TaxTMI 
TaxTMI 
2019 (11) TMI 271
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.... A.Y. 2011-12 as the basis. 4. Brief facts of the case as culled out from the records are that the assessee is a local authority constituted u/s. 38 of the 'Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973'. The main object of the assessee Authority [Indore Development Authority or in short, 'the IDA'] is to prepare and implement schemes for development, improvement and maintenance of land and other real estate in the notified town i.e. 'Indore'. The assessee Authority furnished its Return of Income for the assessment year 2011-12, u/s. 139 of the Income-Tax Act, 1961, on 13-03-2012 declaring Total Income of Rs. Nil after claiming exemption under sec. 11 & 12 of the Act. 5. The case of the assessee was selected for scrutiny and Notices u/s. 143(2) and 142(1) were served upon the assessee. The assessee made compliance of all such Notices by making written submissions and by producing books of account and other documents. Assessee furnished copy of Audit Report in Form No. 10B obtained by it under section 12A(b) of the Income-Tax Act, 1961 and copy of Audited Financial Statements pertaining to the year under consideration. The Assessing Officer completed the assessment u/....
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.... 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting addition of Rs. 21,27,835/- made by the Assessing Officer on account of disallowance of provisional expenses claimed under head Employees Remuneration and Benefits. 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting addition of Rs. 6,461 made by the assessing officer on account of disallowance of expenses u/s 14A. 4. The revenue reserves the right to add, urge or alter all or any other ground/grounds on or before the date of hearing. 8. As regards Ground No.1 of revenue's appeal for A.Y.2011-12 relating to deletion of addition of Rs. 15,73,65,419/- made by the Ld. AO on account of disallowance of sum expenses being capital in nature. Brief facts are that in the profit and loss account an amount of Rs. 19,67,06,774/- is debited under the head City Environmental Development and Preservation Expenses. It was contended by the assessee before the Ld. AO that these expenses are done for the development of the City Environmental Development and Preservation on the direction of the State Government and thus these....
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....In pursuance of such objective, the assessee authority had consistently been incurring expenditure on building of bridges, development of roads, gardens, street lighting, construction of administrative offices for the government, etc in the notified area. 5. That, during the relevant previous year, the assessee authority incurred and claimed expenses under the head 'City Environmental Development & Preservation Expenses', aggregating to Rs. 19,67,06,774/- under various sub-heads as per the details given at Schedule-20 of the audited financial statements [kindly refer PB page No. 24]. 6. Your Honours, the AO grossly erred in holding that the expenses incurred by the assessee Authority under the head 'City Environmental & Development Expenses' are of capital nature. The AO further held that such expenditure is not an item of sale or revenue generating item. After giving these findings, the AO disallowed the entire expenditure claimed by the assessee authority under the head 'City Environmental Expenses' at Rs. 23,10,17,503/- and added to the total income of the assessee authority. 7. Being aggrieved with the addition made by the AO, the asse....
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....Expenses' as appearing in the audited financial statements of the assessee Authority for the previous years relevant to A.Y. 2009-10, A.Y. 2010-11, A.Y. 2012-13 and A.Y. 2013-14, as placed at Page No. 238 to 241 of our Paper Book. vi) It shall also be worthwhile to note that the assessee Authority is consistently undergoing scrutiny assessments under s.143(3) of the Act for other assessment years as well and in all such years, the expenses incurred by the assessee Authority under the head 'City Environmental & Development Expenses' have been held as that of revenue in nature by the Department and, consequently, the same have fully been allowed without any interference. It shall be appreciated that even for the subsequent assessment years i.e. A.Y. 2012-13 and A.Y. 2013-14, no disallowance on this count has been made by the concerning AOs. For such assertion, kind attention of Your Honours is invited to the copies of the Assessment Orders for two years before and after the assessment year under consideration i.e. for the A.Y. 2009-10, A.Y. 2010-11, A.Y. 2012-13 and A.Y. 2013-14 which have been placed in our Compilation at Page No. 71 to 117]. vii) It shall be perti....
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....judicate the facts relevant to the grounds raised before us. 13. We have heard rival contentions and perused the record placed before us. The revenue has challenged the finding of Ld. CIT(A) deleting, the disallowance of Rs. 15,73,65,419/- on account of 4/5th disallowance out of City Environmental Development and Preservation Expenses. 14. We observe that the primary object of the assessee is to implement development plan, prepare one or more town development schemes and develop of land in accordance with Rules made by the State Government, by virtue of section 58 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973. The assessee authority also undertakes to carry out the development work of general in nature which is utilized by the public at large. Such expenses have been consistently incurred by the assessee in the past also and such claim have been allowed by the revenue authorities after conducting scrutiny assessment proceedings u/s 143(3) of the Act for the year under appeal. 15. We observed that Ld. CIT(A) deleted the impugned disallowance giving following of facts: 4.2 I have considered the facts and circumstances of the case, the finding of the ....
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....en into consideration. It is also observed that under the head 'City Environmental Development and Preservation Expenses' also, the appellant has claimed the expenditure on Roads, Culverts, Street Lighting, Construction of Building, Fees to Architects, etc .. It is also observed that the AO himself in the body of the assessment order, has given a finding that the facilities on which such City Environmental Development and Preservation Expenses have been incurred are not an item of sale or revenue generating item. Thus, by giving this finding, the AO has impliedly accepted the claim of the appellant that these expenditure are in the nature of sunk cost in the hands of the Appellant. I find force in the contention of the appellant that these expenditure have been incurred by the appellant in pursuance of' its main objective of development of notified area. Further, by incurring these expenditure, the appellant authority would not be deriving any revenue in future as is the finding of the AO himself. Further, these expenditure cannot be said to be income generating apparatus of the appellant authority and in my view, by incurring these expenditure, the appellant w....
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....ears. The said expenses can be either termed as non business expenses or business expenditure. If they are termed as business expenditure then they can be either termed as revenue or capital expenditure. No such distinction has been made by the Ld. AO about the alleged expenses. 17. Further, it is noteworthy that the assessee company is working under the direction of State Government. It gets the power to acquire the land, develop housing project and other amenities for the public at large. Such land are acquired on concessional rates. Major reason for giving such wide powers and providing of precious land to the assessee authority is to develop the City in a wellorganized manner keeping the interest of public at large. Construction of Flyover, Parks, Central Lighting on various main roads, Plantation on various roads, Construction of OPD at M.Y. Hospital are few of such work which are for the overall development of the City and provides facility for the public. Incurring of such expenses increases the 'brand' value of IDA and also poses confidence of public at large in the working of IDA. 18. We, therefore, in the given facts and circumstances of the case and also looking....
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.... are contingent liabilities and only ascertained liabilities are allowed under the provisions of the Income-Tax Act, 1961. 18.00 Being aggrieved with the addition made by the AO, the assessee preferred appeal before the ld. CIT(A). The ld. CIT(A), vide para 7.2 at page no. 19 of his Order, was pleased to delete the entire addition made on this count. 19.00 The addition so deleted by the ld. CIT(A) deserves to be maintained in view of the following : i) The assessee authority has not debited any contingent liability on account of salary or on any other account in its audited Income & Expenditure Account for the relevant previous year. The amount of Rs. 21,27,835/- is only an ascertained liability of the assessee Authority which is explained in the ensuing paras. ii) It is submitted that the payment policy of the assessee authority in respect of salary to its employees is 'March paid in April', 'April paid in May' and so on. The assessee Authority under separate ledger accounts of salary heads with various GL-Codes viz. 927110-257 : Salary to Management Staff, 927316-475 : Salary to Project Staff, 927512-671: Salary to Planning Staff, 927718-811: S....
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....aid-off during the next month from the end of the relevant previous year." 23. We have heard rival contentions and perused the record placed before us. The issue relates to disallowance of provision of Rs. 21,27,835/-. The Ld. AO has treated as contingent liability whereas the assessee has claimed it to be ascertained liability. 24. The Ld. CIT(A) deleted the impugned addition observing as follows: 7.2 I have gone through the contents of the assessment order and also the written submissions filed by the appellant. On considering the entire facts and circumstances of the case, I find that the appellant has made a provision on account of salary for the month of March 2011 at Rs. 72,70,135/- and reversed the provision of salary made by it in preceding previous year for the month of March 2010 at Rs. 51,42,300/-, thereby giving a net effect on the provision of Rs. 21,27,835/-. I found that such treatment on account of provision for salary is given by the appellant consistently on year to year basis which is perfectly in accordance with the accounting method followed by it. I also find that the provision so made by the appellant is an ascertained liability of the....
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....tention of the appellant that the interest expenses of Rs. 12,36,761/ - incurred by the appellant during the year under consideration have no nexus with the investment made b . it in the shares. I have also taken a note of the decision of the Hon'ble High Court of Delhi in the case of Cheminvest Ltd. Vs. CIT-VI (20 15) 9 TMI 238 (Del.) as relied upon by the appellant that no disallowance under the provisions of section 14A can be made in a year in which no exempt income has been earned by the assessee. Considering the entire set of facts, the AO has not been justified In making the addition by invoking the provisions of section 14A of I.T.Act, 1961. Accordingly, this ground of appeal is allowed. 29. We find force in the contention of the Ld. counsel for the assessee and the finding of Ld. CIT(A) who was rightly followed the judgment of Hon'ble Delhi High Court in case of Cheminvest Ltd. (supra). Since there is no exempt income earned by the assessee during the year disallowance u/s 14A of the Act was uncalled for. Thus, there is no infirmity in the finding of Ld. CIT(A). Ground No.3 of revenue's appeal stands dismissed. 30. Ground No.4 is general in nature which ne....
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....sallowance of Audit fees of Rs. 5,99,000/- was sustained by Ld. CIT(A) observing as follows: 5.2.1 I have gone through the findings of the AO, written submissions and the documentary evidences filed by the appellant. It is observed that during the relevant previous year, the appellant has claimed a sum of Rs. 2,23,92,500/- as expenses on account of Government Audi Fees. The appellant claims that out of such audit fees 0f Rs. 2,23,92,500/-, only a sum of Rs. 5,99,000/- pertains to audit fees for F.Y. 2009- 10 [A.Y. 2010-11} and the entire remaining sum of Rs. 2,17,93,500/- pertains to the relevant previous year only. The appellant has contended that due to inadvertent mistake in the last para of the submission made before the AO on the subject issue, the amount of audit fees pertaining to earlier year i.e. F.Y. 2009-10 has got misstated at Rs. 1 ,61,94,500/ - but the fact remains that the audit fees pertaining to prior period was only of Rs. 5,99,000/-. It was submitted that for the financial year 2009-10, Government Audit Fees amounting to Rs. 1,55,95,500/ - has been shown as payable in the audited financial statements. In support of such contention, the grouping of the ex....
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.... the appellant follows mercantile system of accounting, such expenses cannot be allowed in A.Y. 2011-12. In nutshell, out of the total disallowance of Rs. 1,67,93,500/-, only a sum of Rs. 5,99,000/- is found pertaining to prior period and the remaining sum has been found pertaining to the assessment year under consideration. Accordingly, out of the total addition of Rs. 1,67,93,500/- made by the AO, the addition to the extent of Rs. 1 ,61,94,500/- is deleted and the addition to the extent of Rs. 5,99,000/- is sustained. These grounds of appeal are allowed partly. 34. Now the assessee is in appeal before the Tribunal, Ld. counsel for the assessee submitted that liability for paying the audit fees of Rs. 5,99,000/- crystalized during the year under appeal because the claim of audit fees was settled during the year and therefore, the Ld. CIT(A) erred in confirming the disallowance of Rs. 5,99,000/-. 35. Per contra Ld. DR supported the orders of both the lower authorities. 36. We have heard rival contentions and perused the record placed before us. Through Ground No.1 the assessee has challenged the finding of Ld. CIT(A) confirming the disallowance of audit fees of Rs. 5,99,00....
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....enses at Rs. 13,27,208/-, Rs. 10,00,000/- & Rs. 8,00,000/- incurred towards Jhanki-Pradarshani & Seminar, Devi Ahilya Utsav & Malwa Utsav respectively, Ld. AO treated these amounts as donation and charity and not for business purpose. Ld. CIT(A) also confirmed the view of the Ld. AO observing as follows: "I have gone through the contents of the assessment order and also the written submissions filed by the appellant. After considering the entire facts and circumstances of the case, I do not find any merit in contention of the appellant. If find that the status of the appellant has not been taken as that of a charitable organization or institution and its income is assessable as business income. Once this being the position, any charity or donation, made for any purpose, is not allowable under the provisions of section 37(1) of the I.T. Act, 1956. Accordingly, I do not find any infirmity in the action of AO in making disallowance of Rs. 31,27,208/-. Therefore, this ground of appeal is dismissed. 39. Ld. counsel for the assessee referred to the following written submissions: 1. That, during the previous year relevant to the assessment year under consider....
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....ontributions on such counts. Xerox copies of note sheets prepared by the appellant Authority before making sanction of such contributions to the concerning Jhankis are being submitted herewith for kind perusal and record of Your Honour, as Annexure A-9. 01 to A-9. 06 [PB Page no. 103 to 108}. 5.00 Your Honour, it is submitted that the appellant Authority has been making its contributions towards Jhanki Pradarshani & Seminars, Devi Ahilya Utsav, Malwa Utsav etc. over the last many years and such contributions have duly been accepted and allowed by the Income-T'ax Authorities in the scrutiny assessments of the appellant framed under s.143(3) of the Act and in none of the previous assessment years, the claim of the appellant Authority as regard to the aforesaid contributions have been doubted by the Department. It is submitted that there is no change in the circumstances of the case for the assessment year under consideration and, therefore, considering the decision of the Hon'ble Apex Court in the case of Radha Soami Satsang (supra) the claim of the appellant for the present year too deserves to be allowed fully. In view of the above facts and circumstances ....
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....t has to work in public interest and also provide various facilities, such as public amenities flyovers, tree plantation, street lights, cultural events, business seminars, etc. 43. It was brought to our notice that the alleged expenses were not incurred by the authority suo moto but it was incurred as per the directions of the State Government. The events i.e. Jhanki- Pradarshani & Seminar, Devi Ahilya Utsav & Malwa Utsav are events where public at large participate. It is well evident that for such events the assessee is sponsoror. Such type of expenses are in the nature of advertisement since it gives name and fame to the IDA and increase the 'Brand' value which indirectly helps in getting more business. 44. We observe that similar issue came up before the Hon'ble Delhi High Court in the case of Pr. CIT vs. M/s Indian Farm Forestry Development dated 31st October 2018 wherein Hon'ble Court held as follows: 13. In the facts of the present case, the object and purpose of the respondent-assessee' is, to engage and work for social and economic upliftment of the rural poor, construct water reservoirs .etc. It is established for this purpose and receives gran....
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....not be disallowed as expenditure not relatable and incurred for 'business' purposes. 15. On the question of capital expenditure, the assessing officer did not refer to or examine whether the capital assets created ,were for third party villagers. The respondentassessee was not the owner of the assets created and develops, The, assets created were not-capital assets in the hands of the respondent-assessee. The respondent assessee had contributed, developed, financed and created assets which belonged to third persons. The expenditure incurred therefore would not be 'capital' in nature in the hands of the respondent assessee: 16. Accordingly, the appeal filed by the Revenue has no merit and is dismissed, without any order as to costs. 45. The facts of the above referred judgment and similar to the facts placed before us. We, therefore, respectfully following the judgment of Hon'ble Delhi High Court in the case of Pr. CIT vs. M/s. Indian Farm Forestry Development, are of the considered view that the alleged amount should be allowed as business expenditure as it indirectly help to increase business of the assessee authority. Thus, disallowance of....
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....for registration u/s 12AA of the Act. 50. Ld. counsel for the assessee further submitted that against the order of Hon'ble I.T.A.T.,Indore assessee preferred an appeal before the Hon'ble Jurisdictional High Court which is pending. 51. We find that since the issue is squarely decided against the assessee by the Coordinate Bench confirming the rejection of assessee's application for rejection u/s 12AA of the Act, both the lower authorities were justified in denying the benefit of exemption u/s 11 & 12 of the Income Tax Act. We, therefore, dismiss ground no.1 raised by the assessee for A.Y. 2012-13. 52. Now we take up Ground No.2(a) (b )(c) & d for the disallowance of following expenses totalling to Rs. 31,93,340/- 1. Jhanki -Pradarshani & Seminar Rs. 16,18,275/- 2. Devi Ahilya Utsav Rs. 10,00,000/- 3. Malwa Utsav Rs. 2,00,000/- 4. Other donation Rs. 3,75,065/- 53. We have heard rival contentions and perused the record placed before us. We observe that the issue raised in ground no.2 of the assessee's appeal for A.Y. 2012-13 also came for adjudication before us in the assessee's appeal for A.Y.2011-12 wherein we have decided the ....