DCIT (E), NEW DELHI vs. ANAND EDUCATION SOCIETY, NEW DELHI

This appeal has been preferred by the revenue against the order dated 24.09.2014 passed by the Ld. Commissioner of Income Tax (Appeals)-XXI, New Delhi pertaining to assessment year 2010-11 wherein, vide the impugned order, the Ld. Commissioner of Income Tax (A) has allowed the assessee’s claim of exemption u/s 11 of the Income Tax Act, 1961 (hereinafter called 'the Act').

2.1 Aggrieved, the assessee approached the Ld. Commissioner of Income Tax (A) who deleted all the additions and also directed that the assessee should be given benefit of exemption under section 11 of the Act.

Assessment year 2010-11 2.2 Now aggrieved, the department is in appeal before the ITAT and has raised in the following grounds of appeal:-

“1. On the facts and in the circumstances of the case and in law, the Ld. A has erred in allowing the claim of exemption u/s 11 disregarding the facts that the assessee has violated the provisions of section u/s 13 of the I.T. Act.

2. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax(A) has erred in allowing the claim of depreciation of Rs.87,11,575/- to the assessee ignoring the fact that the assessee had claimed the amount incurred on purchase of assets in earlier years as application of income, on which depreciation is claimed now and further allowance of depreciation will be tantamount to double deduction.

6. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing.” 3. Ld. Sr. DR appearing on behalf of the department read out relevant portions from the assessment order and vehemently argued that the Ld. Commissioner of Income Tax (A) had erred in allowing the benefit of exemption u/s 11 of the Act while completely disregarding the findings of the Assessing Officer that provisions of section 13 had been violated by the assessee. It was also submitted that the claim of depreciation of Rs. 87,11,575/- had wrongly been allowed to the assessee as this depreciation pertained to assets which had been purchased in assessment years earlier to the assessment year under consideration for which the benefit of deduction had already been allowed as application of income. It was submitted that allowing the depreciation would tantamount to giving benefit of double deduction to the assessee. It was also submitted that the Ld. Commissioner of Income Tax (A) had wrongly allowed the loss on sale of fixed assets amounting to Rs. 92,83,904/- because no proper procedure was followed by the assessee with respect to the sale of assets. He drew our attention to the relevant paragraphs in the assessment order wherein the Assessing Officer had recorded a finding as to why the sale of assets was not proper. It was further submitted by the Ld. Sr. DR that the Ld. Commissioner of Income Tax (A) had ignored the findings of the Assessing Officer and deleted the addition pertaining to the mobile expenses ignoring the fact that the governing body members had used the mobile phone for their personal use.

4. In response, the Ld. AR submitted that as far as the disallowance of exemption u/s 11 of the Act was concerned, the issue was covered in favour of the assessee by the order of the Tribunal in assessee’s own case for assessment year 2009-10 in ITA No. 761/Del/2013. It was submitted that this order of the Tribunal had been further affirmed by the Hon’ble Delhi High Court on 15.2.2017 in ITA No. 147/2017. It was also submitted that a similar denial of exemption was adjudicated in favour of the assessee by the ITAT vide order dated 16.10.2017 in ITA No. 163/Del/2015. It was submitted that in view of there being no change in the facts and circumstances as existing in assessment years 2008-09 and 2009-10 and the year under consideration, the benefit of exemption was rightly directed to be given by the Ld. Commissioner of Income Tax (A).

4.1 Coming to the next issue of disallowance of Rs. 87,11,575/- on account of disallowance of depreciation, it was submitted that this issue had arisen even in assessment years 2008-09 and 2009-10 and the Tribunal had held a similar disallowance to be unsustainable in these assessment years in assessee’s own case. Reliance was also placed on the judgment of the Hon’ble Apex Court in the case of C.I.T. vs Rajasthan and Gujarati Charitable Foundation Poona in Civil Appeal No. 7186 of 2014 wherein vide judgment dated 13.12.2017, the Hon’ble Apex Court had held that depreciation was to be allowed on the assets acquired by a trust, even if the cost of the asset has been allowed to the trust as application of income in the past assessment years.

4.2 Arguing against the department’s ground challenging the deletion of disallowance of Rs. 7 92,83,904/- pertaining to loss on sale of fixed assets, it was submitted that since the Ld. Commissioner of Income Tax (A) had allowed the claim of exemption u/s 11 of the Act, the allowance of claim of loss on sale of assets was a consequential benefit. It was also submitted that the issue is covered by the judgment of the Hon’ble Apex Court in the case of Rajasthan and Gujarati Charitable Foundation Poona (supra) wherein it has been held that such a claim does not amount to double deduction. It was submitted that the Assessing Officer had made a disallowance on the ground that the claim of the assessee was not allowable as the cost of assets had been allowed to the assessee as application of income in earlier years.

4.3 Coming to the disallowance of Rs. 59,657/- made on account of mobile phone expenses, it was submitted that the Assessing Officer made ad hoc disallowance of 50% of the expenses by alleging that the same was incurred for personal use without pointing out any specific error or discrepancy in the details furnished by the assessee. It was submitted that it is a settled law that in absence of any specific defect having been pointed out in the books of accounts, ad hoc disallowance cannot be sustained.

Reliance was placed on a number of judicial precedents of the ITAT Delhi Bench in this regard and it was submitted that the disallowance had been rightly deleted by the Ld. Commissioner of Income Tax (A).

5. We have heard the rival submissions and have also perused the material on record. As far as the department’s challenge to the action of the Ld. CIT (A) in directing the AO to grant benefit of exemption u/s 11 of the Act is concerned, it is seen that an identical situation had arisen in assessee’s own case in AY 2009- 10 wherein the AO had denied the benefit of exemption u/s 11 of the Act to the assessee on the ground that there was a violation of section 13(3) of the Act on part of the assessee. This denial was upheld by the Ld. CIT (A) and on the assessee approaching the ITAT, the ITAT vide order dated 15/07/2016, held that the AO had wrongly invoked the provisions of section 13(3) of the Act and further that the Ld. CIT (A) was not justified in confirming the action of the AO. The order of the Ld. CIT (A) was set aside the AO was directed to allow exemption u/s 11 of the Act to the assessee. The order of the Tribunal was later on affirmed by the Hon’ble Delhi High Court. We note that the benefit of exemption u/s 11 has been denied on similar reasoning in the year in appeal before us and the Ld. Sr. DR could not bring out any distinguishing fact during the course of proceedings before us. Accordingly, respectfully following the view of the co-ordinate Bench for AY 2009-10, we find no reason to interfere with the findings of the Ld. CIT (A) in this regard and we uphold his order.

5.1 Coming to the next issue of disallowance of Rs. 87,11,575/- on account of disallowance of depreciation, it is again seen that this issue had also arisen in assessment years 2008-09 and 2009-10 and the Tribunal had held a similar disallowance to be unsustainable in these assessment years in assessee’s own case. The Ld. Sr. DR could not bring out any distinguishing fact during the course of proceedings before us. Accordingly, respectfully following the view of the co-ordinate Bench for AY 2009-10, we find no reason to interfere with the findings of the Ld. CIT (A) in this regard and we uphold his order.

5.2 As far as the department’s ground challenging the deletion of disallowance of Rs. 92,83,904/- pertaining to loss on sale of fixed assets is concerned, it is seen that the Ld. CIT (A) has not specifically adjudicated the issue in the impugned order. Therefore, in the interest of justice, the issue needs to be re-examined by the Ld. CIT (A). Accordingly, this ground is restored to the file of the Ld. CIT (A) with a direction to consider the issue afresh after giving proper opportunity to the assessee and thereafter adjudicate the issue by passing a speaking order.

5.3 Similarly, the disallowance of Rs. 59,657/- made on account of mobile phone expenses has not been specifically adjudicated upon by the Ld. CIT (A).

Therefore, in the interest of justice, the issue needs to be re-examined by the Ld. CIT (A). Accordingly, this ground is restored to the file of the Ld. CIT (A) with a direction to consider the issue afresh after giving proper opportunity to the assessee and thereafter adjudicate the issue by passing a speaking order.

Order is pronounced in the open court on 23rd August, 2018.