Dy.Director of Income Tax, (Exemptions) - I, Hyderabad V. Sports Authority of Andhra Pradesh, Hyderabad

ITA 871/HYD/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6172 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 09-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Keywords: Retrospective amendment
• Section: 12A; 12AA; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.871/HYD/2014 ASSESSMENT YEAR 2007-2008 DY. DIRECTOR OF INCOME TAX (EXEMPTIONS)-I, HYDERABAD. VS. SPORTS AUTHORITY OF ANDHRA PRADESH, HYDERABAD. PAN ABLFS1228G (APPELLANT) (RESPONDENT) FOR REVENUE : MR. M. SITARAM FOR ASSESSEE : MR. MOHD. AFZAL DATE OF HEARING : 07.01.2016 DATE OF PRONOUNCEMENT : 14 .01.2016 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS A REVENUE APPEAL AGAINST THE ORDER OF THE LD. CIT(A), GUNTUR DATED 13.01.2014. THE REVENU E HAS RAISED THE FOLLOWING TWO GROUNDS IN ITS APPEAL : 2. THE LD. CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE FOLLOWS CASH SYSTEM OF ACCOUNTING, WHEN IN THE AUDITOR'S REPORT DATED 16-5-2008 FOR THE ACCOUNTING YEAR ENDED ON 31-3-2007, IN ANNEXURE1 (OBSERVATION & REMARKS), IN PARA 10, IT HAS BEEN REPORTED THAT THERE ARE NO WELL- DEFINED ACCOUNTING POLICIES IN EXISTENCE AND MOREOVER THE ASSESSEE IS 'FOUND TO BE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, AS EVIDENT FROM 'CURRENT LIABILITIES & PROVISIONS' SHOWN 2 ITA.NO.871/HYD/2014 SPORTS AUTHORITY OF ANDHRA PRADESH, HYDERABAD. UNDER SCHEDULE-5 TO THE AUDITED BALANCE SHEET AS ON 31-3-2007, FILED BY THE ASSESSEE. 3. THE LD. CIT(A) IS NOT JUSTIFIED IN ALLOWING DEDUCTION FOR AN AMOUNT OF RS.L,70,00,000/-, CLAIMED UNDER PRIOR PERIOD EXPENSES, TOWARDS SERVICE CHARGES PAYABLE TO M/S. GLOBAL MEDIA SOLUTIONS, WHEN THE SAID AGENCY HAS BEEN APPOINTED BY THE ASSESSEE (SAAP) ITSELF FOR CONDUCTING INTERNATIONAL CHESS EVENT IN 20051 AND THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, AS EVIDENT FROM ITS AUDITED ACCOUNTS, STATED IN THE GROUND NO.2 ABOVE. 2. BRIEFLY STATED, ASSESSEE IS ESTABLISHED UNDER THE SPORTS AUTHORITY OF ANDHRA PRADESH ACT, 1988 BY THE GOVERNMENT OF ANDHRA PRADESH. IT IS AN AUTONOMOUS INSTITUTION AND WAS EXEMPTED FROM TAXATION UP TO A. Y. 2002-03 BY THE AMENDMENT TO SECTION 10(23) AND LATE R ASSESSEE CAN CLAIM ITS EXEMPTION ONLY UNDER SECTION 11. INITIALLY, ASSESSEE HAS APPLIED FOR REGISTRATION UN DER SECTION 12A WHICH WAS SUBJECT MATTER OF APPEAL PROCEEDINGS SEPARATELY AND ULTIMATELY GOT REGISTRAT ION. IN THE MEANTIME, A.O. IN THE SCRUTINY ASSESSMENT CONSI DERED ASSESSEE AS AN ENTITY WHICH DOES NOT HAVE ANY REGISTRATION AND DISALLOWED EXPENDITURE STATED TO H AVE BEEN CATEGORIZED AS PRIOR PERIOD EXPENSES TO AN E XTENT OF RS.3,49,06,847 CONSISTING OF PRIOR PERIOD EXPENSES AT RS.1,71,83,500, PLAN EXPENSES (2004-05) AT RS.21,09 ,717 AND PLAN EXPENSES (2005-06) AT RS.1,56,13,630. 2.1. BEFORE THE LD. CIT(A), ASSESSEE SUBMITTED THA T IT HAS GOT REGISTRATION UNDER SECTION 12AA GRANTED BY THE 3 ITA.NO.871/HYD/2014 SPORTS AUTHORITY OF ANDHRA PRADESH, HYDERABAD. DIT W.E.F. 01.04.2007 AND THEREFORE, MOST OF ITS IN COME IS EXEMPT. WITH REFERENCE TO ADDITIONS MADE BY THE A.O . IT WAS SUBMITTED THAT AN AMOUNT OF RS.170 LAKHS WAS PA ID TO M/S. GLOBAL MEDIA SOLUTIONS WHICH WERE APPOINTED AS EVENT MANAGERS AS CHARGES FOR THEIR SERVICES WHICH WERE PAID DURING THE IMPUGNED FINANCIAL YEAR, BUT ACCOUN TED UNDER THE HEAD PRIOR PERIOD EXPENDITURE. AN AMOUN T OF RS.1,83,500 WAS BALANCE OF EXPENDITURE PAID TO VARI OUS DISTRICT SPORTS AUTHORITIES OUT OF THE TOTAL AMOUNT OF ADVANCES GIVEN AND EXPENDITURE BOOKED TO AN EXTENT OF RS.1,37,53,475. IT WAS SUBMITTED THAT ASSESSEE MAIN TAINS CASH SYSTEM OF ACCOUNTING AND THE EXPENDITURE WAS INCURRED DURING THE YEAR. WITH REFERENCE TO PLAN EXPENDITURE FOR 2004-05 AND 2005-06, IT WAS SUBMITT ED THAT THERE ARE TWO TYPES OF VOUCHING SYSTEM AND THE SE AMOUNTS WERE PAID ON A DIRECTION FROM GOVERNMENT OF A.P. AND SAAP IS ONLY A CONDUIT. IN RESPECT OF PLAN PAYMENTS, THE AMOUNTS ARE PAID TO DISTRICT SPORTS AUTHORITIES AND THE SAME WAS BOOKED AS AN EXPENDITU RE. SINCE THE ENTIRE EXPENDITURE WAS BOOKED IN THE IMPU GNED YEAR, THEY ARE ALLOWABLE AS AN EXPENDITURE DURING T HE YEAR EVEN THOUGH CATEGORISED AS PRIOR PERIOD EXPENSES. 3. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) DELETED THE ADDITIONS STAT ING AS UNDER : 6. THE APPELLANT IS AN AUTHORITY ESTABLISHED UND ER AN ACT OF THE ANDHRA PRADESH STATE ASSEMBLY AND FOL LOWS THE CASH SYSTEM OF ACCOUNTING AS IS THE PRACTICE AM ONGST ALL GOVERNMENT DEPARTMENTS. ALL THREE ADDITIONS MAD E 4 ITA.NO.871/HYD/2014 SPORTS AUTHORITY OF ANDHRA PRADESH, HYDERABAD. AND CONSEQUENTIALLY ALL FOUR GROUNDS OF APPEAL PERT AIN TO A SINGLE ISSUE REGARDING WHEN AN EXPENDITURE INCURR ED BY THE APPELLANT WOULD CRYSTALLIZE/FRUCTIFY. THE APPEL LANT HAS POINTED OUT THAT IT PAYS ADVANCE AMOUNTS TO VARIOUS DISTRICT COLLECTORS IN THE CASE OF PLAN EXPENSES AN D TO OTHER SERVICE PROVIDERS AND VENDORS, WHERE EVENTS A RE BEING ARRANGED. SUBSEQUENT TO UTILIZATION, THE APPE LLANT BODY RECEIVES VOUCHERS FOR THE EXPENSES INCURRED FR OM VARIOUS DISTRICT BODIES AND IT IS AT THIS STAGE THA T IT ACCOUNTS FOR THE EXPENDITURE INCURRED BASED ON THE VOUCHERS RECEIVED. HENCE, TILL UTILIZATION CERTIFIC ATES AND VOUCHERS WERE RECEIVED, THE AMOUNT GIVEN IS REFLECT ED ONLY AS AN ADVANCE AND IS NOT BOOKED AS EXPENDITURE. THE ASSESSING OFFICER HAS BROUGHT TO TAX THE EXPENDITUR E ~ CLAIMED AS PRIOR PERIOD EXPENSES AND ALSO PLAN EXPE NSES FOR THE YEARS 2004-05 AND 2005-06. AS POINTED OUT EARLIER, THESE EXPENSES HAVE BEEN CLASSIFIED AS PRI OR PERIOD EXPENSES BUT HAVE ACTUALLY CRYSTALLIZED. DUR ING THE CURRENT YEAR AS EVIDENCED BY THE RELEVANT ACCOUNTS SUBMITTED BY THE APPELLANT. ACCOUNTING STANDARD AS- 5 STATES AS UNDER : 'PRIOR PERIOD ITEMS REFERS ONLY TO INCOME OR EXPENS ES WHICH ARISE IN THE CURRENT PERIOD AS A RESULT OF ER RORS OR OMISSIONS IN THE PREPARATION OF THE FINANCIAL STATEMENTS OF ONE OR MORE PRIOR PERIODS. THE TERM DOES NOT INCLUDE OTHER ADJUSTMENTS NECESSITATED BY CIRCUMSTANCES, WHICH THOUGH RELATED TO PRIOR PERIOD ARE DETERMINED IN THE CURRENT PERIOD, EXAMPLE ARREARS PAYABLE TO WORKERS AS A RESULT OF REVISION OF WAGES WITH RETROSPECTIVE EFFECT DURING THE CURRENT YEAR. ' 7. THUS, ALTHOUGH THE EXPENSES HAVE BEEN CLASSIFIE D AS PRIOR PERIOD EXPENSES OR IN THE CASE OF PLAN EXP ENSES AN EARLIER PERIOD IS MENTIONED, THE FACT OF THE MAT TER IS THAT THESE ARE EXPENSES BOOKED IN THE CURRENT YEAR BY THE APPELLANT BODY AND IN VIEW OF THE ACCOUNTING NORMS FOLLOWED BY THE APPELLANT, THEY ARE EXPENSES FOR TH E CURRENT YEAR, WHICH HAVE CRYSTALLIZED IN THE CURREN T YEAR AND CANNOT BE CLASSIFIED AS PRIOR PERIOD ITEMS. IN VIEW OF THE SAME, THE ADDITIONS MADE BY THE ASSESSING OFFIC ER ARE DELETED AND THE APPEAL IS ALLOWED. 5 ITA.NO.871/HYD/2014 SPORTS AUTHORITY OF ANDHRA PRADESH, HYDERABAD. 4. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF T HE LD. CIT(A). FIRST OF ALL, THE GROUNDS RAISED BY THE REV ENUE ARE NOT MAINTAINABLE IN THE SENSE THAT NO SYSTEM OF ACC OUNT WAS MENTIONED FOR ACCOUNTING OF SOCIETIES/TRUSTS/ ASSOCIATIONS WHEN THE INCOMES ARE BEING CONSIDERED UNDER SECTION 11. PROVISIONS OF SECTION 145 OF IT A CT ARE APPLICABLE ONLY WHEN THE INCOMES ARE COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON OR UNDER OTHER SOURCES. SINCE ASSESSEE INCOMES CANNO T BE COMPUTED UNDER THOSE HEADS, THE SYSTEM OF ACCOUNTIN G SPECIFIED EITHER AS CASH OR MERCANTILE DOES NOT A PPLY TO ASSESSEE. MOREOVER, ASSESSEE IS ABLE TO ESTABLISH T HAT EXPENDITURE, EVEN THOUGH PERTAINING TO EARLIER YEAR , WAS CRYSTALLIZED DURING THE YEAR. EVEN ON ACCOUNTING PRINCIPLES SUCH EXPENDITURE IS ALLOWABLE IN THE YEA R OF CRYSTALLIZATION. REVENUE HAS NOT MADE OUT ANY CASE TO DIFFER FROM THE FINDINGS OF THE LD. CIT(A), WHOSE O RDER IS VERY CLEAR ON THE PRINCIPLES OF LAW AS WELL AS ON F ACTS. THEREFORE, REVENUE GROUNDS ARE REJECTED. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.01.2016. SD/- SD/- (SMT. P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 14 TH JANUARY, 2016 VBP/- 6 ITA.NO.871/HYD/2014 SPORTS AUTHORITY OF ANDHRA PRADESH, HYDERABAD. COPY TO 1. ASST. DIRECTOR OF INCOME TAX (EXEMPTIONS) - I, 3 RD FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD- 04. 2. SPORTS AUTHORITY OF ANDHRA PRADESH, A.P. OLYMPIC BHAVAN, L.B. STADIUM, HYDERABAD. 3. CIT(A), GUNTUR 4. CIT (EXEMPTIONS), HYDERABAD. 5. D.R. ITAT A BENCH, HYDERABAD 6. GUARD FILE