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2016 (5) TMI 412 - ITAT KOLKATA

2016 (5) TMI 412 - ITAT KOLKATA - TMI - Apportionment of common expenses/indirect expenses between section 10(23A) segment and section 11 segment in a rational manner - Held that:- On perusal of the scrutiny assessment orders framed u/s. 143(3) of the Act by the ld.AO for the A.Ys 2010-11, 2011-12 & 2012-13, it is seen that both the revenue as well as the assessee institution had arrived at a consensus with regard to apportionment of common expenses/indirect expenses in the ratio of direct expen .....

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the dispute under appeal before us. - Decided in favour 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 .....

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f 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 For The Respondent : Shri Sanjay Bhattacharya, FCA, ld.AR ORDER SHRI M.BALAGANESH, AM This appeal of the revenue arises out of the order of the Learned CIT(A), Jalpaiguri in Appeal No. 927/CIT(A)-XIV/11-12 dated 4th March 2013 against the order of assessmen .....

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he Institute of Cost and Works Accountants of India) (hereinafter referred to as ICWAI) is an Institution established under the Cost and Works Accountants Act, 1959 for the regulation of the Profession of Cost and Works Accountants. The objectives of the ICWAI are specified in the Cost and Works Accountants Act, 1959 and the Cost and Works Accountants Regulations, 1959. The main objects of ICWAI are :- i) enrolling students for the examinations conducted by the ICWAI and framing regulations for .....

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was being enacted to make provision for the regulation of the profession of cost and works accountants. 3.2 The ICWAI has been established having its objects the control, supervision, regulation of the Profession of Accountancy. The Central Government approved the ICWAI u/s 10(23A) of the Income-tax Act, 1961 whereby a substantial part of the income of the ICWAI became Exempt from the chargeability to Income-tax. The ICWAI being a Charitable Institution solely for the purpose of Education, also .....

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pt 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 th .....

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/s 11(1), but since the assessee had been separately approved u/s 10(23A), firstly the particular incomes and the directly related expenses thereto, were being considered for exemption u/s 10(23A) and the rest of the incomes and outgoings were considered u/s 11(1). It was also submitted before the Learned AO that the expenses considered to have direct nexus to the incomes exempt u/s 10(23A), had not been incurred for earning the relevant incomes, but because of their proximity to the concerned i .....

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enses not specifically considered by the assessee towards income, eligible for exemption u/s 10(23A), should be considered as "Common Expenses" and the same should be apportioned in between the segment u/s 10(23A) and segment u/s 11(1) on the basis of the gross incomes considered under sections 10(23A) and 11(1). The Learned AO determined the ratio of 10.21:1 of incomes in between the segment u/s 10(23A) and the segment u/s 11(1). The Learned AO applied the above-mentioned ratio determ .....

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7; 2,69,05,371/- and for the segment u/s 11(1) for ₹ 26,35,198/- by applying the above-referred ratio of 10.21:1. 3.5 The assessee submitted that no expense was incurred by the assessee to earn any 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( .....

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), 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 basis of gross incomes considered under those sections. 3.6 The asses .....

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ties for which it had been established through a Central Act passed by Parliament. The Learned AO totally ignored the assessee s objectives of applying all of its income towards its educational activities. The assessee submitted that the approval given by the Government of India u/s. 10(23A) shows the recognition by the Govt. of India of the assessee s activities for the regulation of the profession of accountancy. The registration by the Income-tax Department u/s 12A recognises the assessee s c .....

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ions' of incomes which were exempt u/s l1(l)(a). The assessee submitted that there should not be any allocation of the capital expenditure in between the incomes considered u/s. 10(23A) and 11(1)(a). 3.8 The assessee submitted reiterated its submissions before the Learned CITA and prayed that the Learned AO may be directed to consider the entire capital expenditure of ₹ 2,95,40,570/- as Application of the assessee s incomes other than those considered u/s. 10(23A) and to allow deductio .....

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me. 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 expe .....

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of against income exempted u/s. 10(23A). 6. The Ld. DR vehemently relied on the order of the ld.AO and reiterated the facts as laid down in the assessment order. In response to this, the ld. AR apart from reiterating the submissions made before the lower authorities argued that the ld.AO had erroneously proceeded by treating the assessee institution as a commercial institution forgetting the fact that the assessee is only charitable organization. Hence, the principle of expenditure incurred for .....

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rtment as well as the assessee institution for apportionment of common expenses in the ratio of direct expenses incurred by the respective segments. 7. We have heard the rival submissions and perused the materials available on record. The facts stated herein above remain undisputed and hence the same are not reiterated herein for the sake of brevity . The short point that requires to be adjudicated is apportionment of common expenses/indirect expenses between section 10(23A) segment and section .....

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on 11 segments. We find that both the revenue and assessee had tried to resolve this ongoing dispute by arriving at a consensus. Hence, by placing reliance on subsequent assessment orders passed for the A.ys 2010- 11, 2011-12 & 2012-13, we deem it fit and appropriate to follow the same as rationale for apportionment of common expenses/indirect expenses and accordingly, direct the ld.AO to follow the same for this assessment year also, which would resolve the dispute under appeal before us. A .....

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ears 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 .....

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crual only. Hence, it was submitted that the entire liability towards arrear salaries for ₹ 2,90,19,471/- should be considered as allowable application of income for the FY 2008-09 (relevant for the assessment year 2009-10). 9.1 The ld. AO stated in the assessment order that the assessee had allegedly failed to submit any evidence to prove and substantiate that the provision had been made on the basis of certain acceptable scientific method to a reasonable certainty in reference to past re .....

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and the said liability should not be considered as an alleged unascertained liability. The assessee further submitted that it had also been brought to the attention of the ld. AO that the said liability had since been discharged by the assessee by actual payments made during the FY 2008-09 itself and in the subsequent two FYs which would prove the correctness in computation of the liability towards arrear salaries. The assessee submitted that the ld. AO did not mention anything in his order abo .....

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of the assessee, 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 .....

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