2018 (5) TMI 1693 - AT - Income Tax

ITAT Mumbai allows carry forward of deficits for charitable purposes. Revenue's appeal dismissed.

ITO (Exemption) -1 (1), Mumbai Versus M/s. Bombay Natural History Society And Vice-Versa

The ITAT Mumbai upheld the CIT(A)'s decision allowing the carry forward of deficits from earlier years to set off against the surplus of the current and ... Application of income of the Trust u/s 11 - Carry forward and set off of losses - carry forward excess expenditure in the earlier year for setting off against the surplus of current year and all the subsequent years and considering the same as application of income for charitable purpose - Held that:- In assessee's own case [ 2017 (5) TMI 1564 - ITAT MUMBAI] as income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the Trust in the earlier years against the income earned by the Trust in the subsequent year will have to be regarded as application of income of the Trust u/s 11 - Decided in favor of assessee. Deletion of excess interest income already included in the gross receipts and was brought to the notice by filing the revised return - Held that:- Since the income was already shown in the gross receipts and thus resulting into double income - it would be in the interest of justice and fair play, the matter is restored back to the file of the AO - allowed for statistical purposes Issues Involved:Appeal by Revenue and Cross Objection by Assessee against order of CIT(A)-1, Mumbai dated 22/09/2015 under section 143(3) of the IT Act.Analysis:1. Issue 1: Whether the CIT(A) was correct in directing the AO to allow carry forward of deficit from earlier years to set off against the surplus of the current year and subsequent years, considering it as application of income for charitable purpose.- The Revenue challenged the CIT(A)'s decision on this issue.- The Co-ordinate Bench's decision in a similar case favored the assessee, allowing the carry forward of excess expenditure for setting off against the surplus.- The Hon'ble Bombay High Court's judgment supported the view that such adjustment is permissible under commercial principles and section 11 of the Act.- The Co-ordinate Bench upheld the CIT(A)'s order, leading to the dismissal of the Revenue's appeal.2. Issue 2: Whether the CIT(A) erred in allowing the carry forward of deficit against income for subsequent years, disregarding specific provisions of the IT Act.- The Revenue contested the CIT(A)'s decision on this matter.- The Co-ordinate Bench's decision in the assessee's case supported the allowance of deficit carry forward.- The decision was based on the application of commercial principles and the provisions of section 11 of the Act.- Following the Co-ordinate Bench's decision, the Revenue's appeal was dismissed.3. Cross Objection Issue: The Cross Objection raised by the assessee related to the order of the CIT(A) not directing the AO to delete the excess income inadvertently shown in the return.- The assessee's Cross Objection was supported by a decision of the Jurisdictional High Court.- The AO and CIT(A) rejected the assessee's claim regarding the excess income shown in the return.- The matter was restored back to the AO for reevaluation in light of the cited decision.- Ultimately, the Cross Objection was allowed for statistical purposes.In conclusion, the ITAT Mumbai upheld the CIT(A)'s decision to allow the carry forward of deficits from earlier years to be set off against the surplus of the current year and subsequent years for charitable purposes. The judgments cited, including those of the Co-ordinate Bench and the Hon'ble Bombay High Court, supported this view. The Revenue's appeal was dismissed, and the assessee's Cross Objection was allowed for statistical purposes, with the matter being remanded back to the AO for further consideration.