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Income Tax Appellate Tribunal, HYDERABAD BENCHES “SMC”, HYDERABAD
Before: SHRI S.S.GODARA
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “SMC”, HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER ITA No.24/Hyd/2022 Assessment Year: 2015-16 M/s. Sri Talapaka Vs. The Income Tax Officer, Annamacharya Education (Exemptions), Society, Tirupati. Kadapa. PAN : AADTS6112L (Appellant) (Respondent) Assessee by: Sri A.V. Raghuram. Revenue by: Sri Rohit Majumdar for CIT DR YVST Sai Date of hearing: 02/03/2022 Date of pronouncement: 04/03/2022
O R D E R Per S. S. Godara, J.M. This assessee’s appeal arises from the Commissioner of Income Tax (Appeals), Kurnool’s order dt.12.02.2020 in case No. 10109/2018-19/B3/CIT(A)-Kurnool involving proceedings u/s 143(3) of the Income Tax Act, 1961 [in short, ‘the Act’]. Heard both the parties. Case file perused. 2. Coming to the assessee’s sole substantive grievance challenging that both the lower authorities erred in law and on facts in disallowing its depreciation claim of Rs.86,49,240/-, it
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emerges that the CIT(A)’s lower appellate discussion granting part relief reads as under :
“7.9 I have carefully considered the contentions of the assessee 2n0 examined the same in the light of the tarts and circumstances of the case-and me relevant provisions of the statute. At the outset, it may not be out of place to highlight the fact that prior to insertion of sub- sec (6) of sec. 11 in the statute book by Finance Act 2014 w.e.f. 01.04.2015 i.e. AY 2015-16 onwards, the assessees used to claim" double deduction with regard to same amount initially, surplus income generated from the activities of the trust or societies, as the case may be; -is claimed as application of funds towards acquisition of capital assets so as to avail the benefit of exemption u/s.11 of the Act. Further, while computing the total income, depreciation allowance is claimed on the same fixed assets which have been acquired by application of surplus funds of the trust or societies, as the case may be. 7.10 As such, there Is a double deduction of the same amount, once in the form of application of surplus income towards acquisition of fixed assets at one go and, secondly, in the form of depreciation on the fixed assets over a period of time. In view of this, in order to plug the loophole in the statute, the new provision was inserted in the form of sub-sec. (6) of sec. 11 of the Act, whereby it is categorically stated that in a case the assessee has claimed application of surplus income towards acquisition of fixed assets either in the same or earlier AYs, then, the assessee is not entitled to claim allowance towards depreciation on such fixed assets. The relevant portion of the statute in this regard is reproduced below for ready reference: Section 11- Income from property held for charitable or religious purposes. " (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.” 7.11 As seen from the above, it is quite clear that until unless there is tangible material evidence to show that the assessee has claimed acquisition of assets by utilizing, the surplus income i.e., application of income towards acquisition of fixed assets, it is not possible on the part of the AO to resort to disallowance of depreciation on such fixed assets. Alternatively, if the assessee has acquired the fixed assets by 2
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utilizing the loan funds or any other funds which has no nexus with application of surplus income, then, the AO is not empowered to disallow depreciation on such fixed assets by invoking the provisions of sub-sec.(6) of sec.11 of the Act. 7.12 In the instant case, it is the contention of the assessee that it did not acquire any of the fixed assets out of its surplus income generated from the activities of the society, but acquired the same by utilizing the term loans borrowed from Corporation Bank and other unsecured loans. On the other hand, the AO has stated that there is no clarity with regard to amount of loans borrowed and investment made in fixed assets. 7.13 I have carefully perused the details placed on record and evidence forming part thereof, and found that-the assessee has succeeded in explaining the nexus between the acquisition of capital assets and utilization of the loan funds. Though the assessee has paid interest on such loan funds and claimed the same as expenditure against the income of the society, but the same cannot be construed as application of income towards acquisition of capital assets. This is precisely because of the reason that interest being revenue expenditure cannot be equated with the application of income towards acquisition of capital assets which is capital in nature. Thus, prima facie, I am of the considered opinion that the AO is not correct in disallowing the depreciation allowances to the extent of Rs.86,49,240/-. 7.14 However, it is observed from the assessee's explanation that Some of the corpus funds have been utilized for the purpose of acquiring the capital assets on which depreciation has been claimed. At this juncture, it may be noted that the corpus funds are exempt from tax by virtue of sec. 11(1)(d) of the Act and, therefore, the assessee is not eligible to claim depreciation in respect capital assets which have been acquired by utilizing the corpus funds of the society. 7.15 In view of this, I am of the considered opinion that the proportionate depreciation pertaining to the acquisition of capital assets by utilizing the corpus funds is not allowable while computing the income of the assessee. Thus, the AO is directed to re-compute the quantum of disallowance by way of restricting the same to the extent of proportionate depreciation attributable to capital assets acquired by utilizing the corpus funds. Further, the assessee is directed to provide the necessary details with regard to the exact amount of corpus funds utilized for the purpose of acquiring the capital assets and the proportionate depreciation attributable to the same. Thus, the grounds of appeal raised by the assessee are partly allowed.” 3
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I have given my thoughtful consideration to rival pleadings and find no substance in the Revenue’s stand supporting the CIT(A)’s directions. This is for the reason that the Assessing Officer had disallowed the assessee’s claim in entirety by quoting section 11(6) of the Finance Act applicable w.e.f. 01.04.2015 i.e. A.Y. 2015-16 onwards. The CIT(A) has admittedly reversed the assessment finding that the Assessing Officer could not have disallowed the assessee’s impugned claim pertaining to its fixed assets. The Revenue’s stand therefore that the CIT(A)’s latter findings regarding allocation of the assessee’s corpus funds; if any, alleged to have been utilized for the purpose of acquiring capital assets, goes contrary to the settled law in CIT Vs. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC) that the learned appellate authority could not create a new source of income or disallowance, as the case may be. I accordingly hold that the CIT(A)’s directions to the Assessing Officer regarding the impugned quantification do not deserve to be concurred with and the same stand reversed.
This assessee’s appeal is allowed in above terms.
Order pronounced in the Open Court on 04th March, 2022.
Sd/- (S.S.GODARA) JUDICIAL MEMBER Hyderabad, dated 04th March, 2022. TYNM/sps
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Copy to: S.No Addresses 1 M/s. Talapaka Annamcharya Education Society, New Boyanapally, Rajampeta, Kadapa District – 540001. 2 The Income Tax Officer, (Exemptions), Tirupati. 3 The Commissioner of Income Tax (Appeals), Kurnool. 4 The CIT(Exemptions), Hyderabad. 5 DR, ITAT Hyderabad Benches 6 Guard File By Order