M/s Krishi Upaj Mandi Samiti, V. The ITO,

ITA 373/IND/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1480 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-11-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 29-05-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V K KARAN
• Assessee Lawyers: R TARWALA
• Keywords: Depreciation; Charitable institution; Opportunity of being heard; Diversion of income; Retrospective amendment; Revised return; Unabsorbed depreciation; Revenue expenditure; Capital expenditure; Set aside
• Section: 80IA; 32; 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JM AND SHRI V.K. GUPTA, AM ITA NO.373/IND/2007 AY: 2003-04 M/S. KRISHI UPAJ MANDI SAMITI, KHANDWA ROAD, BURHANPUR (PAN AAALK 0642 A) .....APPELLANT V/S. ITO, BURHANPUR .....RESPONDENT ASSESSEE BY : SHRI R. TARWALA, CA DEPARTMENT BY : SHRI V.K. KARAN, SR. DR ORDER PER JOGINDER SINGH, JM THIS APPEAL IS BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-II, INDORE, DATED 28.3.2007. THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS: - GENERAL 1. THAT THE ORDER PASSED BY CIT(A)-II INDORE, CONFIRMING AND MAINTAINING THE ORDER PASSED BY ITO, WARD BURHANPUR IS ILLEGAL, WRONG AND BAD IN LAW. 2. THAT THE CIT(A) II INDORE FAILED TO CONSIDER THE APPLICATION DATED 21/03/2007 FOR ADDITIONAL GROUNDS AND FAILED TO GIVE FINDING. 3. THAT ADDITIONAL GROUNDS WAS GOING TO ROOT CAUSE OF ACTION AND CIT(A) II ERRED IN NOT ADMITTING AND GIVING FINDING. 2 INTEREST OF RS.35,58,356/- ON FDRS OF PENSION,GRATUITY FUND'S 4. THAT THE LEARNED CIT(A) II INDORE ERRED IN APPRECIATING AND CONSIDERING THE FACTS AND CIRCUMSTANCES AND STATUTORY LEGAL OBLIGATIONS OF THE CASE ON WHICH EMPLOYEE PENSION AND GRATUITY FUNDS WERE INVESTED IN FDR AND INTEREST INCOME ALSO BELONGED TO THE EPF AND ITS INCLUSION OF INTEREST IN APPLICANTS INCOME IS WRONG AND NEEDS TO BE DELETED. 5. THAT LEARNED CIT(A) II ERRED IN CONFIRMING AND MAINTAINING THE ADDITIONS. DEPRECIATION OF RS.7,02,618/- ON MOVABLE PROPERTIES 6. THAT THE CIT(A) II INDORE ERRED IN CONFIRMING AND MAINTAINING THE DISALLOWANCE OF DEPRECIATION OF RS.7,02,618/- - WITHOUT APPRECIATING THE FACT PRESENTED AND ADDITION OF RS.7,02,618/- NEEDS TO BE DELETED. 7. THAT LEARNED AO HAD ALLOWED DEPRECIATION ON WDV AS ON 31.03.2002 WHILE NO DEPRECIATION WAS CLAIMED IN ANY EARLIER YEAR OR EVEN WAS ALLOWED AND HENCE ERRED IN ALLOWING DEPRECIATION ON WDV. DEPRECIATION ALLOWABLE ON COST MINUS DEPRECIATION ALLOWED. 8. THAT LEARNED CIT(A) II INDORE AND ASSESSING OFFICER ERRED IN CONSIDERING THE PROVISIONS OF SECTION 32(1)(II) AND SECTION 43(6)(5) OF IT ACT WHICH DEFINES WDV AND CLEARLY STATES COST LESS DEPRECIATION ACTUALLY ALLOWED. 9. THAT LEARNED CIT(A) II INDORE ERRED IN APPRECIATING AND CONSIDERING THE JUDGMENT OF 3 KANDLA PORT TRUST V. ASST CIT 2006, 104 ITJ PAGE 396 RAJ WHERE THE FACTS ARE IDENTICAL AND DEPRECIATION WAS ALLOWED ON COST. DEPRECIATION OF RS. 13,55,190/- ON IMMOVABLE PROPERTIES 10. THAT THE LEARNED CIT(A) II INDORE ERRED IN CONFIRMING AND MAINTAINING THE DISALLOWANCE OF DEPRECIATION OF RS.13,55,190/- WITHOUT APPRECIATING THE FACT PROPERLY AND ADDITION OF RS.13,55,190/- NEEDS TO BE DELETED. 11. THAT LEARNED AO HAD ALLOWED DEPRECIATION ON WDV AS ON 31.03.2002 WHILE NO DEPRECIATION WAS CLAIMED IN ANY EARLIER YEAR OR EVEN WAS ALLOWED AND HENCE ERRED IN ALLOWING DEPRECIATION ON WDV. DEPRECIATION ALLOWABLE ON COST MINUS DEPRECIATION ALLOWED. 12. THAT THE LEARNED CIT(A) II INDORE AND ASSESSING OFFICER ERRED IN CONSIDERING THE PROVISIONS OF SECTION 32(1)(II) AND SECTION 43(6) 5 OF IT ACT WHICH DEFINES WDV AND CLEARLY STATES COST LESS DEPRECIATION ACTUALLY ALLOWED. 13 THAT THE LEARNED CIT(A) II INDORE ERRED IN APPRECIATING AND CONSIDERING THE JUDGMENT OF KANDLA PORT TRUST V. ASSTT. CIT 2006, 104 ITJ PAGE 396 RAJ. WHERE THE FACTS ARE IDENTICAL AND DEPRECIATION WAS ALLOWED ON COST. DISALLOWANCE OF CAPITAL EXPENDITURE OF RS.10,73,994/- & RS.14,24,067/- 14. THAT THE LEARNED CIT(A) II INDORE AND AO 4 ERRED IN CONSIDERING THE NATURE OF EXPENSES OF THE CLAIM AS REVENUE EXPENDITURE. 15. THAT THE EXPENSES CLAIMED WERE REVENUE EXPENDITURE AND LEARNED CIT(A) II INDORE AND AO ERRED IN HOLDING THAT IT IS CAPITAL EXPENDITURE WHEN THE ASSETS ARE NOT OWNED BY APPELLANT AND AT THE INSTANCE OF STATE GOVT., BOARD AND COLLECTOR INCURRED EXPENDITURE. IT IS NOT CORRECT TO SAY IT IS CAPITAL EXPENDITURE. 16. THAT IN SOME OF THE CASES EXPENDITURE ARE IN THE NATURE OF REPAIRS, REPLACEMENT AND ALLOWABLE AS REVENUE EXPENDITURE. 17. THAT APPELLANT CRAVES LEAVE, TO ADD, AMEND OR ALTER ANY OF THE GROUNDS AT ANY TIME BEFORE THE HEARING OF APPEAL.' 2. DURING HEARING OF THIS APPEAL, WE HAVE HEARD SHR I R. TARWALA, LD. COUNSEL FOR ASSESSEE AND SHRI V.K. KARAN, LD. SR. D R FOR THE REVENUE. GROUND NO.1,2 & 3 IN THE GROUNDS ARE GENERAL IN NATURE, TH EREFORE, REQUIRES NO DELIBERATION FROM OUR SIDE. THE NEXT GROUND IS THAT THE LD. FIRST APPELLATE AUTHORITY ERRED IN APPRECIATING THE FACTS AND THE S TATUTORY LEGAL OBLIGATION ON EMPLOYEES GRATUITY FUNDS INVESTED IN FDR AND INTER EST INCOME ALSO BELONG TO EPF, CONSEQUENTLY, INCLUSION OF INTEREST IN THE INC OME OF THE ASSESSEE IS UNJUSTIFIED. AT THE OUTSET, THE LD. SR. DR POINTED OUT THAT THE IMPUGNED ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. KRISHI UPAJ MANDI SAMITI, BURHANPUR (ITA NO. 2 77 & 278/IND/2008), ORDER DATED 24.10.2008. THIS ASSERTION OF THE LD. D R WAS CONSENTED TO BE 5 CORRECT BY THE LD. COUNSEL FOR ASSESSEE. IN VIEW OF THIS FACT, WE ARE REPRODUCING HEREWITH THE RELEVANT PORTION FROM THE AFORESAID ORDER: 6. GROUND NO.2 & 9 : ON GROUND NO.2, ASSESSEE CHALLENGED THE ORDER OF LD. CIT(A) IN NOT EXEMPTING THE INCOME OF RS.38,69,627/- BEING INTEREST ON FDR FROM RESERVE FUND AND ON GROUND NO.9, IN ENHANCING THE INCOME IN RESPECT OF AARAKSHIT NIDHI OF RS.19,25, 785/-. THE AO FOUND THAT ASSESSEE CLAIMED EXEMPTION OF INT EREST OF RS.38,69,627/- RECEIVED ON THE FUNDS DEPOSITED W ITH THE BANK FOR THE PURPOSE OF PENSION, GRATUITY AND OTHER RETIREMENT BENEFITS OF THE EMPLOYEES. THE AO ASKED THE ASSESSEE TO SHOW WHETHER THE SAID FUND WAS REGISTER ED UNDER THE SUPERANNUATION FUND U/S 10(25) OF THE IT ACT. IT WAS SUBMITTED BY THE ASSESSEE THAT FUND WAS NOT A SUPERANNUATION FUND. THE AO EXAMINED THE PROVISIONS OF SEC. 10(25) AND HELD THAT PROVISIONS OF SEC. 10(25) ARE NOT APPLICABLE IN THIS CASE BECAUSE NEITHER IT IS RELAT ED TO PF NOR THE FUND WAS APPROVED SUPERANNUATION OR GRATUIT Y FUND. THE SAME WAS THEREFORE, ADDED AS INTEREST EAR NED TO THE INCOME OF THE ASSESSEE. SIMILAR CLAIM WAS MADE BEFORE LD. CIT(A) HOWEVER, THIS GROUND WAS REJECTED ON THE REASONS THAT THE INTEREST IN SUCH RESERVE FUND WERE NOT EXEMPT SINCE THE FUND CREATED WAS NOT REGISTERED U/ S 10(25) OF THE IT ACT. AS REGARDS AARAKSHIT NIDHI OF 6 RS.19,25,785/-, THE ASSESSEE SUBMITTED THAT THE CONTRIBUTION WAS MADE IN VIEW OF THE PROVISIONS OF RELEVANT ACT AND RULES FRAMED THEREIN. IT WAS NOTED BY THE L D. CIT(A) THAT THE CONTRIBUTION MADE TO THE AARAKSHIT NIDHI WAS ACTUALLY A CONTRIBUTION TO A RESERVE FOR MEETIN G OUT THE FUTURE LIABILITIES OF PROVISION, GRATUITY ETC. HENCE, CANNOT BE ALLOWED AS EXPENDITURE U/S 36(1)(XII). IT WAS FURTHER NOTED THAT ASSESSEE WAS FOLLOWING CASH SYST EM OF ACCOUNTING THEREFORE, ON MERE PROVISION MADE IN THE BOOKS, DEDUCTION CANNOT BE ALLOWED. BOTH THE ADDITI ONS WERE ACCORDINGLY MADE. 7. LD. COUNSEL FOR ASSESSEE SUBMITTED THAT ASSESSEE IS CREATED UNDER MP KRISHI UPAJ MANDI ADHINIYAM AND RULES THEREIN AND AS PER RULE 10, RESERVE FUND IS T O BE CREATED @5% WHICH PROVIDES LEAVING ASIDE FARMERS ROAD FUND AND AGRICULTURAL AND INFRASTRUCTURAL DEVELOPMENT FUND, @5%, OF REMAINING AGGREGATE RECEIPT CHIEF ACCOUNTS OFFICER WILL DEPOSIT IN SEPA RATE BANK ACCOUNT EVERY THREE MONTHS IN THE FARMER RESER VE FUND. USE OF RESERVE FUND SHALL BE MADE FOR THE PAYMENT OF PENSION TO THE MEMBERS OF THE STATE BOAR D SERVICE, FAMILY PENSION, EX-GRATIA, GRATUITY GRANT, LOAN AND ADVANCE AS PER PROCEDURE PRESCRIBED BY THE BOAR D AND EACH MEMBER OF THE SERVICE BOARD SHALL BE ENTIT LED 7 TO RECEIVE PENSION ON RETIREMENT, GRATUITY AND OTHE R BENEFITS AS PER RULES AND SEPARATE ACCOUNT OF RESER VE FUND SHALL BE KEPT IN A BANK FOR THE MEMBERS OF SER VICE BOARD POSTED IN MARKET COMMITTEE (PB-31). HE HAS FURTHER SUBMITTED THAT AARAKSHIT NIDHI IS LIKEWISE TO BE CREATED @5% OF THE TOTAL RECEIPT OF THE MANDI FEES WHICH COULD ENHANCE UP TO 10% AS PER SEC. 7 OF MP KRISHI MANDI (STATE MARKETING FUND RULES)(PB-33). H E HAS ALSO REFERRED TO SEC.25A (6) OF MP KRISHI MANDI ADHINIYAM WHICH PROVIDES THAT MARKET COMMITTEE SHAL L MAKE PROVISION IN THE BUDGET FOR CREDITING THE AMOU NT INTO PERMANENT FUND @20%. HE HAS SUBMITTED THAT SEC. 43 OF MP KRISHI UPAJ MANDI ADHINIYAM PROVIDES STATE MARKETING DEVELOPMENT FUND AND THE MARKET COMMITTEE SHALL PAY AT SUCH PERCENTAGE OUT OF THE GROSS RECEIPT LICENCE FEE AND MARKET FEES TO THE ST ATE GOVT. AND ALL EXPENDITURE INCURRED BY THE BOARD ACCORDING TO THE BUDGET SECTION SHALL BE DEFRAYED. HE HAS THEREFORE, SUBMITTED THAT THESE ARE THE REASONS THROUGH WHICH THE RESERVE FUND IS CREATED AS STATUT ORILY REQUIRED WHICH WERE PERMANENT FUNDS IN NATURE. HE HAS SUBMITTED THAT INTEREST IS OUT OF THESE RESERVE FUNDS WHICH CAN BE UTILIZED AS PER DIRECTION OF THE BOARD THEREFORE, NO INTEREST ACCRUED TO THE ASSESSE E 8 EVEN IF THE RESERVE FUNDS WERE IN THE NAME OF THE ASSESSEE. HE HAS SUBMITTED THAT THE SAID INTEREST A ND FUNDS CAN BE USED ONLY FOR PARTICULAR PURPOSE AND T HAT ASSESSEE DOES NOT HAVE ANY CONTROL OVER THE SAID STATUTORY FUNDS THEREFORE, INTEREST ACCRUED THEREON CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON FOLLO WING DECISIONS: I. CIT VS. NEW HORISON SUGAR MILLS LTD. 244 ITR 738 IN WHICH, MADRAS HIGH COURT HELD THAT THE AMOUNT SET APART BY THE ASSESSEE TOWARDS MOLASSES RESERVE FUND AND REQUIRED BY MOLASSES CONTROL ORDER, SHOULD BE EXCLUDED FROM ITS INCOME. THIS DECISION IS CONFIRMED BY SUPREME COURT IN 269 ITR 397. SIMILAR VIEW IS TAKEN BY MADRAS HIGH COURT IN THE CASE OF CIT VS. SALEM COOPERATIVE SUGAR MILL, 229 ITR 285. II. CIT VS. BHOPAL SUGAR INDUSTRIES, 221 ITR 449 IN WHICH MP HIGH COURT HELD THAT THE AMOUNT CREDITED TO CREATE RESERVE FUND GOVT. ORDER ASSESSEE HAD NO CONTROL OVER THE AMOUNT CREDITED AMOUNT NOT INCLUDABLE IN THE TOTAL INCOME OF THE ASSESSEE. III. MOTILAL CHHADAMLAL VS. CIT, 190 ITR 329 IN WHICH, HON'BLE SUPREME COURT HELD EXECUTION OF DEED STATING THAT EXPENSES OF THE TRUST WILL BE MADE FRO M 9 INCOME OF CERTAIN PROPERTIES AND HE WILL HAVE NO RIGHT IN INCOME IT IS A DIVERSION OF INCOME AND N OT TAXABLE IN THE HANDS OF HUF. IV. SIDHESHWAR SAHAKARI SHAKKAR KHARKHANA VS. CIT, 270 ITR 1 IN WHICH, HON'BLE SUPREME COURT REFERRED TO OTHER DECISIONS IN WHICH, IT WAS OBSERVED THAT T HE AMOUNT WAS RETAINED BY THE ASSESSEE AND UTILIZED ACCORDING TO GUIDELINES ISSUED BY THE GOVT. IT WAS A SPECIFIC LEGAL OBLIGATION FOR SPENDING MONIES FOR A SPECIFIC PURPOSE. SUCH RECEIPTS CANNOT BE TREATED A S ASSESSEES INCOME. V. SOMAYYA ORGENE CHEMICALS VS. CIT, 216 ITR 291 IN WHICH, BOMBAY HIGH COURT HELD MANUFACTURE OF RECTIFIED SPRIT PORTION OF SALE PROCEEDS CREDITED TO A SEPARATE FUND BY STATUTORY ORDER FOR UTILIZATION FOR A PARTICULAR PURPOSE AMOUNT DIVERTED AT SOURCE AND REQUIRED TO BE EXCLUDED U/S 20A OF THE ACT. 8. ON THE OTHER HAND, LD. DR SUBMITTED THAT ASSESSEE CANNOT CHANGE ITS STAND IN CLAIMING DEDUCTION ON TH E ABOVE SUBMISSION BECAUSE ADMITTEDLY, THE CASE OF TH E ASSESSEE WOULD NOT FALL U/S 10(25) AND SEC. 36(1)(X II) OF THE IT ACT THEREFORE, CLAIM OF THE ASSESSEE WAS RIGHTLY REJECTED BY THE AUTHORITIES BELOW. HE HAS SUBMITTED THAT THE SUBMISSION OF THE ASSESSEE REQUI RES 10 RECONSIDERATION BY THE AO BECAUSE THE MP KRISHI UPA J MANDI ADHINIYAM AND RULES WERE NOT REFERRED TO BEFO RE THE AO AND LD. CIT(A). HE HAS SUBMITTED THAT THE AB OVE ACT IS A SUBORDINATE LEGISLATION AND PUBLIC AT LARG E IS NOT BENEFITED AND RESERVE FUNDS CAN BE UTILIZED FOR GIV ING LOANS AND ADVANCES ALSO THEREFORE, ASSESSEE CANNOT CLAIM THAT IT HAS NO CONTROL OVER THE SAME FUNDS. H E HAS SUBMITTED THAT RESERVE FUNDS ARE CREATED IN THE NAME OF THE ASSESSEE AND THAT ASSESSEE WAS MAINTAINING THE ACCOUNTS ON YEARLY BASIS THEREFORE, SAME ARE NOT RELIABLE AND ASSESSEE HAS CONTROL OVER THE FUNDS THEREFORE, ADDITIONS WERE RIGHTLY MADE. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND MATERIAL AVAILA BLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE D ID NOT PRESS HIS CLAIM U/SS 10(25) AND 36(1)(XII) OF THE I T ACT BEFORE THE TRIBUNAL AS WAS THE CLAIM MADE BEFORE TH E AUTHORITIES BELOW THEREFORE, THE CLAIM OF THE ASSES SEE COULD NOT BE CONSIDERED UNDER THOSE PROVISIONS. THE REASONING GIVEN BY THE AUTHORITIES BELOW ARE JUST A ND PROPER IN REJECTING THE CLAIM OF THE ASSESSEE U/SS 10(25) & 36(1)(XII) OF THE IT ACT. HOWEVER, THE LD. COUNSEL FOR ASSESSEE MADE A CLAIM THAT SINCE THE RESERVE FUNDS WERE STATUTORILY CREATED UNDER THE MP KRISHI UPAJ MANDI ADHINIYAM AND RULES AND THE FUNDS 11 HAVE BEEN CREATED FOR SPECIFIC PURPOSES THEREFORE, ASSESSEE WOULD NOT HAVE CONTROL OVER THE SAID RESER VE FUNDS THEREFORE, THE INTEREST ACCRUED THEREON AND T HE DEPOSITS COULD NOT HAVE BEEN TREATED AS INCOME OF T HE ASSESSEE. ON GOING THROUGH THE RULES REFERRED TO BY THE LD. COUNSEL FOR ASSESSEE, WE ARE OF THE VIEW THAT T HE RESERVE FUND REMAINED IN THE NAME OF ASSESSEE AND THAT THE RESERVE FUND COULD BE USED FOR THE PURPOSE OF PAYMENT OF PENSION TO THE MEMBERS OF STATE BOARD OF SERVICE, FAMILY PENSION, EXGRATIA, GRATUITY GRANT, LOAN AND ADVANCES AS PER PROCEDURE PRESCRIBED BY THE BOARD. IT WOULD THEREFORE, PROVE THAT THE RESERVE F UNDS REMAINED IN CONTROL, POSSESSION AND IN THE NAME OF THE ASSESSEE AND WAS TO BE USED FOR THE PURPOSES OF PROVIDING PENSION, EXGRATIA, LOAN AND ADVANCES ETC. THE PROCEDURE IS TO BE PROVIDED BY THE BOARD ONLY FOR L OAN AND ADVANCES. THE ABOVE AMOUNT SHALL BE SPENT FOR T HE PERSONS CONNECTED WITH THE ASSESSEE AND EVEN LOAN AND ADVANCE SHALL BE GIVEN TO THE MEMBERS OF THE SERVICE POSTED IN MARKET COMMITTEE. ADMITTEDLY, THE ASSESSEE RECEIVED INTEREST ON THE FUNDS DEPOSITED W ITH THE BANK IN THIS REGARD. SINCE THE RESERVE FUNDS REMAINED WITH THE ASSESSEE THEREFORE, INTEREST EARN ED ON SUCH FUNDS SHALL BE INCOME OF THE ASSESSEE. THE 12 DECISIONS RELIED UPON BY LD. COUNSEL FOR ASSESSEE A RE THEREFORE, NOT APPLICABLE TO ADVANCE THE CASE OF TH E ASSESSEE. GROUND NO.2 OF THE APPEAL OF THE ASSESSEE IS ACCORDINGLY DISMISSED. IN VIEW OF THE ABOVE, WHEREIN VARIOUS JUDICIAL PR ONOUNCEMENTS HAVE ALREADY BEEN CONSIDERED BY THE BENCH, CONSEQUENTLY, KEEPING IN VIEW THE FAIR ADMISSION FROM LD. REPRESENTATIVES FROM BOTH SIDES, THIS GROUND OF THE ASSESSEE IS DISMISSED. 3. THE NEXT ISSUE PERTAINS TO DEPRECIATION OF RS.7, 02,618/- & RS.13,55,190/-. THE CLAIM OF THE ASSESSEE IS THAT T HE LD. FIRST APPELLATE AUTHORITY ERRED IN CONFIRMING THE DISALLOWANCE OF D EPRECIATION WITHOUT APPRECIATING THE FACTS ON WDV AS ON 31.3.2002 WHILE NO DEPRECIATION WAS CLAIMED IN EARLIER YEAR WITHOUT CONSIDERING THE PRO VISION OF SEC. 32(1)(II) AND SEC. 43(6)(5) OF THE ACT. AT THE OUTSET, IT WAS POI NTED OUT BY THE LD. SR. DR THAT THIS ISSUE IS ALSO COVERED AGAINST THE ASSESSE E BY THE AFORESAID DECISION OF THE TRIBUNAL DATED 24.10.2008. THIS ASSERTION OF THE LD. DR WAS CONSENTED TO BE CORRECT BY THE LD. COUNSEL FOR ASSESSEE. IN V IEW OF THESE FACTS, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION FROM THE AFORESAID ORDER: 20. GROUND NO.8 : ON GROUND NO.8, THE ORDER OF THE LD. CIT(A) IS CHALLENGED IN NOT ALLOWING THE DEPRECIATION AS CLAIMED BY THE ASSESSEE ON THE BASI S OF ACTUAL COST INCURRED BY THE ASSESSEE WITHOUT DEDUCT ING THE DEPRECIATION WHICH IS NOT CLAIMED AND ALLOWED IN TH E EARLIER 13 YEARS. LD. REPRESENTATIVES OF BOTH THE PARTIES SUBM ITTED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY T HE ORDER OF ITAT, INDORE BENCH IN THE CASE OF KRISHI UPAJ MA NDI ETC. IN ITA NO.42 OF 2008 VIDE ORDER DATED 30.9.2008 IN WHICH, IT WAS HELD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES HA VE SUBMITTED THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE ITAT, INDORE BENCH, IN THE CASE OF KRISHI UPAJ MANDI SAMITI, UNHEL, V. ITO IN ITA NO. 457/IND/06 REPORTED IN 9 ITJ 593 AND THE ISSUE IS DECIDED IN F AVOUR OF THE REVENUE BY DISMISSING THE APPEALS OF THE ASSESSEE. THE SUBMISSIONS OF THE PARTIES AND THE FINDINGS OF THE TRIBUNAL IN THAT CASE FROM PARA 9 T O 16 ARE REPRODUCED AS UNDER :- 9. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OUT OF DEPRECIATION ON NOTIONAL DEDUCTION AND DEPRECIATION AND THAT AS PER SECTION 43(6), THE MEANING OF WRITTEN DOWN VALUE MEANS (B) IN CASE OF ASSETS ACQUIRED BEFORE THE PREVIOUS YEAR, THE ACTUAL COST OF ASSETS LESS ALL DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THE ACT. HE SUBMITTED THAT SINCE THE ASSESSEE HAS NOT BEEN ALLOWED DEPRECIATION ACTUALLY IN EARLIER YEAR, THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE ASSESSING 14 OFFICER. HE HAS FURTHER SUBMITTED THAT EXPLANATION 5 TO SEC. 32(1)(II) IS APPLICABLE WITH EFFECT FROM 1.4.2002. THEREFORE, IT IS NOT RETROSPECTIVELY APPLICABLE. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS :- 1. 55 ITR 329 DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF DHARAMPUR LEATHER CLOTH COMPANY LTD. IN WHICH IT WAS HELD THAT UNLESS AND UNTIL DEPRECIATION HAS BEEN ACTUALL Y ALLOWED IN ANY ASSESSMENT OF PREVIOUS YEARS, WRITTEN DOWN VALUE OF THE MACHINERY OR ASSETS CONTINUES TO REMAIN THE COST PRICE INCURRED BY THE ASSESSEE IN ACQUIRING THE MACHINERY OR ASSETS. 2. 80 TTJ 539 ORDER OF THE ITAT, PUNE BENCH IN THE CASE OF G.C. ASSOCIATES V. DCIT IN WHICH IT WAS HELD THAT WDV HAS BEEN DEFINED U/S 43(6) TO MEAN IN CASE OF ASSETS ACQUIRED IN THE PREVIOUS YEAR, ACTUAL COST TO THE ASSESSEE AND IN THE CASE OF ASSE TS ACQUIRED PRIOR TO PREVIOUS YEAR ACTUAL COST TO THE ASSESSEE LESS ALL THE DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THE ACT. IF THE ASSESSEE HAS NOT FILED RETURN OF INCOME, THE FACT IT HAS COMPUTED ITS INCOME OR ITS BOOKS OF HAS NO RELEVANCE SO FAR AS COMPUTATION OF WDV UNDER THE ACT IS CONCERNED BECAUSE WHAT THE ASSESSEE HAS DONE IN THE BOOKS OF ACCOUNTS CANNOT BE EQUATED WITH DEPRECIATION ACTUALLY ALLOWED UNDER THE INCOMETAX ACT. 3. 17 ITR 130 DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF KAMALA MILLS LIMITED V. CIT IN WHICH IT WAS HELD WRITTEN DOWN VALUE 15 ACTUALLY ALLOWED MEANING OF WRITTEN DOWN VALUE WHEN UNABSORBED DEPRECIATION IS CARRIED FORWARD. 4. 62 ITD 398 ORDER OF THE ITAT, BANGALORE BENCH, IN THE CASE OF TRITON VALUES LIMITED IN WHIC H IT WAS HELD THAT THE ASSESSEE HAD NOT CLAIMED DEPRECIATION FROM THE ASSESSMENT YEAR 1983-84 TO 1987-88 BUT CLAIMED DEPRECIATION IN THE ASSESSMENT YEAR 1988-89 WHETHER ASSESSEE WOULD BE ENTITLED TO DEPRECIATION ON WRITTEN DOWN VALUE FIXED FOR THE YEAR 1982-83 HELD YES 5. 204 ITR 719 DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. SUMAN TEA & PLYWOOD INDUSTRIES (P) LIMITED IN WHICH ALSO SAME LEGAL PROPOSITION IS HELD AS NOTED ABOVE. 6. 197 ITR 13 DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF JOSE KURUVILLA IN WHICH IT WAS HELD ACTUAL COST OF CAR FOR CALCULATING DEPRECIATIO N WAS THE PRICE PAID IN 1978 BECAUSE THE ASSESSEE HAS NOT CLAIMED DEPRECIATION TILL ASSESSMENT YEAR 1982-83. 7. 98 ITR 209 DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MADEVA UPENDRA SINAI V. UOI IN WHICH IT WAS HELD THAT CONNOTATION OF THE PHRASE ACTUALLY ALLOWED IS THUS LIMITED TO DEPRECIATION ACTUALLY TAKEN INTO ACCOUNT OR GRANTED AND GIVEN EFFECT TO I.E. DEBITED BY THE ITO AGAINST THE INCOMINGS OF BUSINESS IN COMPUTING THE TAXABLE INCOME OF THE ASSESSEE BUT CANNOT BE STRETCHED TO MEAN NOTIONALLY ALLOWED OR MERELY ALLOWABLE ON NOTIONAL BASIS. 16 8. 146 ITR 28 DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SOCIETY OF THE SISTERS OF STATISTICAL PURPOSES. ANNE. 9. 180 ITR 579 DECISION OF THE HON'BLE HIGH COURT OF MADHYA PRADESH IN THE CASE OF RAIPUR PALLOTTINE SOCIETY. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT ITAT, SMC BENCH, INDORE, IN THE CASE OF KRISHI UPAJ MANDI SAMITI, SHAJAPUR, DISALLOWED THE CLAIM OF THE ASSESSEE ON THE IDENTICAL FACTS VIDE ORDER DATED 3 RD NOVEMBER, 2006 BUT THE ABOVE DECISIONS, AS RELIED UPON ABOVE, WERE NOT CONSIDERED. THEREFORE, THE SAME IS NOT APPLICABLE TO THIS CASE . 10. ON THE OTHER HAND, THE LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 11. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD INCLUDING WRITTEN SUBMISSIONS FILED BY THE LD. COUNSEL FOR THE ASSESSEE. BEFORE CONSIDERING THE SUBMISSIONS OF THE PARTIES IT WOULD BE RELEVANT TO NOTICE CERTAIN CERTAIN RELEVANT PROVISIONS OF LAW. 12. SECTION 32(1) OF THE ACT PROVIDES DEPRECIATION IN RESPECT OF DEPRECIATION OF (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEING TANGIBLE ASSETS (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES,FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE IS T DAY OF APRIL, 1998, OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSE OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED 17 (I) IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PER CENTAGE ON THE ACTUAL COST THEREOF TO THE ASSESSEE AS MAY BE PRESCRIBED (II) IN CASE OF ANY BLOCK OF ASSETS, SUCH PERCENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED : PROVIDED . EXPLANATION 5 TO SECTION 32(1)(II) PROVIDES FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT THE PROVISIONS OF THIS SUB-SECTION SHALL APPL Y WHETHER OR NOT THE ASSESSEE HAD CLAIMED THE DEDUCTION IN RESPECT OF DEPRECIATION IN COMPUTING HIS TOTAL INCOME. THE ABOVE EXPLANATION 5 IS INSERTED IN THE INCOMETAX ACT BY THE FINANCE ACT, 2001 WITH EFFECT FROM 1.4.2002. 13. SECTION 43(6) PROVIDES THE MEANING OF WRITTEN DOWN VALUE AND READS - 43 (6) WRITTEN DOWN VALUE MEANS (A) IN THE CASE OF ASSETS ACQUIRED IN THE PREVIOUS YEAR, THE ACTUAL COST TO THE ASSESSEE. (B) IN THE CASE OF ASSETS ACQUIRED BEFORE THE PREVIOUS YEAR, THE ACTUAL COST TO THE ASSESSEE LESS ALL DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THIS ACT, OR UNDER THE INDIAN INCOMETAX ACT, 1922 (11 OF 1922) OR ANY ACT REPEALED BY THAT ACT, OR UNDER ANY EXECUTIVE ORDERS ISSUED WHEN THE INDIAN INCOMETAX ACT, 1886 (2 OF 1886), WAS IN FORCE : 18 PROVIDED THAT IN DETERMINING THE WRITTEN DOWN VALUE IN RESPECT OF BUILDINGS, MACHINERY OR PLANT FOR THE PURPOSE OF CALUSE (II) O F SUB- SECTION (1) OF SECTION 32, DEPRECIATION ACTUALLY ALLOWED SHALL NOT INCLUDE DEPRECIATION ALLOWED UNDER SUB-CLAUSES (A), (B) AND () OF CLAUSE (VI) OF SUB- SECTION (2) OF SECTION 10 OF TH E INDIAN INCOMETAX ACT, 1922 (11 OF 1922), WHERE SUCH DEPRECIATION WAS NOT DEDUCTIBLE IN DETERMINING THE WRITTEN DOWN VALUE FOR THE PURPOSES OF THE SAID CLAUSE (VI); SECTION 10(20) PROVIDES THE INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME IN RESPECT OF LOCAL AUTHORITY. HOWEVER, BY INSERTING EXPLANATION WITH EFFECT FROM 1.4.2003 THE DEFINITION OF LOCAL AUTHORITY IS RESTRICTED TO ONLY 4 ITEMS. THEREFORE, THE ASSESSEES CASE WOULD NOT FALL WITHIN THE DEFINITION OF THE LOCAL AUTHORITY AS PER THE ABOVE AMENDMENT IN THE PROVISIONS OF SECTION 10(20). THE LD. DEPARTMENTAL REPRESENTATIVE , THEREFORE, RIGHTLY CONTENDED THAT SECTION 10(20) PROVIDES EXEMPTION OF INCOME OF THE LOCAL AUTHORITY AS IN THE CASE OF THE ASSESSEE PRIOR TO 1.4.2003. 14. CONSIDERING THE ABOVE LEGAL PROVISIONS, I AM OF THE VIEW THAT THE LEARNED CIT(A) IS JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO CLAIM OF EXCESSIVE DEPRECIATION. THE INCOME OF THE ASSESSEE BEING LOCAL AUTHORITY WAS EXEMPT PRIOR TO 1.4.2003 AND AS PER SETTLED 19 ACCOUNTING PRINCIPLES AND THE METHOD OF ACCOUNTING GENERALLY ADOPTED, THE INCOME IS TO BE COMPUTED BY REDUCING THE EXPENDITURE FROM THE RECEIPTS. THE ASSESSEE WHILE PREPARING THE ACCOUNTS BEING IN THE STATUS OF LOCAL AUTHORITY SHALL HAVE TO PREPARE THE ACCOUNTS AS PER ACCOUNTING STANDARDS AND HAVE TO REDUCE THE DEPRECIATION ON THE WRITTEN DOWN VALUE OF THE EARLIER YEARS. THE LD. DEPARTMENTAL REPRESENTATIVE , THEREFORE, RIGHTLY CONTENDED THAT AS PER SECTION 10(20) THE INCOME OF LOCAL AUTHORITY WAS EXEMPT AND NOT THE TOTAL RECEIPTS. THEREFORE, EVEN IF THE ASSESSEE HAS NOT CLAIMED DEPRECIATION IN EARLIER YEAR WOULD BE OF NO CONSEQUENCE BECAUSE ULTIMATELY THE VALUE OF ASSETS WOULD REDUCE ON BEING THE USER OF THE SAME FOR BUSINESS PURPOSES OF THE ASSESSEE. HON'BLE HIGH COURT OF MADHYA PRADESH IN THE CASE OF CIT V. RAIPUIR PALLOTTINE SOCIETY; 180 ITR 579 HELD - DEPRECIATION IS THE EXHAUSTION OF THE EFFECTIVE LIFE OF A FIXED ASSET OWING TO USE OR OBSOLESCENCE. IT MAY BE COMPUTED AS THAT PART OF THE COST OF THE ASSET WHICH WILL NOT BE RECOVERED WHEN THE ASSET IS FINALLY PUT OUT OF USE. THE OBJECT OF PROVIDING FOR DEPRECIATION IS TO SPREAD THE EXPENDITURE INCURRED IN ACQUIRING THE ASSET OVER ITS EFFECTIVE LIFETIME AND THE AMOUNT OF PROVISION MADE IN RESPECT OF AN ACCOUNTING PERIOD IS INTENDED TO REPRESENT THE PROPORTION OF SUCH EXPENDITURE WHICH HAS 20 EXPIRED DURING THAT ERIOD. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTION IN COMPUTING THE INCOME OF A CHARITABLE TRUST, THEN THERE WOULD BE NO WAY TO PRESERVE THE CROPUS OF THE TRUST. A CHARITABLE TRUST IS , THEREFORE, ENTITLED TO DEPRECIATION IN RESPECT OF THE ASSETS OWNED BY IT. 15. AS PER SECTION 32(1)(II) THE ASSESSEE WOULD BE ENTITLED TO DEPRECIATION ON THE ASSETS OWNED BY IT IN CASE OF ANY BLOCK OF ASSETS ON THE WRITTEN DOWN VALUE AND THE EXPLANATION 5 TO THE ABOVE SECTION PROVIDES THAT THE PROVISION OF THIS SUB- SECTION SHALL APPLY WHETHER OR NOT THE ASSESSEE HAS CLAIMED THE DEDUCTION IN RESPECT OF HIS DEPRECIATION IN COMPUTING THE TOTAL INCOME. EXPLANATION 5 IS APPLICABLE WITH EFFECT FROM 1.4.2002 AND THE ASSESSMENT YEAR INVOLVED IN APPEAL IS ASSESSMENT YEAR 2003-04. THEREFORE, EVEN AS PER EXPLANATION 5 TO SECTION 32(`1)(II) THE ASSESSEE SHALL HAVE TO MAKE ADJUSTMENTS WITH REGARD TO DEPRECIATION OF THE EARLIER YEARS INCLUDING THE PREVIOUS ASSESSMENT YEAR 2002-03. THE ASSESSEE THUS CANNOT ESCAPE FROM THE LIABILITY IN MAKING PROPER ADJUSTMENT ENTRIES IN THE BOOKS OF ACCOUNTS AND THE ACCOUNTS OF THE ASSESSEE EVEN IF INCOME WAS EXEMPT U/S 10(20) OF THE ACT BECAUSE THE INCOME COULD BE COMPUTED ONLY BY DEDUCTING THE EXPENDITURE AND THE STATUTORY DEDUCTIONS ALLOWABLE TO THE ASSESSEE INCLUDING THE DEPRECIATION. SECTION 43(6)(B) IS APPLICABLE IN THIS CASE AND THE 21 MEANING OF THE WRITTEN DOWN VALUE IN THE CASE OF ASSETS ACQUIRED BEFORE THE PREVIOUS YEAR, THE ACTUAL COST TO THE ASSESSEE LESS ALL DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THIS ACT OR UNDER THIS INCOMETAX ACT. IF THE PROVISIONS OF EXPLANATION 5 TO SECTION 32(1)(II) ARE READ TOGETHER WITH SECTION 43(6)(B) OF THE INCOMETAX ACT, IT WOULD MAKE IT CLEAR THAT EVEN IF THE ASSESSEE HAS NOT CLAIMED DEPRECIATION ON THE ASSETS WHILE COMPUTING THE INCOME OF THE ASSESSEE, THE DEPRECIATION SHALL HAVE TO BE DEDUCTED WHILE COMPUTING THE INCOME AND WRITTEN DOWN VALUE. EXPLANATION 5 IS MANDATORY IN NATURE AND SHALL HAVE TO GIVE EFFECT WHETHER OR NOT THE ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF DEPRECIATION IN COMPUTING HIS TOTAL INCOME. THEREFORE, WHILE INTERPRETING PROVISIONS OF SECTION 43(6)(B) THE WORD ALL DEPRECIATION ACTUALLY ALLOWED WOULD HAVE TO BE READ AS IF WHETHER THE ASSESSEE CLAIMED DEPRECIATION OR NOT WHILE CLAIMING THE DEDUCTION, THE ASSESSING OFFICER SHALL HAVE TO DEDUCT THE DEPRECIATION WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE. EXPLANATION 5 THUS SHALL HAVE THE EFFECT WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE AND SHALL HAVE TO BE APPLIED STRICTLY. THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT UNLESS THE ACTUAL DEPRECIATION IS ALLOWED AND CLAIMED BY THE ASSESSEE IN EARLIER YEAR, THE ASSESSING OFFICER CANNOT DEDUCT NOTIONAL DEPRECIATION AND RELIED UPON CERTAIN DECISIONS REFERRED TO ABOVE IN SUPPORT OF HIS 22 CONTENTION. HOWEVER, I FIND THAT ALL THE DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE ARE PRIOR TO INSERTION OF EXPLANATION 5 IN THE ACT AND AS SUCH HAVE BEEN GIVEN OUT OF THE CONTEXT OF EXPLANATION 5 TO SECTION 32(1)(II) OF THE ACT. THEREFORE, THE SAME ARE NOT APPLICABLE TO THE CASE OF THE PRESENT ASSESSEE. THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS , THEREFORE, REJECTED BEING AGAINST THE MANDATORY PROVISIONS CONTAINED IN EXPLANATION 5 TO SECTION 32(1)(II) OF THE ACT. THE ITAT, SMC BENCH, INDORE, IN THE CASE OF KRISHI UPAJ MANDI, SHAJAPUR AND OTHERS IN ITA NOS. 524 AND 525/IND/06 FOR THE SAME ASSESSMENT YEAR 2003- 04 ON THE IDENTICAL FACTS AND THE SUBMISSIONS, DISMISSED THE APPEAL OF THE ASSESSEE VIDE ORDER DATED 3.11.2006. THEREFORE, THE DECISION IS SQUARELY APPLICABLE TO THE PRESENT CASE. 16. CONSIDERING THE ABOVE DISCUSSION, I DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN MAKING THE DISALLOWANCE OUT OF DEPRECIATION. THUS, THE ORDER OF THE LEARNED CIT(A) TO THAT EXTENT IS CONFIRMED AND THE GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS ,ACCORDINGLY, DISMISSED. 6. THE LEARNED COUNSELS FOR THE ASSESSEES HAVE, HOW EVER, SUBMITTED THAT CERTAIN POINTS WERE NOT BROUGHT TO T HE NOTICE OF THE TRIBUNAL WHILE PASSING THE AFORESAID DECISION AND THEY TRIED TO DISTINGUISH THE CASES BY 23 MAKING FURTHER SUBMISSIONS. THE LEARNED COUNSEL FO R THE ASSESSEES REFERRED TO EXPLANATION 6 TO SECTION 43(6) EXPLANATION 6.- WHERE AN ASSESSEE WAS NOT REQUIRED TO COMPUTE HIS TOTAL INCOME FOR THE PURPOSES OF THIS ACT FOR ANY PREVIOUS YEAR OR YEARS PRECEDING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION,- (A) THE ACTUAL COST OF AN ASSET SHALL BE ADJUSTED BY THE AMOUNT ATTRIBUTABLE TO THE REVALUATION OF SUCH ASSET, IF ANY, IN BOOKS OF ACCOUNT (B) THE TOTAL AMOUNT OF DEPRECIATION ON SUCH ASSET, PROVIDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IN RESPECT OF SUCH PREVIOUS YEAR OR YEARS PRECEDING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION SHALL BE DEEMED TO BE THE DEPRECIATION ACTUALLY ALLOWED UNDER THIS ACT FOR THE PURPOSES OF THIS CLAUSE; AND (C) THE DEPRECIATION ACTUALLY ALLOWED UNDER CLAUSE (B) SHALL BE ADJUSTED BY THE AMOUNT OF DEPRECIATION ATTRIBUTABLE TO SUCH REVALUATION OF THE ASSET. 24 WHICH IS INSERTED BY THE FINANCE ACT, 2008 IN THE A CT WITH EFFECT FROM 1.4.2003 AND SUBMITTED THAT SINCE THE ASSESSEES HAVE NOT CLAIMED DEPRECIATION FOR THE EAR LIER YEARS AS THE INCOME WAS EXEMPT UNDER SECTION 10(2) OF THE ACT PRIOR TO 1.4.2003, THEREFORE, NO ADJUSTMEN T WAS MADE FOR CLAIMING DEPRECIATION AND AS SUCH THE WDV SHOULD NOT BE REDUCED BY REDUCING THE DEPRECIATION OF THE EARLIER YEARS AND THE DEPRECIAT ION SHOULD HAVE BEEN ALLOWED BY THE ASSESSING OFFICER O N THE ACTUAL COST OF THE ASSET. THEY HAVE ALSO REFER RED TO DEFINITION OF ACTUAL COST UNDER SECTION 43(1) AND SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIF IED IN REDUCING THE DEPRECIATION OF THE EARLIER YEARS WHI LE CONSIDERING THE DEPRECIATION OF THE YEAR UNDER CONSIDERATION. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER , OBJECTED TO THE SUBMISSIONS OF THE LEARNED COUNSELS FOR THE ASSESSEES ON THE GROUND THAT THE ISSUE IS SQUAR ELY COVERED AGAINST THE ASSESSEES AND THAT THE AFORESAI D EXPLANATION 6 TO SECTION 43(6) WAS INSERTED IN THE ACT IN ORDER TO NULLIFY THE EFFECT OF THE ORDER OF THE ITAT, RAJKOT BENCH IN THE CASE OF KANDLA PORT TRUST V. AC IT; 104 ITD 1. 25 8. ON CONSIDERATION OF THE RIVAL SUBMISSIONS OF THE PARTIES AND THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT EXPLANATION 6 TO SECTION 43(6) WOULD BE OF NO HELP TO THE CASES OF THE ASSESSEES AS RIGHTLY POINTED OUT B Y THE LD DEPARTMENTAL REPRESENTATIVE BECAUSE THE SAME WAS INSERTED IN THE ACT WITH A VIEW TO NUTRALISE THE JUDGMENT IN THE CASE OF KANDLA PORT TRUST (SUPRA). WE FIND THAT IN THAT CASE THE ASSESSEE PORT TRUST WAS EXEMPTED FROM INCOMETAX UNDER SECTION 10(2) TILL 31 ST MARCH, 2002 AND WITH EFFECT FROM 1.4.2002 THE INCOM E BECAME TAXABLE AND THE ASSESSEE FILED RETURN OF INC OME FOR THE ASSESSMENT YEAR 2003-04 FOR THE FIRST TIME. IN COMPUTATION OF TOTAL INCOME, THE ASSESSEE CLAIMED DEPRECIATION WHICH WAS COMPUTED ON THE ORIGINAL COS T OF ASSETS I.E. THE ASSESSEE HAS TAKEN OPENING WDV O F ASSETS AS ON 1.4.2002 AS AGAINST ORIGINAL COST OF A SSETS. THE ASSESSING OFFICER HELD THAT THE DEPRECIATION CO ULD NOT BE ALLOWED ON THE ORIGINAL COST SINCE IN ALL TH ESE YEARS THE ASSETS HAD DEPRECIATED FOR WHICH PROVISIO N HAD BEEN MADE IN THE BOOKS OF ACCOUNTS. HE FURTHER ALLOWED DEPRECIATION ON THE BLOCK VALUE OF ASSET WH ICH WAS ARRIVED AT AFTER REDUCING FROM THE ORIGINAL COS T OF ASSETS, DEPRECIATION PROVIDED IN THE BOOKS OF ACCOU NTS TILL 31 ST MARCH, 2002. THE TRIBUNAL CONSIDERING THIS 26 ISSUE HELD THAT MERE PASSING OF THE ACCOUNTING ENTR Y MADE FOR DEPRECIATION IN THE BOOKS OF ACCOUNTS WAS NOT DEPRECIATION ACTUALLY ALLOWED AS THERE WAS NO LIABI LITY TO TAX AND AS THERE WAS NO ASSESSMENT TILL THE ASSESSM ENT YEAR 2002-03. THUS, THE WDV AS ON 1.4.2002 WOULD B E ORIGINAL COST LESS NIL I.E. ORIGINAL COST. THE AFOR ESAID EXPLANATION 6 TO SECTION 43(6) WAS THEREFORE, INSE RTED IN THE ACT IN ORDER TO UNTRALISE THE ABOVE DECISION OF THE RAJKOT BENCH OF THE TRIBUNAL IN THE CASE OF KANDLA PORT TRUST. IT WOULD HAVE, THEREFORE, NO BEARING ON THE ISSUE WHICH IS ALREADY DECIDED BY THIS BENCH IN THE CASE OF KRISHI UPAJ MANDI SAMITI, UNHEL. 9. THE LEARNED COUNSELS FOR THE ASSESSEES HAVE REFE RRED TO THE DECISION OF THE HONBLE HIGH COURT OF KERALA IN THE CASE OF KERALA ELECTRIC LAMP WORKS LIMITED; 183 CTR 182 IN WHICH IT WAS HELD THAT THE ASSESSEE HAVING N OT CLAIMED DEPRECIATION FOR THE ASSESSMENT YEARS 1989- 90 AND 1990-91, THE ASSESSING OFFICER WAS NOT JUSTIFIE D IN ALLOWING THE SAME BY GIVING EXPLANATION 5 TO SECTIO N 32(1) A RETROSPECTIVE EFFECT. THEY HAVE ALSO RELIE D UPON THE DECISION OF THE HON'BLE HIGH COURT OF MADR AS IN THE CASE OF COMMISSIONER OF INCOMETAX V. SREE SENHAVALLI TEXTILES (P) LTD.; 183 CTR 453 FOR THE ASSESSMENT YEAR 1988-89 DEPRECIATION COULD NOT BE 27 COMPUTED WHEN THE ASSESSEE GAVE UP THE CLAIM FOR FILING REVISED RETURN. EXPLANATION 5 TO SECTION 32 (1) APPLIED ONLY FROM 1.4.2002. 10. CONSIDERING THE ABOVE DECISIONS, WE RESPECTFULL Y NOTE THAT IN ALL THE DECISIONS OF THE HONBLE HIGH COURT S, THE ASSESSMENT YEARS, UNDER REFERENCE, WERE 1989-90 AND 1990-91 AND ASSESSMENT YEAR 1988-89 WHICH WERE PRIOR TO INSERTION OF EXPLANATION 5 TO SECTION32(1) OF THE INCOMETAX ACT. THE ASSESSMENT YEARS, UNDER APPEAL, BEFORE US ARE ASSESSMENT YEARS 2003-04 AND 2004-05 I.E. AFTER INSERTION OF EXPLANATION 5 TO SECTION 32 (1) IN THE ACT. THE RATIO OF THESE DECISIONS WOULD THUS N OT BE APPLICABLE TO THE MATTERS IN ISSUE BEFORE THE TRIBU NAL. THE LEARNED COUNSELS FOR THE ASSESSEES HAVE ALSO RE LIED UPON THE ORDER OF THE ITAT, CHANDIGARH BENCH IN THE CASE OF MOREPEN LABORATORIES LIMITED V. JCIT; 95 T TJ 404 IN WHICH IT WAS HELD THAT IN THE SET ASIDE ASSESSMENT, THE ASSESSEE CANNOT RAISE THE CLAIM OF DEPRECIATION DURING THE ASSESSMENT PROCEEDINGS CONSEQUENT TO THE ACTION UNDER SECTION 263 OF THE A CT AS THE ASSESSING OFFICER HAS TO PASS THE ORDER AS P ER THE DIRECTIONS OF THE CIT. THE LEARNED COUNSELS FOR THE ASSESSEES HAVE ALSO RELIED UPON THE DECISION OF THE ITAT, MUMBAI BENCH IN THE CASE OF PLASTIBLENDS INDI A 28 LTD. V. ITO; 95 TTJ 1062 IN WHICH IT WAS HELD THAT THE ASSESSEE HAVING NOT CLAIMED DEPRECIATION, THE SAME CANNOT BE THRUST UPON HIM FOR THE PURPOSES OF COMPUTING THE DEDUCTION UNDER SECTION 80IA OF THE A CT. THIS CASE PERTAINED TO THE ASSESSMENT YEAR PRIOR TO INSERTION OF EXPLANATION 5 TO SECTION 32 OF THE ACT . BOTH THE DECISIONS ARE, THEREFORE, CLEARLY DISTINGU ISHABLE ON FACTS. THE LEARNED COUNSELS FOR THE ASSESSEES AL SO RELIED UPON THE DECISION OF THE HON'BLE HIGH COURT OF MADHYA PRADESH IN THE CASE OF COMMISSIONER OF INCOMETAX V. G.M. MITTAL STAINLESS STEEL LIMITED; 2 71 ITR 219. HOWEVER, IT IS NOT RELEVANT TO THE MATTE R IN ISSUE. 11. CONSIDERING THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE ISSUE IS SQUARELY COVERED BY OUR EARL IER ORDER IN THE CASE OF KRISHI UPAJ MANDI SAMITI, UNHE L AS AGREED BY THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES. THE SUBMISSIONS OF THE LEARNED COUNSELS F OR THE ASSESSEES NOTED ABOVE COULD NOT DISTINGUISH THE EARLIER DECISION. WE THEREFORE, DO NOT FIND ANY MER IT IN ALL THE APPEALS OF THE ASSESSEES. THE SAME ARE ACCORDINGLY DISMISSED. 21. BY FOLLOWING THE ABOVE ORDER, THIS GROUND OF AP PEAL OF ASSESSEE IS DISMISSED 29 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON THE FIL E. IT IS SEEN THAT THE HONBLE BENCH IN THE AFORESAID ORDER HAS CONSIDERED THE CAS E OF KRISHI UPAJ MANDI SAMITI, UNHEL, WHEREIN, VARIOUS JUDICIAL PRONOUNCEM ENTS, PROVISIONS OF THE ACT AND THE FACTS HAS ALREADY BEEN CONSIDERED. EITHER S IDE HAS NOT BROUGHT ON RECORD ANY CONTRARY DECISION FROM ANY HIGHER FORUM. SINCE THE FACTS ARE IDENTICAL, THEREFORE, IN VIEW OF FAIR ADMISSION FRO M BOTH SIDES AND BY KEEPING IN VIEW THE AFORESAID DECISION, THIS GROUND OF THE ASSESSEE IS HAVING NO MERIT, CONSEQUENTLY, DISMISSED. 5. THE LAST ISSUE PERTAINS TO DISALLOWANCE OF CAPIT AL EXPENDITURE OF RS.10,73,994/- AND RS.14,24,067/-. AT THE OUTSET, T HE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT IDENTICAL ISSUE WAS REMAN DED BACK TO THE FILE OF THE LD. ASSESSING OFFICER IN THE AFORESAID ORDER DATED 24.10.2008, CONSEQUENTLY, THIS ISSUE MAY ALSO BE REMANDED BACK. THIS ASSERTIO N OF THE ASSESSEE WAS NOT CONTROVERTED BY THE REVENUE. IN VIEW OF THE ABOVE, WE ARE REPRODUCING HEREWITH THE RELEVANT PORTION FROM THE AFORESAID OR DER: 10. GROUND NO.3 & 4 :ON GROUND NO.3, ASSESSEE CHALLENGED THE ADDITION ON ACCOUNT OF CANTOR EXPENS ES AT RS.1,12,000/- AND ON GROUND NO.4, CHALLENGED THE ADDITION OF RS.45,89,103/- ON ACCOUNT OF VARIOUS EXPENSES WHICH WERE HELD TO BE CAPITAL IN NATURE. T HE ASSESSEE DEBITED RS.1,12,009/- TO THE INCOME AND EXPENDITURE ACCOUNT EXPLAINING THAT THESE EXPENDITU RE 30 WERE INCURRED ON SURVEY CONDUCTED BY ASSESSEE BEFOR E CONSTRUCTION OF ROAD AND OTHER CONSTRUCTION. IT WAS HELD TO BE CAPITAL IN NATURE. LIKEWISE, THE ASSESSEE SPE NT AMOUNT OF RS.45,89,103/- ON WBM ROAD CONSTRUCTION & DAMRIKARAN, GI PIPE SHEETS & PIPE LINES, TUBEWELL, WATER TUBE CONSTRUCTION, FLOURING WORK, AND RETURNING/BOUNDARY WALL. THESE WERE ALSO HELD TO BE CAPITAL IN NATURE BRINGING ENDUING BENEFIT TO THE ASSESSEE. BOTH THESE EXPENDITURES WERE ACCORDINGLY TREATED AS CAPITAL EXPENDITURE AND DISALLOWED. ADDI TIONS WERE CONFIRMED ON THE SAME REASON BY THE LD. CIT(A) . 11. LD. COUNSEL FOR ASSESSEE SUBMITTED THAT ONCE REGISTRATION IS GRANTED TO THE ASSESSEE U/S 12A/12A A OF THE IT ACT, ALL THE EXPENSES ARE ALLOWABLE BECAUSE THEY WERE NECESSARY FOR RUNNING THE CHARITABLE INSTITUTION FOR ACHIEVING THE OBJECTS OF THE ASSESSEE INSTITUTION. HE HAS SUBMITTED THAT AS PER SEC. 11 ALSO, THESE HAVE TO BE DEDUCTED FROM THE INCOME DERIVED FROM THE ASSESSEE. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THESE EXPENSES ARE CAPITAL IN NATURE AND W.E.F. 1.4.8, THE CAPITAL EXPENDITURE ARE NOT ALLOWABLE EVEN AS PER SEC. 36(1)(XII) OF THE IT ACT. 31 12. ON CONSIDERATION OF RIVAL SUBMISSIONS, WE ARE OF TH E VIEW THAT THE MATTER REQUIRES RECONSIDERATION BY TH E AO. THE SUBMISSION OF THE ASSESSEE ARE THAT ONCE REGISTRATION IS GRANTED U/S 12A/12AA OF THE IT ACT, THE PROVISIONS OF SEC. 11 SHALL APPLY AND AS SUCH, THE AMOUNT SPENT BY ASSESSEE FOR ACHIEVING THE OBJECTS OF THE ASSESSEE FOR CHARITABLE PURPOSES SHA LL HAVE TO BE ALLOWED AS DEDUCTION EVEN IF THE SAME ARE CAPITAL IN NATURE. SINCE THE ISSUE OF APPLICABI LITY OF SEC. 11 HAVE BEEN RESTORED TO THE FILE OF THE AO THEREFORE, THIS ISSUE SHOULD ALSO BE CONSIDERED SIMULTANEOUSLY BY THE AO AS PER SUBMISSION OF THE ASSESSEE. WE THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THESE GROUNDS AND RESTORE THESE GROUNDS TO THE FILE OF THE AO WITH DIRECTION TO RE-DECIDE THESE ISSUES BY GIVING REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THESE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON THE FIL E. IN VIEW OF THE ARGUMENTS ADVANCED BY THE LD. RESPECTIVE COUNSEL, FACTS OF TH E CASE AND THE AFORESAID DECISION OF THE TRIBUNAL, WE REMAND THIS ISSUE TO T HE FILE OF THE LD. ASSESSING OFFICER ON IDENTICAL LINES AS CONTAINED IN THE AFOR ESAID ORDER. NEEDLESS TO 32 MENTION HERE THAT THE ASSESSEE BE PROVIDED DUE OPPO RTUNITY OF BEING HEARD. THE ASSESSEE IS ALSO AT LIBERTY TO FURNISH EVIDENCE , IF ANY, TO SUBSTANTIATE ITS CLAIM. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF THE LD. REPRESENTATIVES FROM BOTH SIDES ON THE CONCLUSION O F THE HEARING ON 11.11.2009. (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11.11.2009 (VYAS) COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR