ITO (E) 1(4), MUMBAI V. KHERWADI SOCIAL WELFARE ASSOCIATION, MUMBAI

ITA 4039/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7837 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 02-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M HEMALATHA
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 143(3); 80G; 12A; 10B; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO.4039/MUM/2017 (ASSESSMENT YEAR :2012 - 13) ITO (E) 1(4) R.NO.507, 5 TH FLOOR PIRAMAL CHAMBERS LALBAUG, MUMBAI 400 012 VS. KHERWADI SOCIAL WELFARE ASSOCIATION PARISHRAMALAYA, KHERWADI, BANDRA (W) MUMBAI 400 051 PAN/GIR NO. AAATM5552F ( APPELLANT) .. ( RESPONDENT) ASSESSEE BY NONE REVENUE BY MS. M. HEMALATHA DATE OF HEARING 05/10/2017 DATE OF PRONOUNCEMENT 29 / 12 /2017 / O R D E R PER R.C.SHARMA (A.M): THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 1, MUMBAI DATED 24/03/2017 FOR A.Y.2012 - 13, IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. GRIEVANCE OF REVENUE RELATES TO DISAL LOWANCE OF DEPRECIATION AND ALLOWING CARRY FORWARD OF LOSSES. ITA NO. 4039/MUM/ 2017 KHERWADI SOCIAL WELFARE ASSOCIATION 2 3. NOBODY APPEARED ON BEHALF OF ASSESSEE INSPITE OF GIVING OPPORTUNITY, THE BENCH , THEREFORE, DECIDED TO DISPOSE THE APPEAL AFTER HEARING LEARNED DR AND CONSIDERING THE MATERIAL PLACED ON RECORD . 4. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRUST REGISTERED WITH DIT (E), MUMBAI U/S. 12A AN D 80G OF THE INCOME TAX ACT, 19 5 1 AND ALSO REGISTERED WITH THE CHARITY COMMISSIONER, MUMBAI. ASSESSEE IS A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860. THE APPELLANT FILED ITS RETURN OF INCOME ON 20.09.2012 ALONG WITH THE INCOME & EXPENDITURE ACCOUNT, BALANCE SHEET AND AUDIT REPORT IN FORM 10B DECLARING TOTAL INCOME AT RS. ( - )24,52,169/ - . HOWEVER, THE AO COMPLETED THE ASSESSMENT V IDE ORDER DATED 16.03.2015 U/S. 143(3) OF THE I.T. ACT, 1961 AT INCOME OF RS. NIL. ' 5. DURING THE COURSE OF SCRUTINY ASSESSMENT, AO DISALLOWED ASSESSEES CLAIM OF DEPRECIATION AND CARRY FORWARD OF LOSSES. 6. BY THE IMPUGNED ORDER, CIT(A) DELETED THE DISAL LOWANCE OF DEPRECIATION AND ALSO ALLOWED CARRY FORWARD LOSSES AFTER HAVING THE FOLLOWING OBSERVATION: - 2. I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, GONE THROUGH THE ASSESSMENT ORDER OF THE A.O AND THE SUBMISSIONS OF THE APPELLANT AND ALSO DISCUSSED THE CASE WITH THE AR OF THE APPELLANT. THE CONTENTIONS ' AND SUBMISSIONS OF THE APPELLANT ARE BEING DISCUSSED AND DECIDED HERE IN UNDER: I. THE ASSESSING OFFICER HAS NOT TREATED THE DEPRECIATION AS APPLICATION OF INCOME ON THE GROUND THAT IT AMO UNTS TO DOUBLE DEDUCTION. APPELLANT HAS SUBMITTED THAT IN A NUMBER OF JUDGMENTS, DEPRECIATION HAD BEEN ALLOWED AS APPLICATION OF INCOME U/S. 11. CASE LAWS RELIED UPON BY THE ASSESSING OFFICER HAVE ALSO BEEN DISTINGUISHED. IN THIS REGARD I FIND THAT THE ISS UE IS DIRECTLY COVERED IN APPELLANT'S FAVOUR BY THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF ITA NO. 4039/MUM/ 2017 KHERWADI SOCIAL WELFARE ASSOCIATION 3 BANKING PERSONNEL 264 ITR 110 WHEREIN THE HON'BLE COURT HAS OBSERVED AS UNDER: ' 4. QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUE STION WHICH WAS RAISED BEFORE, THE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMPTION) V. FRAMJ E E CAWASJEE INSTITUTE - (1993) 109 CTR 463 (BOM). IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS THE TRUST. IT DERIVED ITS INCOME FROM D EPRECIABLE ASSETS. THE ASSESSEE TOOK INTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOME OF THE TRUST. THE INCOME TAX OFFICER HELD THAT DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUSE, FULL CAPITAL EXPENDITURE HAD BEEN ALLOWED IN THE YEA R OF ACQUISITION OF THE ASSETS. THE ASSESSEE WENT IN APPEAL BEFORE THE ASSISTANT APPELLATE COMMISSIONER. THE APPEAL WAS REJECTED. THE TRIBUNAL, HOWEVER, TOOK THE VIEW THAT WHEN THE INCOME TAX OFFICER STATED THAT FULL EXPENDITURE HAD BEEN ALLOWED IN THE YEA R OF ACQUISITION OF THE ASSETS, WHAT HE REALLY MEANT WAS THAT THE AMOUNT SPENT ON ACQUIRING THOSE ASSETS HAD BEEN TREATED AS 'APPLICATION OF INCOME' OF THE TRUST IN THE YEAR IN WHICH THE INCOME WAS SPENT IN ACQUIRING THOSE ASSETS. THIS DID NOT MEAN THAT IN COMPUTING INCOME FROM THOSE ASSETS IN SUBSEQUENT YEARS, DEPRECIATION IN RESPECT OF THOSE ASSETS CANNOT BE TAKEN INTO ACCOUNT. THIS VIEW OF THE TRIBUNAL HAS BEEN CONFIRMED BY, THE BOMBAY HIGH COURT IN THE ABOVE JUDGM ENT. HENCE, QUESTION NO. 2 IS COVERED BY THE DECISION OF THE BOMBAY HIGH COURT IN THE ABOVE JUDGMENT. CONSEQUENTLY, QUESTION NO, 2 IS ANSWERED IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST, THE DEPARTMENT. II. IN A RECENT JUDGEMENT IN CASE OF DIRECTOR OF INCOME - TAX (EXEMPTION S), MUMBAI V. SHRI VILE PARLE KELAVANI MANDAL [2015] 58 TAXMANN.COM 288 HON'BL E BOMBAY HIGH COURT HELD: 'AS FAR AS QUESTION NO.4 IS CONCERNED, THIS COURT HAS REPEATEDLY HELD THAT THERE IS NOTHING LIKE DOUBLE DEDUCTION. WHEN THE ASSESSEE HAS* ACQUIRED AN A SSET FROM THE INCOME OF THE TRUST AND THEREAFTER THE AMOUNT THAT IS CLAIMED IS THE DEPRECIATION ON THE USE OF T HE ASSETS, SUCH DEPRECIATION CLA IM DOES NOT MEAN DOUBLE DEDUCTION. T - HE DEDUCTION EARLIER CLAIMED IS TOWARDS TOWARDS APPLICATION OF FUNDS OF THE TRUST FOR ACQUIRING ASSETS. THE LATTER IS DEPRECIATION AND IT IS PERMISSIBLE DEDUCTION CONSIDERING THE USE OF THE ASSETS. THIS HAS BEEN CLARIFIED REPEATEDLY BY THIS COURT. IF ANY REFERENCE IS REQUIRED THEN THE CASE OF CIT V. INSTITUTION OF BANKING PERSONNE L SELECTION (IBPS) [2003] 264 ITR 110/131 TAXMAN 386 (BOM.) IS ENOUGH.' III. RESPECTFULLY FOLLOWING THE ABOVE OBSERVATIONS OF HON'BIE JURISDICTIONA L HIGH COURT, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF DEPRECIATION AS APPLICATION OF INCOM E U/S. 11 OF THE I.T. ACT. IV. GROUNDS OF APPEAL NO. 1 TO 3 ARE THEREFORE ALLOWED. ITA NO. 4039/MUM/ 2017 KHERWADI SOCIAL WELFARE ASSOCIATION 4 7. CIT(A) ALLOWED THE CARRYFORWARD LOSSES AFTER OBSERVING AS UNDER: - 6.2 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, GONE THROUGH THE ASSESSMENT ORDER OF TH E A.O AND THE SUBMISSIONS OF THE APPELLANT AND ALSO DISCUSSED THE CASE WITH THE AR OF THE APPELLANT. THE CONTENTIONS ARID SUBMISSIONS OF THE APPELLANT ARE BEING DISCUSSED AND DECIDED HERE IN UNDER: I. RELYING UPON SEVERAL CASE LAWS THE APPELLANT STATED THAT DEFICIT OF THE CURRENT YEAR IS REQUIRED TO BE CARRIED FORWARD TO THE SUBSEQUENT YEARS. ON PERUSAL OF THE FACTS I FIND THAT THE CASE OF APPELLANT IS SQUARELY COVERED BY THE JUDGEMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERS ONNEL 264 ITR 110 WHEREIN THE HON. JURISDICTIONAL HIGH COURT HAS OBSERVED AS UNDER - ............'5. NOW COMING TO QUESTION NO. 3, THE POINT WHICH ARISES FOR CONSIDERATION IS: WHETHER EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR AND WHETHER SUCH ADJUSTMENT SHOULD BE TREATED AS APPLICATION OF INCOME IN SUBSEQUENT YEAR FOR CHARITABLE PURPOSES? IT WAS ARGUED ON BEHALF OF THE DEPARTMENT THAT EXPENDITURE INCURRED IN THE EARLIER YEARS CANNOT BE MET OUT OF T HE INCOME OF THE SUBSEQUENT YEAR AND THAT UTILIZATION OF . SUCH INCOME FOR MEETING THE EXPENDITURE OF EARLIER YEARS WOULD NOT AMOUNT TO APPLICATION OF INCOME FOR CHARITABLE OR RELIGIOUS PUR POSES. IN THE PRESENT CASE, THE ASSESSING OFFICER DID NOT ALLOW CA RRY FORWARD OF THE EXC ESS OF EXPENDITURE TO BE SET OFF AGAINST THE SURPLUS OF THE SUBSEQUENT YEARS ON THE GROUND THAT IN THE CASE OF A CHARITABLE TRUST, THEIR INCOME WAS ASSESSABLE UNDER SELF - CONTAINED CODE MENTIONED IN SECTION 11 TO SECTION 13 OF THE INCO ME TAX ACT AND THAT THE INCOME OF THE CHARITABLE TRUST WAS NOT ASSESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' UNDER SECTION 28 IN WHICH THE PROVISION FOR CARRY FORWARD OF LOSSES WAS RELEVANT. THAT, IN THE CASE OF A CHARITABLE TRUST, THERE WAS NO PROVISION FOR CARRY FORWARD OF THE EXCESS OF EXPENDITURE OF EARLIER YEARS TO BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT OF THE DEPARTMENT. INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED - BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGA RDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAS BEEN MADE PAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SECTION 11 OF THE ACT AND THAT SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER SECTION 11 (L)(A) OF THE ACT, CFUR VIEW IS ALSO SUPPORTED BY THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF CIT V. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL (1995) 211 ITR 293 (GUJ). ACCORDINGLY, WE ITA NO. 4039/MUM/ 2017 KHERWADI SOCIAL WELFARE ASSOCIATION 5 AN SWER QUESTION NO. 3 IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSES AND AGAINST THE DEPARTMENT.' RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON. HIGH COURT AS ABOVE, THE AO IS DIRECTED TO ALLOW THE CARRY FORWARD OF DEFICIT IN THE SUCCEEDING YEAR S AFTER DUE VERIFICATION OF FACTS. 8. IT IS CLEAR FROM THE FINDING RECORDED BY CIT(A) THAT ISSUE UNDER CONSIDERATION IS COVERED BY THE DECISION OF JURISDICTIONAL HIGH COURT IN CASE OF INSTITUTE OF BANKING PERSONNEL 264 ITR 110. IT IS ALSO PERTINENT TO NO TE THAT THIS DECISION OF THE BOMBAY HIGH COURT HAS BEEN AFFIRMED BY THE HONBLE SUPREME COURT VIDE ORDER DATED 13/12/2017. ACCORDINGLY, I DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDE R PRONOUNCED IN THE OPEN COURT ON THIS 29 / 12 /2017 SD/ - ( R.C.SHARMA ) ACCOUNTANT MEMBER MUMBAI ; DATED 29 / 12 /2017 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//