TaxTMI 
TaxTMI 
2018 (9) TMI 1693
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....ssessing officer acted arbitrarily, mis-interpreted the provisions as regards section 11 to 13 of the Income Tax Act.,1961 and added the amount of provision for loan loss of Rs. 31,07,127/-, Capacity Building Fund of Rs. 15,00,000/- and Education & Charity Fund of Rs. 25,00,000/- which is liable to be deleted being devoid of merit when the organization has been registered as a charitable organization under the Income Tax Act. So also, the Honourable 1st Appellate Authority who accepted the micro-finance activities as charitable but confirmed to addition of above expenses and / or provisions on the ground that the amount has not been paid without going into the details filed that : i) The provision for loan loss was based on voluntary comp....
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.... not been spent The expenditure incurred on account of education & charity fund is nothing but an application of income and the same is not related to the business activity of micro financing. In view of this, he disallowed Rs. 25,00,000/- towards education & charity fund, Rs. 31,07,127/- towards provision for loan loss and Rs. 15,00,000/- towards capacity building fund from the total expenses of the assessee. 6. On appeal, the CIT(A) confirmed the action of the Assessing Officer by observing as under: "The Assessing Officer has added back Rs. 31,07,127/- towards Provisions for future loss. The available data towards Provision for future loss on loans makes it evident that the provision made over the years is not based on the actual expe....
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....39;s case, the payments have already been made and the issue is about non-recovery. Expenditure will occur when the organisation formally forfeits the right to recover. A provision against future non-recovery is not a forfeiture of right to recover. Another issue to be contemplated here is that in a continuing organisation previous year's provision would become subsequent year's actual expenditure and therefore, in a commercial sense there is no need to treat notional provisions as charitable expenditure as in the long run the actual non-recovery will balance it out. In other words, if a provision is made in one year then the actual payment should happen in the subsequent year, therefore, under Section 11(1)(a) if the organisation i....
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.... right to recover was forfeited. Further, the appellant is a 'going concern' and continuing activities on year on year basis. Therefore, previous years provisions should have implications in subsequent years. However, no expenditures have been claimed for past years. A provision increases the net worth of. the organisation if it is not actually expended. In the case CIT v. Sacred Heart Church it was held that the assessee could claim bad debts pertaining to loans made in earlier years. The Court also referred to two decisions of this Court in the cases of (i) CIT v. Ganga Charity Trust Fund 119861 162 ITR 612 and (ii) CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust 1992) 198 ITR 598 and held as follows : "In view of the ....
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....appellant society. The appellant has not furnished any cogent evidence with cogent argument to justify the admissibility of the provisions as application of income for charitable purposes." 7. We have gone through the audited statement of account filed by the assessee at page Nos.53 to 73 of paper book. We find that from Pages 55,56,57 & 58 of paper book, copy of balance sheet and profit and loss account and schedules thereto are placed. It is observed that the assessee has transferred a sum of Rs. 31,07,126.97 to reserve for loan loss, Rs. 25,00,000/- to education and charitable fund and Rs. 15,00,000/- to capacity building fund. The respective balance carried forward thereafter in these funds is Rs. 58,65,198.35, Rs. 48,80,657/- and Rs.....