2022 (7) TMI 1046 - AT - Income Tax

Exemption u/s 11 - promotion and development of the game of Cricket - proviso to section 2(15) is invoked in the case of the assessee as the activities of the assessee are being run on commercial basis - registration granted u/s 12AA was withdrawn - HELD THAT - Firstly, it is not in dispute that the registration of the assessee society u/s 12A has been restored by the Tribunal vide its order dated 09.06.2016 2016 (6) TMI 499 - ITAT JAIPUR and on appeal by the Revenue, the order so passed by the Tribunal has been affirmed by the Hon ble Rajasthan High Court 2018 (8) TMI 196 - RAJASTHAN HIGH COURT Therefore, the primary condition for availing exemption under section 11 and 12 of the Act that the assessee society should be registered u/s 12A is satisfied in the instant case. Thus in the instant case, we are of the considered view that given that the assessee society is generating surplus year after year is not the deciding factor to determine whether it is eligible for exemption under section 11 of the Act. And on this ground alone, the exemption claimed by the assessee society under section 11 can not be denied. Allowance of expenses towards grants to District Cricket Associations - HELD THAT - We allow the expenditure incurred by the assessee by way of grants given to various District Cricket Association as claimed by the assessee. Accordingly ground no. 2 of the revenue is dismissed. Adopting accrual system of accounting and not the payment system of accounting as the Trust/AOP/Society/Institution exempted under the IT Act is not employed to adopt accrual system of accounting - HELD THAT - As perused the material available on record and it is noted that the method of accounting shall be cash or mercantile as per section 145(1) of the Income Tax Act 1961, as consistently followed is allowed. Regarding the provision of expenses, it is noted that the same is provided and adjusted from year to year and the amount shown in the Balance Sheet is the closing balance at the end of the year. Regarding the separate claim, if any, the ld. CIT (A) has already given opportunity to the AO in this matter. Accordingly, the Ground no. 3 of revenue is dismissed.

Summary

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act, 1961.
2. Allowability of expenses towards grants to District Cricket Associations.
3. Adoption of accrual system of accounting by the assessee.

Issue-wise Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act, 1961:
The primary issue was whether the assessee, a society trust engaged in promoting cricket, was entitled to exemption under Section 11 despite the proviso to Section 2(15) being invoked. The Assessing Officer (AO) had disallowed the exemption, arguing that the assessee's activities were commercial, not charitable. The AO based this on the withdrawal of the assessee's registration under Section 12AA by the CIT (Exemptions).

The ITAT noted that the assessee's registration under Section 12A had been restored by the Tribunal and upheld by the Rajasthan High Court. The Tribunal emphasized that the primary object of the assessee was charitable, focusing on promoting cricket. The Tribunal cited various judicial precedents, including decisions from the Supreme Court and High Courts, which supported the view that incidental profits do not negate the charitable nature of an organization. The Tribunal concluded that since the registration under Section 12A was restored, the basis for reopening the assessment did not exist, and the exemption under Sections 11 and 12 should be allowed.

2. Allowability of Expenses towards Grants to District Cricket Associations:
The AO had disallowed grants to District Cricket Associations, considering them either capital in nature or as application of income, which are not allowable as revenue expenses. The CIT(A) and the Tribunal both disagreed with the AO. The Tribunal observed that the grants were for infrastructure development and buying cricket equipment, which were essential for promoting cricket. The Tribunal held that these expenses were not capital in nature for the assessee but were application of income towards its charitable objectives. The Tribunal cited its earlier decision in the assessee's own case, which had allowed similar expenses.

3. Adoption of Accrual System of Accounting:
The AO had disallowed a provision for expenses of Rs. 2,30,26,342, arguing that provisions are not allowable as they are estimates for future expenses. The CIT(A) noted that the assessee did not claim this amount as applied during the year, and therefore, the question of disallowance did not arise. The Tribunal upheld the CIT(A)'s decision, stating that the assessee followed the mercantile system of accounting, which is permissible under Section 145(1) of the Income Tax Act. The Tribunal also noted that the AO was given the opportunity to verify if any separate claims were made for the provision amount.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue, upholding the CIT(A)'s orders that allowed the exemption under Sections 11 and 12, permitted the grants to District Cricket Associations as allowable expenses, and accepted the accrual system of accounting followed by the assessee. The Tribunal's decision was based on consistent judicial precedents and the factual matrix of the case, affirming the charitable nature of the assessee's activities.