A.C.I.T., Circle-1, Gwalior V. M/s Samta Lok Sansthan, Gwalior

ITA 271/AGR/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60176 (ITAT-AGRA)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-06-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 11-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Charitable institution; Bad and doubtful debts; Assessment record; Revenue expenditure; Capital expenditure
• Section: 12A; 12AA; 10B; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 271/AGRA/2011 ASSTT. YEAR : 2008-09 A.C.I.T., CIRCLE 1, VS. M/S. SAMTA LOK SANSTHA N, GWALIOR. 38, RACE COURSE ROAD, GWALIOR. (PAN : AABTS 2427 G) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI WASEEM ARSHAD, SR. D.R. RESPONDENT BY : NONE DATE OF HEARING : 04.06.2012 DATE OF PRONOUNCEMENT OF ORDER : 08.06.2012 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), GWALIOR DATED 29.04.2011 FOR THE ASSESSMENT YEAR 20 08-09, CHALLENGING THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.34 ,24,948/- ON ACCOUNT OF UN- RECOVERABLE FEES. 2. WE HAVE HEARD THE LD. DR AND PERUSED THE FINDING S OF THE AUTHORITIES BELOW. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SER VICE OF NOTICE THROUGH THE DEPARTMENT. THE ASSESSEE IS, THEREFORE, PROCEEDED E XPARTE. THE BRIEF FACT OF THE CASE ITA NO. 271/AGRA/2011 2 ARE THAT THE ASSESSEE TRUST, A CHARITABLE ORGANIZAT ION IS REGISTERED U/S. 12AA VIDE CIT, GWALIORS ORDER DATED 16.04.2001 AND IS CARRYI NG MAINLY EDUCATIONAL ACTIVITIES. IT IS ALSO PROVIDING MEDICAL FACILITIES TO POOR AND NEEDY PERSONS. DURING THE YEAR, IT HAS SHOWN TOTAL RECEIPTS OF RS.16,10,6 2,929/-, ON WHICH EXCESS OF INCOME OVER EXPENDITURE HAS BEEN DECLARED AT RS.2,2 9,84,653/-. AS PER AUDIT REPORT IN FORM 10B ENCLOSED ALONGWITH THE RETURN, 85% OF I TS TOTAL RECEIPTS HAVE BEEN EXPENDED TOWARDS ITS OBJECTS AND ACCORDINGLY, RETUR N DECLARING NIL INCOME HAS BEEN FILED ON 02.09.2008 BY CLAIMING EXEMPTION U/S. 11. HOWEVER, THE AO HAS TREATED THE AMOUNT OF RS.34,24,948 AS INCOME OF THE ASSESSEE BY MENTIONING AS UNDER : ASSESSEE TRUST HAS CLAIMED RS.40,29,350/- AS UNRECO VERABLE FEE. THIS KIND OF EXPENDITURE IS CONSIDERED AS BAD DEBTS IN T HE SECTIONS OF BUSINESS AND PROFESSION AS PER IT ACT. SINCE THE ASSESSEE I S A TRUST AND COVERED U/S. 12AA SO IT CAN NOT TAKE THE BENEFIT OF THOSE SECTIO NS APPLICATION FOR B & P. ON DATED 24.09.2010, ASSESSEE WAS ASKED TO JUSTIFY THIS EXPENSE AND ABOUT THE STEPS WHICH WERE TAKEN FOR RECOVERING THIS FEE. BUT ASSESSEE COULD NOT PROVIDE ANY SATISFACTORY ANSWER IN THIS CASE. THE C ALCULATION OF INCOME AFTER THIS ISSUE WILL BE AS UNDER : I). TOTAL RECEIPTS SHOWN BY ASSESSEE AS PER INCOME & EXPENDITURE A/C FOR THE YEAR 2008-09 RS.16,10,6 2,929/- (II). 85% OF THE ABOVE RECEIPTS RS.13,69,03,489 /- (III). TOTAL RECEIPTS AFTER ADDITION OF UNRECOVERA BLE FEE RS.16,50,92,279/- (IV). 85% OF THE ABOVE RECEIPTS RS.14,03,28,437 /- (V). TAXABLE INCOME{(4) (2)}={140328437 1369034 89)} RS. 34,24,948/- SO RS.34,24,948/- IS ADDED BACK IN ASSESSEES TOTAL INCOME. 2.1 BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED AS UN DER : ITA NO. 271/AGRA/2011 3 ADDITION ON A/C OF UNRECOVERED FEE RS.4029350/-. WHILE ASSESSMENT PROCEEDINGS, WE HAVE SUBMITTED TH AT THE ACCOUNTING PROCEDURE FOLLOWED BY US FOR RECEIVING O F FEE FROM STUDENTS IS THAT WE DEBIT EACH STUDENT ON YEARLY BA SIS, FOR RECOVERY OF FEE FROM THE DATE OF THEIR ADMISSION AS PER TENURE OF COURSE, AS PER THE RGPV (RAJIV GANDHI TECHNICAL UNIVERSITY BHOPAL) NOTIFICATION AS STUDENT IS DECLARED NFT (NOT FIT FO R TECH. EDUCATION) IF HE IS NOT CLEARED THE DEGREE WITHIN 7 YEARS, ALSO THOSE STUDENTS WHO DO NOT TURN UP HAVE BEEN BOOKED BY US IN THE EXPENDITURE AS UN-RECOVERED FEE. TO VERIFY THE SAME , A.O. HAS CALLED FOR STUDENT PHONE NO. 9826546645 NAME PANKAJ. THE A.O. HAS NOT ASKED FOR FURTHER ENQUIRY. JUST LIKE DEPRECIATION, FEES NOT RECOVERED IS ALSO ALLOWED IN ACCORDANCE WITH NORMAL RULES OF ACCOUNTANCY. THIS I S HELD IN CIT VS. SHETH MANILAL RANCHHODDAS VISHRAM BHAWAN TRUST (1992) 198 ITR (GUJ) 598 AND CIT VS. SHRI PLOT SWET AMBER MURTIPUJAK JAIN MANDAL (1995) 211 ITR-GUJ. 293. FURTHER FOR CALCULATION OF 15% OF TOTAL INCOME, RE CEIPT PAYMENT IS TO BE CONSIDERED BECAUSE REVENUE & CAPITAL INCOM E & EXPENDITURE IS TO BE CONSIDERED WHICH IS ENCLOSED HEREWITH & AL READY SUBMITTED ON 27.12.2010 TO THE A.O. ACCORDINGLY, ACCUMULATION IS ONLY RS.40,45,297/- WHICH AFTER ADDING RS.40,29,350/- CO MES TO RS.80,74,647/- WHICH IS FAR BELOW OF 15% OF TOTAL R ECEIPT OF RS.22,73,28,072.07 (KINDLY REFER V.K. SINGHANIA DIR ECT TAX PAGES NO. 850 TO 852). 2.2 THE LD. CIT(A) CONSIDERING THE FACTS OF THE CAS E IN THE LIGHT OF SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION. HIS FINDINGS IN THE APPELLATE ORDER IN PARA 4 ARE REPRODUCED AS UNDER : 4. APPELLANT'S SUBMISSIONS ALONGWITH ASSESSMENT OR DER HAVE BEEN CONSIDERED CAREFULLY. ASSESSMENT RECORDS HAVE ALSO BEEN PERUSED. THE APPELLANT TRUST HAS BEEN REGISTERED U/ S 12AA OF THE IT ACT SINCE THE YEAR 2001 AND HAS BEEN GRANTED EXEMPT ION U/S 1 I FOR ITS EARLIER YEARS. DURING THE YEAR UNDER CONSIDERATION, THERE IS NO CHANGE IN FACTS, NATURE OF ACTIVITIES ETC. CARRIED OUT BY THE APPELLANT. A.O. HAS TREATED THE AMOUNT OF UNRECOVERABLE FEE AS TAXABLE INCOME OF THE APPELLANT SOLELY ON THE GROUND THAT UNRECOVERABLE F EE, CONSIDERED AS ITA NO. 271/AGRA/2011 4 BAD DEBTS, IS NOT ALLOWABLE TO THE APPELLANT TRUST, SINCE BAD DEBTS IS MAINLY A BUSINESS EXPENDITURE AND THE PROVISIONS AP PLICABLE TO ASSESSEES CARRYING OUT BUSINESS ACTIVITIES ARE NOT APPLICABLE TO THE CASE OF THE APPELLANT TRUST. IT IS PERTINENT TO MEN TION HERE THAT THE APPELLANT HAS CLAIMED EXEMPTION U/S 11 ON THE BASIS OF REGISTRATION U/S 12AA AND FULFILLMENT OF PRESCRIBED CONDITIONS R EGARDING ACCUMULATION, AMOUNT EXPENDED ON OBJECTS OF THE TRU ST, MODES OF INVESTMENTS, APPLICATION OF INCOME ETC. A.O. HAS A CCEPTED THE AUDITED BOOKS OF ACCOUNTS OF THE APPELLANT. ALSO NO VIOLATI ON OF ANY OF THE CONDITIONS PRESCRIBED FOR CLAIMING EXEMPTION U/S. 1 1 HAS BEEN FOUND OR MENTIONED BY THE A.O. AS PER THE ASSESSMENT ORDE R AND AS PER ASSESSMENT RECORDS IN 3 VOLS. IT IS A WELL SETTLED LEGAL POSITION THAT IN CASE OF ASSESSEES CARRYING OUT CHARITABLE ACTIVITIE S AND CLAIMING EXEMPTION U/S 11 SPECIFIC GROUNDS FOR DENYING THE B ENEFIT OF EXEMPTION ARE ENUMERATED IN SEC. 13 OF THE I.T. ACT. NO SUCH VIOLATION OF ANY OF THE CONDITIONS HAS BEEN FOUND BY THE A.O. DURING TH E ENTIRE COURSE OF ASSESSMENT PROCEEDINGS. FURTHER, FOR THE PURPOSES O F EXEMPTION U/S 11, APPLICATION OF INCOME MUST NOT NECESSARILY RESU LT IN REVENUE EXPENDITURE. FOR THE PURPOSE OF COMPUTING INCOME AN D ITS APPLICATION U/S 11, REAL INCOME RECEIVED BY THE APPELLANT IS TO BE TREATED AS INCOME FOR THE PURPOSE OF APPLICATION. THE CBDT VID E CIRCULAR NO. 5- P(LXX-6) DTD. 19.5.68 HAS MADE IT CLEAR THAT THE WO RD 'INCOME' IN SEC. 11 (L)(A) MUST BE UNDERSTOOD IN COMMERCIAL SENSE. T HE SAME VIEW HAS ALSO BEEN HELD BY HON'BLE SUPREME COURT IN CASE OF CIT VS. PROGRAMME FOR COMMUNITY ORGANIZATION (2001) 248 ITR 1 (SC). IT HAS BEEN HELD THAT IT WOULD BE INCORRECT TO ASSIGN TO THE WORD 'INCOME' USED IN SEC. 11 (L)(A), THE SAME MEANING AS ASSIGNE D TO THE EXPRESSION 'TOTAL INCOME' IN SEC. 2(45) OF THE I. T ACT. INCOM E DERIVED FROM THE TRUST PROPERTY MUST BE DETERMINED ON COMMERCIAL PRI NCIPLES AS THE WORD 'INCOME' IS TO BE UNDERSTOOD IN A COMMERCIAL S ENSE, I.E. BOOK INCOME. VARIOUS COURTS HAVE HELD THAT THE AMOUNT OF DEPRECIATION DEBITED TO THE ACCOUNTS OF A CHARITABLE INSTITUTION HAS TO BE DEDUCTED TO ARRIVE AT THE INCOME AVAILABLE FOR APPLICATION T O CHARITABLE PURPOSES EVEN WHEN THE SAID CAPITAL EXPENDITURE HAS ALSO BEEN ALLOWED FOR PURPOSES OF APPLICATION OF INCOME. BY F OLLOWING THE SAME ANALOGY, AMOUNT OF UNRECOVERABLE FEE, TREATED AS BA D DEBTS, IS ALSO ALLOWABLE TO THE APPELLANT TRUST WHILE COMPUTING IT S SURPLUS AND APPLICATION OF ITS INCOME FOR THE PURPOSE OF GRANTI NG EXEMPTION U/S 11. A.O. HAS NOT BROUGHT ANY ADVERSE MATERIAL ON RECORD NOR HAS MADE ANY INDEPENDENT THIRD PARTY ENQUIRY TO SHOW THAT TH E BAD DEBTS HAVE ITA NO. 271/AGRA/2011 5 NOT' BEEN INCURRED BY THE APPELLANT DURING THE ASST T. YEAR UNDER CONSIDERATION. SINCE THE APPELLANT HAS BEEN FOUND T O HAVE FULFILLED THE PRESCRIBED CONDITIONS FOR SEC. 11 AND REGISTRATION U/S. 12A IS IN FORCE, A.O IS NOT FOUND JUSTIFIED IN MAKING THE ADDITION O N ACCOUNT OF UN- RECOVERABLE FEE/BAD DEBTS. ACCORDINGLY, ADDITION OF RS.34,24,948/- IS HEREBY DELETED AFTER PERUSAL OF RECORDS AND APPELL ANT'S SUBMISSIONS. 3. ON CONSIDERATION OF THE SUBMISSIONS OF LD. DR AN D PERUSAL OF THE IMPUGNED ORDERS, WE DO NOT FIND ANY JUSTIFICATION TO INTERFE RE WITH THE ORDER OF THE LD. CIT(A). IT IS ADMITTED FACT THAT THE ASSESSEE IS ENGAGED IN THE EDUCATIONAL ACTIVITIES AND HAS BEEN GRANTED REGISTRATION U/S. 12AA OF THE IT ACT. HE WAS ALSO GRANTED EXEMPTION IN EARLIER YEAR U/S. 11 OF THE IT ACT. THE AO HAS A LSO ACCEPTED THE SAME POSITION. HOWEVER, AS REGARDS THE UN-RECOVERABLE FEES, THE AO DID NOT ALLOW DEDUCTION OF THE SAME ON THE REASONS THAT THE SAME WOULD FALL IN THE HEAD OF BUSINESS & PROFESSION. SINCE NO FEE WAS RECOVERED BY THE ASSE SSEE, THEREFORE, IT WAS CLAIMED AS UNRECOVERABLE FEES. THEREFORE, TO PREPARE THE IN COME AND EXPENDITURE ACCOUNT OF THE ASSESSEE, IT IS NECESSARY TO MENTION UNRECOVERA BLE FEES. THE INCOME-TAX IS PAYABLE ON THE REAL INCOME EARNED BY THE ASSESSEE A ND NOT ON HYPOTHETICAL INCOME. SINCE THE ASSESSEE FULFILLED THE CONDITIONS OF SECT ION 12AA OF THE IT ACT AS WELL AS SECTION 11 OF THE ACT AND NO VIOLATION HAS BEEN REP ORTED, THEREFORE, THE LD. CIT(A) RIGHTLY DELETED THE ADDITION BECAUSE WHILE COMPUTIN G THE SURPLUS AND APPLICATION OF ITS INCOME FOR THE PURPOSE OF GRANTING EXEMPTION U/ S. 11 OF THE IT ACT, UNRECOVERABLE FEES SHALL HAVE TO BE GIVEN TREATMENT IN INCOME AND EXPENDITURE ITA NO. 271/AGRA/2011 6 ACCOUNT. SINCE THE ASSESSEE RUNS EDUCATIONAL INSTIT UTE AND HAS ALREADY BEEN GRANTED BENEFIT U/S. 11 OF THE IT ACT, THEREFORE, THE PROPO SED ADDITION MADE BY THE AO COULD NOT HAVE BEEN MADE AGAINST THE ASSESSEE. THE LD. CIT(A), ON PROPER APPRECIATION OF FACTS AND LAW RIGHTLY DELETED THE A DDITION. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL. THE SAME IS ACCORDINGLY DISMISSED. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY