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2013 (12) TMI 781 - AT - Income TaxNon Filing of Form NO. 10 for claiming exemption u/s. 10(21) - Reassessment - Application of income - trust wholly for charitable or religious purposes - Held that - even if expenses for charitable and religious purposes have been incurred for the earlier year and the said expenses are adjusted against the income of a subsequent year, the income of that year can be said to have been applied for charitable and religious purposes in the year in which the expenses incurred for charitable and religious purpose had been adjusted. - Decision in CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal (1993 (11) TMI 17 - GUJARAT High Court) followed. Order of CIT(A) confirmed - AO directed to verify the records and if the claim of the deficit of Rs.46,42,125/- is found to be correct, the surplus should be arrived at after setting of the same from the surplus of Rs.55,73,560/- during the current year. The total income shall be computed by the A.O. accordingly. - Decided against the revenue.
Issues Involved:
1. Filing of Form No. 10 for accumulation of income. 2. Adjustment of deficit from previous years against current surplus. 3. Verification of books of accounts and records. 4. Application of income for charitable purposes. Detailed Analysis: 1. Filing of Form No. 10 for Accumulation of Income: The assessee trust, engaged in Scientific Research, filed its return for A.Y. 2005-06 declaring NIL income after claiming exemption under Section 10(21) of the Act. The Assessing Officer (A.O.) noticed that the assessee did not file Form No. 10, which is mandatory for accumulating more than 15% of gross receipts. The A.O. relied on the Supreme Court's decision in the Nagpur Hotel Owners' Association case, which emphasized the mandatory nature of filing Form No. 10. Consequently, the A.O. brought the entire surplus of Rs. 55,73,560/- to tax due to non-compliance. 2. Adjustment of Deficit from Previous Years Against Current Surplus: During appellate proceedings, the assessee contended that it had a deficit of Rs. 46,42,125/- for F.Y. 2003-04, which should be adjusted against the surplus of F.Y. 2004-05. The assessee argued that such adjustments are considered 'Application of money' by various High Courts, citing the Rajasthan High Court's decision in CIT Vs. Maharana of Mewar Charitable Foundation and the Gujarat High Court's decision in CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal. The CIT(A) agreed with the assessee, stating that the surplus should be worked out after considering the deficit, and directed the A.O. to verify this claim. 3. Verification of Books of Accounts and Records: The A.O. observed that the assessee did not produce books of account during reassessment proceedings. However, the assessee countered that during the original assessment, the A.O. had acknowledged the submission of books of accounts and vouchers. The CIT(A) noted that the A.O. should have considered the deficit before concluding the surplus and directed the A.O. to verify the records to ascertain the deficit claim. 4. Application of Income for Charitable Purposes: The CIT(A) held that the application of income for charitable purposes includes considering deficits from previous years. The Madras High Court in the case of Gonvindu Naicker Estate vs. ADIT and another, and the Gujarat High Court in CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal, supported the view that income applied for charitable purposes can be adjusted against expenses of earlier years. The CIT(A) concluded that the A.O. should allow the assessee to file Form No. 10 even during appellate proceedings, as per the Gujarat High Court's decision in CIT Vs. Mayur Foundation. Conclusion: The Tribunal upheld the CIT(A)'s order, directing the A.O. to verify the records and adjust the deficit of Rs. 46,42,125/- against the surplus of Rs. 55,73,560/-. The total income should be computed accordingly. The appeal of the department was dismissed, confirming that the deficit from previous years can be set off against the current year's surplus for computing taxable income. Order Pronouncement: The order was pronounced in the open Court on 13.12.2013, dismissing the department's appeal.
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