2019 (3) TMI 1572 - AT - Income Tax

Assessment of trust - Addition of accumulation of income @ 15% of the gross total income - HELD THAT - We find that the assessee has already applied its income for the various charitable activities over and above the gross total income earned for the year and for that purpose, aggregated computation of income has been furnished by the written submissions dated 11.03.2013, but the same were not considered by the AO which is not permissible in law. Since, the assessee has already applied its income, therefore no question arises of claiming 15% of deduction or making disallowance of it by the AO. We hold that CIT(A) has perfectly deleted the said addition, therefore this ground of appeal is dismissed. Disallowance of amount set apart for specified purposes and disallowance of expenditure - assessee had set apart or accumulated the amount u/s.11(2) - assessee had filed Form No.10 along with resolution for accumulation of income along with Return of Income filed u/s.139(1) - HELD THAT - Amount eceived by the assessee Trust towards corpus fund created for the specific purposes, hence, such donation receipts towards corpus fund are to be treated as capital receipts of the Trust and on such donations the provisions of section 11(2) granting exemption to the amount accumulated would not apply. All such funds have been deposited by it has fixed deposit in the bank account and only interest part of it, which has been shown as regular income, has been applied or spent towards various purposes. Therefore, the CIT(A) has rightly deleted such addition made by AO, accordingly ground no.ii) & iii) of the appeal is therefore dismissed. With regard to expenditure we find that these expenditures were incurred out of its income accumulated from year to year and not from earmarked corpus fund the assessee has duly demonstrated by showing the details of the balance sheet of the current year as well as earlier years that no amount has been spend out of the corpus fund received in various years - Decided against revenue

Summary

Issues:
1. Disallowance of accumulation of income @ 15% of gross total income.
2. Disallowance of amount set apart for specified purpose.
3. Disallowance of depreciation on assets leading to double deduction.
4. Disallowance of expenditure incurred out of accumulated income.
5. Disallowance of expenditure from earmarked fund.

Issue 1: Disallowance of accumulation of income @ 15% of gross total income:
The Assessing Officer (AO) added an amount to the total income of the assessee, claiming it as an accumulation of income @ 15% of the gross total income. However, the CIT(A) ruled in favor of the assessee, stating that since there was an excess of expenditure over income, no accumulation was possible. The ITAT upheld the CIT(A)'s decision, emphasizing that the assessee had already applied its income for charitable activities, making the addition unjustified.

Issue 2, 3, and 4: Disallowance of amount set apart for specified purpose, depreciation on assets, and expenditure incurred out of accumulated income:
The AO disallowed an amount set apart for a specified purpose and certain expenditures made from accumulated income, claiming they were not allowable. The CIT(A) overturned these disallowances, stating that the amount set apart was received as voluntary donations towards corpus fund and the expenditures were not from the corpus fund. The ITAT agreed with the CIT(A), highlighting that the donations towards corpus fund were capital receipts and not taxable income, thus justifying the deletions made by the CIT(A).

Issue 5: Disallowance of expenditure from earmarked fund:
The AO disallowed certain expenditure made from an earmarked fund, alleging it was not allowable. The CIT(A) found that the expenditure was not from the corpus fund but from the accumulated income, which was supported by the balance sheet details. The ITAT upheld the CIT(A)'s decision, dismissing the appeal of the Revenue.

In conclusion, the ITAT affirmed the CIT(A)'s decisions on all issues, dismissing the Revenue's appeal. The judgment emphasized the correct application of tax laws and the distinction between income, capital receipts, and allowable expenditures, ensuring a fair outcome for the assessee.