2010 (2) TMI 1156 - AT - Income Tax

Rectification u/s.154 - period of limitation - set off against the surplus - exemption u/s.10(23C)(vi) expenses - claimed the set off - unabsorbed expenses - HELD THAT - Request for rectification was made by the assessee vide application as made beyond the prescribed time of four years. Undisputedly the stand of the assessee that it can be done and the order could be rectified in the light of the facts is a debatable point and, therefore, it is beyond the scope of section 154, as held by the Hon'ble Supreme Court and rightly relied by the assessee in the case of T. S. Balram, ITO v. Volkart Brothers 1971 (8) TMI 3 - SUPREME COURT . On this ground appeal by the revenue is to be allowed and we quash the order of the CIT(A). The order of the AO stands. Since we have decided the preliminary issue in favour of the revenue, there is no need for us to decide the other points on merit. Appeals by the revenue for assessment years 2002- 03 to 2005-06 are allowed. Claim of depreciation on new assets - We respectfully following the decision of the Hon'ble Bombay High Court in the case of Institute of Banking 2003 (7) TMI 52 - BOMBAY HIGH COURT , we hold that the CIT (A) was justified in allowing the assessee's claim of depreciation on new assets put into use during the accounting year, even if the entire cost of these assets have been claimed by the assessee and allowed as an application of the income for charitable purposes. This ground of the revenue is allowed. Carry forward of deficit of earlier years , this ground of the revenue is liable to be dismissed. In the other cases for the AY 2002-03 to 2005-06, we allowed the appeal of the revenue for the reason that the order was passed u/s.154 and the issue was beyond the scope of section 154. Coming to AY 2006-07, this ground by the revenue is to be dismissed because, merit we have held that though the point is to be decided in assessee's favour for earlier years, since it is a debatable point, it cannot be considered u/s.154, Whereas this order by the AO was u/s.143(3), therefore, this ground by the revenue for the year under consideration is liable to be dismissed. Donation received and profit on sale of shares directly taken to Corpus Fund - We are of the view that this ground by the revenue is to be dismissed. According to the revenue, CIT (A) erred in not considering the provisions of section 11(1)(d) which excludes only voluntary contributions made with a specific direction that the same should form part of the corpus fund of the trust. According to the revenue, further CIT (A) went wrong in holding that the donations are capital receipts but without giving a finding that these donations were received with a specific direction that they should form the corpus fund of the trust.This ground is dismissed.

Issues Involved:
1. Application of Section 154 for rectification of errors.
2. Allowance of carry forward of deficit for set off against surplus in subsequent years.
3. Admissibility of depreciation as an application of income for charitable purposes.
4. Treatment of donations received and profits on sale of shares as capital receipts.

Detailed Analysis:

1. Application of Section 154 for Rectification of Errors:
The revenue contended that the Commissioner of Income-tax (Appeals) [CIT(A)] erred in allowing the assessee's application under Section 154 of the Income Tax Act, 1961, even though it was barred by limitation under Section 154(7). The CIT(A) considered the application for rectification in respect of the processing order under Section 143(1), which is not appealable, and assumed jurisdiction incorrectly. The Tribunal found that the application was indeed time-barred and that the issues raised were debatable, thus not falling within the scope of Section 154. The Tribunal quashed the CIT(A)'s order and upheld the Assessing Officer's (AO) rejection of the rectification application.

2. Allowance of Carry Forward of Deficit for Set Off Against Surplus in Subsequent Years:
The CIT(A) directed the AO to allow the carry forward of the deficit from earlier years for set off against the surplus of subsequent years, despite no specific provision in the Income Tax Act for such carry forward. The Tribunal noted that the CIT(A) relied on judicial precedents that allowed such carry forward. However, the Tribunal held that since the issue was debatable and beyond the scope of Section 154, the CIT(A)'s direction was incorrect. The Tribunal allowed the revenue's appeal on this ground, emphasizing that the rectification order passed by the AO was correct and in accordance with the law.

3. Admissibility of Depreciation as an Application of Income for Charitable Purposes:
The CIT(A) allowed the assessee's claim for depreciation on new assets put into use during the accounting year, even if the entire cost of these assets had been claimed as an application of income for charitable purposes. The Tribunal upheld this view, citing the decision of the Bombay High Court in the case of Institute of Banking, which supported the allowance of depreciation in addition to the cost of assets. The Tribunal dismissed the revenue's appeal on this ground, affirming that depreciation should be allowed as an application of income.

4. Treatment of Donations Received and Profits on Sale of Shares as Capital Receipts:
The CIT(A) held that donations received with specific directions towards development fees and profits on the sale of shares should be treated as capital receipts. The revenue contended that the CIT(A) failed to consider Section 11(1)(d) of the Income Tax Act, which excludes only voluntary contributions made with a specific direction to form part of the corpus fund of the trust. The Tribunal dismissed the revenue's appeal on this ground, agreeing with the CIT(A)'s finding that the donations were collected with a specific direction and should be treated as capital receipts.

Conclusion:
The Tribunal allowed the revenue's appeals for the assessment years 2002-03 to 2005-06, quashing the CIT(A)'s orders on the grounds that the rectification applications under Section 154 were time-barred and the issues were debatable. For the assessment year 2006-07, the Tribunal upheld the CIT(A)'s decision to allow depreciation but dismissed the revenue's appeal regarding the carry forward of the deficit, as the assessment was under Section 143(3) and not Section 154. The Tribunal also dismissed the revenue's appeal concerning the treatment of donations and profits on the sale of shares as capital receipts. The cross objections filed by the assessees were dismissed as infructuous.

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