DCIT (E) 2(1), MUMBAI vs. MAHARASHTRA STATE ROAD TRANSPORT COPORATION (MSRTC), MUMBAI

The above titled appeals-one by the Revenue and the other by the assessee have been preferred against the order dated 29.06.2016

The Matter was contested before Ld. CIT(A) and the Ld. CIT(A) has allowed the appeal by observing as under: “5. I have carefully considered the facts of the case and the submission of the Ld. AR. During the appellant proceeding, the Ld. AR explained that only one issue is involved in this appeal which is clearly spelt out in the additional ground. The operating expenses net of depreciation was Rs.37,88,50,35,994/- and the non-operating expenses was Rs.73,82,48,475/-. Thus, the total expenses on objects were Rs.38,62,32,84,469/-. The AO has restricted the expenses as objects to the income of the year at 3 & ITA No.5327/M/2016 M/s. Maharashtra State Road Transport Corporation (MSRTC) Rs.35,66,76,55,317/- and has not allowed the loss of Rs.295,56,29,152/- to be carried forward. The Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection (supra) has held that excess expenditure in the earlier years can be adjusted against income of subsequent years and such adjustments would be application of income in subsequent years. Respectfully following the above decision and other decisions relied on by the appellant, the AO is directed to allow carry forward the deficit darned by appellant after verification. The ground is allowed for statistical purpose.”

We have heard the rival contentions of both the parties. We find that the Ld. CIT(A) while deciding the appeal has relied upon the decision of Hon’ble Bombay High Court in case of Institute of Banking Personnel and held that excess expenditure in earlier years can be adjusted against the income of subsequent year and such adjustment would be regarded as application of income in subsequent year. We reproduce the judgment of Hon’ble Bombay High Court wherein it is held as under: “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 the 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 utilisation 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 the 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 4 & ITA No.5327/M/2016 M/s. Maharashtra State Road Transport Corporation (MSRTC) 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 Mandal [1995] 211 ITR 293. Accordingly, we answer question No. 3 in the affirmative, i.e., in favour of the assessee and against the Department.”

Respectfully following the judicial precedent, we dismiss the Departmental appeal. (Assessee’s appeal) 6. The assessee’s appeal is in respect of not allowing the statutory allowance of current year deprecation of Rs.1,73,01,94,464/- and carry forward of unabsorbed depreciation and also the deficits of earlier years as per records even though raised before Ld. CIT(A).

We find that the Ld. CIT(A) has not adjudicated this matter by a speaking order and the issue remains unclear and figures require verification. Therefore, without delving much deeper, the matter is restored back to the file of Ld. CIT(A) for adjudication by way of speaking order. The assessee is directed to substantiate the same.

In the result, appeal of the Revenue is dismissed and the appeal of the assessee is allowed for statistical purposes.