2011 (3) TMI 1754 - AT - Income Tax

Issues Involved:
1. Inclusion of asset withdrawal values in gross receipts.
2. Utilization and inclusion of depreciation reserve in gross receipts.
3. Allowance of depreciation claim on motor buses at 40%.
4. Inclusion of grants received in gross receipts.
5. Exemption under section 11(1)(a) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Inclusion of Asset Withdrawal Values in Gross Receipts:
Assessment Year 2005-06:
The CIT included Rs. 21.34 crores in the gross receipt, arguing that these amounts represented the gross value of assets withdrawn from the asset schedule, not the actual realization of scrap value, which was Rs. 5.6 crores. The Tribunal noted that both the AO and CIT misunderstood the nature of the entries in the books. The Tribunal explained that the entries for depreciation reserve and asset write-offs do not result in accretion of income. Hence, the Tribunal remitted the issue back to the AO for a detailed examination.

Assessment Year 2006-07:
Similarly, the CIT included Rs. 60.4 crores in the gross receipt, arguing it represented the gross value of assets withdrawn from the asset schedule, not the actual realization, which was Rs. 3.32 crores. The Tribunal found the CIT's and AO's understanding flawed and remitted the issue back to the AO for a detailed examination.

2. Utilization and Inclusion of Depreciation Reserve in Gross Receipts:
Assessment Year 2005-06:
The CIT noted that the actual utilization of depreciation reserve was Rs. 34.92 crores, whereas the AO considered Rs. 21.34 crores. The Tribunal found that the entries for depreciation reserve do not result in accretion of income and remitted the issue back to the AO for a detailed examination.

Assessment Year 2006-07:
The CIT noted that the actual utilization of depreciation reserve was Rs. 38.49 crores, whereas the AO considered Rs. 9.35 crores. The Tribunal found the CIT's and AO's understanding flawed and remitted the issue back to the AO for a detailed examination.

3. Allowance of Depreciation Claim on Motor Buses at 40%:
Assessment Year 2005-06:
The CIT argued that the assessee was not eligible for a higher rate of depreciation as it was not in the business of running buses on hire. The Tribunal, relying on the ruling of the Hon'ble Kerala High Court in CIT v. Balakrishna Transports, held that the assessee is entitled to claim depreciation at 40% on motor buses.

Assessment Year 2006-07:
The Tribunal applied the same reasoning as in the previous year and held that the assessee is entitled to claim depreciation at 40% on motor buses.

4. Inclusion of Grants Received in Gross Receipts:
Assessment Year 2006-07:
The CIT included Rs. 1.64 crores in the gross receipt, arguing that the grants received from CRF and MLA were not fully accounted for in the miscellaneous receipts. The Tribunal remitted the issue back to the AO to ascertain the facts from the books of accounts and decide the issue afresh on merits.

5. Exemption under Section 11(1)(a) of the Income Tax Act:
Assessment Year 2006-07:
The CIT argued that the exemption should be calculated on the net income, not the gross receipts. The Tribunal, relying on the decision in ITA No. 589/Bang/2009, held that the AO correctly allowed the exemption based on the net income.

Additional Ground:
The assessee argued that the amount withdrawn from the depreciation reserve should not be included in the gross income for the purpose of section 11. The Tribunal remitted this issue back to the AO for examination and appropriate action in accordance with the law.

Conclusion:
The Tribunal partly allowed the appeals for statistical purposes, remitting several issues back to the AO for detailed examination and fresh consideration. The Tribunal emphasized the need for a thorough review of the books of accounts to ensure accurate tax assessment.

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