ADIT (E), New Delhi V. Goodearth Foundation, New Delhi

ITA 967/DEL/2013

• Counselvise Citation: 96720114 RSA 2013
• Duration Of Justice: 2 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 15-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Keywords: Charitable institution; Opportunity of being heard; Competent authority
• Section: 43B; 80G; 12A; 11

Judgement Text

1 ITA 967/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI KUL BHARAT : JUDICIAL MEMBER ITA NO. 967/DEL/2013 ASSTT. YR: 2009-10 ADIT(E), TC-II, VS. GOODEARTH FOUNDATION, NEW DELHI. 3 RD FLOOR, SELECT CITY WALK, A-3, DISTRICT CENTRE, SAKET, NEW DELHI. PAN: AAATG 5663 R. ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI P. DAM KANUNJNA SR. DR RESPONDENT BY : SHRI GAURAV JAIN ADV. SHRI SAMBHAV JAIN CA DATE OF HEARING: 03/03/2015. DATE OF ORDER : 04/03/2015. O R D E R PER S.V. MEHROTRA, A.M:- THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAIN ST CIT(A)S ORDER DATED 15-11-2012 RELATING TO A.Y. 2009-10. 2. THE ASSESSEE IS A SOCIETY REGISTERED U/S 12A AN D IS ALSO APPROVED U/S 80G OF THE I.T. ACT. THE ASSESSEE SOCIETY WAS ESTABLISHED AS GOODEARTH FOUNDATION WITH THE OBJECT OF SETTING UP OR ACQUIRING AND RUNNING A N INSTITUTION OR INSTITUTIONS FOR EDUCATION FOR THE BENEFIT OF THE PUBLIC, AS ONE OF THE OBJECTIVE. 2.1. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION TH E ASSESSEE FILED ITS RETURN OF INCOME, DISCLOSING NIL INCOME. IN COURSE OF ASSESSMENT PROCEEDINGS 2 ITA 967/DEL/2013 THE AO NOTED THAT ASSESSEE HAD CLAIMED THE PROVISIO NS FOR GRATUITY AND LEAVE ENCASHMENT FOR RS. 61,25,297/- AND RS. 14,13,556/- RESPECTIVELY IN THE APPLICATION OF INCOME. HE OBSERVED THAT SECTION 11 OF I.T ACT ALLOWS THE APPLICATION OF THAT INCOME WHICH IS APPLIED DURING THE YEAR AND ASSESSEE IS NOT ALLOWED TO MAKE PROVISIONS WHICH CANNOT BE ASCE RTAINED WITHOUT THEIR ACTUAL PAYMENT. FURTHER, THE COMMERCIAL SENSE APPLI ES IN CASE OF CHARITABLE INSTITUTIONS AS BUSINESS PRINCIPLES ARE NOT APPLICA BLE WHERE PROVISIONS OF GRATUITY AND LEAVE ENCASHMENT ARE NOT ALLOWED AS PE R SEC. 43B OF I.T. ACT. FURTHERMORE, AS ALL THE CHARITABLE INSTITUTIONS ARE RUN ON COMMERCIAL PRINCIPLES OR ON BUSINESS LINES EXCEPT THAT CERTAIN LIMITATIONS ARE THERE ON THEM VIS-A-VIS COMMERCIAL ORGANISATIONS, THEREFORE, GOING BY THE COMMERCIAL SENSE THE PROVISIONS OF GRATUITY AND LEAVE ENCASHME NT SHOULD NOT BE ALLOWED TO THE ASSESSEE. ACCORDINGLY, HE SHOW CAUSED THE AS SESSEE. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, AS REPRODUCED IN PARA 3 OF HIS ORDER, THE AO DISALLOWED THE ASSESSEES CLAIM, GIVING DETAILED RE ASONING IN PARAS 3.1 TO 3.4 OF HIS ORDER. THE MAIN REASONING WAS AS UNDER: (A) SECTION 11 FOR THE PURPOSE OF APPLICATION OF INCOME RECOGNIZES ONLY THOSE EXPENSES AS INCURRED DURING THE YEAR FOR WHIC H PAYMENT WAS MADE. (B) THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F BHARAT EARTH MOVERS LTD. VS. CIT 245 ITR 428 AND OTHER DECISIONS WERE NOT APPLICABLE AS THE ASSESSEE IS A CHARITABLE INSTITUT ION AND NOT A CORPORATE (C) THE ASSESSEE WHILE CREATING THE GRATUITY AND LEAVE ENCASHMENT PROVISION, HAD NOT DEPOSITED THEM IN A SEPARATE EAR MARKED FIXED DEPOSIT TO ESTABLISH THAT ACTUAL OUT FLOW FOR EARMA RKED PURPOSE AND 3 ITA 967/DEL/2013 EVEN HAD NOT CREATED SEPARATE GRATUITY AND LEAVE EN CASHMENT FUNDS IN THE BALANCE SHEET. THE ASSESSEE HAD NOT ESTABLISHED ANY APPROVED GRATUITY FUND, DULY APPROVED BY COMPETENT AUTHORITY , THE PAYMENTS TO WHICH WOULD HAVE ENTITLED IT FOR CLAIMING THEM AS E XPENSES. (D) NEITHER ANY SEPARATE CALCULATION OF AMOUNTS FOR EA CH EMPLOYEE WAS FURNISHED NOR HAS THE ASSESSEE FURNISHED ANY RESOLU TION CLEARLY PROVIDING THAT SAID AMOUNT WAS SPECIFICALLY AND NEC ESSARILY EARMARKED FOR GRATUITY AND LEAVE ENCASHMENT PAYMENTS. (E) THE ASSESSEE CREATED A CONTRADICTORY SITUATION BY S TATING AT THE ONE HAND THAT COMMERCIAL SENSE IS APPLICABLE WHILE CO MPUTING THE INCOME OF THE CHARITABLE INSTITUTIONS WHILE ON THE OTHER HAND IT IS STATED THAT SEC. 43B IS NOT APPLICABLE TO CHARITABL E INSTITUTIONS AS THEY ARE APPLICABLE FOR BUSINESS ORGANIZATIONS. 2.2. BEFORE LD. CIT(A), THE ASSESSEE HAD FILED DETA ILED WRITTEN SUBMISSIONS WHICH IS REPRODUCED IN PARA 2 OF HIS ORDER AND IN PARA 2.2 LD. CIT(A) HAS RECORDED FOLLOWING FINDINGS, GRANTING RELIEF TO THE ASSSESSEE ON THE PROVISIONS OF GRATUITY AND LEAVE ENCASHMENT: 2.2 GROUND NO.1 & 2 PERTAINS TO DISALLOWANCE OF PR OVISION FOR GRATUITY OF RS. 61,25,297/- AND DISALLOWANCE OF PRO VISION FOR LEAVE ENCASHMENT OF RS. 14,13,556/-. I HAVE GONE TH ROUGH THE FINDINGS OF THE AO IN THE ASSESSMENT ORDER AND' WRI TTEN SUBMISSION AS MENTIONED ABOVE. IN THIS REGARD, IT I S FOUND THAT ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG, WHEREIN, PROVISION IS ALLOWABLE IN THE YEAR IN WHICH LIABILI TY IS ACCRUED AND QUANTIFY NOTWITHSTANDING THE FACT THAT DISBURSE D AT A LATER STAGE. IN THE INSTANT CASE, I HAVE GONE THOUGH THE FINDING OF THE AO AND FOUND THAT PROVISION OF SECTION 43B IS NOT APPLICABLE TO CHARITABLE INSTITUTION WHICH HAS BEEN APPLIED BY THE AO ON THE PRETEXT THAT CHARITABLE INSTITUTION ALSO RUN ON COMMERCIAL PRINCIPLE AND HE HAS APPLIED THE RATIO OF SECTION 4 3B. THE 4 ITA 967/DEL/2013 FINDING OF THE AO IS TOTALLY MISCONCEIVED AND THOSE PROVISIONS WHICH ARE NOT APPLICABLE TO CHARITABLE INSTITUTIONS CANNOT BE INVOKED BY THE AO. 2.3. AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE US. 3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. A BARE PERUSAL OF AFORE-MENTIONED FINDING W OULD REVEAL THAT LD. CIT(A) HAS NOT GIVEN ANY REASONING TO DEFER FROM THE AOS REAS ONING AS TO WHY, WHILE APPLYING THE COMMERCIAL PRINCIPLE, SECTION 43B SHO ULD NOT BE APPLIED. UNLESS THE IMPUGNED ORDER BEFORE US HAS COMPLETE REASONING, IT IS NOT POSSIBLE TO APPRECIATE THE CORRECT POSITION ON THIS COUNT. WE, THEREFORE, SET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE THE MATTER BACK TO HIS FILE FOR PASSING A REASONED ORDER, AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE 4. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR S TATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 04/03/2015.. SD/- SD/- (KUL BHARAT ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 04/03/2015. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.