ADIT (E) II(1), MUMBAI V. THE GEM & JEWELLARY EXPORT PROMOTION COUNCIL, MUMBAI

ITA 6068/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9231 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 11-12-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 30-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN KUMAR
• Keywords: Capital asset; Depreciation; Charitable institution; Capital expenditure
• Section: 12A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G , MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 6068/MUM/2011 ASSESSMENT YEAR : 2008-09 A.D.I.T.(E)-II(1), ROOM NO. 507, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI - 12 VS. M/S. THE GEM & JEWELLARY EXPORT PROMOTION COUNCIL, 391-A, 5 TH FLOOR, DIAMOND PLAZA, DR. BABASAHEB BHADKAMKAR MARG, MUMBAI -400 004 PAN NO. AAATT 3202 H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRAVIN KUMAR RESPONDENT BY : NONE DATE OF HEARING : 11.12.2012 DATE OF PRONOUNCEMENT : 19.12.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R DATED 22.6.211 OF CIT(A) FOR THE ASSESSMENT YEAR 2008-09. THE ONLY DISPUTE RAISED BY THE REVENUE IN THIS APPEAL IS REGARDING ALLO WABILITY OF DEPRECIATION IN RESPECT OF CAPITAL EXPENDITURE INCURRED FOR THE PURPOSE OF SECTION 11 OF THE INCOME TAX ACT AND REGARDING ALLOW ABILITY OF SET OFF OF DEFICIT OF EARLIER YEAR AGAINST INCOME OF CURRENT YE AR. ITA NO.6068/M/11 A.Y. 08-09 2 2. FACTS IN BRIEF ARE THAT THE ASSESSEE WHICH HAD BEEN REG ISTERED UNDER SECTION 12A OF THE ACT AS CHARITABLE INSTITUTION HA D CLAIMED DEPRECIATION IN RESPECT OF CAPITAL EXPENDITURE INCURRED TOWARDS FURTHERANCE OF CHARITABLE OBJECTIVES. THE CAPITAL EXPEND ITURE UNDER LAW HAS TO BE CONSIDERED AS APPLICATION OF INCOME UNDER SECTIO N 11 OF THE INCOME TAX ACT. THE ASSESSEE HAD ALSO CLAIMED DEPRECIATION IN RESPECT OF SUCH EXPENDITURE WHICH WAS DISALLOWED BY AO. THE ASSESSEE HAD ALSO CONDUCTED CERTAIN TRADE EXHIBITIONS IN RESPECT OF WH ICH THERE WAS LOSS OF RS.1,14,26,534/- THE AO OBSERVED THAT THE VOLUM E OF BUSINESS OF EXHIBITION CONSTITUTED 65% OF TOTAL RECEIPTS AND, T HEREFORE, IT WAS A DOMINANT ACTIVITY AND NOT INCIDENTAL ACTIVITY TO TH E CHARITABLE TRUST. THE ASSESSEE HAD ALSO NOT MAINTAINED SEPARATE BOOKS OF ACCOUNT. THE AO, THEREFORE, ASSESSED THE LOSS AS BUSINESS LOSS AND DID NOT SET I T OFF AGAINST INCOME FROM CHARITABLE ACTIVITIES. IN APPEAL, C IT(A) FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 IN ITA NO.4409/M/2007 ACCEPTED THE CLAIM OF THE ASSESSEE THAT EXHIBITION ACTIVITIES WERE INCIDENTAL TO MAI N OBJECTS OF THE ASSESSEE. CIT(A) DIRECTED THE AO TO SET OFF LOSSES FROM EXHIBITION ACTIVITIES TO OTHER INCOME OF THE ASSESSEE. CIT(A) ALSO DIR ECTED THE AO TO SET OFF DEFICIT OF EARLIER YEARS AGAINST THE INCOME OF THE CURRENT YEAR WHILE CONSIDERING APPLICATION OF INCOME AS HELD BY THE HO N'BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. INSTITUTE OF BAN KING PERSONNEL ITA NO.6068/M/11 A.Y. 08-09 3 (264 ITR 110). CIT(A) FURTHER DIRECTED THE AO TO ALL OW DEPRECIATION ON CAPITAL EXPENDITURE AS HELD IN THE AFORESAID JUDGMENT . AGGRIEVED BY THE DECISION OF CIT(A), THE REVENUE IS IN APPEAL IN WH ICH ISSUE OF DEPRECIATION AND SET OFF OF DEFICIT OF EARLIER YEAR H AS BEEN RAISED. 3. AT THE TIME OF HEARING OF THE APPEAL, NO ONE APP EARED ON BEHALF OF THE ASSESSEE TO REPRESENT THE CASE THOUGH NOTICE OF HE ARING WAS GIVEN WELL IN ADVANCE. WE THEREFORE PROCEED TO DECIDE THE ISSUE ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AFTER HEARING TH E LD. DR WHO SUPPORTED THE ORDER OF AO. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MAT TER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF DEPRECIATION IN RESPECT OF CAPITAL EXPENDITURE INCURRED BY THE TRUST FOR FURTHERA NCE OF ITS OBJECTIVES AND SET OFF OF DEFICIT OF EARLIER YEARS AGAIN ST THE INCOME OF THE CURRENT YEAR. IT IS A SETTLED LEGAL POSITION THAT I NCURRING OF CAPITAL EXPENDITURE FOR FURTHERANCE OF OBJECTIVES OF THE TRUST HAS TO BE CONSIDERED AS APPLICATION OF INCOME. FURTHER, IF APPLICAT ION OF INCOME RESULTS INTO ANY CAPITAL ASSET WHICH IS USED FOR BUSINESS, D EPRECIATION HAS TO BE ALLOWED. THEREFORE, CAPITAL EXPENDITURE HAS TO BE CONSIDERED AS APPLICATION OF INCOME AND CORRESPONDING ASSET CREATED WI LL BE ELIGIBLE FOR GRANT OF DEPRECIATION. THIS VIEW IS SUPPO RTED BY THE JUDGMENT OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CA SE OF CIT VS. ITA NO.6068/M/11 A.Y. 08-09 4 INSTITUTE OF BANKING (SUPRA). THE HONBLE HIGH COURT HA S ALSO UPHELD THAT IN CASE IN THE EARLIER YEAR THE EXPENDITURE INCUR RED IS MORE THAN THE INCOME THEN SUCH EXCESS EXPENDITURE OR DEFICIT HAS TO B E CONSIDERED AS APPLICATION OF INCOME IN THE SUBSEQUENT YEAR FOR THE PURPOSE OF CONSIDERING THE APPLICATION OF INCOME. THE LD . DR HAS POINTED OUT THAT THE JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY (SUPRA) HAS BEEN CONSIDERED AND NOT FOLLOWED BY THE HON 'BLE HIGH COURT OF ANDHRA PRADESH. BUT BEING THE JURISDICTIONAL HIGH COURT THE JUDGMENT, THE TRIBUNAL IS BOUND BY THE SAID JUDGMENT AND ACCORDINGLY WE ALLOW BOTH THE GROUNDS IN FAVOUR OF THE ASSESSEE AND DISMISS THE APPEAL OF THE REVENUE. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.12.2012. SD/- SD/- ( VIVEK VARMA ) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 19.12. 2012. JV. ITA NO.6068/M/11 A.Y. 08-09 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.