ITAT allows claim of loss on sale of asset as application of income by Rajiv Gandhi Charitable Trust

The assessee is a Trust, registered u/s 12A of the Income-Tax Act, 1961 (The Act) vide order No.DIT(E)/2002-03/R-415/02/680 dated 09.10.2012, which is also notified u/s 80G(5)(vi) of the Act. During the course of assessment proceedings, Assessing Officer noticed that assessee had sold certain assets and the loss of Rs.14,81,627/- on the sale of such assets was claimed as application of income. The assessee was asked to show-cause as to why the loss claimed as application of income not to be disallowed as the cost of assets was already claimed as application of income in earlier years. The assessee made detailed submission which was not found acceptable to Assessing Officer. Assessing Officer for the reasons discussed in the order, held the loss of Rs. 14,81,627/- cannot be considered as application of income.

Aggrieved by the order of Assessing Officer, assessee carried the matter before the learned Commissioner of Income-Tax (Appeals) who upheld the order of Assessing Officer. Aggrieved by the order of learned Commissioner of Income Tax(Appeals), assessee filed an appeal before the tribunal.

Before tribunal, assessee submitted that during the year, assessee had sold certain assets having book value of Rs.17,11,414/- for Rs.2,29,787 resulting into loss of Rs.14,81,627/-. He submitted that the aforesaid loss was debited to the income and expenditure account by relying on the Board’s Circular No. 5- P(LXX-6) dated 19th June, 1968. ITAT observed that the CBDT in Circular No. 5- P(LXX-6) dated 19th June, 1968 has taken a view that the income of
the trust should be computed on the basis of commercial principles and should be understood in its commercial sense. ITAT relying on the CBDT Circular, held that the AO was not justified in denying the loss as application of income and accordingly set aside the order of AO which has been upheld by CIT(A).

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