Excess Expenditure Does Not Bar 15% Accumulation Claim u/s 11(1)(a): ITAT Relieves Rajasthan Cricket Association [Read Order]

In a recent decision made by the Jaipur bench of the Income Tax Appellate Tribunal ( ITAT ), it was held that the 15% accumulation claim under Section 11(1)(a) of the Income Tax Act, 1961 can be allowed even if the expenditure exceeds the income.

The assessee, Rajasthan Cricket Association, is a society registered under the Rajasthan Societies Registration Act, 1958, engaged in promoting cricket activities.

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For Assessment Year (AY) 2016-17, the assessee reported total receipts of ₹1,80,34,791, applying ₹1,53,29,572 towards charitable purposes. The remaining ₹27,05,219, being 15%, was claimed as accumulation under Section 11(1)(a) of the Income Tax Act, 1961, which allows charitable trusts to set aside up to 15% of their income without applying it in the same year.

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During the scrutiny, the Assessing Officer (AO) noted that the assessee incurred an expenditure of ₹4,88,80,927, leading to a deficit of ₹3,08,46,136, and held that without surplus, the 15% accumulation could not be allowed.

Aggrieved by the assessment order and its confirmation by the Commissioner of Income Tax (Appeals) (CIT(A)), the assessee appealed before the tribunal.

C.A. Shyam Lal Agarwal and C.A. Tarun Agarwal, representing the assessee, contended that the 15% accumulation under Section 11(1)(a) of the Act is a statutory right not contingent on surplus income.

Relying on the Supreme Court decision in ACIT v. A.L.N. Rao Charitable Trust (1975), they argued that the AO erred in denying the claim for want of surplus.

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The representatives also clarified that the excess expenditure was covered by past accumulated funds, and ₹1,80,34,791 was applied towards charitable purposes.

Meanwhile, Gautam Singh Choudhary, the counsel for the department, opposed the claims of the assessee.

He argued that since there was a loss in the current year, the assessee could not claim exemption under Section 11(1)(a) of the Income Tax Act, 1961. He added that without a surplus, there is nothing to set aside for future use.

After hearing both sides, the bench led by Dr. S. Seethalakshmi (Judicial Member) and Rathod Kamlesh Jayantbha (Accountant Member) examined the submissions and evaluated the legal background of the case.

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The bench observed that the benefit of 15% accumulation under Section 11(1)(a) of the Act is not dependent on having surplus income.

Referring to the Rajasthan High Court decision in CIT v. Krishi Upaj Mandi Samiti (2013), the tribunal held that excess expenditure over income does not disqualify a trust from claiming accumulation if the receipts are applied for charitable purposes.

The Tribunal, thus set aside the decision made by the CIT(A) and allowed the assessee’s claim for the 15% accumulation under Section 11(1)(a) of the Act, directing the AO to permit the claim of ₹27,05,219.

To Read the full text of the Order CLICK HERE

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