Adhikar, Bhubaneswar V. ITO, Ward-2(1), Bhubaneswar

ITA 255/CTK/2017

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 7771 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-09-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 27-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S C BHADRA
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 32; 28; 11

Judgement Text

P A G E 1 | 7 IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO.25 5 /CTK/2017 ASSESSMENT YEAR : 20 12 - 2013 ADHIKAR , PLOT NO. - 113/2524, KHANDAGIRI VIHAR, KHANDAGIRI, BHUBANESWAR. VS. INCOME TAX OFFICER, WARD - 2(1), BHUBANESWAR PAN/GIR NO. AAATA 3160 D (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI S.C.BHADRA, AR REVENUE BY : SHRI SU BH ENDU DATTA , DR DATE OF HEARING : 0 5 /0 9 / 2018 DATE OF PRONOUNCEMENT : 27 /0 9 / 2018 O R D E R PER N.S.SAINI, AM THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) - 3, BHUBANESWAR DATED 29 .3.2017 FOR THE ASSESSMENT YEAR 20 12 - 2013. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF 10,39,569/ - AND ADDITION OF RS.7,96,911/ - BEING TRANSFER TO GENERAL FUND, RS.72,29,426/ - ADVANCES AND RS.35 ,56,860/ - LIABILITIES. ITA NO.25 5 /CTK/2017 ASSESSMENT YEAR : 20 12 - 13 P A G E 2 | 7 3. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED DEPRECIATION OF RS.10,39,569/ - TO THE ASSESSEE ON THE GROUND THAT IN THE COMPUTATION, THE ASSESSEE HAS CLAIMED BOTH PURCHASE OF FIXED ASSETS AND DEPRECIATION AS UTILI SATION OF INCOME. 4. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAS CLAIMED COST OF ASSETS AS CAPITAL EXPENDITURE IN EARLIER YEARS AND, THEREFORE, DEPRECIATION IS NOT ALLOWABLE DURING THE YEAR UNDER APPEAL AS IT WILL AMOUNT TO DOUBLE DEDUCTION TO THE ASSESSEE. 5. WE FIND THAT THE ISSUE IS NOW SETTLED BY THE HONBLE SUPREME COURT IN THE CASE OF RAJASTHAN AND GUJRAT I CHARITABLE AND FOUNDATION POONA, REPORTED IN 402 ITR 441 (SC), WHEREIN, IT HAS BEEN HELD THAT IN THE CASE OF CIT VS. INSTITUTE OF BANKING PERSONNEL AND SELECTION (IBPS), 131 TAXMAN 386 (BOM), IT WAS HELD THAT SECTION 11 MAKES PROVISIONS IN RESPECT OF COMP UTATION OF INCOME OF THE THE TRUST FROM PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PUR POSES AND IT ALSO PROVIDES FOR APPLICATION AND ACCUMULATION OF INCOME. ON THE OTHER HAND, SECTION 28 OF THE INCOME - TAX ACT DEALS WITH CHARGEABILITY OF INCOME FROM PROFITS AND GAINS OF BUSINESS AND SECTION 29 PROVIDES THAT INCOME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH ITA NO.25 5 /CTK/2017 ASSESSMENT YEAR : 20 12 - 13 P A G E 3 | 7 SECTION 30 TO SECTION 43C. THAT, SECTION 32(1) OF THE ACT PROVIDES FOR DEPRECIATION IN RESPECT OF BUILD ING, PLANT AND MACHIN ERY OWNED BY THE ASSESSEE AND USED FOR BUSI NESS PURPOSES. IT FURTHER PROVIDES FOR DEDUCTION SUBJECT TO SECTION 34. IN THAT MATTER ALSO, A SIMILAR ARGUMENT, AS IN THE PRESENT CASE, WAS ADVANCED ON BEHALF OF THE REVENUE, NAMELY, THAT DEPRECIATION CAN BE ALL OWED AS DEDUCTION ONLY UNDER SECTION 32 OF THE INCOME - TAX ACT AND NOT UNDER GENERAL PRINCIPLES. THE COURT REJECTED THIS ARGUMENT. IT WAS HELD THAT NORMAL DEPRECIATION CAN BE CONSIDERED AS A LEGITIMATE DEDUCTION IN COMPUTING THE REAL INCOME OF THE ASSESSEE ON GENERAL PRINCIPLES OR UNDER SECTION 11 ( 1 )(A) OF THE INCOME - TAX ACT. THE COURT REJECTED THE ARGUMENT ON BEHALF OF THE REVENUE THAT SECTION 32 OF THE INCOME - TAX ACT WAS THE ONLY SECTION GRANTING BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD THAT INCOME OF A CHARITABLE TRUST DERIVED FROM BUILDING, PLANT AND MACHINERY AND FURNITURE WAS LIABLE TO BE COMPUTED IN A NORMAL COMMERCIAL MANNER ALTHOUGH THE TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE ASSETS IN RESPECT WHEREOF DEPRECIATION IS CLA IMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, SECTION 32 OF THE INCOME - TAX ACT PROVIDING FOR DEPRECIA TION FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR PROFESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUTED UN DER SECTION 11 ITA NO.25 5 /CTK/2017 ASSESSMENT YEAR : 20 12 - 13 P A G E 4 | 7 ON COMMERCIAL PRINCIPLES AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROSS INCOME OF THE TRUST. IN VIEW OF THE AFORESAID JUDGMENT OF THE HONBLE BOMBAY HIGH COURT, THE HONBLE SUPREME COURT ANSWERED THE Q UESTION NO.1 IN THE AFFIRMATIVE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. RESPECTFULLY FOLLOWING THE ABOVE QUOTED DECISION OF HONBLE SUPREME COURT, WE SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATI ON OF RS.10,39,569/ - TO THE ASSESSEE. 6. AS REGARDS THE TRANSFER TO GENERAL FUND OF RS.7,96,911/ - , WE FIND THAT THE ASSESSING OFFICER HAS DISALLOWED THE SAME ON THE GROUND THAT THE AMOUNTS WERE NOT UTILIZED DURING THE YEAR FOR THE OBJECTS OF THE CHARITAB LE TRUST, WHICH WAS CONFIRMED IN APPEAL BY THE CIT(A). 7. THE ASSESSING OFFICER HELD THAT SUCH TRANSFER HAS BEEN INCLUDED AS PART OF EXPENSES CLAIMED UNDER DEVELOPMENT FUND OF RS.57,61,323/ - , WHICH FACT HAS NOT BEEN DISPUTED BY THE ASSESSEE. HE HELD THAT SUCH TRANSFER TO GENERAL FUND CANNOT BE TREATED AS EXPENDITUR E AND, ACCORDINGLY, ADDED THE SAME WHILE COMPUTING THE INCOME OF THE ASSESSEE. ITA NO.25 5 /CTK/2017 ASSESSMENT YEAR : 20 12 - 13 P A G E 5 | 7 8. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 9. SIMILARLY, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED ADVANCE OF RS.72,29,426/ - . THE ASSESSING OFFICER OBSERVED THAT THE ADVANCE INCLUDED RS.20,58,314/ - TOWARDS COMMUNITY DIARY P ROJECT , RS.17,33,943/ - TOWARDS PURCHASE OF FIXED ASSET, RS. 2,08,500/ - TOWARDS RENT ADVANCE, RS.2,50,606/ - TOWARDS STAFF ADVANCE AND RS.3,73,022/ - TOWARDS STAFF VEHICLE LOANS. THE ASSESSING OFFICER OBSERVED THAT VARIOUS EXPENSES ARE ADDITIONALLY CLAIMED THROUGH SCHEDULE TO THE FINANCIAL STATEMENT FROM WHERE THE SU RPLUS OR LOSS FROM VARIOUS FUNDS AND PROJECT ARE TAKEN TO INCOME AND EXPENDITURE ACCOUNT. HE OBSERVED THAT THESE ASPECTS HAVE NOT BEEN DISPUTED BY THE ASSESSEE. THEREFORE, HE HELD THAT THE EXPENSES WHICH HAVE BEEN ADDITIONALLY CLAIMED IN THE S HAPE OF ADV A NCE THROUGH SCHEDULE WAS DISALLOWED. 10. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 11. FURTHER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN LIABILITIES OF RS.35,56,860/ - TOWARDS EXPENSES IN THE ITA NO.25 5 /CTK/2017 ASSESSMENT YEAR : 20 12 - 13 P A G E 6 | 7 BALANCE SHEET. H E OBSERVED THAT THE ASSESSEE CONTENDED THAT BALANCE SHEET ITEM CANNOT BE TREATED AS DISALLOWANCE. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE AS NOT TENABLE ON THE GROUND THAT IF ANY EXPENDITURE REMAINS OUTSTANDING IN THE BOOKS OF ACCOUN T, IT ONLY REFLECTS THAT THE CASH FLOW ON ACCOUNT OF THAT EXPENDITURE HAS NOT HAPPENED. 12. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 13. BEFORE US, LD A.R. COULD NOT CONTROVERT THE FINDINGS OF THE ASSESSING OFFICER AND THE CIT (A) BY BRINGING ANY RELEVANT AND COGENT MATERIAL ON RECORD. IN ABSENCE OF THE SAME, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDERS OF LOWER AUTHORITIES. HENCE, THE ORDER OF THE CIT(A) IS CONFIRMED WITH REGARD TO THE ADDITION OF RS.7,96,911/ - TRANSFE R TO GENERAL FUND, RS.72,29,426/ - TOWARDS ADVANCE AND RS.35,56,860/ - TOWARDS LIABILITIES. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 27 /0 9 /2018. SD/ - SD/ - ( PAVAN KUMAR GADALE) ( N.S SAINI) JUDICIALMEMBER A CCOUNTANT MEMBER CUTTACK; DATED 27 /0 9 /2018 B.K.PARIDA, SPS ITA NO.25 5 /CTK/2017 ASSESSMENT YEAR : 20 12 - 13 P A G E 7 | 7 COPY OF THE ORDER FORWARDED TO : BY ORDER SR. PVT. SECRETARY, ITAT, CUTTACK 1. THE REVENUE: ITO, WARD 2(1), BHUBANESWAR. 2. THE ASSESSEE: ADHIKAR, BHUBANESWAR. 3. THE CIT(A) - 3, BHUBANESWAR 4. PR.CIT - 3, BHUBANESWAR 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//