2015 (6) TMI 233 - AT - Income Tax

Disallowance of expenses on the basis of Application of Income - AO treating the whole of the amount of the grant received from Ford Foundation as income of the assesse - Held that - We find considerable force in the other argument of the assessee s counsel i.e. the income should be computed on commercial principles, as we have held that the assessee-society is eligible for exemption under section 11 of the Act and we have also held that the objects of the society were of charitable nature within the meaning of section 2(15) of the Act, and as we have further held that there is no violation, whatsoever of the provisions of section 13(1)(c) and (d) of the Income-tax Act, 1961. Respectfully following the above we set aside the matter to the file of the Assessing Officer to compute the income of the assessee for the assessment years 2002-03 and 2003-04 afresh in view of the above direction of the ITAT after affording proper opportunity of being heard to the assessee. - Decided in favour of assesse for statistical purposes.

Issues involved:
1. Disallowance of expenses and depreciation.
2. Denial of exemption under specific sections of the Income-tax Act.
3. Discrepancy in determining deficit and salary expenses.

Detailed Analysis:

1. Disallowance of expenses and depreciation:
The appellant challenged the First Appellate Order on various grounds related to the disallowance of expenses and depreciation. The appellant argued that the Assessing Officer erred in disallowing expenses totaling a specific amount on the basis of 'Application of Income' rather than treating them as expenditures. Additionally, the appellant contended that certain expenses, including those related to basic accounting matters and depreciation as per the Income-tax Act, were wrongly disallowed. The appellant further raised concerns about the enhancement of taxable income without valid reasons. The ITAT reviewed the orders of the authorities and noted that an identical issue had been addressed previously. Referring to specific judgments, the ITAT emphasized the importance of considering the specific purposes of grants received and the corresponding expenses to be incurred in future years. The ITAT directed the Assessing Officer to recompute the income of the assessee in accordance with law, following the matching principle and removing tied-up grants from the computation.

2. Denial of exemption under specific sections of the Income-tax Act:
The appellant questioned the denial of exemption claimed under sections 11 and 12 of the Income-tax Act, 1961, invoking section 13(1)(c) incorrectly. The ITAT considered the arguments presented by the Learned AR and referred to previous judgments highlighting the need to follow well-established principles in computing income. The ITAT directed the Assessing Officer to recompute the income of the assessee for the relevant assessment years, ensuring that tied-up grants were excluded from the computation and the intentions of donors were duly considered. The ITAT set aside the matter for proper computation of income based on the directions provided.

3. Discrepancy in determining deficit and salary expenses:
The appellant raised concerns regarding the determination of a deficit amount and the denial of certain salary expenses claimed. The ITAT observed that the Assessing Officer had denied claimed expenditures based on a previous assessment order, which had been set aside in a previous appeal. The ITAT reiterated the importance of considering the nature of grants received and the corresponding expenses to be incurred in future years. The ITAT directed the Assessing Officer to recompute the income of the assessee for the relevant assessment years, following specific judgments and principles related to the treatment of grants and expenses. The appeals were allowed for statistical purposes, emphasizing the need for proper computation of income in line with legal provisions and judicial precedents.

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