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TMI Blog2018 (12) TMI 915X X X X Extracts X X X X X X X X Extracts X X X X ..... r period expenses - Held that:- There being no change in rate of taxes, the amount incurred under the said head has to be allowed in the AY under consideration as the said expenses were determined and crystallized during the AY under consideration. Accordingly, the disallowance made by the AO under the head Prior Period expenses is hereby deleted. The said expenses are allowed for the reason that these expenses were determined and crystallized only during the AY under consideration. - Decided against revenue - I.T.A. Nos.352 to 356/Lkw/2017 - - - Dated:- 13-12-2018 - Shri A. D. Jain, Vice President And Shri T. S. Kapoor, Accountant Member For the Appellant : Shri A. K. Bar, CIT, (D.R.) For the Respondent : Shri D. D. Chopra, Advocate ORDER PER T. S. KAPOOR, A.M. This is a group of five appeals filed by the Revenue against the separate orders of learned CIT(A)-IV, Lucknow all dated 30/03/2017. The Revenue has taken similar grounds of appeal in these appeals which were heard together therefore, for the sake of convenience, a common and consolidated order is being passed. For the sake of convenience, the grounds of appeal taken by the Revenue in I.T.A. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for development of forest produce. It was prayed that learned CIT(A) has ignored these facts and has wrongly allowed relief to the assessee by allowing exemption u/s 11 of the Act. Learned D. R. further submitted that the assessee had claimed certain expenses which related to prior period and were not allowable during the respective financial years as the assessee was following mercantile system of accounting and, therefore, on this account also the order of learned CIT(A) needs to be reversed. 3. Learned A. R., on the other hand, submitted that it is an undisputed fact that the assessee was granted registration u/s 12A of the Act as the activities of the assessee were held to be charitable in nature by Hon'ble Tribunal which was upheld by Hon'ble High Court and Hon'ble Supreme Court as the appeals filed by the Revenue had been dismissed. Learned A. R. in this respect invited our attention to the order of learned CIT(A) from page 50 onwards where learned CIT(A) has noted all these facts. As regards the arguments of Learned D. R. that assessee was engaged in trade and business, Learned A. R. submitted that the appeals relate to assessment year 2002-03, 2003-04, 2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13-06-2007 in compliance to the terms of the directions of the Hon'ble Allahabad High Court in Civil Misc Writ Petition No 173 (MB) of 1998 reconsidered the merits for grant of registration under Section 12A of the Act. The CIT, 5 Lucknow proceeded to deny registration on the findings that the appellants activities do not qualify to be in the nature of Charitable Activities and reliance was also placed on the Judgment of the Hon'ble Allahabad High Court in appellants own case reported in (129 TAXMAN 527) wherein the Hon'ble Court has observed that the Exploitation of forest is a commercial Activity. (iv) The order of the CIT Lucknow dated 13-06-2007 denying registration under Section 12A of to the Act to the appellant was again challenged before the Hon'ble ITAT, Lucknow in ITAT appeal No I.T.A No 512/LLIC/2007. (v) In the interim, the appellant also filed a Special Leave Petition (SLP) before the Hon'ble Supreme Court against the order dated 26-11-2002 as passed by the Hon'ble Allahabad High Court, for remanding the case back to CIT, Lucknow to decide the grant of registration afresh. While deciding the said SLP the Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we find that vide first and second ground of appeal the Revenue has agitated that the activities of the assessee did not fall within the definition of preservation of environment as it was inserted in section 2(15) of the Act with effect from 01/04/2009. The Revenue has further contended that the activities carried on by assessee involved carrying on of business and trade and therefore, Learned CIT(A) had wrongly allowed exemption u/s 11. As regards the first contention regarding carrying on of business and trade, the assessee was granted registration u/s 12A for carrying out its activities as the objects were held to be of general public utility and before 01/04/2009 there was no bar on business activities which were carried out in achieving the objects of the society. The cases under consideration relate to the period prior to 01/04/2009 The learned CIT(A) has dealt this argument of Assessing 7 Officer in para 5.6 of his order. For the sake of completeness the said findings of learned CIT(A) are reproduced below: a) This ground relates to the observations of the AO and denying the claim of the appellant by importing the phrase not involving activities for profit , in rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproduced below: Ground of appeal No. 5 6 (a) This ground of appeal relates to the inference drawn by the AO by placing reliance on the Judgment of the Hon'ble Allahabad High Court decided on 26.11.2002 and reported under 129 Taxman 527 wherein it exploitation of forest was held to be commercial activity and the AO not observing the directions of the Hon'ble Supreme Court as given -in Judgment reported in (165 Taxman 533). (b) The appellant vide its submissions has also rebutted the finding of the AO who relied on the judgment of the Hon'ble Allahabad High Court in appellants case dated 26-11-2002 cited under citation (129 TAXMAN 527) wherein the Hon'ble Court has held that the exploitation of forest is a commercial activity. (c) In this regard, I have gone through the submission of the appellant and the background in which the Hon'ble Court has pronounced its ruling dated 26/11/2002 cited under citation (129 TAXMAN 527). The subject ruling was pronounced by the Hon'ble Allahabad High Court with respect to the appellant s contention that its income is eligible for exemption under Section 11 of the Act if the benefit of Section 10(20) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contents of the orders as reproduced above in para 5.1(e) of this order). The AO cannot travel beyond his powers to open an issue which has been duly decided in favour of the appellant and with the facts remaining identical at the time of pronouncement by Hon'ble ITAT as well as the time of assessment proceedings. Consequent to the findings of the Hon'ble ITAT Lucknow and its examination of the fact that the Appellant is not doing commercial activity and which is upheld by the Hon'ble Higher Judiciary at a later date (in this case after the Hon'ble High Courts order dated 26-11-2002), the said findings of Hon'ble ITAT as duly attained finality would prevail. (e) I find merits in the arguments of the appellant on the basis of the Judgment of the Hon'ble High Court Of Madras in Seshasayee Paper Boards Ltd. v. Inspecting Assistant Commissioner (24 TAXMAN 604) and the decision of the Hon'ble Mumbai High Court in the case of Murlidhar Bhagwandas v. Commissioner of Income-tax (284 ITR 548). The same has been discussed in detail in Ground 3 above. (f) In view of the above discussion and judgments of the Hon'ble Courts as elaborated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disposal of trees and exploitation of forest resources entrusted to it by the State Government; (b)to prepare projects relating to forestry within the State; (c)to undertake research programmes relating to forest and forest products and render technical advice to State Government matters relating to forestry; (d)to manage, maintain and develop such forests as are transferred or entrusted to it by the State Government; (e)to perform such functions as the State Government may from time to time require. c) On perusal of the Section for which the appellant was incorporated, it is seen that the very primary purpose for its incorporation was to undertake removal and disposal of trees and exploitation of forest resources entrusted to it by the State Government . The modus operandi being adopted for removal trees and the exploitation of produce has been diagrammatically explained by the appellant in his submissions put forth before me. It is also to be seen that the activities of the appellant are being done under a defined working plan of the Central Government and the state Government which is duly monitored. The activities undertaken by the appellant are also i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve at the back of their minds the opportunity oc gamble of illicit felling of trees. In the second place, the Corporation is a wholly Government owned Corporation dedicated to the better preservation and development of 13 forests and better exploitation afforest produce. The profits of the Corporation are in truth the profit of the state itself. The state by establishing this Corporation does not intend to enter into a commercial activity. The activity is only furtherance of the object of the establishment of the Corporation itself. The prime aim of establishment of the Corporation is environment stability and maintenance of ecological balance. The revision of economical benefit, if any, is only supporting to the principles of the above aim. It is not the prime object and therefore it is difficult to hold that assessee's activities are for commercial exploitation of forest which will disentitle the assessee to obtain registration. Assessee is not treating forest just as a source of revenue. 25. The submission of the assesse to the effect that National Commission on Agriculture bought out its interim report on produce of various tress in August 1972 in which it recommen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SI No 8 at page 6 of the paper book-l makes it clear that there was a protracted litigation in the a case in the year 1980 between the State of U.P. and private Contractors who was highest bidder not getting the award of contract due to apprehension of the work being detrimental of the forestry. Ultimately the issues was decided in favour' of the Govt by the Hon'ble Supreme Court of India. It says that the case reported in 2 SCC 365 in the case of State of U.P. V Vijay Bahadur Singh, the Hon'ble Supreme Court of India held as under:- In the first place....... The State is not merely interested in realizing revenue but is equally interested in the preservation and development of forests. It cannot knowingly enter into contracts with bidders who must have, at the back of their 15 minds the opportunity or the gamble of illicit felling of trees. In the second place the Corporation is a wholly Government owned Corporation dedicated to the better preservation and development afforests and the better exploitation of forest produce. The profits of the Corporation are in truth the profits of the Slate itself. The Hon'ble Court upheld the Contention of the State f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Jurisdictional Allahabad High Court in ITA No 70 of 2009 bearing date 12-05-2010 and Hon'ble Supreme Court in SLP No CC 2590/2011 bearing date 12-05-2011. The orders of the Higher Judicial Authorities are reproduced below: Hon'ble Jurisdictional Allahabad High Court in case no ITA No 70 of 2009 bearing date 12-05-2010 Present appeal under Section 260A of the Income-Tax Act has been preferred raising o question whether U.P. Forest is liable for grant of certificate under Section 12-A of the Income-Tax Act 1961 ? It is has been admitted at bar that Hon'ble Supreme Court while dealing with the same issue in a case reported in (2008) 297 ITR 1 U.P. Forest Corporation Vs. Deputy Commissioner of Income-lax, settled that U.P. Forest Corporation is eligible for grant of certificate under Section 12-A of the Income-Tax Act, 1961. In view of the law settled by the Hon'ble Supreme Court there appears to be no justification to admit the appeal on the same issue. So far as condonation of delay is concerned once delay has been condoned there appears to be more justification to admit the appeal on the same issue, Being concluded by finding of fact no s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. It would lead to a chaotic situation . Similarly the Order of Hon'ble ITAT dated 06.03.2009 for A.Y. 2002-03 in appellants case too has attained finality. i)Accordingly I hold that once the activities of appellant are held to be in the nature of Preservation of environment therefore these activities are held to be Charitable in Nature and the same cannot be categorized partly as charitable and partly as non-charitable as they are covered within the objects for which it was incorporated and is functioning on those lines. We do not find any infirmity in the order of learned CIT(A), therefore, ground No. 3 5 are also dismissed. 8. Now coming to ground No. 4 6 which relate to deletion of addition which the Assessing Officer had made on account of prior period expenses. We find that this issue has also been dealt by learned CIT(A) exhaustively and after relying on number of case laws and keeping in view the facts and circumstances of the case, the learned CIT(A) has allowed relief to the assessee by holding as under: 5.7 Ground of appeal No. 8 (a)This ground of appeal relates to disallowance of expenses amounting to ₹ 6,63,812 by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the communication of approval in the assessment year 1966-67. The Hon'ble High Court held that the expenditure incurred in earlier years can be allowed as a deduction in the assessment year 1966-67 as it crystallized only when approval was received. iv)The Hon'ble High Court of Gujrat in the case of Commissioner of Income-tax State Forest Development (163 TAXMAN 547) wherein the Hon'ble High Court while deciding a similar issue held that Royalty is to be allowed on actual payment and such deduction would be allowed only after its payment. In the present matter, though the liability to pay the royalty was in relation to the assessment years 1981-82 and 1982-83, the liability to pay the royalty was finalised on 2-1-1985, and, 20 therefore, section 43B of the Act would apply with full force if the royalty is paid in the said assessment year. (v)The Allahabad High Court in the case of Commissioner of Income-tax v. Amrit Banaspati Co. Ltd (59 ITR 388) with respect to payment of dearness allowance wherein the Hon'ble Court has held that the claim to deduction, therefore, was only admissible in the year when the liability under the award was finally det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Mumbai High Court in the case of Nagri Mills Co. Ltd. [1958] 33 ITR 681. Relevant Extracts of the judgment in the case of Nagri Mills Co. Ltd (supra) are reproduced below: We have often wondered why the Income tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the income tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax-chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction In respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952. That is in the assessment year 1953-54, should be a matter of no consequence to the Department', and one should have thought that the Department would not fritter away our energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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