The order of the Bench was delivered by
Amit Shukla, Judicial Member:-This appeal has been preferred by the department against impugned order dated 09.07.12 passed by CIT(A)-1, Mumbai for the quantum of assessment passed under section 143(3) for the assessment year 2009-10 on the following grounds of appeal:-
“1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to allow benefits of exemption u/s11 to the assessee in respect of expenses of Rs.31,50,501/-, when the assessee had amended the memorandum of association on the basis of which the assessee was granted registration u/s 12A of the Act.
2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the assessee for carry forward of unabsorbed depreciation and deficit of current and earlier years amounting to Rs.23,94,22,334/- be adjusted against the income of the subsequent year, ignoring the fact that there was no express provision in the IT Act, 1961 permitting allowance of such claim.
3. That Appellant prays that, to the extent of above grounds, the order of the Ld. Commissioner of Income-Tax (Appeals) 1, Mumbai be set aside and that of the Assessing Officer be restored.”
2. The brief facts of the case are that the assessee trust was registered as a charitable organisation with the Charity Commissioner, Mumbai and was also granted registration under section 12A by the DIT(E), Mumbai, as its objects were falling within charitable activities as defined under section 2(15). The Assessing Officer noted that the assessee trust had changed its objects vide its application filed before Charity Commissioner, who has allowed the necessary changes in the objects of the assessee trust. In view of this change of objects, the registration so granted earlier was withdrawn vide order dated 02.02.11 by DIT (E) passed under section 12AA(3).
2.1 Aggrieved by the said order, the assessee trust had preferred an appeal before the ITAT, wherein the ITAT allowed the assessee’s appeal and the cancellation of registration was set aside. Thus assessee’s registration granted earlier under section 12A was continued. The Assessing Officer held that, since the department has not accepted the decision of the ITAT and further appeal has been filed, therefore, the assessee would not be eligible for exemption under section 11. Accordingly, he taxed the surplus and disallowed the expenses.
3. In the first appeal, the ld. CIT(A) based on the decision of the ITAT directed the AO to allow the benefits under section 11, as assessee’s registration under section 12A has been upheld by the Tribunal.
4. Before us the ld. D.R. submitted that the matter is only being contested to keep the issue alive as the appeal against the Tribunal’s order dated 09.11.11 has been challenged before the Hon’ble High Court. On the other hand, the ld. counsel of the assessee submitted that once the Tribunal has set aside the order of the DIT (E) cancelling the registration, the assessee’s registration under section 12A continues and therefore benefits under section 11 have to be allowed.
5. We have carefully considered the facts of the case and the order of the authorities below. On scrutiny of the facts, we find that the assessee’s registration under section 12A granted earlier by DIT (E) was withdrawn vide its order dated 02.02.11 under section 12AA(3). This order of the DIT (E) has been set aside by the Tribunal vide its order dated 09.11.11 and assessee’s registration under section 12A has been upheld. Thus the very basis and foundation of denying the benefit under section 11 ceases to exist. Once the registration under section 12A continues, then, it is axiomatic that the income has to be computed in accordance with section 11 and benefit/exemption therein has to be given. The exemption cannot be denied simply on the ground that the matter is subjudice before the Hon’ble High Court. Thus, we do not find any merits in the ground No.1 raised by the department and the same is accordingly dismissed.
6. In ground No.2 the department has challenged the direction of the ld. CIT(A) for allowing the claim of the assessee for carry forward of unabsorbed depreciation and deficit of current and earlier years amounting to Rs.23,94,22,334/- to be adjusted against the income of the subsequent year. The ld. CIT(A) has given this direction in light of the decision of Hon’ble Bombay High Court in the case of “CIT vs. Institute of Banking Personnel” reported in 264 ITR 110. Before us ld. D.R. strongly relied upon the order of the Assessing Officer, whereas the ld. counsel for the assessee relied upon the decision of the Hon’ble Bombay High Court.
7. After carefully considering the relevant finding of the Assessing Officer as well as ld. CIT(A), we find that the issue of adjustment of carry forward unabsorbed depreciation and deficit against the income of the subsequent year has been upheld by the Hon’ble Bombay High Court, after referring and relying upon the decision of the Hon’ble Gujarat High Court in the case of “CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal” reported in (1995) 211 ITR 293 (Guj.). The Hon’ble Bombay High Court observed that the income derived from the trust property has to be computed on commercial principles and if commercial principles are applied, then adjustment of expenses incurred by the trust for charitable and religious purposes 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 in the subsequent year in which adjustment has been made. Thus, in view of the law expressed by the Hon’ble Jurisdictional High Court in this regard, we do not find any merit in the ground raised by the department and the same is accordingly dismissed.
8. In the result, appeal filed by the department stands dismissed.
The order pronounced in the open court on 30.05.2014.