2023 (2) TMI 919 - AT - Income Tax

Rectification of mistake - Assessment of trust - depreciation on Fixed Assets denied - Correct head of income - assessee declared the entire income under the head income from other sources and the CPC did not give benefit of depreciation on the Fixed Assets - as per DR there is no provision in the Income Tax Act for granting deprecation except specified in sec. 57 and as receipt of the truest is more than Rs. One crore, accordingly it is not eligible for exemption as per section 10(23C)(iiiad) - HELD THAT - On going through the income and expenditure account and the entire submissions of the assessee, the assessee wrongly offered the income from under the income from other sources u/s 56 of the Act. After going through the sec.56, as observe that the income earned by the assessee does not fall under the head of income from other sources . The sole purpose as per submission of the assessee is to running a school for educational purposes to students, therefore, if any income received by the assessee will not fall under the head income from other sources . The income of the assessee should be computed under the head profit and gains of business profession as per under Chapter IV D , therefore the income should be computed as per Chapter IV D of the I.T. Act. As per section 14 of the Act heads of income has specified the manner procedure for calculating the total income after considering the relevant sections/provisions of the Act. Since the assessee s activities falls under the head D - Profits and gains of business or profession, therefore the assessee is eligible for depreciation on Fixed assets as per section 32 of the Act. CIT(A) as dismissed appeal of the assessee on wrong footings. Even in the order passed u/s 143(1) , the CPC gives opportunity the for filling the rectification application. It is clear that not granting depreciation on Fixed Assets were mistake apparent from the record which could have rectified by the authorities below. CIT(A) should have corrected the mistake which are done by the AO/CPC whereas the CIT(A) has decided only the issue that it is debatable issue and it cannot be rectified u/s 154 of the Act. Assessee himself wrongly declared its income under the head income from other sources . The income should be computed as per manner prescribed in the Act under the head D.- Profits and gains of business or profession. The depreciation is notional expenditure and it is statutory incentive to the assessee if the assessee has satisfied all the conditions for getting depreciation. Since the lower authorities have not examined the preliminary requirement for getting depreciation allowances as per sec. 32 of the Act and computation of depreciation also - Thus remit this issue to the file of the AO for the eligibility of the depreciation claimed. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
- Disallowance of depreciation on Fixed Assets claimed by the assessee.

Detailed Analysis:
1. The appeal was filed against the order disallowing depreciation on Fixed Assets claimed by the assessee. The assessee, a trust providing educational services, filed a return of income declaring income from other sources, which was processed disallowing depreciation. The Assessing Officer rejected the rectification application, stating the trust was not eligible for exemption under section 10(23C)(iii)(ad) due to gross receipts exceeding one crore. The Commissioner (Appeals) noted that allowing depreciation was a debatable issue and upheld the disallowance.

2. The Income Tax Appellate Tribunal (ITAT) heard the appeal. The assessee argued for depreciation based on case law and provisions of the Income Tax Act. The Departmental Representative contended that there was no provision for granting depreciation except as specified in section 57 of the Act, and the trust's receipts exceeded the exemption limit under section 10(23C)(iiiad).

3. After reviewing the facts and submissions, the ITAT noted that the assessee incorrectly declared income under "income from other sources" instead of "profits and gains of business or profession." The ITAT referred to section 56 of the Act, stating that income from running a school for educational purposes should be computed under Chapter IV D, not under "income from other sources." The ITAT emphasized that since the activities fell under "profits and gains of business or profession," the assessee was eligible for depreciation on Fixed Assets under section 32 of the Act.

4. The ITAT cited a case law regarding rectification under section 154 and highlighted the need for correct tax assessment. It noted that the authorities should rectify mistakes like not granting depreciation, which was a statutory incentive. The ITAT found that the lower authorities did not assess the eligibility and computation of depreciation properly. Therefore, the ITAT remitted the issue to the Assessing Officer for a decision based on law and directed the assessee to provide necessary documents for substantiating the claim.

5. Ultimately, the ITAT allowed the appeal for statistical purposes, emphasizing the importance of correct assessment and computation of depreciation as a statutory incentive for eligible entities. The decision was pronounced on 21st February 2023.