ACIT, Shimla V. M/s Sai Engineering Foundation, Shimla

ITA 659/CHANDI/2013

• Counselvise Citation: 65921514 RSA 2013
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 31-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: SUMEET MURADIA
• Keywords: Business income; Business expenditure; Charitable institution; Cancellation of registration
• Section: 143(3); 11A; 37(1); 12A; 12AA; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 659/CHD/2013 ASSESSMENT YEAR: 2009-10 THE ACIT, CIRCLE, VS. M/S SAI ENGINEERING FOUNDA TION, SHIMLA SAI BHAWAN, SHIMLA PAN NO. AAAAS5757P & CROSS OBJECTION NO. 24/CHD/2013 (IN ITA NO. 659/CHD/2013) ASSESSMENT YEAR: 2009-10 M/S SAI ENGINEERING FOUNDATION, VS. THE ACIT, CIRC LE, SHIMLA SAI BHAWAN, SHIMLA PAN NO. AAAAS5757P (APPELLANT) (RESPONDENT) APPELLANT BY : SH. S.K. MITTAL RESPONDENT BY : SHRI SUMEET MURADIA DATE OF HEARING : 20.08.2015 DATE OF PRONOUNCEMENT : 31.08.2015 ORDER PER RANO JAIN, AM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A), SHIMLA DATED 4.3.2013. THE ASSESSEE HAS ALSO FILED A CROS S OBJECTION AGAINST THE SAID ORDER OF THE CIT(A). 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS PRIMARILY ENGAGED IN DESIGNING AND EXECUTION OF MINI AND MICRO HYDEL PRO JECTS IN THE STATE OF HIMACHAL PRADESH. IT WAS GRANTED REGISTRATION U/S 12A OF THE ACT BY THE CIT, SHIMLA VIDE ORDER DATED 23.3.1998. DUE TO AMENDMENT IN THE DEFINITION OF CHARITABLE PURPOSES IN SECTION 2(15) OF THE ACT, BY FINANCE ACT 2008, W.E.F. 1.4.2009, THE CIT, SHIMLA WITHDREW THE REGISTRATION GRANTED U/S 12AA W.E.F. ASSESSMENT YEAR 2009-10. IT WAS HELD BY THE CIT, S HIMLA THAT THE ASSESSEE WAS PREDOMINANTLY ENGAGED IN COMMERCIAL ACTIVITIES ON A VERY LARGE SCALE AND ONLY A PART OF THE SURPLUS EARNED FROM SUCH ACTIVITIES WA S BEING USED IN OBJECTS OF GENERAL PUBLIC UTILITY. THE ASSESSMENT FOR THE ASSE SSMENT YEAR 2009-10 WAS ACCORDINGLY FRAMED BY THE ASSESSING OFFICER IN THE STATUS OF AOP U/S 143(3) OF THE ACT AT A TOTAL INCOME OF RS. 1,39,30,115/- AGAI NST THE NIL INCOME DECLARED BY THE ASSESSEE. THE ADDITION WAS MADE BY THE ASSESSIN G OFFICER BRINING TO TAX THE SURPLUS OF RS. 30,15,064/- AS PER PROFIT AND LOSS A CCOUNT AND ANOTHER ADDITION OF RS. 1,09,15,051/- WAS MADE BY WAY OF DISALLOWANCE O F EXPENSES CLAIMED EXEMPT BY THE ASSESSEE UNDER SECTION 11 OF THE ACT. 3. THE ASSESSEE WENT INTO APPEAL BEFORE THE CIT(A). ELABORATE SUBMISSIONS WERE MADE AGAINST THE CANCELLATION OF REGISTRATION U/S 12AA OF THE ACT IN VIEW OF THE FACT THAT THE ASSESSEES APPEAL AGAINST WITHDRA WAL OF REGISTRATION WAS PENDING BEFORE THE ITAT. FURTHER, ALTERNATIVE SUBMISSIONS WERE ALSO MADE TO THE EFFECT THAT AMOUNT SPENT BY ASSESSEE WAS WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF ATTAINING THE OBJECTS OF THE FOUNDATION. IN VIEW O F THE SAME, IT WAS PRAYED BEFORE THE CIT(A) THAT THE SAID EXPENSES SHOULD BE ALLOWED WHILE COMPUTING THE INCOME OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT ASSESSE E WAS UNDER OBLIGATION UNDER IT BYE LAWS TO CARRY OUT WELFARE ACTIVITIES LIKE PUBLI C WELFARE, EDUCATION ACTIVITIES, SCHOLARSHIP, BLOOD & EYE DONATION CAMP ETC. THEREFO RE, THE AMOUNT SPENT ON THESE ACTIVITIES SHOULD BE ALLOWED AS LEGITIMATE BUSINESS EXPENDITURE. ALTERNATIVELY, IT 3 WAS PRAYED THAT OUT OF THE TOTAL EXPENSES OF RS. 1, 09,14,751./- TREATED AS CHARITABLE EXPENSES BY THE ASSESSING OFFICER, EXPEN SES AMOUNTING TO RS. 73,21,750/- BEING PURELY COMMERCIAL IN NATURE, SHOU LD BE ALLOWED AS BUSINESS EXPENDITURE. SUBMISSIONS WITH REGARD TO THE EACH AN D EVERY EXPENDITURE SO INCURRED WERE ALSO MADE SEPARATELY. 4. THE CIT(A) WHILE ADJUDICATING THE APPEAL HELD TH AT THE EXCESS OF INCOME OVER EXPENDITURE I.E. SURPLUS REFERRED BY THE ASSES SEE IN THE PROFIT AND LOSS ACCOUNT IS CLEARLY TAXABLE IN ITS HANDS AND HAS RIG HTLY BEEN OFFERED BY IT FOR TAXATION DURING THE COURSE OF ASSESSMENT PROCEEDING S. AS REGARDS THE ASSESSEES RELIANCE OF EXPENSES U/S 37(1) OF THE ACT, THE SAM E WAS DULY CONSIDERED BY THE CIT(A). THE CIT(A) VERIFIED EACH AND EVERY EXPENSE AND ALL THESE EXPENSES WHICH HE FOUND WHOLLY AND EXCLUSIVELY FOR THE PURPO SE OF ASSESSEES BUSINESS AND WAS NOT IN THE NATURE OF PERSONAL AND CAPITAL EXPEN DITURE ALLOWED TO BE DEDUCTED FROM THE BUSINESS INCOME OF THE ASSESSEE. IN THIS MANNER, CIT(A) ALLOWED ASSESSEE THE EXPENSES TO THE TUNE OF RS. 62,89,559/ - OUT OF ITS BUSINESS INCOME AND UPHELD THE DISALLOWANCE OF AN AMOUNT OF RS. 46, 25,492/-. NOW THE DEPARTMENT HAS CAME IN APPEAL BEFORE US AGAINST THE DELETION OF DISALLOWANCE OF AN AMOUNT OF RS. 62,89,559/- MADE BY CIT(A), RAISIN G THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION TO THE T UNE OF RS. 62,89,559/- MADE BY THE ASSESSING OFFICER BY DISALLOWING THE EXPENSES ON ACCOUNT OF VARIOUS WELFARE ACTIVITIES. 2 IT IS PRAYED THAT THE ORDER OF LD. CIT BE SET- ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. 5. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION AGAI NST THE ACTION OF CIT(A) IN UPHOLDING THE DISALLOWANCE OF RS. 46,25,492/-. HOW EVER, DURING THE COURSE OF HEARING, LD. COUNSEL FOR THE ASSESSEE PREFERRED NOT TO PRESS THE CROSS OBJECTION, 4 IN VIEW OF THE FACT THAT ITS APPEAL BEFORE THE HON BLE ITAT AGAINST THE ORDER OF CIT, CANCELLING ITS REGISTRATION U/S 12A HAS BEEN DISMISSED. 6. LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFI CER AND PRAYED TO SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE ORDER OF ASSESS ING OFFICER. 7. LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A) AND SUBMITTED THAT ONCE THE REGISTRATION GRANTED U/S 12 A HAS BEEN WITHDRAWN EVEN IF IT IS NOT ELIGIBLE FOR EXEMPTION U/S 11A OF THE ACT , ITS ASSESSMENT HAVING BEEN MADE IN THE STATUS OF AOP, THE EXPENSES HAVING NEXU S WITH THE BUSINESS OF THE ASSESSEE ARE TO BE ALLOWED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE REGIS TRATION GRANTED UNDER SECTION 12A OF THE ACT, TO THE ASSESSEE HAS BEEN WITHDRAWN BY THE CIT. EVEN THE APPEAL FILED BY THE ASSESSEE AGAINST THE SAID ORDER HAS BE EN DISMISSED BY THE HON'BLE ITAT. IN VIEW OF THESE FACTS, THE ALLOWBILITY OF EX EMPTION U/S 11 OF THE ACT OR ANY OTHER ALLOWANCE BEING APPLICATION TOWARDS CHARI TABLE ACTIVITY IS NO LONGER RES INTEGRA. WE NEED NOT TO GO INTO THAT ASPECT OF THE CASE. NOW THE ONLY ISSUE REMAINING BEFORE US IS THE ALLOWABILITY OF EXPENSES TO THE EXTENT OF RS. 62,89,559/-. AS COMING OUT OF THE RECORDS, THE ASS ESSEE WAS MAINLY ENGAGED IN CARRYING OUT THE COMMERCIAL ACTIVITIES IN THE FIELD OF CONSTRUCTION AND RUNNING OF HYDEL POWER PROJECTS AND IN THE FIELD OF ENGINEERIN G DESIGN AND CONSULTANCY. THE MAJOR PART OF THE APPELLANTS RECEIPTS ARE FROM SUC H COMMERCIAL ACTIVITIES AND CORRESPONDING MAJOR PART OF SUCH RECEIPTS HAS BEEN SPENT TOWARDS THE GIVEN COMMERCIAL ACTIVITIES. THUS, THERE CANNOT BE DENYIN G OF THE FACT THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS ACTIVITIES ON COMMERCIA L BASIS. IN SUCH CIRCUMSTANCES, THE INCOME TAXABLE HAS TO BE COMPUTE D AS PER THE PROVISIONS OF THE 5 INCOME TAX ACT AS APPLICABLE TO THE BUSINESS INCOME . FOR EARNING ANY BUSINESS INCOME ASSESSEE HAS TO INCUR EXPENSES TOWARDS THAT EARNING OF INCOME ALSO. IN VIEW OF THIS WE UPHOLD THE ACTION OF THE CIT(A) IN ALLOWING EXPENSES RELATABLE TO EARNING THE BUSINESS INCOME. 9. ONCE WE AGREE IN PRINCIPLE THAT THE ASSESSEE HAD TO BE GIVEN THE BENEFIT OF EXPENSES WHICH ARE DIRECTLY RELATABLE TO THE EARNIN G OF INCOME, THE ONLY ISSUE REMAINING TO BE SEEN IS THE QUANTUM OF SUCH EXPENSE S TO BE ALLOWED. FROM THE PERUSAL OF THE ORDER OF CIT(A), IT CAN BE SEEN THA T HE HAS ANALYZED EACH AND EVERY EXPENSE CLAIMED BY THE ASSESSEE. HE HAS NOT B LINDLY GIVEN RELIEF TO THE ASSESSEE AND HAS DONE THE SAME AFTER DUE APPLICATIO N OF MIND. AFTER THAT HE HAS ALSO DISALLOWED CERTAIN EXPENSES WHICH ACCORDING TO HIM WAS NOT ALLOWABLE TO THE ASSESSEE AS PER LAW. DURING THE COURSE OF HEARING, NO ARGUMENTS ON BEHALF OF THE DEPARTMENT, AS REGARDS THE INDIVIDUAL ITEMS OF EXPE NSES AND THEIR ALLOWABILITY WERE MADE. IN VIEW OF THE SAME WE DO NOT FIND ANY I NFIRMITY IN THE ORDER OF THE CIT AND HEREBY CONFIRM THE SAME. 9. THE APPEAL OF THE DEPARTMENT AS WELL AS THE CROS S OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/08/2015 SD/- SD/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 31 ST AUGUST, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 6