Bai Kabibai & Hansraj Morarji Charity ... vs Department Of Income Tax

आयकर अपीलीय अिधकरण, अिधकरण मुंबई Ûयायपीठ मुंबई ।

IN THE INCOME TAX APPELLATE TRIBUNAL "H " BENCH, MUMBAI

सव[ौी आई.पी.बंसल, Ûयाियक सदःय. एवं ौी राजेÛि, लेखा सदःय के सम¢ BEFORE SHRI I.P. BANSAL, JM AND RAJENDRA, AM

आयकर अपील सं./I.T.A. No.2019/MUM/2011 ( िनधा[रण वष[ / Assessment Year : 2007-08

I TO(E)-I(1) बनाम Bai Kabibai & Hansraj Morarji बनाम/ Room No.504, Piramal Charity Trust for A.Y.2007-08.

Vs. Chambers, 5 t h Floor, Parel, Lakhamsey Napoo Road, Mumbai - 12. Matunga, Mumba i 400 018.

ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAA TB0159K (अपीलाथȸ /Appellant) .. (ू×यथȸ / Respondent)

Appellant by Shri Jeetendra Kumar Respondent by Shri Jeetendra Kumar

सुनवाई कȧ तारȣख / Date of Hearing : 13/01/2015

घोषणा कȧ तारȣख /Date of Pronouncement : 13/01/2015

आदे श / O R D E R

PER I.P.BANSAL,J.M:

This is an appeal filed by the Revenue and it is directed against order passed by Ld. CIT(A)-1, Mumbai dated 07/10/2010 for assessment year 2007-08. Grounds of appeal read as under:

1. "On the facts and in the circumstances of the case, and in law, the Ld. CIT (Appeals) erred in directing the Assessing Officer to allow provision for gratuity of Rs.49,16,762/- in spite of the fact that provisions cannot be claimed as expenses in the trust and even as per provisions of Sec. 40A(7), provision for gratuity is allowable only for the purpose of payment on a sum by way of contribution towards approved gratuity fund."

2. "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to allow depreciation on fixed assets without appreciating the fact that the capital expenditure incurred on acquiring the assets has already been claimed as application of income u/s.11 of the IT. Act 1961 in the current / past years.

2 आयकर अपील सं./I . T . A . N o . 2 0 1 9 / M U M / 2 0 1 1 ( िनधा[रण वष[ / A s s e s s m e n t Y e a r : 2 0 0 7 - 0 8

3 "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not appreciating the fact that allowing of depreciation will result in double deduction which is contrary to the ratio laid down by the Hon'ble Supreme Court in the case of Escorts Ltd., v/s. Union of India 199 ITR 43 and J.K.Synthetics v/s. Union of India.(1920 65 TAXMAN 420 )."

4 "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not appreciating the fact that the deficit arises out of expenditure out of income on which exemption has already been claimed and allowing of set off of deficit of earlier year against income of current year will result in double deduction which is contrary to the ratio laid down by the Hon'ble Supreme Court in the case of Escorts Ltd., v/s UOI 199 ITR 43 and J.K. Synthetics v/s Union of India (1992) 65 TAXMAN 420."

2. Apropos Ground No.1, it was observed by the AO that the assessee had debited an amount of Rs.49,16,762/- on account of provision of gratuity. The assessee was required to explain the same. While disallowing the said amount it has been observed by AO that assessee in the present case has merely made an entry in its account of expenditure which is of contingent in nature. The disallowance made by the AO was contested in the appeal filed before Ld. CIT(A). It was submitted that the liability for staff gratuity was provided as per actuarial valuation report obtained by the assessee. It was on account of gratuity due to the employees as on 31/3/2007 based on services rendered by the employees. Thus, it was claimed that this amount is not mere provision but actual liability on account of gratuity. It was submitted that Trust has also paid this amount in the succeeding year to HDFC Standard Life Insurance group gratuity scheme. The assessee is following mercantile system of accounting, according to which the provision for gratuity was made. On such submissions of the assessee Ld. CIT(A) has given relief on the ground that the assessee trust has made payment in subsequent financial year to the HDFC Standard Life Insurance under the group gratuity scheme. He also accepted the submission of the assessee, subject to verification of AO, that instead of a sum of Rs.49,16,762/- the provision was made only to the extent of Rs.21,53,386/-. The Revenue is aggrieved, hence, has raised ground No.1.

3 आयकर अपील सं./I . T . A . N o . 2 0 1 9 / M U M / 2 0 1 1 ( िनधा[रण वष[ / A s s e s s m e n t Y e a r : 2 0 0 7 - 0 8

3. We have heard both the parties on this issue. The relief has been granted by Ld. CIT(A) on the ground that the assessee has made the payment of impugned sum in subsequent year. Ld. AR of the assessee was required to refer to the documents on the basis of which such findings has been recorded by Ld. CIT(A). Ld. AR was not able to submit the relevant documents. In such circumstances, we are left with no alternative other than to restore this issue to the file of AO to verify such contention of the assessee and if it is found that the impugned amount is based upon the actuarial valuation report and it is paid in subsequent year then no disallowance on this account should be made.

4. Apropos Ground No.2 & 3, it was submitted that these issues are covered in favour of the assessee by the decision of Hon'ble Bombay High Court in the case of assessee itself in respect of A.Y 2003-04, copy of this order is also filed in the paper book at pages 24 to 26, wherein their Lordships have observed that both the issues are covered by the earlier decision of Bombay High Court in the case of CIT vs. Institute of Banking Personnel Selection, 264 ITR 110 (Bom). For the sake of convenience the grounds for reopening of the assessment were stated as under:

"The assessment for the year under consideration was finalized by the then Assessing Officer, wherein based upon the Assessee's claim he allowed depreciation of Rs.68,04,426/-. The depreciation is claimed and allowed on the asset, the capital expenditure incurred in respect of which was allowed as exemption on account of application of income u/s.11 of the Income Tax Act, 1961. This act of the assessee amounts to claim of double deduction in contravention of the law laid by the Hon'ble Supreme Court of India in the case of Escorts Limited vs. UOI, 1999 ITR (43).

Further, the Assessee Trust has claimed deficit of Rs.15,72,000/- and which has been allowed by the Assessing Officer. Needless to say that the deficit arises on account of expenditure and application of funds over the receipts. The source of this expenditure and application of funds over the receipts of the Trust is a corpus fund and accumulation under section 11 of the IT Act, which has already been claimed and allowed as exemption u/s.11 of the I.T Act. This very act of the Assessee amounts to claim of double exemption contrary to the law laid down by the Hon'ble Apex Court cited in paragraph above.

I have therefore reason to believe that the cause of escapement of income within the meaning of section 147 of the Income Tax Act, 1961 is failure on the 4 आयकर अपील सं./I . T . A . N o . 2 0 1 9 / M U M / 2 0 1 1 ( िनधा[रण वष[ / A s s e s s m e n t Y e a r : 2 0 0 7 - 0 8

part of the Assessee Trust to make full and true disclosure of the material facts as far as both the above issue is concerned.

Their Lordships have observed that the issues raised by the Revenue in re- assessment proceedings were covered against the Revenue by the aforementioned decision of Bombay High Court in the case of CIT vs. Institute of Baking Personnel Section (supra). Those observations of their Lordships are reproduced below:

"5. Moreover, counsel on both sides agree that even on merits the question is covered against the revenue by the decision of this Court in the case of CIT vs. Institute of Banking reported in (2003) 264 ITR 110. In this view of the matter, the notice dated 24/03/2010 is quashed and set aside and in consequence thereof the reassessment order passed on 7/12/2010 pursuant to the aforesaid notice dated 24/03/2010 is also set aside."

4.1 In this view of the situation we find no infirmity in the relief granted by Ld. CIT(A) on account of Ground No.2 & 3 of the Revenue's appeal and they are dismissed.

5. Apropos Ground No.4, it was submitted that this issue is also covered by the decision of Hon'ble Bombay High Court in the case of CIT vs. Institute of Banking Personnel Section (supra), wherein following question was referred to their Lordships for decision:

"3.Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law forward the deficit of earlier year and set it off against the surplus of subsequent years when the same was not allowable in the case of assessee trust in whose case income exempted under section 11 of the Income-tax Act, 1961.?

Their Lordships have answered this question as under:

"5. Now coming to question No. 3, the point which arises for consideration is whether excess of expenditure in the earlier years can be adjusted against the income of the subsequent year and whether such adjustment should be treated as application of income in subsequent year for charitable purposes? It was argued on behalf of the Department that expenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilization of such income for meeting the expenditure of earlier years would not amount to application of income for charitable or religious purposes. In the present case, the Assessing Officer did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a Charitable Trust, their income was assessable 5 आयकर अपील सं./I . T . A . N o . 2 0 1 9 / M U M / 2 0 1 1 ( िनधा[रण वष[ / A s s e s s m e n t Y e a r : 2 0 0 7 - 0 8

under self-contained code mentioned in section 11 to section 13 of the Income- tax Act and that the income of the Charitable Trust was not assessable under the head profits and gains of business" under section 28 in which the provision for carry forward of losses was relevant. That, in the case of a Charitable Trust, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of subsequent years. We do not find any merit in this argument of the Department. Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the Trust for charitable and religious purposes in the earlier years against the income earned by the Trust in the subsequent year will have to be regarded as application of income of the Trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the Trust under section 11(1)(a) of the Act. Our view is also supported by the Judgment of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujzk Jain Mandal [1995] 211 ITR 293. Accordingly, we answer question No. 3 in the affirmative i.e., in favour of the assessee and against the Department."

6. Accordingly, after hearing both the parties we find no infirmity in the order of Ld. CIT(A) on account of Ground No.4. Ground No.4 is dismissed.

7. In the result, Revenue's appeal is partly allowed for statistical purposes in the manner aforesaid.

Order pronounced in the open court on 13/01/2015 .

आदे श कȧ घोषणा खुले Ûयायालय मɅ Ǒदनांकः 13/01/2015 को कȧ गई ।

Sd/- Sd/- राजेÛि (RAJENDRA) आई.पी.बंसल (I.P.BANSAL) लेखा सदःय /ACCOUNTANT MEMBER Ûयाियक सदःय /JUDICIAL MEMBER मुंबई Mumbai; Ǒदनांक Dated 13/01/2015 6 आयकर अपील सं./I . T . A . N o . 2 0 1 9 / M U M / 2 0 1 1 ( िनधा[रण वष[ / A s s e s s m e n t Y e a r : 2 0 0 7 - 0 8

आदे श कȧ ूितिलǒप अमेǒषत/Copy षत of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. ू×यथȸ / The Respondent. 3. आयकर आयुƠ(अपील) / The CIT(A)- 4. आयकर आयुƠ / CIT

5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai

6. गाड[ फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai

व.िन.स.Vm , Sr. PS