M/S DR. CHANDRASHEKAR FOUNDATION,MYSORE vs. CIT, BANGALORE

The appeal is barred by limitation by 396 days. The assessee has filed an affidavit requesting the bench to condone the delay. In the affidavit, it is stated that the assessee’s income tax matters were handled by a Chartered Accountant named Shri B.S. Ravi Kumar.

The facts relating to the case are stated in brief. The assessee is a trust and it filed return of income for the year under consideration on 27.9.2010 declaring Nil income after claiming exemption u/s 11 of the Act. The assessment was completed by the A.O. u/s 143(3) of the Act on 24.1.2013. Subsequently, the Ld. CIT (Exemptions) examined the assessment record and took the view that the assessment order passed by the A.O. is erroneous and prejudicial to the interest of the revenue. The issues considered by Ld CIT(E) and his reasoning are narrated below:- a) The assessee has claimed depreciation amount of Rs.1,36,89,422/- in its income and expenditure account. The Ld CIT(A) took the view that the same is not allowable as deduction, since the entire cost of fixed assets has been allowed as “application of income”. b) The assessee has claimed repayment of loan of Rs.55,71,420/- as application of income. The Ld CIT(A) took the view that, since the fixed assets which were purchased out of the loan had already been allowed as deduction, repayment of loan cannot be allowed as deduction.

We heard the parties and perused the record. The issue relating to depreciation i.e. whether depreciation is allowable on fixed assets, whose cost have been allowed as application of income has since been settled by Hon’ble Supreme Court in the case of CIT Vs. Rajasthan & Gujarat Charitable Foundation, Pune (2018) 402 ITR 441, wherein the Hon’ble Supreme Court has held that the depreciation can be treated as application of income even if the expenditure on acquisition of capital asset was treated as application of income. We notice that the Income tax Act has been amended from AY 2015-16 disentitling the assessee to claim depreciation on assets, whose cost has been allowed as application of income. Since the year under consideration is AY 2010-11, the decision rendered by Hon’ble Supreme Court is applicable to the facts of the present case. Since the view taken by Ld. CIT(A) is contrary to the binding decision rendered by Hon’ble Supreme Court, his view on this issue cannot be sustained. Accordingly, we set aside his order on this issue.

The next issue relates to the question whether “repayment of loan” is application of income or not. We noticed that the Ld. CIT (Exemptions) has taken the view that if the asset acquired out of loan proceeds had been allowed as application of income, then the repayment of loan cannot be considered as application of income again, as the same will result in double deduction. We notice that the A.O. has not examined this issue during the course of

In view of the foregoing discussion, we quash the order of Ld. CIT(Exemptions) with regard to issue relating to depreciation. With regard to issue relating to repayment of loan, we modify the direction of the CIT (Exemptions) and direct the A.O. to examine this claim afresh i.e. if the cost of assets acquired out of loan funds have already been allowed as application of income, then the repayment of loan should not be allowed as application. On the contrary, if the cost of assets purchased out of loan was not allowed as application of income, then the repayment of loan should be allowed as application of income. We modify the directions given by Ld. CIT(Exemptions) accordingly.

In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 1st Nov, 2021.

The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order