2022 (1) TMI 74 - AT - Income Tax

Assessment u/s 153A - Exemption u/s 11 - Carry forward of the deficit being excess of expenditure over income to the subsequent years by holding that the same is eligible for set off against the income of subsequent years - HELD THAT - We find that the issue of carry forward losses and setting off against the subsequent years surplus is squarely covered by the decision as cited by the Ld. A.R. We have perused the order of Ld. CIT(A) carefully and found that the Ld. CIT(A) has passed a very reasoned order after following the decision of CIT vs. Institute of Banking Personnel Selection (IBPS) 2003 (7) TMI 52 - BOMBAY HIGH COURT wherein it has been held by the Hon ble High Court that the carry forward of deficit of earlier years and setting it off against the surplus of the subsequent years is allowable. Similarly, in the case of CIT vs. Subros Educational Society 2018 (4) TMI 1622 - SC ORDER the Hon ble Supreme Court has held that the excess expenditure incurred by the charitable institution in the earlier years could be allowed to be set off against the subsequent years by invoking section 11. Considering the ratio laid down in the above decision, we are inclined to uphold the order of Ld. CIT(A) by dismissing the appeal of the Revenue. Assessment u/s 153A - Addition of undisclosed income on the ground that assessee has diverted funds to another sister entity which is not in accordance with the objectives and general accounting principle - HELD THAT - The undisputed facts are that on the date of search the assessment for the current assessment year was not pending and therefore it has attained finality and thus it was unabated on the date of search. Therefore the AO has no jurisdiction to make addition in an unabated assessment year without there being incriminating materials and accordingly the jurisdiction of the AO can not be justified. We note that the ld CIT(A) passed a very reasoned and speaking order after following the decision of Hon'ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation 2015 (5) TMI 656 - BOMBAY HIGH COURT , Murli Agro Products Ltd 2010 (10) TMI 1052 - BOMBAY HIGH COURT and Pr. CIT vs. Meeta Gutgutia 2018 (7) TMI 569 - SC ORDER - Therefore we do not find any infirmity in the order and are inclined to uphold the same by dismissing ground no.3.

Summary

Issues Involved:

1. Carry forward of the deficit (excess of expenditure over income) to subsequent years.
2. Deletion of addition of ?20,00,000/- as undisclosed income.

Issue-Wise Detailed Analysis:

1. Carry Forward of the Deficit to Subsequent Years:

The primary issue is whether the assessee is eligible to carry forward the deficit (excess of expenditure over income) to subsequent years and set it off against the income of those years. The assessee, a trust registered under section 12A, filed returns declaring nil income. The Assessing Officer (AO) disallowed the carry forward of losses and set off against subsequent years' income. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the appeal, citing several judicial precedents.

The CIT(A) relied on the Hon'ble Bombay High Court's decision in CIT vs. Institute of Banking Personnel Selection (264 ITR 110), which held that excess expenditure in earlier years can be adjusted against the income of subsequent years, treating it as an application of income for charitable purposes. This view was supported by other judicial decisions, including those of the Hon'ble Supreme Court and various High Courts, which consistently allowed the carry forward of deficits for charitable trusts.

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, noting that the issue is squarely covered by judicial precedents, including the Bombay High Court's decision in CIT vs. Institute of Banking Personnel Selection and the Supreme Court's dismissal of the department's SLP against this decision. The ITAT confirmed that the assessee is eligible to set off losses brought forward from previous years and carry forward the deficit to subsequent years.

2. Deletion of Addition of ?20,00,000/- as Undisclosed Income:

The second issue pertains to the addition of ?20,00,000/- made by the AO as undisclosed income. The AO contended that the amount paid by Shri Ajay G. Rai for using the assessee's stadium was diverted to another entity, M/s. D.Y. Patil Hospital and Research Centre, and should be treated as the assessee's income. The assessee argued that the payment was a corpus donation with specific directions for its use, and thus, it should not be treated as general income.

The CIT(A) deleted the addition, observing that the assessment for A.Y. 2013-14 was completed before the search, making it an unabated assessment. The CIT(A) held that no addition could be made in the absence of incriminating material found during the search. The CIT(A) cited several judicial precedents, including the Hon'ble Bombay High Court's decision in CIT vs. Continental Warehousing Corporation (374 ITR 645), which held that in unabated assessments, additions can only be made based on incriminating material found during the search.

The ITAT upheld the CIT(A)'s decision, agreeing that the AO had no jurisdiction to make additions in an unabated assessment year without incriminating material. The tribunal noted that the CIT(A) had passed a reasoned order following established judicial principles, and thus, there was no infirmity in the deletion of the addition.

Conclusion:

The ITAT dismissed all the appeals of the Revenue, upholding the CIT(A)'s decisions on both issues. The tribunal confirmed that the assessee is eligible to carry forward the deficit to subsequent years and that the addition of ?20,00,000/- as undisclosed income was rightly deleted in the absence of incriminating material. The judgments were pronounced in the open court on 25.11.2021.