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2015 (11) TMI 590 - ITAT BANGALORE

2015 (11) TMI 590 - ITAT BANGALORE - TMI - Disallowance of depreciation - as per AO the assessee had already claimed exemption in respect of expenditure on the fixed assets being application of income u/s 11 - Held that:- The assessee is entitled for depreciation u/s 32 of the IT Act on the assets cost of which has already been claimed as application of income. See case of Institute of Banking Personnel Selection [2003 (7) TMI 52 - BOMBAY High Court ] - Decided in favour of assessee.

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milarly, the assessee is also not claiming any expenditure which has been paid by the assessee during the year but pertains to next academic session which is outside the previous year in which such expenditure is paid. Therefore, the assessee is following a uniform accounting policy based on accrual and arising of income and expenditure. There is no dispute that even in the case of trust the income has to be understood in its commercial sense and there can be no computation of such income until .....

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ng/2014 - Dated:- 30-9-2015 - SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER and SHRI VIJAY PAL RAO, JUDICIAL MEMBER For The Assessees : Shri R.S.Samria, CA. For The Respondent : Shri Sunil Kumar Agarwala, JCIT(DR) ORDER Per VIJAY PAL RAO, JM: These two appeals by two assessees are directed against two separate orders dated 5/12/2013 and 6/1/2014 of the CIT(A)-V, Bangalore, respectively for the assessment years 2010-11. 2. Common grounds have been raised in these appeals. The grounds raised in ITA No. .....

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unjustified, unreasonable, factually incorrect, contrary to the provisions of law, bad in law and as such the same should be allowed, the said disallowance be deleted and the said assessment order be directed to be rectified accordingly. 2. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) -V, Bangalore, has erred in considering advance fee received k for subsequent year (previous year 2010-11) relevant to assessment year 2011-12 from students a .....

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trary, unjustified. Unreasonable, factually incorrect, contrary to the provisions of law, bad in law and as such the same should not be considered as income and should be cancelled or deleted and rectified accordingly. 3. Any other grounds of appeal which your appellant may raise with the permission of the Hon'ble Income Tax Appellate Tribunal, Bangalore. 4. Your appellant reserves the right to add, delete, alter and/or amend all or any of the grounds of appeal. 3. Since the issues involved .....

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ct, 1961. The assessee was carrying on the education activity and during the previous year relevant to the assessment year under consideration, the assessee received gross receipts of ₹ 14,57,81,212/- out of which ₹ 14,27,88,081/- was applied towards the object of educational activities of the assessee and the same was claimed as exempt u/s 11. While completing the assessment u/s 143(3) on 25/4/2012, the AO disallowed depreciation on school fixed assets on the ground that the assesse .....

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by the assessee on account of advance fee as income of the assessee for the year under consideration. Accordingly, the CIT(A) directed the AO to recomputed the income of the assessee trust application of income for exemption and the surplus if any, by treating the advance fee received relating to future period of academic session as income for the year under consideration. Ground No.1 regarding disallowance of depreciation: 6. Before us, learned AR of the assessee has submitted that though the C .....

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whose actual cost has been allowed as deduction being application of income u/s 11 in computing income of the earlier years. The learned AR of the assessee has then relied upon the judgment of the Hon'ble jurisdictional High Court in the case of CIT vs. Society of Sisters of St.Anne (146 ITR 28) and submitted that the Hon ble High Court has held that depreciation is a necessary deduction for preserving the corpus of the trust for deriving the income. Therefore, the amount of depreciation deb .....

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angiri Sikshana Trust in ITA Nos.774 & 775/Bang/2011 dated 3/8/2012 has decided this issue in favour of the assessee. He has pointed out that a similar view has been taken by the Chennai Bench of the Tribunal and Delhi Bench of the Tribunal in a series of decisions. Thus, the learned AR of the assessee has submitted that the authorities below have committed an error by disallowing the claim of depreciation. 7. On the other hand, the learned departmental representative has relied upon the ord .....

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estion No. 2 herein is 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 .....

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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 judgment. Consequently, Question No. 2 is answered in the affirmative i.e., in favour of the assessee and against, the .....

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3 & 14 as under: 13. We have heard the rival submissions and perused the materials on record. The Tribunal in the assessee's own case for the assessment year 2006-07 at paragraph 7 of its order has decided the issue in favour of the assessee. The relevant finding of the Tribunal reads as follows: 7. We have heard both the parties. We have in the earlier para referred to the findings of the Hon ble Bombay High Court in the case of Institute of Banking [2003] 264 ITR 110 (Bom). We have als .....

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nal has not been reversed by the Hon ble jurisdictional High Court. The facts for the assessment year 2007-08 and 2008-09 being identical to the facts considered by the Tribunal for the assessment year 2006- 07, (I.T.A. No. 775/Bang/2009 dated January 29, 2010), we follow the co-ordinate Bench order of the Tribunal in the assessee's own case for the assessment year 2006-07 and hold that the Commissioner of Income-tax (Appeals) is justified in directing the Assessing Officer to grant deprecia .....

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ration. The learned AR of the assessee submitted that the assessee is following accounting policy wherein income is recognized only when it becomes due and therefore, the tuition fee and other charges received as curriculum, laboratory fee, science fee etc., is recognized over the period of instruction. Any fee received in advance for the next academic/accounting year has not been recognized as income for the year in which it is received but the same is shown as liability in the balance sheet. S .....

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revenue arising from the tuition fee should be recognized over the period of instruction. If the academic year of the school and the accounting years are different then, it is possible that some fees may be received in advance or is outstanding at the end of the accounting year. The assessee is showing the advance fee received from students in the balance-sheet. Similarly, the expenses that arise in the course of ordinary activities of the school are debited only to the extent of the financial .....

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ell as on the basis of matching concept. When the assessee is following accrual principle of accounting as per the accounting standard, then advance fee received by the assessee for the future academic year which is outside the accounting/previous year relevant to assessment year under consideration cannot be treated as income of the assessee for the year under consideration. The learned AR of the assessee has referred to para.15.3 of the impugned order of the CIT(A) and submitted that the asses .....

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on accrual basis as income of the year under consideration, fee received in advance for the following financial year/term have been recorded in the books of account and are disclosed as advance fee under funds and liabilities. The authorities below have not disputed the consistent accounting method and policy adopted by the assessee. The taxing authorities cannot disturb the consistent accounting policy and method when there is nothing on record to warrant a departure from the consistently acce .....

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income was available with the assessee for application for charitable purpose and if the assessee has failed to apply the said income for charitable purpose, then the same is to be taxed as income of the assessee as per provisions of sec.11 of the Act. 12. There is no dispute that the assessee has shown the gross receipt/income at ₹ 14,57,81,212/- for the year under consideration. Apart from this amount of receipt, the assessee has also shown a sum of ₹ 2,81,90,128/- on account of ad .....

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r consideration as income of the year under consideration. The findings of the CIT(A) are given in para.15.3 as under: 15.3 The balance sheet as on 31.3.2010 clearly shows that the appellant received ₹ 281,90,128/- on account of advance fee, which has not been treated as income of the trust. In my considered view, the advance fees (relating to future periods/terms or academic session) should be treated as income of the appellant from property held under trust, when the trustees have charge .....

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ted accordingly. Thus it is clear from the relevant part of the impugned order that the CIT(A) has enhanced the assessment without giving any show cause notice to the assessee and therefore, the order of the CIT(A) is not sustainable under the provisions of se.251(1)(a) and 251(2). There is no quarrel on the point that the powers of the CIT(A) are co-terminus with that of the AO and while disposing of the appeal, the CIT(A) can enhance assessment. However, this power of the CIT(A) can be exercis .....

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In the case in hand, the CIT(A) has not complied with the provisions of sub-section (2) of section 251 and therefore, the order of the CIT(A) on this issue is not sustainable. Even otherwise, we note that the assessee is following mercantile system of accounting which is based on accrual. The AO has not disputed the accounting policy and method of accounting adopted by the assessee consistently. The assessee has been showing the advance fee received for the next academic session which is outsid .....

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