TaxTMI 
TaxTMI 
2018 (12) TMI 915
X X X X Extracts X X X X
X X X X Extracts X X X X
....04.2009; 2. Ld. Commissioner of Income Tax (A) has erred in law and facts by allowing the appeal of the assessee ignoring the fact that the activities of the assessee are commercial and in the nature of trade, commerce or business which qualifies under the advancement of an act of general public utility, therefore the object of the assessee does not fall within 'charitable purpose' as defined in section 2(15) of the Act; 3. Ld. Commissioner of Income Tax (A) has erred in law and facts by allowing the appeal of the assessee ignoring the fact that the Registration u/s 12A of the I.T. Act, 1961 to the assessee was granted for "Preservation, supervision and development of forest" and not for the exploitation of forest produce; 4. Ld. Commissioner of Income Tax (A) has erred in law and facts by deleting the addition/disallowance made by the AO on account of prior period expenses amounting to Rs. 6,63,812/-. 5. Ld. Commissioner of Income Tax (A) has erred in law and facts by allowing exemption u/s 11 of the I.T. Act ignoring the fact that the assessee is involved in the activities of trade/commerce/business and is as such hit by the provisions ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce of prior period expenses, Learned A. R. submitted that assessee though was following mercantile system of accounting but the liability for certain expenses had crystallized after the balance sheet date and that is why the assessee had recorded those expenses in the subsequent year. It was submitted that learned CIT(A) has 4 relied on a number of case laws and has rightly allowed relief to the assessee. 5. We have heard the rival parties and have gone through the material placed on record. We find that assessee was initially denied registration u/s 12AA of the Act and later on the application of the assessee for registration u/s 12A was granted as the assessee was held to be doing charitable activity. The matter regarding registration has attained finality when Hon'ble Supreme Court dismissed the appeal of Revenue. These facts have been noted by learned CIT(A) in his order. For the sake of completeness, we reproduce these facts from the order of learned CIT(A) as under: "(i) The appellant furnished an application under Section 12AA of the Act with the Office of the Commissioner of Income-Tax, Lucknow on 11-07-1988 for seeking registration under Section 12A of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The Hon'ble Tribunal was directed to decide the grant of registration against the order passed by the Commissioner rejecting the application filed under section 12A of the Act without being influenced by any of the findings recorded by the Hon'ble High Court in the impugned order. (vi) In pursuance of the directions of the Hon'ble Supreme Court in case reported under citation no 165 TAXMAN 533, the Hon'ble Income-Tax Appellate Tribunal at Lucknow in I.T.A No 512/LUC/2007 vide order dated 16-01-2009 has proceeded to grant the registration under Section 12A of the Act with its findings that appellant is doing a charitable activity Which encompasses the "Object of General Public Utility. It is important to point out here that the subject order / finding of the-Hon'ble ITAT is after taking into account that the Hon'ble Tribunal is not required to be influenced by the findings of the Hon'ble High Court at Allahabad. The order of the Hon'ble 6 ITAT granting registration has attained finality pursuant to dismissal of the appeal preferred by the Department both at Hon'ble Jurisdictional Allahabad High Court in case no ITA No 70 of 2009 bearing d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mercial in nature and cannot be construed for no profit. b) In this regard I have gone through the submissions of the appellant as well as he provisions of the Act as relevant for the AY under considerations. On perusal of the provisions of Section 2(15) of the Act for the year under consideration, I find that the phrase "not involving activities for profit", was deleted by way of Finance Act 1983 w.e.f 1 -4-1984 and the same was reintroduced in the Act by way of Finance Act 2008 w.e.f 1-04-2009. During the period 1-4-1984 to 31-3-2009 there was no provision in the Act which qualified the charitable activities by "not involving activities for profit". Hence I am of the view that the AO has interpreted a meaning while framing the assessment of a term which was not part of the Act for the period under consideration and therefore the contention of the appellant that the AO has travelled beyond the scope of the provisions of the Act are true. c) Further, AO has also pointed out in the assessment order that the activities of the appellant are covered by CBDT Circular No. 11/2008, dated 19-12-2008. is also incorrect in the facts in hand because the subject circular rela....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e the Hon'ble High Court the appellant was not having a registration under 12A of the Act. In appeal, the Hon'ble Supreme Court also in the appellant's own case reported under (165 Taxman 533) has that for availing the benefits of section 11 of the Act that the registration under section 12A is the prerequisite. This appeal before the Hon'ble Supreme Court was in form of an SLP preferred by the Appellant against order of the Hon'ble Allahabad High court dated 26.11.2002. Since the appeal for deciding the grant of registration under Section 12A of the Act was pending before the Tribunal, the Hon'ble Supreme Court has further held that Tribunal is required to consider appeal without getting influenced by the decision of the Hon'ble High Court. The relevant clause of the Judgment is reproduced below: "14. In view of the dismissal of these appeals, the appeals filed by the revenue also stand dismissed. However, in order to protect the interest of the assessee as well as the revenue, we direct the Tribunal, before whom the appeals are pending against the order passed by the Commissioner rejecting the application filed under section 12A ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....002 and denied the exemption claimed u/s 11 of the Act. The order of Hon'ble ITAT in appellant's case was passed on 16.01.2009 (i.e. much after the Hon'ble High Courts order dated 26.11.2002). The Hon'ble ITAT vide the said order held that the activities of the appellant are charitable in nature. The said order was passed by Hon'ble ITAT on direction of Hon'ble Apex Court that application filed u/s 12A be taken up on priority and be decided expeditiously without being influenced by any of the findings recorded by the Hon'ble High Court in the impugned order. In view of these facts and judgments, the grounds of appeal No. 5 and 6 are allowed." The said findings of learned CIT(A) are crystal clear and do not require any interference. Therefore, Ground No. 1 & 2 of the Revenue's appeal are dismissed. 7. Now coming to ground No. 3 & 5 of the appeal by which the Revenue has agitated that the assessee was granted 12A registration for preservation, supervision and development of forest and not for the exploitation of forest produce. We find that learned CIT(A) has dealt this issue in para 5.1 of his order and has held as under: "5.1 After examining t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n commercial lines as the same is banned by the Hon'ble 12 Supreme Court. The activities under taken by the appellant are moreover guided by the Forest Policy and can be said to be for the preservation of the environment. The books of accounts of the appellant are placed before the State Legislature as well as audited by the CAG where in no such qualification has been brought out that the appellant is engaged in any sort of activity which can be construed to be against its objects as well as conducted on commercial lines d) I also find much force in the arguments placed before me in holding out that the activities as undertaken by the appellant pertaining to removal and disposal of trees and exploitation of forest resources has been held to be in the nature of preservation of environment by the Hon'ble ITAT Lucknow in appellants own case vide findings contained under para no 24 to para 29 of its order in I.T.A No 512 /LUC/2007 decided on 16-01.2009 in the course of granting registration under 12A of the Act. The extracts of the said para's are reproduced below : "24. Hearing the rival submissions, we are of the view that the appeal of the assessee is t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1 States formed Forest Corporation and in pursuance to the above report, U.P. Forest Corporation was constituted through ordinance on 25.11.1974 cannot be overruled. This Corporation is almost similar to the one established by the Andhra Pradesh Forest Development Corporation Limited. We have already noted hereinabove that the Corporation was established for better preservation, supervision and development of forests and better exploitation of forest produce within the state and for matters with it and not for any commercial activity true and simple if at all. Clause 17 deals with Finance, Accounts and audit of the Corporation reads as under makes it clear that the funds could only be utilised by the Corporation in the discharging of its function and not for any other purposes: 17.(1). The Corporation shall have its own fund which shall be a local fund and to which shall be credited all money received by or on behalf of the Corporation. (2). The fund shall be applied towards meeting expense incurred by the Corporation in the discharge of its functions under this Act and for no other purposes. (3). The Money of the Fund shall be kept in the State Bank of I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the annual report for the period 1.10.1975 to 30.09.1976 relevant for assessment year 1977-78 has been recorded at page 7 of the paper book-l which reads as under: "Note: "5. Profit, however, is not the only criterion by which the performance of a public sector undertaking has to be judged. A very important yardstick is the fulfillment of the social obligations cast upon it within the broad perspective of the country's planning policy and objectives. The Corporation is engaged in taking over progressively the felling and transport operation of tress from private contractors. The labour engaged by the bigger contractors, the so called "Maldars", in the hills has been held in bondage for years and grossly exploited in a variety of ways. They had a stronghold on them and in the initial phases of the Corporation's working in the hills, it was difficult to loosen these bonds of Slavery. It is to the credit of some of the dedicated social workers of the areas and the staff of the Corporation that the fetters are breaking down and freed labour are coming over to the Corporation in ever increasing numbers. The Corporation has ensured minimum wages, wholesome rations, medic....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., appeal is dismissed in limine." Hon'ble Supreme Court in SLP No CC 2590/2011 bearing date 12-05-2011 "This petition was called on for hearing today. ........................................................................... Upon hearing Counsel, the Court made the following ORDER Delay Condoned. The special leave petition is dismissed" f) Further my attention has also been drawn towards the finding of the Hon'ble ITAT, Lucknow in appellants own case reported under ITA No.785/Luc/05 and decided on March 6, 2009 wherein the Hon'ble ITAT has allowed the exemption to the appellant for AY 2002-03 after recording its findings under para 5 of the ruling. The same is reproduced below: "After hearing the ld. AR and the Id DR and respectfully following the above order of the Tribunal, we hold that assessee is a charitable institute entitled to registration u/s 12A as well as exemption in accordance with Section 11 and 13. Therefore, this issue is decided in favour of the assessee" g) It was also brought to my knowledge that the subject order of the ITAT on this finding has not been challenged before the Hon'ble Allahaba....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e expenses pertain to prior period and were accordingly disallowed as prior period expenses. The AO in the assessment order has pinpointed out that the appellant should have made a provision in its accounts for that year in which the purchase price/royalty was to be paid. The AO further stated that the appellant is following mercantile system of accounting, therefore, these expenses were disallowed. (b) In this regard the appellant has submitted that the said amount of Rs. 6,63,812 cannot be considered as a Prior period expenses in light of the fact that such amount is only determinable and crystallised after the close of the Financial Year i.e. the said expenses had not crystallized at the close of the relevant Financial Year. (c) During the course of appellate proceedings it was submitted that the basis -of determining this expense is a certain percentage which is decided In the Committee meeting held after close of the Financial Year. Therefore, the said amount is crystallized in the subsequent F.Y. in which it is determinable. The appellant in his replies has given a thrust on the time period when these expense are crystallized and thereafter only the same can....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. vi) Similar findings have also been given in the following Judgments of Hon'ble High Court: * Hon'ble High Court Of Delhi In the case of Commissioner of Income-tax, New Delhi v. Shri Ram Pistons & Rings Ltd(174 TAXMAN 147) * Hon'ble High Court Of Delhi in the case of Commissioner of Income-tax v. Triveni Engg. & Industries Ltd. (196 TAXMAN 94) (e) The undersigned has gone through the written submissions of the appellant and the above cited judgments and on perusal it is evident that the expenses can only be booked when the same are known to the appellant and for that matter its crystallisation and determination of expenses is necessary. The key words are 'determined' and 'crystallised'. The appellant was certain of the expenses to be paid only when it was decided/finalised by the Committee of the Government of Uttar Pradesh after the close of the earlier year. The contention of the appellant is supported by the judgment of the Hon'ble Gujarat High Court in the case of Saurashtra Cement & Chemical Industries Ltd. v. CIT (213 ITR 523) where it has been categorically held that merely because an expense rel....