Shri Ram Sharnam Sabha Regd., Panipat V. ITO(E), Ambala

ITA 8899/DEL/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 4629 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 14-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHAILENDRA BAJAJ
• Keywords: Charitable institution; Benefit of exemption
• Section: 28; 11; 143(3); 12AA; 201; 264; 13; 20

Judgement Text

Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “SMC” BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.8899/Del/2019 [Assessment Year : 2016-17] Shri Ram Sharnam Sabha Regd., 588, Model town, Panipat, Haryana-122001. PAN-AAATS4962K vs ITO(E), Ambala, Haryana. APPELLANT RESPONDENT Appellant by Shri Shailendra Bajaj, CA & Shri R.R.Maurya, Adv. Respondent by Shri Sanjay Kumar, Sr.DR Date of Hearing 22.02.2022 Date of Pronouncement 12.04.2022 ORDER PER KUL BHARAT, JM : This appeal filed by the assessee for the assessment year 2016-17 is directed against the order of Ld. CIT(A), Karnal dated 24.09.2019. The assessee has raised following grounds of appeal:- 1. “That the order of the Ld. CIT (A), Karnal, is bad in law and against the facts of the case. 2. That the Ld. CIT (A) has erred both in facts and in law in confirming the addition made by the AO by not adjusting earlier year excess utilization/deficit of Rs.19,55,651/- from current year surplus for computing the income under section 11 of the Act. Page | 2 3. That Ld. CIT(A) has erred both in facts and in law in not allowing accumulation of income of Rs. 1,67,721 under section 11(2) although Form 10 was electronically filed beyond the time prescribed under the Act but before the finalization of assessment made under section 143(3). 4. That the Ld. CIT(A) has erred both in facts and in law while confirming the alternate ground rejected by the assessing officer, for not allowing accumulation of income of Rs.21,23,372/- u/s 11(2) of the Act since Form 10 was filed beyond the time prescribed under the Act but before the finalization of assessment made under section 143(3) . 5. That Ld. CIT(A) has erred both in fact and in law by not accepting Form 10 for accumulation of Income under section 11 (2) filed during the course of assessment proceedings. 6. That the Ld. CIT(A) has erred both in facts and in law holding that delay in filing Form 10 can only be considered by the CIT and no application was made by the assessee. 7. That the Ld.CIT(A) has erred in holding the action of the AO that case laws filed by the assessee are not linked to the findings in this case. The appellant prays leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of hearing.” FACTS OF THE CASE 2. Facts giving rise to the present appeal are that the assessee filed its return of income on 27.09.2016 declaring a taxable income Page | 3 of Rs.NIL. Subsequently, the case was selected for scrutiny and the assessment u/s 143(3) of the Income tax Act, 1961 (“the Act”) was framed vide order dated 14.12.2018. While framing the assessment, the Assessing Officer (“AO”) noticed that the assessee is a society, engaged in religious and charitable activities. This society is running Ashrams and Medication programmes and was duly granted registration u/s 12AA of the Act by the Office of CIT, Rohtak. The AO noticed that the assessee society was required to apply 85% of its income on the objectives of the society. As per Assessing Officer, accumulation of income in excess of 15% of the income is allowed subject to certain conditions. The AO noticed that the application of income fall short of benchmark of 85% at Rs.21,23,372/-. Therefore, he called upon the assessee to explain as to why the benefit of exemption claimed u/s 11(2) of the Act be given to assessee. The reply so filed by the assessee was not found satisfactory by the AO therefore, he proceeded to reduce the amount of Rs.21,23,372/- and made addition of Rs.21,23,372/- to the return of income. 3. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions, dismissed the appeal of the assessee. 4. Now, the assessee is in appeal before this Tribunal. Page | 4 5. Ground Nos. 1 & 7 raised by the assessee are general in nature, need no separate adjudication. 6. Ground Nos.2 to 6 are against the refusing the set off Rs.19,55,651/- against the earlier excess utilization of funds from the current year and not allowing accumulation of income of Rs.1,67,721/- u/s 11(2) of the Act on the basis that Form No.10 was not filed within the stipulated time. Since all the grounds are inter-connected therefore, are being disposed of together. 7. Ld. Counsel for the assessee, vehemently argued that the action of the authorities below is arbitrary, unjust and contrary to the settled law. He contended that authorities below did not accept the contention of the assessee that in earlier years, there was excess utilization of funds by the assessee society and the same was required to be set off against the surplus of the current year. Ld. Counsel for the assessee submitted that during the Assessment Year the assessee society declared income/receipt of Rs.2,49,25,686/- which comprises of interests received from banks on deposits and subscriptions. Against this income, the assessee society had claimed an expenditure of Rs.1,90,63,461/-. After claiming deduction of 15% u/s 11(1) of the Act, it had a surplus of Rs.21,23,372/- out of which Rs.19,55,651/- was claimed to be set Page | 5 off against the deficit of earlier year and the balance amount of Rs.1,67,721/- was accumulated u/s 11(2) of the Act. Ld. Counsel for the assessee submitted that due to change in law regarding the mandatory filing of Form No.10 electronically w.e.f. Assessment Year 2016-17 which was inadvertently escaped the knowledge of the assessee society. The said form for the accumulation was filed electronically on 28.03.2018. However, by way of abundant caution, request for the accumulation of the entire surplus amount of Rs.21,23,372/- was made. Ld. Counsel for the assessee submitted that the assessee society had requested for the accumulation of the entire surplus incase the deficit of earlier year was not allowed to be set off by the Assessing Officer since he had not allowed a similar claim in the previous year. He further contended that during the course of electronically conducted assessment proceedings, the request of the assessee was disallowed by the assessing authority. He contended that the AO did not accept the contention of the assessee and wrongly applied ratio of judgement of the Hon’ble Supreme Court rendered in the case of CIT vs Nagpur Hotel Owner’s Association 247 ITR 201 (SC). Ld. Counsel for the assessee submitted that the submissions of the assessee were not appreciated by the authorities below and failed to take note of the binding precedents. Page | 6 8. On the contrary, Ld. Sr. DR opposed these submissions and supported the orders of the authorities below. 9. I have heard the rival contentions and perused the material available on record and gone through the orders of the authorities below. I find that the AO did not accept the submissions of the assessee on account of set off of excess utilization of funds of earlier years against the surplus of the current year and accumulation of funds. In sofar as the question of filing of Form No.10, the Hon’ble Supreme Court in the case of CIT vs Nagpur Hotel Owner’s Association (supra) has held that “if during the assessment proceedings the Assessing Officer does not have the necessary information, question of excluding such income from assessment does not arise at all. As a matter of fact, this benefit of excluding this particular part of the income from the net of taxation rises from section 11 and is subjected to the conditions specified therein. Therefore, it is necessary that the assessing authority must have this information at the time it completes the assessment. In the absence of any such information, it will not be possible for the assessing authority to give the assessee the benefit of such exclusion and once the assessment is so completed, in our opinion, it would be futile to find fault with the assessing authority for having included such income in the assessable income of the assessee. Therefore, even Page | 7 assuming that there is no valid limitation prescribed under the Act and the Rules, even then, in our opinion, it is reasonable to presume that the intimation required under section 11 has to be furnished before the assessing authority completes the concerned assessment because such requirement is mandatory and without the particulars of this income the assessing authority cannot entertain the claim of the assessee under section 11, therefore, compliance of the requirements of the Act will have to be any time before the assessment proceedings. Further, any claim for giving the benefit of section 11 on the basis of information supplied subsequent to the completion of assessment would mean that the assessment order will have to be reopened.” I find that the Assessing Officer did not consider this part of the judgement hence, the order of the assessing authority is erroneous. It is also noticed that Ld.CIT(A) on this issue has merely affirmed the view of the AO without adverting to the submissions of the assessee. This approach of the authorities below is contrary to the binding precedents. Undisputedly, the assessee had filed Form No.10 before the completion of assessment. 10. Now, coming to the issue regarding setting off of the earlier year excess utilization of funds. Ld. Counsel for the assessee placed reliance on the judgement of the Hon’ble Delhi High Court Page | 8 rendered in the case of Director of Income Tax vs Raghuvanshi Charitable Trust 197 Taxman 170 (Delhi). The Hon’ble High Court answered the question in favour of the assessee that “whether a trust can be allowed to carry forward the deficit of current year and to set off of same against the income of subsequent years; in favour of the assessee and further question whether adjustment of deficit of current year against the income of subsequent year would amount to application of income of the trust for charitable purposes in the subsequent year within the meaning of section 11(1)(a) of the Act in favour of the assessee.” Hon’ble Delhi High Court has answered this question by observing as under:- 6. “We find from the order of the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') that the Tribunal has decided the issue in favour of the assessee by placing reliance on the aforesaid judgment of the Gujarat High Court. We have gone through the judgment of Gujarat High Court in Shri Plot Swetamber Murti Pujak Jain Mandai's case (supra). It could not be disputed by the learned counsel for the Revenue that the question of law raised and answered in the said case was identical to the one raised in the present appeals. This question was decided in favour of the assessee interpreting the provisions of section 11 of the Act. The relevant discussion contained in the said judgment is in the following terms: "3. The learned DR sought to rely upon the finding of Assessing Officer. None was present on behalf of the Page | 9 assessee. We find that the issue is answered by Hon'ble Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandai [1995] 211 ITR 293, wherein the High Court observed as under: "We are, therefore, of the opinion that the adjustment of he (sic. the) expenses incurred by the trust for charitable and religious purposes in the earlier year against the income earned by the trust in the subsequent year would amount to applying the income of the trust for charitable and religious purposes in the subsequent year in which such adjustment has been made and will have to be excluded from the income of the trust under section 11(1)(a) of the Act." No contrary decision has been cited. From the aforesaid judgment, it is clear that there is no bar in computing income of subsequent year after allowing set off of excess amount spent on object of trust, as this also amounts to application of income. Thus, there is no infirmity in the order of the learned CIT(A)." 7. The submission of the learned counsel for the revenue, however, was that the aforesaid case does not decide the question correctly. She submitted that the Gujarat High Court proceeded on the premise that there was no limitation in section 11, which provides that the income should have been applied for charitable or religious purposes 'only' in the year in which the income has arisen. This, according to the learned counsel, was a wrong premise and contrary to the expression of provision contained in section 11(1)(c) read with Explanation Page | 10 and section 11(1)(c) categorically suggests to the contrary, viz., the income has to be applied for charitable or religious purposes 'only' in the year in which it has arisen. However, we find that the Gujarat High Court has discussed this issue in greater detail and relying upon the Circular No. 100, dated 24-1-1973 Issued by the Central Board of Direct Taxes and the judgment of the Rajasthan High Court in the case of CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439. We may also point out at this state that the aforesaid view of Rajasthan High Court and Gujarat High Court has been consistently followed by other High Courts in the following judgments: (i) CIT v. Institute of Banking Personnel Selection (IBPS) [2003] 264 ITR 110 (Bom.); (ii) Siddaramanna Charities Trust v, CIT [1974] 96 ITR 275 (Mys.); and iii) CIT v. Matriseva Trust [2000] 242 ITR 20 (Mad.); 8. It would be fruitful to refer to the discussions contained in Institute of Banking Personnel Selection (IBPS)'s case (supra ), Per Hon'ble Mr. Justice S.H. Kapadia, which is advanced before us by the learned counsel for the revenue to repel the same in the following words: "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 Page | 11 cannot be met out of the income of the subsequent year and that utilization 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 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 the 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 Page | 12 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] 211 ITR 293 . Accordingly, we answer question No.3 in the affirmative, i.e., in favour of the assessee and against the Department." 9. It is clear from the above that as many as five High Courts have interpreted the provision in an identical and similar manner. Learned counsel for the revenue could not show any judgment where any other High Court has taken contrary view. Since we are in agreement with the view taken by the aforesaid High Court, we answer these questions in favour of the assessee and against the revenue.” 11. In view of the above-mentioned binding precedents, I hereby direct the AO to allow the claim of the assessee regarding set off of excess utilization of funds and accumulation of income. Thus, Ground Nos.2 to 6 raised by the assessee are allowed in terms indicated above. 12. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 12 th April, 2022. Sd/- (KUL BHARAT) JUDICIAL MEMBER *Amit Kumar* Page | 13 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI