2023 (9) TMI 1020 - AT - Income Tax

Expenditure towards development activities - Treating the amount as merely diverting to development fund instead of incurring actual expenditure which is being 85% of the development charges - HELD THAT - It is undisputed fact that the assessee is a non-profit organisation, established for the development of urban areas by implementing the provisions of the Master Plan as per the directions of the Government of Andhra Pradesh. The assessee debited 85% of the Development Charges received to the sinking fund to meet the future formation charges as per the directions given. Coordinate Bench of the Tribunal in the assessee s own case for the A.Y. 2009-10 to 2013-14 on similar issue 2022 (10) TMI 120 - ITAT VISAKHAPATNAM allowed the appeal of the assessee holding that since the assessee could not expend 85% of the development charges during the relevant assessment year does not warrant disallowance of the same, as the expenditure shall be incurred in future years for the purpose of general public utilities. As we hold that the CIT(A) has rightly deleted the disallowance made by the AO. We are therefore, inclined to uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.

Summary

Issues involved:
The issues involved in the judgment are related to the disallowance of development charges by the Assessing Officer (AO) and subsequent appeals filed by the revenue against the orders of Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC) for the Assessment Years (A. Ys.) 2014-15, 2016-17 to 2018-19.

Issue 1: Disallowance of development charges by the Assessing Officer

The assessee, a statutory authority, collected development charges during the relevant assessment year and set aside 85% of the amount under the head development fund for future use. The Assessing Officer disallowed the expenses claimed under the head development fund as the assessee had not incurred any expenditure towards development activities. The total income of the assessee was assessed at a higher amount than the returned loss.

Issue 2: Appeal before the CIT(A) and Tribunal

The assessee appealed before the CIT(A) who, after considering the facts of the case, reply uploaded by the assessee, and previous ITAT orders, allowed the appeal of the assessee. Subsequently, the revenue preferred appeals before the Tribunal challenging the order of the CIT(A) on the grounds that the disallowance of development charges should not have been deleted.

Tribunal's Decision:

The Tribunal, after hearing both parties and examining the material on record, upheld the order of the CIT(A) and dismissed the appeal of the revenue. The Tribunal noted that the assessee, being a non-profit organization, was bound by the directions of the Government and had debited 85% of the development charges to the sinking fund for future formation charges as per government directions. The Tribunal relied on a previous order for the A.Y. 2009-10 to 2013-14 in the assessee's own case, where a similar issue was addressed, and allowed the appeal of the assessee.

Conclusion:

The Tribunal held that the disallowance of development charges made by the AO was not justified as the assessee, being a non-profit organization, was following government directives in debiting the charges to the sinking fund for future use. The Tribunal's decision was based on the nature of the organization and the requirements set by the government for the utilization of the development charges. As a result, the appeals of the revenue and the cross objections of the assessee for the relevant assessment years were dismissed.