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Income Tax Appellate Tribunal, [ DELHI BENCH : “G” NEW DELHI ]
Before: DR. B. R. R. KUMAR & SHRI YOGESH KUMAR US
This appeal is filed by the Revenue against the order of the ld.
Commissioner of Income Tax (Appeals)-40, Delhi [hereinafter referred to CIT (Appeals) dated 16/06/2017 for assessment year 2012-13.
The assessee has raised the following substantive grounds of appeal:-
ITO Vs. Sri Sharda Institute of Indian Management Research Foundation Trust
“1. On the basis of facts and circumstances of the case and in law, the Ld.CIT(A) has erred in ignoring the fact in deleting the addition of Rs. 2,88,10,953/- made by AO on account of disallowance of 50% of expenses excluding Travelling and Conveyance and Rs. 14,46,958/- made by AO on account of Travelling and Conveyance, ignoring the fact that the assessee had not produced books of accounts along with original bills and vouchers for examination before the AO during the course of assessment proceedings despite the fact that so many opportunities were provided to the assessee.
2. On the basis of facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact in deleting the addition of Rs. 2,16,72,420/- made by AO on account of disallowance of depreciation by placing reliance on the latest decision of the Hon'ble Delhi High Court in the matter of DIT(Exemption) Vs Indraprastha Cancer Society.
The Ld.CIT(A) has erred in allowing the appeal of the assessee by ignoring the fact that assessee like charitable or religious institutions are governed by almost the separate or independent provisions of Section 11,12, 12A, 12AA & 13 and these provision are independent code in itself in chapter III of the Income Tax Act, 1961 and claim of depreciation u/s 32 comes under Chapter IV of the Act under the head 'D'-Profit and gains of business or profession and depreciation is allowed when capital assets are used for the purpose of business.
On the facts and in the circumstances of this case, the CIT(A) ought to have not adjudicated the issue of disallowance of depreciation especially since the assessee had requested to withdraw this ground of appeal during appellate proceedings.
ITO Vs. Sri Sharda Institute of Indian Management Research Foundation Trust
5. The Ld.CIT(A) has erred in allowing the appeal of the assessee by ignoring the fact in the case of charitable or religious institutions, the assessee is not eligible for any type of depreciation as the entire expenditure for the purchase of capital assets is allowed as a deduction and the same is treated as application of income u/s 11(1) and claiming depreciation on the same capital assets is a double deduction and is not as per law as these capital assets are not used for the purpose of business or profession as provided u/s 32(1).
On the facts and in circumstances of the case, whether the Ld.CIT(A) was correct in not appreciating the fact that allowance of depreciation on the assets tantamount to double deduction firstly in the form of allowing application of income in the year(s) of acquisition/purchase of assets and secondly in the form of depreciation allowance over a period of usage of assets/several assessment years.
Whether the CIT(A) was correct in allowing the depreciation claim of assessee, when the legislature, by way of amendment made w.e.f.- 01.04.2015, conveyed its intention not to allow double deduction, one by way of application and another by way of depreciation on the same assets, cost of which has been allowed as application of income and therefore, it was never the intention of the legislature to allow double deduction.
8. On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in holding that the insertion of section 11(6) brought into the Act with effective from 01-04-2015 is prospective in nature and therefore shall not apply on the case of the present assessment year i.e. A.Y. 2012-13.
ITO Vs. Sri Sharda Institute of Indian Management Research Foundation Trust
The Appellant craves leave to add, alter, amend, append or delete any of above grounds.
3. Brief facts of the case are that, return of income for the Assessment Year 2012-13 was filed declaring ‘NIL’ income, the case was selected for scrutiny through CASS, an assessment order u/s 143(3) of the Act came to be passed by computing the income of the assessee at Rs. 2,51,71,185/-. Aggrieved by the assessment order dated 24/03/2015, the assessee preferred an appeal before the CIT(A). The ld. CIT(A) partly allowed the appeal filed by the assessee by deleting the addition of Rs. 2,88,10,953/- made by the A.O. on account of disallowance of 50% of expenses including traveling and conveyance and Rs. 14,46,958/- made on account of travelling, conveyance. Further deleted the addition of Rs. 2,16,72,420/- made by the A.O. on account of disallowance of deprecation by placing the reliance on the Judgment of Hon'ble High Court of Delhi dated 18/11/2014 in the case of DIT (Exemptions) Vs. Indraprastha Cancer Society in and other connected Appeals. Aggrieved by the deletion of the above two additions, the Revenue preferred the present appeal on the grounds mentioned above.
4. Ground No. 1 is regarding deletion of addition of Rs. 2,88,10,953/- made by the A.O. on account of disallowance of 50% expenses including travelling and conveyance and Rs. 14,46,958/- made on account of travelling and conveyance. The Ld. Assessee's Representative submitted that the CIT(A) has ignored the fact that the assessee has not produced books of account along ITO Vs. Sri Sharda Institute of Indian Management Research Foundation Trust with original bills and vouchers for examination before the A.O. despite providing opportunities, therefore submitted that deletion of the addition by the CIT(A) requires to be reversed.
The Ld. Counsel for the assessee submitted that expenses on the travelling and conveyance were incurred by the assessee and were duly audited and certified by the statutory auditor. The details of such travelling expenses were produced before the A.O. , therefore the deletion of the addition made by the CIT(A) requires no interference and submitted that the Ground No. 1 of the Revenue requires to be dismissed.
6. We have heard both the parties and perused the material available on record. It is found that the assessee has submitted the expenses on travelling and conveyance incurred by the assessee before the A.O. vide letter dated 03/03/2015 and were duly audited and certified by the statutory auditor. The assessee has also provided the details of travelling and conveyance expenses along with supporting documents before the CIT(A). The Ld. has also verified the assessment record and it has been found by the CIT(A) that the details of expenses incurred on account of travelling and conveyance were furnished to the Assessing Officer vide letter dated 03/03/2015. The Ld. A.O. has not made any allegation that amount have been spent for the purposes which are other than for meeting the objections of the trust or are not for charitable purpose. Considering the fact that the assessee has provided the details of the expenses on account of travelling and conveyance before the A.O., we find no ITO Vs. Sri Sharda Institute of Indian Management Research Foundation Trust error or infirmity in the order of the CIT(A) in deleting the addition made by the A.O. on account of disallowance of 50% expenses including travelling and conveyance. Accordingly we find no merit in the Ground No. 1 of the Revenue and the Ground No. 1 of the Revenue is dismissed.
7. Ground No. 2 to 8 are regarding deletion of the addition of Rs. 2,16,72,420/- made by the A.O. on account of disallowance of depreciation.
The Ld. Departmental Representative submitted that the CIT(A) committed error by ignoring the fact that the assessee is a religious institution are governed by the separate or independent provisions and in Chapter III of the Act and the depreciation u/s 32 Act is under Chapter IV of the Act under the head D profit and gain of business or profession and the depreciation is allowed with capital asset are used for purpose of business. The Ld. Departmental Representative further vehemently submitted that the assessee has withdrawn the ground against disallowance of depreciation before the CIT(A) during the appellate proceedings, therefore, the order of the CIT(A) in deleting the disallowance is bad in law.
We have heard both the parties and perused the material available on record. During the assessment proceedings, the Ld. A.O. has given any reason for disallowing the depreciation, the depreciation has been added back at the time of re-computation of total income in the assessment order and deprecation has been allowed only on the assets acquired during the year. It is not in dispute that during the appellate proceedings the assessee requested for ITO Vs. Sri Sharda Institute of Indian Management Research Foundation Trust withdrawal of the ground raised against the said issue and subsequently vide letter dated 02/03/2015 the assessee requested to reverse the disallowance made on account of depreciation and pleaded the said ground. The Ld. CIT(A) after considering the submission of the A.R allowed the depreciation claimed by the assessee in following manners:-
“4.3.2. I have considered the order of the Assessing Officer and the submissions of the appellant. As has been mentioned above, no reasons have been given by the Assessing Officer for disallowing deprecation. It is also to be noted that the Assessing Officer has neither explicitly withdrawn exemption under section 11 nor any findings have been given that the trust was not being run for charitable purposes. Charitable trusts or institutions are governed by the provisions of sections 11, 12, 12A, 12AA and 13 under Chapter III of the Income-tax Act. These sections constitute a complete code governing the registration, providing exemption of income and also conditions subject to which a charitable grant, cancellation or withdrawal of trust or institution is required to function in order to be eligible for exemption. Section 11(1)(a) provides for exemption to the extent income derived from the property held under trust is applied for charitable purposes. Subject to fulfillment of conditions laid down in section 11, exemption is available in respect of income irrespective of whether the ITO Vs. Sri Sharda Institute of Indian Management Research Foundation Trust expenditure incurred is revenue or capital in nature. Hence, exemption is available even when the income is applied for acquiring a capital asset. In view of this, charitable institutions were not eligible for depreciation.
4.3.3 This view has been clarified in Para 7.5 of the Explanatory
Notes to the provisions of the Finance (No. 2) Act, 2014 issued vide
Circular No. 1/2015 dated 21st January, 2015. Section 11 was amended by the Finance (No. 2) Act, 2014 whereby a new sub- section has been inserted which provides that under section 11, income for the purposes of its application 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 section 11 in the same or any other previous year. Para 7.5 of the said Explanatory Notes are reproduced as under.
7.5 The second issue which had arisen was that the existing scheme of section 11 as well as section 10(23C) of the Income-tax Act provided exemption in respect of income when it is applied to acquire a capital asset. Subsequently, while computing the income for purposes of these sections, notional deduction by way of depreciation etc. was being claimed and such amount of notional deduction was not being applied for charitable purpose. As a result, double benefit was being claimed by the trusts and institutions. Therefore, these provisions were required to be rationalized to ensure that double benefit is not claimed and such notional amount does not get excluded from the condition of application of income for charitable purpose."
ITO Vs. Sri Sharda Institute of Indian Management Research Foundation Trust
4.3.4 There are many conflicting judgments of various Hon'ble High
Courts, including that of the jurisdictional High Court, both in favour and against allowability of depreciation. The Hon'ble Delhi High
Court, in the case of Director of Income Tax (Exemption) vs.
Charanjiv Charitable Trust [2014] 267 CTR 305, have held that if the cost of the asset has been allowed as deduction by way of application of income, then depreciation on the same asset cannot be allowed in computation of income of the trust (Para 30). However, in a subsequent decision, the Hon'ble Delhi High Court, in the case of DIT(Exemption) vs. Indraprastha Cancer Society in 348,
406, 463 & 464/2014 vide the order dated 18.11.2014, have held that the assessee is eligible for depreciation in the case of charitable or religious institution also.
4.3.5 A bare reading of the provisions relating to income from property held for charitable purposes shows that depreciation per se was not allowed as a deduction in the case of charitable or religious institutions. This issue has been laid to rest by amendment to section 11 by the Finance (No. 2) Act, 2014 which is effective from the assessment year 2015-16 and subsequent years. However, relying on the latest decision of the Hon'ble Delhi High Court in the matter of DIT (Exemption) vs. Indraprastha Cancer Society (supra), the claim of depreciation of the appellant is allowed. Since ITO Vs. Sri Sharda Institute of Indian Management Research Foundation Trust exemption under section 11 has not been allowed by the Assessing,
Officer, ground of appeal No. 5 is, hence, allowed.”
9. Since the issue regarding applicability of the amendment to Section 11 has been settled by the Hon'ble Jurisdictional High Court DIT (Exemption) Vs. Indraprastha Cancer Society, and other connected Appeals, we find no error or infirmity in the order of the CIT(A). Merely because a ground has been deleted by the assessee and later on pressed the said ground by way of a submission, the authorities cannot deny the legal entitlement of allowability of depreciation to the assessee, which has been rightly granted to the Assessee by the CIT(A), accordingly, we find no merit in Ground No. 2 to 8 and the Ground No. 2 to 8 of the Revenue are dismissed.
In the result, the Appeal filed by the Revenue is dismissed.
Order pronounced in the Open Court on: 27 .07.2023.