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TMI Blog2015 (1) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent of the shortfall and further we hereby strike down the order of the Ld.CIT(A) wherein he has directed the Ld.A.O to bring to tax the sum of ₹ 11,05,02,792 by denying the benefit of carried forward of excess application of income. - Decided in favour of assessee. - ITA No. 1401/Mds./2014 - - - Dated:- 10-10-2014 - A. Mohan Alankamony, AM And V. Durga Rao, JM,JJ. For the Petitioner : Mr G. Baskar, Adv. For the Respondent : Dr. S Moharana, Ld. CIT-DR ORDER Per A. Mohan Alankamony , Accountant Member: This appeal is filed by the Assessee, aggrieved by the order of the CIT(A)-VII, Chennai dated 14.03.2014 in ITA No.298/10-11 passed U/s. 143(3) read with section 250 of the Act. 2. The Assessee has raised three elaborate and argumentative grounds in its appeal, however the crux of the issues are that: (i) Ld.CIT(A) had erred in directing the Assessing Officer to bring to tax the sum of ₹ 11.05 crores being the excess application of the earlier year set off this year. (ii) Ld.CIT(A) had erred in confirming the disallowance of ₹ 14 crores made by the Assessing Officer by holding that the said amount was not paid to the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to M/s.Golden Homes Pvt. Ltd. Hence it cannot be said that that this amount was spent for the purpose of the objects for the trust. Therefore this sum will be disallowed from the cost of additions claimed by the assessee. 3.3 In the light of the above this sum of ₹ 14 crores will be reduced from the additions to be fixed assets of ₹ 98,22,31,253 claimed as application of income in the return. The balance will be ₹ 84,22,31,253/- 4. The details of the inflow of funds and payment in relation to the purchase of the above lands at Vanagaram was called for. The assessee in view of the same furnished the following information:- (concised) Inflow of funds (a) Loan from various banking institutions 83,04,00,000 (b) Closure of Fixed Deposit with banks 11,72,00,000 Total 94,74,00,000 Application of Funds 1. Payment made to Raj Kumar. B 78,21,04,400 2. Registration and other charges 2,54,00,600 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51,07,87,543 85% thereon 43,41,69,412 Application of income: Revenue Expenditure 31,18,35,367 Capital Expenditure 1,18,31,253 (-)32,36,66,620 Shortfall 11,05,02,792 Less: Set off of the brought forward Excess application of income For A.Y 2007-08 to the extent of Shortfall (-)11,05,02,792 Total Income Nil 4.1. When these issues cropped up before the Ld. CIT (A), the Ld. CIT (A) held that the excess expenditure incurred in the earlier years cannot be carried forward to the subsequent years for treating the same as application of funds from the income generated by the Trust during that period. In view of the same the Ld. CIT (A) directed the Assessing Officer to tax the sum of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise, the investment under section 11(5) of the Act is not possible with deemed income. The intention of the legislature is to invest real income derived from property of the trust in specific asses when they are not utilized/applied. The very concept of exemption/s 11 of the Act is defeated if provisions of profits and gains of business or provision relating to carry forward and set-off is substituted for the income which do not form part of Total income included under Chapter-III of the Income-tax Act. In view of the above discussion, I direct the AO to bring to tax the sum of ₹ 11,05,02,792/- . If already brought to tax under section 154 of the Act, the action of the AO is confirmed. 4.2. With respect to the treatment given by the Ld. Assessing Officer for ₹ 14 crores being the payment made towards the purchase of land, the Ld. CIT (A) accepted the view of the Ld. Assessing Officer and observed as under:- 5. Regarding the disallowance of ₹ 14,00,00,000/-, the Authorized Representative of assessee of the appellant in his letter dated 13.03.2014 claimed that an agreement for sale was entered on 16.11.2007 and the agreement provides for payment of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT (A) by bringing to tax the sum of ₹ 11,05,02,792/- is not warranted and therefore it may be deleted. Ld. A.R. further argued that the payment made to M/s.Golden Homes Pvt Ltd. for ₹ 14 crores was solely incurred for the purpose of purchase of land in order to meet the objects of the Trust, and therefore, it should be allowed as application of income. Ld. A.R. pointed out and referred to the sale agreements entered between the assessee and the vendor of the land based on which the sale deed was executed. The Ld. D.R on the other hand relied on the orders of the Ld. Assessing Officer and the Ld. CIT (A) and argued in support of the same and requested the order the Ld. CIT (A) to be confirmed. 6.1. We have heard both the parties and carefully perused the materials available on record. On perusing the tripartite agreement dated 16th November, 2007 between Mr.J.Rajkumar Balsingh, M/s.Golden Homes Pvt Ltd., and the Trust M/s.Jesus Calls, it is evident that M/s.Golden Homes Pvt Ltd., is nominated to receive ₹ 14 crores towards purchase of land by M/s.Jesus Calls (Page No.10 of the paper book). The relevant para is reproduced herein below:- Para 2 claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Jurisdictional High Court in the case of DIT (Exemption) Vs. Govindu Naicker Estate (supra) has made it clear that the repayment of loan obtained for capital investment has to be considered as application of income for charitable purpose U/s. 11(1)(a) of the Act. Since we have held that the payment of ₹ 14 crores made by the assessee towards purchase of land to be genuine, the amount of ₹ 15,18,31,253/- (Rs. 98,22,31,253 - ₹ 83,04,00,000) has to be treated as application of income towards capital expenditure. Consequently, in the present case, total application of income would be:- Revenue expenditure 31,18,35,367/- Capital expenditure 15,18,31,253/- Total 46,36,66,620/- Since 85% of the assessee's income of the Trust during the relevant assessment year is ₹ 43,41,69,412/- (51,07,87,543/- 85 100), it is evident from the above computation that the assessee has applied more than 85% of its income for charitable or religious purpose in accordance with the provisions of Sec.11(1)(a) of the Act. Therefore, there is no shor ..... 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