Income Tax Appellate Tribunal - Lucknow
Dy. Commissioner Of Income Tax ... vs M/S U.P Forest Corporation, Lucknow on 13 December, 2018
I.T.A. Nos.352 to 356/Lkw/2017
1
Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH 'A', LUCKNOW
BEFORE SHRI A. D. JAIN, VICE PRESIDENT AND
SHRI T. S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. Nos.352 to 356/Lkw/2017
Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09
Dy.C.I.T. (Exemptions), Vs. U.P. Forest Corporation,
Lucknow. 21/475, Indira Nagar,
Lucknow.
PAN:AAATU 3944 K
(Appellant) (Respondent)
Appellant by Shri A. K. Bar, CIT, (D.R.)
Respondent by Shri D. D. Chopra, Advocate
Date of hearing 07/12/2018
Date of pronouncement 13/12/2018
ORDER
PER T. S. KAPOOR, A.M.
This is a group of five appeals filed by the Revenue against the separate orders of learned CIT(A)-IV, Lucknow all dated 30/03/2017. The Revenue has taken similar grounds of appeal in these appeals which were heard together therefore, for the sake of convenience, a common and consolidated order is being passed. For the sake of convenience, the grounds of appeal taken by the Revenue in I.T.A. No.352 are reproduced below:
"1. Ld. Commissioner of Income Tax (A) has erred in law and facts by allowing the appeal of the assessee ignoring the fact that the activities of the assessee do not fall within "Preservation of environment (including watersheds, forest and wildlife]" as inserted in Section 2(15) of the Act w.e.f. 01.04.2009;
I.T.A. Nos.352 to 356/Lkw/2017 2 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09
2. Ld. Commissioner of Income Tax (A) has erred in law and facts by allowing the appeal of the assessee ignoring the fact that the activities of the assessee are commercial and in the nature of trade, commerce or business which qualifies under the advancement of an act of general public utility, therefore the object of the assessee does not fall within 'charitable purpose' as defined in section 2(15) of the Act;
3. Ld. Commissioner of Income Tax (A) has erred in law and facts by allowing the appeal of the assessee ignoring the fact that the Registration u/s 12A of the I.T. Act, 1961 to the assessee was granted for "Preservation, supervision and development of forest" and not for the exploitation of forest produce;
4. Ld. Commissioner of Income Tax (A) has erred in law and facts by deleting the addition/disallowance made by the AO on account of prior period expenses amounting to Rs.6,63,812/-.
5. Ld. Commissioner of Income Tax (A) has erred in law and facts by allowing exemption u/s 11 of the I.T. Act ignoring the fact that the assessee is involved in the activities of trade/commerce/business and is as such hit by the provisions of the first proviso to section 2(15) of the I.T.Act, 1961;
6. Ld. Commissioner of Income Tax (A) has erred in law and facts by holding that the expenses are allowed for the reason that these expenses were determined and crystallized only during the assessment year under consideration.
7. The order of Ld. CIT(A) be cancelled and the order of the A.O. restored;
8. Appellant craves leave to modify/amend or add any one or more grounds of appeal."
2. Learned D. R., at the outset, submitted that assessee was involved in the activities which did not fell within the definition of preservation of environment and further argued that the activities of the assessee involved carrying on of business and trade. Learned D. R. further submitted that the registration u/s 12A was granted to the assessee only for preservation, I.T.A. Nos.352 to 356/Lkw/2017 3 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 supervision and development of forest and not for development of forest produce. It was prayed that learned CIT(A) has ignored these facts and has wrongly allowed relief to the assessee by allowing exemption u/s 11 of the Act. Learned D. R. further submitted that the assessee had claimed certain expenses which related to prior period and were not allowable during the respective financial years as the assessee was following mercantile system of accounting and, therefore, on this account also the order of learned CIT(A) needs to be reversed.
3. Learned A. R., on the other hand, submitted that it is an undisputed fact that the assessee was granted registration u/s 12A of the Act as the activities of the assessee were held to be charitable in nature by Hon'ble Tribunal which was upheld by Hon'ble High Court and Hon'ble Supreme Court as the appeals filed by the Revenue had been dismissed. Learned A. R. in this respect invited our attention to the order of learned CIT(A) from page 50 onwards where learned CIT(A) has noted all these facts. As regards the arguments of Learned D. R. that assessee was engaged in trade and business, Learned A. R. submitted that the appeals relate to assessment year 2002-03, 2003-04, 2004-05, 2007-08 and 2008-09 and during this period there was no bar in the definition of charitable activities if these involved carrying on of trade or commerce and in this respect our attention was invited to the findings of learned CIT(A) recorded at page 54 of his order.
4. As regards the issue if disallowance of prior period expenses, Learned A. R. submitted that assessee though was following mercantile system of accounting but the liability for certain expenses had crystallized after the balance sheet date and that is why the assessee had recorded those expenses in the subsequent year. It was submitted that learned CIT(A) has I.T.A. Nos.352 to 356/Lkw/2017 4 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 relied on a number of case laws and has rightly allowed relief to the assessee.
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 the findings by the Commissioner of Income-
Tax, Lucknow that the Appellant has requested for grant of registration after a gap of 14 years and the application was not in prescribed form 10-A as specified in the rules.
(ii) The appellant preferred appeal against the order of the CIT, Lucknow dated 18.03.1997 regarding refusal of registration before the Hon'ble Allahabad High Court wherein the Hon'ble court vide order dated 26-11-2002 in Civil Misc Writ Petition No 173 (MB) of 1998 has quashed the order of the CIT, Lucknow dated 18.03.1997 with the observation that necessary opportunity of being heard was not afforded to the appellant and the CIT, Lucknow was directed to decide the application for grant of registration afresh on merits.
(iii) The CIT, Lucknow vide its order 13-06-2007 in compliance to the terms of the directions of the Hon'ble Allahabad High Court in Civil Misc Writ Petition No 173 (MB) of 1998 reconsidered the merits for grant of registration under Section 12A of the Act. The CIT, I.T.A. Nos.352 to 356/Lkw/2017 5 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 Lucknow proceeded to deny registration on the findings that the appellants activities do not qualify to be in the nature of Charitable Activities and reliance was also placed on the Judgment of the Hon'ble Allahabad High Court in appellants own case reported in (129 TAXMAN
527) wherein the Hon'ble Court has observed that the "Exploitation of forest" is a commercial Activity.
(iv) The order of the CIT Lucknow dated 13-06-2007 denying registration under Section 12A of to the Act to the appellant was again challenged before the Hon'ble ITAT, Lucknow in ITAT appeal No I.T.A No 512/LLIC/2007.
(v) In the interim, the appellant also filed a Special Leave Petition (SLP) before the Hon'ble Supreme Court against the order dated 26-11-2002 as passed by the Hon'ble Allahabad High Court, for remanding the case back to CIT, Lucknow to decide the grant of registration afresh. While deciding the said SLP the Hon'ble Supreme Court vide its order dated 27-11-2007 reported under citation no (165 TAXMAN 533 ) held that the primary condition for grant of exemption under Section 11 is to have a registration under Section 12A of the Act and the same being pending for disposal before the Hon'ble Tribunal. The Hon'ble Tribunal was directed to decide the grant of registration against the order passed by the Commissioner rejecting the application 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 16- 01-2009 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 I.T.A. Nos.352 to 356/Lkw/2017 6 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 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 duly granted by the Hon'ble ITAT Lucknow In ITA No 512/LUC/2007 and as duly attained finality pursuant to dismissal of the appeal preferred by the Department both by 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 stands valid. The CIT, Lucknow vide order dated 17-12- 2012 read with order dated 18.04.2011 has duly granted the registration under Section 12A of the Act holding appellant eligible for claiming exemption under Section 11 of the Act. The said registration is retrospective with effect from 25-11-1974, being the date when appellant was incorporated."
6. Now coming to the grounds of appeal taken by the Revenue, we find that vide first and second ground of appeal the Revenue has agitated that the activities of the assessee did not fall within the definition of preservation of environment as it was inserted in section 2(15) of the Act with effect from 01/04/2009. The Revenue has further contended that the activities carried on by assessee involved carrying on of business and trade and therefore, Learned CIT(A) had wrongly allowed exemption u/s 11. As regards the first contention regarding carrying on of business and trade, the assessee was granted registration u/s 12A for carrying out its activities as the objects were held to be of general public utility and before 01/04/2009 there was no bar on business activities which were carried out in achieving the objects of the society. The cases under consideration relate to the period prior to 01/04/2009 The learned CIT(A) has dealt this argument of Assessing I.T.A. Nos.352 to 356/Lkw/2017 7 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 Officer in para 5.6 of his order. For the sake of completeness the said findings of learned CIT(A) are reproduced below:
"a) This ground relates to the observations of the AO and denying the claim of the appellant by importing the phrase "not involving activities for profit", in relation to the activities which are eligible for exemption under Section 11 of the Act. By way of importing the said concept the AC has proceeded to hold that the activities of the Appellant classify to be commercial in nature as the activity of exploitation of forest produce is commercial in nature and cannot be construed for no profit.
b) In this regard I have gone through the submissions of the appellant as well as he provisions of the Act as relevant for the AY under considerations. On perusal of the provisions of Section 2(15) of the Act for the year under consideration, I find that the phrase "not involving activities for profit", was deleted by way of Finance Act 1983 w.e.f 1 -4-1984 and the same was reintroduced in the Act by way of Finance Act 2008 w.e.f 1-04-
2009. During the period 1-4-1984 to 31-3-2009 there was no provision in the Act which qualified the charitable activities by "not involving activities for profit". Hence I am of the view that the AO has interpreted a meaning while framing the assessment of a term which was not part of the Act for the period under consideration and therefore the contention of the appellant that the AO has travelled beyond the scope of the provisions of the Act are true.
c) Further, AO has also pointed out in the assessment order that the activities of the appellant are covered by CBDT Circular No. 11/2008, dated 19-12-2008. is also incorrect in the facts in hand because the subject circular relates to the amendment brought to the Act by way of Finance Act 2008 and the same not being retrospective in nature do not find applicability on the appellant for the year under consideration.
d) In light of the above, I found no merit in the action of AO to disallow the exemption to the appellant by importing the phrase "not involving activity for profit" and holding that the appellant was undertaking commercial activities for a profit. Accordingly the ground of appeal is allowed."
I.T.A. Nos.352 to 356/Lkw/2017 8 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 As regards the contention of Revenue that activities of the assessee do not fall within the definition of preservation of environment, we find that learned CIT(A), after relying on the decision of Hon'ble I.T.A.T., as upheld by Hon'ble Supreme Court, has held that the activities of the assessee are charitable in nature. The learned CIT(A) has noted these facts in his order and the relevant findings of learned CIT(A) are reproduced below:
"Ground of appeal No. 5 & 6(a) This ground of appeal relates to the inference drawn by the AO by placing reliance on the Judgment of the Hon'ble Allahabad High Court decided on 26.11.2002 and reported under 129 Taxman 527 wherein it exploitation of forest was held to be commercial activity and the AO not observing the directions of the Hon'ble Supreme Court as given -in Judgment reported in (165 Taxman 533).
(b) The appellant vide its submissions has also rebutted the finding of the AO who relied on the judgment of the Hon'ble Allahabad High Court in appellants case dated 26-11-2002 cited under citation (129 TAXMAN 527) wherein the Hon'ble Court has held that the exploitation of forest is a commercial activity.
(c) In this regard, I have gone through the submission of the appellant and the background in which the Hon'ble Court has pronounced its ruling dated 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.
I.T.A. Nos.352 to 356/Lkw/2017 9 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 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 is required to consider appeal without getting influenced by the decision of the Hon'ble High Court. The relevant clause of the Judgment is reproduced below:
"14. In view of the dismissal of these appeals, the appeals filed by the revenue also stand dismissed. However, in order to protect the interest of the assessee as well as the revenue, we direct the Tribunal, before whom the appeals are pending against the order passed by the Commissioner rejecting the application filed under section 12A of the Act, to take up the matter on priority basis and decide the same as expeditiously as possible without being influenced by any of the findings recorded by the High Court in the impugned order."
(d) In this context the Hon'ble Tribunal at Lucknow vide its order dated 16.01.2003 while granting exemption to the Appellant under Section 12A has categorically gave its findings as summarised and reproduced in the paragraph 5.1(d) of this order that the activities of the appellant are charitable and not being conducted on any commercial lines with respect to exploitation of forests. The subject finding of the Hon'ble ITAT vide its order dated 16.01.2009 has attained finality pursuant to dismissal of the appeal preferred by the Department both by 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 (refer to the contents of the orders as reproduced above in para 5.1(e) of this order). The AO cannot travel beyond his powers to open an issue which has been duly decided in favour of the appellant and with the facts remaining identical at the time of pronouncement by Hon'ble ITAT as well as the time of assessment proceedings. Consequent to the findings of the Hon'ble ITAT Lucknow and its examination of the fact that the Appellant is not doing commercial activity and which is upheld by the Hon'ble Higher Judiciary at a later date (in this case after the Hon'ble High Courts order dated 26-11- 2002), the said findings of Hon'ble ITAT as duly attained finality would prevail.
(e) I find merits in the arguments of the appellant on the basis of the Judgment of the Hon'ble High Court Of Madras in Seshasayee Paper & Boards Ltd. v. Inspecting Assistant Commissioner (24 TAXMAN 604) and the decision of the Hon'ble Mumbai High Court in I.T.A. Nos.352 to 356/Lkw/2017 10 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 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 clear and do not require any interference. Therefore, Ground No. 1 & 2 of the Revenue's appeal are dismissed.
7. Now coming to ground No. 3 & 5 of the appeal by which the Revenue has agitated that the assessee was granted 12A registration for preservation, supervision and development of forest and not for the exploitation of forest produce. We find that learned CIT(A) has dealt this issue in para 5.1 of his order and has held as under:
"5.1 After examining the assessment order and the written submissions of the appellant the grounds of appeal are discussed and decided as under:-Grounds of appeal No. 1
a) The Ground 1 relates to findings of the AO that the activities of the appellant partly classify as charitable and partly as I.T.A. Nos.352 to 356/Lkw/2017 11 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 commercial and do not fall within the Expression "Charitable Purpose".
b) In light of the findings of the AO, it becomes imperative to understand that working of the appellant and whether the same classifies to be charitable in nature for the purposes of Section 2(15) of the Act. The appellant has placed before me the copy of the enactment under which it was incorporated. Section 14 of the said enactment provides the following:
"Section 14.: Function of the Corporation Subject to the provisions of this Act, -and to any general or special directions of the State Government, the functions of the Corporation shall be following, namely:
(a)to undertake removal and disposal of trees and exploitation of forest resources entrusted to it by the State Government;
(b)to prepare projects relating to forestry within the State;
(c)to undertake research programmes relating to forest and forest products and render technical advice to State Government matters relating to forestry;
(d)to manage, maintain and develop such forests as are transferred or entrusted to it by the State Government;
(e)to perform such functions as the State Government may from time to time require.
c) On perusal of the Section for which the appellant was incorporated, it is seen that the very primary purpose for its incorporation was "to undertake removal and disposal of trees and exploitation of forest resources entrusted to it by the State Government". The modus operandi being adopted for removal trees and the exploitation of produce has been diagrammatically explained by the appellant in his submissions put forth before me. It is also 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 I.T.A. Nos.352 to 356/Lkw/2017 12 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 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 environment by the Hon'ble ITAT Lucknow in appellants own case vide findings contained under para no 24 to para 29 of its order in I.T.A No 512 /LUC/2007 decided on 16-01.2009 in the course of granting registration under 12A of the Act. The extracts of the said para's are reproduced below :
" 24. Hearing the rival submissions, we are of the view that the appeal of the assessee is to be allowed. From the arguments advanced and also from the objects of the assessee, it is clear that Corporation was constituted by the Legislative mandate of the state of by U.P.Forest Corporation Act 1974 and the State has entrusted forest resources to U.P. Forest Corporation as per Section 14(a) with reference to the objects enshrined in the preamble "for better preservation, supervision and development of forests and better exploitation of forest produce within the state and for matters connected therewith". In the decision relied upon by the assessee in the case of M.C. Mehta Vs Kama/ Nath (supra), it was held that State is the Trustee of all the natural resources which are meant for public use and enjoyment. The state as a trustee is a under a legal obligation to protect the natural resources which includes forest. The state is not merely interested in realizing revenue but is equally interested in preservation and development of forests. It cannot knowingly enter into contracts with bidders who must have at the back of their minds the opportunity oc gamble of illicit felling of trees. In the second place, the Corporation is a wholly Government owned Corporation dedicated to the better preservation and development of I.T.A. Nos.352 to 356/Lkw/2017 13 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 forests and better exploitation afforest produce. The profits of the Corporation are in truth the profit of the state itself. The state by establishing this Corporation does not intend to enter into a commercial activity. The activity is only furtherance of the object of the establishment of the Corporation itself. The prime aim of establishment of the Corporation is environment stability and maintenance of ecological balance. The revision of economical benefit, if any, is only supporting to the principles of the above aim. It is not the prime object and therefore it is difficult to hold that assessee's activities are for commercial exploitation of forest which will disentitle the assessee to obtain registration. Assessee is not treating forest just as a source 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 have its own fund which shall be a local fund and to which shall be credited all money received by or on behalf of the Corporation.
I.T.A. Nos.352 to 356/Lkw/2017 14 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 (2). The fund shall be applied towards meeting expense incurred by the Corporation in the discharge of its functions under this Act and for no other purposes.
(3). The Money of the Fund shall be kept in the State Bank of India or in the Uttar Pradesh Co-
operative Bank or nay Scheduled Bank."
26. The above makes it clear that one of the objections of the C.I.T. that discretion is given to utilise funds for commercial purpose cannot be held as entirely correct. The accounts are to be audited by the Govt. agent and the reports are to be each year tabled before each house of legislature
27. It is also clear that the Corporation was asked by the State Govt. to check illegal felling of the trees and provide gainful employment to the Tribals living in and around forest. The exploitation of the forest was confined to removal and disposal of fallen, dried and diseased trees. The felling of growing trees, it is stated is strictly prohibited. "Commercial Exploitation" which was one of the reasons cited by the C.I.T. not to grant registration, appears to be superfluous. The role and status of the Corporation is given at page 6 of the paper book-l, vide which the assessee explain the synopsis of the charitable purposes of the Corporation. SI No 8 at page 6 of the paper book-l makes it clear that there was a protracted litigation in the a case in the year 1980 between the State of U.P. and private Contractors who was highest bidder not getting the award of contract due to apprehension of the work being detrimental of the forestry. Ultimately the issues was decided in favour' of the Govt by the Hon'ble Supreme Court of India. It says that the case reported in 2 SCC 365 in the case of State of U.P. V Vijay Bahadur Singh, the Hon'ble Supreme Court of India held as under:-
"In the first place....... The State is not merely interested in realizing revenue but is equally interested in the preservation and development of forests. It cannot knowingly enter into contracts with bidders who must have, at the back of their I.T.A. Nos.352 to 356/Lkw/2017 15 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 minds the opportunity or the gamble of illicit felling of trees. In the second place the Corporation is a wholly Government owned Corporation dedicated to the better preservation and development afforests and 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 loosen these bonds of Slavery. It is to the credit of some of the dedicated social workers of the areas and the staff of the Corporation that the fetters are breaking down and freed labour are coming over to the Corporation in ever increasing numbers. The Corporation has ensured minimum wages, wholesome rations, medical facilities, recreation and adult literacy classes to the labour engaged by it. Stress is being laid on the Formation of labour cooperatives and encouraging them in everyway possible. Local youth is being recruited and trained in modern logging methods, use of improved hand tools, mechanical hand saws, so that gradually a revolution could be ushered in the methods of felling, extraction and transport, as has been practiced by their I.T.A. Nos.352 to 356/Lkw/2017 16 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 fathers and forefathers for well over a century." (Extracts from Annual Report of the Period 1.10.1975 -30.09.1976 relevant to assessment year 1977-78)"
29. The reading of the above makes it clear that exploitation of the forest is not for any commercial purpose but for preservation. Hence, we are of the View that the Objections given by the C.I.T. to overlook the claim of the registration is incorrect"
e) Further the observations / decisions of the above Hon'ble ITAT Order in ITA 512/LUC/ 2007 has attained finality pursuant to dismissal of the appeal preferred by the Department both by Hon'ble Jurisdictional Allahabad High Court in 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. The orders of the Higher Judicial Authorities are reproduced below:
Hon'ble Jurisdictional Allahabad High Court in case no ITA No 70 of 2009 bearing date 12-05-2010 "Present appeal under Section 260A of the Income-Tax Act has been preferred raising o question whether U.P. Forest is liable for grant of certificate under Section 12-A of the Income-Tax Act 1961 ?
It is has been admitted at bar that Hon'ble Supreme Court while dealing with the same issue in a case reported in (2008) 297 ITR 1 U.P. Forest Corporation Vs. Deputy Commissioner of Income-lax, settled that U.P. Forest Corporation is eligible for grant of certificate under Section 12-A of the Income-Tax Act, 1961.
In view of the law settled by the Hon'ble Supreme Court there appears to be no justification to admit the appeal on the same issue. So far as condonation of delay is 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."
I.T.A. Nos.352 to 356/Lkw/2017 17 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 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 issue is decided in favour of the assessee"
g) It was also brought to my knowledge that the subject order of the ITAT on this finding has not been challenged before the Hon'ble Allahabad High Court and the same therefore has been accepted by the department and attains finality to this extent.
h) It would be right to hold that the activities undertaken by the appellant are in the nature of preservation of environment. The above stated order of the Hon'ble ITAT dated 16.01.2009 as outlined in para 5.1(d) as duly upheld by the Higher Judicial authorities is binding on the authorities below as held by the Hon'ble Jurisdictional Allahabad High Court in the Case of N. N. Agarwal v. CIT [1991] 189 ITR 769 wherein it has been held that "Indeed, the orders of the Tribunal and the High Court are binding upon the Assessing officer and since he acts in a quasi judicial capacity, the discipline of such functioning demands that he should follow the decision of the Tribunal or the High Court, as the case may be. He cannot ignore merely on the ground that the Tribunal's order is the subject matter of revision in the High Court or the High Court's decision is under appeal before the Supreme Court. Permitting him to take such a view would introduce judicial indiscipline, which is not called for even in such cases. It would lead to a chaotic situation".
I.T.A. Nos.352 to 356/Lkw/2017 18 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 Similarly the Order of Hon'ble ITAT dated 06.03.2009 for A.Y. 2002-03 in appellants case too has attained finality.
i)Accordingly I hold that once the activities of appellant are held to be in the nature of "Preservation of environment" therefore these activities are held to be Charitable in Nature and the same cannot be categorized partly as charitable and partly as non-charitable as they are covered within the objects for which it was incorporated and is functioning on those lines."
We do not find any infirmity in the order of learned CIT(A), therefore, ground No. 3 & 5 are also dismissed.
8. Now coming to ground No. 4 & 6 which relate to deletion of addition which the Assessing Officer had made on account of prior period expenses. We find that this issue has also been dealt by learned CIT(A) exhaustively and after relying on number of case laws and keeping in view the facts and circumstances of the case, the learned CIT(A) has allowed relief to the assessee by holding as under:
"5.7 Ground of appeal No. 8(a)This ground of appeal relates to disallowance of expenses amounting to Rs 6,63,812 by the AO for the reason that these expenses pertain to prior period and were accordingly disallowed as prior period expenses. The AO in the assessment order has pinpointed out that the appellant should have made a provision in its accounts for that year in which the purchase price/royalty was to be paid. The AO further stated that the appellant is following mercantile system of accounting, therefore, these expenses were disallowed.
(b) In this regard the appellant has submitted that the said amount of Rs 6,63,812 cannot be considered as a Prior period expenses in light of the fact that such amount is only determinable and crystallised after the close of the Financial Year i.e. the said expenses had not crystallized at the close of the relevant Financial Year.
I.T.A. Nos.352 to 356/Lkw/2017 19 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09
(c) During the course of appellate proceedings it was submitted that the basis -of determining this expense is a certain percentage which is decided In the Committee meeting held after close 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) held that the assessee entered into a contract with Oil and Natural Gas Commission in February, 1964. The operation started in December 1964. The assessee claimed deduction of expenses for the period 10-9-1964 to 31- 12-1965 after the communication of approval in the assessment year 1966-67. The Hon'ble High Court held that the expenditure incurred in earlier years can be allowed as a deduction in the assessment year 1966-67 as it crystallized only when approval was received.
iv)The Hon'ble High Court of Gujrat in the case of Commissioner of Income-tax State Forest Development (163 TAXMAN 547) wherein the Hon'ble High Court while deciding a similar issue held that Royalty is to be allowed on actual payment and such deduction would be allowed only after its payment. In the present matter, though the liability to pay the royalty was in relation to the assessment years 1981-82 and 1982-83, the liability to pay the royalty was finalised on 2-1-1985, and, I.T.A. Nos.352 to 356/Lkw/2017 20 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 therefore, section 43B of the Act would apply with full force if the royalty is paid in the said assessment year.
(v)The Allahabad High Court in the case of Commissioner of Income-tax v. Amrit Banaspati Co. Ltd (59 ITR 388) with respect to payment of dearness allowance wherein the Hon'ble Court has held that the claim to deduction, therefore, was only admissible in the year when the liability under the award was finally determined.
vi) Similar findings have also been given in the following Judgments of Hon'ble High Court:
• Hon'ble High Court Of Delhi In the case of Commissioner of Income-tax, New Delhi v. Shri Ram Pistons & Rings Ltd(174 TAXMAN 147) • Hon'ble High Court Of Delhi in the case of Commissioner of Income-tax v. Triveni Engg. & Industries Ltd. (196 TAXMAN 94)
(e) The undersigned has gone through the written submissions of the appellant and the above cited judgments and on perusal it is evident that the expenses can only be booked when the same are known to the appellant and for that matter its crystallisation and determination of expenses is necessary. The key words are 'determined' and 'crystallised'.
The appellant was certain of the expenses to be paid only when it was decided/finalised by the Committee of the Government of Uttar Pradesh after the close of the earlier year. The contention of the appellant is supported by the judgment of the 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.
I.T.A. Nos.352 to 356/Lkw/2017 21 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09
(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 is placed on the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Vishnu Industrial Gases ITR No. 229/1988) wherein the Hon'ble Delhi High Court followed the ruling of the Hon'ble Mumbai High Court in the case of Nagri Mills Co. Ltd. [1958] 33 ITR 681.
Relevant Extracts of the judgment in the case of Nagri Mills Co. Ltd (supra) are reproduced below:
"We have often wondered why the Income tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the income tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax-chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction In respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952. That is in the assessment year 1953-54, should be a matter of no consequence to the Department', and one should have thought that the Department would not fritter away our energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other."
(h) In light of the written submissions of the appellant and judgments cited it ;is to be seen that there being no change in rate of taxes, the amount incurred under the said head has to be allowed in the AY under consideration as the said expenses were determined and crystallized during the AY under consideration.
I.T.A. Nos.352 to 356/Lkw/2017 22 Asstt. Yrs:2002-03 to 04-05, 07-08 & 08-09 Accordingly, the disallowance made by the AO under the head Prior Period expenses is hereby deleted. The said expenses are allowed for the reason that these expenses were determined and crystallized only during the AY under consideration. Ground of appeal No. 8 is allowed."
Finding no infirmity in the order of learned CIT(A), these grounds of appeal of the Revenue are also dismissed.
9. For other assessment years, the issues involved and facts are similar. Therefore, following our decision for assessment year 2002-03, we dismiss all the appeals of the Revenue.
10. In the result, all the appeals of the Revenue stand dismissed.
(Order pronounced in the open court on 13/12/2018) Sd/. Sd/.
( A. D. JAIN ) ( T. S. KAPOOR )
Vice President Accountant Member
Dated:13/12/2018
*Singh
Copy of the order forwarded to :
1. The Appellant
2. The Respondent.
3. Concerned CIT
4. The CIT(A)
5. D.R., I.T.A.T., Lucknow
Assistant Registrar