2016 (5) TMI 709 - AT - Income Tax

Depreciation on the capital asset of trust disallowed - AO allowed exemption under Section 10(23C)(vi) - Held that - The fact remains that the Director of Income Tax (Exemptions) granted registration under Section 12AA of the Act after considering the object of the Sangam and the purpose for which it was established. The CIT(Appeals) by letter dated 17.03.2015 asked the assessee to furnish its objection, if any, for disallowing the claim under Section 11 of the Act or Section 10(23C) of the Act. The assessee now claims before this Tribunal that the letter dated 17.03.2015 was not served on it and the working said to be provided to the assessee by the CIT(Appeals) was also not furnished. Admittedly, the CIT(Appeals) passed the order on 26.03.2015. Therefore, from the date of issue of letter and the date of passing the order, the time limit available was only 9 days. If the CIT(Appeals) dispatched the letter dated 17.03.2015 by post, then the same would have been received after two or three days. Then, the available time would be only 5 or 6 days. If for any reason, the letter could not be served on the assessee within two or three days, then the time limit available to the assessee for furnishing objection would be reduced proportionately. Therefore, this Tribunal is of the considered opinion that even assuming for argument sake, the letter dated 17.03.2015 was served on the assessee, the time given to the assessee for filing objection is not sufficient enough. Therefore, the matter needs to be reconsidered by the Assessing Officer. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of depreciation on capital asset
2. Exemption under Section 11 of the Income-tax Act, 1961

Analysis:

1. Disallowance of Depreciation on Capital Asset:
The appellant, a charitable institution registered under Section 12AA of the Act, claimed depreciation on a capital asset. The Assessing Officer disallowed this claim and granted exemption under Section 10(23C)(vi) of the Act. The appellant challenged this disallowance before the CIT(Appeals), contending that the primary object of the institution was education, making it eligible for exemption under Section 11 of the Act. The CIT(Appeals) found a violation of Section 13(1)(b) of the Act, stating that the institution was established for the benefit of a particular caste, thus rendering it ineligible for exemption under Section 11. The appellant argued that the CIT(Appeals) exceeded jurisdiction by not limiting the discussion to the depreciation issue raised in the appeal. The Tribunal held that the CIT(Appeals) erred in not considering the objection raised by the appellant due to insufficient time provided for response. The matter was remanded to the Assessing Officer for a fresh examination, emphasizing an unbiased decision independent of the CIT(Appeals)'s observations.

2. Exemption under Section 11 of the Act:
The Departmental Representative argued that the CIT(Appeals) rightfully considered the violation of Section 13(1)(b) of the Act, which the Assessing Officer had overlooked. The representative contended that the CIT(Appeals) had the authority to address issues beyond those raised by the appellant, provided an opportunity was given. The Tribunal acknowledged the CIT(Appeals)'s duty to rectify omissions by the Assessing Officer but emphasized the need for a fair opportunity for the appellant to respond. The Tribunal concluded that the appellant should be given a reasonable chance to present objections, and the Assessing Officer should reevaluate the matter independently, without being swayed by the CIT(Appeals)'s observations. Ultimately, the appeal of the appellant was allowed for statistical purposes.

This detailed analysis of the judgment highlights the key issues of disallowance of depreciation on a capital asset and the eligibility for exemption under Section 11 of the Income-tax Act, 1961. The Tribunal's decision emphasizes the importance of procedural fairness and unbiased assessment in tax matters, ensuring that appellants have a reasonable opportunity to present their case and that decisions are made based on the relevant legal provisions.