2024 (3) TMI 882 - AT - Income Tax

Charitable trust can set-off excess utilization from earlier years against current surplus under section 11(1)(a)

The ITAT Delhi ruled in favor of a charitable trust regarding set-off of excess utilization of funds from earlier years against current year surplus. The ... Set off of prior year excess application of income against subsequent year surplus - application of income for charitable purposes - accumulation of income under section 11(2) - timely filing of Form No.10 during assessment proceedings - requirement of furnishing particulars before completion of assessment for claim under section 11Set off of prior year excess application of income against subsequent year surplus - application of income for charitable purposes - Allowability of setting off excess application of funds in earlier years against the surplus of the assessment year for computing income under section 11 - HELD THAT: - The Tribunal found the facts of the present year identical to those considered by the Coordinate Bench in the assessee's own case for AY 2016-17 and followed the binding precedents of various High Courts and this Tribunal which hold that adjustment of expenditure or excess application incurred in earlier years against income of a subsequent year amounts to application of income in that subsequent year and is to be excluded under section 11(1)(a). Applying that ratio, the Tribunal directed the Assessing Officer to allow the claim for set off of excess utilization of funds, concluding there is no bar to computing the current year's income after allowing such set off. [Paras 6]Set off of earlier year excess utilization against the current year surplus is allowable; deduction to be given by AO.Accumulation of income under section 11(2) - timely filing of Form No.10 during assessment proceedings - requirement of furnishing particulars before completion of assessment for claim under section 11 - Whether Form No.10 filed during the course of assessment (before completion) can be accepted for claiming accumulation under section 11(2) despite being filed during assessment proceedings and whether the delay in filing precludes the claim - HELD THAT: - Relying on the Coordinate Bench decision in the assessee's own case and authoritative precedent emphasising that the assessing authority must have necessary information before completing assessment to entertain a claim under section 11, the Tribunal held that Form No.10 filed during the assessment (but before completion) satisfies the requirement. The Tribunal observed that where particulars necessary to allow the exemption are furnished before completion of assessment, the assessing officer cannot refuse the claim on the ground that the information was supplied during proceedings; acceptance of such information after completion would otherwise require reopening the assessment. The Tribunal therefore directed allowance of accumulation claimed through Form No.10. [Paras 6]Form No.10 filed during the assessment proceedings (before completion) is acceptable for claiming accumulation under section 11(2); accumulation claim allowed.Final Conclusion: The appeal is allowed: the Assessing Officer is directed to permit set off of earlier years' excess application of funds against the 2015-16 surplus and to accept Form No.10 filed during assessment (before completion) for claiming accumulation under section 11(2). Issues Involved:1. Validity of the order of Ld. CIT(A), Karnal.2. Non-adjustment of earlier year excess utilization/deficit from current year surplus under section 11.3. Non-allowance of accumulation of income u/s 11(2) due to late filing of Form 10.4. Non-acceptance of Form 10 filed during assessment proceedings.5. Authority to condone delay in filing Form 10.6. Relevance of case laws submitted by the assessee.Summary:Issue 1: Validity of the Order of Ld. CIT(A), Karnal- The order of Ld. CIT(A), Karnal was challenged as being 'bad in law and against the facts of the case.' However, this ground was deemed general in nature and did not require adjudication.Issue 2: Non-adjustment of Earlier Year Excess Utilization/Deficit from Current Year Surplus u/s 11- The AO did not adjust the earlier year's excess utilization/deficit of Rs. 53,89,039/- from the current year's surplus for computing income under section 11 of the Act.- The Tribunal referred to its own decision in the assessee's case for AY 2016-17, which allowed such adjustments. The Tribunal directed the AO to allow the claim of the assessee regarding the set-off of excess utilization of funds.Issue 3 & 4: Non-allowance of Accumulation of Income u/s 11(2) and Non-acceptance of Form 10 Filed During Assessment Proceedings- The AO and Ld. CIT(A) did not allow the accumulation of income u/s 11(2) because Form 10 was not filed within the prescribed time but during the assessment proceedings.- The Tribunal cited the Supreme Court's decision in CIT vs. Nagpur Hotel Owner's Association, stating that the information required under section 11 must be furnished before the assessment is completed. Since the assessee had filed Form 10 before the completion of the assessment, the Tribunal found the AO's and Ld. CIT(A)'s orders erroneous and directed the AO to allow the claim.Issue 5: Authority to Condon Delay in Filing Form 10- Ld. CIT(A) held that only the CIT could consider the delay in filing Form 10, and no application was made by the assessee.- The Tribunal did not specifically address this issue separately but resolved it under the broader context of Issues 3 and 4, directing the AO to accept Form 10 filed during the assessment proceedings.Issue 6: Relevance of Case Laws Submitted by the Assessee- Ld. CIT(A) upheld the AO's view that the case laws filed by the assessee were not linked to the findings in the case.- The Tribunal referenced the Delhi High Court's decision in Director of Income Tax vs. Raghuvanshi Charitable Trust, among other precedents, to support the assessee's claim for adjusting the deficit of earlier years against the income of subsequent years.Conclusion:- The Tribunal allowed the appeal of the assessee, directing the AO to accept the set-off of excess utilization of funds and accumulation of income as per the binding precedents. The grounds raised by the assessee were allowed in terms of the Tribunal's earlier decision in the assessee's case for AY 2016-17.Result:- The appeal of the assessee is allowed.