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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: SHRI GEORGE GEORGE K.
Per GEORGE GEORGE K.,JUDICIAL MEMBER:
These appeals, at the instance of the Department, arise out of the two orders
of the CIT(A), Kottayam both dated 10/06/2014. The relevant assessment years
are 2006-07 to 2008-09.
Since common issues are raised in these appeals, the y were heard together
and are being disposed of by this consolidated order.
2 I.T.A. Nos.366-368/Coch/2016
Identical grounds are raised in these appeals. The grounds read as follows:
The order of the Ld. CIT(A) Kottayam in I.T.A. No. K-62/CIT(A)/KTM/2013- 14 dated 10.06.2016 is opposed to law, facts and evidences of the case.
The Ld. CIT(A) Kottayam erred in allowing the assessee to set off the unabsorbed depreciation brought forward from earlier years, as the assessee was enjoying exemption u/s. 12AA until AY 2005-06 for which they have claimed exemption for capital expenditure.
The decision of the Ld. CIT(A) is not acceptable as the Assessing Officer has rightly pointed out in the assessment order that the return has been filed by the assessee claiming the status as a charitable trust and in the particular form prescribed and therefore, is also of the view that such loss cannot be carried forward or set off.
The decision of the Ld. CIT(A) is not acceptable in the view taken by the Hon’ble Supreme Court in Escorts Union case and of the Hon’ble High Court of Kerala in Lizzie Medical Institutions.
For these and other grounds that may be urged at the time of hearing the order of the CIT(A) may be set aside and that of the Assessing Officer may be restored.
I shall first take up for adjudication the Revenue’s appeal in I.T.A. No.
366/Coch/2016 pertaining to the assessment year 2006-07. The brief facts in
relation to the case are as follows:
The Tribunal in I.T.A. No.583/Coch/2009 in assessee’s own case for the
assessment year 2006-07, had set aside the issue of carry forward of losses to
the Assessing Officer. The relevant finding of the Tribunal reads as follows:
“8. The next ground of appeal is with regard to carry forward of losses. The Assessing officer disallowed the claim of the taxpayer on the ground that the taxpayer has not computed the income u/s 28 to 44DA of the Act. The
3 I.T.A. Nos.366-368/Coch/2016
Commissioner of Income-tax(A) further found that the taxpayer claimed exemption in respect of income of the earlier year. Therefore, the same cannot be adjusted against the taxable income. The fact remains is that no registration was granted u/s 12AA of the Act. The taxpayer’s return was not taken up for scrutiny. No assessment order was passed u/s 143(3) of the Act at any point of time except the impugned assessment. Based on some invalid certificates were issued by an Income-tax Officer, who had no jurisdiction to issue such certificates, the taxpayer claims that it is a charitable institution. But based on those invalid certificates it cannot be said that the taxpayer has been recognised u/s 12AA and exemption u/s 11 has been granted during the earlier years. The department has committed an error in not taking up the matter for scrutiny. The taxpayer claimed exemption u/s 11 without getting registration u/s 12AA of the Act. The negligence of the department in not taking up the return for scrutiny cannot be considered as if the taxpayer was having exempted income. When the taxpayer itself was not registered as a charitable institution under section 12AA of the Act, there cannot be any question of having any exempted income. Therefore, the observation of the lower authorities that the taxpayer was having exempted income for earlier years is contrary to the material available on record. Therefore, this Tribunal is of the considered opinion that the matter needs to be re-examined in the light of the matter available on record. It is made clear that if the department claims that for earlier years the income was treated as exempt u/s 11 of the Act, under what circumstances such exemption was granted in the absence of registration u/s 12AA of the Act shall be brought on record by the assessing authority. In view of the above, the orders of the lower authorities are set aside and the issue is remitted back to the file of the assessing officer. The assessing officer shall bring on record the material facts and then decide the issue afresh in accordance with law after giving reasonable opportunity of hearing to the taxpayer.”
Pursuant to the ITAT’s order, the Assessing Officer vide his order dated
05/12/2013 gave effect to the Tribunal’s order. The Assessing Officer denied the
benefit of carry forward of losses. The relevant observation of the Assessing
Officer is reproduced below:
“8. The assessee had filed its return claiming the status of a ‘trust’ enjoying exemption u/s. 11, even though there was no valid 12A registration. In the absence of any documents to support the claim of being a ‘Trust’ enjoying exemption u/s. 11, the assessment was completed assessing M/s. Manohar Hill Charitable Trust in the status of an ‘AOP’ . According to the assessee, it is eligible for setting off of brought forward losses and unabsorbed depreciation of earlier years against the taxable income of the current year. Given the fact that the
4 I.T.A. Nos.366-368/Coch/2016
assessee was filing its return in the status of a ‘Trust’ enjoying exemption u/s. 11, the carry forward losses presently claimed can only be considered as excess application of income during the relevant years. Now, when the income of the assessee is assessed under the status of ‘AOP’, the excess application of income of the assessee is assessed under the status of ‘AOP’, the excess application of income will have no bearing in determining its total income.
Further, as per section 80 of the Act, no loss which has not been determined in pursuance of a return filed in accordance with the provisions of sub section (3) of section 139 shall be carried forward. Sub section (3) of section 139 makes it amply clear that if the loss is to be carried forward, the return of loss has to be in the prescribed form and verified in the prescribed manner.
On perusal of assessee’s return for AY 2005-06 it is seen that the same is in Form no.3A, which is meant for assesses claiming exemption u/s. 10 or 11. The assessee has no valid claim for 12A and the claim in this regard was rejected by the AO. Hon’ble ITAT in its order dated 07.12.2012 has clearly held that the assessee is ineligible for exemption u/s. 11 of the Act. Therefore, the assessee ought to have filed its return of income for AY 2005-06 and preceding years in the form that was prescribed for an AoP. Instead, the assessee made a bogus claim of being exempt u/s. 11 and furnished its return in form no.3A prescribed for an assessee claiming exemption. Thus, it follows that the return of loss was not in the “prescribed form and verified in the prescribed manner” making the assessee ineligible to carry forward loss, if at all there is any ‘loss’ to be carried forward.”
Aggrieved by the order of the Assessing Officer, the assessee preferred an
appeal to the first appellate authority. The CIT(A) directed the Assessing Officer
to set off the unabsorbed depreciation. The relevant finding of the CIT(A) for the
assessment year 2006-07 reads as follows:
“17. In my view Sec. 80 has no application, so far as unabsorbed depreciation is concerned. The appellant has not substantiated the claim of carry forward loss by filing details of earlier years return to come to the conclusion that these returns have been filed within the time allowed u/s. 139. According to the assessing officer the return has been filed claiming the status as a Charitable Trust and in the particular form prescribed and therefore is also of the view that such loss cannot be carried forward or set off.
Having concluded that the status of the appellant as AOP, as finally held by the Income Tax Appellate Tribunal I am of the view that the Assessing Officer is
5 I.T.A. Nos.366-368/Coch/2016
not correct in holding that the return has been filed in a particular Form. Sec. 292B comes in to operation in appellant’s case and as per Sec.292B:-
“No return of income, assessment, notice, summons or other proceedings furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceedings if such return of income, assessment, notice, summons or other proceedings is a substance and effect in conformity with or according to the intent and purpose of this Act.”
In the appellant’s case as stated earlier the appellant is entitled to carry forward and set off unabsorbed depreciation as the status has been determined as AOP and unabsorbed depreciation will partake in the nature of current depreciation. I therefore direct the Assessing Officer to set off the unabsorbed depreciation claimed.”
Aggrieved by the direction of CIT(A), the revenue is in appeal before the
Tribunal. The Ld. DR relied on the grounds raised before the Tribunal. The Ld.
AR on the other hand reiterated the submissions made before the IT authorities
and relied on the conclusions/findings of the CIT(A).
I have heard the rival submissions and perused the material on record. The
CIT(A) in the impugned order had allowed set off of unabsorbed depreciation
amounting to Rs.2,59,06,591/-. The unabsorbed depreciation was for the period
beginning of AY 1992-93 to AY 2005-06. For the AY 1992-93 to AY 2005-06,
how the income has been calculated, is not available on record. Admittedly, the
assessee for the current assessment years as well as past AY’s were filing returns
of Income in the status of ‘charitable society’. It is not clear from the record,
that the claim of depreciation is on the assets where the cost has been allowed
as application of income. If the cost of assets is allowed as an application of
6 I.T.A. Nos.366-368/Coch/2016
income, then depreciation on the same assets cannot be allowed/carried forward
going by the dictum laid down by the Hon’ble Jurisdictional High Court in the
case of Lissie Medical Institutions vs. CIT reported in 348 ITR 344. Necessarily,
the matter needs to be examined by the Assessing Officer. Therefore, the
observation of the CIT(A) directing the Assessing Officer to grant set off the
unabsorbed depreciation is set aside. The Assessing Officer shall examine the
calculation of income made by the assessee for the relevant years in which
unabsorbed depreciation has been calculated. The depreciation of past AY’s shall
not be allowed to be carried forward if the cost of assets is claimed and allowed
as an application of income. With these directions, I dispose of this appeal filed
by the Revenue. Therefore, I.T.A. No. 366/Coch/2016 is allowed for statistical
purposes.
Regarding the Revenue’s appeals in I.T.A. Nos. 367 & 368/Coch/2016, my
finding for the assessment year 2006-07 concerning I.T.A. No. 366/Coch/2016
will hold good for the AY 2007-08 and AY 2008-09 as well. Accordingly, the
appeals filed by the Revenue for these two assessment years are also set aside
to the Assessing Officer. The Assessing Officer shall follow the dictum laid down
by the Hon’ble Jurisdictional High Court in the case of Lissie Medical Institutions
(supra) and shall take a decision in accordance with law. It is ordered
accordingly. Hence, the appeals filed by the Revenue in I.T.A. Nos. 367 &
368/Coch/2016 are also allowed for statistical purposes.
7 I.T.A. Nos.366-368/Coch/2016
In the result, the appeals of the Revenue are allowed for statistical
purposes. Pronounced in the open court on 19th-04-2017.
sd/- (GEORGE GEORGE K.) JUDICIAL MEMBER
Place: Kochi Dated: 19th April, 2017 GJ Copy to: 1. M/s. Manohar Hill Charitable Trust, Kangazha, Kottayam. 2. The Assistant Commissioner of Income-tax, Exemption Circle,Trivandrum. 3. The Commissioner of Income-tax(Appeals), Kottayam. 4. The Principal Commissioner of Income-tax, Kottayam. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order
(ASSISTANT REGISTRAR) I.T.A.T., Cochin