Income Tax Officer-(Exeption), Lucknow V. M/s The Himalayan Public School Sewa Sansthan, Lucknow

ITA 777/LKW/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1502 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 12-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution
• Section: 143(3); 12A; 11

Judgement Text

I.T.A. NO.777/LKW/2017 ASSESSMENT YEAR:2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI A. D. JAIN, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ITA NO.777/LKW/2017 ASSESSMENT YEAR:2013-14 INCOME TAX OFFICER (EXEMPTION) LUCKNOW. VS. M/S THE HIMALAYAN PUBLIC SCHOOL SEWA SANSTHAN, HOUSE NO. 86, MAQDOOMPUR, POST-CHINHAT, GOMTI NAGAR, LUCKNOW. PAN:AABAT 4174 A (APPELLANT) (RESPONDENT) O R D E R PER T. S. KAPOOR, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LEARNED CIT(A)-4, LUCKNOW DATED 23/10/2017 PERTAINING TO AS SESSMENT YEAR 2013- 2014. IN THIS APPEAL THE REVENUE HAS TAKEN THE FOL LOWING GROUNDS OF APPEAL: 1. THE LD. CIT(APPEAL)-4, LUCKNOW HAS ERRED ON FAC TS AND LAW IN ALLOWING THE DEDUCTION ON ACCOUNT OF SUNDRY DEBTORS OF RS.1,19,85,796/- FROM GROSS INCOME. THE ASSESSEE SOCIETY MAINTAINS ACCOUNTS ON MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE, INCOME RECEIVED OR ACCRUED FORMS PART OF THE GROSS INCOME. APPELLANT BY SHRI C. K. SINGH, D.R. RESPONDENT BY SHRI ASHISH RAJ SHUKLA, ADVOCATE DATE OF HEARING 11/03/2019 DATE OF PRONOUNCEMENT 15 / 0 3 /201 9 I.T.A. NO.777/LKW/2017 ASSESSMENT YEAR:2013-14 2 2. THE LD. CIT(APPEAL)-4, LUCKNOW HAS ERRED ON FACT S AND LAW IN ALLOWING THE DEDUCTION OF RS.1,51,85,569/- O N ACCOUNT OF DECREASE IN CURRENT LIABILITIES. THE ASS ESSEE SOCIETY MAINTAINS ACCOUNTS ON MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE, PAYMENT OF EXPENSES AND SUND RY CREDITOR FOR EXPENSES ETC. HAVE ALREADY BEEN CLAIME D IN EARLIER YEARS AND SHOWN AS PAYABLE UNDER THE HEAD 'LIABILITIES' AND ALSO CANNOT BE TERMED AS REPAYMEN T OF LOAN. 2. THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE AS SESSEE IS RUNNING EDUCATIONAL INSTITUTION IN THE NAME OF THE HIMALAYA N INSTITUTE OF TECHNOLOGY AND MANAGEMENT AND IS REGISTERED U/S 12A OF THE ACT . THE ASSESSEE HAS SHOWN GROSS RECEIPTS OF RS.4,67,50,110/-. OUT OF A BOVE GROSS RECEIPTS, THE ASSESSEE REDUCED AN AMOUNT OF RS.1,19,85,796/- BEIN G INCREASE IN DEBTORS. THE ASSESSEE FURTHER CLAIMED AS APPLICATION OF INCO ME TOWARDS CHARITABLE PURPOSE DECREASE IN CURRENT LIABILITIES TO THE TUNE OF RS.1,51,85,569/-. THE ASSESSING OFFICER HELD THAT DEDUCTION OF RS.1,19,85 ,976/- ON ACCOUNT OF INCREASE IN SUNDRY DEBTORS FROM GROSS INCOME AND DE DUCTION OF RS.1,51,85,569/- ON ACCOUNT OF DECREASE IN LIABILIT IES IS NOT ALLOWABLE AS ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING. AGGRIEVED WITH THE ACTION OF ASSESSING OFFICER, THE ASSESSEE CARRI ED THE MATTER IN APPEAL BEFORE LEARNED CIT(A) WHO ALLOWED RELIEF TO THE ASS ESSEE. NOW THE REVENUE IS IN APPEAL BEFORE US. 3. ARGUING ON GROUND NO. 1, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE RUNS EDUCATIONAL INSTITUTION FOR WHIC H BOOKS OF ACCOUNT WERE MAINTAINED WHICH WERE AUDITED BY CHARTERED ACCOUNTA NTS AND WERE PRODUCED BEFORE THE ASSESSING AUTHORITY AND NO MIST AKE WAS NOTICED. IT WAS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERAT ION THERE IS INCREASE IN SUNDRY RECEIVABLES TO THE TUNE OF RS.1,19,85,795/- WHICH HAS BEEN DEDUCTED FROM GROSS RECEIPTS BY THE ASSESSEE AS THE PART OF INCOME HAS NOT BEEN I.T.A. NO.777/LKW/2017 ASSESSMENT YEAR:2013-14 3 RECEIVED DURING THE FINANCIAL YEAR. THE ASSESSING OFFICER HAS DISALLOWED THE SAME ON THE GROUND THAT ASSESSEE WAS FOLLOWING MERC ANTILE SYSTEM OF ACCOUNTING WHEREAS THE APPLICATION OF FUND CAN ONLY BE DONE ONCE THEY ARE ACTUALLY RECEIVED. LEARNED A. R. SUBMITTED THAT EX PLANATION 2 TO SECTION 11(1) CLEARLY STATES THAT WHERE THE INCOME HAS NOT BEEN RECEIVED DURING A YEAR THEN THE ASSESSEE CAN APPLY THAT INCOME FOR CH ARITABLE PURPOSE DURING THE YEAR IN WHICH IT IS RECEIVED. AS REGARDS THE O THER ISSUE REGARDING TREATING THE DECREASE IN CURRENT LIABILITIES AS APP LICATION FOR CHARITABLE PURPOSES, THE LEARNED A. R. SUBMITTED THAT CBDT CIR CULAR NO. 100 DATED 24/01/2017 CLARIFIES THAT REPAYMENT OF LOAN TAKEN F OR FULFILLMENT OF THE OBJECTS OF THE TRUST WILL AMOUNT TO APPLICATION OF INCOME. THE LEARNED A. R. HEAVILY PLACED RELIANCE ON THE ORDER OF LEARNED CIT (A) AND ALSO RELIED ON THE CASE LAWS RELIED BEFORE HIM. 4. LEARNED D. R., ON THE OTHER HAND, SUPPORTED THE ORDER OF ASSESSING OFFICER. 5. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT ASSESSING OFFICER H AD MADE ADDITION OF RS.1,19,85,796/- ON ACCOUNT OF SUNDRY DEBTORS FROM GROSS INCOME FOR THE REASON THAT THE ASSESSEE WAS FOLLOWING MERCANTILE S YSTEM OF ACCOUNTING. WHEN THE ASSESSEE WENT BEFORE LEARNED CIT(A), THE L EARNED CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: 5.2 ADDITION/DISALLOWANCE OF RS.1,19,85,796(SUNDRY DEBTORS) THE APPELLANT HAD REDUCED RS.1,19,85,796/- FROM THE GROSS RECEIPTS BEING SUNDRY RECEIVABLES FOR THE REASON TH AT THIS PART OF INCOME WAS NOT RECEIVED DURING THE F.Y. THE APPE LLANT HAS CONTENDED THAT APPLICATION OF FUNDS CAN ONLY BE MAD E/DONE ONCE THE INCOME IS RECEIVED. IN ABSENCE OF RECEIPT OF INCOME THE APPLICATION OF INCOME CANNOT BE DONE. IN THIS CONNE CTION THE I.T.A. NO.777/LKW/2017 ASSESSMENT YEAR:2013-14 4 RELEVANT PROVISION OF THE ACT IS EXPLANATION(2) TO SECTION 11(1) OF THE ACT. THE SAID PROVISION IS REPRODUCED AS UNDER: - EXPLANATION 2 TO SECTION 11(1) OF INCOME TAX ACT, 1 961 SAYS:- IF, IN THE PREVIOUS YEAR, THE INCOME APPLIED TO CHA RITABLE OR RELIGIOUS PURPOSES IN INDIA FALLS SHORT OF [EIGHTY- FIVE] PER CENT OF THE INCOME DERIVED DURING THAT YEAR FROM PR OPERTY HELD UNDER TRUST, OR, AS THE CASE MAY BE, HELD UNDE R TRUST IN PART, BY ANY AMOUNT (II)FOR THE REASON THAT THE WHOLE OR ANY PART OF TH E INCOME HAS NOT BEEN RECEIVED DURING THAT YEAR, OR (II)FOR ANY OTHER REASON, THEN (C) IN THE CASE REFERRED TO IN SUB-CLAUSE (I), SO M UCH OF INCOME APPLIED TO SUCH PURPOSES IN INDIA DURING THE PREVIOUS YEAR IN WHICH THE INCOME IS RECEIVED OR DU RING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING AS DOES NOT EXCEED THE SAID AMOUNT, AND (D) .............................................. ................ 5.3 A PERUSAL OF ABOVE CLARIFIES THAT IF ANY PART O F AN INCOME IS NOT RECEIVED DURING THE YEAR AND IS ACTUALLY RECEIV ABLE THEN THE ASSESSEE CAN APPLY THAT INCOME IN THE YEAR IN WHICH IT IS ACTUALLY RECEIVED. THE APPELLANT HAS BEEN MAINTAINING BOOKS OF ACCOUNT WHICH ARE DULY AUDITED AND WERE PRODUCED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS AND NO INFIRMITY OR OMISSION S WERE POINTED OUT BY THE AO IN HIS ASSESSMENT ORDER. THE BOOKS OF ACCOUNT HAVE BEEN ACCEPTED AS SUCH. THE APPELLANT I S FOLLOWING THE SIMILAR METHOD OF ACCOUNTING AS IN THE PRECEDIN G YEARS AND THE SAME HAVE ALSO BEEN ACCEPTED BY THE ASSESSING A UTHORITY. THE APPELLANT PRODUCED A COPY OF ASSESSMENT ORDER U /S 143(3) OF THE ACT FOR A.Y. 2011-12 MADE BY ITO-1(4), LUCKN OW, IN WHICH THE MYTHOLOGY OF ACCOUNTING WAS DISCUSSED AND WAS ACCEPTED. THE AO HAS NOT GIVEN ANY FINDINGS OR REASONS FOR DEVIATING FROM THE EARLIER POSITION. THE AO HAS NOT BROUGHT ANYTHING ON THE RECORD TO WARRANT THE DISALLOWANCE. FURTHERMORE I.T.A. NO.777/LKW/2017 ASSESSMENT YEAR:2013-14 5 THE APPELLANT SOCIETY HAS BEEN MAINTAINING ITS BOOK S OF ACCOUNT IN THE SIMILAR METHOD IN THE PAST AND THE FOLLOWING YEARS AND THE DEPARTMENT HAS ACCEPTED THE SAME WITHOUT ANY DISALL OWANCE BEING MADE. THE HON'BLE APEX COURT IN THE MATTER OF RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321 (SC) HAS OBSERVED AS UNDER:- '16 WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING RESJUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDING S. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS D ECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERE NT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY O R THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NO T BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGES IN A SUBSEQUENT YEAR.' IN VIEW OF THE ABOVE DISCUSSION THE ADDITION MADE B Y THE AO IS FOUND TO BE UNJUSTIFIED AND IS HEREBY DELETED. 5.1 WE FIND THAT LEARNED CIT(A) HAS DEALT WITH THE ISSUE EXHAUSTIVELY AND HAS RIGHTLY DELETED THE ADDITION WHICH THE ASSESSIN G OFFICER HAD WRONGLY MADE. WE FURTHER FIND FROM THE ANALYSIS OF BALANCE SHEET, PLACED AT PAPER BOOK PAGE 5 THAT AMOUNT OF SUNDRY DEBTORS AS COMPAR ED TO EARLIER YEAR DID INCREASE BY RS.1,19,85,796/-. WE AGREE WITH THE FIN DINGS OF LEARNED CIT(A) THAT THE ASSESSEE SOCIETY HAS BEEN MAINTAINING ITS BOOKS OF ACCOUNT IN THE SIMILAR METHOD IN THE PAST AND THE FOLLOWING YEARS AND THE DEPARTMENT HAS ACCEPTED THE SAME WITHOUT ANY DISALLOWANCE BEING MA DE. IN VIEW OF THE ABOVE, GROUND NO. 1 OF THE APPEAL IS DISMISSED. 6. AS REGARDS THE SECOND ISSUE, WE FIND THAT ASSESS ING OFFICER HAD MADE ADDITION OF RS.1,51,85,569/- ON THE GROUND THAT DEC REASE IN CURRENT LIABILITY IS NOT ALLOWABLE AS AN APPLICATION FOR CHARITABLE P URPOSES FOR THE REASON THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING. WHEN THE I.T.A. NO.777/LKW/2017 ASSESSMENT YEAR:2013-14 6 ASSESSEE WENT BEFORE LEARNED CIT(A), THE LEARNED CI T(A) DELETED THE ADDITION BY OBSERVING AS UNDER: 5.4 ADDITION OF RS.1,51,85,569/- (ON ACCOUNT OF DE CREASE IN CURRENT LIABILITIES) THE AO IN HIS ASSESSMENT ORDER HAS STATED THAT THE DEDUCTION OF RS.1,51,85,569/- ON ACCOUNT OF DECREASE IN CURRE NT LIABILITY IS NOT ALLOWABLE AS THE ASSESSEE IS MAINTAINING ITS AC COUNT ON MERCANTILE SYSTEM OF ACCOUNTING. THE APPELLANT HAD MADE PAYMENT OF CURRENT LIABILITIES DURING THE FINANCIAL YEAR AND CLAIMED THAT SUCH REPAYMENT IS ACTUALLY AN APPLICAT ION OF FUNDS FOR CHARITABLE PURPOSE. THE CBDT VIDE ITS CIRCULAR NO. 100 DATED 24.01.1973 HAS ACCEPTED THAT REPAYMENT OF LOAN, ORIGINALLY TAKEN T O FULFILL THE OBJECT OF THE TRUST, WILL AMOUNT TO AN APPLICATION OF INCOME FOR CHARITABLE AND RELIGIOUS PURPOSES. IN THE CASE OF CIT VS. MAHARANA OF MEWAR CHARITABLE FOUNDATION (1987) 164 ITR 439(RAJ.) IT IS HELD THAT SECTION 11 OF THE INCOME TAX ACT DOES NOT LIMITS THE APPLICATI ON OF INCOME ONLY IN THE YEAR IN WHICH THE, INCOME HAS ARISEN. I T WAS ALSO OBSERVED BY THE COURT THAT IF A LOAN IS TAKEN FOR T HE PURPOSE OF INCURRING EXPENDITURE FOR CHARITABLE AND RELIGIOUS PURPOSES IN A PARTICULAR YEAR AND THE LOAN IS REPAID OUT OF THE I NCOME OF THE SUBSEQUENT YEAR, THE REPAYMENT WOULD BE ENTITLED TO EXEMPTION FROM TAX U/S 11(1)(A) OF THE ACT. SIMILAR VIEWS HAV E BEEN TAKEN IN THE FOLLOWING JUDGMENTS:- 1. CIT VS. MANTRI SEVA TRUST (2003) 128 TAXMANN 261 (MAD.) 2. CIT VS. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL (1995) 2011 ITR 239(GUJ.) 3. CIT VS. JANM BHUMI PRESS TRUST 242 ITR 457. THE APPELLANT SOCIETY HAS BEEN MAINTAINING ITS BOOK S OF ACCOUNT IN A SIMILAR METHOD AND THE SAME HAS BEEN ACCEPTED BY THE ASSESSING OFFICER IN PREVIOUS YEARS. THE AO HAS NOT GIVEN ANY COGENT FINDINGS OR REASONS FOR DEVIATING FROM THE S AME. FOLLOWING THE DISCUSSION MADE IN THE ABOVE PARA AND IN PARA NO. 5.3 OF THIS ORDER, I FIND THAT THE ADDITIONS MA DE BY THE AO I.T.A. NO.777/LKW/2017 ASSESSMENT YEAR:2013-14 7 ARE UNSUSTAINABLE AND HENCE ARE DELETED. THE APPELL ANT GETS CONSEQUENTIAL RELIEF. 6.1 WE FIND THAT LEARNED CIT(A) HAS DEALT WITH THE ISSUE EXHAUSTIVELY AND HAS RIGHTLY DELETED THE ADDITION WHICH THE ASSESSIN G OFFICER HAD WRONGLY MADE. WE AGREE WITH THE FINDINGS OF LEARNED CIT(A) THAT THE ASSESSEE SOCIETY HAS BEEN MAINTAINING ITS BOOKS OF ACCOUNT I N THE SIMILAR METHOD IN THE PAST AND THE FOLLOWING YEARS AND THE DEPARTMENT HAS ACCEPTED THE SAME WITHOUT ANY DISALLOWANCE BEING MADE. FOR THE YEAR UNDER CONSIDERATION THE ASSESSING OFFICER HAS NOT GIVEN ANY COGENT FINDINGS OR REASONS FOR DEVIATING FROM THE SAME. IN VIEW OF THE ABOVE, GROUND NO. 2 O F THE APPEAL IS ALSO DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 15/03/2019) SD/. SD/. ( A. D. JAIN ) ( T. S. KAPOOR ) VICE PRESIDENT ACCOUNTANT MEMBER DATED:15/03/2019 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSISTANT REGISTRAR