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Income Tax Appellate Tribunal, J Bench, Mumbai
Before: Shri Mahavir Singh & Shri Rajesh Kumar
This appeal has been filed by the Revenue against the order of the CIT(A)-1, Mumbai dated 20.06.2016 for A.Y. 2012-13.
The issue raised by the Revenue is against the order of the CIT(A) allowing carry forward of deficit of `91,50,784/- for set off against the income of the subsequent years by ignoring the fact that there is no express provision in the Income Tax Act, 1961 (hereinafter “the Act”) permitting the said allowance of the claim of the assessee.
The brief facts of the case are that the assessee filed its return of income on 06.09.2012 accompanying there with a copy of the Income & Expenditure Account, Balance Sheet and Audit Report in Form No. 10B declaring total deficit of `91,50,784/-. The assessee is a registered Trust under Section 12A with Registration No. TF/37595 dated 01.08.2003. The Trust is also registered under Section 80-G of the Act and accordingly claimed deduction under Section 11 of the Act. The case was selected for scrutiny
M/s. Gulabchand Foundatoin and notice under Section 143(2) was issued on 23.09.2012 and duly served on the assessee. During the assessment proceedings, the AO noticed a deficit of `91,50,784/- whereas there is no provision in the Act which allows determination of loss/deficit while computing income under Section 11 of the Act. The AO observed that 15% of the income is exempt us 11(1) and the remaining 85% of income is requires to be spent during the year so that the entire income may be assessed as exempt and thus the assessee has to spend a portion of the current income in the succeeding year which it could not spent for certain reasons beyond the control of the assessee in the current year. The AO also observed that the assessee has also an option to accumulate its income for a period of five years and utilise the same within the said span. The AO also observed that capital expenditure on construction/acquisition of asset is also treated as application of income. Finally he rejected the claim of the assessee by holding that the excess expenditure over income is either out of accumulated income or out of corpus fund received by the Trust. The AO observed that accumulated income cannot be further subject to deduction from the income since deduction in respect of accumulation has been claimed and allowed in the previous years and any further allowance of the same would amount to double deduction for the same outgoing. In view of the said reasons the AO did not allow the deficit o `91,50,784/- to be carry forward to the future years in order to set off. Aggrieved, assessee went in appeal before the CIT(A).
In the appellate proceedings the learned CIT(A) allowed the appeal of the assessee after considering the contention of the assessee which has been reproduced in para 5.1 of his order by observing as under: -
“5.2 I have considered the facts and circumstances of the case, gone through the assessment order of the A.O and the submissions of the appellant and also discussed the case with the AR of the appellant. The contentions and submissions of the appellant are being discussed and decided here in under: i. Relying upon several case laws the appellant stated that deficit of the current year is required to be carried forward to the M/s. Gulabchand Foundatoin subsequent years. On perusal of the facts of the case and submissions of the appellant as above, I find that the case of appellant is squarely covered by the judgement of Hon'ble Bombay High Court in the case of Institute of Banking Personnel 264 ITR 110 wherein the Hon. Jurisdictional High Court has observed as under – ..........."5. Now coming to question No. 3 the point which arises for consideration is: whether excess of expenditure in the earlier years can be adjusted against the income of the subsequent year and whether such adjustment should be treated as application of income in subsequent year for charitable purposes? It was argued on behalf of the department that expenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilization of such income for meeting the expenditure of earlier years would not amount to application of income for charitable or religious purposes. In the present case, the assessing officer did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a Charitable Trust, their income was assessable under self-contained code mentioned in section 11 to section 13 of the Income Tax Act and that the income of the Charitable Trust was not assessable under the head "profits and gains of business" under section 28 in which the provision for carry forward of losses was relevant. That, in the case of a Charitable Trust, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of subsequent years. We do not find any merit in this argument of the department. 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 section 11 of the Act and that such adjustment will have to be excluded from the income of the Trust under section 11(1)(a) of the Act. Our view is also supported by the judgment of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandat (1995) 211 ITR 293 (Guj). Accordingly, we answer question No. 3 in the affirmative i.e., in favour of the assessee and against the department." ii. Respectfully following the ratio laid down by the Hon. Jurisdictional High Court as above, the AO is directed to allow
M/s. Gulabchand Foundatoin the carry forward of deficit in the succeeding years after due verification of the facts. iii. Ground of appeal No. 1 is therefore allowed.” Thus the CIT(A) allowed the appeal of the assessee by following the decision of the Hon'ble Jurisdictional High Court in the case Institute of Banking Personnel 264 ITR 110.
5. We heard the rival submissions and perused the material on record including the impugned decision of the Hon'ble Bombay High Court in the case of Institute of Banking Personnel (supra). We find that the issue is squarely covered by the said decision in favour of the assessee and thus the learned CIT(A) has rightly allowed the appeal of the assessee by following the ratio laid down by the Hon'ble Bombay High Court. Accordingly we find no reason to interfere with the order of the CIT(A) which is a reasoned order and accordingly uphold the same.
In the result, the appeal filed by the Revenue is dismissed.