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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, A.M.
The aforesaid appeals have been filed by the assessee challenging the impugned orders of even date 22nd December 2020,
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passed by the learned Commissioner (Appeals)–49, Mumbai, pertaining to the assessment year 2011–12, 2012–13, 2013–14, 2014–15, 2015–16, 2016–17 and 2017–18 respectively.
Since the captioned appeals pertain to the same assessee involving common issues, except variation in figures, which arose out of identical set of facts and circumstances, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. However, in order to understand the implication, it would be necessary to take note of the facts of one appeal. We are, accordingly, narrating the facts, as they appear in the appeal being ITA no.47/Mum./2021, for assessment year 2011–12, the conclusive result of would be applicable equally to all the other appeal for the respective assessment years.
ITA no.47/Mum./2019 Assessment Year – 2013–14
The assessee has filed the present appeal on the following grounds of appeal:–
“1. The CIT(A) has failed to appreciate that the application u/s. 154 of the Act was filed against the original order u/s. 143(3) r. w. sec. 153C of the Act wherein there was a mistake apparent from the record inasmuch as the AO erred in not following the decision of the jurisdictional High Court which is binding on him sitting in Mumbai which is rendered even before the date of the assessment order and which is not stayed by the Supreme Court and therefore, there is an error apparent from record in the order
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u/s. 143(3) r.w. sec. 153C of the Act which is rectifiable u/s 154 of the Act.
The CIT(A) has failed to appreciate that in the order u/s. 143(3) r. w. sec. 153C of the Act the AO held that the deficit cannot be allowed to be carried forward as the SLP against the judgment of the Bombay High Court in the case of MIDC is pending before the SC, which was a mistake apparent from record as the SLP in the case of MIDC was already dismissed by the SC before the order was passed by the AO u/s. 143(3) r. w. sec. 153C of the Act. 3. The CIT(A) failed to appreciate that the reasons given by the AO in his order u/s.154 of the Act were not relevant for deciding whether there was a mistake apparent from the record in his order u/s.143(3) r. w.s.153C of the Act or not. 4. The CIT(A) has failed to appreciate that the appellant dealt with the reasons given by the AO in his order u/s. 154 of the Act to demonstrate that those reasons are also incorrect to disallow carry forward and set off of the deficit but the said submissions of the appellant are not without prejudice to its submissions that there was a mistake apparent from the record inasmuch as the reason of the AO in disallowing carry forward and set off of the deficit in his order u/s. 143(3) r.w. sec. 153C of the Act is incorrect because the SLP of the Department in case of MIDC was already dismissed by the SC and thus the judgment of the Bombay High Court in case of MIDC had become the law of the land and binding on the AO sitting in the city of Mumbai. 5. The order of the CIT (A) is perverse in ignoring the application of the assessee before the AO u/s 154 of the Act, bringing to his attention the short issue of dismissal of the SLP relied upon by the AO, to deny carry forward of deficit in the assessment order in the case of Rajasthan & Gujarati Charitable Foundation, Poona (402 ITR 441) and relying upon the irrelevant and extraneous reasons given by the AO, to dismiss the appeal.”
Following issues arose out of the aforesaid grounds of appeal for our adjudication:–
(a) Whether the claim of depreciation is allowable on fixed assets which have been considered as „application‟ by the assessee–trust?
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(b) Whether the assessee–trust can set-off deficit (excess of application over income) against surplus/income in subsequent years? 1.1. Facts in brief are, the assessee is a charitable trust engaged in charitable activities of providing and promoting education and related activities. The assessee filed returns of income for the year under consideration and on the basis of which the Assessing Officer concluded assessment under section 154C r/w section 143(3) of the Income Tax Act, 1961 (for short "the Act"), and had disallowed the claim of the assessee trust in respect of carry forward of the deficit and unabsorbed depreciation for the relevant assessment years after discussing the reasons for such disallowance in the respective assessment order. Before the Assessing Officer, the assessee filed application under section 154 of the Act claiming that such excess expenditure for the year was to be allowed to be carried forward and set–off against the income of the subsequent assessment year while computing the income under section 11 of the Act as held by the Hon'ble Jurisdictional High Court in CIT v/s Institute of Banking Personnel Selection (IBPS), [2003] 264 ITR 110 (Bom.) which was approved by the Hon'ble Supreme Court by dismissing the SLP filed by the Department in DIT (Exemp.) v/s Maharashtra Industrial Development Corporation (MIDC), ITA no.2652 o 2011. The Assessing Officer by way of assessment order dated 28th December 2018 framed
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under section 153C r/w section 143(3) of the Act, by denying the assessee trust to carry forward the deficit which includes depreciation on the ground that the Department has filed SLP before the Hon'ble Supreme Court bearing SLP (Civil) no.9891 of 2014, which is pending. The Assessing Officer has given various other reasons as to why the assessee–trust should not be allowed to carry forward its deficit. Thereafter, the assessee filed a rectification application under section 154 dated 29th January 2019, stating that the reasoning given by the Assessing Officer that the SLP is pending before the Supreme Court is factually erroneous inasmuch as the Supreme Court had already disposed off the SLP (along with other cases) by order dated 13th December, 2017 where the Supreme Court held that such depreciation is allowable and deficit can be carried forward to be set-off in subsequent years. It is pertinent to note here that the order of Supreme Court is passed on 13th December 2017 before the date of passing the assessment order dated 28th December 2018. The Assessing Officer, however, rejected the assessee’s application filed under section 154 of the Act vide order dated 8th April 2019. The assessee being aggrieved by the order so passed by the Assessing Officer under section 154 of the Act, carried the matter before the first appellate authority.
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The learned CIT(A) dismissed the appeal filed by the assessee stating that the issue is debatable and cannot be rectified under section 154 of the Act. The relevant observations of the learned CIT(A) is extracted below:–
“7.5.9 Hence, it is evident that no error can be said to be apparent on the face of the record, if it is not manifest or self- evident and requires an examination or argument to establish it. In this case, from the perusal of the facts and pleadings, there isn't an iota of doubt that the matters in hand, in the unique facts of the case, are debatable where more than one opinion is conceivable. A number of points raised by the appellant are, ab initio, not capable to be considered in a rectification petition under section 154 of the Act, being characterized by a clement of debate. It is a settled law that powers of the Assessing Officer to rectify an order u/s 154 are very limited and can be exercised only in a case where the Assessing Officer finds that a mistake apparent on record had occurred, However, in the case of a debatable issue or where the lengthy arguments are needed to decide the issue, powers u/s 154 of the Act cannot be exercised to amend an already passed order. It has also been held time and again that powers u/s 154 of the Act cannot be exercised on change of opinion by the Assessing Officer on an issue relating to any admissibility of a claim. 7.5.10. The Assessing Officer, thus, in my considered view could not have considered the claim of the assessee by way of an order u/s 154 of the Act with limited jurisdiction of rectification of order in the case of a 'mistake apparent on record'. The Hon'ble Bombay High Court in the case of CIT v. Ramesh Electric & Trading Co. [1994] 77 Taxman 43/119931 203 ITR 497, while relying upon the decision of the Hon'ble Supreme Court in the case of T. S. Balaram, ITO v. Volkart Brothers 119711 82 ITR 50 has categorically held that the power of rectification under section 254(2) of the Income-tax Act can be exercised only when the mistake which is sought to be rectified is an obvious and patent; mistake which is apparent from the record, and not a mistake which requires to be established by arguments and a long drawn process of reasoning on points on which there may conceivably be two opinions. The said proposition can be rightly applied to identical provisions of section 154 of the Act dealing with the rectification powers of the Income-tax Authorities.
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7.5.11. I am, therefore, of the considered view that the ground does not deserve to succeed. This is because the jurisdictional requirement of section 154 of the Act is not met through the arguments on merits raised by the appellant, as delineated above. The ground is accordingly Dismissed.” 2. The assessee being unsuccessful before the first appellate authority, is in further appeal before the Tribunal.
During the course of hearing, the learned Counsel for the assessee submitted that the assessee–trust should be allowed to claim depreciation on fixed assets which was considered as “application of income” and further should be allowed to carry forward the deficit to be set-off against income of subsequent year in view of the following decisions of Supreme Court and various High Courts including Jurisdictional High Court:–
i) CIT v/s Institute of Banking Personnel Selection (IBPS) – [2004] 264 ITR 110 (Bom.); ii) DIT (Exemp.) v/s Mumbai Education Trust, [2016] taxmann.com 331 (Bom.); iii) CIT v/s Shri Plot Swetamber Murti Pujak Jian Mandal, [1995] 211 ITR 293 (Guj.); iv) CIT v/s Maharana of Mewar Charitable Foundation, [1987] 164ITR 439 (Raj.); v) DIT v/s Society for Applied Microwave Electronic Engineering & Research, ]2019] 106 taxmann.com 204 (SC); vi) CIT v/s Subros Educational Society, [2018] 303 CTR 001 (SC); vii) CIT v/s Rajasthan and Gujarat Charitable Foundation, [2018] 402 ITR 441 (SC).
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The learned Counsel for the assessee further submitted that the non-consideration of decision of a Jurisdictional High Court or a Supreme Court is a mistake apparent from record and hence, the learned Counsel contended that the same is rectifiable under section 154 of the Act. In support of these contentions, the learned Counsel placed Reliance on the following case law:–
i) ACIT v/s Saurashtra Kutch Stock Exchange Ltd., [2008] 173 Taxmann 322 (SC); and ii) ITO v/s Volkart Brothers, [1971] 82 ITR 50 (SC).
The learned Counsel for the assessee further submitted that the Assessing Officer rejected the rectification application by order dated 8th April 2019. The Assessing Officer, though given various reasons for dismissing the rectification application, however, there is no whisper on the crux of the application made by the assessee trust i.e., the issue is already settled by the Hon'ble Supreme Court and that the Assessing Officer in error to state that the issue is pending before the Hon'ble Supreme Court.
The learned Departmental Representative on the other hand relied upon the observations of the authorities below and fairly conceded that the issue is covered by the decision of the Hon'ble Supreme Court.
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Considered the rival submissions and perused the material on record. We notice that the Assessing Officer rejected the claim of the assessee with respect to depreciation on fixed assets which was considered as application by the assessee and disallowed set–off of deficit against the surplus / income in subsequent assessment years. Subsequently, the assessee filed a rectification application under section 154 bringing to the notice of the Assessing Officer the decision of the Hon'ble Jurisdictional High Court in Institution of Banking and Personnel Selection (supra) which was also approved by the Hon'ble Supreme Court by dismissing the SLP filed by the Revenue in Maharashtra Industrial Development Corporation (supra). We also notice that the Assessing Officer dismissed the rectification application under section 154 of the Act on 8th April 2019, with the observations that the SLP is pending before the Hon'ble Supreme Court and the issue under consideration is debatable as well no apparent mistake on record. However, we notice that the decision was already rendered by the Hon'ble Supreme Court dated 13th December 2017. Further we notice that the learned CIT(A) also dismissed the appeal of the assessee with the observations that there is no mistake apparent on the face of assessment order and not a mistake which requires to be established by argument and long drawn process of reasoning on point of which there may be conceivably two opinions. After going through
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the decision of the Hon'ble Supreme Court (supra), it is found that the Hon'ble Supreme Court dismissed the SLP filed by the Revenue in MIDC (supra) which was heard along with C.A. no.7186 of 2014, which is also SLP filed by the Revenue in the case of Rajasthan & Gujarat Charitable Foundation Pune Hospital and Research Centre, in which the Hon'ble Supreme Court accepted the findings of the Hon'ble Jurisdictional High Court which is reproduced below for the sake of clarity:–
“These are the petitions and appeals filed by the Income Tax Department against the orders passed by various High Courts granting benefit of depreciation on the assets acquired by the respondents-assessees. It is a matter of record that all the assessees are charitable institutions registered under Section 12A of the Income Tax Act (hereinafter referred to as 'Act'). For this reason, in the previous year to the year with which we are concerned and in which year the depreciation was claimed, the entire expenditure incurred for acquisition of capital assets was treated as application of income for charitable purposes under Section 11(1) (a) of the Act. The view taken by the Assessing Officer in disallowing the depreciation which was claimed under Section 32 of the Act was that once the capital expenditure is treated as application of income for charitable purposes, the assessees had virtually enjoyed a 100 per cent write off of the cost of assets and, therefore, the grant of depreciation would amount to giving double benefit to the assessee. Though it appears that in most of these cases, the CIT (Appeals) had affirmed the view, but the ITAT reversed the same and the High Courts have accepted the decision of the ITAT thereby dismissing the appeals of the Income Tax Department. From the judgments of the High Courts, it can be discerned that the High Courts have primarily followed the judgment of the Bombay High Court in Commissioner of Income Tax V. Institute of Banking Personnel Selection (IBPS) [(2003) 131 Taxman 386 (Bombay)]. In the said judgment, the contention of the Department predicated on double benefit was turned down in the following manner:– 3. As stated above, the first question which requires consideration by this Court is: whether depreciation was
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allowable on the assets, the cost of which has been fully allowed as application of income under section 11 in the past years? In the case of CIT v. Munisuvrat Jain, 1994 Tax Law Reporter, 1084 the facts were as follows. The assessee was a Charitable Trust. It was registered as a Public Charitable Trust. It was also registered with the Commissioner of Income Tax, Pune. The assessee derived income from the temple property which was a Trust property. During the course of assessment proceedings for assessment years 1977-78, 1978-79 and 1979-80, the assessee claimed depreciation on the value of the building @2 ½% and they also claimed depreciation on furniture @ 5%. The question which arose before the Court for determination was : whether depreciation could be denied to the assessee, as expenditure on acquisition of the assets had been treated as application of income in the year of acquisition? It was held by the Bombay High Court that section 11 of the Income Tax Act makes provision in respect of computation of income computation of income of the Trust from the property held for charitable or religious purposes and it also provides for application and accumulation of income. On the other hand, section 28 of the Income Tax Act deals with chargeability of income from profits and gains of business and section 29 provides that income from profits and gains of business ahil be computed in accordance with section 30 to section 43C. That, section 32(1) of the Act provides for depreciatior, in respect of building, plant and machinery owned by the assessee and used for business purposes. It further provides for deduction subject to section 34. In that matter also, a similar argument, as in the present case, was advanced on behalf of the revenue, namely, that depreciation can be allowed as deduction only under section 32 of the Income Tax Act and not under general principles. The Court rejected this argument. It was held that normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under section 11(1) (a) of the Income Tax Act The Court rejected the argument on behalf of the revenue that section 32 of the Income Tax Act was the only section granting benefit of deduction on account of depreciation. It was held that income of a Charitable Trust derived from building, plant and machinery and furniture was liable to be computed in normal commercial manner although the Trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of the Income Tax Act providing for depreciation for computation of income derived from business or profession is not applicable. However, the income of the Trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from
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gross income of the Trust. In view of the aforesatated judgment of the Bombay High Curt, we answer question No. 1 in the affirmative i.e., in favour of the assessee and against the Department. 4. Question No. 2 herein is identical to the question which was raised before the Bombay High Court in the case of Director of Income-tax (Exemption) v. Framjee Cawasjee Institute [1993] 109 CTR 463. In that case, the facts were as follows: The assessee was the Trust. It derived its income from depreciable assets. The assessee took into account depreciation on those assets in computing the income of the Trust. The ITO held that depreciation could not be taken into account because, full capital expenditure had been allowed in the year of acquisition of the assets. The assessee went in appeal before the Assistant Appellate Commissioner. The Appeal was rejected. The Tribunal, however, took the view that when the ITO stated that full expenditure had been allowed in the year of acquisition of the assets, what he really meant was that the amount spent on acquiring those assets had been treated as 'application of income' of the Trust in the year in which the income was spent in acquiring those assets. This did not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account. This view of the Tribunal has been confirmed by the Bombay High Court in the above judgment. Hence, Question No. 2 is covered by the decision of the Bombay High Court in the above Judgment. Consequently, Question No. 2 is answered in the Affirmative i.e., in favour of the assessee and against the Department." After hearing learned counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and there is no need to interfere with the same. It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in 'Lissie Medical Institutions v. Commissioner of Income Tax'. It may also be mentioned at this stage that the legislature, realising that there was no specific provision in this behalf in the Income Tax Act, has made amendment in Section 11(6) of the Act vide Finance Act No, 2/2014 which became effective from the Assessment Year 2015-2016. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature.
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It also follows that once assessee is allowed depreciation he shall be entitled to carry forward the depreciation as well. For the aforesaid reasons, we affirm the view taken by the High Courts in these cases and dismiss these matters.
Since the Hon'ble Supreme Court gave a clear verdict on the subject under consideration, then there is no possibility of having any two conceivable opinions. Therefore, there can be only one view which is expressed by the Hon'ble Supreme Court at the time of passing the judgment. Moreover, any order of the Hon'ble Supreme Court and Hon'ble Jurisdictional High Court which is not considered by the authorities, the order passed by such authorities are considered as mistake apparent on record. Respectfully following the decision of the Hon'ble Supreme Court in the above said case, we are inclined to accept the plea of the assessee raised in the grounds of appeal. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) by allowing the grounds raised by the assessee.
In The result, assessee’s appeal for the A.Y. 2011–12 is allowed.
ITA no.48/Mum./2021 ITA no.49/Mum./2020 (Assessment Year : 2012–13) (Assessment Year : 2013–14)
ITA no.50/Mum./2021 ITA no.51/Mum./2021 (Assessment Year : 2014–15) (Assessment Year : 2015–16)
ITA no.52/Mum./2021 ITA no.53/Mum./2021 (Assessment Year : 2016–17) (Assessment Year : 2017–18)
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Insofar as the aforesaid appeals are concerned, the related facts and circumstances of the issue raised by the assessee in these appeals are materially identical to the issue decided by us vide grounds no.1 to 5 above raised by the assessee in its appeal being ITA no. 47/Mum./2021, vide Para–7 and 8 above, wherein we have set aside the impugned order passed by the learned CIT(A) by allowing the issues raised in the grounds of appeal for the assessment year 2011– 12. The issues being common in the years under consideration as well, consistent with the view taken therein, we set aside the impugned order passed for the assessment year 2012–13 to 2017–18 and allow the grounds of appeal raised in these years also.
In the result, appeals for the A.Y. 2012–13 to 2017–18 are also allowed.
To sum up, assessee’s appeal for A.Y. 2011–12 to 2017–18 are allowed. Order pronounced in the open court on 26.07.2021 Sd/- Sd/- MAHAVIR SINGH S. RIFAUR RAHMAN VICE PRESIDENT ACCOUNTANT MEMBER
MUMBAI, DATED: 26.07.2021
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Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai