2023 (7) TMI 972 - AT - Income Tax

Admissibility of depreciation claim not made in the return of income - assessment of trust - assessee has made a claim before the AO by filing a revised statement of total income - HELD THAT - We find that in Rajasthan Gujarati Charitable Foundation Poona 2017 (12) TMI 1067 - SUPREME COURT has considered the issue of depreciation on fixed assets when the assessee has claimed expenditure incurred for acquisition of capital asset as application of income for charitable purpose u/s. 11(1)(a) and held that even though expenditure incurred for acquisition of capital asset has been claimed as application of income yet depreciation would be allowed on assets so purchased while computing income from property held under Trust. There is no dispute even though the assessee has not claimed depreciation on fixed assets while filing return of income but when the assessee has made a claim by filing a revised statement of total income before completion of assessment the AO is bound to accept the claim of the assessee and allow necessary depreciation as per law. AO is erred in not allowing depreciation claimed by the assessee for the AY 2010-11 In a situation where the assessee is not claimed depreciation on fixed assets for any reason but the AO while computing income of an assessee should allow depreciation allowable as per law. Arguments of the AO that any fresh claim can be made only by filing a revised return we find that although the law restricts the AO to admit any fresh claim without any revised return but there is no prohibition for the appellate authorities to admit fresh claim made by assessee to decide the issue and this principle is supported by the decision of Goetze (India) Ltd 2006 (3) TMI 75 - SUPREME COURT . Therefore we are not in agreement with the reasoning given by the AO to deny depreciation claimed for earlier assessment years. Claim of depreciation beyond six years for the first time - HELD THAT - There is no provision under law to make assessment of an assessee beyond six years. Therefore claim made by the assessee beyond six years cannot be admitted because there is no provision under the law to modify the income of the assessee by the AO. Therefore we are in agreement with the reasons given by the AO that the assessee cannot make a claim beyond six years. However the claim made by the assessee with regard to assessment years which are come within the period of six assessment years then the AO can verify the claim of the assessee in light of provisions of Sec.32(1) of the Act and allow depreciation on fixed assets as per law. Therefore we are of the considered view that the issue needs to go back to the file of the AO for further examination of facts with regard to depreciation on fixed assets.

Summary

Issues Involved:
1. Disallowance of depreciation claimed by the appellant.
2. Applicability of Section 11(6) of the Income Tax Act, 1961.
3. Compliance with provisions of the Income Tax Act, 1961, particularly Section 11(3)(c).
4. Allowance of administrative costs related to the promotion of education.
5. Consideration of judicial precedents in the claim of depreciation.
6. Admissibility of fresh claims without filing a revised return.
7. Claim of depreciation for earlier assessment years (2001-02 to 2009-10).

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation Claimed by the Appellant:
The appellant challenged the disallowance of depreciation on fixed assets by the Commissioner of Income Tax (Appeals) [CIT(A)]. The appellant argued that the CIT(A) erred by applying Section 11(6) of the Income Tax Act, 1961, retrospectively. The Tribunal noted that the assessee had not claimed depreciation on fixed assets in the original returns but did so in revised statements during assessment proceedings, relying on judicial precedents, including the Karnataka High Court's decision in CIT v. Society of the Sisters Anne.

2. Applicability of Section 11(6) of the Income Tax Act, 1961:
The appellant contended that Section 11(6), introduced by the Finance Act, 2014, effective from AY 2015-16, should not be applied retrospectively. The Tribunal agreed, referencing the Madras High Court's decision in Seventh Day Adventists Vs DIT, Exemptions III, Chennai, which stated that Section 11(6) is applicable only prospectively.

3. Compliance with Provisions of the Income Tax Act, 1961, Particularly Section 11(3)(c):
The appellant claimed compliance with the Income Tax Act, specifically Section 11(3)(c), arguing that the accumulated amount was utilized for intended purposes as per Section 11(2). The Tribunal found that the assessee had indeed utilized the funds appropriately, thus the CIT(A)'s order was liable to be deleted.

4. Allowance of Administrative Costs Related to the Promotion of Education:
The appellant argued that there is no specific provision in the Income Tax Act to disallow amounts applied towards administrative costs for promoting education, which is the main object of the trust. The Tribunal agreed, noting that administrative costs are essential for running the school, and the purpose of accumulation was set out in Form 10. Thus, the CIT(A) committed a fundamental error, and the addition was liable to be deleted.

5. Consideration of Judicial Precedents in the Claim of Depreciation:
The appellant cited various judicial precedents, including the Supreme Court's decision in CIT v. Rajasthan & Gujarati Charitable Foundation Poona, which allowed depreciation on assets even if the expenditure for acquisition was claimed as application of income. The Tribunal noted that the CIT(A) failed to consider these judgments, and directed the AO to allow depreciation for AY 2010-11 to 2013-14.

6. Admissibility of Fresh Claims Without Filing a Revised Return:
The Tribunal acknowledged that while fresh claims are generally made through revised returns, appellate authorities can admit such claims. This principle is supported by the Supreme Court's decision in Goetze (India) Ltd. v. CIT. Therefore, the Tribunal directed the AO to re-examine the claim of depreciation in light of this principle.

7. Claim of Depreciation for Earlier Assessment Years (2001-02 to 2009-10):
The Tribunal noted that the assessee claimed depreciation for earlier years (2001-02 to 2009-10) in one go for AY 2011-12. The AO rejected this claim, citing a lack of provision to re-open assessments beyond six years. The Tribunal agreed that claims cannot go beyond six years, but directed the AO to verify and allow depreciation within the permissible period of six years as per Section 32(1) of the Act and relevant judicial precedents.

Conclusion:
The Tribunal allowed the appeals for AYs 2010-11 to 2013-14 for statistical purposes, directing the AO to re-examine the claims in light of the Tribunal's observations and relevant legal provisions. The order was pronounced on December 2, 2022, in Chennai.