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TMI Blog2016 (5) TMI 412X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of revenue for statistical purpose. Provisions for arrear salary as application of income - Held that:- It is not in dispute that the assessee institution is following the mercantile system of accounting. We find that the assessee had provided for provision of salary arrears in its books based on the recommendations of the 6th Pay Commission, which got crystallised somewhere in February 2009 and treated the same as an ascertained liability by providing in its books of account. The assessee claimed the same as an application of income u/s. 11(1) of the Act. We agree with the arguments of the ld.AR that payment of salary arrears in 3 yearly installments commencing from Ays. 2009-10 to 2011-12 does not matter as far as the applicability of application of income u/s. 11(1) especially when the assessee is following the mercantile system of accounting. In view of aforesaid finding, we find no infirmity in the impugned order of the ld.CIT(A) in this regard. - Decided against revenue - ITA No. 1078/Kol/2013 - - - Dated:- 30-3-2016 - Shri M. Balaganesh, Accountant Member, and Shri S.S.Viswanethra Ravi, Judicial Member For The Appellant : Rajat Kr. Kureel, JCIT, ld.Sr.DR F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is exempt under sections 10(23A) as well as 11(1) in accordance with the provisions contained in those two sections. 3.3 The ICWAI in its Return of Income specified the particular income which should be considered as exempt u/s 10(23A) and other incomes which should fall in the category of incomes covered u/s 11(1). Simultaneously, those expenses which are directly relatable to the incomes exempt u/s 10(23A), are reduced from the gross incomes considered u/s 10(23A) for determining the actual income that should be claimed as exempt u/s 10(23A). All the other incomes i.e. those incomes which are not being considered for the purpose of claiming exemption u/s 10(23A), are eligible for exemption u/s 11(1) to the extent such incomes are applied for the specified charitable purpose, viz Education. During the assessment proceedings, on being asked by the Learned AO, the assessee explained the basis according to which certain categories of incomes were being classified as being directly covered u/s 10(23A) and the other were considered for the purposes of section 11(1). It was explained that the particular incomes and the expenses which had been on account of the Members and the Student ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, but all the expenses were towards the fulfillment of its objective, viz., regulation of the profession of accountancy and education. However, since certain specific expenses are being considered as having direct nexus with the incomes considered for determining the incomes exempt u/s 10(23A), those specific expenses are not being claimed as Applications u/s l1(l)(a). The assessee submitted that it was wrong on the part of the Learned AO in allocating the expenses which had not been considered as related to incomes exempt u/s10(23A), proportionately on the basis of gross incomes considered u/s 10(23A) and u/s 11(1). The assessee further submitted that the AO did not appreciate that the expenses not being considered as directly related to the incomes exempt u/s 10(23A), should have been considered as Applications of incomes deductible in accordance with the provisions of section 11(l)(a). The assessee further submitted that the AO failed to appreciate that the expenses claimed as Applications u/s l1(l}(a), had not been incurred for earning the incomes whether u/s 10(23A) or u/s 11(l) and, therefore, there should not have been any apportionment of the expenses on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs expenses for earning income. Whatever are the outgoings are the applications of the institute's receipts and those cannot be treated as expenses incurred to earn income. Therefore, any allocation of the expenses, whether capital or revenue, to the receipts shown to be either under section 11 or 10(23A), is without any legal or accounting basis. It is further seen that in at least in last four years, the assessments of which have been completed u/s 143(3), no such attribution of expenses is done. There are no changes in the facts of the case in last four years vis-a-vis this year. Therefore, the AO is directed to compute the income without allocating the expenses, whether capital or revenue, to different heads of receipts and treat the entire expenses as application of income under section 11 . 5. Aggrieved, the revenue is in appeal before us on the following ground:- 1. That on the facts and the circumstances of the case and also in the question of law, the Ld. CIT (A)/ Jalpaiguri erred in holding that indirect expenses incurred by the assessee should be treated entirely as application of income u/s 11(1)(a) without apportioning any part thereof against income exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year also, which would resolve the dispute under appeal before us. Accordingly, the ground no.1 raised by the revenue is allowed for statistical purpose. 8. The last ground to be decided in this appeal is as to whether the ld.CIT(A) is justified in treating the provisions for arrear salary of ₹ 2,90,19,471/- as application of income in the facts and circumstances of the case. 9. The brief facts of this issue are that during the assessment proceedings the ld. AO asked the assessee to explain in regard to a provision of ₹ 2,90,19,471/- made towards arrears of salaries. The assessee explained before the ld. AO that it had all along been following the mercantile system of accounting and, accordingly, whenever any particular liability got crystallised, the same was provided in the accounts. At the assessee s Council Meeting held on 12th and 13th February, 2009, the liability towards arrear salaries, had been determined at ₹ 2,90,19,471/- and the same was provided in the accounts for the FY 2008-09. Since the liability related for the years earlier to the FY 2008-09, as per the general accounting principles, full provision for the entire arrears was made in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, the ld. AO's action in not accepting the assessee s claim to treat the sum of ₹ 2,90,19,471/- as an application of income, was unjustified. Accordingly, the assessee submitted that the ld. AO may be directed to include the sum of ₹ 2,90,19,471/- as the application of income u/s. 11(1)(a) of the Act. 10. On appeal, the ld.CIT(A) has held as under:- 5.2 The assessee follows mercantile system of accounting and the liability to pay arrears as per the recommendations of 6 th Pay Commission had been ascertained clearly during the FY and the entire provision was actually disbursed to the concerned employees before completion of assessment. Therefore, the apprehension of AO that this liability was unascertained is without basis. The AO is directed to allow the entire expenses on this head as application of income u/s.11(1) for this year. 11. Aggrieved, the revenue is in appeal before us on the following ground:- 2. That on the facts and the circumstances of the case, The Ld. CIT (A) Jalpaiguri erred in holding that the Provision for Salary of ₹ 2,90,19,471/- towards arrears had been ascertained and disbursed before completion of assessment t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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