DCIT, GHAZIABAD vs. M/S. ASSOCIATION OF MANAGEMENT STUDIES, MEERUT

PER KULDIP SINGH, JUDICIAL MEMBER : The appellant, DCIT, Exemption Circle, Ghaziabad (hereinafter referred to as ‘the Revenue’) by filing the present appeal, sought to set aside the impugned order dated 31.12.2013 passed by Ld. CIT (Appeals), Meerut qua the Assessment Year 2005-06 on the grounds inter alia that :-

2. The Ld. Commissioner of Income Tax(A) has erred in law on facts in deleting loans, advance etc. to ascertain the extent of application of Income for charitable and religious purpose which has been sourced out of Income of the assessee. ”

However, the AO has not allowed the brought forward loss / losses of the earlier years for adjustment as exempt income under Sections 11 & 12 of the Act.

“2.4 A harmonious interpretation of the ratio of the decisions quoted in the preceding paragraph would imply that if the expenditure with had been applied for charitable or religious purposes (including capital expenditure) is in excess of the income of an assessee to whom registration has been granted u/s 12AA of the Act, such excess expenditure or, conversely, the deficit of income is permitted to be carry forward to be treated as application of income in the subsequent years. Accordingly, Ground Nos.1, 2 & 3 are allowed. However, while allowing the benefit of carry forward of deficit of expenditure, the AO is directed to ascertain the extent of application of income for charitable and religious purposes which has been sourced out of income of the assessee (and not loans, advances or voluntary donations) and allows the benefit of carry forward only to this extent.”

7. The coordinate Bench of the Tribunal in assessee’s own case for AY 2005-06 decided the identical issue in favour of the assessee by returning following findings :-

“6. Now the department is in appeal. During course of hearing the ld. Counsel for the assessee at the very outset stated that this issue is covered in favour of the assessee vide order dated 27.07.2015 in the case of Devender Kumar Garg Charitable Trust & Others Vs ACIT, Circle-1, Meerut in & others for the assessment year 2010-11 wherein by following the earlier order dated 28.03.2015 in ITA No.4118/Del/2013 for the assessment year 2008-09 in the said assessee’s own case, the AO was directed to allow the claim of the assessee for carry forwarded loss to be adjusted against the current year and the remaining amount to be carried forward to be set off against surplus of next year’s income. The relevant findings have been given in paras 6 & 7 of the aforesaid order dated 27.07.2015 which read as under:

“6. I have considered the submission of both the parties and carefully gone through the material available on the record. It is noticed that an identical issue having similar facts has been decided in assessee’s favour vide order dated 20.03.2015 in assessee’s own case for the Assessment Year 2008-09 in by the ITAT, ‘B’ Bench, New Delhi, wherein the undersigned is co-signatory. In the said order relevant findings have been given in Para 6 and 7 which read as under:-

“6. We have heard rival submissions and perused the material on record. The solitary issue that arises for our consideration is whether the CIT(A) is justified in allowing the benefit of carried forward of loss. The Assessing Officer held that the loss suffered was on account of capital expenditure and as such same cannot be allowed to be carried forward to subsequent years. This issue according to us is no longer res Integra. The Delhi Bench of the Tribunal in the case of Addl. CIT Vs M/s City Educational & Social Welfare Society (supra) had held that the assessee is entitled to carry forward the losses against the subsequent year's surplus. The relevant findings of the coordinate Bench order reads as follows:-

"5.......The CIT(A) has made a reference in those assessment years to section 11(4) of the Income-tax Act In the case of CIT Vs. Institute of Banking reported in 264 ITR page 110 an argument was raised before the Hon'ble Mumbai High Court by the revenue that in the case of a charitable trust, their income was assessable under self contained code mentioned in section 11 to 13 of Income-tax Act and that the income of the charitable trust was not assessable under the head "profit and gains of business" u/s 28 in which the provision for carry forward of losses was relevant According to the revenue, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against the income of subsequent years. This argument was rejected by the Bombay High Court and it has been held that income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable religious purpose in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of the income of the trust for charitable and religious purpose. The learned CIT(A) has followed this decision apart from others referred above......"

7. In view of the above order of the Tribunal, we hold the CIT(A) is justified in allowing the claim of the assessee to carry forward the losses of the current year against surplus of the subsequent year. It is ordered accordingly.”

7. Since the facts of the present case are similar to the facts of the aforesaid referred to case of Devender Kumar Garg Vs ACIT, Circle-1, Meerut in for the assessment year 2010-11. So, respectfully following the said order dated 27.07.2015, we do not see any merit in this appeal of the department.”