RAMNATH GOENKA MEMORIAL FOUNDATION,MUMBAI vs. ITO (EXEMPTION) 2(2), MUMBAI

The appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC)/CIT(A), Delhi passed u/s 250 of the Act. The assessee has raised the grounds of appeal challenging the Ex parte order of the CIT(A).

The brief facts of the case are that, the assessee is a trust registered u/sec 25 of the Companies Act and the assessee trust is also registered with the Director of Income Tax (Exemptions) u/s 12A of the Act. The assessee has filed the return of income along with the audit report in Form No. 10B on 30.09.2014 disclosing a total income of Rs. Nil. Subsequently the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act are issued. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. The AO has dealt on the activities and objects of the trust and find that the assessee has claimed an amount of Rs. 74,80,280/- as deficit of the earlier years being adjusted against the surplus of current year. The AO has observed at Para 6 of the order denying the claim as under: 6. The assessee has claimed an amount of Rs.74,80,280/- as deficit of the earlier years being adjusted against the surplus of this year. The claim of deficit is not allowed in view of the following reasons: > There is no provision which allows determination of loss while computing taxable income u/s.11. This is so because Section 11 prescribes certain conditions for claiming exemption. The first 15% of income is exempt u/s.11(1) of the Act, the next 85% of the income requires to be spent during the year so that the entire income may be assessed as exempt. The assessee has a choice to spent a portion of the current income in the succeeding year which it could not spent for certain reasons and that portion of income can be deemed to be applied for the charitable purpose and debited from income. > Further, the assessee has also an option to accumulate its income for certain specified purposes upto 5 years and utilize the same within a span of 5 years and in that case the amount opted to be accumulated is deemed to be applied for charitable or religious purpose and accordingly debited against income. > It is further noted that capital expenditure on construction / acquisition of asset is also treated as application of income and hence the amount of capital expenditure to the extent of available income is deductible from the current income. ➤ Any excess expenditure over income is either out of accumulated income or out of corpus fund received by the trust. Accumulated income cannot be further subjected to deduction from the income since deduction in respect of accumulation has been claimed and allowed in the previous years and any further allowance of the same will amount to double deduction for the same outgoing If excess expenditure is out of corpus then any corpus received is separately exempt u/s.11(1)(d) of the Act and hence any further deduction of the same outgoing will amount to double deduction. If source of expenditure is a loan then repayment is allowable as a deduction in the year of repayment. Clearly, scheme of computation of business income has no application in determination of income u/s.11. Thus, in view of the above stated facts deficit of Rs. 74,80,280/- is not allowed to be adjusted against the surplus of this year. Moreover, department has filed SLP in the case of Gems & Jewellery Export Promotion Council for Assessment Year 2004-05 on the deficit issue 3. Since the AO was not satisfied with the facts and submissions and has assessed the total income of Rs. 13,68,610/- and passed the order u/s 143(3) of the Act dated 27.10.2016.

Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) has considered the grounds of appeal