2023 (11) TMI 977 - AT - Income Tax

Assessment of trust income - set off of excess application of income - Exemption u/s 11 allowed - excess application of income in the earlier assessment years against the current year s surplus found - AO after allowing accumulation of income u/s. 11(1)(a) at 15% noted that there was a taxable surplus which the assessee adjusted against the excess utilization in the preceding years - HELD THAT - The books of accounts are audited and Form 10B has been filed and we do not find any adverse comments for the AY 1999- 2000 to 2001-02. On going through the assessment order, the claim made by the assessee for the previous three assessment years excess application has been denied stating that it is not permissible, but the AO has not disputed the figures claimed by the assessee. We note that similar issue has been decided by the assessee in favour of the assessee in the case of ACIT v. City Hospital Charitable Trust 2015 (6) TMI 235 - ITAT BANGALORE and it is held that excess application of income of the previous years can be set off from the subsequent year s surplus income. The judgment of Jyothy Charitable Trust 2015 (11) TMI 1295 - ITAT BANGALORE also supports the case of the assessee. Thus assessee is eligible for set off of excess application of income of AYs 1999-2000 to 2001-02 from the current year s income. Accordingly, we allow the appeal of the assessee.

Summary

Issues involved:
The delay in filing the appeal before the Tribunal and the claim of excess application of income from earlier assessment years against the current year's surplus.

Delay in filing the appeal:
The appeal by the assessee faced a delay of 264 days due to reasons beyond their control, such as the employee handling statutory compliances being on medical leave. The Tribunal, considering the explanation for the delay, condoned it citing the judgment in the case of Collector, Land Acquisition Vs. MST. Katiji.

Claim of excess application of income:
The sole issue in this appeal was the claim of excess application of income from earlier assessment years against the current year's surplus. The assessee, a charitable trust, adjusted a taxable surplus against excess utilization in the preceding years, which the AO disallowed. The AO's decision was based on the view that application of income for charitable purpose must be during the relevant previous year, and any shortfall should be charged to tax. The CIT(Appeals) initially dismissed the claim, stating that the deficit arising from excess spending for charitable purposes cannot be part of total income/loss.

Second round of proceedings:
In the second round, the CIT(Appeals) rejected the claim due to lack of details establishing that the expenditure in earlier years was solely for charitable purposes. The assessee sought to submit additional evidence, including annual reports and income computations for earlier years, to demonstrate the brought forward deficits. The Tribunal, after considering the arguments from both sides, allowed the appeal of the assessee, citing previous decisions supporting the set off of excess application of income from earlier years against the current year's income.

Conclusion:
The Tribunal, after reviewing the facts and legal precedents, allowed the appeal of the assessee, granting them the set off of excess application of income from the earlier assessment years against the current year's income. The decision was based on the continuous eligibility of the assessee for exemption under section 11 of the Act and previous judgments supporting such set offs.