Loading judgment…
Facts
The assessee, a trust, declared Nil income. The AO added Rs. 99,45,622 and Rs. 1,00,28,184 to the assessee's income, presuming suppression of income to be carried forward. The CIT(A) deleted these additions.
Held
The Tribunal held that the AO's interpretation of Section 11(2) of the Income Tax Act was incorrect. The Act does not mandate that expenditure of the current year must be met from the current year's income before utilizing accumulated income from previous years.
Key Issues
Whether the AO was correct in adding amounts carried forward from previous years based on a presumption of income suppression and a misinterpretation of Section 11(2) of the Income Tax Act.
Sections Cited
12A, 11(2), 139, 12AA, 12AB, 10(23C)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW BENCH “B”, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA & SHRI NIKHIL CHOUDHARY
This appeal has been preferred by the Revenue against the order dated 13.04.2018, passed by the ld. Commissioner of Income Tax (Appeal)-4, Lucknow (ld. CIT(A)) for Assessment Year 2013-14.
2.0 The brief facts of the case are that the assessee is a Trust constituted on 10.09.1963 by the Government of Uttar Pradesh with the purposes of providing education, technical training and financial support towards rehabilitation of the beneficiaries, particularly the members of the U.P. Police and Armed Forces. The assessee-Trust is registered under section 12A of the Income Tax Act, 1961 (hereinafter called “the Act’). The assessee filed its return of income for the year under consideration on 30.10.2013, declaring total income at Nil. The case of the assessee was selected for scrutiny under CASS. The Assessing Officer (AO) held that the assessee has not adjusted an amount of Rs.99,45,622/- set apart in financial year 2009-10 and further held that the assessee has carried forward excess amount of Rs.1,00,28,184/- to be set off in the next year. The AO, accordingly, added these two sums to the income of the assessee and assessed the total income of the assessee at Rs.1,99,73,810/-.
3.0 Aggrieved, the assessee preferred an appeal before the ld. CIT(A), who allowed the appeal of the assessee by deleting the additions made by the AO.
4.0 Now, the Revenue has approached this Tribunal, challenging the impugned order of the ld. CIT(A), by raising the following grounds of appeal:
The Ld. CIT(Appeal)-4, Lucknow has erred on facts and law in allowing the amount of Rs.99,45,622/- out of the total amount of Rs.1,97,00,000/- set apart in the F.Y. 2009-10. Whereas in this year i.e. Assessment Year 2013-14 (Financial Year 2012-13) no adjustment of an amount of Rs.99,45,622/- has been made in the total income of the assessee and assessee has less carried forward amount of Rs.99,45,622/- to suppress its income in the next year.
The Ld. CIT(Appeal)-4, Lucknow has erred on facts and law in deleting the addition made by the AO on account of carried forward excess accumulated amount of Rs.1,00,28,184/- (Rs.3,32,00,000- Rs.2,31,71,816) to set off in the next year.
Appellant craves leave to modify/amend or add any one or more grounds of appeal. 5.0 The Ld. Sr. D.R. submitted that during the captioned assessment year, the assessee had adjusted an amount of Rs.99,45,622/- out of the amount of Rs.1,97,00,000/- set apart in assessment year 2010-11 and further an amount of Rs.52,91,873/- was also adjusted in assessment year 2012-13 out of the amount of Rs.1,97,00,000/- and, thereafter, the assessee had carried forward balance accumulated or set apart to the tune of Rs.44,62,505/-, whereas, in the captioned assessment year, i.e., assessment year 2013-14, no adjustment of Rs.99,45,622/- had been made by the assessee and, thus, this amount was less carried forward by the assessee and accordingly this amount was added to the income of the assessee by the AO. The Ld. Sr. D.R. submitted that the AO had rightly made the observation that this amount of Rs.99,45,622/- had been carried forward at a lesser amount with an aim to suppress its income in the next year. The Ld. Sr. D.R. vehemently supported the order of the AO and also submitted that the Ld. First Appellate Authority had not appreciated the correct facts of the case and had erred in deleting the aforesaid addition.
5.1 On the second issue before us, the Ld. Sr. D.R. submitted that the assessee had set apart an amount of Rs.3,32,00,000/- during the captioned assessment year, whereas, the surplus available with the assessee was only to the tune of Rs.2,31,71,816/-. It was submitted that, therefore, this amount of Rs.3,32,00,000/-, being set apart as accumulation, was not justified and the assessee could not explain it before the AO as to why wrong figure was being carried forward by the assessee. It was submitted that in view of this, the excess amount of Rs.1,00,28,184/- (being the difference) was added to the income of the assessee. The Ld. Sr. D.R. submitted that the AO had rightly made this addition also and that the ld. CIT(A) had erred in deleting the said amount without appreciating the facts of the case.
5.2 The Ld. Sr. D.R. prayed that the appeal of the Department be allowed by setting aside the order of the ld. CIT(A) and restoring the order of the AO.
6.0 Per contra, the Ld. A.R. submitted that the assessee- trust was registered under section 12A of the Act and it had filed its return of income for the year under consideration, declaring Nil income. The Ld. A.R. further submitted that during the year under consideration, total receipts of the trust were to the tune of Rs.3,95,07,063/-, whereas, the total application of funds were Rs.1,04,09,188/- and the receipts were from interests earned on FDRs, Saving Bank Account and interest on TDS. The Ld. A.R. also submitted that out of total receipts of Rs.3,95,07,063/-, Rs.3,90,43,497/- were on account of interest received on maturity of Fixed Deposits and the same was shown as Capital Receipts in the Balance Sheet, whereas, receipts of Rs.4,63,566/- were interest on FDRs, Saving Bank Account and on TDS refund and they were duly shown in the Income and Expenditure Account. The Ld. A.R. submitted that as the application of funds during the year under consideration was below 85% of the total receipts, the assessee-trust had passed a Resolution to accumulate the fund to the extent of Rs.3,32,00,000/- to be utilized in the subsequent year as per the provisions of law and the same was submitted along with Form 10B before the AO. The Ld. A.R. further submitted that at the end of immediately preceding year, ended on 31.03.2012, the accumulated funds available for utilization were Rs.7,45,08,127/- and that the assessee had also furnished the year-wise details of the same from assessment year 2010-11 to 2012-13 before the AO. The Ld. A.R. submitted that while filing the return of income, the details of utilization of income as well as accumulation of income were also furnished before the AO. The Ld. A.R. also submitted that while preparing the computation sheet of income to be enclosed with Form 10B, accumulated amount available for set off in the subsequent years was inadvertently shown as Rs.44,62,505/- in place of Rs.1,03,06,002/-. The Ld. A.R. submitted that the AO, while framing the assessment order, wrongly made the addition of Rs.99,45,622/- observing that there has been suppression of income to be carried forward to the next year and that till surplus was there out of the current years' receipt, no utilization could be made out of earlier year’ accumulated income.
6.1 Similarly, while making the addition of Rs.1,00,28,184/-, the AO observed that the assessee has made excess accumulation of current year’s receipt to the extent of Rs.1,00,28,184/-, which was also on wrong footing. The Ld. A.R. submitted that even if the observation of the AO, that the accumulated fund can be utilized to meet out the application of the current year only when the receipts of the current year get exhausted, is considered, even then the assessee was entitled to get its income accumulated upto Rs.2,90,97,875/- and the accumulation of Rs.3,32,00,000/- made by the assessee is restricted to Rs.2,90,97,875/-, then also no addition could be made in this regard. The Ld. A.R. submitted that if the accumulation of income made in the previous year gets expired during the current year, the same could be subject matter of addition during the current year and that this fact was also brought to the notice of the AO, however, he did not appreciate the same and went on to make additions, which was bad in law.
6.2 The Ld. A.R. prayed that the appeal of the Department be dismissed.
7.0 We have heard the rival submissions and have also perused the material on record. It is seen that during the course of assessment proceedings, the AO was of the view that the assessee had adjusted an amount of Rs.99,45,622/- out of the total amount of Rs.1,97,00,000/- set apart in assessment year 2010-11. Further, an amount of Rs.52,91,873/- was also adjusted in assessment year 2012-13 out of the amount of Rs.1,97,00,000/- and the balance amount left to be carried forward was Rs.44,62,505/-, whereas, for the captioned assessment year, the amount to be adjusted and carried forward was Rs.99,45,622/-. It is also seen that the AO had further observed that till surplus was available from the current year’s receipts, no utilization could be made out of the previous years’ accumulated income. The AO also added an amount of Rs.1,00,28,184/- as the excess amount carried forward to be set off in the succeeding assessment year. For ready reference section 11(2) of the Act is being reproduced hereunder:
“(2) Where eighty-five per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:— (a) such person furnishes a statement in the prescribed form and in the prescribed manner to the Assessing Officer, stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years; (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5); (c) the statement referred to in clause (a) is furnished 82[at least two months prior to] the due date specified under sub- section (1) of section 139 for furnishing the return of income for the previous year: Provided that in computing the period of five years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded. Explanation.—Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or section 12AB or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter.”
7.1 A perusal of the above section, thus, provides that charitable institutions can accumulate income upto a period of five years which is to be utilized for specified charitable purposes. However, it does not provide that expenditure of relevant assessment year should first be made from income of relevant assessment year and then only the surplus (accumulation brought forward) should be utilized. Such a condition is not prescribed in the Act and the charitable institution accumulating its surplus funds under section 11(2) of the Act is entirely free to spend the same in furtherance of its objects. Accordingly, we are of the considered view that this interpretation by the AO is not correct interpretation of law and, accordingly, we hold that the addition of Rs.99,45,622/- has rightly been deleted by the Ld. First Appellate Authority.
7.2 Similarly, the second addition of Rs.1,00,28,184/- has also been made by the AO on the presumption that application of income has to be first made from the income of the current year. As we have observed in the preceding paragraph that section 11(2) of the Act does not provide that the expenditure of the relevant assessment year should first be made from the income of the relevant assessment year and then only the surplus of earlier years’ be utilized. Therefore, on similar reasoning, the second addition of Rs.1,00,28,184/- is also held as unsustainable and in our considered view the Ld. First Appellate Authority has rightly deleted the addition.
7.3 Thus, both the grounds raised by the Department stand dismissed.
8.0 In the final result, the appeal of the Department stands dismissed. Order pronounced in the open Court on 11/08/2025.