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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)
The appeal filed by the assessee is directed against the order dated 1.9.2017 passed by the learned CIT(A)-1, Mumbai and it relates to A.Y. 2012- 13. The assessee is aggrieved by the decision of the learned CIT(A) in confirming the disallowance of depreciation claim of Rs. 5,71,121/-, which was claimed by transferring the amount to sinking fund.
I heard the parties and perused the record. The assessee is a Trust registered u/s. 12A of the I.T. Act. The assessee filed its return of income declaring total income at nil by availing exemption u/s. 11 of the Act. The Assessing Officer, however, completed the assessment by determining total income at Rs. 13.03 lakhs. The assessee had claimed set off deficit of earlier years as deduction. The assessee had also claimed depreciation of Rs. 6.18 lakhs and also depreciation by way of transfer of sinking fund of Rs. 5.71 lakhs as application of income. The Assessing Officer did not allow set off deficit of earlier years. The Assessing Officer also did not allow both
2 Dr. Mohanlal Piramal Charitable Trust depreciation claims by holding that the same would amount to double deduction.
In the appeal filed before the learned CIT(A), the first appellate authority allowed the claim of set off deficit of earlier years by following decision rendered by Hon'ble Bombay High Court in the case of CIT Vs. Institute of Banking Personnel Selection (264 ITR 110). The learned CIT(A) also allowed the depreciation claim of Rs. 6.18 lakhs by following the decision rendered in the case of Institute of Banking Personnel Selection (supra). With regard to claim of Rs. 5.71 lakhs, which was claimed by way of transfer of sinking fund, the learned CIT(A) treated the same as provision for replacement of asset and accordingly confirmed the disallowance of the same. The assessee is aggrieved by the said decision of Ld CIT(A).
The Learned AR submitted that the assessee has followed two different methods of claiming depreciation. In respect of movable assets, it has claimed depreciation and deducted the same from the WDV value of assets. However, in respect of immovable properties, the assessee has created sinking fund and hence depreciation pertaining to immovable property has been credited to sinking fund account instead of reducing the same from cost of asset. The Learned AR submitted that sinking fund method of claiming depreciation is also one of the recognized methods of charging depreciation under accounting principles. Accordingly he submitted that the decision rendered by Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection (supra) would equally apply to this claim also. He further submitted that the decision rendered by Hon'ble Bombay High Court has since been approved by Hon'ble Supreme Court in the case of Rajasthan and Gujarati Charitable Foundation Poona (Civil Appeal No. 7186 of 2014 dated 13.12.2017).
On the contrary, learned DR supported the order passed by the learned CIT(A).
3 Dr. Mohanlal Piramal Charitable Trust
Having heard the rival contentions, I am of the view that there is merit in the contentions of the assessee. A perusal of the financial statements furnished by the assessee would show that the assessee has claimed depreciation on movable assets by reducing amount of depreciation from the WDV value of the asset. However, in respect of immovable assets, the assessee has credited depreciation amount to the sinking fund instead of reducing the same from the cost of asset. As submitted by learned AR, sinking fund method of depreciation is also one of the recognized methods of depreciation under accounting principles under this method, the depreciation amount is credited to Sinking fund account instead of reducing the same from the cost of assets. Hence there is merit in the contentions of the assessee that the decision rendered by Hon'ble High Court in the case of Institute of Banking Personnel Selection (supra), which has since been approved by Hon'ble Supreme Court in the case of Rajasthan and Gujarati Charitable Foundation Poona (supra), would apply to the depreciation claim of Rs. 5.71 lakhs claimed against immovable property. Accordingly, I set aside the order passed by the learned CIT(A) and direct the Assessing Officer to treat the claim of Rs. 5.71 lakhs as application of income u/s. 11 of the Act.
In the result, appeal filed by the assessee is allowed. Order has been pronounced in the Court on 22.2.2018.