Dy. C.I.T., Circle-2, Chandigarh V. M/s Mukand Lal College Society, Yamuna Nagar

ITA 582/CHANDI/2022

AI Insights

The case involves an appeal by the Revenue against the order of the Ld. CIT(A), which allowed the carry forward of excess expenditure by M/s Mukand Lal College Society for set off in subsequent assessment years. The assessee society, registered under section 12AA of the Income Tax Act, had declared a nil income in its return for the assessment year 2015-16, despite having incurred an expenditure exceeding its income. The Assessing Officer (AO) rejected the claim for carry forward of the excess expenditure, which was contested by the assessee in the appeal before the Ld. CIT(A). The Tribunal's decision was influenced by various judicial precedents that supported the assessee's position.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127761 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-07-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 07-08-2022
• Other Referred Cases: CIT Vs. Market Committee, Karnal, CIT Vs. Ved Parkash Mukand Lal Educational Society, CIT Vs. Institute of Banking Personnel Selection, CIT(Exemptions) Vs. Subros Educational Society
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Charitable institution; Question of law
• Section: 12; 28; 154; 11; 12AA; 143(1); 264; 13

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “बी” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH ी आकाश द प जैन, उपा य एवं ी $व%म 'संह यादव, लेखा सद,य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM ITA NO. 582/Chd/ 2022 Assessment Year : 2015-16 Dy. CIT, Circle-2, 5 th Floor, C.R. Building, Sector-17-E Chandigarh- 160017 M/s Mukand Lal College Society Mukand Lal College, Model Town, Yamuna Nagar- 135001, Haryana PAN NO: AABTM0273E Appellant Respondent ! " Assessee by : Shri Tej Mohan Singh, Advocate # ! " Revenue by : Smt. Kusum, CIT, DR $ % ! & Date of Hearing : 24/07/2023 '()* ! & Date of Pronouncement : 27/07/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Revenue against the order of the Ld. CIT(A), NFAC, Delhi dt. 07/06/2022 pertaining to Assessment Year 2015-16. 2. At the outset, it is noted that there is delay of two days in filing the present appeal as pointed out by the Registry. The ld DR and ld AR were heard and in view of the submissions made by the Ld. DR, the delay in filing the present appeal is hereby condoned and the appeal is admitted for adjudication. 3. In the present appeal, Department has raised the following grounds: “1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in allowing the claim of the assessee for carry forward of claim of the assessee for carry forward of deficit ? 2. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in ignoring the fact that there is no express provision in the Income Tax Act, 1961 allowing 2 such claim and without appreciating the fact that this would have the effect of granting double benefit to the assessee?” 4. Briefly the facts of the case are that the assessee society which was registered under section 12AA of the Act had filed its return of income on 24/09/2015 declaring gross total income at NIL which was processed under section 143(1) of the Act at the returned income. Subsequently, the assessee moved an rectification application under section 154 of the Act on 19/08/2016, in its rectification application, the assessee submitted that for the F.Y. relevant to the impugned A.Y., it had gross receipt of Rs. 5,81,73,344/- and against that, it has incurred an expenditure of Rs. 6,80,67,921/- and thus there is an excess application of income to the extent of Rs. 98,94,577/- which needs to be carry forward for set off in the subsequent assessment year. 5. It was further submitted that for the earlier assessment years, the assessee has accumulated a sum of Rs. 14,15,77,067/- being the excess of expenditure over income pertaining to A.Y 2007-08 to A.Y 2014-15 and the same also required to be carry forward for set off in the subsequent assessment years. 6. It was further submitted that there is no column available in the return Form to claim the carry forward of the excess of expenditure over income to the subsequent years and hence, the said claim couldn’t be reflected in the return of income. It was submitted that it is a settled legal preposition that the assessee is eligible to carry forward and set off the excess of the expenditure over income for set off in the subsequent assessment year and in support, reliance was placed on the Hon’ble Punjab & Haryana High Court decision in case of CIT Vs. Market Committee, Karnal (ITA Nos. 238 of 2010 dt. 28/07/2010), CIT Vs. Ved Parkash Mukand Lal Educational Society (in ITA No. 6 of 2012 dt. 02/05/2012), and the decision of the Hon’ble Bombay High Court in case of CIT Vs. Institute of Banking Personnel Selection (IBPS) [2003] 131 Taxman 386(Bom). 7. The application so filed by the assessee was considered but not found acceptable to the AO. As per the AO there is no mistake which is apparent from the record. Further, it was held that the carryover of excess expenditure is not allowed as 3 per the provisions of Section 11 & 12 of the Act. It was held that where there is a excess utilization over and above the income, the same has to be reflected in the corresponding balance sheet to be claimed in succeeding years and as no claim has been made in the balance sheet, the claim is not tenable and therefore the application filed by the assessee under section 154 was rejected. 8. Against the said findings, the assessee moved in appeal before the Ld. CIT(A) and the submissions made before the AO were reiterated. It was further submitted that the return of income for A.Y 2014-15 has been duly filed with the Revenue authority on 30/09/2014 and in the statement of income filed alongwith the return of income, the assessee has given the details of the carryover of excess expenditure pertaining to A.Y. 2007-08 to A.Y 2014-15 amounting to Rs. 14,15,77,067/-. It was submitted that the return of income alongwith the details of the excess of the expenditure over income is thus clearly apparent from the record and therefore the AO was not correct in holding that there is no mistake apparent from the record. 9. Further, it was submitted that the financial statement of the assessee society has been filed with the Department on a regular basis and this financial statement have been prepared in accordance with the accounting policy and standards as laid down and there has been no change in this regard and therefore the observation of the AO that the excess of the expenditure over income is not reflected in the balance sheet is not borne out from the record. 10. Further, in support of legal preposition that the assessee is eligible to carry forward of the excess of the expenditure over income to attain its object in the subsequent assessment year, the assessee further relied on the decision of Hon’ble Supreme Court in case of CIT(Exemptions) Vs. Subros Educational Society [2018] 96 taxmann.com 652(SC). 11. The submissions so filed by the assessee were considered by the Ld. CIT(A). As per the Ld. CIT(A), the provisions of Section 11 and 12 have not specifically mentioned regarding the carryover of excess expenditure. However in view of the decision of the Hon’ble Supreme Court, the jurisdictional High Court and the Tribunal, it is clear that 4 excess expenditure incurred by the assessee society in earlier years can be allowed to be set off with income of subsequent years by invoking section 11 of the Act. 12. Thereafter the Ld. CIT(A) has referred to the decision of Hon’ble Supreme Court in case of CIT Vs. Subros Educational Society (supra) affirming the decision of the Hon’ble Delhi High Court and the decision of the Hon’ble Punjab & Haryana High Court in case of CIT Vs. Market Committee, Karnal(supra) and CIT Vs. Ved Parkash Mukand Lal Educational Society(supra). 13. In case of CIT Vs. Ved Parkash Mukand Lal Educational Society(supra), the issue for consideration before the Hon’ble Punjab & Haryana High Court was while computing the income of the assessee, whether it was entitled for set off brought forward losses, in other words, excess of expenditure in earlier years against the income of the current year. The Hon’ble Punjab & Haryana High Court following the decision of Hon’ble Gujarat High Court in case of CIT Vs. Shri Plot Swetamber Murti Pujak Jain Mandal as well as decision of Bombay High Court in case of CIT Vs. Institute of Banking Personnel(supra) has upheld the findings of the Tribunal and has held as under: “5. The Tribunal had adjudicated the issue against the revenue in view of the judgment of the Bombay High Court in Commissioner of Income Tax v. Institute of Banking, (2003) 264 ITR 110. The Division Bench of the Bombay High Court in Institute of Banking's case (supra) while relying upon decision of the Gujarat High Court in Commissioner of Income Tax v. Shri Plot Swetamber Murti Pujak Jain Mandal, (1995) 211 ITR 293 had recorded as under- "Now coming to question No.3, the point which arises for consideration is : whether excess of expenditure in the earlier years can be adjusted against the income of the subsequent year and whether such adjustment should be treated as application of income in the subsequent year for charitable purposes? It was argued on behalf of the Department that expenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilisation of such income for meeting the expenditure of earlier years would not amount to application of income for charitable or religious purposes. In the present case, the Assessing Officer did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a charitable trust, their income was assessable under self-contained code mentioned in section 11 to section 13 of the Income Tax Act and that the income of the charitable trust was not assessable under the head "Profits and gains of business" under Section 28 in which the provision for carry forward of losses was relevant. That, in the case of a charitable trust, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of the subsequent years. We do not find any merit in this argument of the Department. Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to 5 be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the trust under Section 11(1) (a) of the Act. Our view is also supported by the judgment of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal, [1995] 211ITR 293. Accordingly, we answer question No.3 in the affirmative, i.e., in favour of the assessee and against the Department.” 6. In view of the judgment of the Gujarat High Court in Shri Plot Swetamber Murti Puja jain Mandal's case (supra) and Bombay High Court in Institute of Banking's case (supra), it is held that the issue herein stands concluded against the revenue. Accordingly, no question of law much less substantial question of law arises for consideration in this appeal.” 14. In case of CIT Vs. Market Committee, Karnal (supra), the Hon’ble Punjab & Haryana High Court has held that the excess of expenditure incurred could also be adjusted against the income of the following years and requirement of Section 11 was only to apply the income which could also cover adjustment of the income for the expenditure for charitable purposes and the relevant findings read as under: “6. Learned counsel for the Revenue submitted that Section 11(1) of the Act only refers to exemption of income of previous year and, therefore, there cannot be any question of adjustment of deficit of excess expenditure of earlier years. The income sought to be exempted must have been applied in the year in question and not earlier. 7. We are unable to accept the submission. 8. Exclusion of income from total income under Section 11 of the Act is to the extent of its application for charitable purposes. Adjustment against excess expenditure of an earlier year is also application of income under the said provision. In CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439, it was held that it was not necessary that the income should be applied in the year in which it has arisen. Excess expenditure already incurred could also be adjusted against the income of the following year. Requirement of Section 11 of the Act was only to apply the income which could also cover adjustment of the income for the expenditure for charitable purposes. We are in respectful agreement with the view expressed in the said judgment. No contrary view has been shown. 9. In view of above, no substantial question of law arises.” 15. Following the legal proposition so laid down, the ld CIT(A) has held that the excess expenditure in the earlier years is to be allowed to be carried over in the subsequent years. Against the said findings and direction of the Ld. CIT(A), the Revenue is in appeal before us. 6 16. During the course of hearing, the Ld. CIT DR relied on the findings of the AO. However, it was fairly submitted that the matter is now squarely covered by the decision of Hon’ble Supreme Court in case of CIT(Exemption) Vs. Subros Educational Society(supra). 17. The Ld. AR has relied on the decision of Hon’ble Supreme Court as well as the decisions of the Hon’ble Punjab & Haryana High Court referred supra. It was submitted that in all these decisions, the Hon’ble Courts have allowed the set off of carried forward expenditure while computing the income of the assessee for the relevant assessment year. It was submitted that the facts of the present case are on a stronger footing as in the year under consideration, the assessee is pleading only for carry forward (and not set off) of excess expenditure which has been carried forward from the earlier assessment years as well as for the year under consideration and it is only in the subsequent assessment year(s), the said excess expenditure will be claimed as set off. It was accordingly submitted that there is no infirminity in the findings of the ld CIT(A) who has rightly followed the said decisions and the appeal of the Revenue thus deserve to be dismissed. 18. We have heard the rival contentions and perused the material available on record. In view of the submissions made by both the parties and given the admitted position that the matter is squarely covered against the Revenue by the decision of Hon’ble Supreme Court in case of CIT (Exemptions) Vs. Subros Educational Society as well as that of the Hon’ble Punjab and Haryana High Court in decisions referred supra, we affirm the findings of the ld CIT(A) allowing the carry forward of excess expenditure which has been carried forward from the earlier assessment years as well as for the year under consideration for set off in the subsequent assessment years. 19. Before parting, it would be relevant to note that Explanation 5 to Section 11 has been inserted by the Finance Act 2021 w.e.f 1/04/2022 which provides that “For the purpose of this sub-section, it is hereby clarified that the calculation of income required to be applied or accumulated during the previous year shall be made without any setoff or deduction or allowance of any excess application of any of the year 7 preceding the previous year.” The said amendment has been made effective from 1/04/2022, thus, it won’t any bearing for the impugned assessment year 2015-16. 20. In the result, appeal of the Revenue is dismissed. Order pronounced in the open Court on 27/07/2023. Sd/- Sd/- आकाश द प जैन $व%म 'संह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा य / VICE PRESIDENT लेखा सद,य/ ACCOUNTANT MEMBER AG Date: 27/07/2023 ( + ! , - . - Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. $ / CIT 4. - 0 ग 2 3 & 2 3 456 ग7 DR, ITAT, CHANDIGARH 5. ग 6 8 % Guard File ( + $ By order, 9 # Assistant Registrar