2019 (3) TMI 2009 - AT - Income Tax

Disallowance of depreciation on the assets purchased by the assessee by application of funds - CIT(A) deleted the same by following the decision of Vishwa Jagriti Mission 2013 (1) TMI 157 - DELHI HIGH COURT - HELD THAT - - In assessee s own case also, Hon ble jurisdictional High Court in DIT vs Indraprastha Cancer Society, 2014 (11) TMI 733 - DELHI HIGH COURT considered the question whether after claiming deduction in respect of the cost of the assets u/s 35(1) of the Act, assessee again claimed deduction on account of depreciation in respect of the same asset. Hon ble jurisdictional High Court held the issue in favour of the assessee. No nreasonableness in the order of the ld. CIT(A). We, therefore, confirm the order of the ld. CIT(A) and dismiss Ground Nos. 1 2. Disallowing the loss on sale of assets - Plea of the assessee is that the assets were sold at a price lesser than the WDV of the assets and when the depreciation is allowed following the commercial principle, there is no bar to consider the loss and the learned AO committed error in taking the sale proceeds as income and ignoring the loss - CIT(A) considered the plea of the assessee and satisfied that the assessee could demonstrate that the income u/s 11 had to be determined on commercial principles - HELD THAT - We are also of the considered opinion that the income u/s 11 has to be determined on commercial principles and to determine the same, the losses arising on sale of assets of the society shall be considered. Therefore, the capital loss of Rs.2,14,310/- has to be considered while calculating the income of the assessee. With this view of the matter, we uphold the finding of the ld. CIT(A) on this ground and dismiss Ground No.3. Disallowing the provisions relating to the gratuity, leave encashment and cancer care scheme - HELD THAT - We are satisfied that such a provision was made on scientific basis inasmuch as the explanation of the assessee is that the employees accrue a right of gratuity on their continuous service for five years and the society has to pay them the gratuity as and when they retire, so also the leave encashment, which are ascertain amounts but the time of payment is unknown and, therefore, as a prudent employer, the assessee has to make provision for payment of such ascertained amounts but at an unascertained time. CIT(A) drew strength from the judgment of DIT(E) vs NASSCOM 2012 (5) TMI 204 - DELHI HIGH COURT wherein it was held that the income available for charitable purpose to be computed in accordance with commercial principles, provision for bad and doubtful debts could be created, and observed that the ratio of this judgment applies to this case also as the provisions has been made to meet the ascertained liability likely to be incurred during the course of carrying out its object. This reasoning given by the learned CIT(A) does not appear to be suffering from any illegality or irregularity - ground no.4 has to be dismissed. Disallowing the advance amount paid by the assessee for purchase of assets like machinery - HELD THAT - . It is the submission of the learned AR that it is the practice of the assessee that whenever the advances are paid to the vendors, in the year when the machinery is supplied and the expenditure is booked, only the balance amount is taken cognizance and not the entire amount. This is an aspect which requires verification at the end of the learned AO as to whether the expenditure is booked for the entire expenditure or only for the balance amount of the cost of the machinery. We, therefore, set aside this issue to the file of the learned AO to verify whether the advance amount is excluded from the cost of the machinery or the capital assets in the year in which the expenditure is taken cognizance of and if the advance amount is excluded while booking the expenditure to allow this advance amount for this year. Ground No.5 is, therefore, allowed for statistical purposes. Addition made on account of the earmarked funds received by the assessee - AR submitted that in respect of the receipt or spending of the alleged earmarked funds, there is evidence available with the assessee in the shape of resolutions or correspondence creating such obligation to spend the amount in a specific way - HELD THAT - We are, therefore, of the considered opinion that in the interest of justice, this issue has to be set aside to the file of the learned AO and it is for the assessee to prove their claim with reference to any material available in their custody. Learned AO will cause the factual verification in respect of any such material to be produced by the assessee and to take a fresh view at the matter. This is more particularly in view of the fact that according to the assessee, learned AO allowed these funds quite for a long term both priorand alsosubsequent years. We direct the assessee to produce the material before the AO and to substantiate their claim. We, therefore, allow this ground for statistical purposes.

Summary

Issues:
Crossed appeals challenging order dated 1.2.2013 in Appeal No.240/269/08-09 for Assessment Year 2006-07.

Analysis:
1. The case involved crossed appeals by both Revenue and the assessee against the order passed by the CIT(A) for Assessment Year 2006-07.
2. The society, registered under sections 12A(a) and 10(23C)(via) of the Income-tax Act, aimed at cancer research and operated a charitable hospital.
3. The assessment by the AO included various additions, which were challenged in the appeal.
4. The CIT(A) deleted certain additions, leading to appeals by both parties.
5. Grounds 1 & 2 of the revenue's appeal concerned disallowance of depreciation, upheld by the CIT(A) based on a High Court decision.
6. Ground 3 involved disallowance of loss on sale of assets, which the CIT(A) allowed based on commercial principles.
7. Ground 4 related to provisions for gratuity, leave encashment, and cancer care schemes, upheld by the CIT(A) citing commercial principles.
8. Ground 5 dealt with disallowance of advance amount paid for assets, remanded to the AO for verification.
9. The assessee's appeal focused on addition of earmarked funds, requiring evidence to substantiate the claim, remanded for factual verification.
10. The tribunal partly allowed the revenue's appeal and allowed the assessee's appeal for statistical purposes, directing further verification by the AO.

This detailed analysis covers the issues involved in the legal judgment, including the background, assessment details, grounds of appeal, and the decisions rendered by the tribunal on each issue raised by the parties involved.