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Income Tax Appellate Tribunal, DELHI BENCH “C” NEW DELHI
सुनवाईक�तारीख/ Date of hearing: 04.05.2023 24.05.2023 उ�ोषणाक�तारीख/Pronouncement on आदेश /O R D E R
PER SHRI C.M. GARG, JM
1. This appeal has been filed by the Revenue against the order of Commissioner of Income Tax (Appeals)-40, Delhi dated 27.08.2018 for AY 2014-15.
The grounds raised by the Revenue read as follows: -
“The Ld.ITO(E) failed to appreciate that the assessee is a charitable institution within the meaning of Sec. 2(15) of the Act and the various observations made in this regard are arbitrary, untenable and against the facts on record.
2. The Ld.ACIT(E) has erred both on facts and in law in restricting depreciation to Rs.137989/- as against Rs.13000586/- claimed and allowable under the law.”
I.T.A.No.7074/Del/2018
The Ld. Sr. DR pressing into service grounds of Revenue submitted that on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in law, Ld.CIT(A) has erred in allowing the assessee the benefit of exemption even though the assessee has violated the provisions of Sec.
13(1)(c) r.w.s. 13(3) of the Income Tax Act, 1961, when assessee has failed to produce any documentary evidence which would substantiate that use of vehicles was for charitable purposes. He further submitted that on the facts and circumstances of the case and in law, Ld.CIT(A) has erred in allowing the claim of depreciation for the assets purchased in earlier years cost of which has been allowed as application of income, such claim being consequential in nature of allowance of benefit of exemption to the assessee.
Drawing our attention towards relevant part of the assessment order the Ld. Sr. DR submitted that no log book or any documentary evidence of maintaining proper record for usage of car by various specified person has been produced by the assessee and in absence of these documents, it cannot be denied that to a certain extent expenses incurred on account of repairs and maintenance of vehicles have been applied for personal use of the specified persons.
The Ld. Sr. DR further submitted that therefore 60% of expenses incurred on account of repairs and maintenance of vehicles was rightly disallowed being applied for personal uses of a specified persons and rightly added back to the total income of the assessee. The Ld. Sr. DR 2
I.T.A.No.7074/Del/2018 submitted that the Ld. First Appellate Authority allowed relief to the assessee without any basis. Therefore, impugned first appellate order may kindly be set aside by restoring that of the Assessing Officer.
Further drawing our attention towards paras 4 & 5 of assessment order the Ld. Sr. DR submitted that since the assessee was not found eligible for the benefit of exemption of Section 11 & 12 of the Income Tax Act, 1961 (for short “the Act”) and thus, it was assessed as per normal provisions of the Act, therefore, the depreciation was rightly allowed only on the assets acquired during the year under consideration as cost of fixed assets acquired during earlier years had been treated and allowed as application of income in the year of purchase. The Ld. Sr. DR submitted that the Ld. CIT(A) has granted relief to the assessee by deleting both the disallowances made by the AO, therefore, the impugned first appellate order may kindly be set aside by restoring that of the AO.
Replying to the above, the Ld. Assessee’s Representative strongly supported the first appellate order and submitted that the assessee incurred an expense of Rs.1,66,650/- on repair and maintenance of vehicles, 60% of which i.e. Rs.99,990/- was disallowed by the AO on the ground that since no log books were maintained, it cannot be ruled out that the vehicles may have been used for personal purposes of specified person.
I.T.A.No.7074/Del/2018
The Ld. AR submitted that identical issues were preceding AY 2009- 10 in the case of the assessee has been decided in favour of the assessee by order dated 21.02.2014 dismissing the ground of Revenue and the Ld.CIT(A) was right in following the same while granting relief to the assessee deleting the disallowance made by the AO on account on the allegation of personal use of vehicles.
Apropos ground no. 2 of Revenue the Ld. AR submitted that the AO disallowed depreciation amounting to Rs.1,28,62,597/- on the ground that this pertains to the assets purchased in the earlier years and the entire cost of fixed assets on which depreciation has been claimed, having been already allowed as application of income in the year of purchases. The Ld. AR submitted that this issue is also covered by the order of the Tribunal dated 21.02.2014 for AY 2009-10, wherein para 21 to 23 the Tribunal while dismissing the ground of Revenue, held that the depreciation is a normal expenditure incurred in the course of the activities and hence, the same needs to be deducted while computing the income. The Ld. AR also submitted that the identical issue has been adjudicated by the Hon’ble Supreme Court in the case of CIT vs. Rajasthan & Gujarat Charitable Foundation, Pune Judgment dated 13.12.2017 in civil appeal no. 7186/2014, wherein their lordships held that the amendment in Sec. 11(6) of the Act introduced through Finance Act 2/2014 is effective from AY 2015-16 onwards and it has no retrospective effect to present AY 2014-15.
I.T.A.No.7074/Del/2018
On careful consideration of the rival submissions, first of all we may point out that identical issue has been decided by the coordinate bench of the Tribunal in assessee’s own case in the order dated 21.02.2014 in Revenue appeal wherein the Tribunal dismissing ground no. 2 & 3 of assessee placing reliance on the judgment of Hon’ble Jurisdictional High Court of Delhi in the case of DIT vs. Vishwa Jagriti Mission held that the depreciation is inextricably linked with the charitable activities of the trust, therefore, the same needs to be deducted while computing the income as application of income. The relevant para 21 to 23 of Tribunal order read as follows:
“21. Ground No. 2 and 3 are regarding allowing depreciation despite the fact that the society has already claimed the same as deduction of income at the time of addition to the fixed assets. The AO allowed depreciation on the assets purchased during the current year only, and depreciation of assets purchased in earlier years was disallowed. The CIT(A) has deleted these additions following the judgment of the Hon’ble Delhi High Court in the case of ‘Director of Income Tax vs. Vishwa Jagriti Mission’, 73 DTR 195 (Del). We are in agreement with the order of the CIT(A). The assessee-society is a charitable institution and when income is applied towards charitable purposes including towards purchase of fixed assets, it is considered to be deduction of income and hence, income, to that extent, is considered as applied for charitable purpose and thus, not charged to tax u/s 11(1)(a) of the Act. The assessee having purchased the fixed assets and the same having been utilized in carrying out its activities, the income arising from the activities is to be computed by applying the normal principle of computation of income, which will include a charge on account of depreciation in respect of the fixed assets used for carrying out such activities. As such, depreciation is allowed while computing income of the year under consideration. It cannot be said that the fixed assets acquired had already been claimed as deduction. Depreciation is a normal expenditure incurred in 5 I.T.A.No.7074/Del/2018 the course of the activities and hence, the same need to be deducted while computing the income. This issue has been dealt with by the jurisdictional High Court in the case of ‘Director of Income Vs. Vishwa Jagriti Mission’, vide order dated 29th March, 2012, while making a distinction with the judgment of the Supreme Court in ‘Escorts Ltd. vs. Union of India’, as under: - “13. The judgment of the Supreme Court in Escorts Limited vs. Union of India (supra) has been rightly held to be inapplicable to the present case. There are two reasons as to why the judgment cannot be applied to the present case. Firstly, the Supreme Court was not concerned with the case of a charitable trust/institution involving the question as to whether its income should be computed on commercial principles in order to determine the amount of income available for application to charitable purposes. It was a case where the assessee was carrying on business and the statutory computation provisions of Chapter IV- D of the Act were applicable. In the present case, we are not concerned with the applicability of these provisions. We are concerned only with the concept of commercial income as understood from the accounting point of view. Even under normal commercial accounting principles, there is authority for the proposition that depreciation is a necessary charge in computing the net income. Secondly, the Supreme Court was the cost of the asset u/s 35(1) of the Act, which allowed deduction for capital expenditure incurred on scientific research. The question was whether after claiming deduction in respect of the cost of the asset u/s 35(1), can the assessee again claim deduction on account of depreciation in respect of the same asset. The Supreme Court ruled that, under general principles of taxation, double deduction in regard to the same business outgoing is not intended unless clearly expressed. The present case is not one of this type, as rightly distinguished by the CIT(Appeals).”
The above view is also supported by ‘CIT vs. Tiny Tots Educational Society’, 330 ITR 21 (P&H), ‘CIT vs. Shri Gujrati Samaj (Regd.)’, (2012) 349 ITR 559 (MP) and ‘CIT vs. Market Committee, Pipli’, (2011) 330 ITR 16 (P&H). 6
I.T.A.No.7074/Del/2018
In view of the above settled position of law, we uphold the order of the CIT(A) and reject ground nos. 2 and 3.” 11. Further from the copy of the order of Hon’ble High Court of Delhi dated 21.09.2016 in assessee’s own case, we also note that the appeal of the Revenue against the order of the Tribunal has been dismissed being time barred and as well as on the merits also. In view of the above noted factual position, we are inclined to hold that the issue raised by the Revenue in the first part of ground no. 2 is covered in favour of the assessee.
Ld. CIT DR could not show me any contrary judgment or factual position which may lead me to take a different view. Therefore, I hold that there is no ambiguity and perversity in the first appellate order, wherein the Ld.CIT(A) has allowed the claim of depreciation for assets purchased in the earlier years as application of income.
In the second part of ground no. 2 the Department has challenged the first appellate order on the ground that while the depreciation for the assets purchased in the earlier year cost of which has been allowed as application of income then the depreciation is not allowable.
However, from the copy of the judgment of Hon’ble Supreme Court in the case of Commissioner of Income Tax-III, Pune vs. Rajasthan & Gujarati Charitable Foundation, Pune (supra), their lordships in concluding para held as under: -
“After hearing learned counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High 7
I.T.A.No.7074/Del/2018 Court correctly states the principles of law and there is no need to interfere with the same. It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in 'Lissie Medical Institutions v. Commissioner of Income Tax'. It may also be mentioned at this stage that the legislature, realising that there was no specific provision in this behalf in the Income Tax Act, has made amendment in Section 11(6) of the Act vide Finance Act No. 2/2014 which became effective from the Assessment Year 2015-2016. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature. It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well. For the aforesaid reasons, we affirm the view taken by the High Courts in these cases and dismiss these matters.”
From the above judgment of the Hon’ble Apex Court, we respectfully further note that the amendment made in Sec. 11(6) of the Act vide Finance Act No. II/2014 is effective from AY 2015-16 onwards and the same has no retrospective effect for immediately preceding AY 2014-15 i.e. year under consideration. Furthermore, coordinate bench of the Tribunal in assessee’s own case for AY 2009-10 (supra) dealt with the issue of eligibility of assessee u/s 11 of the Act and dismissing the ground nos. 1, 4, 5, 6 & 8 of Department held as follows: -
“12. Further, as regards the allegation of the AO that the facilities of the society are being misused by the office bearers regarding cars, premises, etc., we notice that this issue got clarified during the course of the survey itself, where one of the employee, Mr. S.K. Dhall, in response to a specific question, stated that the vehicles were being used by the officers, staffers/faculty and also by other staff members, for liaison work of the society. This statement clearly addresses the concern of the AO. This statement 8
I.T.A.No.7074/Del/2018 being a statement recorded during the survey, it cannot be ignored, particularly when the AO has not brought any material to substantiate his allegation against the assessee. The survey report was also before the AO and in case he had any doubt about the same, he could have made further investigation, which he chose not to do. Having failed to do so, he cannot ignore the statement and draw adverse inference merely on the basis of assumptions. The CIT(A) has dealt with this issue in paras 5.11 and 5.12 as follows:- “The other allegation of the AO on this account is the office bearers are maintaining luxurious cars and the expenses related to their purchase, repair and maintenance being borne by the society. In this regard I have gone through the records and I notice that during survey a specific question was put to the employee, Mr. S.K. Dhall on 31.01.2012 where in response to question no.4 he has clarified as under:- “Vehicles owned by the IMM as per annexure A attached. These vehicles are used by the officers/ staffers/ faculty of IMM for attending various meetings/functions and also by other staff members for liaison work for IMM. These vehicles are also used by the speakers/ session chairman/ High dignitaries during the seminar/ training Programs.” 5.12 The above statement recorded during the survey clearly shows that the vehicles are being used for the purposes of the society. I further notice that during the course of the survey nothing adverse on this account has been found. In the absence of any evidence the allegation of the AO cannot be sustained. The AO has just made the allegation and has not given any basis, material or information on the basis of which such allegation is being made. On the contrary, the assessee has given explanation which has not been controverted.”
13. Similarly, the allegation of the Assessing Officer regarding a floor of the premises of the society being occupied by its Executive President does not violate the provisions of Section 13. The CIT(A) has considered this issue in para 5.13 of the impugned order in the following manner:- “5.13 The AO further alleged that the Executive President and the Director General have been staying on the 4th and 5th floor of the building of the Institute. In 9
I.T.A.No.7074/Del/2018 this regard the society has clarified that they have been occupying this in their capacity as the Executive President of the Society. In items of provisions of Section 13(2)(c) salary allowance or otherwise can be paid to such person for services rendered by such person. The only condition is that the amount so paid should not be in excess of what may be reasonably paid for such services. Allowing occupation of the premises to Executive President cannot be considered to be unreasonable. The AO has just made the allegation and has not even bothered to examine the same in the context of section 13(2)(c) of the Act. Accordingly I found that finding of the AO is not justified”
14. In this regard, Section 13(2)(c) specifically provides regarding payment of salary and allowances to the persons rendering services. It is not the case of the AO, as we notice from the assessment order, that the salary or the perquisites paid to the office bearers are either unreasonable, or excessive. As such, we are in agreement with the CIT(A) that no adverse inference on this account can be drawn against the society.
15. Similarly, we notice that as regards the alleged payment of Rs.12 Lacs by the assessee Society for a plot to Haryana Urban Development Authority, this payment was made under an MOU, for construction of a hostel for the society. This payment was made directly to the Haryana Urban Development Authority and not to any office bearer of HUDA. It was only on failure to get the permission from the Haryana Urban Development Authority that the amount was received back by the society. In these circumstances, the finding of the CIT(A) that the payment was for the benefit of the society, is a correct finding of fact and it cannot be said that any benefit has been passed on to any related person, so as to violate the provisions of Section 13 of the Act.
Likewise, the premises in Navjeevan Vihar was taken on rent by the Society, for setting up its Global Development Centre, which the society was running from Gurgaon. Thus, the adverse inference drawn by the AO in this regard is not tenable.
As regards the allegation of misuse of the credit card and the payments being personal in nature we are in agreement with the following finding given by the CIT(A) in para 5.23 of the order under appeal:-
I.T.A.No.7074/Del/2018
5.23 The appellant-society has submitted an explanation that expenses incurred through credit card are not personal in nature. These credit cards have been used to incur expenses for and on behalf of the appellant-society. The credit card facility is a facility like bank. I have gone through the list of the expenses which has been stated in the assessment order. I notice that the total of such expenses comes to Rs.6,04,872/- only. Further the total payments made by the assessee through credit card is of Rs.16,19,243/-. Accordingly based on this figure the AO is not correct in considering that entire training expenses of Rs.99,21,943/- is through credit card and 60% of the same is personal in nature. The appellant-society has stated that these expenses are not personal in nature and these are required to be incurred. The explanation of the assessee that these have been incurred for the seminars/conferences being organized by it for the various course being run by it whereby it is required to make presentation to the honorary faculty. The AO however could not bring any material that these expenses are personal. He has gone by the nomenclature of the expense assuming that the governing council members have bought these items for their personal use. In the absence of any evidence particularly keeping in view the fact that the survey was carried out and nothing incriminating on this aspect was found during the survey I am of the view that the allegation of the AO do not have any merit.
18. The society is an educational institution. It has made payment through credit card of only ` 16,19,243/-. As against this, the AO has considered the entire training expenses of ` 99,21,943/- and disallowed 60% of the same as being personal in nature. The society had submitted details of the same before the AO and AO has not been able to point out any particular item of the expenditure which can be considered to be personal in nature. A survey was conducted. Nothing adverse to the assessee emerged during survey on this account. The assessee has given an explanation that the expenses incurred through credit card were meant for the society. It organized various seminars and conferences, through which an eminent faculty was invited. Thus, the assumption of the AO that the expenditure incurred through credit card was personal, is not correct. The CIT(A) has correctly held that the facility of the credit card is a facility
I.T.A.No.7074/Del/2018 like that of a bank. The credit card has been used to incur expenses for and on behalf of the assessee society.
In the course of the hearing the learned DR could not point out any error or defect in the finding given by the CIT(A). We are in agreement with the CIT(A) that the objects of the assessee Society are educational in nature and hence, they fall within the meaning of ‘charitable purpose’ under Section 2(15) of the Act. The assessee is a Society registered under Section 12A of the Act.
In view of the above facts, we uphold the finding of the Ld. CIT(A) that the assessee is eligible for exemption under Section 11 and accordingly, ground Nos. 1, 4, 5, 6 and 8 raised by the Department are rejected.”
In view of foregoing discussion, we reached to a logical conclusion that the assessee is eligible for allowance of depreciation claimed on the cost of assets purchased during the preceding assessment years as application of income for present AY 2014-15 as the amendment in Sec.
11(6) of the Act is applicable from AY 2015-16 onwards and the same has no retrospective effect for present AY 2014-15. Therefore, in view of foregoing discussion, we reached to a logical conclusion that the Ld.CIT(A) right in holding that the assessee is eligible for claiming depreciation as application of income on the assets purchased during preceding assessment year and consequentially he is also eligible for benefit of exemption u/s 11 and other relevant provisions of the Act.
Accordingly, second part of ground no. 2 of Revenue is also dismissed being devoid of merits.
16. From the copy of the order of ITAT in assessee’s own case for AY 2009-10 reveals that, the disallowance made by the AO on account of personal use of car by office reasons, was deleted by the Ld.CIT(A) and 12
I.T.A.No.7074/Del/2018 findings of Ld. First Appellate Authority was uphold by the Tribunal with following observations and findings: -
“12. Further, as regards the allegation of the AO that the facilities of the society are being misused by the office bearers regarding cars, premises, etc., we notice that this issue got clarified during the course of the survey itself, where one of the employee, Mr. S.K. Dhall, in response to a specific question, stated that the vehicles were being used by the officers, staffers/faculty and also by other staff members, for liaison work of the society. This statement clearly addresses the concern of the AO. This statement being a statement recorded during the survey, it cannot be ignored, particularly when the AO has not brought any material to substantiate his allegation against the assessee. The survey report was also before the AO and in case he had any doubt about the same, he could have made further investigation, which he chose not to do. Having failed to do so, he cannot ignore the statement and draw adverse inference merely on the basis of assumptions. The CIT(A) has dealt with this issue in paras 5.11 and 5.12 as follows:- “The other allegation of the AO on this account is the office bearers are maintaining luxurious cars and the expenses related to their purchase, repair and maintenance being borne by the society. In this regard I have gone through the records and I notice that during survey a specific question was put to the employee, Mr. S.K. Dhall on 31.01.2012 where in response to question no.4 he has clarified as under:- “Vehicles owned by the IMM as per annexure A attached. These vehicles are used by the officers/ staffers/ faculty of IMM for attending various meetings/functions and also by other staff members for liaison work for IMM. These vehicles are also used by the speakers/ session chairman/ High dignitaries during the seminar/ training Programs.” 5.12 The above statement recorded during the survey clearly shows that the vehicles are being used for the purposes of the society. I further notice that during the course of the survey nothing adverse on this account has been found. In the absence of any evidence the allegation of the AO cannot be sustained. The AO has 13
I.T.A.No.7074/Del/2018 just made the allegation and has not given any basis, material or information on the basis of which such allegation is being made. On the contrary, the assessee has given explanation which has not been controverted.” 17. In view of above on being asked by the bench the Ld. Sr. DR could not show as any contrary view or finding of the Tribunal or any higher authority such as Hon’ble High Court. Therefore, we hold that the issue is squarely covered in favour of assessee by the order of the coordinate bench of the Tribunal in assessee’s own case for AY 2009-10.
Accordingly, the ground no. 1 of Revenue is also dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 24/05/2023