRUST IN PURSUANCE OF ITS OBJECTS COULD BE WRITTEN OFF AND THE SAME CAN BE CLAIMED IN ADVANCE AS AN ITEM OF EXPENDITURE ALLOWABLE AS DEDUCTION UNDER SE CTION 11 ( 1 )(A). IN THIS CASE THE TRIBUNAL HAD HELD THAT THE LOAN HAD BEEN GIVEN FROM THE INCOME OF THE ASSESSEE AND THAT INSTEAD OF MAKING AN OUTRIGHT GIFT, THE ASSESSEE HAD FIRST DISBURSED THE AMOUNT AS LOAN AND IN THE SUBSEQUENT YEARS WAIVED ITS RIGHT T O RECOVER THE AMOUNT. IT WAS OBSERVED THAT THE ASSESSEE MUST BE SAID TO HAVE APPLIED THE INCOME WHEN IT GAVE UP ITS RIG HTS TO RECOVER THE LOAN. THE HON'BLE TRIBUNAL PLACED RELIANCE UPON THE DECISION OF RAJASTHAN HIGH COURT IN THE CASE OF CIT V. MAHARANA OF MEWAR CHARITA BLE _ FOUNDATION [1987 ) 164 ITR 439 AND HELD THAT THE ASSESSEE WAS ENTITLED TO | BENEFIT OF SECTION 11 IN RESPECT OF THE BAD DEBT ONLY WHEN THE RIGHT TO RECOVER WA S FORFEITED. FURTHER, THE APPELLANT IS A 'GOING CONCERN' AND CONTINUING ACTIVITIES ON YEAR ON YEAR BASIS. THEREFORE, PREVIOUS YEARS PROVISIONS SHOULD HAVE IMPLICATIONS IN SUBSEQUENT YEARS. HOWEVER, NO EXPENDITURES HAVE BEEN CLAIMED FOR PAST YEARS. A PROVISION INCREASES THE NET WORTH OF. THE ORGANISATION IF IT IS NOT ACTUALLY EXPENDED. IN THE CASE CIT V. SACRED HEART CHURCH IT WAS HELD THAT THE ASSESSEE COULD CLAIM BAD DEBTS PERTAINING TO LOANS MADE IN EARLIER YEARS. THE COURT ALSO REFERRED TO TWO DECISIONS OF THIS COURT IN THE CASES OF (I) CIT V. GANGA CHARITY TRUST FUND 119861 162 ITR 612 AND (II) CIT V. SHETH MANILAL RANCHHODDAS VISHRAM BHAVAN TRUS T 1992 ) 198 ITR 598 AND HELD AS FOLLOWS : 'IN VIEW OF THE TWO DECISIONS OF THIS COURT ABOVE REFERRED TO, IT IS THE WELL - S ETTLED POSITION THAT INCOME DERIVED FROM THE TRUST PROPERTY HAS TO BE DETERMINED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES FOR DETERMINING THE INCOME ARE APPLIED, IT IS BUT NATURAL THAT THE ADJUSTMENT OF THE EXPENSES INCURRED BY THE TRUST FOR C HARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEAR AGAINST INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS ITA NO.252/CTK/2017 ASSESSMENT YEAR : 2009 - 2010 P A G E 6 | 8 APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH SUCH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SECTION 11 OF THE ACT AND WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER SECTION 11(1) (A) OF THE ACT.' (P. 300)' T HE HON'BLE SUPREME COURT, VIDE CIT V. THANTHI TRUST ( 1999 ) 239 ITR 502 HELD THAT THE WORD APPLICATION HAS TO BE UNDERSTOOD AS ACTUALLY EXPENDED. PROVISIONS TOWARDS BAD LOANS IS NOT ADMISSIBLE AS PER LAW AND THE JUDICIAL PRECEDENCE. IN THE CASE OF THE APPELLANT, THERE IS NO ACTUAL UTILIZATIO N TO COMMENSURATE WITH THE PROVISION MADE. THE A.O. HAS ADDED BACK RS. 15,00,000/ - & RS.25,00,000/ - TOWARDS PROVISIONS FOR 'CAPACITY BUILDING FUND' & 'EDUCATION & CHARITY FUND'. FROM THE MATERIAL AVAILABLE ON RECORD, IT IS EVIDENT THAT THE PROVISIONS WERE EITHER NOT THE ACTUAL EXPENDITURE OF THE YEAR OR EXPENDITURE INCURRED BY THE SOCIETY ON SOME OTHER CONTEXT OTHER THAN MICRO FINANCE ACTIVITIES OF THE APPELLANT SOCIETY. THE APPELLANT HAS NOT FURNISHED ANY COGENT EVIDENCE WI TH COGENT ARGUMENT TO JUSTIFY THE ADMISSIBILITY OF THE PROVISIONS AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES. 7. WE HAVE GONE THROUGH THE AUDITED STATEMENT OF ACCOUNT FILED BY THE ASSESSEE AT PAGE NOS.53 TO 73 OF PAPER BOOK. WE FIND THAT FROM P AGES 55,56,57 & 58 OF PAPER BOOK, COPY OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT AND SCHEDULES THERETO ARE PLACED. IT IS OBSERVED THAT THE ASSESSEE HAS TRANSFERRED A SUM OF RS.31,07,126.97 TO RESERVE FOR LOAN LOSS, RS.25,00,000/ - TO EDUCATION AND CHAR ITABLE FUND AND RS.15,00,000/ - TO CAPACITY BUILDING FUND. THE RESPECTIVE BALANCE CARRIED FORWARD THEREAFTER IN THESE FUNDS IS RS.58,65,198.35, RS.48,80,657/ - AND ITA NO.252/CTK/2017 ASSESSMENT YEAR : 2009 - 2010 P A G E 7 | 8 RS.15,00,000/ - , RESPECTIVELY. THUS, IT IS OBSERVED THAT THESE AMOUNTS WERE NOT SPENT BY THE A SSESSEE DURING THE YEAR FOR CARRYING OUT THE OBJECTS OF THE ASSESSEE TRUST. HENCE, THESE ARE NOT AMOUNTS APPLIED IN THE OBJECTS OF THE TRUST. HENCE, THE ASSESSING OFFICER AS WELL AS THE CIT(A) WERE FULLY JUSTIFIED IN NOT ALLOWING THE DEDUCTION FOR THE SA ME WHILE COMPUTING THE INCOME OF THE ASSESSEE. 8 . FURTHER, L D A.R. COULD NOT CONTROVERT THE DECISIONS OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SACRED HEART CHURCH(SUPRA), HONBLE RAJASTHAN HIGH COURT IN THE CASE OF MAHARANA OF NEW2AR CHARITABLE FOUNDATION (SUPRA) AND HONBLE SUPREME COURT IN THE CASE OF THANTHI TRUST (SUPRA), WHICH WERE FOLLOWED BY THE CIT(A). THEREFORE, WE FIND NO ERROR IN THE ORDER OF THE CIT(A) TO INTERFERE, WHICH IS HEREBY CONFIRMED AND GROUNDS OF APPEAL OF THE ASSESSEE ARE DISMISSED. 9 . IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED ON 26 /0 9 /2018. SD/ - SD/ - ( PAVAN KUMAR GADALE) ( N.S SAINI) JUDICIALMEMBER A CCOUNTANT MEMBER CUTTACK; DATED 26 /0 9 /2018 B.K.PARIDA, SPS ITA NO.252/CTK/2017 ASSESSMENT YEAR : 2009 - 2010 P A G E 8 | 8 COPY OF THE ORDER FORWARDED TO : BY ORDER SR. PVT. SECRETARY, ITAT, CUTTACK 1. THE REVENUE: ITO, WARD 2(1), BHUBANESWAR. 2. THE ASSESSEE: ADHIKAR, BHUBANESWAR. 3. THE CIT(A) - 3, BHUBANESWAR 4. PR.CIT - 3, BHUBANESWAR 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//