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2014 (8) TMI 675 - AT - Income TaxPower to exercise revisional jurisdiction by CIT u/s 263 Claim of depreciation on assets not examined Amount deducted for the purpose of application towards charitable purpose Held that - The AO has not at all examined the issue of claim of depreciation on account of assets the cost of which has been claimed as application of income for charitable purpose - the CIT was justified in issuing the notice u/s.263 to the assessee asking it to explain as to why the order should not be set aside under the provisions of section 263 Relying upon CIT Vs. Institute of Banking Personnel Section 2003 (7) TMI 52 - BOMBAY High Court - the income relating to claim of depreciation on assets, the entire amount of which was claimed as deduction on account of application for charitable purposes the assessee is entitled to depreciation on assets, the entire amount of which was claimed as deduction on account of application for charitable purposes thus, the order passed by CIT u/s 263 is set aside Decided in favour of Assessee. Award of cost on the department u/s 254(2B) Held that - As decided in assessee s own case it has been rightly held that the CIT has passed an order during the course of discharge of her duty as CIT - While discharging her duty, her action might have caused some hardship to the assessee due to error of judgement but that in our opinion does not warrant levy of cost on the department Various decisions relied on by the assessee relate to levy of cost by the courts against administrative orders and not against judicial/quasi-judicial orders following the assessee s own case Decided against Assessee.
Issues Involved:
1. Validity of the revision order passed under section 263 of the Income Tax Act, 1961. 2. Entitlement of the assessee to claim depreciation on assets, the cost of which was claimed as application of income for charitable purposes. 3. Awarding costs to the assessee under section 254(2B) of the Income Tax Act, 1961. Detailed Analysis: 1. Validity of the Revision Order under Section 263: The assessee, a Trust running a hospital, filed returns declaring NIL income after claiming exemption under section 11 of the Income Tax Act. The Assessing Officer (AO) processed the return under section 143(1) and later issued a notice under section 148, completing the assessment under section 143(3) read with section 147. The Commissioner of Income Tax (CIT) invoked section 263, noting that the AO allowed depreciation on assets whose cost was already claimed as application of income, resulting in double deduction. The CIT deemed the AO's order erroneous and prejudicial to the revenue's interest, as the AO failed to disallow the depreciation claim without proper verification. The assessee contended that the depreciation claim was valid, citing decisions from the Bombay High Court and Punjab & Haryana High Court, which supported the allowance of depreciation on assets used for charitable purposes. Despite this, the CIT set aside the AO's order, directing a re-examination of the depreciation claim. 2. Entitlement to Depreciation on Assets: The Tribunal observed that the AO did not examine the depreciation claim during the assessment. The CIT's invocation of section 263 was justified due to the AO's lack of inquiry. However, the Tribunal noted that the Bombay High Court had ruled in favor of allowing depreciation on such assets, and since the revenue did not challenge this decision, it was binding. The Tribunal held that the CIT should have dropped the 263 proceedings upon being informed of the High Court's decisions. The Tribunal emphasized that the jurisdictional High Court's decision takes precedence over non-jurisdictional High Court decisions, and the AO's failure to examine the claim did not justify the CIT's action under section 263. Consequently, the Tribunal set aside the CIT's order, allowing the assessee's claim for depreciation. 3. Awarding Costs under Section 254(2B): The assessee sought costs under section 254(2B) for the alleged arbitrary and perverse exercise of judicial powers by the CIT. The Tribunal referenced its previous decision, where it declined to award costs in similar circumstances, noting that the CIT's action, while causing hardship, was part of their quasi-judicial duty and did not warrant cost imposition. The Tribunal dismissed the request for costs, stating that the CIT's action, though erroneous, did not demonstrate malafide intent. Conclusion: The Tribunal allowed the assessee's appeal regarding the validity of the depreciation claim on assets used for charitable purposes, setting aside the CIT's order under section 263. However, the Tribunal dismissed the assessee's request for costs under section 254(2B), maintaining that the CIT's quasi-judicial actions did not justify such an award. The decisions in all three appeals were consistent with this reasoning.
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