ITAT allows Set Off of Accumulated Deficit against Current Year Surplus [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal ( ITAT ), Delhi Bench, has allowed  Set off of Accumulated Deficit against Surplus. The case revolves around the refusal of the Income Tax Officer ( ITO ) to allow the set-off of an accumulated deficit against the current year surplus.

The appellant, Vidya Vihar Nyas Samiti, a charitable organization based in Noida, had filed its return of income declaring a Nil income. However, during the assessment, the ITO completed the assessment under Section 143(3), determining the total income at Rs. 1,03,44,990.

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Notably, the ITO did not permit the set-off of the accumulated deficit of Rs. 5,66,68,630, which the appellant sought to apply against the current year's surplus.

Dissatisfied by this ,appellant appealed the decision before the CIT(A), but the appellate authority confirmed the action of the assessing officer.

This prompted the assessee to move the ITAT, challenging the denial of set-off and arguing that the accumulated deficit from earlier years should be allowed to be set off against the current year surplus, as per the principles established by the Supreme Court in cases like CIT vs. Subros Educational Society (2018).

The appellant further pointed out that while the Finance Act, 2021, had amended Section 11 to disallow such set-offs prospectively, this did not apply to the current year, which falls before the amendment's effective date.

During the hearing, the counsel for the appellant emphasized that excess expenditure from previous years should indeed be allowed to be set off against current-year income, a principle upheld by various judicial precedents. The respondent, representing the Income Tax Department, defended the order of the CIT(A).

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After carefully considering the submissions and reviewing the case law, the ITAT concurred with the appellant’s arguments. The Tribunal noted that, in light of judicial precedents, the accumulated deficit could indeed be set off against the surplus for the current year, as the legal provisions at the time did not restrict such an offset.

Two member Bench comprising of Shamim Yahya ( Accountant Member ) and Vimal Kumar ( Judicial Member ) allowed the set-off of the accumulated deficit against the current year surplus, thereby granting relief to the appellant in this matter.

The case sets an important precedent for charitable organizations seeking to offset prior years deficits against future surpluses in compliance with the prevailing legal framework.

To Read the full text of the Order CLICK HERE

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