TMI Blog2019 (3) TMI 1920X X X X Extracts X X X X X X X X Extracts X X X X ..... ritable in nature. Learned CIT(A), while allowing relief to the assessee, has held that if the assessee falls into a specific category then specific category will have precedent over the general category. The matter regarding registration has attained finality when Hon'ble Supreme Court dismissed the appeal of the Revenue. The reasoning of the Assessing Officer that activity of the assessee do not qualify under head preservation of environment (including watersheds, forest and wildlife) has also been decided by the Tribunal for assessment year 02-03 to 08-09 in favour of the assessee. Disallowance of expenses towards forest development expenses which the appellant claimed as utilization of funds in relation to the discharge of statutory functions - HELD THAT:- CIT(A) has rightly relied on the CAG report wherein the auditor had not pointed out anything adverse with regard to the expenses and therefore, has rightly held that the expenses were shown in line with the objects and therefore, we do not find any infirmity in the same. In view of the above, ground of the Revenue s appeal is dismissed. Disallowance of expenses debited under the head material loss - HELD TH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer did not allow the exemption u/s 11 of the Act. Learned D. R. further submitted that assessee had claimed certain expenses which related to prior period and therefore, the Assessing Officer had rightly made the addition and which learned CIT(A) has wrongly deleted. Further arguing the deletion of addition on account of forest development expenses, Learned D. R. submitted that Assessing Officer had rightly made the addition which learned CIT(A) had wrongly allowed. Similar arguments were advanced for the additions which the Assessing Officer had made on account of material loss expenses. 3. Learned A. R., on the other hand, invited our attention to the sequence of events and submitted that the Tribunal, vide order dated 16/01/2019, had originally allowed registration u/s 12A of the Act and the Tribunal, vide order dated 06/03/2009 while following the earlier order dated 16/01/2009, has already held that assessee was a charitable instituttion entitled to registration u/s 12A of the Act. It was submitted that Assessing Officer had made the addition by holding that the activities of the assessee do not fall within the expression preservation of environment (incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter regarding registration has attained finality when Hon'ble Supreme Court dismissed the appeal of the Revenue. The facts regarding grant of registration u/s 12AA has been reproduced by Tribunal in its order dated 13/12/2018for assessment year 02-03 to 08-09, which for the sake of convenience are reproduced below: 5. We have heard the rival parties and have gone through the material placed on record. We find that assessee was initially denied registration u/s 12AA of the Act and later on the application of the assessee for registration u/s 12A was granted as the assessee was held to be doing charitable activity. The matter regarding registration has attained finality when Hon'ble Supreme Court dismissed the appeal of Revenue. These facts have been noted by learned CIT(A) in his order. For the sake of completeness, we reproduce these facts from the order of learned CIT(A) as under: (i) The appellant furnished an application under Section 12AA of the Act with the Office of the Commissioner of Income-Tax, Lucknow on 11-07-1988 for seeking registration under Section 12A of the Act. The registration to the appellant was denied vide order dated 18.03.1997 primarily on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication filed under section 12A of the Act without being influenced by any of the findings recorded by the Hon'ble High Court in the impugned order. (vi) In pursuance of the directions of the Hon'ble Supreme Court in case reported under citation no 165 TAXMAN 533, the Hon'ble Income-Tax Appellate Tribunal at Lucknow in I.T.A No 512/LUC/2007 vide order dated 1601-2009 has proceeded to grant the registration under Section 12A of the Act with its findings that appellant is doing a charitable activity Which encompasses the Object of General Public Utility. It is important to point out here that the subject order / finding of the-Hon'ble ITAT is after taking into account that the Hon'ble Tribunal is not required to be influenced by the findings of the Hon'ble High Court at Allahabad. The order of the Hon'ble ITAT granting registration has attained finality pursuant to dismissal of the appeal preferred by the Department both at Hon'ble Jurisdictional Allahabad High Court in case no 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. (vi) Accordingly as on date, the registration as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 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) of the Act is not available to it. In the course of deciding the matter the Hon'ble High Court has stated that the exploitation of forest is to be said considered as a commercial in nature. It is undisputed fact that for the said year in appeal before the Hon'ble High Court the appellant was not having a registration under 12A of the Act. In appeal, the Hon'ble Supreme Court also in the appellant s own case reported under (165 Taxman 533) has that for availing the benefits of section 11 of the Act that the registration under section 12A is the prerequisite. This appeal before the Hon'ble Supreme Court was in form of an SLP preferred by the Appellant against order of the Hon'ble Allahabad High court dated 26.11.2002. Since the appeal for deciding the grant of registration under Section 12A of the Act was pending before the Tribunal, the Hon'ble Supreme Court has further held that Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umbai 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 above, I hold that the AO has erred in not applying the findings of order of Hon'ble Supreme Court (reported in 165 Tax Mann533). The AO has simply proceeded to rely upon the order of Hon'ble High Court dated 26.11.2002 and denied the exemption claimed u/s 11 of the Act. The order of Hon'ble ITAT in appellant s case was passed on 16.01.2009 (i.e. much after the Hon'ble High Courts order dated 26.11.2002). The Hon'ble ITAT vide the said order held that the activities of the appellant are charitable in nature. The said order was passed by Hon'ble ITAT on direction of Hon'ble Apex Court that application filed u/s 12A be taken up on priority and be decided expeditiously without being influenced by any of the findings recorded by the Hon'ble High Court in the impugned order. In view of these facts and judgments, the grounds of appeal No. 5 and 6 are allowed. The said findings of learned CIT(A) are crystal cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in line with the findings of the Hon'ble Supreme Court in the case of Vijay Bahadur (2 SCC 365) decided on 23-03-1982, (as reproduced above) and the same cannot be said to be on commercial lines as the same is banned by the Hon'ble Supreme Court. The activities under taken by the appellant are moreover guided by the Forest Policy and can be said to be for the preservation of the environment. The books of accounts of the appellant are placed before the State Legislature as well as audited by the CAG where in no such qualification has been brought out that the appellant is engaged in any sort of activity which can be construed to be against its objects as well as conducted on commercial lines d) I also find much force in the arguments placed before me in holding out that the activities as undertaken by the appellant pertaining to removal and disposal of trees and exploitation of forest resources has been held to be in the nature of preservation of environme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ource 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 recommended establishment of Forest Corporation for the purpose of attracting institutional finance for the development schemes of forestry and in pursuance of these recommendations 11 States formed Forest Corporation and in pursuance to the above report, U.P. Forest Corporation was constituted through ordinance on 25.11.1974 cannot be overruled. This Corporation is almost similar to the one established by the Andhra Pradesh Forest Development Corporation Limited. We have already noted hereinabove that the Corporation was established for better preservation, supervision and development of forests and better exploitation of forest produce within the state and for matters with it and not for any commercial activity true and simple if at all. Clause 17 deals with Finance, Accounts and audit of the Corporation reads as under makes it clear that the funds could only be utilised by the Corporation in the discharging of its function and not for any other purposes: 17.(1). The Corporation shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for allowing the exploitation of the private contractors to the detriment of national interest in preservation of Forests 28 The extract from the annual report for the period 1.10.1975 to 30.09.1976 relevant for assessment year 1977-78 has been recorded at page 7 of the paper book-l which reads as under: Note: 5. Profit, however, is not the only criterion by which the performance of a public sector undertaking has to be judged. A very important yardstick is the fulfillment of the social obligations cast upon it within the broad perspective of the country's planning policy and objectives. The Corporation is engaged in taking over progressively the felling and transport operation of tress from private contractors. The labour engaged by the bigger contractors, the so called Maldars , in the hills has been held in bondage for years and grossly exploited in a variety of ways. They had a stronghold on them and in the initial phases of the Corporation's working in the hills, it was difficult to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 substantial question of law involved to entertain the appeal under Section 260 A of the Income Tax Act. Accordingly, appeal is dismissed in limine. Hon'ble Supreme Court in SLP No CC 2590/2011 bearing date 12-05-2011 This petition was called on for hearing today. Upon hearing Counsel, the Court made the following ORDER Delay Condoned. The special leave petition is dismissed f) Further my attention has also been drawn towards the finding of the Hon'ble ITAT, Lucknow in appellants own case reported under ITA No.785/Luc/05 and decided on March 6, 2009 wherein the Hon'ble ITAT has allowed the exemption to the appellant for AY 2002-03 after recording its findings under para 5 of the ruling. The same is reproduced below: After hearing the ld. AR and the Id DR and respectfully following the above order of the Tribunal, we hold that assessee is a charitable institute entitled to registration u/s 12A as well as exemption in accordance with Section 11 and 13. Therefore, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e years under consideration the assessee had claimed exemption under the head preservation of environment (including watersheds, forest and wildlife) we find that the specific clause would always prevail over the general clause. The amendment to section 2(15) was made with effect from 01/04/2009 whereby preservation of environment was included as a specific object u/s 2(15) of the Act and since the activities of the assessee fell in the specific category therefore, learned CIT(A) has rightly considered the same. The findings of learned CIT(A) in this respect are contained in para K to R, which for the sake of completeness are reproduced below: k) Further the AO s contentions with respect to the earlier claim of exemption under the expression advancement of any other general public utility whereas presently under the expression preservation of environment , it is a settled jurisprudence that the Specific clause would always prevail over the General clauses. It is to be seen that by way of amendment to Section 2(15) the legislature incorporated two major changes, at the one hand it included Preservation of Environment (including watershed s, forests and wildlife) as one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the special provision, we must hold that case laws. 5(a) has no application in a case where the special provisions of case laws. 23 are applicable m) Even the above contention of appellant that specific clause prevails over the general clause is also supported by the Hon'ble ble Supreme Court in the case of Commercial Tax Officer vs Binani Cement Ltd. Anr ( CIVIL APPEAL No. 336 of 2003) pronounced on 19 February, 2014 and the same is extracted below: 42. Having noticed the aforesaid, it could be concluded that the rule of statutory construction that the specific governs the general is not an absolute rule but is merely a strong indication of statutory meaning that can be overcome by textual indications that point in the other direction. This rule is particularly applicable where the legislature has enacted comprehensive scheme and has deliberately targeted specific problems with specific solutions. A subject specific provision relating to a specific, defined and descriptable subject is regarded as an exception to and would prevail over a general provision relating to a board subject. n) Further, even if for the sake of argument it is held that appellant is under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e opening part of the amended section 2(15) with the words not involving instead of the words provided that the advancement of any other object of general public utility shall no be a charitable purpose if it involves in the proviso. Either way the amendment would have been the same. In that event there could have been no doubt whatsoever that the legislature did not seek to set at naught the effect of the judgment of the Supreme Court in this regard in Surat Art silk s case ((supra)). The introduction of the proviso does not indicate such an intention either. 40. If the legislature intended the latter part of the proviso to apply to the word advancement as well and not merely to the words object of general public utility , it would have worded the amendment entirely differently. The proviso would have expressly been made applicable to the advancement as well as to the object of general public utility. That the legislature did not do so is an indication that it accepted the interpretation of the Supreme Court of section 2(15) as it originally stood and retained the effect of the section in that regard in the 2009 amendment. The ration of the judgment in Surat Art silk s c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the I.T.A.T. s directions, exemption claimed by the assesse u/s 11 is allowed and the returned income is accepted 1998-1999 29.12.2009 Section 254 read with Section 143(3) Hon'ble I.T.A.T., vide its order dated 16.01.2009 in ITA No 512/LUC/2007, has granted registration to the assesse u/s 12A of the Income Tax Act, 1961. The assesse vide its written reply dated 29.12.2009 has claimed that in view of the said decision of the Hon'ble I.T.A.T., its entire income is exempt u/s 11 of the Income Tax Act, 1961, After a careful considerations of the material on record and in compliance with the I.T.A.T. s directions, exemption claimed by the assesse u/s 11 is allowed and the returned income is accepted 199-2000 29.12.2009 Section 254 read with Section 143(3) Hon'ble I.T.A.T., vide its order dated 16.01.2009 in ITA No 512/LUC/2007, has granted registration to the assesse u/s 12A of the Income Tax Act, 1961. The assesse vide its written reply dated 29.12.2009 has claimed that in view of the said decision of the Hon'ble I.T.A.T., its entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Financial Year. Therefore, the said amount is crystallized in the subsequent F.Y. in which it is determinable. The appellant in his replies has given a thrust on the time period when these expense are crystallized and thereafter only the same can be recorded in the books of accounts. The appellant contended that unless and until these expenses are not known to the appellant the provision of the said expenses cannot be made in the books of accounts. (d) In this regard, the appellant has placed a strong reliance that the expenses can only be booked in books of accounts once they are crystallised. Reliance in this regard was placed on the following judgments of Hon'ble High courts including Hon'ble jurisdictional High Court i)The Hon'ble Gujarat High Court in the case of Saurashtra Cement Chemical Industries Ltd. v. CIT (213 ITR 523) held that merely because an expense related to a transaction of an earlier year does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question. ii) The Hon'ble Rajasthan High Court in the case of Addl. CIT v. Farasol Ltd.(163 ITR 364 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Gujarat High Court in the case of Saurashtra Cement Chemical Industries Ltd. v. CIT (213 ITR 523) where it has been categorically held that merely because an expense related to a transaction of an earlier year does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question. (f)The appellants contention is duly supported by judgments of Hon'ble High Courts as outlined in para 5.7(d) above and the fact that the amount in question were determined and crystallized only after the close of an earlier FY. The said amount crystallised in F.Y. 2001-02. Thus, the action of the AO in holding and disallowing these expenses as prior period expenses cannot be upheld. (g)Further, it was also contended that the appellant is a Corporation which is an AOP(Trust) and the tax rates for the appellant remain constant for this assessment year and earlier/subsequent AY's. Accordingly, the appellant's claim of these items in a subsequent assessment year due to crystallization can by no means represent a device to evade or minimize corresponding tax liability. Reliance in this regard i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on account of forest development expenses in assessment year 2009-10, the learned CIT(A) has deleted the addition by holding as under: 5.7 Ground of appeal No. 7 a)This ground relates to the disallowance of expenses amounting to ₹ 7,13,52,744/- towards forest development expenses which the appellant claimed as utilization of funds in relation to the discharge of statutory functions. In this regard, the Assessing Officer in his order has stated that no details of expenses have been furnished to demonstrate the utilization of amounts towards forest development expenses which are in the nature of charitable expenses. The appellant on the other hand highlighted the fact that at the start of the assessment order, the Assessing Officer has clearly stated that the assessee has submitted reply along with the claim of its expenses for forest development expenses which have been carefully considered and the books of account has been test checked. The appellant contended that sanction letters for funding, minutes of the meeting for approving the fund as well as utilization certificates which aree the basis for the working of the appellant were furnished in the course of hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contents of my above said affidavit are true and correct to the best of my knowledge and belief and nothing has been concealed therein. Verified at Lucknow on February 16,2017 DEPONENT The contents of the affidavit were reaffirmed in the course of appellate hearing before me by the deponent wherein the deponent has acknowledged the fact that the records with respect to expenses were produced before the Assessing Officer. The appellant has also furnished the copies of the said minutes along with payment instruments such as cheque, draft as a part of the paper book in the course of appellate proceedings. c) The most vital points to be considered on this issue are as under: i) The clause 17 dealing with finance, account and audit of the appellant makes it mandatory that funds can only be used by the appellant in discharge of its function and not for any other purpose. ii) The books of account of the appellant are duly audited by C AG and are placed before the state legislature. There is not even a single adverse inference by these esteemed authorities that there was utilization of funds for noncharitable/commercial purposes and not in relation to forest developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings the appellant stated that the nature of the activities involved is such that there is human intervention involved. As a result there are incidents of theft, loss by fire or other misappropriations. In this regard the appellant also submitted that the proper committee is there which looks into such matters and proper responsibility of concerned person is fixed and due amounts are recovered where it is possible. The appellant also furnished the copy of the committee along with the report of the concerned logging manager with regard to such losses. As per the grounds taken in this appeal the appellant has also stated that the same was furnished before the Assessing Officer but were not accepted by the Assessing Officer during the course of assessment proceedings. b) It is to be seen that the nature of activities of the appellant do entail such types of losses which would otherwise been a contribution to the state exchequer (state being the custodian of natural resources). Such losses are inherent to the activities such as forest fire or theft of logs in the forest by mischievous/criminal elements. On perusal of the report of the log manager and other documents, it is to be s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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