TMI Blog2021 (8) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... ons made, the balance sheet will not present a true and fair view of the state of affairs. In CIT v. Indian Jute Mills Association [ 1981 (2) TMI 34 - CALCUTTA HIGH COURT] held while constructing the expression 'expenditure incurred' in section 44(A) of the Act observed: depreciation claim shall include the expenditure incurred. Thus, in case of trust, the meaning applied need not be construed as spent . It includes the necessary provisions required to be made as per statutory requirement. Therefore, we direct the AO to allow the provision for gratuity and leave encashment as applied for the object of the trust. Accordingly the ground raised by the assessee is hereby allowed. - ITA No. 5962/Mum./2019 - - - Dated:- 3-8-2021 - SHRI C. N. PRASAD , JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN , ACCOUNTANT MEMBER Assessee by : Ms. Ritu Kama Kishore Revenue by : ShriBrajendra Kumar ORDER PER S. RIFAUR RAHMAN, A.M. The aforesaid appeal has been filed by the assessee challenging the impugned orders dated 16th May 2019, passed by the learned CIT(A) 3, Mumbai,forthe assessment year 2014 15. 2. The assessee has filed the present appeal on the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of provision and, therefore, cannot be considered as an expenditure or utilization. The Assessing Officer disallowed the sum of ₹ 78,73,310, from the expenditure / utilization for the object of the assessee trust claimed for the year under consideration. 5. Aggrieved with the above order, the assessee preferred an appeal before CIT(A). Ld CIT(A) dismissed the appeal filed by the assessee vide order dated 16.05.2019 with the following findings in its order :- After careful consideration, I am reasonably convinced by the view point of the AO that in the case of a trust, the total income has to be arrived at after allowing expenses actually incurred, as reflected in the Income Expenditure statement. The provisions u/s 11-13 of I.T. Act, governing taxation of Trusts, recognize earning of income and applications of income on receipt basis. Thus, following the matching principle of accounting, when Section 11 stipulates consideration of real receipts and not accrued income for the purpose of arriving at the gross income of the Trust during an assessment year, then following the same matching principle, the applications of income i.e., expenses, have to be on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Benefits issued by ICAI. However, the Ld. AO while disallowing the said provisions, has misunderstood meaning of applied (application of income) as spent only instead of cost incurred by the assessee, which is very narrow and inconsistent with judicial authorities which has clarified that income should be understood in its commercial sense, however, the Ld. AO has ignored the same. 10. The ld. A.R. also submitted that the assessee has constantly recorded (i.e. year after year) the said employment cost (postretirement benefit cost in accordance of AS-15) and allowed in all past assessment years. Thus, on the principles of consistency, Ld AR requested to allow the said provisions. 11. The ld. CIT (DR) submitted before us that since there is no actual outflow of money, such provision cannot be considered as application of income. 12. Considered the rival submissions and material on record. We are of the view that the provision for gratuity and leave encashment has been made by the assessee based on the actuarial valuation report and although these disallowances are purely provision in nature and not actual expenditure but such provisions are required to be made as per m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f trust, the meaning applied need not be construed as spent . It includes the necessary provisions required to be made as per statutory requirement. Therefore, we direct the AO to allow the provision for gratuity and leave encashment as applied for the object of the trust. Accordingly the ground raised by the assessee is hereby allowed. 17. Coming to the additional ground of appeal raised by the assessee, Ld AR submitted that the assessee has not raised this ground before the CIT(A) in view of the fact that the same remained unnoticed mainly due to the reason that nothing specifically has been discussed regarding the same by the AO in the assessment order. Ld AR submitted that this ground raised by the assessee pertains to AO s action of not allowing the excess expenditure during the year under consideration to be carry forward to the subsequent assessment years. 18. The ld. AR submitted that there was excess of expenditure over income during the year under consideration and prayed that such excess amounting to ₹ 2,13,06,095/- is allowed to be carried forward to subsequent assessment years, Ld AR has placed reliance on the decision of Hon'ble Bombay High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in section 11 of the Act and that such adjustment will have to be excluded from the income of the Trust under section 11(1)(a) of the Act. Our view is also supported by the Judgment of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujzk Jain Mandal [1995] 211 ITR 293. Accordingly, we answer question No. 3 in the affirmative i.e., in favour of the assessee and against the Department. 20. We find the facts of the present case is identical to the facts of the decision of Hon ble Bombay High Court and thus, the present case is entirely covered by the decision of Hon ble Bombay High Court in the case of CIT vs. Institute of Banking Personnel Section (Supra). Further, the Hon ble Supreme court has dismissed the SLP filed by the revenue on the same issue in the case of DIT (Exem.) v/s Maharashtra Industrial Development Corporation (MIDC) (ITA No 2652 of 2011). Therefore, respectfully following the decision of jurisdictional High Court and Hon ble Supreme Court, the present additional ground raised by the assessee is allowed. Since, we have deleted the disallowance made by AO in respect of provision for gratuity and leave encashment, the assessed deficit wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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