2012 (8) TMI 640 - AT - Income Tax

Disallowance of depreciation - assessee society claimed exemption u/s 10(23C) - Held that - Tribunal decided the issue in assessee s own case of allowability of depreciation on the capital asset in favour of the assessee and observed that the judgment of the Hon ble Supreme Court in the case of Escorts India Ltd. reported in 1992 (10) TMI 1 - SUPREME Court is applicable to the facts of the present case though it is true that claiming depreciation, besides claiming the full cost of assets as application of income does prima facie look like a double claim of deduction and is unthinkable while computing the business income of any other person but such claim is allowable in the case of trusts/societies in order to make their working viable. - Decided in favor of assessee. Deduction claimed u/s 35(2)(iv) while computing the business income is not applicable to trusts/societies, as their income is not required to be computed in terms of section 28 to 44 of the Act, but is required to be computed in accordance with section 11 to 13 - Decided in favour of assessee.

Summary

Issues:
- Appeal against order of CIT(A) for assessment year 2004-05.
- Disallowance of depreciation claim.
- Applicability of Supreme Court decision in the case of Escorts Ltd.
- Claim of depreciation for trusts/societies.
- Appeal by revenue against CIT(A) order.
- Decision based on Tribunal's ruling in similar cases.

Analysis:
1. The appeal was filed against the CIT(A)'s order for the assessment year 2004-05. The revenue raised grounds challenging the CIT(A)'s decision, including the disallowance of a depreciation claim amounting to Rs. 52,08,811. The revenue contended that the CIT(A) erred in not sustaining the disallowance of depreciation, referring to the Supreme Court decision in the case of Escorts Ltd. & Another Vs. Union of India, 199 ITR 44.

2. The facts of the case revealed that the assessee society had filed its income tax return declaring NIL income under section 10(23C) of the Act. The assessment was completed under section 143(3), determining NIL income. Subsequently, a notice under section 147 was issued to reopen the assessment, disallowing the depreciation claim based on the Escorts Ltd. case. The CIT(A) analyzed the issue with reference to various case laws and ultimately deleted the disallowance made by the Assessing Officer.

3. The CIT(A) held that the decision in the Escorts Ltd. case regarding the deduction claimed under section 35(2)(iv) for computing business income did not apply to trusts/societies. The CIT(A) emphasized that the income of trusts/societies is computed under sections 11 to 13 of the Act, not sections 28 to 44. The CIT(A) concluded that the depreciation claim was allowable for trusts/societies to ensure their financial viability, citing relevant precedents.

4. The revenue appealed against the CIT(A)'s decision. During the hearing, the revenue relied on the Assessing Officer's order, while the assessee's counsel referenced a previous Tribunal ruling in a similar case. The Tribunal noted that the issue was comparable to the one decided in the case of M/s Kamineni Educational Society by a coordinate bench. The Tribunal upheld the CIT(A)'s decision based on the precedent set by the Tribunal in the M/s Kamineni Educational Society case and dismissed the revenue's appeal.

5. In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to allow the assessee's depreciation claim. The judgment was pronounced on 28/06/2012, based on the application of relevant legal principles and precedents in determining the allowability of the depreciation claim for trusts/societies.