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TMI Blog2019 (11) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... the case as culled out from the records are that the assessee is a local authority constituted u/s. 38 of the 'Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973'. The main object of the assessee Authority [Indore Development Authority or in short, 'the IDA'] is to prepare and implement schemes for development, improvement and maintenance of land and other real estate in the notified town i.e. 'Indore'. The assessee Authority furnished its Return of Income for the assessment year 2011-12, u/s. 139 of the Income-Tax Act, 1961, on 13-03-2012 declaring Total Income of Rs. Nil after claiming exemption under sec. 11 & 12 of the Act. 5. The case of the assessee was selected for scrutiny and Notices u/s. 143(2) and 142(1) were served upon the assessee. The assessee made compliance of all such Notices by making written submissions and by producing books of account and other documents. Assessee furnished copy of Audit Report in Form No. 10B obtained by it under section 12A(b) of the Income-Tax Act, 1961 and copy of Audited Financial Statements pertaining to the year under consideration. The Assessing Officer completed the assessment u/s.143(3) of the Income-Tax Act, 1961, on 30-03- 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of Rs. 21,27,835/- made by the Assessing Officer on account of disallowance of provisional expenses claimed under head Employees Remuneration and Benefits. 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting addition of Rs. 6,461 made by the assessing officer on account of disallowance of expenses u/s 14A. 4. The revenue reserves the right to add, urge or alter all or any other ground/grounds on or before the date of hearing. 8. As regards Ground No.1 of revenue's appeal for A.Y.2011-12 relating to deletion of addition of Rs. 15,73,65,419/- made by the Ld. AO on account of disallowance of sum expenses being capital in nature. Brief facts are that in the profit and loss account an amount of Rs. 19,67,06,774/- is debited under the head City Environmental Development and Preservation Expenses. It was contended by the assessee before the Ld. AO that these expenses are done for the development of the City Environmental Development and Preservation on the direction of the State Government and thus these are part of the revenue expenditure. Ld. AO however was not satisfied and treated the expenditure as capital in nature and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treet lighting, construction of administrative offices for the government, etc in the notified area. 5. That, during the relevant previous year, the assessee authority incurred and claimed expenses under the head 'City Environmental Development & Preservation Expenses', aggregating to Rs. 19,67,06,774/- under various sub-heads as per the details given at Schedule-20 of the audited financial statements [kindly refer PB page No. 24]. 6. Your Honours, the AO grossly erred in holding that the expenses incurred by the assessee Authority under the head 'City Environmental & Development Expenses' are of capital nature. The AO further held that such expenditure is not an item of sale or revenue generating item. After giving these findings, the AO disallowed the entire expenditure claimed by the assessee authority under the head 'City Environmental Expenses' at Rs. 23,10,17,503/- and added to the total income of the assessee authority. 7. Being aggrieved with the addition made by the AO, the assessee preferred appeal before the ld. CIT(A). The ld. CIT(A), vide para 4.2 to 4.2.3 at page no. 9 to 11 of his Order, was pleased to delete the entire addition made on this cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of our Paper Book. vi) It shall also be worthwhile to note that the assessee Authority is consistently undergoing scrutiny assessments under s.143(3) of the Act for other assessment years as well and in all such years, the expenses incurred by the assessee Authority under the head 'City Environmental & Development Expenses' have been held as that of revenue in nature by the Department and, consequently, the same have fully been allowed without any interference. It shall be appreciated that even for the subsequent assessment years i.e. A.Y. 2012-13 and A.Y. 2013-14, no disallowance on this count has been made by the concerning AOs. For such assertion, kind attention of Your Honours is invited to the copies of the Assessment Orders for two years before and after the assessment year under consideration i.e. for the A.Y. 2009-10, A.Y. 2010-11, A.Y. 2012-13 and A.Y. 2013-14 which have been placed in our Compilation at Page No. 71 to 117]. vii) It shall be pertinent to note that there has been no change in the facts and circumstances of the case prevailing in the assessment year under consideration and those prevailing in the aforesaid assessment years. In such a situation, taking a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5th disallowance out of City Environmental Development and Preservation Expenses. 14. We observe that the primary object of the assessee is to implement development plan, prepare one or more town development schemes and develop of land in accordance with Rules made by the State Government, by virtue of section 58 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973. The assessee authority also undertakes to carry out the development work of general in nature which is utilized by the public at large. Such expenses have been consistently incurred by the assessee in the past also and such claim have been allowed by the revenue authorities after conducting scrutiny assessment proceedings u/s 143(3) of the Act for the year under appeal. 15. We observed that Ld. CIT(A) deleted the impugned disallowance giving following of facts: 4.2 I have considered the facts and circumstances of the case, the finding of the AO, the written submissions filed by the appellant and also various documents placed on record. After considering the entirety of facts and circumstances, the AO has not been justified in making the impugned addition. It is found that in the instant case, the AO has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o observed that the AO himself in the body of the assessment order, has given a finding that the facilities on which such City Environmental Development and Preservation Expenses have been incurred are not an item of sale or revenue generating item. Thus, by giving this finding, the AO has impliedly accepted the claim of the appellant that these expenditure are in the nature of sunk cost in the hands of the Appellant. I find force in the contention of the appellant that these expenditure have been incurred by the appellant in pursuance of' its main objective of development of notified area. Further, by incurring these expenditure, the appellant authority would not be deriving any revenue in future as is the finding of the AO himself. Further, these expenditure cannot be said to be income generating apparatus of the appellant authority and in my view, by incurring these expenditure, the appellant would not be deriving any benefit of enduring nature. 4.2.3 I also find that these expenditure have consistently been claimed by the appellant for the last many years and even in the subsequent ears these expenditure have been claimed by the appellant. It has been claimed that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is noteworthy that the assessee company is working under the direction of State Government. It gets the power to acquire the land, develop housing project and other amenities for the public at large. Such land are acquired on concessional rates. Major reason for giving such wide powers and providing of precious land to the assessee authority is to develop the City in a wellorganized manner keeping the interest of public at large. Construction of Flyover, Parks, Central Lighting on various main roads, Plantation on various roads, Construction of OPD at M.Y. Hospital are few of such work which are for the overall development of the City and provides facility for the public. Incurring of such expenses increases the 'brand' value of IDA and also poses confidence of public at large in the working of IDA. 18. We, therefore, in the given facts and circumstances of the case and also looking to the consistency of such expenses allowed by the revenue authorities in the past as well as in the future assessment proceedings and also because the impugned expenses have direct bearing with the overall business model of the assessee, find no reason to interfere in the finding of Ld. CIT(A) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition made on this count. 19.00 The addition so deleted by the ld. CIT(A) deserves to be maintained in view of the following : i) The assessee authority has not debited any contingent liability on account of salary or on any other account in its audited Income & Expenditure Account for the relevant previous year. The amount of Rs. 21,27,835/- is only an ascertained liability of the assessee Authority which is explained in the ensuing paras. ii) It is submitted that the payment policy of the assessee authority in respect of salary to its employees is 'March paid in April', 'April paid in May' and so on. The assessee Authority under separate ledger accounts of salary heads with various GL-Codes viz. 927110-257 : Salary to Management Staff, 927316-475 : Salary to Project Staff, 927512-671: Salary to Planning Staff, 927718-811: Salary to Finance Staff, 927914-8072: Salary to Administration Staff, 928119-278: Salary to Legal Staff and 928315-474: Salary to Estate Staff, used to record the salary only on payment basis. In other words, the Salary to all the staff shown under Part-A of Schedule-23 pertains to the salary of March month of preceding previous year and does not include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows: 7.2 I have gone through the contents of the assessment order and also the written submissions filed by the appellant. On considering the entire facts and circumstances of the case, I find that the appellant has made a provision on account of salary for the month of March 2011 at Rs. 72,70,135/- and reversed the provision of salary made by it in preceding previous year for the month of March 2010 at Rs. 51,42,300/-, thereby giving a net effect on the provision of Rs. 21,27,835/-. I found that such treatment on account of provision for salary is given by the appellant consistently on year to year basis which is perfectly in accordance with the accounting method followed by it. I also find that the provision so made by the appellant is an ascertained liability of the appellant and not a contingent liability as wrongly construed by the AO. I found that the accounting treatment of provision for salary has duly been accepted and allowed by the Revenue in the scrutiny assessments of the appellant under s.143(3) of the I.T.Act,1961 for the earlier assessment years as well as for the subsequent assessment years. Therefore, the addition so made by the AO by treating the provision f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be made in a year in which no exempt income has been earned by the assessee. Considering the entire set of facts, the AO has not been justified In making the addition by invoking the provisions of section 14A of I.T.Act, 1961. Accordingly, this ground of appeal is allowed. 29. We find force in the contention of the Ld. counsel for the assessee and the finding of Ld. CIT(A) who was rightly followed the judgment of Hon'ble Delhi High Court in case of Cheminvest Ltd. (supra). Since there is no exempt income earned by the assessee during the year disallowance u/s 14A of the Act was uncalled for. Thus, there is no infirmity in the finding of Ld. CIT(A). Ground No.3 of revenue's appeal stands dismissed. 30. Ground No.4 is general in nature which needs no adjudication. 31. In the result appeal of the Revenue for A.Y. 2011-12 stands dismissed. 32. Now we take up assessee's appeal in ITANo.847/Ind/2016 for A.Y. 2011-12 wherein following grounds have been raised: "Grounds of Income-Tax Appeal before the Hon'ble Income-Tax Appellate Tribunal, Indore Bench, Indore, against Order under section 250 of the Income-Tax Act, 1961 passed by the learned Commissioner of Income-Tax (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o audit fees for F.Y. 2009- 10 [A.Y. 2010-11} and the entire remaining sum of Rs. 2,17,93,500/- pertains to the relevant previous year only. The appellant has contended that due to inadvertent mistake in the last para of the submission made before the AO on the subject issue, the amount of audit fees pertaining to earlier year i.e. F.Y. 2009-10 has got misstated at Rs. 1 ,61,94,500/ - but the fact remains that the audit fees pertaining to prior period was only of Rs. 5,99,000/-. It was submitted that for the financial year 2009-10, Government Audit Fees amounting to Rs. 1,55,95,500/ - has been shown as payable in the audited financial statements. In support of such contention, the grouping of the expenses was filed which is placed at Page No. 96 of the Paper Book. It has been contended that during the previous year relevant to the assessment year under consideration, a sum of Rs. 1,61,94,500/- was paid towards Government Audit Fees for F.Y. 2009-10 and out of such fees payment, the provision of Rs. 1,55,95,500/- was already made in F.Y. 2009-10 and accordingly, the expenditure to that extent was claimed in F.Y. 2009-10 only. It was contended that towards the prior period audit fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5,99,000/- is sustained. These grounds of appeal are allowed partly. 34. Now the assessee is in appeal before the Tribunal, Ld. counsel for the assessee submitted that liability for paying the audit fees of Rs. 5,99,000/- crystalized during the year under appeal because the claim of audit fees was settled during the year and therefore, the Ld. CIT(A) erred in confirming the disallowance of Rs. 5,99,000/-. 35. Per contra Ld. DR supported the orders of both the lower authorities. 36. We have heard rival contentions and perused the record placed before us. Through Ground No.1 the assessee has challenged the finding of Ld. CIT(A) confirming the disallowance of audit fees of Rs. 5,99,000/-. We observe that the alleged amount relates to audit fees for F.Y. 2009-10 i.e. A.Y. 2010-11. The instant appeal relates to A.Y.2011-12. The assessee being a quasi-Government Authority all its financial transactions are subject to verification and audit by the Local fund Auditor of the State Government of Madhya Pradesh. In consideration of providing such services, audit fees is charged by the Department of Local Fund on year to year basis. Generally the bills are raised in the subsequent financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant. If find that the status of the appellant has not been taken as that of a charitable organization or institution and its income is assessable as business income. Once this being the position, any charity or donation, made for any purpose, is not allowable under the provisions of section 37(1) of the I.T. Act, 1956. Accordingly, I do not find any infirmity in the action of AO in making disallowance of Rs. 31,27,208/-. Therefore, this ground of appeal is dismissed. 39. Ld. counsel for the assessee referred to the following written submissions: 1. That, during the previous year relevant to the assessment year under consideration, the appellant Authority has incurred a sum of Rs. 13,27,208/-, Rs. 8,00,000/- and Rs. 1O,00,000/- respectively on account of contribution made towards 'Aid for Jhanki Pradarshani & Seminars', 'Donation for Deui Ahilya Utsav' and 'Donation for Malwa Utsav' under 'Schedule-21 of Contribution & Grant-in-Aids Made' of the Income & Expenditure Account for the relevant previous year. 2. The learned AO, without even affording any single opportunity as regard to the aforesaid issue, made an addition of Rs. 13,27,2081-, Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utiny assessments of the appellant framed under s.143(3) of the Act and in none of the previous assessment years, the claim of the appellant Authority as regard to the aforesaid contributions have been doubted by the Department. It is submitted that there is no change in the circumstances of the case for the assessment year under consideration and, therefore, considering the decision of the Hon'ble Apex Court in the case of Radha Soami Satsang (supra) the claim of the appellant for the present year too deserves to be allowed fully. In view of the above facts and circumstances of the case, the addition of Rs. 31,27,208/- so made by the Ld. AO on account of contribution made to various Jhanki and Utsav deserves to be deleted in toto. 40. Per contra Ld. Departmental Representative (DR) supported the orders of the lower authorities. 41. We have heard rival contentions and perused the record placed before us. The issue relates to disallowance of expenses of Rs. 31,27,208/-incurred towards the following: 1. Jhanki-Pradarshani & Seminar, Rs. 13,27,208/- 2. Devi Ahilya Utsav Rs. 10,00,000/- 3. Malwa Utsav Rs. 8,00,000/- Total Rs. 31,27,208/- The only issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A and increase the 'Brand' value which indirectly helps in getting more business. 44. We observe that similar issue came up before the Hon'ble Delhi High Court in the case of Pr. CIT vs. M/s Indian Farm Forestry Development dated 31st October 2018 wherein Hon'ble Court held as follows: 13. In the facts of the present case, the object and purpose of the respondent-assessee' is, to engage and work for social and economic upliftment of the rural poor, construct water reservoirs .etc. It is established for this purpose and receives grants and donations from third parties with the said objective and purpose. M/s Indian Farmers Fertilizer Cooperative Ltd. had sold' and supplied fertilizer that was marketed/sold by the respondent-assessee to earn profit income, because the respondent-assessee was engaged, in social and economic development activities, Association and business relationship with MIs' Indian Farmers Fertilizer Cooperative Ltd. was predicated and connected on the respondent-assesse~ performing and undertaking the social-welfare economic activities. Grants received from government and foreign' agencies were to be utilized for the specific purpose i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, the appeal filed by the Revenue has no merit and is dismissed, without any order as to costs. 45. The facts of the above referred judgment and similar to the facts placed before us. We, therefore, respectfully following the judgment of Hon'ble Delhi High Court in the case of Pr. CIT vs. M/s. Indian Farm Forestry Development, are of the considered view that the alleged amount should be allowed as business expenditure as it indirectly help to increase business of the assessee authority. Thus, disallowance of Rs. 32,27,208/- stands deleted and the ground no.2 of the assessee is allowed. 46. Ground No.3 is general in nature which needs no adjudication. 47. In the result, appeal of the assessee for A.Y. 2011-12 is allowed. 48. Now we take up assessee appeal for A.Y. 2012-13 vide ITA No. 1355/Ind/2016 following grounds of appeal are as under: 1. That, the learned CIT(A), grossly erred in law, in not giving a specific finding/direction to the effect that in the event of ultimate grant of registration to the appellant Authority under the provisions of section 12AI12AA of the Income Tax Act, 1961, the income of the appellant Authority should be computed in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31,93,340/- 1. Jhanki -Pradarshani & Seminar Rs. 16,18,275/- 2. Devi Ahilya Utsav Rs. 10,00,000/- 3. Malwa Utsav Rs. 2,00,000/- 4. Other donation Rs. 3,75,065/- 53. We have heard rival contentions and perused the record placed before us. We observe that the issue raised in ground no.2 of the assessee's appeal for A.Y. 2012-13 also came for adjudication before us in the assessee's appeal for A.Y.2011-12 wherein we have decided the issue in favour of the assessee holding that such expenses which are incurred on the direction of the State Government for various events in which public at large takes part, are the expenses in the nature of advertisement and brand building of the assessee namely 'IDA'. Such expenses should be considered to have been incurred in the normal course of business allowable u/s 37(1) of the Act. Reliance was also placed by us on the judgment of Hon'ble Delhi High Court in the case of Pr. CIT vs. M/s. Indian Farm Forestry Development(supra). However, in the instant appeal for A.Y. 2012-13 disallowance of impugned amount also includes the disallowance for Rs. 3,75,065/- debited by the assessee under the head of other donation. No details ..... X X X X Extracts X X X X X X X X Extracts X X X X
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