DEPUTY COMMISSIONER OF INCOME TAX (EXEMPTIONS)-1(1), MUMBAI vs. DAWAT E HADIYAH, MUMBAI

This appeal by the revenue is preferred against the order dated 25/01/2024, by NFAC, Delhi, pertaining to Assessment Year 2017-18.

The grievance of the revenue reads as under:- “1. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing the exemption u/s 11(1A) of the Act when such application has not been made during the year and the said amount has been just credited to Corpus Account pending the approval to be received from the Charity Commissioner? 2. Whether, on the facts and in the circumstances of the case and in law, the Ld. CTT(A) erred in allowing the claim of deficit created artificially to gain benefit from settled case laws of the issue of deficit when the intention of the courts in interpreting the law did not intend so?” 3. Briefly stated the facts of the case are that the assessee trust is an institution registered as a charitable organization with 2 DIT(Exemptions), Mumbai, u/s 12A of the Act. The assessee filed its return of income electronically declaring total income at Nil, claiming exemption u/s 11 of the Act. The return was selected for scrutiny under CASS and accordingly, statutory notices were issued and served upon the assessee. 4. During the course of scrutiny assessment proceedings, the AO noticed capital gains on sale of immovable properties. The AO found that the assessee has sold properties and was accordingly asked to explain as to how the provisions of Section 11(1A) of the Act have been complied with. In its reply, the assessee explained that the assessee had sold four flats in a building known as Ahmed Manzil, after taking prior permission of the Charity Commissioner u/s 36(1) of the Maharashtra Public Trusts Act, 1950 for a total consideration of Rs. 7,04,24,000/- and the surplus arising out of the above transaction amounts to Rs. 5,37,06,050/- and the said amount has been credited to the Corpus Account of the Trust. The assessee has advanced money for purchase of Immovable property after taking Prior permission of Charity Commissioner and has advanced a sum of Rs.203 Crores. Since the entire sale consideration is utilized for purchase of another capital asset, provision of Section 11(1A) of the Act have been complied with. 5. The reply of the assessee did not find any favour with the AO who was of the firm belief that the investment in the immovable properties, is not treated by the Trust as expenditure incurred on capital assets. Therefore, investment made in purchase of immovable properties is not sufficient to claim exemption u/s 11A of the Act and accordingly added 3 the entire sale consideration of Rs.7,04,24,000/- to the income of the assessee trust. 5.1. Proceeding further, the AO found that the assessee had huge deficit of earlier years brought forward. The assessee was asked to furnish details of deficit claimed with the relevant working. The assessee filed the detailed reply explaining the deficit being excess of expenditure over income for AY 1995-96 to AY 2017-18. It was explained that in all the earlier AYs, the deficit is already allowed to be carried forward to subsequent years. Strong reliance was placed on the decision of the Hon’ble Supreme Court in the case of CIT vs. Rajasthan and Gujarati Charitable Foundation,Poona in Civil Appeal No. 7186 of 2014. Reply of the assessee was dismissed by the AO. The AO was of the opinion that the assessee had created artificial deficit and came to the conclusion that the deficit claimed in AY 2013-14 to AY 2017-18, is not the actual deficit but an artificially calculated deficit which cannot be allowed to be carried forward and accordingly rejected the claim of deficit of Rs.3,66,11,44,839/-.