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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
आदेश / O R D E R PER G. MANJUNATHA, AM: These four appeals filed by the assessee are directed against separate, but identical orders of the Commissioner of Income Tax (Appeals)-17, Chennai, dated 05.02.2019, and pertains to assessment years 2010-11 to 2013-14. Since, the facts are identical and issues are common, for the sake of convenience, these appeals are being heard together and disposed off, by this consolidated order.
ITA Nos.1350-1353/Chny/2019
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The assessee has, more or less, raised common grounds of appeal for all the assessment years. Therefore, for the sake of brevity, grounds of appeal filed for the AY 2010-11, are re-produced as under:
1. The Appellant challenges the order of the Commissioner of Income Tax (Appeals) ("CIT (A)") on the following grounds amongst others each without prejudice to the other or others.
2. The order of the CIT (A) is arbitrary, and contrary to law, considering the facts and circumstances of the case. The order of the respondent is not valid and ought to be deleted.
The learned CIT (A) committed an error by disallowing depreciation claimed by the appellant by applying Section 11(6) of the Income Tax Act, 1961 which was inserted by the Finance Act, 2014 with effect from Assessment Year 2015-16. The said amendment brought in by the Finance act 2014 with effect from Assessment Year 2015-16, did not state that the section is applicable retrospectively. Therefore, the addition made by respondent which is sustained by the CIT (A) is illegal and liable to be deleted.
4. The learned CIT (A) completely ignored the proposition laid down by the Hon'ble Madras High court in the case of Seventh Day Adventists Vs DIT, Exemptions III, Chennai wherein the Hon'ble High court has categorically stated that Section 11(6) of the Income Tax Act, 1961 is applicable only prospectively. Therefore, purely on this ground the order of the CIT(A) is liable to be deleted.
5. The Appellant has complied with the provisions of the Income Tax Act, 1961 and there is no violation of Section 1 l(3)(c) of the Income Tax Act, 1961 as stated by the respondent. The appellant had in fact utilized the amount for the purpose for which it was accumulated earlier as per Section 11(2) of the Income Tax Act, 1961. Under these circumstances the order of CIT (A) is liable to be deleted.
6. There is no specific provision under the Income Tax Act, 1961 to disallow an amount applied by the trust towards the administrative cost which is relating to the promotion of education, being the main objects of the trust. Therefore, there is a fundamental error committed by the learned CIT (A) in stating that the appellant has not utilized the amount towards the objects of the trust. The appellant runs a school and without incurring administrative cost it is impossible to carry out the activities of the school. The purpose of accumulation has been set out in Form 10. When all the provisions of the Income Tax Act, 1961 have been duly complied by appellant there is no scope for any disallowance/addition and therefore the addition made by the CIT (A) is liable to be deleted.
7. The learned CIT (A) relied on the proposition laid down by the Supreme Court in the case of Goetze (India) Ltd Vs. Commissioner of Income-tax. The case pertains to the Assessment Year 1995-96. The Appellant relies on the proposition laid down by the Bombay High Court in the case of Commissioner of Income Tax Vs. Pruthvi Brokers & Shareholders Private Limited, which followed the decision of the Supreme Court judgement and various other cases. The courts to a larger extent have stated that the appellate authorities have the power to consider the claim made by the assessee otherwise than by way of filing of return of income which is permitted as per the Income Tax Act, 1961. Therefore, merely because the appellant had not claimed depreciation in the return of income, does not disentitle him from the claim which he is entitled to claim as per the law. Therefore, considering the various judicial precedents distinguishing the order of the Supreme Court relied by the respondent, the disallowance of the claim made by the respondent is liable to deleted.
The learned CIT (A) failed to consider the judgments relied by the appellant relating to the claim of depreciation.
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9. The Appellant states that the above grounds are independent and without prejudice to one another.
The Appellant craves leave to file additional grounds at the time of hearing. 3. The brief facts of the case are that the assessee is a registered Public Charitable Trust claiming exemption u/s.11 of the Act. The assessee has filed return of income for the AYs 2010-11 to 2013-14, u/s.139 of the Act, and declared ‘nil’ total income after claiming exemption u/s.11 of the Act.
The assessee has computed income derived from property held under Trust under the provisions of Secs.11 & 12 of the Act, and claimed amounts spent for charitable purpose, including acquisition of fixed assets as application of income. The assessee had not claimed depreciation on fixed assets for all these assessment years. However, during the course of assessment proceedings, the assessee has filed a revised statement of total income and claimed depreciation on fixed assets as an expenditure allowable while computing income from property held under Trust on the basis of certain judicial precedents, including the decision of the Hon’ble Karnataka High Court in the case of CIT v. Society of the Sisters Anne reported in [1984] 146 ITR 28 (Kar.). For the AY 2011-12, the assessee had also claimed depreciation on fixed assets pertains to AYs 2001-02 to 2009-10 aggregating to Rs.2,83,31,198/- by way of revised statement of total income.
The AO, however, was not convinced with the explanation of the assessee and also not satisfied with revised statement of total income filed by the assessee claiming depreciation on fixed assets. The AO has rejected -1353/Chny/2019 :: 4 ::
the claim as admissible deduction while computing income from property held under Trust on the ground that once the assessee has claimed total amount spent for capital expenditure as application of income, then claiming depreciation on very same capital asset amounts to double deduction. Therefore, rejected revised computation filed by the assessee claiming depreciation. The assessee carried the matter in appeal before the First Appellate Authority, but could not succeeded. The Ld.CIT(A) for the reasons stated in their appellate orders dated 05.02.2019, rejected the arguments of the assessee and sustained the income computed by the AO by excluding depreciation on fixed assets. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us.
The Ld.AR for the assessee submitted that the assessee has not claimed depreciation on fixed assets, because, there was an ambiguity in the law on the issue of depreciation, when the assessee has claimed total deduction for amounts spent on capital asset as application of income.
Further, from subsequent judgments of various Courts, including the decision of the Hon’ble Supreme Court, the law has been explained, as per which, even though, total amount spent for acquisition of capital asset has been claimed as application of income, but depreciation on fixed assets can be claimed as expenditure while computing income from property held under Trust. Therefore, the assessee has filed a revised statement of total income for the AYs 2010-11 to 2013-14 and claimed depreciation pertains to relevant to assessment years and also depreciation pertains to AYs 2001- -1353/Chny/2019 :: 5 ::
02 to 2009-10, because, even if the assessee does not claim depreciation on fixed assets, it is the duty of the AO to allow depreciation as per law.
Therefore, the Ld.Counsel for the assessee submitted that the issue may be set aside to the file of the AO with a direction to re-consider the issue in light of various arguments of the assessee, including the legal position of allowing depreciation on fixed assets even in absence of claim made by the assessee while filing return of income.
The Ld.DR, on the other hand, submitted that no doubt, the issue of depreciation on fixed assets is no longer a dispute now, because of the decision of the Hon’ble Supreme Court in the case of CIT v. Rajasthan & Gujarati Charitable Foundation Poona reported in [2018] 402 ITR 441 (SC).
Therefore, the claim made by the assessee towards current year depreciation for the AY 2010-11 may be decided in accordance with said judgment. However, in so far as the claim of the assessee towards depreciation pertains to earlier AYs 2001-02 to 2009-10, when the assessee has consciously not claimed depreciation in the return of income filed for all those assessment years, now it cannot be claimed depreciation of earlier years in one year, because said claim of the assessee may give distorted financial position of any assessee, including the assessee. Further, assuming for a moment, the assessee is entitled to claim depreciation and the AO is bound to allow said depreciation, but even if you go by the law, the assessee can at best claim depreciation of six years, but not beyond that period, because, when there is no provision under the law to assess -1353/Chny/2019 :: 6 :: income of any assessee beyond six years, the question of modifying income of earlier period does not arise. Therefore, there is no reason to give benefit to the assessee.
We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts borne out from the records clearly indicate that the assessee has not claimed depreciation on fixed assets while computing income from property held under Trust right from AYs 2010-11 to 2013-14. For the first time, the assessee has made a claim for depreciation on fixed assets from the AY 2010-11 before the AO by filing a revised statement of total income and claimed that said claim is in accordance with law laid down by the Hon’ble Supreme Court in the case of Rajasthan & Gujarati Charitable Foundation Poona (supra). We find that the Hon’ble Supreme Court has considered the issue of depreciation on fixed assets, when the assessee has claimed expenditure incurred for acquisition of capital asset as application of income for charitable purpose u/s.11(1)(a) of the Act, and held that even though, expenditure incurred for acquisition of capital asset, has been claimed as application of income, yet depreciation, would be allowed on assets so purchased while computing income from property held under Trust. To this extent, there is no dispute, even though, the assessee has not claimed depreciation on fixed assets while filing return of income, but when the assessee has made a claim by filing a revised statement of total income before completion of assessment, the AO is bound to accept the claim of -1353/Chny/2019 :: 7 ::
the assessee and allow necessary depreciation as per law. Therefore, in our considered view, the AO is erred in not allowing depreciation claimed by the assessee for the AY 2010-11 and thus, we direct the AO to allow depreciation on fixed assets as claimed by the assessee for the AY 2010- 11.
8. As regards AYs 2011-12 to 2013-14, there is no dispute with regard to the fact that the assessee had not claimed depreciation on fixed assets while filing return of income for those assessment years, But, the assessee has made a claim for current year depreciation before the AO by way of revised statement of total income. Although, the AO has rejected the claim made by the assessee for claiming depreciation for the AYs 2011-12 to 2013-14, but the Ld.CIT(A) has allowed the claim of current year depreciation by following certain judicial precedents, and said findings of the Ld.CIT(A) is in accordance with law laid down by the Hon’ble Supreme Court in the case of Rajasthan & Gujarati Charitable Foundation Poona (supra). Therefore, we direct the AO to allow depreciation pertains to AYs 2011-12 to 2013-14 while computing income from property held under Trust as claimed by the assessee.
Now, coming back to dispute with regard to depreciation pertains to earlier AYs 2001-02 to 2009-10. Admittedly, the assessee never claimed depreciation as a Revenue expenditure while filing return of income from AYs 2001-02 to 2009-10. For the first time, the assessee has made a claim by filing revised statement of total income and claimed depreciation -1353/Chny/2019 :: 8 ::
pertains to AYs 2001-02 to 2009-10 amounting to Rs.2,83,31,198/- before the AO. The AO rejected the claim made by the assessee for earlier assessment years on the ground that there is no provision in this Act to re- open the assessment beyond six years and further, any fresh claim towards expenditure or allowance, can be made only by filing a revised return.
Since, the assessee has made a claim without any revised return, the AO has rejected the claim of the assessee. We have gone through the reasons given by the AO to deny depreciation claimed towards earlier assessment years in light of various arguments advanced by the Ld.Counsel for the assessee and we find that as per Sec.32(1) of the Act, the AO is bound to allow depreciation allowance as per law, even though, the assessee has not made a claim towards depreciation on fixed assets in the return of income filed for relevant assessment year. Therefore, in a situation where the assessee is not claimed depreciation on fixed assets for any reason, but the AO while computing income of an assessee, should allow depreciation allowable as per law. Further, arguments of the AO that any fresh claim can be made only by filing a revised return, we find that although, the law restricts the AO to admit any fresh claim without any revised return, but there is no prohibition for the appellate authorities to admit fresh claim made by assessee to decide the issue and this principle is supported by the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. v.
CIT reported in [2006] 284 ITR 323 (SC). Therefore, to this extent, we are -1353/Chny/2019 :: 9 :: not in agreement with the reasoning given by the AO to deny depreciation claimed for earlier assessment years.
10. Be that as it may, but facts remain that the assessee has claimed depreciation pertains to AYs 2001-02 to 2009-10 in one go for the AY 2011-
Assuming for a moment, the assessee can claim depreciation on fixed assets even before appellate authority and also the AO is bound to allow depreciation as per law, even though, the assessee has not made a claim, but such claim cannot go beyond six years from the end of relevant to assessment years, where the assessee has made a claim. Because, there is no provision under law to make assessment of an assessee beyond six years. Therefore, claim made by the assessee beyond six years cannot be admitted, because, there is no provision under the law to modify the income of the assessee by the AO. Therefore, we are in agreement with the reasons given by the AO that the assessee cannot make a claim beyond six years. However, the claim made by the assessee with regard to assessment years which are come within the period of six assessment years, then, the AO can verify the claim of the assessee in light of provisions of Sec.32(1) of the Act, and allow depreciation on fixed assets as per law.
Therefore, we are of the considered view that the issue needs to go back to the file of the AO for further examination of facts with regard to depreciation on fixed assets. Hence, we set aside the issue to the file of the AO for all assessment years and direct the AO to re-examine the claim of the assessee in light of various averments made by the Ld.Counsel for -1353/Chny/2019 :: 10 :: the assessee, including provisions of Sec.32(1) of the Act, and relevant explanation on the issue of allowance of depreciation and also in light of decision of the Hon’ble Supreme Court in the case of Rajasthan & Gujarati Charitable Foundation Poona (supra).
In the result, appeals filed by the assessee for the AYs 2010-11 to 2013-14 are allowed for statistical purposes.
Order pronounced on the 02nd day of December, 2022, in Chennai.