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Facts
The assessee, M/s. MITHRA, a trust registered u/s 12A, filed a 'Nil' income return for AY 2016-17. The AO disallowed depreciation of Rs. 20,94,730/- and rejected the claim for application of capital expenditure of Rs. 40,08,670/-, a decision upheld by the FAA. The assessee appealed to the Tribunal arguing that the cost of assets was not claimed as application of income in previous years or the current year.
Held
The Tribunal restored the issue of depreciation to the AO to verify if the cost of assets, for which depreciation was claimed, had already been allowed as application of income as per Section 11(6). The Tribunal noted that the claim for application of capital expenditure, not made in the original return, could not be entertained at the current stage.
Key Issues
Whether depreciation can be disallowed under Section 11(6) when the cost of assets has not been claimed as application of income; and whether capital expenditure not claimed in the original return can be allowed as application of income at a later stage.
Sections Cited
11, 11(6), 12A, 139(4A), 143(2), 143(3), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE KAND SHRI S.R. RAGHUNATHA
आदेश/ O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal filed by the assessee is directed against the order of the Addl/JCIT(A)-1, Nashik dated 11.06.2025, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2016-17.
2 -: 2. The solitary issue raised is whether the First Appellate Authority (FAA) is justified in confirming AO’s order wherein he had disallowed depreciation of Rs.20,94,730/- and thereby raising a demand of Rs.81,797/-.
Brief facts of the case are as follows: The assessee is a trust registered u/s.12A of the Act. For the assessment year 2016-17, the return of income was filed u/s.139(4A) of the Act on 30.07.2016 declaring total income at ‘Nil’. The gross receipt as per the return of income filed was Rs.98,76,907/- and assessee had claimed expenditure of Rs.93,52,302/- towards revenue expenditure. The assessment was selected for scrutiny and notice u/s.143(2) of the Act was issued on 19.07.2017. During the course of assessment proceedings, the AO noticed that assessee had claimed depreciation of Rs.20,94,730/- as deduction from the gross income received. Further, the AO noted that the gross income of the assessee was Rs.1,19,71,637/-, however, the assessee admitted only an income of Rs.98,76,907/-. The AO found that remaining amount of Rs.20,94,730/- was claimed as deduction towards depreciation. The AO by referring to section 11, sub-section (6) of the Act held that assessee is not eligible to claim depreciation.
Aggrieved by the assessment completed, assessee filed appeal before the FAA. Before the FAA, assessee submitted that AO has erred in disallowing depreciation of Rs.20,94,730/- us/.11(6) of the Act. Further, it was submitted by the assessee that the capital expenditure incurred in the current year amounting to Rs.40,08,670/- ought to be allowed as application of income. The FAA however rejected the contentions of the assessee. The FAA held that as per Section 11(6) of the Act, assessee is not entitled to depreciation on assets for which cost has been allowed as application of income in the previous years or in the current year. Further, FAA held as regards application of capital expenditure of Rs.40,08,670/-, assessee has not claimed the same in the return of income i.e, ITR 7 filed by the assessee. Hence, the FAA concluded the assessment order passed u/s.143(3) of the Act is correct and confirmed the same.
Aggrieved by the order of the FAA, the assessee has filed the present appeal before the Tribunal. The Ld.AR submitted that the cost of assets were never claimed as application of income u/s.11 of the Act in the relevant assessment year or in the earlier 4 -: assessment years. It was submitted that the assessee trust had purchased assets out of capital funds. Therefore, depreciation claimed cannot be disallowed u/s.11(6) of the Act. Further, the Ld.AR submitted that in the current assessment year, assessee had incurred capital expenditure of Rs.40,08,670/- for acquisition of fixed assets purchased entirely from capital account. Hence, the same ought to be allowed as application of income.
The Ld.DR strongly supported the orders of the AO and the FAA.
We have heard rival submissions and perused the material on record. The assessee had not separately claimed depreciation of Rs.20,94,730/- but had reduced the same from the gross receipts. It is the claim of the assessee that depreciation has been claimed on assets, the cost of which has not been allowed as application of income in the relevant assessment year or in the earlier assessment years. Section 11(6) of the Act inserted w.e.f. 01.04.2015 by Finance (No.2) Act, 2014 clearly stipulates depreciation shall not be allowed if the cost of acquisition of asset on which depreciation has been claimed has been allowed as application of income. Since assessee submits that the cost of asset has not been claimed as application of income, this fact 5 -: needs to be verified by the AO. For the aforesaid purpose, we restore the matter to the files of the AO. The AO is directed to examine whether depreciation has been claimed on assets for which the cost has been allowed as application of income in the past years or in the relevant assessment year. If it has been allowed as application of income in the past years or in the relevant year, depreciation shall not be allowed as per section 11(6) of the Act. The assessee also claims that it had incurred capital expenditure amounting to Rs.40,08,670/- during the assessment year 2016-17, which was omitted to be claimed in the return of income filed as application of income. Since the assessee failed to make the claim of application of income on the capital expenditure incurred in the return of income filed, the said claim cannot be entertained at this stage. With the above said observation, the matter is restored to the files of the AO. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.