GUNDECHA CHARITIES,MUMBAI V. JOINT COMMSSIONER OF INCOME TAX (APPEAL)-1, LUCKNOW

ITA 6448/MUM/2024

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The case involves Gundecha Charities, a charitable organization, appealing against the disallowance of a depreciation claim of INR 35,27,923 for the Assessment Year 2017-2018. The depreciation was disallowed by the Assessing Officer under Section 11(6) of the Income Tax Act, 1961, which prohibits claiming depreciation on assets purchased with income that was previously claimed as an application of income. The Assessee argued that the capital expenditure for the asset was not claimed as an application of income in the relevant or preceding years. The CIT(A) upheld the disallowance due to the Assessee's failure to substantiate its claim. The Tribunal found that the issue requires further verification and remanded it back to the Assessing Officer.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 397081 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ASSESSEE
• Keywords: Opportunity of being heard; Depreciation; Cost of acquisition; Capital expenditure; Assessment record
• Section: 143(3); 11; 2

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No.6448/MUM/2024 (Assessment Year: 2017-2018) Gundecha Charities 801, Hubtown Solaris, N.S.Phadke Marg, Mumbai - 400069. Maharashtra. [PAN:AABTG9879Q] …………. Appellant Joint Commissioner of Income Tax (Appeals) -1, Mumbai Mumbai - 400020, Maharashtra Vs …………. Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : Shri Rahul Punmiya Dr. Kishor Dhule Date Conclusion of hearing Pronouncement of order : : 26.03.2025 27.05.2025 O R D E R [ Per Rahul Chaudhary, Judicial Member: 1. The present appeal preferred by the Assessee is directed against the order, dated 03/10/2024, passed by the Additional/Joint Commissioner of Income Tax (Appeals) - 1, Lucknow [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had partly allowed the appeal against the Assessment Order, dated 26/10/2019, passed under Section 143(3) of the Act for the Assessment Year 2017-2018. 2. The Assessee has raised following grounds of appeal : “1. The Ld. CIT(A) erred in confirming the disallowance of the claim of depreciation of Rs.35,27,923/- in view of section 11(6) from the application claimed by the assessee under ITA No.6448/Mum/2024 Assessment Year 2017-2018 2 section 11 of the Act.” 3. The Assessee, a charitable organization running schools, filed return of income for the Assessment Year 2017-2018 on 24/10/2017 declaring ‘Nil’ income after claiming exemption under Section 11 of the Act. The case of the Assessee was selected for scrutiny to examine large claim of depreciation and the corresponding application of Income, if any, in view of provisions contained in Section 11(6) of the Act. The Learned Assessing Officer disallowed the claim of depreciation of INR.35,27,923/- made by the Assessee invoking the provisions contained in Section 11(6) of the Act. 4. Being aggrieved, the Assessee preferred appeal before CIT(A) challenging the disallowance of depreciation of INR.35,27,923/-. Vide order, dated 03/10/2024, the CIT(A) dismissed the ground raised by the Assessee observing that the Assessee had failed to respond to notices issued by the CIT(A) and had failed to substantiate the claim. 5. Being aggrieved, the Assessee has preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above. 6. We have heard the rival submissions and have perused the material on record. 7. On perusal of the Assessment Order, we find that the case of the Assessee was selected for limited scrutiny to examine the large claim of depreciation in view of the fact that Section 11(6) of the Act which reads as under: “Section 11 (6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be ITA No.6448/Mum/2024 Assessment Year 2017-2018 3 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 this section in the same or any other previous year. “ 8. Section 11(6) of the Act, inter alia, provides that in case a charitable organization utilizes its income/receipts for purchase of asset and claims such utilization as an application of income, then the subsequent claim of depreciation cannot be allowed in respect of an asset generated on account of the aforesaid application of income. Invoking the provisions contained in Section 11(6) of the Act, the Assessing Officer disallowed the depreciation claim of INR.35,27,923/- holding that the Assessee had claimed, both, application of income as well as depreciation during the relevant previous year. 9. Before the CIT(A), it was contended on behalf of the Assessee that capital expenditure incurred for generating the asset in respect of which depreciation was claimed during the relevant previous year was not claimed as application of income during the relevant previous year or any of the preceding previous/financial years. Therefore, the Assessing Officer has erred in invoking the provisions contained in Section 11(6) of the Act. The CIT(A) rejected the aforesaid contention of the Assessee observing that the Assessee had failed to respond to notices issued and had, therefore, failed to substantiate that the capital expenditure [in respect of which depreciation was claimed] was not treated as application of income. 10. During the course of hearing, the Authorised Representative for the Assessee reiterated the stand taken before authorities below and placed reliance on the documents forming part of the paper-book. On the other hand, the Learned Departmental Representative highlighted the observations made by the authorities below ITA No.6448/Mum/2024 Assessment Year 2017-2018 4 regarding failure of the Assessee to substantiate the claim that the Assessee had not claimed depreciation in respect of asset the cost of acquisition of which was not treated as application of income in the relevant previous year or the preceding previous years. 11. Having considered the rival submissions and on perusal of material on record, we find that claim set up by the Assessee requires verification from the assessment records pertaining to the Assessment Year 2017-2018 and the preceding assessment years in which the expenditure is claimed to have been incurred by the Assessee. While the Assessee has claimed that the cost of asset was not claimed as application of income, the same is not apparent from the material on record. We note that the CIT(A) had recorded clear finding that the Assessee has failed to bring on record any material of substantial aforesaid claim. This was highlighted by the Learned Departmental Representative while contended that the claim set up by the Assessee required verification by the Assessing Officer. Therefore, taking into consideration the overall facts and circumstances of the present case we deemed it appropriate to remand the issue back to the file of the Assessing Officer with the direction to adjudicate the same afresh after taking into consideration the submissions of the Assessee and the documents/details to be furnished by the Assessee in support of the claim. The Assessee is also directed to co-operate in the assessment proceedings and forthwith file details, documents & submission in support of its claims/contentions before the Assessing Officer. It is clarified that the Assessing Officer shall grant reasonable opportunity of being heard to the Assessee. The Assessee is directed to be vigilant and track the assessment proceedings through Income Tax Business Application Portal. In case the Assessee fails to enter appearance and/or fails to file details/documents/submission in response to notice of hearing issued by the Assessing Officer, the ITA No.6448/Mum/2024 Assessment Year 2017-2018 5 Assessing Officer shall be at liberty to decide the issues on merits on the basis of material on record. In terms of the aforesaid, Ground No. 1 to 3 raised by the Assessee are treated as allowed for statistical purposes. 12. In result, the present appeal preferred by the Assessee is treated as allowed for statistical purposes. Order pronounced on 27.05.2025. Sd/- Sd/- (Vikram Singh Yadav) Accountant Member (Rahul Chaudhary) Judicial Member मुंबई Mumbai; िदनांक Dated :27.05.2025 Milan,LDC ITA No.6448/Mum/2024 Assessment Year 2017-2018 6 आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. आयकर आयुƅ/ The CIT 4. Ůधान आयकर आयुƅ / Pr.CIT 5. िवभागीय Ůितिनिध ,आयकर अपीलीय अिधकरण ,मुंबई / DR, ITAT, Mumbai 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, सȑािपत Ůित //True Copy// उप/सहायक पंजीकार /(Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, मुंबई / ITAT, Mumbai "