2017 (12) TMI 987 - AT - Income Tax

Revision u/s 263 - deduction on account of depreciation on assets of assessee trust need not to be allowed - Held that - As on today the disallowance of depreciation as done by the revenue pursuant to proceedings u/s.263 of the Act cannot be sustained in view of the quashing of the said orders by the Tribunal. The Hon ble High Court of Karnataka 2016 (3) TMI 462 - KARNATAKA HIGH COURT has also upheld the decision of the Tribunal. In such circumstances we are of the view that there is no merit in these appeals by the Revenue and they are liable to be dismissed. The disallowance of depreciation cannot be sustained.

Summary

Issues:
- Appeal by Revenue against orders of Commissioner of Income Tax (Appeals) regarding depreciation claimed by charitable trusts for Assessment Year 2008-09.
- Correctness of allowing depreciation on assets whose cost was claimed as application of income for charitable purpose.
- Application of Supreme Court's decision in Escorts Limited case regarding double deduction.
- Orders passed by Commissioner of Income Tax (CIT) under section 263 disallowing depreciation.
- Challenge by Assessees before Income Tax Appellate Tribunal (ITAT) against CIT's orders.
- Quashing of CIT's orders by ITAT and High Court.
- Appeals by Revenue against orders disallowing depreciation passed by Assessing Officers (AOs).
- Decision of ITAT to dismiss Revenue's appeals based on quashing of earlier orders.

Analysis:

The case involved appeals by the Revenue against orders of the Commissioner of Income Tax (Appeals) related to depreciation claimed by charitable trusts for Assessment Year 2008-09. The issue revolved around the correctness of allowing depreciation on assets whose cost had been claimed as application of income for charitable purpose. The Commissioner of Income Tax (CIT) invoked powers under section 263, considering the allowance of depreciation as erroneous and prejudicial to revenue's interest. The CIT referred to the Supreme Court's decision in Escorts Limited case, emphasizing on avoiding double deduction in such scenarios.

The CIT passed orders under section 263 directing the Assessing Officers (AOs) to disallow the claim for depreciation on assets where the cost was earlier allowed as application of income for charitable purpose. Subsequently, the AOs passed orders disallowing depreciation, in line with the CIT's directions. The Assessees challenged the CIT's orders before the Income Tax Appellate Tribunal (ITAT), which quashed the orders of the CIT. The Revenue appealed against the ITAT's decision to the High Court, which upheld the ITAT's decision.

The Assessees then appealed against the orders disallowing depreciation passed by the AOs, giving effect to the CIT's directions. The CIT (Appeals) held that since the foundation of the orders disallowing depreciation had been quashed by the Tribunal and upheld by the High Court, the addition on account of depreciation could not stand. The Revenue, aggrieved by the CIT (Appeals) orders, preferred appeals before the ITAT, reiterating the CIT's conclusions and highlighting the pending appeals against the High Court's decision.

After considering the submissions, the ITAT concluded that the disallowance of depreciation, as done by the Revenue based on the proceedings under section 263, could not be sustained following the quashing of those orders by the Tribunal and the subsequent affirmation by the High Court. Therefore, the ITAT dismissed the appeals by the Revenue, stating that the disallowance of depreciation could not be upheld.