2018 (9) TMI 776 - AT - Income Tax

Disallowance of depreciation to assessee trust - cost of assets on which depreciation was claimed was allowed as application of income - Held that - By virtue of judgment in the case of Rajasthan & Gujarati Charitable Foundation Poona (2017 (12) TMI 1067 - SUPREME COURT) even where cost of acquisition is treated as application of income, depreciation has to be allowed on such assets. Accordingly, we are of the opinion that assessee was eligible for claiming such depreciation. Excess application of income for earlier years claimed for carry forward not allowed - set off denied against the surplus for the impugned assessment year - Held that - There is no dispute that excess of application claimed by the assessee was the amount which was expended above its income. In other words, assessee only claimed excess application without considering accumulation of 15% allowed to it. In such circumstances, we are of the opinion that assessee was eligible for claiming the carry forward of excess over application of income pertaining to the earlier years. Orders of the lower authorities is set aside. AO is directed to give set off claimed by the assessee. Grounds of the assessee stand allowed. Gratuity paid to its employees not allowed as application of income - Claim of the assessee before us is that gratuity payment was actually paid during the relevant previous year, but the AO and CIT (Appeals) took a view that there was no actual cash outflow - Held that - Now before us, assessee has filed a list showing names of the persons to whom gratuity payments were claimed as effected during the relevant previous year. In the circumstances, we are of the opinion that the matter needs a fresh look by the ld. Assessing Officer. We set aside the orders of the lower authorities and remit the question regarding allowability gratuity payment of ₹ 13, 99, 817/- back to the file of the AO for consideration afresh in accordance with law. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of depreciation claimed by the assessee.
2. Excess application of income for earlier years not allowed for carry forward.
3. Gratuity payment to employees not allowed as application of income.

Issue 1: Disallowance of Depreciation Claimed by the Assessee:
The appellant, a trust registered under section 12AA of the Income Tax Act, challenged the disallowance of depreciation amounting to ?64,95,237. The appellant argued that even though the cost of assets was treated as application of income, depreciation should still be allowed based on a judgment of the Hon'ble Apex Court. The Departmental Representative agreed that the appellant was eligible for depreciation. The Tribunal held that the appellant was entitled to claim depreciation on assets, even if the cost was considered as application of income. Consequently, the claim of depreciation was allowed, and the appellant's grounds 1 to 6 were upheld.

Issue 2: Excess Application of Income for Earlier Years Not Allowed for Carry Forward:
The appellant contended that excess application of income for previous years was not allowed for carry forward and set off against the surplus for the impugned assessment year. The appellant claimed that based on a judgment of the Jurisdictional High Court, they were eligible for the carry forward of such excess. The Departmental Representative argued that the trust's income should not be computed as per specific sections of the Act, and thus, the carry forward was not justified. The Tribunal held that the appellant could claim carry forward of excess application over income for various reasons, including depreciation. The Tribunal referred to the judgment of the Jurisdictional High Court and directed the Assessing Officer to allow the set off claimed by the appellant. Therefore, the appellant's grounds 7 & 8 were allowed.

Issue 3: Gratuity Payment to Employees Not Allowed as Application of Income:
The appellant's claim of gratuity payment to employees amounting to ?13,99,817 was disallowed, as the Assessing Officer questioned the actual cash outflow. The appellant argued that the payment was made during the relevant year and provided a list of persons who received the gratuity. The Tribunal found that the matter required further examination by the Assessing Officer. The lower authorities' orders were set aside, and the question of the gratuity payment was remitted back to the Assessing Officer for fresh consideration. The appellant was instructed to provide evidence of the payments made. Therefore, the appellant's grounds 9 to 11 were allowed for statistical purposes.

In conclusion, the Appellate Tribunal ITAT Chennai partially allowed the appeal of the assessee, granting relief on the issues of depreciation disallowance, excess application of income carry forward, and gratuity payment disallowance, while dismissing certain other grounds not pressed by the appellant.