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Income Tax Appellate Tribunal, ‘SMC‘ BENCH
Before: SHRI M.BALAGANESH & SMT KAVITHA RAJAGOPAL
आदेश / O R D E R PER M. BALAGANESH (A.M):
This appeal in A.Y.2017-18 arises out of the order by the ld. Commissioner of Income Tax (Appeals) National Faceless Appeal Centre (NFAC) in appeal No.CIT(A)-1, Mumbai/10921/2019-20 dated 22/11/2021 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 21/12/2019 by the ld. ITO (Exem Ward)1(2), Mumbai (hereinafter referred to as ld. AO).
The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the act of not treating the claim of depreciation as application of income in terms of section 11(6) of the Act , when the cost of asset was not claimed as application of income in earlier years, in the facts and circumstances of the case.
We have heard the rival submissions and perused the materials available on record. We find that assessee is a Public Charitable Trust. The objectives of the trust includes providing medical relief and education to the poor and upliftment of female and weaker sections of the society. The assessee trust is registered u/s 12A of the Act and exemption u/s 11 of the Act is claimed by the assessee. There is no dispute that the assessee trust is eligible for exemption u/s 11 of the Act for the year under consideration. We find that the assessee had claimed depreciation on fixed assets to the extent of Rs 10,98,894/- as application of income while filing its return for the Asst Year 2017-18 on 31.10.2017. The ld. AO showcaused the assessee that in view of provisions of section 11(6) of the Act, the assessee is not entitled for claiming the depreciation as an application of income. In response thereto, the assessee submitted vide letter dated 8.7.2019 and 5.12.2019 that cost of acquisition of assets was not claimed as application of income by the assessee in the year of acquisition of assets. Accordingly, it is entitled to claim depreciation as an application of income even as per the provisions of section 11(6) of the Act. However, the ld. AO did not agree to this contention of the assessee and proceeded to treat the depreciation as not an application of income. The ld. AO also observed that source of acquisition of capital assets in earlier years could be out of – (a) corpus fund /corpus donation – in such a case, the receipt itself is not included in the income of the entity.
(b) accumulation u/s 11(2) of the Act for application in subsequent years – here also the amount has been already allowed as tax exempt, subject to being spent / applied in future. (c) 15% allowed as deemed application of income – any expenditure out of accumulated amount out of 15% deemed application in a year has to be considered as application. These amounts cannot be spent by the trustees as per their discretion.
3.1. With these observations, the ld. AO concluded that the claim of the assessee that it had not claimed the cost of asset as an application of income is not correct. Hence the depreciation cannot be allowed as application of income in terms of section 11(6) of the Act. This action of the ld. AO was upheld by the ld. CIT(A).
3.2. For the sake of convenience, the provisions of section 11(6) of the Act are reproduced below:- (6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year.
3.3. From the bare reading of the aforesaid provisions of section 11(6) of the Act, it is very clear that the depreciation cannot be claimed as an application of income only if the cost of asset was claimed as application of income in the year in which asset was acquired. The assessee had all along pleaded before the lower authorities that in the year of acquisition of asset, the cost thereon was not claimed as application of income. But we find that there is no finding given by the lower authorities on this aspect. Instead of giving a finding on this aspect, the lower authorities had gone on unwanted presumption as to how the assessee could have acquired the assets and how it could have claimed the same as application. In our considered opinion, this presumption of the revenue is without any basis and hence dismissed. The fact as to whether the assessee had claimed the cost of acquisition of asset as an application of income in the year in which asset was acquired, is to be verified from the income tax returns of earlier years. Hence for the limited purpose of verification of this fact, we restore the issue to the file of ld. AO for denovo adjudication in accordance with law with a direction that if the cost of asset was not claimed as application in earlier years, then depreciation on those assets would be available as application of income in the current year for the assessee. In our considered opinion, this alone would meet the ends of justice and would also be in due compliance to provisions of section 11(6) of the Act. Hence the grounds raised by the assessee are allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in open Court on 06/09/2022.