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Facts
The assessee, a Trust, filed a return declaring Nil income for AY 2021-22. The AO disallowed a sum of Rs. 83,64,55,006/- claimed as depreciation, stating it was not an allowable expense under Section 11 of the Income Tax Act. The CIT(A) upheld the AO's order.
Held
The Tribunal noted that the assessee claimed depreciation as an application of income which should mutually cancel out with the 'deferred grant income'. The AO and CIT(A) disallowed the depreciation due to lack of response from the assessee to show cause notices. The Tribunal, in the interest of justice, decided to provide one more opportunity to the assessee.
Key Issues
Whether the disallowance of depreciation claimed by the assessee is justified when it is argued that it should mutually cancel out with deferred grant income, and whether the assessee should be given another opportunity to present its case.
Sections Cited
250, 143(2), 143(3), 144B, 11, 12A, 12AA, 234-A, 234-B, 234-C
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Income Tax Appellate Tribunal, “A” : BANGALORE
Before: SHRI GEORGE GEORGE K & SHRI CHANDRA POOJARI
Per George George K, Vice President:
This appeal at the instance of the assessee is directed against CIT(A)’s order dated 22.09.2023, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2021-22.
There is a delay of 14 days in filing this appeal. Assessee has filed a petition for condonation of delay accompanied by an affidavit of the Managing Director of the assessee stating therein the reasons for late filing of this appeal. We have perused the reasons stated in the affidavit for belated filing of this appeal and we are of the view that there is reasonable cause and no latches can be attributed to the assessee for belated filing of this appeal. Hence, we condone the delay of 14 days in filing this appeal and proceed to dispose off the same on merits.
Grounds raised read as follows:
The orders of the authorities below in so far as they are against the 1. appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. The appellant denies itself liable to be assessed on a total income of 2. Rs.83,64,55,006/- in the impugned order passed as against the returned income of Rs. NIL under the facts and in the circumstances of the appellant's case.
3. The learned CIT[A] is not justified in upholding the addition made towards the disallowance of depreciation of Rs. 83,64,55,006/- without appreciating the fact that the appellant had not claimed depreciation as application of income and that the book entry passed for depreciation in the books of accounts was only for proper presentation of the financials and that the appellant had also shown a sum of Rs. 83,64,55,006/- as income under the head "Deferred Grant Income" of the similar sum of Rs. 83,64,55,006/- under the facts and in the circumstances of the appellant's case.
4. The learned CIT[A] failed to appreciate that the appellant had not claimed application of income towards depreciation as the corresponding income shown under the head "Deferred Grant Income" was also included in the receipts u/s. 11 of the Act and therefore, both the receipt and depreciation mutually cancelled out the effect of each other on the determination of income and application u/s. 11 of the Act under the facts and in the circumstances of the appellant's case.
Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s.234-A, 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled.
6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
Assessee is a Trust registered under section 12A of the Act as a scientific and industrial research organization. For the Assessment Year 2021-22, the return of income was filed on 27.2.2021 declaring Nil income. The assessment was selected for scrutiny and notice under section 143(2) of the Act was issued on 29.06.2021. Assessee was directed to justify the claim of exemption under section 12A/12AA of the Act. In reply to the show cause notice dated 30.11.2022, assessee submitted a response dated 06.12.2022 wherein valid registration under section 12AA of the Act was brought to the notice of the AO. The AO completed the Assessment Order vide order dated 20.12.2022 under section 143(3) r.w.s. 144B of the Act. The AO stated that assessee is eligible for exemption under section 11 of the Act. However, the AO held that assessee a sum of Rs.83,64,55,006/- claimed as depreciation in the return of income filed for Assessment Year 2021-22 is not an allowable expense under section 11 of the Act. The relevant finding of the AO in this regard reads as follows:
“4. …….. …… However, it was noticed that the assessee has claimed an amount of Rs. 83,64,55,006/- as depreciation in the return of income for the AY 2021-22, which is not an allowable expense u/s 11 of the Income Tax Act, 1961. Hence, a Show cause notice dated 15.12.2022 was issued to the assessee proposing disallowance of Rs. 83,64,55,006/- claimed as depreciation. The assessee made no submission in response to this Show cause notice. Therefore, it is evident that the assessee has nothing to say and provide documentary evidence on the aforementioned issue and has intensionally not provided the requested information as called for vide show cause notice dated
15.12.2022. Therefore. as the assessee has not submitted any documentary evidence regarding the queries raised in respect of Rs. 83,64,55,006/-being claimed as depreciation, the amount of Rs. 83,64,55,006/- is proposed to be disallowed from application of income for the charitable or religious purposes or for the stated objects of the trust/institution. Therefore, in view of above facts and discussions and no response submitted by the assessee in response to Show cause notice dated 15.12.2022, amount of Rs. 83,64,55.006/- claimed as depreciation in the return of income for the AY 2021-22, which is not an allowable expense u/s 11 of the Income Tax Act, 1961, is being disallowed. [Addition : Rs.83,64,55,006/-]”
5. Aggrieved, assessee filed appeal before the First Appellate Authority. The CIT(A) confirmed the view taken by the AO. The CIT(A) held that assessee was provided with ample opportunity to prove its point through various notices and since no submissions were made by the assessee, a sum of Rs.83,64,55,006/- claimed as depreciation is not allowable expense under section 11 of the Act. The relevant finding of the CIT(A) reads as follows:
“4.4. On perusal of the copy of the Assessment Order it is observed that the appellant was provided with ample opportunities to explain his point through various notices, letter and show-cause notices, therefore, the ground-3 of the appeal is without any genuine reason and dismissed herewith. Further, the ground nos.- 1, 2, 5, 6, 7, 8 & 9 of the appeal are general in nature, and are interrelated, the only addition made by Assessing Officer is with regard to disallowance of depreciation therefore, requires no separate adjudication.”
Aggrieved, assessee has filed the present appeal before the Tribunal. The learned AR submitted that assessee has not claimed application of income towards depreciation as corresponding income shown under the head “deferred grant income” was also included in receipts under section 11 of the Act and therefore, both the receipts and depreciation mutually cancel out the effect of each other on determination of income and application under section 11 of the Act. The learned AR submitted that assessee being a Trust, primarily run by the Government, may be provided with one more opportunity to provide the necessary details to prove the aforesaid claim.
Learned DR supported the orders of the AO and the CIT(A).
We have heard the rival submissions and perused the material on record. It is submitted by the assessee that it has not claimed application of income towards depreciation as corresponding income shown under the head “deferred grant income” was also included in the receipts under section 11 of the Act. If the aforesaid contention of the assessee is true, then the assessee has not claimed depreciation allowance as application of income as both receipts and depreciation mutually cancel out the effect of each other. The claim of depreciation has been disallowed by the AO as well as the CIT(A) since there was no response to the show cause notices issued. In the interest of justice and equity, we are of the view that assessee ought to be provided with one more opportunity to present its case. Accordingly, we restore the matter to the files of the AO. The assessee is directed to co-operate with the Revenue and shall not seek unnecessary adjournment. It is ordered accordingly.
In the result, appeal filed by the assessee is allowed for statistical purposes.