2023 (11) TMI 639 - AT - Income Tax

Assessment of trust - gross receipts computation - Depreciation claim of assessee trust - AO denied the claim for depreciation since the corresponding expenditure for acquisition of the asset was already claimed towards application of income in the earlier years - AO s inclusion of profit on sale of property at Thangam colony for arriving at the gross receipts and also for not considering the said amount for the purposes of arriving at application of income - HELD THAT - As correctly decided by CIT(A) assessee simply credited the Schedule of fixed assets of Padi school - The said addition was made under the head land and building , which had an opening WDV - there is no acquisition of any new asset. As per the written submission filed on 22.01.2020, the amounts were stated to be utilized for improvement and acquisition of other fixed assets. However, there is no acquisition of any new fixed assets. The conditions as laid down in sub section (1A) of Sec.11 stood violated and hence such amount cannot be included for the purposes of arriving at application of income . Thus, the AO s inclusion of profit on sale of property at Thangam colony for arriving at the gross receipts and also for not considering the said amount for the purposes of arriving at application of income, both are correct. Sec.11(1A) being violated, the impugned amount cannot be considered for application and the net consideration is taxable as capital gains. Issue of allowing depreciation on the assets, whose expenditure has already been claimed towards application of Income is settled in favour of the assessee by the decision of the Hon'ble Apex Court in the case of CIT Vs. Rajasthan and Gujarat Charitable Foundation ( 2017 (12) TMI 1067 - SUPREME COURT ) - The Hon'ble Apex Court further held that the decision of the Hon ble Bombay High Court in the case of CIT Vs Institute of Banking Personnel Selection (IBPS) 2003 (7) TMI 52 - BOMBAY HIGH COURT is correct, wherein the claim of depreciation in the case of trusts was held allowable on the assets whose expenditure was already claimed towards application of income. Thus, the AO should not have reduced the claim of depreciation while arriving at the application of income. AO is directed to consider the application of income (which means the claim of depreciation is allowed) against the income to be applied (which represents 85% of gross receipts). Accordingly ground no. 4 pertaining to the claim of depreciation is allowed and ground no. 5, 6 7 are dismissed.

Summary

Issues:
The appeal is directed against the order of the ld. Commissioner of Income Tax (Appeals), Chennai, relevant to the assessment year 2012-13. The delay in filing the appeal before the Tribunal due to the COVID-19 pandemic was condoned. The primary issue revolves around the assessment of the income of the assessee trust and the denial of depreciation claimed by the assessee.

Assessment of Income:
The Assessing Officer noted a discrepancy in the gross income declared by the assessee in its Income & Expenditure (I & E) account and the balance sheet. The Assessing Officer conducted a 'best judgment assessment' under section 144 of the Income Tax Act, 1961, assessing the income of the assessee at &8377;3,28,37,842 after various additions. The assessee later filed a petition under section 154 of the Act for rectification, which resulted in the taxable income being recomputed at &8377;2,72,51,772.

Claim of Depreciation:
The assessee contended that depreciation should not have been denied, citing the principle of block of assets under section 32 of the Act. The ld. CIT(A) observed that the conditions under section 11 of the Act were not complied with by the assessee regarding the sale proceeds of the Thangam colony property. The ld. CIT(A) held that the amount from the sale could not be considered for application of income and was taxable as capital gains. However, the ld. CIT(A) directed the Assessing Officer to allow the claim of depreciation, stating that the claim of depreciation on assets whose expenditure was already claimed towards application of income was settled in favor of the assessee by the decision of the Hon'ble Apex Court.

Decision:
Despite the absence of the assessee during the appeal hearing, the Tribunal found no reason to interfere with the order passed by the ld. CIT(A) on merits. Consequently, the appeal filed by the assessee was dismissed. The Assessing Officer was directed to consider the application of income at &8377;63,84,221, allowing the claim of depreciation, against the income to be applied of &8377;3,16,54,396. Ground no. 4 pertaining to the claim of depreciation was allowed, while ground no. 5, 6 & 7 were dismissed.

Separate Judgment:
The order was pronounced on 31st October 2023 at Chennai by Shri V. Durga Rao, Judicial Member, and Shri Manjunatha, G., Accountant Member.