ACIT Vs Anandilal & Ganesh Podar Society (ITAT Mumbai)
The appeal was filed by the Revenue against the order dated 17.03.2025 passed by the Commissioner of Income Tax (Appeals)-47, Mumbai, relating to Assessment Year 2015-16. The primary issue was whether provisions made for gratuity and leave encashment by a charitable trust registered under Section 12A and claiming exemption under Section 11 of the Income-tax Act, 1961 could be treated as application of income.
The assessee, engaged solely in educational activities and running schools, filed its return declaring nil income after claiming exemption under Section 11. During assessment under Section 143(3), the Assessing Officer noted increases in provisions for leave encashment and gratuity. The differential amount of Rs. 3,02,74,639 was treated as contingent liability and not actual expenditure or utilization of income for the objects of the trust. The amount was disallowed as application of income.
Before the CIT(A), the assessee submitted that the provisions were made in accordance with consistent accounting practices and Accounting Standard 15, based on statutory obligations under the Payment of Gratuity Act, 1972 and employment terms governing leave encashment. The liabilities had crystallized as of 31 March 2015 and were quantified through actuarial valuation. It was further pointed out that identical disallowances in earlier years had been deleted by the Tribunal.
