2021 (3) TMI 393 - AT - Income Tax

Assessment of trust - depreciation claim - AO disallowed the claim of the assessee for depreciation on the ground that the cost of acquisition of the assets has been claimed as application of income under section 11 of the Act in earlier previous years when the assets were acquired and therefore allowing depreciation on those assets would amount to allowing double deduction which is not permissible u/s.11(6) of the Act - CIT(A) ultimately concluded that the assessee failed to prove that the cost of acquisition of the assets on which depreciation was claimed had not been claimed as application of income in the year of their acquisition - HELD THAT - Issue with regard to grant of depreciation should be remanded to the AO for fresh consideration. Admittedly, the assessee did not have proper opportunity of being heard before the CIT(A). The Assessee has given the list of fixed assets on which depreciation was claimed by the assessee detailing as to how the value of fixed assets were not claimed as application of income in the year of acquisition. This has not been considered either by the AO or by the CIT(A). Since the matter requires verification by the AO, we deem it fit and proper to set aside the issue to the AO for fresh consideration in the light of the observations made above and the evidence already on record with liberty to the Assessee to produce such other evidence as may be necessary or required to substantiate the claim of the Assessee. Appeal of the assessee is treated as allowed for statistical purposes.

Issues:
1. Claim of depreciation by the assessee on fixed assets.
2. Interpretation of section 11(6) of the Income Tax Act, 1961.
3. Consideration of evidence regarding the cost of acquisition of assets.
4. Adequacy of opportunity for the assessee to be heard before the CIT(A).

Claim of Depreciation on Fixed Assets:
The appeal by the assessee was against the order of the CIT(A) relating to the assessment year 2016-17. The assessee, a charitable trust, filed a return of income declaring Nil income for the year after claiming exemption under section 11 of the Act. The AO disallowed the claim of depreciation on fixed assets amounting to &8377; 7,97,671, citing section 11(6) of the Act, inserted by the Finance Act, 2014. The section prohibits deduction or allowance for depreciation on assets claimed as application of income under section 11 in previous years. The assessee contended that the cost of acquisition of the assets had not been claimed as application of income in the year of acquisition. The CIT(A) concluded that the assessee failed to prove this contention.

Interpretation of Section 11(6):
Section 11(6) of the Act states that income to be applied shall not allow any deduction or allowance for depreciation on assets claimed as application of income under section 11 in previous years. The assessee argued that the disallowance of depreciation was unjustified as the cost of acquisition of the assets had not been claimed as application of income in the year of acquisition. The Tribunal decided to remand the issue to the AO for fresh consideration, noting that the assessee did not have a proper opportunity to be heard before the CIT(A). The Tribunal emphasized the need for verification by the AO and allowed the assessee to produce additional evidence if required.

Consideration of Evidence on Cost of Acquisition:
The assessee presented a chart listing fixed assets on which depreciation was claimed and evidence showing that the value of fixed assets was not claimed as application of income in the year of acquisition. The Tribunal observed that this evidence was not considered by the AO or the CIT(A). Due to the lack of proper consideration of the evidence, the Tribunal deemed it necessary to set aside the issue for fresh consideration by the AO with liberty for the assessee to provide further evidence to support their claim.

Adequacy of Opportunity for the Assessee:
The Tribunal noted that the assessee did not have a proper opportunity to present their case before the CIT(A) due to the circumstances related to the COVID-19 pandemic. The Tribunal, therefore, decided to remand the issue to the AO for fresh consideration to ensure that the assessee has a fair opportunity to substantiate their claim. The appeal of the assessee was treated as allowed for statistical purposes.

This comprehensive analysis of the judgment provides a detailed understanding of the issues involved, the arguments presented, and the Tribunal's decision to remand the matter for fresh consideration.

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