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TMI Blog2024 (1) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... ct is at one apparent from the original assessment order itself, wherein reference has been made to order sheet notings whereby the assessee was show caused for making addition of the funds collected by the assessee, as income for the year. It is also been accepted by the department itself in its written submissions filed before us and also the comments of the DCIT (Exemptions), Circle-1, Chandigarh, assessment was proceeded with in reference to the provisions of Sections 11 and 12 of the Act. It is only in the said comments of the DCIT, Circle-1 (Exemption), Chandigarh that for the first time, a case has been tried to be made out, that the reference to Sections 11 and 12 of the Act was inadvertently made in the assessment order, which may be treated as a typing mistake. Such methodology, in our considered opinion, is unheard of. Firstly, the flow of the assessment order itself makes it amply clear and apparent that the AO was fully aware and conscious of invocation of the provisions of Sections 11 and 12 of the Act. From this last observation also, it is evident that the AO was fully conscious of the invocation of the provisions of Sections 11 and 12 of the Act while making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1953, that the Hon'ble Bombay High Court in Tejaji Farasram Kharawa [ 1953 (3) TMI 29 - BOMBAY HIGH COURT] held that it is a well established principle of law that when an appeal is provided from a decision of a Tribunal and the Appeal Court after hearing the appeal passes an order, the order of the original Court ceases to exist and is merged in the order of the Appeal Court and although the Appeal Court may merely confirm the order of the Trial Court, the order that stands and is operative is not the order of the Trial Court but the order of the Appeal Court. In the case at hand, the Appeal Court, i.e. the ld. CIT(A) has affirmed/confirmed the order of the Trial Court, i.e., the AO and that too, by a speaking order. Therefore, it is the CIT(A) s order that the AO s order stands merged. No decision contrary to the above case laws has been cited by the Department before us, nor has it been pleaded that the law laid down therein is either not a law of the land or is not the law applicable to the facts of the present case. There is no force in the Department s contention that the original order dated 05.03.2017 is void ab-initio and that accordingly, the appeal of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee : Shri Aman Parti, Advocate For the Revenue : Shri Anil Sharma, JCIT, Sr. DR ORDER PER A.D. JAIN, VICE PRESIDENT This is an appeal filed by the assessee against the order of the Ld. CIT(A) Patiala dated 05.03.2019 pertaining to assessment year 2015-16. 2. The assessee has raised the following revised grounds of appeal : 1. That the order passed by the Commissioner of Income Tax (Appeals) is illegal, arbitrary, bad in law and against the facts of the case. 2. That the Commissioner of Income Tax (Appeals) erred on facts and law in upholding the addition (amounting to Rs 2,47,58,982/-) made by the Assessing Officer by invoking the provisions of section 11 12 in case of appellant being an educational institution approved u/s 10(23C)(vi) of the Income Tax Act, 1961. 3. That the Commissioner of Income Tax (Appeals) erred on facts and law in upholding the order of the Assessing Officer treating tied up grants received from the government as income of the appellant. 4. That the Commissioner of Income Tax (Appeals) erred on facts in law in upholding the order of the Assessing Officer disallowing depreciation as application of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Assessing Officer treated the above as income of the appellant, ignoring the fact that the amounts collected by the appellant from the students never vested with it and that further, the Assessing Officer, in making the above addition, also disallowed depreciation as application of income ignoring the facts of the case. 3.1 The ld. Commissioner of Income Tax (Appeals) accepted the fact that the excess of income over expenditure belonged to the consolidated fund of the State of Punjab (tied up grant in aid) that this being so, it did not vest with the appellant. 3.2 The grievance of the assessee by way of the present appeal is that accepting, as above, the Commissioner (Appeals) still goes on to uphold the order of the Assessing Officer, who had treated the said excess as income of the appellant and that further, the Commissioner of Income Tax (Appeals) also wrongly upheld the disallowance of the claim of depreciation towards application of income, disregarding/ overlooking the fact that the appellant had not claimed cost of the fixed assets as application of income. 4. The ld. Counsel for the assessee has contended that the order passed by the Commissioner of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income for charitable purposes, when the assessee again claims the same amount in the form of depreciation, such notional claim becomes cash surplus available with the assessee i.e. statutorily required to be applied for its aims and objects; that this is true even if the assessee is assessed as an AOP, the assessee claims depreciation on the assets whose cost was allowed in the previous years; and that therefore, even if the assessee is assessed as an AOP for a particular year, it cannot claim the notional depreciation on the assets whose value has already been shown as written off. 8. While upholding the addition made by the AO, the ld. CIT(A) held, following the CIT(A) s order for the earlier years, that in those years, the ld. CIT(A) had upheld a part of the assessee's submission, to the extent that the excess of income over expenditure is in the nature of Grain-in-Aid and it belongs to the consolidated fund of the State and that the assessee cannot incur any expenditure without the express approval of the State Government and the University; that he was relying on the said decision of the CIT(A), to that extent as judicial discipline. It was held that the assessee Soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... School , 2013 (7) TMI 812 (copy at ACL PB-II, pages 60-64). 10. The Department, on the other hand, by way of its written submissions dated 17.05.2023, has reiteration in her arguments by the ld. DR, has contended, inter-alia, that the comments of the concerned AO, i.e., the DCIT, Circle-I (Exemptions) Chandigarh were called for; that in his comments dated 10.05.2023 (reproduced at pages 3-4 of the department s written submissions), has submitted that the AO was aware that the assessee had claimed exemption u/s 10(23C)(vi) of the Income Tax Act and the same was mentioned in the third para of the assessment order passed on 21.12.2017, but in para 7.0, at page 5 of the assessment order, Section 11 12 was written inadvertently, which may be treated as a typing mistake and such inadvertent mentioning of Sections 11 12 should not be the basis for deciding the substance and merits in the order, that that this mistake may be considered u/s 292B of the Act. The DCIT has also stated in his comments that after the assessment, the CIT (Exemption) Chandigarh passed order dated 20.03.2021 u/s 263 of the Income Tax Act, setting aside the assessment order passed u/s 143(3) read with Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that because fresh assessment has since been framed pursuant to the revisional order passed by the CIT (Exemptions), the original assessment has become null and void and as such, the appeal of the assessee be dismissed. The submissions are that; (a) the assessee has filed the present appeal against the CIT(A) s order and not against that passed by the AO, this plea of the Department carries no merit; (b) The CIT (A) has not set aside the original assessment order completely, but has set it aside merely on the computation of taxable income, which is clear from the contents of para 5 of the said revisional order; (c) Without prejudice, it is not correct to say that in view of the fresh assessment framed, consequent to the revisional order, the original assessment order has become null and void, since that original assessment order has been merged in the order of the ld. CIT(A), which is under appeal at the hands of the assessee before this Tribunal. Reliance in this regard has been placed on the decision of the Hon'ble Supreme Court in the case of Kunhayammed others Vs State of Kerala another [2000] 245 ITR 360 (S.C). Reliance has also been placed on the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the original assessment in this case was proceeded consciously with reference to the provisions of Sections 11 and 12 of the Act is at one apparent from the original assessment order itself, wherein in para 5, reference has been made to order sheet notings dated 10.11.2017 and 24.11.2017, whereby the assessee was show caused for making addition of the funds collected by the assessee, as income for the year. In para 7.0 onwards of the assessment order, as has also been accepted by the department itself in para 3 of its written submissions filed before us and also the comments dated 10.05.2023, of the DCIT (Exemptions), Circle-1, Chandigarh, assessment was proceeded with in reference to the provisions of Sections 11 and 12 of the Act. It is only in the said comments of the DCIT, Circle-1 (Exemption), Chandigarh that for the first time, a case has been tried to be made out, that the reference to Sections 11 and 12 of the Act was inadvertently made in the assessment order, which may be treated as a typing mistake. Such methodology, in our considered opinion, is unheard of. Firstly, the flow of the assessment order itself makes it amply clear and apparent that the AO was fully aware ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court in CIT Vs Amrit Lal Bhogilal Co (supra), held that if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law; that if the appellate authority implies or reversed the decision of the Tribunal, it is obvious that it is the appellate decision that is effective and can be enforced; in law, the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal. As a result of the confirmation or affirmation of the decision of the Tribunal by the appellate authority, the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement. 16.1 In keeping with Amrit Lal Bhogilal (supra), it is only and only the order dated 05.03.2019 passed by the ld. CIT(A), which rules the roost and which alone is operative, and not the original assessment order, which stands merged in the said order passed by the CIT(A). 16.2 Likewise, in the case of Kunhayammed others (supra), the Hon'ble Supreme Court has held, inter-alia that where the appeal or revision is provided against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the Trial Court, i.e., the AO and that too, by a speaking order. Therefore, it is the CIT(A) s order that the AO s order stands merged. 18. No decision contrary to the above case laws has been cited by the Department before us, nor has it been pleaded that the law laid down therein is either not a law of the land or is not the law applicable to the facts of the present case. 19. In view of the above, there is no force in the Department s contention that the original order dated 05.03.2017 is void ab-initio and that accordingly, the appeal of the assessee is also void ab-initio and it be dismissed as such. This argument of the Department is, accordingly, rejected. 20. On merits, it is a fact that accepted on record that the assessee was approved u/s 10(23C)(vi) and that it had claimed exemption under the said provision. It was, accordingly, due to an inadvertent error that the provision was mentioned as Section 10(23C)(iiiab). The exemption claimed u/s 10(23C)(vi) was pursuant to the approval granted by the Chief Commissioner of Income Tax, Ludhiana, granted vide order No. CCIT/LDH/JB/10(23C)(11/2015-16/2729 dated 18.09.2015. This remains undisputed and it finds ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the funds are the receipts of the assessee which are charged from students as part of their fees every year, which should have been ideally been used for the objects/purposes for which they are taken from the students, that assessee is accumulating these funds in its Balance Sheet to avoid showing it in its Income Expenditure Account and then having to spend over; that further, it is peculiar that the assessee is booking expenses on development, hostel and student activity in its Income and Expenditure Account without routing the receipts of these funds through its Income and Expenditure Account. 24. The ld. CIT(A) has observed, following the CIT(A) s order for the earlier years, that in those years, the ld. CIT(A) has upheld part of the assessee's submissions to the extent that the excess income over expenditure is of the nature of grant-in-aid and belongs to the consolidated fund of the State and the assessee cannot incur any expenditure without the express approval of the State Government and the University; and that in the interest of judicial discipline and consistency, he was relying on the decision of his predecessor to the said extent. The ld. CIT(A) observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year 2013-14 (ACL PB-II, pages 72-78). 25.1 It has been contended that the ld. CIT(A) accepted the fact that funds/surplus of receipts over expenditure were in the nature of grants-in-aid in the hands of the assessee, they could neither be considered as income of the assessee under the Income Tax Act, nor for ascertaining the amount to be expended or the amount to be accumulated under the provisions thereof. Reliance has been placed on the following case laws ; i) Commissioner of Income Tax, Chandigarh Vs The Punjab State e-governance Society [2011] 4 TMI 1332 (P H) (ACL PB-1, pages 6-9), ii) Commissioner of Income Tax, Panchkula Vs M/s State Urban Development Society [2011] 11 taxmann.com 458 (P H) (ACL PB -1, pages 10-11), and iii) DIT Vs Society for Development Alternatives [2012] 18 taxmann.com 364 (Del) (ACL PB-1, pages 12-15) 26. The ld. DR, on the other hand, has placed strong reliance on the impugned order, contending that the ld. CIT(A) has rightly upheld the treatment of the grants received by the assessee from the Government, as income of the assessee; that as rightly held by the ld. CIT(A), to be corpus donation, in the first instance, the recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable purposes gets reduced by the depreciation amount, which is not permissible under the Act; that the net effect is that after writing of the full value of the capital expenditure on acquisition of assets as application of income for charitable purposes, when the assessee again claims the same amount in the form of depreciation, such notional claim becomes cash surplus available with the assessee that was statutorily required to be applied for its Aims and Objects; that this is true even if the assessee is assessed as an AOP and the assessee claims depreciation on the assets whose cost was allowed in the previous years; and that therefore, even if the assessee is assessed as an AOP for a particular year, it cannot claim the notional depreciation on the assets whose value has already been shown written off. In this way, the AO disallowed the depreciation claimed as expense and the amount of Rs. 51,69,258/- was added back. 31. The ld. CIT(A) observed, while confirming the AO s order that with the insertion of sub-section (6) to Section 11 of the Act, no depreciation is allowable on any item of income, regardless of whether it is applied, accumulated or set apart for applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier years. In our humble view, this proposition, rather, is clearly opposite to what has been stated in the provisions contained in Section 11(6) of the Act, where it has been provided that, Where u/s 11, any income is required to be applied or accumulated or set apart for any application, then, for such purposes, income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under Section 11 in the same or any other previous year. Simply put, as per the provisions of Section 11(6), if acquisition of an asset has been claimed as application of income u/s 11 by the assessee in the concerned assessment year or in any other previous year, depreciation would not be allowed. In the present case, as observed from the record and as not disputed before us, no such claim was made by the assessee regarding application of income u/s 11 either in the year under consideration or in any of the earlier years. 35.2 Still otherwise, again, as rightly contended on behalf of the assessee and not disputed by the Department, the assessee had not claimed expenditure incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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