Deficit incurred by a trust could not be treated in the same way as that of a loss sustained by an assessee under the head ‘profits and gains of business or profession‘ for such deficit to be furnished in a return and verified. The same was to be allowed to be set off against surplus on application of accounting principles. He referred to sections 80, 139(3) and 157 to submit that those provisions could not be made applicable to the assessee being a trust.
The Assessing Officer had mentioned in the assessment order that the assessee had shown accumulated deficit of Rs.8,54,26,519/-. The assessee had sought to adjust the surplus against such accumulated deficit which was disallowed by the Assessing Officer. We could not find any adjudication on such claim of accumulated deficit in the assessment order.
The CIT(A) held as under:‑
“I have carefully gone through the submissions made by the ld. A/R of the appellant and the order passed by the A.O. The A.O. has not brought any concrete evidence in support of his disallowance of Rs.4,78,81,978/- under the head accumulated deficit. The A.O. has stated in his order that the appellant has failed to submit details and books of accounts. The assessment record for the relevant assessment year was requisitioned. It is evident from the assessment record that the appellant submitted all the relevant documents in this aspect. It is not clear what were the books evidences, details etc., the A.O. had called for specifically for the purpose of assessment. However it is a matter of record that the appellant had provided all the necessary High Court orders (page no.85,128,147) details of expenses along with evidence (page no.95), loan confirmation (page no.173), balance sheet for last eight years (page no.103), bank statements (page no.190) list of repayment of loan (page no.186), write up on purpose for acquiring loans (page no.170) etc., A.O. has not gone through the details and evidences filed by the appellant before him. The ld. A/R of the appellant relied upon the case law of Mewar Charitable Foundation Vs. CIT. The Hon’ble Rajasthan High Court has held that Mewar Charitable Foundation suffered a deficit in assessment year 1970-71 which was adjusted with the surplus in assessment year 1971-72 for the purpose of section 11(1)(a). The Hon’ble Rajasthan High Court ruled that the said application of the income for charitable or religious purposes takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. In other words, even if the expenses for charity have been incurred in the earlier year and the said expenses are adjusted against the income of a subsequent year, the income of that year can be said to have been applied for charitable and religious purposes in the year in which the expenses incurred for charitable and religious purposes had been adjusted. Similar view was taken in CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal. Following the above facts and circumstances of the case as elaborately discussed, I am of the considered opinion that the action of the A.O. is not justified. Hence the disallowance of Rs.4,78,81,978/- is therefore deleted. The appellant succeed on this ground.”
The Tribunal while reiterating there was no material on record to substantiate the claim of the assessee that a sum of Rs.8,54,26,519/- was accumulated deficit also said that admittedly such claim for accumulated deficit had not been determined in any assessment proceeding and therefore the claim was wrongly allowed by the CIT(A).
Mr. Banerjee submitted that deficit incurred by a trust could not be treated in the same way as that of a loss sustained by an assessee under the head ‘profits and gains of business or profession‘ for such deficit to be furnished in a return and verified. The same was to be allowed to be set off against surplus on application of accounting principles. He referred to sections 80, 139(3) and 157 to submit that those provisions could not be made applicable to the assessee being a trust. He relied on firstly the said judgment of the High Court of Gujarat in the case of CIT Vs. Shri Plot Swetamber Murti Pujak Jain Mandel reported in (1995)211 ITR 293 (GUJ), relied upon before the CIT(A), wherein the following view was taken:
“In view of the two decisions of this court above referred to, it is the well-settled position that income derived from the trust property has to be determined on commercial principles and if commercial principles for determining the income are applied, it is but natural that the adjustment of the expenses incurred by the trust for charitable and religious purposes in the earlier year against income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which such adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and will have to be excluded from the income of the trust under section 11(1) (a) of the Act.”
He also relied upon a decision of the Bombay High Court in the case of CIT vs. Institute of Banking reported in (2003)264 ITR 110(Bom)in which the aforesaid view of the Gujarat High Court was reiterated. Mr. Chatterjee, learned advocate appeared on behalf of the Revenue but did not dispute the submissions made on behalf of the assessee.
As aforesaid, we have noticed that the Assessing Officer did not make any adjudication on this claim. The CIT(A) had said so. In the circumstances we think it proper to also remand this claim to the Assessing Officer for adjudication. In that view of the matter the question need not be answered. The impugned order is accordingly set aside.