2018 (5) TMI 426 - AT - Income Tax

Denial of Exemption u/s. 11 - investments were made in wholly owned subsidiary company and therefore it is hit by the provisions of section 11(5) r.w.s. 13(1)(d)(iii) - Held that - We find that identical issue came up before the Coordinate Bench in the immediately preceding Assessment Years 2010-11 & 2011-12 wherein Coordinate Bench considering the facts and circumstances for which the investments were made in the subsidiary company, it was held that there is no violation of the provisions of section 11(5) r.w.s. 13(2) and 13(3) of the Act. It was held that the investments were made in its wholly owned subsidiary company in accordance with the directions of the SEBI and therefore there is no violation of provisions of the Act. Thus the assessee is entitled for the exemption u/s. 11 of the Act. This ground of appeal is allowed. Not allowing the setoff of earlier years loss against current year s income - Held that - Excess of expenditure in earlier years can be adjusted against income of subsequent years and such adjustment would be application of income for subsequent years and therefore we direct the Assessing Officer to allow the claim of the assessee for set off of excess expenditure of earlier years against current year s income following case of CIT v. Institute of Banking Personnel Selection 2003 (7) TMI 52 - BOMBAY High Court Not allowing the quantum of depreciation as claimed - Held that - On a perusal of the Assessment Order, we find that, there is neither discussion nor any finding recorded by the Assessing Officer regarding denial of depreciation to the assessee. Further we also find that assessee has raised ground before the Ld.CIT(A) on this issue but the Ld.CIT(A) by simply following the order of his predecessor for the Assessment Year 2011-12 dismissed the appeal for A.Y. 2012-13 with a direction to follow the order for the Assessment Year 2011-12. As stated by the Ld.CIT(A) that in so far as the issue of carry forward of set off of deficit is concerned he is in agreement with the view taken by the Assessing Officer. Ld.CIT(A) further recorded that no submissions were made with reference to other issues raised in grounds of appeal. Therefore, there was no discussion either in the Assessment Order or in the Ld.CIT(A) order regarding disallowance of depreciation on assets. In the circumstances, we feel it appropriated to restore this matter to the file Assessing Officer for fresh examination

Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act for Assessment Years 2010-11 and 2011-12.
2. Denial of exemption under Section 11 of the Income Tax Act for Assessment Year 2012-13.
3. Setoff of earlier years' losses against current year's income.
4. Allowance of depreciation on assets whose cost has been fully allowed as application of income under Section 11 in past years.

Detailed Analysis:

1. Denial of Exemption under Section 11 for Assessment Years 2010-11 and 2011-12:
The appeals for Assessment Years 2010-11 and 2011-12 were filed against the orders of the CIT(A) rejecting the applications for rectification under Section 154 of the Income Tax Act. The Tribunal had previously allowed the assessee's claim for exemption under Section 11 for these years. Consequently, the appeals filed by the assessee against the CIT(A)'s orders became infructuous. Therefore, the Tribunal dismissed these appeals as infructuous.

2. Denial of Exemption under Section 11 for Assessment Year 2012-13:
The issue for Assessment Year 2012-13 was identical to that of the preceding years. The Tribunal had previously allowed the exemption under Section 11 for the earlier years, holding that investments made in the wholly owned subsidiary were in accordance with SEBI directions and did not violate the provisions of Section 11(5) read with Section 13(2) and 13(3). The Tribunal followed this precedent and held that the assessee was entitled to exemption under Section 11 for Assessment Year 2012-13 as well.

3. Setoff of Earlier Years' Losses Against Current Year's Income:
The assessee claimed that excess expenditure incurred in earlier years should be allowed to be set off against the current year's income. This issue was covered by the decision of the Hon'ble Bombay High Court in the case of CIT v. Institute of Banking Personnel Selection, which held that such adjustment would be considered as the application of income for subsequent years. The Tribunal directed the Assessing Officer to allow the claim for setoff of excess expenditure of earlier years against the current year's income, following the High Court's decision.

4. Allowance of Depreciation on Assets:
The assessee contended that depreciation should be allowed on assets whose cost had been fully allowed as application of income under Section 11 in past years. This issue was also covered by the decision of the Hon'ble Bombay High Court in the case of CIT v. Institute of Banking Personnel Selection, which was affirmed by the Hon'ble Supreme Court. The Tribunal noted that there was no discussion or finding by the Assessing Officer or CIT(A) on this issue. Therefore, the Tribunal restored the matter to the file of the Assessing Officer for fresh examination in light of the Supreme Court's decision.

Conclusion:
The appeals for Assessment Years 2010-11 and 2011-12 were dismissed as infructuous. For Assessment Year 2012-13, the Tribunal allowed the exemption under Section 11, allowed the setoff of earlier years' losses, and restored the issue of depreciation to the Assessing Officer for fresh examination. The appeal for Assessment Year 2012-13 was partly allowed.

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