The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) condoned a delay of 264 days in filing appeal and held that the assessee is eligible for set off of excess application of income of Asessment Years (AY) 1999-2000 to 2001-02 from the current year’s income.
The assessee Sindhi Youth Association is a charitable trust registered under Section 12A of the Income Tax Act,1961 engaged in running hospital for charity. The assessee during the year has made a gross receipt of Rs.6,09,02,224 and claimed application of income under Section 11 of the Income Tax Act on account of revenue and capital expenditure at Rs.4,56,61,936.
The Assessing Officer (AO) after allowing accumulation of income under Section 11(1)(a) of the Income Tax Act at 15% noted that there was a taxable surplus of Rs.61,04,954 which the assessee adjusted against the excess utilization in the preceding years 1999-2000 to 2001-02. The AO called for explanation from the assessee as to why the set off should not be disallowed.
The assessee relied on the decision of Govindu Naicker Estate v. ADIT. The AO was of the view that this decision is in respect of interest paid in advance and hence not applicable to present case of set off of earlier years excess application.
The AO relied on the CBDT Circular No.29 and observed that Section 11(1)(a) of the Income Tax Act allows exemption upto 85% of income which is applied for charitable purposes and shortfall of 85% is to be charged to tax. In view of the fact that concerned income was taken out of 85% of the income required to be applied in the year of origin, the set off of earlier years excess application was disallowed by the AO.
Aggrieved by the order the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. In the first round of appeal it was observed that the as per provisions of Sections 11 to 13 of the Income Tax Act, there is no scope for computing any loss from property held under trust wholly for charitable and religious purposes and decided the matter in favour of the assessee.
Against the order of the CIT(A) allowing the appeal of the assessee, the revenue preferred the present appeal before the Tribunal. The Tribunal in the first round of proceedings vide common order for AYs 2008-09, 2009-10 & 2011-12 held that there was no finding by the CIT(A) whether expenditure incurred in earlier years were on account of charitable or religious purposes. Therefore, the matter was remanded the issue to the CIT(A) for examining this issue and for fresh decision
In the second round of proceedings, the CIT(A) noted that the expenditure was less than 85% of current year’s income and to reach the mandatory 85%, the assessee claimed adjustment of brought forward expenses. It was observed that no details of expenditure were filed by the assessee to conclusively establish that the expenditure incurred in the earlier years were only for charitable purposes and therefore dismissed the appeal of the assessee. Aggrieved, the assessee is in appeal before the Tribunal in the second round.
The Authorised Representative of the assessee(AR) S.V. Ravishankar submitted these documents are required to demonstrate the brought forward deficits of earlier years incurred for objectives of the trust and hence the same may be admitted for adjudication. The AR submitted that the objects of the trust is similar as in the earlier years and the assessee is eligible to claim set off of excess expenditure incurred in the earlier years.
Departmental Representative Veera Raghavan relied on the orders of the lower authorities. He further submitted that the in the second round of proceedings the assessee was unable to demonstrate before the CIT(A) for the AY 1999-2000 to 2001-02 that the assessee had carried out charitable activities as per direction of the Hon’ble Tribunal.
The Bench comprising of George George K., Vice President and Laxmi Prasad Sahu, Accountant Member condoned delay of 264 days since he Finance Manager came to know about the dismissal of the appeal by the CIT(A) during October, 2022 close to the Annual General Meeting and there was a change in the officer bearers and new committee members, who were informed about the dismissal of appeal by the CIT(A).
It was further observed that the claim made by the assessee for the previous three assessment years excess application has been denied stating that it is not permissible, but the AO has not disputed the figures claimed by the assessee.
The Tribunal reffered the case of ACIT v. City Hospital Charitable Trust where it was held that excess application of income of the previous years can be set off from the subsequent year’s surplus income.
Therefore it was held that the assessee is eligible for set off of excess application of income of AYs 1999-2000 to 2001-02 from the current year’s income. Accordingly, the appeal of the assessee was allowed.
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