THE DCIT (EXEMPTION), CIRCLE-2, AHMEDABAD vs. GUJARAT CRICKET ASSOCIATION, AHMEDABAD

This is an appeal filed by the Department against the order of the ld. Commissioner of Income Tax (Appeals)-9, Ahmedabad in Appeal no. CIT(A)-9/10478/DCIT CPC/2019-20 vide order dated 19/08/2020 passed for the assessment year 2018-09.

The revenue has taken the following grounds of appeal:-

The brief facts of the case are that the assessee is a Trust registered under section 12AA of the Act. For the impugned assessment year, return of income was processed wherein amount applied during the previous year was allowed to the extent of income earned during the year and thereby the excess of expenditure of � 236,76,40,436/-, being the deficit, was not allowed to be carried forward.

In appeal, before Ld. CIT(A), the assessee gave a breakup of how the deficit was arrived at in the return of income. Before the Ld. CIT(A), the assessee submitted that having regard to the provisions of Section 11 of the Act, when the income of the assessee trust is used to meet the expenses incurred for the objects of the trust, it is application of income. The said application of the income for charitable purposes takes place in the year in Page No. 3 DCIT(Exemptions) Vs. Gujarat Cricket Association which the income is adjusted to meet the expenses incurred for charitable purposes. In other words, even if expenses for charitable purposes have been incurred for the earlier year and the said expenses are adjusted against the income of a subsequent year, the income of that year can be said to have been applied for religious purposes in the year in which the said expenses incurred for earlier years had been adjusted. The assessee placed reliance on the case of Shri Plot Swetamber Multi Pujak Jain Mandal (1995) 211 ITR 293 (Guj), wherein the Gujarat High Court held that the expenses incurred by the trust for charitable and religious purposes in the earlier year against the income earned by the trust in the subsequent year would amount to applying the income of the trust for charitable and religious purposes in the subsequent year in which such adjustment has been made and will have to be excluded from the income of the trust u/s 11(1)(a) of the Act. The assessee also placed reliance on the case of CIT vs. Institute of Banking (2003)264 ITR 110 (Bom), wherein a similar view was taken by the Bombay High Court as well. In view of the above rulings, the assessee submitted before CIT that deficit claimed during the year be allowed to be carried forward. The Ld. CIT(A) granted relief to the assessee with the following observations:

We have heard the rival contentions and perused the material on record. We observe that in the case of CIT v. Kantilal Jaikishandas Choksi Charitable Trust [2021] 133 taxmann.com 218 (SC), the Supreme Court dismissed the SLP filed by the Department against High Court's ruling that where expenses for charitable and religious purposes had been incurred Page No. 5 DCIT(Exemptions) Vs. Gujarat Cricket Association in earlier year and said expenses were adjusted against income of a subsequent year, income of that year can be said to have been applied for charitable and religious purposes in year in which expenses had been adjusted. Again, the Honourable Gujarat High Court in the case of CIT v Dawat Properties Trust [2022] 142 taxmann.com 548 (Gujarat) held that expenditure incurred by trust in earlier year can be set-off from income of subsequent years and utilization of such income for meeting expenditure of earlier year would amount to such income being applied for charitable or religious purpose. The jurisdictional Gujarat High Court decision the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal (1995) (211 ITR 0293) held that where expenses for charitable and religious purposes have been incurred in earlier year and said expenses are adjusted against income of a subsequent year, income of that year can be said to have been applied for charitable and religious purposes in year in which expenses has been adjusted. The Honourable Madras High Court in the case of Anjuman-E- Himayat-E-Islam [2021] 127 taxmann.com 78 (Madras) has held that amount of excess application of income by assessee-trust towards its object during earlier year could be set off by assessee-trust against deficiency of subsequent assessment years. The ITAT Ahmedabad in the case of Gnyan Dham Vapi Charitable Trust [2020] 120 taxmann.com 281 (Ahmedabad - Trib.) has held that where a trust has incurred shortfall due to its excess spending on objects of trust in a particular year, such deficit or shortfall could be allowed to be carried forward in full for set off against incomes generated in subsequent years. In view of the consistent position of the law on the subject, we are of the considered view that Ld. CIT(A) has not erred in facts and in law in allowing the assessee’s claim of carry-forward of Page No. 6 DCIT(Exemptions) Vs. Gujarat Cricket Association excess losses and adjustment thereof against income of the assessee trust in the subsequent years.