Income Tax Appellate Tribunal - Delhi
Little Scholars Academy, Amroha vs Acit, Central Circle, Moradabad on 19 September, 2024
1
ITA no. 2857/Del/2022
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "E": NEW DELHI
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER
AND
SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER
ITA No. 2857/DEL/2022
Assessment Year: 2018-19
Little Scholars Academy, Vs ACIT, Central Circle,
Joya Road, Amroha-244221. Moradabad.
PAN- AAATL 3331 R
APPELLANT RESPONDENT
Assessee represented by Sh. Pramod Kumar Agarwal, CA
Department represented by Ms. Nidhi Singh, Sr. DR
Date of hearing 14.08.2024
Date of pronouncement 19.09.2024
ORDER
PER KUL BHARAT, JM:
This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals), Lucknow-3, dated 13.10.2022, pertaining to the assessment year 2018-19. The assessee has raised following grounds of appeal:
"1. THAT THE LD.COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF ASSESSING OFFICER WHO HAS DISALLOWED WHOLE DEPRECIATION CLAIMED BY INVOKING PROVISIONS OF SECTION 11(6) OF ACT INSERTED W.E.F.01/04/2015 2 ITA no. 2857/Del/2022 WHILE DEPRECIATION ON COST OF ASSETS ACQUIRED DURING A.Y.2017-18 WAS NOT CLAIMED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE.
2. THAT THE LD.COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN LAW IN APPRECIATING THE PROVISIONS OF SECTION 11(6) OF ACT EFEECTIVE FROM A.Y.2015-16 THAT DEPRECIATION IS NOT ALLOWABLE ON THOSE ASSETS ONLY WHICH COST OF ACQUISITIO IS CLAIMED AS CAPITAL APPLICATION OF INCOME FOR CHARITABLE PURPOSE OR NOT.
3. THAT THE Ld. COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN LAW IN NOT APPRECIATING THE FACTS OF DECISION DATED 13/10/2017 OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS RAJASTHAN AND GUJRAT CHARITABLE FOUNDATION IN CIVIL APPEAL NO 7186 OF 2014 WHEREIN ORDERS OF LOWER COURT HAVE BEEN UPHELD IN RESPECT THAT DEPRECIATION & CAPITAL APPLICATION OF THESE ASSTES BOTH WERE ALLOWABLE PRIOR TO INSERTION OF SECTION 11(6) OF INCOM ETAX AND PROVISIONS OF SECTION 11(6) ARE PROAPECTIVE.
4. THAT THE ASSESSEE CRAVES LEAVES TO ADD AMEND, ALTER OR WITHDRAW ANY OF THE GROUND OF APPEAL ON OR BEFORE THE DATE OF HEARING."
2. Facts of the case, in brief, are that for A.Y. 2018-19 the assessee society filed its return of income declaring NIL income, claiming depreciation on assets amounting to Rs. 56,58,946/-. The case of the assessee was selected for complete scrutiny under CASS. During assessment proceedings, the Assessing Officer noticed that the assessee society was registered u/s 12AA of the Income Tax Act, 1961 ( the "Act"). He noticed that in its Income and Expenditure account, the society/trust had claimed depreciation of asset of Rs. 56,58,946/-. Observing that assessee had already claimed depreciation at the time of purchase of asset the AO by invoking provisions of section 11(6) of the Act, disallowed the claim. Aggrieved against it the assessee preferred appeal before the learned CIT(A) who 3 ITA no. 2857/Del/2022 also upheld the action of the AO. Aggrieved against it the assessee is in appeal before this Tribunal.
3. Apropos to the grounds of appeal, learned counsel for the assessee submitted that authorities below were not justified in disallowing depreciation by invoking section 11(6) of the Act which was brought on statute by Finance (No.2) Act, 2014, w.e.f. 1.4.2015. He relied upon the judgment of Hon'ble Supreme Court dated 13.12.2017 rendered in the case of CIT v. Rajasthan & Gujrati Charitable Foundation (Civil Appeal No. 7186 of 2014) to buttress the contention that acquisition of cost of assets as well as depreciation both were allowable upto AY 2014-15 and that provisions of Section 11(6) of the Act were prospective and not retrospective. He submitted that revised depreciation schedule on cost of assets claimed as capital application for charitable purposes was prepared from A.Y. 2015-16 onwards. The depreciation on these assets was worked out at Rs. 13,19,158/- for A.Y. 2018-19 which could be disallowed and balance depreciation of Rs. 43,39,788/- (56,58,946-13,19,158) ought to be allowed. He reiterated the submissions as made in the written submissions filed by the assessee. For the sake of clarity the written submissions reproduced herein under:
"GROUND No. 1THAT THE LD.COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF ASSESSING OFFICER WHO HAS DISALLOWED WHOLE DEPRECIATION CLAIMED BY INVOKING PROVISIONS OF SECTION 11(6) OF ACT INSERTED W.E.F.01/04/2015 WHILE DEPRECIATION ON COST OF ASSETS ACQUIRED DURING A.Y.2018-19 WAS NOT CLAIMED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE.4
ITA no. 2857/Del/2022 SUSMISSIONS 1(i) In the above-mentioned context, it is hereby requested that while disallowing the claim of the assessee in respect of depreciation, Ld. AO has alleged that the same is not admissible as the Fixed Assets on which depreciation is claimed by the assessee has already been claimed as application of income, such finding of Ld. AO is totally against the facts on the record of Ld. AO. In this regard, it is hereby very humbly submitted that the depreciation was claimed on total assets as appearing in the schedule of fixed assets but later we have suomoto surrendered the depreciation of Rs. 13,19,158/-out of claim of Rs 56,58,946/- before Ld. Commissioner of Income Tax (Appeals) Lucknow. Such depreciation of Rs 13,19,158/ was withdrawn due to the fact that the assessment of the assessee for A.Y.2015- 16 was completed under scrutiny vide order and the Assessing Officer has disallowed entire depreciation claimed in A.Y.2015-16 u/s 11(6) of Act and allowed total cost of assets acquired during F.Y.2014-15 i.e. A.Y.2015-16 towards capital application of income for charitable purpose. Then Counsel did not file any appeal against this order with reason best known to him. In view of this, the depreciation chart of these assets which cost of acquisition was allowed as capital application of income in A.Y.2015-16 was prepared.
In view of new provisions of section 11(6) of I.T. Act inserted w.e.f. 01/04/2015 Prior to this depreciation and capital application of income, both were allowable. Revised depreciation for A.Y.2015-16 to A.Y.2018-19 were prepared on assets, cost of which was allowed as capital application of total income and submitted before Ld. Commissioner of Income Tax (Appeals). As per these revised depreciation chart, the depreciation of Rs 13,19,158/- was worked out on these assets and we have suo moto requested him to disallow depreciation of Rs 13,19,158/- in place of entire depreciation of Rs 56,58,946/- and to allow rest deprecation of Rs42,47,539/-But he did not accept our request due to wrong interpretation of the provisions of section 11(6) of Income Tax.
(Copies of assessment order for A.Y.2015-16 is enclosed as ANNEXURE-A and revised depreciation charts for A.Y.2015-16 to A.Y.2018-19 as ANNEXURE-B) 1(ii The Hon'ble Supreme Court in its decision dated 13/12/2017 in the case of CIT v/s RAJASTHAN AND GURAT CHARITABLE FOUNDATION has clarified that capital application of income and depreciation on these assets 5 ITA no. 2857/Del/2022 both are allowable up to A.Y.2014-15. There were various fixed assets which were purchased during the Asstt. Year 2018-19 with total cost of acquisition at Rs. 6,45,41,058/-( 1,05,45,141+5,39,95,917) in fixed asset schedule. Out of which depreciation on cost of land a Rs. 3,05,56,000/- and investment of Rs. 3,01,15,908/-in hospital building under construction, was not claimed. The investment of Rs 52,30,907/-in purchase of land was claimed as capital application of income for charitable purpose in the computation of total income for A.Y.2018-19. Though, has been claimed at Rs 1,30,31,911/- in the computation of income which is not correct because 15% accumulation of income was not claimed. The assets on which depreciation was claimed, were not claimed as capital application of income for charitable purpose during relevant A.Y.2018-19.
1(iii) Few decisions of Supreme Court and other courts are relied upon who held that acquisition of cost of assets as well as depreciation both are allowable upto A.Y.2014-15 and provisions of section 11(6) of Act are PORSPECTIVE AND NOT RETROSPECTIVELY:
A). Ld. Commissioner of Income Tax (Appeal)-Lucknow-3 vide his order dated 17/05/2023 in the assessee's own case in subsequent A.Y.2019-20 has allowed the appeal on this issue and issue following directions to the Assessing Officer:-
6.7 However, the Assessing Officer is directed to verify the depreciation schedule from A.Y.2015-16 onwards and distinguish those assets on which application of income have already been claimed in the relevant years, no depreciation has to be allowed on such fixed assets. Further, Assessing officer is directed to allow depreciation on the rest of the fixed assets on which no application of income has been claimed in the relevant year. Therefore, this ground of appeal is partly allowed." (Copy of order is enclosed as ANNEXURE-C) B) Supreme Court decision dated 13/12/2017 in the case of CIT Vs Rajasthan and Gujrati Charitable Foundation in Civil Appeal No 7186 of 2014. Para 4 of the is relevant and reproduced here as under:-6
ITA no. 2857/Del/2022 "Question No 2 herein identical to the question which was raised before the Bombay High Court in the case of Director of Income Tax (Exemption) V Framjee Cawasjee Institute (1993) 109 CTR 463(Bom). In that case, the facts were as follows:
'the assessee was the trust. It derived its income from depreciable assets. The assessee took into account depreciation on those assets in computing the income of the trust. The Income Tax Officer held that depreciation could not be taken into account because, full capital expenditure had been allowed in the year of acquisition of the assets. The assessee went in appeal before the Assistant Appellate Commissioner. The appeal was rejected. The Tribunal, however, the view that when the Income Tax Officer stated that full expenditure had been allowed in the year of acquisition of the assets. What he really meant was that the amount spent on acquiring those assets had been treated as 'application of income' of the trust in the year in which the income was spent in acquiring those assets. This did not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account. This view of the Tribunal has been confirmed by the Bombay High Court in the above judgment. Hence, question no 2 is covered by the decision of the Bombay High Court in the above judgement. Consequently question no 2 is answered in the affirmative i.e. in favour of the assessee and against the department.' After hearing leaned counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states that the principles of law and there is no need to interfere with the same. ..It may also be mentioned at this stage that the legislature, realizing that there was no specific provision in this behalf in the Income Tax Act had made amendment in section 11(6) of the Act vide Finance Act No 2/2014 which became effective from the assessment year 7 ITA no. 2857/Del/2022 2015-16. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature.
It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well." (Copy of decision enclosed -ANNEXURE D) C) Allahabad High Court decision dated 06/08/2018 in Income Tax Appeal NO 52 Of 2017 in the case of Commissioner of Income Tax (Exemption), Lucknow vs M/S MJ Charitable Trust, Meerut wherein Hon'ble Court has held as under:-
"The question which is sought to be raised in this appeal by the Revenue already stands answered by a recent judgment of the Supreme Court dated 13/12/2017 rendered in Civil Appeal No 7186 of 2014; Commissioner of Income Tax III, Pune Vs Rajasthan and Gujrati Charitable Foundation, Poona; wherein it has been held that such depreciation and deduction was permissible and the amendment under section 11(6) of the Act, 1961 of the Act, 1961 vide a Finance Act No 2/2014 which came into effect from Assessment year 2015-16 was prospective, therefore as the instant case pertains to the Assessment Year 2010-11 and the question sought to be raised is covered by the said judgment in favour of the assessee, we are of the view that no substantial question of law arises for our consideration. The appeal is accordingly dismissed....." (Copy of decision enclosed as ANNEXURE-E) D) Hon;ble Jurisdiction ITAT, New Delhi in its decision dated 11/05/2021 in the case of DCIT, (Exemption) New Delhi vs Nav Nirman Sewa Samiti in ITA NO 645/Del/2017 has also allowed the depreciation and capital application of income both with following observations:-
"4.1. We find that the Ld. CIT(A) following the decision of the Hon'ble Jurisdictional High Court in the case of DIT (Exemption) Vs Indraprastha Cancer Society (supra), has allowed the claim of the assessee of the depreciation, despite claiming by assessee of capital expenditure corresponding to the 8 ITA no. 2857/Del/2022 depreciation as application of funds for charitable purposes while calculating excess of income over expenditure in terms of section 11 of the Act. We may also like to mention that Hon'ble Supreme Court in the case of Rajasthan and Gujarati Charitable Foundation Poona reported in 402 ITR 441(SC) has allowed benefit of the depreciation while claiming exemption under section 11 of the Act. The relevant finding of the Hon'ble Supreme Court I" (Decision is enclosed as ANNEXURE-F) E) Attention is invited to the decision dated 21/12/2020 of ITAT Jodhpur in the case of ACIT Vs Mayo College General Council in ITA NO 538/Jodh/2017 has also taken similar view as ITAT Delhi and held as under:-
"We find that this issue is squarely covered in assessee's favor by the recent decision of Hon'ble Supreme Court titled as CIT Vs. Rajasthan & Gujarati Charitable Foundation, Poona [89 Taxmann.com 127] which has been rendered after considering the decisions of CIT v. Institute of Banking Personnel Selection (IBPS) [2003] 131 Taxman 386 (Born.) & Lissie Medical Institutions v. CIT [2012] [348 ITR 344 (Ker.)]. The Hon'ble court has concluded the matter in the following manner:-
2. After hearing learned counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and them is no need to interfere with the same.
3. It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in 'Lissie Medical Institutions v. CIT 12012) 24 com 9/209 Taxman 19 (Mag.)/348 ITR 344 (Ker.)'.
4. It may also be mentioned at this stage that the legislature, realising that there was no specific provision in this behalf in the Income Tax Act, has made amendment in Section 11(6) of the Act vide Finance Act No. 2/2014 which became effective from the Assessment Year 2015-
2016. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature.
9ITA no. 2857/Del/2022
5. It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well.
6. For the aforesaid reasons, we affirm the view taken by the High Courts in these cases and dismiss these matters." (Decision enclosed as ANNEXURE-G) 1(iv) The claim of the assessee is strictly in accordance with the provision of specified under section 11(6) of the IT Act, which is evident from the fact that out of total depreciation of Rs.56,58,946/-, the assessee requested the Ld. CIT(Appeal) to disallow the deprecation of Rs 13,19,158/-as per revised schedule being depreciation of assets, cost of which was allowed as capital application of income in A.Y.015-16 & allow Rs 43,38,748/- which pertain to only those fixed assets which have not been claimed as application of income either in current year or in preceding years.
Hence, the assessee has sue-moto requested to disallow depreciation amounting Rs.1319158/ as it pertains to such fixed assets which have been claimed as application of income in FY 2014-15 onward.
GROUNDNO 2:-
"THAT THE LD.COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN LAW IN APPRECIATING THE PROVISIONS OF SECTION 11(6) OF ACT EFEECTIVE FROM A.Y.2015-16 THAT DEPRECIATION IS NOT ALLOWABLE ON THOSE ASSETS ONLY WHICH COST OF ACQUISITIO IS CLAIMED AS CAPITAL APPLICATION OF INCOME FOR CHARITABLE PURPOSE OR NOT."
SUBMISSIONS 6- The Assessing Officer has disallowed the depreciation with the reasons that entire cost of purchase of assets was claimed as capital application of total income for charitable purpose at the time of purchase of assets. It was presumption of the Assessing Officer and not supported with any evidence. The Society was established in the year 2001 and continuing its charitable activities. As submitted in ground of appeal no 1 that the capital application of income of cost of acquisition of assets for charitable purposes and 10 ITA no. 2857/Del/2022 depreciation, both were allowable upto A.Y.2014-15. Thus the depreciation on the assets purchase prior to 1/4/2014 whether claimed as capital application or not, were allowable. During the A.Y.2018-19, we have suomoto requested Ld CIT(Appeal) to disallow the depreciation of Rs 13,19,158/- on cost of assets allowed as capital application by Assessing Officer in A.Y.2015-16 but he has upheld the order of the Assessing Officer which is not justified as well as legally correct as per provisions of section 11(6) of Act which speaks that deprecation on assets, cost of acquisition of which was claimed as capital application of income, is not allowable. These provisions of section 11(6) of Act are effective w.e.f. A.Y.2015-16 onwards because it is mentioned in the provisions itself and prospective as held by Hon'ble SC and other courts also. Thus the Assessing Officer as well as Ld. CIT(A) were not justified to disallow the entire deprecation of all the assets appearing in Income & expenditure a/c purchased since its establishment i.e.2001 without bringing any case of any asset. cost of which was claimed as capital application from A.Y.2015- 16 onwards and deprecation has been claimed. Only cost of assets purchased during A.Y.2015-16 was allowed as capital application by AO and we have suomoto requested Ld. CIT(A) to disallow the sum of Rs 13,19,158/- worked out on these assets.
GROUND NO 3:-
"THAT THE LD.COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN LAW IN NOT APPRECIATING THE FACTS OF DECISION DATED 13/10/2017 OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS RAJASTHAN AND GUJRAT CHARITABLE FOUNDATION IN CIVIL APPEAL NO 7186 OF 2014 WHEREIN ORDERS OF LOWER COURT HAVE BEEN UPHELD IN RESPECT THAT DEPRECIATION & CAPITAL APPLICATION OF THESE ASSTES BOTH WERE ALLOWABLE PRIOR TO INSERTION OF SECTION 11(6) OF INCOM ETAX AND PROVISIONS OF SECTION 11(6) ARE PROAPECTIVE."
SUBMISSIONS:-
The Ld. Commissioner of Income Tax (Appeals) has dismissed the appeal with the following observations in his order dated 13/10/2022:-
6.3.5. The appellant claim that this amendment is prospectively in nature so depreciation on the assets which has been purchased prior to A.Y.2015-16 11 ITA no. 2857/Del/2022 does not require to be added and placed reliance in the decision of Hon'ble Apex Court in the case of CIT Vs Rajasthan and Gujrati Charitable Foundation in Civil Appeal No 7186 of 2014. However the appellant's belief is on wrong footing. The said decision of Hon'ble Apex Court is prospective in the sense that provision of section 11(6) of the Act is not chargeable prior to A.Y.2015-16 and it does not speak about depreciation on the assets which have been purchased prior to A.Y.2015-16, therefore the appellant contention is hereby rejected.
6.3.6. Considering the above discussion, it is held that the Assessing Officer has rightly disallowed the depreciation amounting to Rs 56,58,946/-being charged by the Society/trust on application for purchase of assets. Therefore grounds of appeal are hereby dismissed.
3. The appeal has been dismissed for not appreciating the issue involved in the section 11(6) of Act as well as issue decided in appeal of Hon'ble Apex Court & other Courts. The issue involved in the decision of Hon'ble Apex Court in the case of CIT Vs Rajasthan and Gujrati Charitable Foundation in Civil Appeal No 7186 of 2014 was that Revenue raised the issue whether depreciation on assets is allowable when 100% expenditure incurred in acquiring of these assets was allowed as capital application of income.
Hon'ble Apex Court upheld decision of Bombay High Court who allowed the depreciation under similar circumstances with the reason that this restriction has been imposed w.e.f 01/04/2015 by inserting u/s 11(6). The word 'Prospectively used by Hon'ble Apex Court and other courts is concerned with the fact that the Assessing Officer had disallowed the depreciation on assets wherein 100% expenditure incurred in acquisition of assets was claimed as capital application in earlier Assessment years prior to A.Y.2015-16 and Hon'ble Court has directed that this restriction has been imposed w.e.f. 1/4/2015 i.e from A.Y.2015-16 in inserting section 11(6) of Act which is prospective i..e. depreciation on those assets is not allowable which cost of acquisition has been claimed as capital application of income from A..Y.2015-16 only. In our case, entire depreciation has been disallowed by Assessing Officer which pertains to assets where expenditure incurred in acquiring these assets was not claimed as capital application of income for charitable purpose in A.Y.2017-18. CBDT vide its circular no 1/2015 dated 21/01/2015 has clarified that section 11(6) of Act has been inserted to restrict double benefit i.e. depreciation & capital application both from A.Y.2015-16 which was allowable prior to section 11(6). The Society did not 12 ITA no. 2857/Del/2022 claim double deduction in A.Y.2017-18. The Society had claimed only depreciation and did not claim capital application in A.Y.2018-19. The Society itself has requested to your kind honor to disallow the depreciation of Rs 13,18,158/-The investment of Rs.52,30,907/-made in land was claimed as capital application of income for charitable purposes in A.Y.2018-19 on which depreciation was not charged.
The appeal has been dismissed only on the word of Prospectively' and order of Assessing Officer has been upheld without appreciating this vital issue. Thus from the above submissions and decisions of Hon'ble Apex Court as well as other courts, the sense of prospectively is that " depreciation on those assets is not allowable which cost of acquisition has been claimed as capital application of income for charitable purpose from A.Y.2015-16 prospectively and not retrospectively."
4. On the other hand, learned DR relied on the orders of authorities below. He submitted that there is no error into the finding of learned CIT(A) who has duly considered the facts and law on the issue. The assessee cannot be permitted to take double benefit of the provision.
5. We have heard rival submissions and perused the material available on record. The stand of assessee is that authorities below were not justified in disallowing the entire depreciation on assets wherein cost of acquisition was not claimed as capital application. Section 11(6) of the Act was brought on statute by Finance (No.2) Act, 2014, w.e.f. 1.4.2015. Hon'ble Supreme Court in the case of CIT v. Rajasthan & Gujrati Charitable Foundation has ruled that provisions of Section 11(6) of the Act were prospective and not retrospective. The assessee itself has prepared revised depreciation schedules from A.Y. 2015-16. There is no ambiguity so far question of application of Section 11(6) of the Act. The Section was inserted w.e.f. 1.4.2015. It is stated by the learned counsel for the assessee that for A.Y. 2018-19 the assessee has not claimed any application of capital in the year under appeal. Therefore, considering the totality of facts of the present case we 13 ITA no. 2857/Del/2022 hereby set aside the orders of authorities below and restore the matter to the file of AO to re-compute disallowance of depreciation on assets in accordance with law, of course, after affording adequate opportunity of being heard to the assessee. Grounds are allowed for statistical purposes.
6. Appeal of the assessee is allowed for statistical purposes.
Order pronounced in open court on 19th September, 2024.
Sd/- Sd/-
(BRAJESH KUMAR SINGH) (KUL BHARAT)
ACCOUNTANT MEMBER JUDICIAL MEMBER
*MP*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT, NEW DELHI