2017 (10) TMI 1422 - AT - Income Tax

Exemption u/s 11 - carry forward of deficit in question and allowing set off against the income of the subsequent years - Held that - The issue is covered by the judgment of CIT Vs. Institute of Banking Personnel 2003 (7) TMI 52 - BOMBAY HIGH COURT - AO is directed to allow the carry forward of deficit in the subsequent years. - Decided against revenue

Summary

Issues:
1. Allowance of carry forward of deficit and set off against subsequent years' income.
2. Double deduction due to excess expenditure carry forward.
3. Absence of express provision for deficit carry forward.

Issue 1: Allowance of carry forward of deficit and set off against subsequent years' income:
The appeal was filed by the revenue challenging the order allowing the carry forward of deficit by the Ld. CIT(A). The assessee, a trust registered under section 12A of the Income Tax Act, had claimed a deficit amount to be carried forward and set off against subsequent years' income. The AO disallowed this claim, but the Ld. CIT(A) allowed it based on the judgment of the Hon'ble Bombay High Court. The revenue contended that this would result in double deduction from exempt income. However, the Ld. counsel for the assessee argued that the Ld. CIT(A) decision was in line with the precedent set by the Hon'ble Bombay High Court, hence no merit in the revenue's appeal.

Issue 2: Double deduction due to excess expenditure carry forward:
The revenue raised concerns about granting double benefits to the assessee due to the carry forward of excess expenditure. They argued that allowing the deficit carry forward would lead to double deductions, first as accumulation of income in earlier years and then as application of income in subsequent years, which was legally impermissible. The Ld. CIT(A) had directed the AO to allow the carry forward of deficit without appreciating this aspect. However, the Ld. CIT(A) justified the decision by citing the judgment of the Hon'ble Bombay High Court, which held that adjusting expenses against subsequent year's income for charitable purposes was permissible.

Issue 3: Absence of express provision for deficit carry forward:
The revenue contended that there was no specific provision in the Income Tax Act permitting the allowance of deficit carry forward claimed by the assessee. They argued that the Ld. CIT(A) erred in allowing the claim without a clear statutory basis. However, the Ld. CIT(A) based the decision on the judgment of the Hon'ble Bombay High Court, which had established the legality of carrying forward deficits for charitable trusts. The Tribunal upheld the Ld. CIT(A)'s decision, stating that since the issue was covered by the Hon'ble High Court's judgment, there was no infirmity in allowing the deficit carry forward.

In conclusion, the Appellate Tribunal upheld the decision of the Ld. CIT(A) to allow the carry forward of deficit and set off against subsequent years' income, as it was in accordance with the precedent established by the Hon'ble Bombay High Court. The Tribunal dismissed all grounds of appeal by the revenue, emphasizing the legality of the carry forward based on established judicial rulings.