ACIT Vs Dinesh Gupta ITAT Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH
BEFORE: SHRI. N.K.SAINI, VP & SHRI, SANJAY GARG, JM

ITA NO. 82/Chd/2016 / Assessment Year: 2010-11
M/s Mukand Lal College Society
Model Town, Yamuna Nagar Vs The ITO

Order
PER N.K. SAINI, VICE PRESIDENT
This is an appeal by the Assessee against the order dt. 16/12/2015 of Ld. CIT(A),
Panchkula.

2. Following grounds have been raised in this appeal:
1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts allowing set-off of excess expenditure of current year only for application against the income of subsequent year and not allowing the set-off of excess expenditure incurred in earlier years which is allowable and as such the order passed is illegal, arbitrary and unjustified.

2. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in holding that the assessee has not followed the correct accounting procedure which is an incorrect finding and as such the order passed is arbitrary and unjustified.

3. That the order of the Ld. Commissioner of Income Tax (Appeals) is erroneous|arbitrary, opposed to law and facts of the case and is, thus, untenable.
3. From the aforesaid grounds it is clear that only grievance of the assessee relates to the denial of the set off of excess expenditure incurred in earlier years.

4. Facts of the case in brief are that the assessee filed its return of income on 23/09/2010 declaring NIL income by claiming that the entire income was exempt under section 12A of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’). The said return was processed under section 143(1) of the Act on 30/03/2011. Later on, the case was selected for scrutiny. The A.O. worked out the excess of expenditure over income at Rs. 43,80,261/- and assessed the income at Rs. NIL. However, the set-off of the brought forward losses was not allowed.

5. Being aggrieved the assessee carried the matter to the Ld. CIT(A) who also did not allow the set off by observing in para 5.10 and 5.11 of the impugned order as under:
5.10 The appellant has claimed carried forward of excess of expenditure over income in F.Y. 2009-10 of Rs. 1,35,59,836/- which includes Rs.43,80,261/- on account of excess expenditure and Rs.91,79,575/- on account of amount accumulated or set apart for application to charitable or religious purposes. On perusal of statement of particulars annexed with Form 10B j, it is noticed that the auditor has stated the total amount of application of Rs.6,55,77,425/- which is the total expenditure including addition to fixed assets and depreciation claimed on fixed assets. Regarding accumulation under item No. 3, the auditor has mentioned, ‘not applicable’ as income applied for charitable purposes being more than 85% of gross receipts. The exemption u/s 11 is allowed on application of income of charitable purposes and not for its accumulation. In the instant case, the total expenditure claimed by the appellant is more than its gross income. So, when the trust has applied its entire income, it is entitled to claim 100% exemption and therefore, there is no further question of further accumulation of 25% of total income of the trust. Even the auditor has qualified that accumulation is not applicable as income applied for a charitable purpose is more than 85% of its gross receipts, rather it is 100%. Since the exemption for the entire expenditure has already been allowed there is no amount which can be considered as accumulated or set apart. Further, there is no provision in section 11 for carryover of the accumulated amount once the exemption on account of 100% expenditure has been allowed. Therefore, the appellant’s claim for carryover of Rs.91,79,575/- on account of the accumulated amount is erroneous and thus, not allowable. Here, the reliance is placed ofthe decision of Hon’ble ITAT, Mumbai Bench in the case of Dawat Institute of Dawoodi Bohra Community Vs. ITO [2008] 22 SOT 359 (Mum.).

5.11 Thus, the claim of excess of expenditure of year under consideration, i.e. Rs. 43,80,261/- is allowed for application against income of subsequent year but the claim of earlier years excess expenses for A.Ys. 2001-02 to 2010-11 which is neither in accordance with provisions of section 11(1)(a) and 11(2) nor based on the accounting as per the court judgment relied upon by the appellant is not allowed to set off against the income of subsequent years. Thus, this ground of appeal is partly allowed.

6. Now the assessee is in appeal.

7. Ld. Counsel for the assessee submitted that this issue is squarely covered in favour of the assessee vide order dt. 28/04/2011 of the ITAT Chandigarh Bench “A” Chandigarh in ITA No. 240/Chd/2011 for the A.Y. 2007-08 in case of DCIT Vs. Ved
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Parkash Mukand Lal Educational Society, Radaur, copy of the said order was furnished which is placed on record.

8. Ld. DR in her rival submission supported the orders of the authorities below.

9. We have considered the submissions of both the parties and perused the material available on the record. It is noticed that an identical issue has already been adjudicated in the aforesaid referred to case vide order dt. 28/04/2011 wherein the relevant findings have been given in para 9 to 12 which read as under:

9. The issue raised by the Revenue vide ground No.3 is as under: –

3. Whether the facts and circumstances of the case, the Ld. CIT (A) Panchkula has erred in allowing credit of excess of expenditure over income in the earlier years to be carried forward & set off losses as u/s 72 of the Income Tax Act, 1961 as the income of institution had been asses sed in pursuance of sections 11 to 13 of the Income Tax Act, 1961.

10. The brief facts relating to the issue are that the Assessing Officer while computing the income of the assessee did not allow credit of excess of expenditure over income in the earlier years to be carried forward. The CIT (A) allowed the claim of the assessee following the ratio laid down by Bombay High Court in CIT Vs. Institute of Banking Personnel Selection [131 Taxman 386 (Bom) ]. The Revenue is in appeal against the
same. 11. We find that the CIT (A) allowed the claim of the assessee holding as under: – “4. The 3r ground of appeal is regarding Assessing Of f icer ‘ s action of not allowing credit of excess of expenditure over income in the earlier year to be carried forward. The counsel for the appellant has relied on the decision of the Bombay High Court in the case of CIT Vs. Institute of Banking Personnel Selection 131 Taxman 386 and that of my predecessor in the case of Guru Nanak Gi r ls College, Yamunanagar in Appeal No. 30/YN/08-09 dated 27.7.2009 vide which a similar claim of the appellant has been allowed. I have carefully gone through the order of my predecessor and find that the issue has been decided in favour of the appellant relying upon the decision of Bombay High Court in the case of Institute of Banking Personnel Selection (supra). Therefore, without going into much details, it is held that the Assessing Of f icer was not justified in not allowing the carry forward of accumulated excess of expenditure of over income relating the earlier years. This ground of appeal is allowed.

12. We uphold the order of CIT (A) in this regard following the ratio laid down by the Bombay High Court in CIT Vs. Institute of Banking Personnel Select ion ( supra) . Thus, the ground No. 2 of appeal raised by the Revenue is dismissed.

10. Since the facts of the assessee’s case are similar to the facts involved in the aforesaid referred to case i.e; DCIT Vs. Ved Parkash Mukand Lal Educational Society.
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So respectfully following the aforesaid referred to order dt. 28/04/2011 in ITA No. 240/Chd/2011 for the A.Y. 2007-08, we direct the A.O. to allow the claim of the assessee for set-off of the brought forward losses related to the earlier years.

11. In the result, appeal of the assessee is allowed.

(Order pronounced in the open Court on 22/01/2020 )