AI Drafter 
TaxTMI 
TaxTMI 
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2025 (10) TMI 353
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....ee is a Trust registered u/s 12A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). It was one of the 13 major ports operating in India. The entire income of Jawaharlal Nehru Port Trust (JNPT) was exempt under the provisions of section 10(20) of the Act upto and including the assessment year 2002-03. For the purpose of section 10(20), the term 'Local authority' was given a restrictive meaning by insertion of an Explanation to section 10(20) w.e.f. assessment year 2003-04. Hence, the income of the assessee became taxable. The assessee filed its return of income as a 'local authority' claiming no exemption u/s 10(20) for assessment year 2003-04 on 29.10.2003 declaring total loss of Rs. 203,32,82,489/- and claiming refund of Rs. 78,66,489/- on account of excess TDS deducted. The return was processed u/s 143(1) of the Act on 24.02.2004. After processing the return, the case was selected for scrutiny. The Assessing Officer passed the order u/s 143(3) on 31.03.2006 assessing the total loss at Rs. 8,77,10,01,650/-. 3. Subsequently the CIT-2, Thane found that the assessment had become erroneous and prejudicial to the interest of Revenue for which he set aside the said a....
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....ssessing Officer from time to time and produced the details as called for. During the course of assessment proceedings the Assessing Officer asked the assessee to explain as to why its claim of exemption u/s 11 should not be disallowed since as per law for claiming the exemption u/s 11, one should file its return of income within the time limit prescribed as per the Act and claim exemption in its return of income. Since the assessee had not filed its return of income and not claimed the exemption u/s 11 within the prescribed time limit as per Income Tax Act, 1961, therefore, the Assessing Officer, rejecting the various explanations given by the assessee, disallowed the benefit of exemption u/s 11. 7. The Assessing Officer noted that since the interest accrued / paid by the assessee on loans pertains to the period upto 31.03.2002 where the assessee's income was exempt from tax, therefore, the provisions of section 14A are applicable in respect of the said interest expenditure and therefore, such expenses are not allowable. He further held that any claim made by the assessee otherwise than by way of filing a return cannot be accepted. Since the assessee in the present case had mad....
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....account of Employee's Gratuity Fund due upto 31/03/2003 from the date of its incorporation. However liability of the gratuity as provided in the books of account for the year was also the same at Rs. 6.40 crores. The assessee also paid a sum of Rs. 13.35 lakhs as gratuity over and above the payment to LIC. However, the gratuity liability for the year ended 31/03/2003 as per the Actuarial Valuation Certificate dated 23/04/2002 of M/s Charan Gupta Enterprises was just Rs. 1.10 crores. Therefore, he was of the opinion that the assessee claimed deduction of Rs. 6.453 crores on account of gratuity against its taxable income of the year by taking shelter u/s 43B of the Act for an additional amount of Rs. 5.43 crores which was an expense pertaining to earlier years and should have been debited in the books of earlier years when its income was exempt from tax u/s 10(20) of the Act. Since, the services of the employees were utilized for earning the income of the earlier periods therefore, he held that the expenses of employee's premium for Superannuation Fund for earlier period cannot be an expenditure of the year in question, in view of the clear provisions of section 14A of the I.....
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....ion No. 1/1148, dated February 9, 1978. He, therefore, held that the assessee is entitled to exemption u/s 11 of the Act. 15. So far as the issue of assessment completed in the status of a "Trust" instead of "Local Authority" is concerned, the Ld. CIT(A) relying upon the decision in the case of Workman of Mangalore Port Trust Vs Mangalore Port Trust and others (1973) ILR 1973 KAR 272, decision of Hon'ble Bombay High Court in W.P.No. 1090 of 1983 with C.A. No. 1560 of 1983 in the case of Ram Ugrah Singh Girjar Singh & others Vs. Board of Trustees of Port of Bombay, and CBDT Circular No.93, dated 26/09/1972 held that the assessee is a local authority. 16. On the issue of disallowance of expenses treated as capital in nature, the Ld. CIT(A) held that since the assessee is entitled to exemption u/s 11 of the Act, therefore, these capital expenses will be allowed as application of income for the purposes of objects of the Trust and depreciation on the same will also be allowed. 17. So far as the issue of contribution to approved superannuation fund is concerned, the Ld. CIT(A) relying on various decisions held that deduction in respect of contribution made to approved superannu....
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....s on the ground that the said income has accrued and arisen during the impugned assessment year. Since the assessee is following mercantile system of accounting, therefore, it has to be taxed in this year. 22. Aggrieved with such part relief granted by the Ld. CIT(A) the Revenue as well as the assessee are in appeal before the Tribunal by raising the following grounds: Grounds of appeal by the Revenue (ITA No.543/PUN/2016) 1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing the exemption u/s 11 of the Income Tax Act as - a) The assessee has not claimed any such exemption in any of his return of income. b) The assessee has failed to get its accounts audited as required u/s 12A(b) of the Income Tax Act. c) The department has not accepted and filed appeal to Hon'ble High Court, Bombay against the order of ITAT dated 23/10/2013 passed in ITA No.449/Mum/2012 for AY 2008-09 directing the CIT to grant registration u/s 12AA. 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing the status of assessee as "Local Authority". 3. On the facts and circumstances of the cas....
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....t the Hon'ble Bombay High Court has observed that to avail benefits u/s 11 and 12 of the Act, not only trusts/institutions must be registered under u/s 12A/12AA of the Act but they must also comply with the conditions set out in such provisions and that the trusts/institutions will not get the benefits if such conditions are not fulfilled. Moreover, mere grant of registration does not preclude the Assessing Officer to come to his own conclusion regarding claim of exemption. 27. Without prejudice to the above, the Ld. Special Counsel for the Revenue submitted that even if the benefit of exemption u/s 11 is allowed to the assessee, the assessee's taxable income would have to be further determined and tested at the touchstone of the condition whether 85% of the same has been applied for charitable purposes or not. Referring to the provisions of Section 11(2) of the Act, he submitted that where 85% of the income of the trust is not applied for charitable purpose by the trust then the income remained to be applied to that extent will not be exempted for the income of the trust. He submitted that in the present case, the Assessing Officer has returned a finding that the assessee h....
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....the claim of exemption under section 11 of the Act. The Tribunal directed the Assessing Officer to examine the claim on merits after considering the return and audit report filed by the assessee. He submitted that the Tribunal noted that CBDT representative have already commented in the proceedings before Committee of Disputes that such claim of the assessee may also be allowed by way of rectification request. For the above proposition, the Ld. Counsel for the assessee drew the attention of the Bench to the comments of the Committee of Disputes. 31. The Ld. Counsel for the assessee further submitted that though the Tribunal had rejected the submission of the Revenue, however, the Assessing Officer has denied the claim of the assessee on the very same procedural grounds i.e. not claiming exemption u/s 11 in the return of income and non-filing of audit report along with the return. He submitted that the said procedural grounds were already taken by the Ld. CIT(A) while denying the claim of the assessee in the original proceedings and the said decision was reversed by the Tribunal while directing the Assessing Officer to allow the claim on merits. Further, the decision of the Tribu....
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.... of the Tribunal in the case of Sindhi Youth Association Ladies Wing vs ITO reported in (1994) 48 ITD 6, Jabalpur Bench of the Tribunal in the case of Shri Namiyun Parswanath Jain Swetamber Manidhari Trust vs. ITO reported in 203 ITD 433 and the Delhi Bench of the Tribunal in the case of United Educational Society vs. JCIT reported in 107 taxmann.com 127. He submitted that there is no dispute to the fact that the return of income along with the audit report were filed during the set aside proceedings and the same were available with the Assessing Officer. Therefore, rejecting the same on procedural grounds is not correct. He accordingly submitted that the order of the Ld. CIT(A) being in accordance with law should be upheld and the grounds raised by the Revenue on this issue be dismissed. 34. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case filed its return of income as local authority without claiming any exemption under section 10(20) of the Act on 01.1....
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....that the activities carried on by the assessee are of charitable nature and come within the definition of charitable purpose as defined in Section 2(15) of the Act. Thus, the decision of the learned CIT on this issue is reversed. Having stated so, we are of the view that the issue of condonation of delay for grant of registration with retrospective effect, requires fresh adjudication in view of material placed before us, hence, in the interests of justice, we set aside the order of C.I.T. and restore the issue to his file for consideration of condonation of delay in granting registration, who shall adjudicate the issue afresh after giving an adequate opportunity of hearing to the assessee. Thus, ground No.6 stands allowed for statistical purposes." 35. We find the Ld. CIT granted registration u/s 12A only from the date of the application i.e. 10.02.2006 vide order dated 05.09.2007. The relevant observations of the Ld. CIT read as under: "In view of ITAT's order holding that activities of the assessee are charitable in nature, registration u/s 12AA is granted to the assessee w.e.f. 10.02.2006 i.e. F.Y. 2005-06." 36. Aggrieved by the order of the Ld. CIT, the assessee ....
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....he delay in filing the application under S.12A of the Act, as made by the assessee in ground No.1. We accordingly direct that the registration be granted to the assessee with effect from 1.4.2002." 37. We find pursuant to this registration u/s 12AA, the assessee filed its return of income for the subject assessment year on 26.09.2008 claiming exemption u/s 11 before the Assessing Officer. Simultaneously, since the appeals for assessment years 2003-04 to 2005-06 were pending at first appellate level, the assessee also took additional ground before Ld. CIT(A)-I, Thane for grant of exemption u/s 11 of the Act. We find the Ld. CIT(A)-1, Thane vide order dated 23.12.2008 rejected the plea of the assessee on the ground that the said exemption was not claimed in the return of income and that audit report was not filed within time prescribed under the Act. We find when the assessee preferred an appeal before the Mumbai Bench of the Tribunal against the order of the Ld. CIT(A)-1, Thane, the Tribunal, vide its order dated 30.09.2010, allowed the assessee's appeal holding that the finding of the CIT(A)-1, Thane was not sustainable in law, thereby vacating the orders of the authorities ....
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....n the interest of justice. In view of the foregoing discussions, and respectfully following the guidance of Hon'ble Supreme Court in UP Forest Corporation case (supra), we deem it fit and proper to remit the matter to the file of the Assessing Officer with a direction to examine the matter, on merits, for eligibility to tax exemption as a result of the registration under section 12 AA now available to the assessee and in the light of the requisite audit report and other documents now filed by the assessee. While doing so, the Assessing Officer shall decide the matter by way of a speaking order, in accordance with the law and after giving a fair opportunity of hearing to the assessee. 10. Having held so, we may also mention that we are somewhat surprised by the hyper technical and pedantic stand taken by the learned Departmental Representative, which is in sharp contrast to very fair and reasonable stand of the CBDT representative before the Cabinet Secretariat. While the CBDT is of the view that the relief can perhaps be given even by way of a rectification order, the field authorities are fighting tooth and nail on procedural issues for even examining the claim of the ass....
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....f the assessee on procedural grounds i.e. (1) claim not made in the return of income filed and (ii) audit report not filed along with the return. We find the Tribunal has reversed the finding of the CIT(A) and held that the alleged procedural defects would not justify denying the claim of exemption under section 11 of the Act. The Tribunal directed the Assessing Officer to examine the claim on merits after considering the return and audit report filed by the assessee. The Tribunal has also noted that CBDT representative have already commented in the proceedings before Committee of Disputes that such claim of the assessee may also be allowed by way of rectification request. The relevant observations of the Tribunal have already been reproduced in the preceding paragraphs. 40. We find although the Tribunal had rejected the submission of the Revenue, however, the Assessing Officer has denied the claim of the assessee on the very same procedural grounds i.e. not claiming exemption u/s 11 in the return of income and non-filing of audit report along with the return. Therefore, once the Ld. CIT(A) after considering the decision of the Tribunal in assessee's own case has directed the As....
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....nefit of section 11 and applied for registration. The chequered history of the case pertaining to registration has been noted by us. It is that which enabled the Tribunal to conclude that the rigors of the section have been somewhat diluted by the Revenue's understanding and the issuance of a circular. Thus, the circular contemplates condonation of delay in filing the above documents and which would enable the assessee to avail of the benefit. Filing of Form No.10 is not dispensed with. The Commissioner is only vested with powers to accept it after the specified period. This circular No.273 dated 3rd June, 1980 which has been relied upon to hold that the assessee's claim for benefit of exemption under section 11 of the Act deserved acceptance. It is in these circumstances and when the objects of the trust were found to be genuine that the Assessing Officer was directed to carry out a denovo assessment in terms of the Tribunal's observations. We do not find such conclusion to be perverse orvitiated by any error of law apparent on the face of the record. No larger question or wider controversy needs to be decided." 42. Similar view has been taken by the Hon'ble Andhra ....
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....e of the circulars. Therefore, it is clear that so far as the Department is concerned, whatever action it has to take, the same will have to be consistent with the circular which is in force at the relevant point of time." 12. Since the Supreme Court has laid down that the Department has no right to challenge a circular issued by the Board on any ground whatsoever including the ground that it was inconsistent with the statutory provision, therefore, both questions will have to be answered in favour of the assessee and against the Department. 13. The reference is accordingly answered in favour of the assessee and against the Department." 43. We find the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Shahzadanand Charity Trust reported in 228 ITR 292 (P&H) has also held that as per the provisions of section 11 prevailing at that time, filing of audit report was directory in nature and not mandatory. The relevant observations of the Hon'ble High Court read as under: "7. Under Section 11, subject to certain provisions of the Act, and on fulfilling of certain conditions provided under Section 12A, income from property held for charitable or ....
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....or the appellate authority. Reliance for this was placed upon a judgment of this court in CIT v. Jaideep Industries [1989] 180 ITR 81. 10. Counsel for the assessee has controverted the argument raised by counsel for the Revenue. It has been contended by him that furnishing of report along with the filing of the return was directory in nature in view of the circular of the Central Board of Direct Taxes issued on February 9, 1978, which provides as under : "Charitable trust-Requirement of filing audit report in Form 10B- 12A(b). Instructions regarding--The Board have considered whether the requirement under Section 12A(b) of filing audit report 'along with the return of income' is mandatory so as to disentitle the trust from claiming exemption under Sections 11 and 12 in case of omission to furnish such report in the prescribed form along with the return. Normally, it should be possible for a charitable or religious trust or institution to file the auditor's report along with the return of total income, where such trust or institution claims exemption under Sections 11 and 12. However, in cases where for reasons beyond the control of th....
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.... on March 6, 1987, before the completion of the assessment. The Income-tax Officer, while completing the assessment, refused to allow the benefit of exemption under Section 11 of the Act to the assessee on the ground that the audit report in Form No. 10B was not filed along with the return. The income of the assessee was put to tax. The order of the Income-tax Officer was upheld by the Commissioner of Income-tax (Appeals) against which the assessee filed further appeal before the Tribunal which was accepted. On these facts, it was held that the income-tax authority had taken a hypertechnical view of the matter where the assessee has complied with the provisions of the Act in the course of the assessment by curing the defect in the return by filing an audit report. The Income-tax Officer cannot ignore such audit report or the return in completing the assessment. The delay in getting the accounts audited and in filing the return in Form No. 10B did not defeat any object of the Act and, therefore, the provision was directory in nature. It also referred to the circular of the Board dated February 9, 1978. 14. The Gujarat High Court in CIT v. Gujarat Oil and Allied Industries [....
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....ated the provisions regarding furnishing of the auditor's report along with the return to be procedural and, therefore, directory in nature. By showing sufficient cause, the auditor's report could be produced at any later stage either before the Income-tax Officer or before the appellate authority. 17. In view of the Board's circular dated February 9, 1978, the requirement of filing the auditor's report in Form No. 10B as provided in Section 12A(b) read with Rule 17B of the Rules, the ratio of the law laid down by this court in CIT v. Jaideep Industries [1989] 180 ITR 81 would not apply to the present case. 18. For the reasons recorded above, the question referred to us is answered in the affirmative, i.e., against the Revenue and in favour of the assessee. No costs." 44. The various other decisions relied on by the Ld. Counsel for the assessee also support his case to the proposition that filing of the audit report in Form No.10B is directory in nature and not mandatory and therefore, the delay in filing of the audit report cannot be a ground to deny the claim of exemption u/s 11 and 12 of the Act. 45. So far as the denial of claim of exempt....
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....he return under section 139 (4A) reads with section 12A (b) of the Act. Thus, what we have to adjudicate is, whether assessing officer was right in not applying the provisions of section 11 while computing income of the assessee. It is an admitted fact that the assessee is a society, who has been granted registration under section 12A of the Act by CIT looking to its objects of charitable purpose, i.e., it is engaged in imparting education and running various educational institutions. Thus, the registration u/s 12A is fait accompli and consequently the computation of income has to be in accordance with sections 11 to 13 of the Act. The assessee society had not filed its return of income and it was only in response to notice issued by the Assessing Officer under section 148, the assessee has filed its return of income alongwith the audited Balance Sheet and Profit & Loss Account. Now, whether the income of the assessee society is to be computed in accordance with the provisions of section 11 of the Act, as it has not filed the return as required under section 139(4A) of the Act, but has filed return in response to notice under section 148. 20. Section 139 falls under Chapte....
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....ot be interpreted in a restrictive manner to exclude any procedure. The Hon'ble Apex Court, way back in the case of R Dalmia & Anr vs. CIT, reported in (1999) 236 ITR 480, has clarified the interpretation of the phrase "so far as may be" used in section 148 in the following manner:- "13. By reason of s. 148, after a notice thereunder has been served on the assessee containing the requirements which must be included in a notice under s. 139(2), "the provisions of this Act shall so far as may be applied accordingly as if the notice were a notice issued under that sub-section". What this implies is, in our view, clear. Even after a notice is issued under s. 148, if the ITO proposes to make a variation in the income returned pursuant to such notice which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board, the ITO must forward a draft of the proposed order of the assessment to the assessee. The assessee is entitled to forward objections to such variation. If he does not do so, the ITO may complete the assessment or reassessment on the basis of the draft order. If, however, the assessee does raise objections, the ITO must forwar....
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....at all the provision will not apply. This contention of the Ld. DR is not correct in view of our reasoning given above. The meaning of these words 'so far as may be' will not mean to exclude provision of section 11 of the Act. It is only such provision which are inconsistent with the provision of section 148 as compared to section 139 regarding procedure for assessment will not be applicable so far as may be. As regards the reliance placed by the Ld. DR on the judgment in the case of Commissioner of Incometax v. Sun Engineering Works (P.) Ltd. 198 ITR 297 (SC), we are not in agreement with the contention of the Ld. DR that in the reassessment proceedings under section 148, no deduction can be allowed in respect of the income which has escaped assessment. In reassessment proceedings even the income which has escaped assessment has to be computed in accordance with the provisions of the Act which will include section 11 as is in the present case. It will not be correct to say that while computing income under section 148 the entire gross receipts are to be taxed. Further, it is not the case of the assessee that it is reagitating or seeking review of the issue or the deduction for whi....
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....g of return of income stands fulfilled. The section, we find, nowhere prescribes the filing of return by any due date, therefore the findings of the CIT(A) that the assessee having not filed its return within the prescribed time it had failed to comply with the requirement prescribed, is not tenable. As for the requirement of filing report of audit in the prescribed form, the said condition has been held by courts to be merely procedural and therefore directory in nature and not mandatory for the purpose of claiming exemption u/s 11 & 12 of the Act. The Hon'ble Jurisdictional High Court in the case of CIT v. Shahzadanand Charity Trust [1997] 228 ITR 292 (Punj. &Har.), has categorically held so in para 10-14 of its order as under: "10. Calcutta High Court in Rai Bahadur Bissesswarlal's case (supra) while interpreting s. 12A(b) held that the provision was directory in nature and the AO could allow the assessee to file the audit report, at any time before the completion of the assessment. In this case the assessee, a charitable trust registered with the CIT filed its return on 17th Sept., 1984, declaring a deficit of Rs. 1,61,452. The return so filed was not accompanied by au....
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....arified that the exemption available to the trust under s. 11 may not be denied merely on account of delay in furnishing the auditor's report. The word "shall" occurring in s. 12A cannot, under the circumstances, be read as a "must" making it mandatory for the trust to furnish the auditor's report along with the filing of the return. If for certain unavoidable circumstances, the assessee is unable to furnish the auditor's report along with the return then the same can be furnished at a later date with the permission of the AO who may permit the assessee to do so after recording its reasons for so doing." 13. Counsel appearing for the Revenue then argued that as per this circular, the auditor's report could only be furnished upto the stage of framing of assessment as the power to condone the delay for accepting the auditor's report at a later date has only been given to the ITO and not thereafter, i.e., at the appellate stage. We find no merit in this submission. The CBDT by issuing the Circular dt. 9th Feb., 1978 has treated the provision regarding furnishing of auditor's report along with the return to be procedural and, therefore, directory in nature. By showing sufficie....
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.... (b) of section 12A. Had such condition being there in clause (b) itself, then there was no need to insert a further clause (ba) by the Legislature for denying benefit of section 11 & 12 in case return is not filed in time as per provision of section 139 (4A) of the Act. It is relevant to note that clause (b) has not been amended, but a new clause (ba) which has been inserted to put a further condition w.e.f 1.04.2018, which was not there for the assessment years under consideration. It is also important to note that this condition of furnishing the return within the time allowed under section 139(4A) has been made applicable from A.Y. 2018-19 as has been specifically stated in the Finance Act, 2017 and not for the A.Y. under consideration. We are also not in agreement with the contention of the Ld. DR that this amendment is clarificatory in nature. As rightly pointed out by the Ld. Counsel that this amendment has been made by the Finance Act, 2017 effective from A.Y. 2018-19, meaning thereby that this clause has not been made applicable even for the A.Y. 2017-18, the return of which were still to be filed. Thus, the Legislature has thought fit to make this amendment appli....
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....jor Port Trust Act, 1963. It is a local authority functioning under the control of Ministry of Shipping, Road Transport & Highways of the Government of India. Referring to the Circular No.93 of 1972 issued by the CBDT, he submitted that it has been held that 'Port Trusts' are Local Authority. Referring to the following decisions, he submitted that it has been held that the Major Port Trusts constituted under the Major Port Trust Act, 1962 are 'Local Authorities' within the meaning of section 3(31) of General Clauses Act, 1897: i) Official Assignee v/s. Trustees of Port Trust reported in AIR 1936 MAD 789, ii) Workmen of Mangalore Port Trust v/s. Mangalore Port Trusts and Others reported in ILR 1973 KAR 272 iii) Ram Ugrah Singh Girjarsingh and Others v/s. The Board Trustees of the Port of Bombay reported in AIR 1981 SC 951 50. He submitted that the Ld. CIT(A) after considering the above decisions, has allowed the appeal of the assessee and therefore the same is in accordance with law. 51. Referring to Circular No.1 of 2009 issued by CBDT, he submitted that it has been held that no surcharge shall be levied in case of Local Authorities. He subm....
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....e in operation. The Hon'ble High Court in its decision has held that the provision of this section is not retrospective in nature. He submitted that the issue which has been dealt by the Hon'ble High Court in this case is different from the present case and therefore, the said decision is not applicable to the facts of the present case. He accordingly submitted that the ground raised by the Revenue on this issue be dismissed. 55. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case passed the order treating the assessee as a trust as against 'local authority' claimed by the assessee. This resulted in leavy of surcharge at a higher rate. We find the Ld. CIT(A), following the decision in the case of Workman of Mangalore Port Trust vs. Mangalore Port trust and others (1973) ILR KAR 272 and the decision of Hon'ble Bombay High Court in W.P. No. 1090 of 1983 with CA No. 1560 of 1983 in the case of Ram Ugrah Singh Girjar Singh & others vs. Board....
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.... Port Trust and others (1973) ILR 1973 KAR 272, the decision of Bombay High Court in W.P.No. 1090 of 1983 with C.A. No. 1560 of 1983 in the case of Ram Ugrah Singh Girjar Singh & others Vs. Board of Trustees of Port of Bombay has held that the assessee is a 'local authority', therefore, in absence of any distinguishable features brought on record by the Ld. Special Counsel for the Revenue, we do not find any infirmity in the order of the Ld. CIT(A) on this issue. 60. So far as the decision of Hon'ble Andhra Pradesh High Court in the case of CIT vs. Agriculture Market Committee (2011) 337 ITR 299 (AP) relied on by the Ld. Special Counsel for the Revenue is concerned, we find the question before the Hon'ble High Court was whether the provisions of section 10(26AAB) of the Act which was inserted by the Finance Act, 2008 with effect from April 1, 2009 and which exempts income of agricultural market committees from the levy of income tax under the Act is retrospective in operation. The Hon'ble High Court in its decision has held that the provisions of this section are not retrospective in nature. Since the issue has been dealt with by the Hon'ble High Court which is relied on by the ....
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....crores on account of superannuation fund is concerned, the facts in brief, are that the Assessing Officer during the course of assessment proceedings noted that the assessee has paid a sum of Rs. 25.05 crores to the LIC on account of employees' superannuation fund due from the date of assessee's incorporation upto 31.03.2003. According to the Assessing Officer the actual liability for assessment year 2003-04 was Rs. 4.65 crores and therefore, the assessee had made an additional claim of deduction of Rs. 20.40 crores by taking the shelter of section 43B of the Act. He similarly noted that the assessee had also made payment of Rs. 6.40 crores to LIC on account of employees' gratuity fund from the date of its incorporation till 31.03.2003 whereas the expenses for the year was only Rs. 1.10 crores. Thus the assessee has made additional claim of Rs. 5.30crores. According to the Assessing Officer since the services of the employees were utilized in earning the income of earlier period which were exempt from tax, therefore, the expenses of employees' premium for superannuation fund and gratuity fund for earlier year cannot be an allowable expenditure in the current year u/s 14A of....
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....as specified in section 36(1)(iv) of the Act includes every sum i.e. even those which are not in the nature of annual contribution made by the assessee. The Ld. Counsel for the assessee referred to the following decisions for the above proposition: i) CIT vs. Sirpur Paper Mills reported in 103 Taxman 352 ii) CIT vs. Mafatlal Fine Spg. & Mfg. Co. Ltd. reported in 138 Taxman 143. iii) UOI vs. Exide Industries Ltd. reported in 116 taxmann.com 378. iv) CIT vs. Hindustan Latex Ltd. reported in 22 taxman.com 332 71. He submitted that the Assessing Officer has wrongly invoked provisions of sec 14A because it would be applicable only in such cases where the expenditure has a direct nexus to an income which has been claimed as exempt in that particular year. He submitted that the current expense are not related to the previous year since it was never allowable in the earlier period on account of non-payment. He submitted that the Act clearly specifies that such expenses cannot be allowed on provisioning basis and can be allowed only on payment basis. Since, the expenses have been claimed only on payment basis, therefore, the question of its relation wi....
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....ion towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust" 73. Similarly we find Rules 103 and 104 of the Income Tax Rules, 1962 read as under: "Ordinary annual contributions. 103. The ordinary annual contribution by the employer to a fund shall be made on a reasonable basis as may be approved by the Chief Commissioner or Commissioner having regard to the length of service of each employee concerned so, however, that such contribution shall not exceed 8 1/3 per cent of the salary of each employee during each year. Initial contributions. "104. The amount to be allowed as a deduction on account of an initial contribution which an employer may make in respect of the past services of an employee admitted to the benefits of a fund shall not exceed 8 1/3 per cent of the employee's salary for each year of his past service with the employer." 74. We find the Hon'ble Supreme Court in the case of CIT vs. Sirpur Paper Mills reported in 237 ITR 41 (SC) has held that the deduction in respect of contribution made to approved superannuation fund within limit prescribed will be fully allo....
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....ly allowed. It permits the Board to specify conditions but conditions cannot have the effect of curtailing the scope of the deduction granted by the section. The amplitude of the deduction permitted by the section cannot be cut down under the guise of imposing a condition. In fact, this is not a condition but an impermissible attempt to rewrite the section. As to the second part, in the cases before us the payment had in fact been made and we do not need to dilate; but we should point out that section 36(1)(iv) itself speaks of 'any sum paid'. 13. The last condition imposed by the said notification is that the deduction shall be spread out equally over a period of five years commencing with the assessment year relating to the previous year in which the amount as paid. This too is no condition but a provision super-added to the section which does not contemplate any such distribution of the deduction. Under the section the deduction is available in the assessment year relating to previous year in which the payment was made and it must be so granted." 75. In view of the above discussion and relying on the decision of Hon'ble Supreme Court in the case of CIT vs. Sirpur Pap....
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....diture. 6. On the facts and in the circumstances of the appellant case and in law, Learned Commissioner of Income Tax (Appeals) and A.O. failed to appreciate that the expenses were incurred for day to day running of the business or for maintaining and proper and efficient use of assets of the appellant and no enduring benefit was derived by incurring such expenses. 7. On the facts and in the circumstances of the appellant case and in law, Learned Commissioner of Income Tax (Appeals) and A.O. failed to appreciate that a sum of Rs. 18,88,353/- was already disallowed as expenditure in the computation of total income. Without considering the same the A.O. has made a disallowance of Rs. 20,90,642/-. Hence making a double addition of Rs. 18,88,353/-. Wharfage Receipt Rs. 37,50,000/- 8. On the facts and in the circumstances of the appellant case and in law, Learned Commissioner of Income Tax (Appeals) erred in confirming the action of the A.O. of assessing Wharfage receipts of Rs. 37,50,000/- as income of the year though same were offered to tax in A.Y. 2005-06. Environment Monitoring Charges Rs. 10,24,800/- 9. On the facts and in the ....
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....ssing Officer was of the opinion that interest accrued / paid on loan pertains to period upto 31.03.2002 where the assessee's income was exempt from taxation. He accordingly held that the provisions of section 14A are applicable in respect of the said interest expenditure and such expenses are not allowable. The Assessing Officer did not accept the claim made in the revised return by the assessee by way of revised computation. He, therefore, disallowed the entire expenses of Rs. 892 crore. He further noted that the interest of Rs. 157.34 crore actually paid by the assessee will also not be allowed as deduction as it pertains to earlier period during which the assessee was exempt from taxation. 81. In appeal, the Ld. CIT(A) upheld the action of the Assessing Officer. While doing so, he held that the interest pertains to prior period and accordingly, provisions of section 14A are applicable in this case and therefore, such interest cannot be allowed. He also rejected that assessee's claim for allowability of interest expenditure paid during the year by stating that section 43B allows for a deduction of any sum payable by the assessee as interest on any loan or borrowing fr....
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....hange in method has been consistently followed in the subsequent accounting years. The said fact has nowhere been disputed by the Assessing Officer in the impugned assessment order. He submitted that once the above three conditions are satisfied, it can be safely presumed that the change in the method of accounting is valid and lawful. Further, having accepted the change in the method of accounting, the Assessing Officer should have also given impact arising as a result of change in the method of accounting. It can be reasonably expected that as a result of change in the method of accounting, a distortion may arise in the year of change/diversion. Such change has to be accepted by the Assessing Officer. In the present case, the Assessing Officer accepted the assessee's act of change in the method of accounting, however, he had arbitrarily refused to give the effect arising as a result of change in the method accounting, which is not justified on the part of Assessing Officer. He submitted that the Hon'ble Courts in the various decisions has duly confirmed that in the year of change of method, the effect of such change shall be allowed as expenditure or income for that particula....
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....d therefore, such expenses are not allowable. Since the claim was made by the assessee by way of revised computation instead of making the claim in the return of income, the Assessing Officer also rejected such claim of the assessee on the ground that the same cannot be allowed otherwise than by way of revised return. He further noted that the interest of Rs. 157.34 crores which has been actually paid by the assessee also cannot be allowed as deduction as it pertains to the earlier period during which the assessee's income was exempt from taxation. We find the Ld. CIT(A) upheld the action of the Assessing Officer. While doing so, he further noted that the provisions of section 43B of the Act allows for a deduction on any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or in respect of the term loan from a scheduled bank in previous year in which the same is actually paid. He noted that the assessee in the instant case has taken loan from the Govt. of India, Mumbai Port Trust, etc which do not fall under the category of any scheduled bank or public financial institution etc., therefore, the provi....
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.... adopted the cost price as a basis for valuing its closing stock. For the earlier previous years, however, the assessee determined cost price by adding overheads to the cost of the stock, while in the relevant assessment year, it decided to change this method by determining cost price without taking into account overheads. The decision of the Tribunal was on the footing that since the closing stock was valued by adopting a certain method, the same method should be adopted in valuing the opening stock. In other words, according to the Tribunal, the change in the method of valuation should commence with valuing the opening stock of any previous year by the new method which was to be adopted for valuing the closing stock as well. The assumption so made by the Tribunal appeared to be contrary to the normally accepted accounting principles as laid down in the booklet called Valuation of Stock and Work-in-progress - Normally Accepted Accounting Principles' - brought by Indian Merchants' Chamber Economic Research & Training Foundation. According to the booklet, the two principles applicable with regard to the valuation of stock are that the assessee is entitled to value the closing st....
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.... assessee in the present case, the assessee's case has been that the new method was adopted in the face of the Manufacturing and Other Companies (Auditor's Report) Order, 1975. The Order applies to every company, which is engaged inter alia in manufacturing, mining or processing. The order requires that in the case of manufacturing, mining or processing companies, the auditor's report on the accounts must include a statement whether the company is maintaining proper records to show full particulars including quantitative details and situation of fixed assets, whether these fixed assets have been specifically verified by the management, and whether the same have been properly dealt with in the books of accounts. The auditor must further certify his satisfaction that the valuation of the stocks is fair and proper and in accordance with the normally accepted accounting principles. It is the assessee's case that at the relevant time, methods of accounting for measurement of inventories ordinarily adopted by companies were based on accounting standards followed internationally. These required the historical cost of inventories to be accounted by using the First-in-First-....
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....ring the assessment year in question, which was the first year when the change of method was brought about, a prejudice or detriment might be caused to the revenue, because the opening stock was valued at total cost while closing stock was valued at direct cost. 12. The foregoing discussion makes it clear that so long as the change made by the assessee in his method of accounting is bona fide and amounts to a permanent arrangement to be followed, the Revenue has no cause to complain. The conclusion drawn by the Tribunal that the change in the method of valuation adopted by the assessee, namely, from "lowest price during the year" to the "weighted average cost formula was not justified, is without any merit. We accordingly, answer questions (a) and (b) in the negative, i.e. in favour of the assessee and against the Revenue. 13. So far as question (c) is concerned. Mr. Pardewala, learned Senior Counsel appearing for the assessee, fairly states that the issue is covered by the decision of this Court in the case of CIT. Zenith Steel Pipes & Industries Ltd. [2009] 315 ITR 95. In Zenith Steel Pipes & Industries Lid (supra), our Court, relying on the decision of Sam Fash....
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....expenditure is incurred and made payment and claim of the assessee is in accordance with the provisions of the Act, the same needs to be allowed to the assessee, irrespective of treatment given in books of account. The Hon'ble Supreme Court in the case of M/s.Kedarnath Jute Manufacturing Co.Ltd. (supra) held that entries in books of account are not determinative and or conclusive and the matter is to be examined on the touchstone of provisions contained in the Income Tax Act. The relevant findings of the Hon'ble Supreme Court in the case of M/s. Taparia Tools Ltd. (supra) and the decision in the case of M/s.Kedarnath Jute Manufacturing Co.Ltd (supra) are as under:- "Taparia Tools Ltd. Vs.JCIT (2015) 372 ITR 605(SC): Section 36(1)(iii) of Income Tax Act, 1961 - Interest on borrowed capital (Upfront interest charges) - assessment year 1996-97 - Assessee company issued debentures for a period of 5 ears - Apart from option of half yearly periodical interest, debenture holders were given another option to accept one time upfront discounted interest payment - assessee was following mercantile system of accounting - It filed its return claiming deduction of Upfront intere....
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....notional income. 95. We find the Hon'ble Andhra Pradesh High in the case of CIT vs. Andhra Pradesh Industrial Infrastructure Corporation reported in 236 ITR 648 has held that the assessee was entitled to change the system of accounting from one system to another system as long as the change is bonafide. By changing the system of accounting from mercantile to cash system, he would be making an entry in the account books as and when interest was actually paid and received by him. Interest thus received would be subject to tax on the date on which it was actually paid. It also found that the Tribunal has observed that the assessee was adopting the change in the method consistently and the said change in the accounting system was bonafide. Accordingly the order of the Tribunal was upheld and the appeal filed by the Revenue was dismissed. 96. In view of the above decisions, we find merit in the arguments of the Ld. Counsel for the assessee that the effects are to be allowed in the year of change of method of accounting and therefore, the question of relating the same to any particular period would be against the provisions of law. 97. So far as the decision of the Hon'ble B....
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....h income/expense is accounted has to be seen. In the present case the interest expenses were never accounted for by the assessee in the earlier period (upto 31.03.2002) owing to the fact that the assessee was following cash system. This fact has nowhere been contravened by the Assessing Officer in the assessment order. Therefore, once interest expenses were not accounted for in the earlier period on account of the accounting policy followed at that time, such interest expenses cannot be considered as prior period expenses. The Assessing Officer in the assessment order has nowhere doubted the veracity of the interest expenses which were otherwise allowable. 100. Even otherwise also, in the preceding paragraphs we have already upheld the allowability of exemption u/s 11 of the Act. Once the assessee's income is held as exempt u/s 11 of the Act and the books of account of the assessee are to be prepared on commercial bases, then such expenses outflow has to be allowed as application of income. 101. We find the Hon'ble Calcutta High Court in the case of CIT vs. Jayshree Charity Trust reported in 159 ITR 280 (1986) has held that the immunity from taxation that has been granted by ....
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....ncome has been shown in the P&L account for assessment year 2005-06 since the same were crystallized in that year. He submitted that the assesses, being a Government entity, has to follow definite procedures for approval and sanction of the bills. Such procedures often delay the booking of the income in the books of accounts since the same are crystallized only after their approvals. He further submitted that there is no dispute to the fact that assessee has been following mercantile system of accounting for this assessment year. Going by this mercantile system, since actual right to receive this income was not crystalized in this year, therefore the same should not be considered as income of this year. He further submitted that the assessee has offered this income in assessment year 2005-06 and hence, there is no tax loss to the department and such exercise is futile. 107. Without prejudice basis, he submitted that since assessee has already offered this income in assessment year 2005-06, and if it is proposed to tax this income in the current year itself, then a direction may be given to the Assessing Officer to reduce this income in assessment year 2005-06. 108. The Ld. DR....
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....nce the same are crystallized only after their approvals. He submitted that there is no dispute to the fact that the assessee has been following mercantile system of accounting for this assessment year. Going by this mercantile system, since actual right to receive this income was not crystalized in this year, therefore the same should not be considered as income of this year. He further submitted that the assessee has offered this income in AY 2005-06 and hence, there is no tax loss to the department and such exercise is futile. 113. On a without prejudice basis he submitted that since the assessee has already offered this income in AY 2005-06, in case it is proposed to tax this income in the current year itself, then a direction may be given to the Assessing Officer to reduce this income in AY 2005-06. 114. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A). 115. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Offi....
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.... the status of assessee as "Local Authority". 3. On the facts and circumstances of the case, Ld. CIT(A) has erred in allowing the payment on account leave encashment which pertains to earlier years. In this respect the Ld. CIT(A) has erred in relying upon the order of High Court in the case of Hindustan Latex Limited which covers the expenses of later years not earlier years. 4. The appellant crave to consider each of the above grounds of appeal without prejudice to each other and craves to add, alter, delete or modify all or any of the above grounds of appeal. 119. Ground No.1 raised by the Revenue relates to the order of the Ld. CIT(A) allowing the claim of exemption u/s 11 of the Act. 120. After hearing both sides we find the above ground is identical to the ground of appeal No.1 raised by the Revenue in ITA No.543/PUN/2016 for assessment year 2003-04. We have already decided the said issue in the preceding paragraphs and dismissed the ground raised by the Revenue. Following similar reasonings, we dismiss the ground raised by the Revenue. Ground No.1 raised by the Revenue is accordingly dismissed. 121. Ground No.2 raised by the Revenue relates to the o....
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....sessee. He submitted that since such expenses have not been debited in the books of accounts pertaining to those earlier years especially when the assessee is following mercantile system of accounting, the liability arises when it becomes due. Therefore, in such circumstances, the Assessing Officer was fully justified in disallowing such expenses. 128. The Ld. Counsel for the assessee on the other hand submitted that the assessee has made payment towards leave encashment policy maintained with LIC of Rs. 3.05 crores on the basis of actuarial valuation accrued upto 31.03.2002. He submitted that the payment of leave encashment to the LIC is allowable u/s 43B(f) on the basis of actual payment. He submitted that the very insertion of the provision of section 43B(f) has been made in order to disallow the payment based merely on accounting entry without making any payment. Therefore, the contention of the Assessing Officer that the assessee has claimed leave encashment for past services is incorrect because the payment for the said services has been actually made in the current year. He submitted that the said expense would never be allowable in the earlier years due to nonpayment. He....
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...., the said expenditure in our opinion is an allowable expenditure. We find the Hon'ble Kerala High Court in the case of Hindustan Latex Ltd. reported in 22 taxmann.com 332 has held that the amount paid to LIC towards leave encashment was allowable as deduction. As per the said decision the payment made to LIC for the leave encashment fund is an allowable expense u/s 37 irrespective of the period for which it belongs. In any case, since the income of the assessee needs to be computed u/s 11 on a commercial sense, therefore, we find merit in the arguments of the Ld. Counsel for the assessee that the above outflow needs to be allowed as an application of income. Accordingly, this ground raised by the Revenue is dismissed. ITA No.1155/PUN/2016 (A.Y. 2004-05) (Assessee) 133. Grounds raised by the assessee are as under: Accumulated Interest for the period upto 31.3.2002 of Rs. 40,70,74,753/- 1. On the facts and in the circumstances of the appellant case and in law, Learned Commissioner of Income Tax(Appeals) erred in confirming the action of the A.O. in not giving deduction on account of interest paid on loan of Rs. 40,70,74,753/- on the ground that same pertains ....
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....arned Commissioner of Income Tax(Appeals) erred in confirming the action of the A.O. in assessing royalty from BPCL and environmental monitoring charges from NSICT of Rs. 18,10,940/- as income of the year though same were offered to tax in Α.Υ. 2005-06. Excess Expenditure debited: 10. On the facts and in the circumstances of the appellant case and in law, Learned Commissioner of Income Tax(Appeals) erred in confirming the action of the A.O. in disallowing Rs. 19,54,845/- as excess expenditure debited without appreciating that the expenses were not claimed twice. Capital loss of Rs. 23,13,05,720/- 11. On the facts and in the circumstances of the appellant case and in law, Learned Commissioner of Income Tax (Appeals) erred in confirming the action of the A.O. in not allowing capital loss of Rs. 23,13,05,720/- claimed in the return of income. 12. On the facts and in the circumstances of the appellant case and in law, Learned Commissioner of Income Tax(Appeals) and A.O. failed to appreciate that the loss was incurred on account of sale of fixed assets on which no depreciation was claimed or allowed and hence should be treated a....
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....he said ground. Following similar reasonings, we dismiss the ground Nos.7 and 8 raised by the assessee in assessment year 2004-05. 140. Ground No.9 raised by the assessee relates to the order of the Ld. CIT(A) confirming the addition of environment monitoring charges amounting to Rs. 18.10 lakhs. 141. After hearing both the sides, we find the above ground is identical to ground of appeal No.9 raised by the assessee in ITA No.1153/PUN/2016 for assessment year 2003-04. We have already decided the issue and dismissed the said ground. Following similar reasonings, we dismiss the ground No.9 raised by the assessee in assessment year 2004-05. 142. Ground No.10 raised by the assessee was not pressed by the Ld. Counsel for the assessee for which the Ld. Special Counsel for the Revenue has no objection. Accordingly, ground of appeal No.10 is dismissed as 'not pressed'. 143. Ground Nos.11 & 12 raised by the assessee relate to the order of the Ld. CIT(A) confirming the addition made by the Assessing Officer on account of loss on sale of fixed assets being capital loss amounting to Rs. 23.13 crore. 144. Facts of the case, in brief, are that during the year under consideration, t....
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....e depreciable assets and therefore, the sale value would be reduced from block of assets. We find the Ld. CIT(A) held that since the assets were actually sold in financial year 1999-2000 and since the income of the assessee was exempt upto 31.03.2002, therefore, no benefit of carry forward of loss can be given u/s 74 of the Act. He held that the assets form part of block of assets and therefore, no independent loss can be claimed as per section 43(6)(c)(B) of the Act and the WDV of block of assets would be eligible for depreciation. It is the submission of the Ld. Counsel for the assessee that although the assets were sold in financial year 1999-2000 but the approval for the same was received from the Ministry in previous year relevant to assessment year 2004-05. Further the assessee has not claimed any depreciation on the said assets for assessment year 2004-05 or in the earlier assessment years which has not been disputed by the Assessing Officer therefore, it does not form part of the block of assets. It is his submission that the said loss is duly allowable against the income of the current year as no depreciation on said assets was claimed. We do not find any merit in the argu....
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....expenditure as revenue expenditure. 4. The appellant crave to consider each of the above grounds of appeal without prejudice to each other and craves to add, alter, delete or modify all or any of the above grounds of appeal. 153. Ground No.1 raised by the Revenue relates to the order of the Ld. CIT(A) allowing the claim of exemption u/s 11 of the Act. 154. After hearing both the sides we find the above ground is identical to ground of appeal No.1 raised by the Revenue in ITA No.543/PUN/2016 for assessment year 2003-04. We have already decided the said issue in the preceding paragraphs and dismissed the ground No.1 raised by the Revenue. Following similar reasonings, we dismiss the ground No.1 raised by the Revenue. 155. Ground No.2 raised by the Revenue relates to the order of the Ld. CIT(A) allowing the status of 'local authority' to the assessee. 156. After hearing both the sides we find the above ground is identical to ground of appeal No.2 raised by the Revenue in ITA No.543/PUN/2016 for assessment year 2003-04. We have already decided the said issue in the preceding paragraphs and dismissed the ground No.2 raised by the Revenue. Following similar reasoning....
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....3/- as income of the year though same were crystallized during the year. Sales Tax payments pertaining to earlier periods 6) On the facts and circumstances of the appellant's case and in law, learned Commissioner of Income Tax (Appeals) and A.O. erred in not allowing the sales tax payment of Rs. 9,94,363/-, which was crystallized during the year. Disallowance u/s 40A(3) of Rs. 17,015/- 7) On the facts and circumstances of the appellant's case and in law, learned Commissioner of Income Tax (Appeals) and A.O. erred in disallowing of Rs. 17,015/- on account of cash payment without considering fact of the case. Prior period expenses 8) On the facts and circumstances of the appellant's case and in law, learned Commissioner of Income Tax (Appeals) and A.O. erred in not allowing prior period expenses of Rs. 2,53,17,833/- as claimed in the return of income as per explanation given in the Tax Audit Report. 9) The appellant prays this Hon'ble Tribunal to delete the addition/disallowance made by the Learned Assessing Officer, which is confirmed by the Learned CIT (A). 160. Ground Nos.1 to 4 raised by the assesse....
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....view of provision of section 14A of the Act. He further noted that penalty for statutory legal defaults cannot be allowed. He accordingly disallowed an amount of Rs. 9.94 lakhs. In appeal, the CIT(A) held that the expenses crystallized during the financial year for which they have been raised and not in the year in which the demand was actually paid. Since the assessee has not bought on record any evidence to substantiate that such demands were raised in the year under consideration, therefore, the same cannot be allowed as expenditure during the year merely because the payment made in this year it cannot be said that the liability was crystalized in this year. He, therefore, upheld the addition made by the Assessing Officer. We do not find any infirmity in the order of the Ld. CIT(A) on this issue. However, the alternate submission of the Ld. Counsel for the assessee that once the exemption u/s 11 is allowed, the same amount may be allowed as application of income, may be considered by the Assessing Officer. Ground No.6 raised by the assessee is accordingly dismissed. 166. Ground No.7 raised by the assessee relates to the order of the Ld. CIT(A) confirming the disallowance made....