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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 ..... ospital 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. 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) who has deleted the impugned disallowance. Ground No.1 of Revenue s appeal stands dismissed. Disallowance of provisional expenses claimed under the head Employees Remuneration and Benefits - HELD THAT:- From perusal of the finding as well as going through papers filed in the paper book, we observe that such working of making provision for the expenses and reversing the actual expenses incurred has been carried out consistently from year to year basis and the provisions are made as per the well calculated ascertained liability. There may be some excess provision in some years and may be less provision in same years but the process keeps on going because for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of this amount. It is also not emanating from the record that the alleged amount has been paid on the direction of the State Government. We, therefore, are of the considered view that out of total disallowance, disallowance for other donation stands confirmed. - ITA No.847/Ind/2016, ITA No.1355/Ind/2016, ITA No.870/Ind/2016 - - - Dated:- 31-10-2019 - Shri Kul Bharat, Judicial Member And Shri Manish Borad, Accountant Member For the Appellant : Shri Anil Kamal Garg Arpit Gaur, CAs For the Revenue : Smt. Ashima Gupta, CIT- DR ORDER PER MANISH BORAD, A.M: The above captioned cross appeals for A.Y. 2011-12 Assessees appeal for 2012-13 are directed against the order of Ld. Commissioner of Income Tax(Appeals)-II, Indore, (in short CIT(A) ), dated 31.05.2016 and 16.09.2016 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(hereinafter called as the Act ) framed on 30.03.2014 and 26.03.2015 by DCIT-5(1), Indore ACIT (Exemption) (Circle) Bhopal respectively. 2. As the issue raised in all these appeals are similar, these were heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Addition on account of disallowance of Government Audit Fees by holding the same as pertaining to earlier years 1,67,93,500 4 Addition by way of disallowance of Donation Expenses 31,27,208 5 Addition by disallowing Employees Remuneration and Benefits by holding the provision made as in the nature of contingent liability 21,27,835 6 Addition on account of Depreciation 13,10,185 7 Addition on account of Disallowance u/s. 14A 6,461 TOTAL ADDITIONS 36,88,67,656 Against the Order of the AO, the assessee preferred an appeal before the ld. CIT(A)-II, Indore. The ld. CIT(A) disposed off the appeal of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfied and treated the expenditure as capital in nature and allowed the expenses to the extent of 1/5th of the total expenses, thereby giving benefit of expenditure of ₹ 3,93,41,355/- and disallowed the remaining 4/5th amount at ₹ 15,73,65,419/-. The assessee succeeded in getting relief from Ld. CIT(A) and the impugned disallowance was deleted. 9. Ld. DR vehemently argued supporting the order of the Ld. AO and it was also submitted that the assessee is engaged in development of colonies. None of the alleged expenses are having any nexus with the projects undertaken by the assessee i.e. Indore Development Authority (IDA). The claim of expenses is allowed only if they are incurred for earning the revenue. Since the alleged expenses have no correlation with the project undertaken by the assessee, the same should have been disallowed. 10. Per Contra Ld. counsel for the assessee vehemently argued referring to the following written submissions: 1. That, the assessee Authority is a Statutory Authority constituted under section 38 of 'Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973', under a Notification No. 1688 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved 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 count. 8. The addition so deleted by the ld. CIT(A) deserves to be maintained in view of the following : i) The AO has not disputed that the assessee authority has genuinely incurred these expenditure in pursuance of its objectives for which it has been constituted under an enactment of State Legislation. The AO has also not doubted the genuineness of the incurrence of expenditure as claimed by the assessee authority. ii) The expenses incurred by the assessee Authority under the head City Environmental Development Expenses do not have any connection with the various schemes developed by the assessee. In other words, by incurring such expenditure, the stock of the assessee Authority does not get affected. Further, the entire expenditure have been incurred for the development of the notified area without having any accretion to its asset or without creating any benefit of enduring nature. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 an adverse view in the assessment year under consideration by the learned AO is completely unjustified and unwarranted. For such proposition, we place reliance on the decision of the Hon'ble Supreme Court in the case of Radha Soami Satsang Vs. CIT (1992) 193 ITR 321 (SC). 11. Ld. counsel for the assessee also requested for admission of additional evidences under Rule 29 read with Rule 18(4) of the Appellate Tribunal Rules,1963 filed in support of the claim that the expenditure incurred under the City Environmental Development and Preservation Expenses are revenue in nature. The prayer made by the assessee requesting for deletion of additional evidences reads as follows: In the above context, it is most humbly submitted and prayed as under: 1. That, two separate appeals against the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 doubted the genuineness of the City Environmental Development and Preservation Expenses aggregating to ₹ 19,67,06,774/- claimed by the appellant. It is also not the case of the AO that these expenses have not been incurred by the appellant in pursuing its core activities. The AO has only disputed the nature of the expenditure claimed by the appellant as revenue. According to the AO, the expenditure is that of capital in nature. The AO without assessing any basis held that only 1/5th of the, total expenditure of ₹ 19,67,06,774/- claimed by the appellant 1S allowable for the assessment year under consideration. According to the appellant, the remaining 4/5th part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant 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 assessments of the appellant since A.Y. 2003-04 are consistently being framed under s. 143(3) of the I.T.Act,1961 and in none of the assessments, any adverse view on this issue has been taken by any of the AOs. It has further been contended that all these assessment orders were also subject matter of appeals before the appellate authorities. From the copies of the assessment orders of various other assessment years filed by the appellant before me, I found that in none of the other assessment years, any part of these expenditure have been disallowed for the reasons has brought down by the AO in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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) who has deleted the impugned disallowance. Ground No.1 of Revenue s appeal stands dismissed. 19. Now we take the ground no.2 of revenue appeal relating to deletion of addition of ₹ 21,27,835/- made by the Assessing Officer on account of disallowance of provisional expenses claimed under the head Employees Remuneration and Benefits . 20. Brief facts relating to this issue are that during the year under appeal under the head Employees Remuneration and Benefits, the assessee made certain adjustment by addin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 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 the salary of March month of relevant previous year. iii) Thus, in order to record the correct expenditure on mercantile system of accounting, the assessee Authority has made an addition of ₹ 72,70,135/- on account of provision of salary for the month of March, 2011 and reduced a sum of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 72,70,135/- and reversed the provision of salary made by it in preceding previous year for the month of March 2010 at ₹ 51,42,300/-, thereby giving a net effect on the provision of ₹ 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 for salary as contingent liability of the appellant is baseless and devoid of merit has such the same IS directed to be del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year, the appellant has claimed a sum of ₹ 2,23,92,500/- as expenses on account of Government Audi Fees. The appellant claims that out of such audit fees 0f ₹ 2,23,92,500/-, only a sum of ₹ 5,99,000/- pertains to audit fees for F.Y. 2009- 10 [A.Y. 2010-11} and the entire remaining sum of ₹ 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 ₹ 1 ,61,94,500/ - but the fact remains that the audit fees pertaining to prior period was only of ₹ 5,99,000/-. It was submitted that for the financial year 2009-10, Government Audit Fees amounting to ₹ 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 ₹ 1,61,94,500/- was paid towards Government Audit F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,67,93,500/-, only a sum of ₹ 5,99,000/- is found pertaining to prior period and the remaining sum has been found pertaining to the assessment year under consideration. Accordingly, out of the total addition of ₹ 1,67,93,500/- made by the AO, the addition to the extent of ₹ 1 ,61,94,500/- is deleted and the addition to the extent of ₹ 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 ₹ 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 ₹ 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 ₹ 5,99,000/-. We observe that the alleged amount relates to audit fees for F.Y. 2009-10 i.e. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses at ₹ 13,27,208/-, ₹ 10,00,000/- ₹ 8,00,000/- incurred towards Jhanki-Pradarshani Seminar, Devi Ahilya Utsav Malwa Utsav respectively, Ld. AO treated these amounts as donation and charity and not for business purpose. Ld. CIT(A) also confirmed the view of the Ld. AO observing as follows: I have gone through the contents of the assessment order and also the written submissions filed by the appellant. After considering the entire facts and circumstances of the case, I do not find any merit in contention of the appellant. 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y constituted under section 38 of 'Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973~ is also statutorily required to make such contributions on such counts. Xerox copies of note sheets prepared by the appellant Authority before making sanction of such contributions to the concerning Jhankis are being submitted herewith for kind perusal and record of Your Honour, as Annexure A-9. 01 to A-9. 06 [PB Page no. 103 to 108}. 5.00 Your Honour, it is submitted that the appellant Authority has been making its contributions towards Jhanki Pradarshani Seminars, Devi Ahilya Utsav, Malwa Utsav etc. over the last many years and such contributions have duly been accepted and allowed by the Income-T'ax Authorities in the scrutiny 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 Sats ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee authority is working as a quasi- Government Authority and works under the directions of the State Government. Against the benefits of getting the premium lands, housing projects, other development project from the Government assessee is also casted with the responsibility of incurring expenditure on the public utility programs. The assessee is able to earn profits because the State Government give the benefit of providing powers to acquire urban and rural land for various projects at concessional rates. Government is able to gets land at concessional rates because it has to work in public interest and also provide various facilities, such as public amenities flyovers, tree plantation, street lights, cultural events, business seminars, etc. 43. It was brought to our notice that the alleged expenses were not incurred by the authority suo moto but it was incurred as per the directions of the State Government. The events i.e. Jhanki- Pradarshani Seminar, Devi Ahilya Utsav Malwa Utsav are events where public at large participate. It is well evident that for such events the assessee is sponsoror. Such type of expenses are in the nature of advertisement sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te a 'business' or 'commercial' activity undertaken by the respondent assessee. It would be a, contradiction in terms, if we hold that the expenditure would be non-deductible expenditure or expenditure without business expediency, Under section 37 of the Act it does not matter whether or not the expenditure was in the nature of donation or Section BOG of the Act was not attracted. The conditions stated in Section 37 of the Act matter and constitute the test. Expenditure incurred in furtherance of and connected with the business and commercial activities for which the respondent-assessee was established cannot be disallowed as expenditure not relatable and incurred for 'business' purposes. 15. On the question of capital expenditure, the assessing officer did not refer to or examine whether the capital assets created ,were for third party villagers. The respondentassessee was not the owner of the assets created and develops, The, assets created were not-capital assets in the hands of the respondent-assessee. The respondent assessee had contributed, developed, financed and created assets which belonged to third persons. The expenditure incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) That, the learned CIT(A) grossly erred, both on facts and in law, in confirming the addition of ₹ 3,75,065/- made by the Assessing Officer in the appellant's income by disallowing the expenditure incurred by it in respect of Other Donations. 3. That, the appellant further craves leave to add, alter, omit and/or amend any of the above stated grounds of appeal as and when considered necessary. 49. Apropos to ground 1 relating to denial of exemption u/s 11 12 of the Act, at the outset, Ld. counsel for the assessee fairly conceded that the I.T.A.T., Indore Bench in its order dated 06.07.2010 vide ITA No.366/Ind/2008 dismissed the appeal of the assessee thereby upholding the order of Ld. CIT-I Indore rejecting the assessee s application for registration u/s 12AA of the Act. 50. Ld. counsel for the assessee further submitted that against the order of Hon'ble I.T.A.T.,Indore assessee preferred an appeal before the Hon'ble Jurisdictional High Court which is pending. 51. We find that since the issue is squarely decided against the assessee by the Coordinate Bench confirming the rejection of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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