ITO (Exemption) Vs Rajasthan Cricket Association (ITAT Jaipur)
Where provision for expenses was not claimed as applied income during the year, the same shouldn’t be disallowed: ITAT Jaipur
Conclusion: Provisions for expenses were not automatically disallowed for charitable trusts, especially when they were not claimed as applied income. AO should consider the nature of the provision and whether it had been utilized for non-charitable purposes before making any disallowance. Rectification Order passed under section 154 for disallowing Provision for Expenses was set aside for assessee-charitable trust.
Held: AO during scrutiny assessment proceedings perused the balance sheet of the assessee in which it was noticed that assessee had shown provision for expenses of Rs.2,30,26,342/-. According to AO, the provisions were not allowable who vide show cause notice asked assessee to furnish details of the provisions made as well as justification for the claim and the assessee did not file any reply to the show cause notice issued. According to AO, for claiming any expenditure it should have been incurred and provisions were not the expenditure incurred. It was an estimate for the expenses to be incurred in a subsequent period and in the absence of any details before the AO, it could not be examined whether the assessee had incurred any expenditure for which provision had been made or not. Thus, AO in view of the facts of the case, the provision for the expenses of Rs.2,30,26,342/- was disallowed and added to the total income of the assessee. Assessee clarified that they had not claimed the provision as applied income during the year. The court held that the rectification order under Section 154, which made an addition for the provision for expenses, was not valid. Since assessee did not claim any amount from the provision as applied income, there was no question of disallowance. The Court emphasized that disallowance under Section 11 was applicable only when the income was applied for purposes other than charitable purposes. The rectification order was set aside.
