DCIT (E) 2(1), MUMBAI vs. THE EXECUTIVE BOARD OF THE METHODIST CHURCH IN INDIA, MUMBAI

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:

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.

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.”

In CIT Vs. Institute of Banking Personnel, (supra), the Hon’ble Bombay High Court has decided the identical issue holding as under:

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.