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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI G.S. PANNU (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
1. This appeal has been preferred by the revenue against the order dated 15/09/2015 passed by the Ld. Commissioner of Income Tax (Appeals)-1, Mumbai, for the assessment year 2010-11, whereby the Ld. CIT (A) has partly allowed the appeal filed against assessment order passed u/s 143(3) of the Income Tax Act, 1961 (for short ‘the Act’).
Brief facts of the case are that the assessee is a trust registered with Director of Income Tax Exemptions [DIT (E)] Mumbai under section 12A of the Act and Charity Commissioner, Mumbai, filed its return of income for the relevant assessment year as nil. The case was selected for scrutiny and notice under section 143 (2) and 142(1) along with questionnaire. In response thereof the authorised representative of the assessee appeared before the AO and submitted the details called for. It was seen that assessee had claimed deficit of 2 Assessment Year: 2010-11 Rs.1,87,32,411/–. The assessee claimed to have “applied” amount in excess of 85% of income during the year. The assessee had also claimed carry forward of this excess application as deficit/loss to the subsequent years to be set off against the income of subsequent years. Accordingly, the assessee was asked to explain as to why the same should not be disallowed. The authorised representative of the assessee submitted that the deficit of Rs. 1,87, 32, 411/– is being carried forward which can be set of against the surplus of subsequent year as per the law laid down by the Hon’ble Bombay High Court in CIT vs Institute of banking 264 ITR 110 (Bom). However, the AO held that deficit of Rs. 1,87, 32,411/– cannot be carried forward and computed the income of the assessee as under:
Gross income as per computation RS 23, 94, 22, 832/– Less 15% accumulation u/s11(1)(a) RS 3, 59, 13, 425/- Less expenditure on the object of the trust RS 22, 22, 41, 818/- Taxable income NIL
Aggrieved by the assessment order, the assessee challenged the same before the Ld. CIT(A). The Ld. CIT(A) after hearing the assessee partly allowed the appeal of the assessee and directed the AO to allow the carry forward of deficit in the subsequent years in terms of the judgment of the Hon’ble Bombay High Court aforesaid.
Aggrieved by the order of Ld. CIT (Appeals), the revenue has preferred this appeal before the Tribunal on the following effective grounds:-
“Whether on the facts of the case and in law the ld. CIT (A) erred in allowing the carry forward of deficit of Rs. 1,87,32,411/- and allowing set off against the income of the subsequent years, 3 Assessment Year: 2010-11 allowing the deficit will tantamount to double deduction on account of expenditure out of exempt income.
2. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in allowing to carry forward of deficit on account of excess expenditure and directing the Assessing Officer to allow carry forward of deficit on account of excess expenditure without appreciating the fact this would have the effect of granting double benefit to the assessee, first as ‘ accumulation’ of income u/s 11(1)(a) or as corpus donation u/s 11(1)(d) in earlier years/current year and then as ‘application’ of income u/s 11(1)(a) in the subsequent years which was legally not permissible?
3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in allowing the claim of the assessee for carry forward of the said deficit, ignoring the fact that there was no express provision in the I T Act, 1961 permitting allowance of such claim.
4. The appellant prays that the order of the Commissioner of Income Tax (Appeals)-1, Mumbai be set aside and that of the Assessing Officer be restored.”
Before us, the Ld. departmental representative (DR) relying on the assessment order submitted that Ld. CIT(A) has erred in allowing the carry forward of deficit of Rs. 1873 2411/– and allowing set off against the income of the subsequent years. The Ld. DR further submitted that allowing the deficit will tantamount to double deduction on account of expenditure out of exempt income hence the Ld. CIT(A) has erred in directing the AO to carry forward of deficit on account of excess expenditure without appreciating the fact that this would have the effect of granting double benefit to the assessee. The Ld.CIT(A) has further erred in allowing the claim of assessee for carry forward of the said deficit ignoring the fact that there is no express provision in the Act permitting allowance of such claim.
On the other hand, the Ld. counsel for the assessee relying on the findings of the Ld. CIT(A) submitted that since the findings are based on the 4 Assessment Year: 2010-11 law laid down by the Hon’ble jurisdictional High Court Bombay in CIT vs. Institute of banking 264 ITR 110, there is no infirmity in the order of the Ld. CIT(A) to interfere with. Therefore, there is no merit in the appeal of the revenue and the same is liable to be dismissed.
We have heard the rival submissions and perused the material on record and also gone through the cases relied upon by the authorities below. The only issue involved in this case is whether the Ld CIT(A) has erred in allowing carry forward of deficit in question and allowing set off against the income of the subsequent years? The AO has answered the said question in affirmative by following the ratio of law laid down by the Hon’ble jurisdictional High Court in CIT vs Institute of banking (supra). The operative part of the impugned order reads as under: “I have considered the facts and circumstances of the case, gone through the assessment order of the AO and the submissions of the appellant and also discussed the case with the AR of the appellant. The contentions and submissions of the appellant being discussed and decided here in under: i. During the appellate proceedings it was submitted that the issue is squarely covered by the judgment of Hon’ble Bombay High Court in the case of CIT Vs. Institute of banking personnel (supra). It was also stated that the judgment of Hon’ble Bombay Court is binding on all authorities under its jurisdiction. The other objections raised by the AO have also been dealt with by the appellant in its submissions as referred above. ii. I agree with the contention of the appellant that the issue is covered by the judgment of Hon’ble Bombay High Court in the case of CIT Vs. Institute of Banking Personnel, 264 ITR 110. Respectfully following the judgment of Hon’ble jurisdictional High Court, the AO is directed to allow the carry forward of deficit in the subsequent years. iii. This ground of appeal is allowed.”
5 Assessment Year: 2010-11
In CIT Vs. Institute of Banking Personnel, (supra), the Hon’ble Bombay High Court has decided the identical issue holding 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, there 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 bought 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 religious purposes in the subsequent years in which adjustment has been made having regard to the benevolent provisions 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 6 Assessment Year: 2010-11 supported by the judgment of the Gujarat High Court in the case of CIT versus Sri Plot Swetamber Murti Pujak Jain Mandal [1995] 211ITR 293. Accordingly, we answer question number 3 in the affirmative, i.e., in favour of the assessee and against the Department.”
Since the issue involved in this case is squarely covered by the judgment of the Hon’ble jurisdictional High Court and since the Ld. CIT(A) has passed the impugned order following the judgment of the Hon’ble High Court rendered in CIT Vs. Institute of Banking Personnel (supra) we do not find any infirmity in the order passed by the Ld. CIT(A). We, therefore, uphold the findings of the Ld. CIT(A) and dismiss all the grounds of appeal of the revenue.
In the result, appeal filed by the revenue for assessment year 2010-2011 is dismissed.