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2023 (7) TMI 1269 - AT - Income TaxExemption u/s 11 - Accumulation of income - Carry forward of deficit - Carry forward of excess expenditure carried forward from the earlier assessment years - CIT(A) held excess expenditure in the earlier years is to be allowed to be carried over in the subsequent years - HELD THAT - In case of CIT Vs. Market Committee Karnal 2010 (7) TMI 1223 - PUNJAB AND 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. 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 Subros Educational Society 2018 (4) TMI 1622 - SC ORDER 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. 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 preceding the previous year. is made effective from 1/04/2022 thus it won t any bearing for the impugned assessment year 2015-16. Appeal of the Revenue is dismissed.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Allowability of carry forward of deficit by the assessee. 3. Interpretation of provisions regarding carry forward of excess expenditure under the Income Tax Act, 1961. Summary: Condonation of Delay: At the outset, it was noted that there was a delay of two days in filing the appeal. The delay was condoned based on the submissions made by the Ld. DR, and the appeal was admitted for adjudication. Allowability of Carry Forward of Deficit: The primary issue raised by the Department was whether the Ld. CIT(A) erred in allowing the assessee's claim for the carry forward of the deficit. The Department argued that there is no express provision in the Income Tax Act, 1961, allowing such a claim and that it would result in granting double benefits to the assessee. Interpretation of Provisions: The assessee, a society registered under section 12AA, had filed its return declaring NIL income and later submitted a rectification application under section 154, claiming an excess application of income amounting to Rs. 98,94,577/- for the relevant financial year. The AO rejected this application, stating that the carryover of excess expenditure is not allowed as per sections 11 and 12 of the Act and that no such claim was made in the balance sheet. Appeal to CIT(A): The assessee appealed to the CIT(A), reiterating its submissions and relying on various judicial precedents, including decisions from the Hon'ble Punjab & Haryana High Court and the Hon'ble Supreme Court. The CIT(A) noted that while sections 11 and 12 do not specifically mention the carryover of excess expenditure, judicial precedents have established that such carryover is permissible. Judicial Precedents: The CIT(A) referred to several decisions, including: - CIT Vs. Market Committee, Karnal - CIT Vs. Ved Parkash Mukand Lal Educational Society - CIT Vs. Institute of Banking Personnel Selection (IBPS) - CIT(Exemptions) Vs. Subros Educational Society These decisions affirmed that excess expenditure incurred in earlier years can be set off against income in subsequent years, treating it as an application of income for charitable purposes. Conclusion: The Tribunal affirmed the CIT(A)'s findings, allowing the carry forward of excess expenditure for set off in subsequent assessment years. The Tribunal noted that the matter is covered by the Hon'ble Supreme Court's decision in CIT(Exemptions) Vs. Subros Educational Society and the Hon'ble Punjab & Haryana High Court's decisions. The appeal of the Revenue was dismissed. Relevance of Amendment: The Tribunal also noted that Explanation 5 to Section 11, inserted by the Finance Act 2021, effective from 1/04/2022, clarifies that the calculation of income required to be applied or accumulated during the previous year shall be made without any setoff or deduction of any excess application of any preceding year. However, this amendment does not affect the assessment year 2015-16 under consideration. Order Pronounced: The appeal of the Revenue was dismissed, and the order was pronounced in the open Court on 27/07/2023.
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