The Income Tax Appellate Tribunal (ITAT), Chennai Bench ruled that excess expenditure incurred by trust in earlier assessment year could be allowed to be set off against income of subsequent years.
The assessee, M/s. Educational Trust of Seventh Day Adventists is a trust registered under section 12AA of the Act filed its return of income for assessment year 2010-11 on 29.09.2010 admitting Nil total income after claiming exemption under section 11 of the Act.
The case was taken up for scrutiny and assessment has been completed by making additions towards disallowance of depreciation on fixed assets on the ground that when assessee has claimed purchase or acquisition of capital asset as application of income under section 11 of the Act, then further deduction of depreciation on said assets amounts to double deduction and hence, same cannot be allowed as deduction.
The Assessing Officer has disallowed retirement fund, gratuity fund, inventories written off, bad debts written off, employees medical insurance and global basic life insurance on the ground that payments are non-funded liability, but there is no actual outflow of cash and hence, same cannot be considered as application of income.
Similarly, the Assessing Officer has denied carry forward of excess application of income for charitable purposes to be adjusted against income of trust in subsequent years, on the ground that there is no provision to carry forward excess application of income to subsequent years.
Before, the CIT(A) the assessee has challenged additions made by Assessing Officer towards disallowance of depreciation and denial of carry forward of excess application of income to subsequent years. The assessee has also challenged additions made by Assessing Officer towards disallowance of contribution of employees retirement fund, gratuity fund, provision for bad debts.
The CIT(A) after considering relevant submissions of assessee allowed depreciation claimed on fixed assets. The CIT(A) has further allowed carry forward of excess application of income for charitable purposes to subsequent years and to set off against income of subsequent years.
However, he has confirmed additions towards contribution to retirement fund, gratuity fund and provision for bad debts on the ground that assessee has failed to file evidence to prove that findings recorded by Assessing Officer that there is no outflow of cash to consider the above expenditure as application of income.
The coram of V.Durga Rao and G. Manjunatha while dismissing the revenue’s appeal held that excess application of income of charitable trust can be carried forward and trust is entitled for set off of excess application of income in the earlier year against income of the trust in subsequent years. Therefore, there is no error in the findings recorded by learned CIT(A).
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. We welcome your comments at info@taxscan.in
