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Income Tax Appellate Tribunal, ‘’ SMC’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & SHRI SIDDHARATHA NAUTIYAL
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-9, Ahmedabad, dated 09/03/2020 arising in the matter of assessment order passed under s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2016-2017.
The assessee has raised the following grounds of appeal:
1. The learned CIT(A) has erred in confirming not setting off the carried forward deficit of Rs.31,89,570/- as claimed by the assessee following the guidelines of CIT(A) order for A.Y. 2014-2015 in as much as the Supreme Court decision in the case of CIT vs Programme for Community Organisation 248 ITR1 and that as per SC decision the assessee was entitled to accumulate 15 percent of gross income and not merely 15 percent of the net income.
2. The learned CIT(A) has erred in misappreciating the facts and thereby has erred in not following ITAT Order of the assessee for A.Y. 2014-15.
3. The only interconnected issue raised by the assessee is that the learned CIT- A erred in not allowing the set off of the carried forward deficit of ₹ 31,89,570/- after appreciating the facts for the assessment year 2014-15 and after ignoring the fact that the assessee is entitled for 15% of the gross receipts to accumulate under the provisions of section 11(1)(a) of the Act.
The facts in brief are that the assessee in the present case is a trust and engaged in the activity of promoting medical and allied sciences in order to improve public health and medical education in the state of Gujarat. The assessee in the year under consideration has shown gross receipt amounting to ₹ 4,36,85,872/- against the application of ₹ 3,39,43,423/- only. The assessee has shown the treatment of its receipt and payment as detailed below: i. Gross receipts ₹ 4,36,85,872/- ii. less: application of income a. accumulation @ 15% ₹ 65,52,879/- b. amount applied for charitable purposes ₹ 3,39,43,423/- iii. surplus over application ₹ 31,89,570/- iv. deficit set off of earlier year ₹ 31,89,570/- 4.1 Thus, the assessee has shown gross total income/taxable income at Rs. Nil. However, the AO during the assessment proceedings found that there was no carried forward deficit which can be claimed in the year under consideration for setting off against the surplus. According to the AO all the deficits pertaining to the period beginning from assessment year 2007-08 were allowed to be set off in the assessment year 2014-15. Accordingly, the AO was of the view that there was no deficit remains to be carried forward for set off against the surplus of the assessee in the year under consideration. Thus, the AO by way of show cause notice dated 12th November 2018 proposed to disallow the deficit claimed by the assessee for ₹ 31,89,570/- against the surplus of the year under consideration.
4.2 The assessee in response to such show cause notice vide letter dated 15th November 2018 has submitted as under: The SCN is issued to diallow the deficit of Rs.31,89,570/- as claimed in the statement of income. The SCN is issued on the line of guidelines issued by the CIT(A) in A.Y. 2014-15 and also in the order under section 250 for A.Y. 2014-15. In this connection, it may please be noted that the CIT(A) order in challenged before ITAT. The CIT9A) has no power issued guidelines which is contrary to law and against Supreme Court decision. The Supreme Court has held in the case of CIT vs Programme for Community Organization 248 ITR 1 (SC) that the accumulation as per section 11(1)(a) is to be allowed on gross income and not on net income. The CIT(A) has given the direction against the above referred SC decision. The relevant head note of the judgement is as under: The assessee trust received donation in the aggregate sum of Rs.2,57,376. It applied there out for its charitable purposes the aggregate sum of Rs.1,70,369/- leaving a balance of Rs.87,010/- Held that on the plain language of section 11(1)(a) of the Act, the assessee was entitled to accumulate 25% of Rs.2,57,376/- and not merely 25%of the balance of Rs.87,010/- Therefore, SCN issued is not as per law. You are therefore, requested to drop the proceedings.
However, the AO was not satisfied with the submission of the assessee on the reasoning that there was no carried forward deficit available with the assessee as held by the learned CIT-A for the assessment year 2014-15 vide order dated 20th September 2018. The AO also admitted the fact that the order of the CIT-A has been challenged before the ITAT which is pending as on the date. Accordingly the AO disallowed the deficit carried forward by the assessee for ₹ 31,89,570/- and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT-A.
The assessee before the learned CIT-A submitted that the order passed by the learned CIT-A for the assessment year 2014-15 was challenged before the ITAT which has been decided by the ITAT in its favour. As such the ITAT has held that assessee is entitled to accumulate/set apart 15% of the gross receipts instead of the net receipts in pursuance to the provisions of section 11(1)(a) of the Act. Thus, accordingly there arises deficit of ₹ 31,89,570/- which should be allowed as deduction.
7.1 However, the learned CIT-A found that the assessee itself has submitted the excel sheet demonstrating the carried forward deficit from the years 2007-08 which was set off in different assessment years. According to that sheet there was no deficit which was carried forward to the assessment year 2015-16. Accordingly, there is no possibility of claiming/ showing any carried forward deficit.
7.2 The learned CIT-A also found that the finding of the ITAT against the order of the learned CIT-A under section 143(3)/254 of the Act is on different issue. In fact the ITAT vide order dated 16th September 2019 in and 2186/AHD/2018 has only directed to allow the accumulation at the rate of 15% of the gross amount in pursuance to the provisions of section 11(1)(a) of the Act. The direction of the ITAT was duly complied by the AO in effect giving order dated 8- 11-2019. As such there was no dispute before the ITAT with respect to the amount of deficit to be carried forward to the future of years. Thus, the learned CIT-A dismissed the appeal of the assessee by observing as under: So the position is that the appellant in its computation of income for A.Y. 2015-16 (Rs.33,14,468/- c/f next year ) and AY 2016-17 (Rs.1,24,898/- c/f to next year) had claimed higher amount of carry forward and set off as against the actual value of Nil. This was found once the issue was being decided for AY 2014-15 . Out of Rs.33,14,468/- c/f from AY 2015- 16, the appellant has set off Rs.31,89,570/- to AY 2016-17. But when the AO disallowed such claim and restricted the c/f & set off to Nil in the order dated 07/12/2018 it has filed this appeal. 7.1 I have gone through the Excel sheet filed by the appellant during the hearing (supra). Appellant has itself shown carry forward of deficit from AY 2013-14 to AY 2014-15 of Rs 24,17,311/- as against its claim in Rol as detailed in para 6.1. The AO has correctly allowed 15% of gross receipts (0.15* Rs 4,36,85.872/-) = Rs 65,52,879/-. This is the contention of the appellant as is evident from the written submission filed by it -'The ITAT has allowed the appeal of the assessee and held that the accumulation should be granted on the gross receipt and not on the net receipts.' This was what was held by the Hon'ble Apex Court in the matter of GIT vs. Programme For Comminity Organisation Further since the carry forward after verification from AY 2014-15 to AY 2015-16 and again from AY 2015-16 to AY 2016-17 was NIL. No set off was allowed. Hence the order of the AO is upheld and ground of appeal is dismissed.
In the result, the appeal is dismissed.
8. Being aggrieved by the order of the learned CIT-A the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 4 and written submission and contended that there is deficit pertaining to the earlier year which has been brought to the year under consideration and therefore the same should be set off against the surplus of the current year.
On the other hand, the learned DR before us reiterated the findings contained in the order of the authorities below and accordingly supported their respective orders.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, there arises following controversies for the purpose of the adjudication. i. Whether there is deficit of the earlier year which has been carried forward in the year under consideration. ii. Whether the accumulation at the rate of 15% should be made before adjusting the deficit carried forward from the earlier year. 11.1 The question No. 1 is a factual question. In the event of any deficit arising to any trust eligible for exemption under section 11 of the Act, the same shall be carried forward to the subsequent year which would be treated at par as the application of income. For instance, there was the deficit in the 1st year of operation of the trust i.e. 2007-08, assuming for a sum of ₹10,000 only. Such deficit shall be carried forward and will be treated as application of income of the subsequent year. Thus, assuming the gross receipt in the assessment year 2008-09 stands at ₹1 lakh and the expenditure against the same for that year stands at ₹75,000 which is the application of income. In other words, the application of income for the assessment year 2008-09 shall be of ₹85,000/- being the current year expenditure plus deficit carried forward from the earlier assessment year. Thus, in the assessment year 2008-09, the assessee shall claim application of income of ₹85,000.00 and the balance amount of ₹15,000 can be accumulated being 15% of the gross receipt under the provisions of section 11(1)(a) of the Act.
11.2 It is also important to note one more aspect of the case that the question of accumulating at the rate of 15% of the gross receipt shall only arise after adjusting the application of income. For instance, if the income derived by a trust for the year is of Rs. 1 Lakh and it applies fund on its object for Rs. 95,000/-, thus the remaining income would be subject to accumulation i.e. Rs. 5,000.00 and not Rs. 15,000.00 being 15% of gross income derived.
11.3 As discussed in above paragraph, the deficit i.e. expenditure over income of earlier will be treated as application of income in the current year. This proposition was also dealt by various court where it was held that deficit of one year will be application of income in the subsequent year. At this juncture we refer the judgment of Hon’ble Bombay High Court in the case of CIT vs. Institute of Banking Personal Selection reported in 264 ITR 110 where it was held as under: 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 and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in section11 and such adjustment will have to be excluded from the income of the trust undersection11(1)(a). Accordingly, on the facts and in the circumstances of the instant case, the Tribunal was justified in law in allowing carrying forward of the deficit of earlier year and set it off against the surplus of subsequent years.
11.4 From the above it is clear that the deficit from the earlier year is at par of application of income against the income derived in the subsequent year. Therefore in our considered view accumulation of income derived can only be made after income derived applied for the object of the trust subject to the maximum limit of 15% of the gross receipt/income.
11.5 Now coming to the facts of the present case, we note that it is the allegation of the revenue there was no deficit remaining to be carried forward to the year under consideration from the earlier years. Whatever was the deficit of the earlier year has been set off against the income of the earlier year. It was contended by the ld. AR that against the income derived of current year, the assessee was 1st entitled to set off the income applied in the current year and accumulation at the rate of 15%, thereafter if any surplus remains then the same will be set off against the deficit of earlier year. As per the assessee by this modus operandi, there is still deficit of earlier year which has been adjusted against the surplus of income for the year under consideration. However, we disagree with the contention of the assessee in the light of the above discussion and the above judgment of Hon’ble Bombay High Court where it was held that deficit of earlier year is the application of income against the income derived in the current year. Therefore by this logic accumulation of income under section 11(1)(a) will be made only after adjustment of current year application and deficit of earlier year by treating both as application of the current year. However, we note that the ld. AR at the time of hearing was requested to provide the necessary details about the deficit of the earlier years which were carried forward to the subsequent years after setting off against the surplus of any year, if any. But, learned AR failed to provide the same. Nevertheless, we are of the view that the necessary details along with the copy of the income tax returns requires to be referred for adjudicating the issue on hand. Accordingly, it was proposed by the bench for restoring the issue to the file of the AO for fresh adjudication as per the provisions of law to which both the learned AR and the DR agreed. Thus, in the interest of justice and fair play, we restore this issue to the file of the AO for de novo adjudication as per the provisions of law. Thus the ground of appeal of the assessee is allowed for the statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the Court on 17/06/2022 at Ahmedabad.