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JUDGMENT B.N. Mahapatra, J. - The present Income Tax Appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the "IT Act"), which arises out of the order passed in ITA No.316/CTK/2011 and CO. No.18/CTK/2011 dated 23.09.2011 passed by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack for the assessment year 2007-08, has been filed at the instance of the Commissioner of Income Tax, Ayakar Bhawan, Rajaswa Vihar, Bhubaneswar, Dist. Khurda. 2. According to the appellant, the following substantial questions of law are involved in the present Income Tax Appeal: "(i) Whether in the facts and circumstances of the case and in view of the decision of the Hon'ble High Court of Uttarakhand in the case of CIT v. Queens Educational Society reported in 319 ITR 160, the learned Income Tax Appellate Tribunal is correct in law in holding that the assessee Trust is not running with profit motive and is eligible for exemption under Section 11 of the I.T. Act, 1961? (ii) Whether in the facts and circumstances of the case and when the assessee Trust is not eligible for exemption under Section 11 of the Act, the learned ITAT is correct in law in holding that capital expenditure incurred by the assessee Trust shall be allowed as application of income?" 3. The facts leading to filing of the present appeal are that the assessee is a Trust registered under Section 12A of the IT Act with effect from 02.09.2002. It filed its return of income on 31.10.2007 for the assessment year 2007-08 disclosing its total loss at Rs.3,96,54,653/-. On 03.12.2009, the Assessing Officer completed the assessment under Section 143(3) of the IT Act determining the total income at Rs.03,06,53,610/-. In the assessment order, the Assessing Officer did not allow the benefit of exemption under Section 11 of the IT Act to the Trust on the ground that the assessee-Trust is making systematic profit year after year; incurred capital expenditure of Rs.51,24,483/- and diverted income to capital funds amounting to Rs.28,75,204/- which did not amount to application of income as per Section 11(1) of the IT Act. Depreciation of Rs.95,90,956/- was also added to the income of the Trust. To…

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