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Income Tax Appellate Tribunal, CUTTACK ‘SMC’ BENCH, CUTTACK
Before: SHRI CHANDRA MOHAN GARG
This is an appeal filed by the assessee against the order of the CIT(A),1, Bhubaneswar dated 10.9.2019 for the assessment year 2015-16.
Ground Nos.1 & 2 read as under:
“ 1. For that on the facts and in the circumstances of the case and in law, the ld CIT(A) grossly erred in law and on facts in not quashing the assessment order which has been passed in gross disregard to the principles of natural justice.
2. For that on the facts and in the circumstances of the case and in law, the ld CIT(A) has made serious error in wholly relying on the contention of the AO in the assessment order regarding short fall in application of income without verifying the contention of the appellant in the written submission filed during the course of appellate proceedings inasmuch as there was no short fall in application of income as per provisions of section 11 of the income tax Act.”
I have heard the rival submissions and perused the record of the case. Ld counsel for the assessee submitted that the AO was not correct in holding that the P a g e 1 | 5 75/CTK/201 9 Assessm ent Y ear : 20 15- 201 6 assessee trust is not eligible for exemption u/s.11 of the Income tax Act, 1961 (in short ‘the Act’) in respect of shortfall in application of 85% which has been computed by the Assessing Officer at Rs.1,43,790/- and bringing the said amount within the purview of total income is grossly illegal, contrary to the provisions of Income tax Act, 1961 and the principles of natural justice for which the said assessment is liable to be quashed. Ld counsel further submitted that the appellant trust is an educational institution existing solely for educational purposes.
Ld counsel further submitted that even the AO in para 7.2 of the assessment order has also clearly recorded his findings that “on going through the return of income, audited income and expenditure account and all relevant materials produced during the assessment, it is seen that the assessee trust has been engaged in educational activities in the impugned year”. Ld counsel further pointed out that as per the audited financial statement for the previous year 2014-15 the annual receipt of the appellant is Rs.55,71,631.84 and the appellant has applied an amount of Rs.47,53,961.03 including depreciation amounting to Rs.1,61,866.03 for the sole purpose of educational activity undertaken by the assessee trust. Ld counsel submitted that when the amount of depreciation is included in the amount applied for the purpose of the trust, then the application of funds comes to 85.32% on annual receipts. But the Assessing officer while computing the application of income has excluded depreciation claimed at Rs.1,61,833.03 from application of income without bringing on record any claim of capital expenditure as application of income either during the previous year 2014-15 or any preceding previous years. Ld counsel submitted that the assessee is consistently following accounting practice that the capital expenditure has never been debited to income
P a g e 2 | 5 75/CTK/201 9 Assessm ent Y ear : 20 15- 201 6 & expenditure account for the purpose of determining the surplus/deficit i.e. excess of income over expenditure or vice versa. Therefore, the depreciation has to be allowed as application of income to the assessee in view of CBDT Circular No.1/2015 dated 21.1.2015.
Ld counsel for the assessee strenuously pointed out that as per CBDT Circular No.1 of 21.1.2015 (supra) para 7.5 and 7.5.1, it is abundantly clear that the purpose of rationalization of tax regime in the case of charitable trusts and institutions is to disallow claim of double benefit in case of acquisition of capital assets i.e. once the cost of capital asset as application of income and again as claim of notional expenditure by way of depreciation. Ld counsel submitted that the intention of said circular is that the depreciation can be disallowed only when the cost of relevant capital assets has been claimed as application of income in any previous year but not otherwise. Ld counsel submitted that in the present case, the claim of depreciation is not a double benefit as the assessee has never claim application of income while acquiring the assets on which depreciation amounting Rs.1,61,833.03 has been claimed, therefore, the assessee is entitled for depreciation as application of income and thus, total income determined by the AO is liable to be deleted.
Replying to above, ld DR strongly supported the orders of lower authorities and submitted that the assessee cannot claim twice application of income once at the time of acquiring assets and second during subsequent period in the form of depreciation. However, he could not controvert the submission made by ld counsel for the assessee that the assessee has never claimed cost of assets for P a g e 3 | 5 75/CTK/201 9 Assessm ent Y ear : 20 15- 201 6 which depreciation has been claimed as application of income. Ld D.R. also could not controvert the factual position that if the amount of depreciation of Rs.1,61,833.03 is included in the amount was applied by the assessee is out of gross receipts during the year then the total application comes to 85,.32% and thus, the assessee qualifies minimum prescribed limit of 85% for claiming exemption u/s.11 of the Act.
In view of above, we are satisfied that the assessee is entitled for claiming depreciation on the assets, which were not claimed as application of income at the time of acquisition of assets in the year of acquisition or in subsequent assessment year. Therefore, in view of CBDT Circular No.1 dated 21.1.2015, the assessee is entitled to claim depreciation as application of income and consequently the percentage of the application of income crosses the limit of 85% which entitle the assessee for claiming exemption u/s.11 of the Act. Hence, the AO is directed to allow the exemption u/s.11 of the Act to the assessee.
Accordingly, Ground Nos.1 & 2 of the assessee are allowed.
Ground Nos. 3 to 5 read as under:
“3. For that on the facts and in the circumstances of the case and in law the learned CIT(A) has erred in holding that the appellant has made capital and revenue expenses of Rs.45,92,095/- during the current year inasmuch as the said amount of Rs.45,92,095/- does not include any capital expenditure.
4. For that on the facts and in the circumstances of the case and in law the Id CIT(A) has erred in holding that the appellant has not filed Form No. 10 before the due date of filing return of income inasmuch as the filing of Form No. 10 was not applicable in the case of appellant.
P a g e 4 | 5 75/CTK/201 9 Assessm ent Y ear : 20 15- 201 6
5. For that on the facts and in the circumstances of the case and in law the Id CIT(A) has erred in holding that the appellant's claim of depreciation of Rs. 1,61,866.03 is inadmissible without appreciating the amended provision of Section 11 and Section 10(23C) brought by the Finance(No.2) Act, 2014 and the relevant CBDT Circular No.1/2015 dated 21.01.2015 on notional deduction by way of depreciation.”
In view of my decision in Ground Nos.1 & 2 above, Ground Nos.3 to 5 have become academic and hence, not adjudicated upon.
In the result, appeal of the assessee is allowed.
Order pronounced on 20/02/2020.