THE DEPUTY COMMISSIONER OF INCOME TAX(EXEMPTIONS), EXEMPTIONS CIRCLE,, VIJAYAWADA vs. ANDHRA CRICKET ASSOCIATION, VIJAYAWADA

377/Viz/2019 and 403/Viz/2019 Cross Objection No.122/Viz/2019, A.Y.2013-14 & 2014-15 M/s Andhra Cricket Association, Vijayawada admitting Nil income claiming deduction u/s 10(23C) of the Act. The Assessing Officer (AO) has taken up the case for scrutiny u/s 143(3) and rejected the assessee’s claim of exemption u/s 10(23C), 11,12&13 and made the following additions to the returned income : (a) Excess income over expenditure - Rs.5,96,56,184 (b) Disallowance of depreciation - Rs.6,99,55,960

Against which the assessee went on appeal before the CIT(A) and the Ld.CIT(A), in appeal No.10290/CIT(A)/VJA/2016-17 dated 01.03.2018 held that the assessee is entitled for exemption and the AO was directed to allow the exemption u/s 11,12,&13 and 10(23C)(iv) of the Act. However, in respect of assessee’s claim for depreciation u/s 32, the Ld.CIT(A) directed the AO to allow the claim of the assessee on whose value of assets the assessee did not claim as application of income and recompute the income after allowing exemption and to allow the claim of depreciation in respect of assets which were not claimed as application of income. The AO passed order giving effect to the order of the Ld.CIT(A) vide order dated 02.05.2018 and allowed relief of Rs.5,96,56,184/- and assessed the taxable income of Rs.6,99,55,960/- without making any discussion with regard to the assessee’s claim of exemption u/s 10(23C), 11, 12, 13 and the 377/Viz/2019 and 403/Viz/2019 Cross Objection No.122/Viz/2019, A.Y.2013-14 & 2014-15 M/s Andhra Cricket Association, Vijayawada allowability of depreciation. Hence, the assessee filed appeal before the CIT(A) against the consequential order passed by the AO.

Before the Ld.CIT(A), the assessee raised a ground that the assessee is entitled for exemption u/s 10(23C)(iv) and section 11,12&13 and, argued that the assessee’s income is exempt u/s 11 and 10(23C). The assessee also brought to the notice of the Ld.CIT(A) the decision of Hon’ble Supreme Court in the case of CIT Vs. Rajasthan and Gujarathi Charitable Foundation Poona (2018) 402 ITR 441, wherein, Hon’ble Apex Court held that the depreciation is allowable on the value of capital assets that was treated as application of income in the years in which the assets were acquired. Thus, the Ld.AR contended before the Ld.CIT(A) that the AO has wrongly assessed the income at Rs.6,99,55,960/-. The Ld.AR further stated that in the consequential order though the AO has allowed the exemption of income but disallowed the entire depreciation without verifying the details disregarding the direction of the Ld.CIT(A), therefore, argued that the consequential order passed by the Ld.AO was incorrect and bad in law, hence, requested to set aside the order of the AO and allow the appeal of the assessee. The Ld.CIT(A) considered the submissions of the assessee and found that AO has not examined the issues of exemption u/s 11,12 & 13

Against which the revenue has filed appeal before the Tribunal. During the appeal hearing, the Ld.DR argued that the Ld.CIT(A) has 377/Viz/2019 and 403/Viz/2019 Cross Objection No.122/Viz/2019, A.Y.2013-14 & 2014-15 M/s Andhra Cricket Association, Vijayawada travelled beyond his jurisdiction while deciding the appeal. In the original appeal order dated 01.03.2018, the Ld.CIT(A) allowed the exemption u/s 10(23C), 11 and 12 of the Act, however, with regard to the depreciation, the Ld.CIT(A) directed the AO to allow the depreciation only on the assets which were not claimed as application of income in the years in which the assets were acquired. The consequential order required to be restricted to the directions of the CIT(A), according to which the AO is required to allow exemption u/s 10(23C,) 11 and 12 and the depreciation on the assets which were not claimed as application of income. The AO given effect to the order of the Ld.CIT(A) accordingly, hence argued that the Ld.CIT(A) travelled beyond his jurisdiction and allowed exemption u/s 10(23C) and 11 and 12 recasting the entire receipts and payments and expenses without verification which is not permissible as per law. Therefore, argued that the Ld.CIT(A) erred in allowing the benefit of accumulation u/s 11(5) of the Act with regard to shortfall. The Ld.DR further argued that the observation of the Ld.CIT(A) that the fixed deposits made during the year were in specified modes in section 11(5) without verifying the facts. Hence requested to set aside the order of the Ld.CIT(A) and allow the appeal of the revenue.

On the other hand, the Ld.AR argued that in the original assessment, the AO has not examined the assessee’s eligibility regarding deduction u/s 10(23C), section 11 and 12 &13. The assessee has produced the books of accounts and furnished the entire information required before the AO. The assessee also claimed exemption u/s 10(23C) which was granted by the CCIT, Hyderabad III vide letter dated 27/02/2009 with effect from 2008-09 and subsequently no order was passed by the Ld.CIT withdrawing the benefit allowed u/s 10(23C), therefore argued that the assessee continued to enjoy the exemption u/s 10(23C). Even though, there was no cancellation order withdrawing the benefit u/s 10(23C),11 and 12, the AO held that the assessee is not entitled for exemption u/s 11, 12 and 10(23C) and passed the order rejecting the assessee’s claim. On appeal before the CIT(A), the Ld.CIT(A) partly allowed the appeal and directed the AO to allow exemption u/s 11, 12 and 10(23C) and directed the AO to restrict the depreciation on assets which were not claimed as application of income. The Ld.AR argued that even if the depreciation is not allowed on assets which were claimed as application of income, the assessee is entitled for exemption u/s 10(23C), 11 and 12, since, the assessee had applied the income to the extent of 85% of the income and taxable income works out to 377/Viz/2019 and 403/Viz/2019 Cross Objection No.122/Viz/2019, A.Y.2013-14 & 2014-15 M/s Andhra Cricket Association, Vijayawada Nil. Therefore, without verifying the fact that the assessee is entitled for exemption u/s 10(23C),11 &12 and taxable income works out to Nil, the AO passed the consequential order taxing the income of Rs.6,99,55,960/- without application of mind. On appeal, the Ld.CIT(A) considered the issue and given a finding that the assessee is entitled for exemption u/s 10(23C) and 11 and observed that the assessee had applied the income to the extent of 85% of the income during the year, therefore, argued that the Ld.CIT(A) has applied the provisions u/s 10(23C)(iv), 10 and 11 correctly and given a correct finding. Hence submitted that there is no error in the order of the Ld.CIT(A) and requested to uphold the order of the Ld.CIT(A) and allow the appeal of the assessee.

We have heard both the parties and perused the material placed on record. As observed from para No.7.4 of the order of the Ld.CIT(A) in assessee’s case, the ITAT, Visakhapatnam vide I.T.A. 93 & 241/Viz/2015 and dt.10.11.2017 held that the assessee is eligible for exemption under the provisions of section 11, 12 and 13 of the Act and also section 10(23C)(iv) which was already granted to the assessee from the A.Y.2008-09 onwards by CCIT, Hyderabad-III vide letter dated 27.02.2009. Hence, the Ld.CIT(A) directed the AO to allow the exemption

In view of the discussion above, it is held that the extent of depreciation to be treated as application of income for the year, while working out the exemption to be allowed to the assessee u/s. 11 and sec. 10(23C)(iv), is required to be adopted at Rs.Nil only.

The next issue for examination is the extent of eligible exemption u/s. 11 of the Act, when the depreciation of Rs6,99,55,950/- is not considered as application of income. As per the provisions of sec. 11(1)(a) of the Act, the entire income is exempt if there is application of income to the extent of 85% of the income during the year. In the assessee's case, the aggregate receipts during the year as per the Income & Expenditure account amounted to Rs.29,43,29,724/-. Hence, the application of income required to be made being 85% of the same works out to Rs.25,01,80,255/-. The application of income made by the assessee during the year is found to be as under: 31. As can be seen from the above, the application of income made by the assessee during the year amounted to Rs.23,25,18,355/- as against the required amount of application of income of Rs.25,01,80,265/-. Thus, it is seen that there is a shortfall

Cross objections filed by the assessee are in support of the order of the Ld.CIT(A). Since the appeal of the revenue is dismissed, the cross objections becomes infructuous and hence, dismissed. , A.Y.2014-15 10. The issue is on identical facts of the A.Y.2013-14. The Ld.CIT(A) in his order dated 15.03.2019, against the consequential order of the AO dated 02.05.2018 held that there was a shortfall of Rs.61,21,693/- in application of income during the year. The Ld.CIT(A) viewed that on invoking the section 10(23C), there was shortfall to the extent of Rs.61,21,693/- in application of income , hence, confirmed the addition. For the sake of clarity and convenience, we extract relevant part of the order of the Ld.CIT(A) which reads as under : “39. In the present case, there is a shortfall of Rs. 61,21,693/- in the application of income by the assessee in relation to the requirement of application of 85% of the income, as already discussed earlier. The said amount of shortfall can be considered to have been accumulated by the assessee for application in the subsequent five years, provided the assessee has invested the said funds in the specified modes. One of the modes specified in sec. 11(5) is 377/Viz/2019 and 403/Viz/2019 Cross Objection No.122/Viz/2019, A.Y.2013-14 & 2014-15 M/s Andhra Cricket Association, Vijayawada

We have heard rival contentions and perused the material placed on record. The facts are identical to the issues raised in A.Y.2013-14 except the difference in amounts. We have already decided the appeal in the earlier appeal that the AO is bound to allow the exemption u/s 10(23C), 11, 12 and 13. In the consequential order, the AO did not examine the issues, therefore, the Ld.CIT(A) has rightly examined the issue and allowed the appeal of the assessee partly. However, the Ld.CIT(A) did not consider the decision of Hon’ble Supreme Court in the case of CIT Vs. Rajasthan and Gujarathi Charitable Foundation Poona (supra) and wherein, the Hon’ble Apex Court held that the depreciation is allowable on assets treated as application of income also. Since the decision of Hon’ble apex court is available at the time of deciding the appeal, the appellate authorities are 377/Viz/2019 and 403/Viz/2019 Cross Objection No.122/Viz/2019, A.Y.2013-14 & 2014-15 M/s Andhra Cricket Association, Vijayawada bound to follow the decision of Hon’ble Apex Court while deciding the appeals on identical issues. Therefore, we direct the AO to consider the decision of Hon’ble Supreme Court in the case of CIT Vs. Rajasthan and Gujarathi Charitable Foundation Poona (supra) and allow the depreciation on the assets treated as application of income also and recompute the income accordingly. Hence we remit the matter back to the file of the AO to limited extent to verify the issue with regard to depreciation on those assets which were treated as application of income in the years in which it was acquired and treat the same as application of income for the purpose of exemption u/s 10(23C),11 &12 as decided by the Hon’ble Apex Court. Thus, the appeal of the revenue is dismissed and the appeal of the assessee is allowed for statistical purpose.

In the result, appeals of the revenue and cross objections of the assessee are dismissed and the appeal of the assessee for the A.Y.2014-15 is allowed for statistical purposes.