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Facts
The assessee, a charitable trust, filed its return for AY 2018-19 showing a deficit of Rs. 25,31,445, claiming it was from unsecured loans. The AO denied this deficit as it was not substantiated with documentary evidence. The CIT(A) dismissed the appeal for non-compliance.
Held
The Tribunal held that the CIT(A) should have decided the appeal on merits and could not dismiss it for non-prosecution. The matter of carry-forward of deficit requires verification by the AO, considering Supreme Court decisions.
Key Issues
Whether the CIT(A) can dismiss an appeal for non-prosecution, and whether the deficit of a charitable trust can be carried forward if not properly substantiated.
Sections Cited
143(3), 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH: BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI SOUNDARARAJAN K.
Per Prashant Maharishi, Vice President
This appeal is filed by G. Mallikarjunappa Halamma Trust (the assessee/appellant) for the assessment year 2018-19 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 20.3.2025 wherein the appeal filed by the assessee against the assessment order passed u/s. 143(3) of the Income- tax Act, 1961 [the Act] dated 19.4.2021 was dismissed for the reason that on the date on which hearing notices were issued by the CIT(A), no compliance was made. The assessee is aggrieved with the same and in appeal before us raising several grounds.
The brief facts of the case show that assessee is a charitable trust engaged in various charitable activities, filed its return of income on 31.10.2018. In the return of income the assessee has shown that it has received voluntary contribution of Rs.25 lakhs and has claimed to have applied Rs.31,445 towards charitable objects and further Rs.50 lakhs were applied towards acquisition of capital asset resulting into a deficit of Rs.25,31,445. The return was picked up for scrutiny and necessary notice u/s. 142(1) was issued which was complied with by filing necessary details. The ld. AO noted that assessee has shown a deficit of Rs.25,31,445 which was not properly explained and assessee has simply stated that deficit amount is incurred out of the amount received from unsecured loans, without submitting any documentary evidence to substantiate its claim. Since the correctness of the deficit is not proved, the claim of deficit is not allowed to assessee. Accordingly excess deficit of Rs.25,31,445 was denied by passing assessment order where the total deficit of assessee was determined at Nil.
The assessee preferred appeal before the ld. CIT(A) who issued 3 notices for hearing to the assessee which were not responded to and therefore he held that as nothing was filed by the assessee to support the grounds of appeal, he upheld the order of the ld. AO.
4. The assessee is in appeal before us stating that assessee is entitled to the deficit of Rs.25,31,445. It was submitted that the statement of facts filed before the ld. CIT(A) should have been considered where it is specifically stated that assessee has received voluntary contributions of Rs.25 lakhs, out of which assessee has spent an amount of Rs.31,445 towards the object of the trust on revenue account and further on capital account a sum of Rs.50 lakhs was applied for the purchase of land. All these evidences are available in the annual accounts of the assessee and in the return of income filed. The above transaction has resulted in deficit of Rs.25,31,445. He referred specifically to para 4 of the assessment order wherein in principle the ld. AO has agreed that assessee is entitled to benefit of carry forward of the deficit. It was further stated that the documentary evidence furnished before the AO are Income & Expenditure a/c and balance sheet along with computation of total income in Form 10B. It was further stated that deficit is arising out of regular books of account of charitable trust, could not have been denied to be carried forward. The ld. AO himself has mentioned the decision of the Hon’ble Supreme Court wherein such deficit is to be carried forward and allowed to the trust. Therefore the orders of the ld. lower authorities are not sustainable.
The ld. DR vehemently supported the order of the ld. AO stating that assessee could not substantiate the source of the deposit and therefore
the ld. AO is correct in not allowing carry forward of the same. He submitted that before the ld. CIT(A), the assessee did not respond to the 3 notices and therefore he dismissed the appeal of the assessee as no further submission was made on the grounds of appeal.
6. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The facts clearly show that assessee is a charitable trust carrying on charitable activities. It is not in dispute that assessee has received voluntary contribution of Rs.25 lakhs and further spent a sum of Rs.31,445 towards the objects of the trust. However assessee has also made a payment of Rs.50 lakhs being purchase of land. This is apparent in the statement of facts filed by the assessee before the ld. CIT(A) whether the capital account spending by the trust is application of income or not, should have been seen by the ld. AO and if it is application of income, then definitely there is deficit arising of Rs.21,31,445. The assessee should have been allowed the above deficit in view of the decision of Supreme Court in the case of CIT(E) v. Subros Educational Society dated 16.4.2018. Thus In principle assessee trust is eligible for carry forward of the deficit. The ld. CIT A() despite showing statement of facts and assessment order did not consider the claim of assessee on merits. The ld. CIT (A) is duty bound to decide the assessee in appeal on its merit. He is not empowered to dismiss the appeal of the assessee for non-prosecution. Therefore the order of the ld. CIT (A) is not sustainable in law.
However as the assessee did not prove the source of fund which are stated to be before us that it is out of unsecured loan received from G M Prasanna Kumar was not available before the AO to substantiate the deficit of Rs.25,31,445. Therefore the appeal of the assessee with respect to the computation of the claim of deficit needs verification by the d AO. Hence, Assessee is directed to substantiate the computation of deficit along with the sources of loans, The ld. AO may examine the same and thereafter decide the issue in accordance with law and the decision of Hon’ble Supreme Court. Accordingly we restore the appeal back to the file of the ld. AO to decide in accordance with law.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Pronounced in the open court on this 26th day of August, 2025.