2018 (7) TMI 219 - AT - Income Tax

Depreciation to assessee trust - principles of the appellant society under section 11 - double deduction - Held that - The issue of depreciation is squarely covered in favour of the assessee in assessee s own case by the judgement of Hon ble Delhi High Court in case of DIT(E) vs. Indraprastha Cancer Society (2014 (11) TMI 733 - DELHI HIGH COURT). In the said judgement the Hon ble Delhi High Court has duly noted that insertion of Sub Section (6) to Section 11 of the Act has been inserted w.e.f. 01st April, 2015 only and, therefore, the legal position would undergo a change and will be applicable w.e.f. 1st April, 2015 only and will not be applicable to earlier Assessment Years. Since the present appeal before us pertains to the A.Y. 2010-11, the issue stands covered in favour of the assessee Provision for bad and doubtful debts - Held that - This issue is also covered in favour of assessee by the judgement of Hon ble Delhi High Court in the case of DIT(E) vs. National Association of Software and Services Companies (2012 (5) TMI 204 - DELHI HIGH COURT) Tribunal was right in law in holding that the provision for doubtful debts must be deducted from the income of the trust on commercial principles, for the purposes of Section 11(1)(a) of the Act - Decided in favour of the assessee

Summary

Issues:
1. Disallowance of depreciation for computing income under section 11 of the Income Tax Act.
2. Disallowance of provision for bad debts while determining income on commercial principles under section 11 of the Act.
3. Disallowance of loss on sale of capital assets under section 11 of the Act.

Analysis:

1. The appeal was filed against the order disallowing depreciation of ?6,52,45,727 for computing the income of the appellant society under section 11 of the Income Tax Act. The Assessing Officer (A.O.) disallowed the depreciation, considering it as a double deduction. However, the Ld. A.R. argued that the issue of depreciation was in favor of the assessee based on a judgment of the Hon'ble Delhi High Court. The ITAT agreed with the A.R., stating that the legal position changed only from April 1, 2015, and as the appeal was for the A.Y. 2010-11, the issue was covered in favor of the assessee. Hence, ground no.1 of the appeal was allowed.

2. The disallowance of the provision for bad debts of ?12,74,419 was also challenged. The A.O. disallowed the provision stating that bad debts are allowable only when written off in the books of accounts. The Ld. A.R. relied on a judgment of the Hon'ble Delhi High Court, which allowed the deduction of the provision for bad and doubtful debts on commercial principles. The ITAT, in line with the judgment, held that the provision for bad debts must be deducted from the income of the trust on commercial principles for the purposes of Section 11(1)(a) of the Act. Consequently, ground no.2 of the appeal was allowed.

3. The issue of disallowance of the loss on the sale of capital assets was not pressed by the Ld. A.R. due to significant accumulated losses of the assessee society. Therefore, ground no.3 was dismissed as 'not pressed.' Grounds 4 and 5, being general in nature, were not adjudicated upon. Ultimately, the appeal filed by the Assessee was partly allowed by the ITAT.

This detailed analysis of the judgment highlights the arguments presented, legal precedents cited, and the ITAT's decisions on each issue raised in the appeal.