Orissa College of Engineering & Management , Bhubaneswar V. ITO (Exemptions), Bhubaneswar

ITA 375/CTK/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5021 (ITAT-CUTTACK)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 18-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Charitable institution; Principle of natural justice; Capital expenditure
• Section: 11; 201; 10(23C); 20

Judgement Text

P A G E 1 | 5 IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK SMC BENCH, CUTTACK BEFORE SHRI CHANDRA MOHAN GARG , JUDICIAL MEMBER ITA NO . 375 /CTK/201 9 ASSESSMENT YEAR : 201 5 - 2016 ORISSA COLLEGE OF ENGINEERING & MANAGEMENT, NH - 5, RUDRAPUR, PAHAL, BHUBANESWAR. VS. ITO (EXEMPTION), BHUBANESWAR. PAN/GIR NO. AAAAO 0306 J (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI SUNIL MISHRA , AR REVENUE BY : SHRI J.K.LENKA , DR DATE OF HEARING : 14 / 0 2 / 20 20 DATE OF PRONOUNCEMENT : 20 / 0 2 / 2020 O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A),1, BHUBANESWAR DATED 10.9.2019 FOR THE ASSESSMENT YEAR 2015 - 16 . 2. GROUND NOS.1 & 2 READ AS UNDER: 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) GROSSLY ERRED IN LAW AND ON FACTS IN NOT QUASHING THE ASSESSMENT ORDER WHICH HAS BEEN PASSED IN GROSS DISREGARD TO THE PRINCIPLES OF NATURAL JUSTICE. 2. FOR TH AT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS MADE SERIOUS ERROR IN WHOLLY RELYING ON THE CONTENTION OF THE AO IN THE ASSESSMENT ORDER REGARDING SHORT FALL IN APPLICATION OF INCOME WITHOUT VERIFYING THE CONTENTION OF TH E APPELLANT IN THE WRITTEN SUBMISSION FILED DURING THE COURSE OF APPELLATE PROCEEDINGS INASMUCH AS THERE WAS NO SHORT FALL IN APPLICATION OF INCOME AS PER PROVISIONS OF SECTION 11 OF THE INCOME TAX ACT. 3. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RECORD OF THE CASE. LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO WAS NOT CORRECT IN HOLDING THAT THE ITA NO.375/CTK/2019 ASSESSMENT YEAR : 2015 - 2016 P A G E 2 | 5 ASSESSEE TRUST IS NOT ELIGIBLE FOR EXEMPTION U/S.11 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) IN RESPECT OF SHORTFALL IN APPLICATION OF 85% WHICH HAS BEEN COMPUTED BY THE ASSESSING OFFICER AT RS.1,43,790/ - AND BRINGING THE SAID AMOUNT WITHIN THE PURVIEW OF TOTAL INCOME IS GROSSLY ILLEGAL, CONTRARY TO THE PROVISIONS OF INCOME TAX ACT, 1961 AND THE PRINCIPLES OF NATURAL JUSTICE FOR WHICH THE SAI D ASSESSMENT IS LIABLE TO BE QUASHED. LD COUNSEL FURTHER SUBMITTED THAT THE APPELLANT TRUST IS AN EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSES . LD COUNSEL FURTHER SUBMITTED THAT EVEN THE AO IN PARA 7.2 OF THE ASSESSMENT ORDER HAS ALSO CLEARLY RECORDED HIS FINDINGS THAT ON GOING THROUGH THE RETURN OF INCOME, AUDITED INCOME AND EXPENDITURE ACCOUNT AND ALL RELEVANT MATERIALS PRODUCED DURING THE ASSESSMENT, IT IS SEEN THAT THE ASSESSEE TRUST HAS BEEN ENGAGED IN EDUCATIONAL ACTIVITIES IN T HE IMPUGNED YEAR. LD COUNSEL FURTHER POINTED OUT THAT AS PER THE AUDITED FINANCIAL STATEMENT FOR THE PREVIOUS YEAR 2014 - 15 THE ANNUAL RECEIPT OF THE APPELLANT IS RS.55,71,631.84 AND THE APPELLANT HAS APPLIED AN AMOUNT OF RS.47,53,961.03 INCLUDING DEPRE CIATION AMOUNTING TO RS.1,61,866.03 FOR THE SOLE PURPOSE OF EDUCATIONAL ACTIVITY UNDERTAKEN BY THE ASSESSEE TRUST. LD COUNSEL SUBMITTED THAT WHEN THE AMOUNT OF DEPRECIATION IS INCLUDED IN THE AMOUNT APPLIED FOR THE PURPOSE OF THE TRUST , THEN THE APPLICAT ION OF FUNDS COMES TO 85.32% ON ANNUAL RECEIPTS. BUT THE ASSESSING OFFICER WHILE COMPUTING THE APPLICATION OF INCOME HAS EXCLUDED DEPRECIATION CLAIMED AT RS.1,61,833.03 FROM APPLICATION OF INCOME WITHOUT BRINGING ON RECORD ANY CLAIM OF CAPITAL EXPENDITURE AS APPLICATION OF INCOME EITHER DURING THE PREVIOUS YEAR 2014 - 15 OR ANY PRECEDING PREVIOUS YEARS. LD COUNSEL SUBMITTED THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING ACCOUNTING PRACTICE THAT THE CAPITAL EXPENDITURE HAS NEVER BEEN DEBITED TO INCOME ITA NO.375/CTK/2019 ASSESSMENT YEAR : 2015 - 2016 P A G E 3 | 5 & EXPENDI TURE ACCOUNT FOR THE PURPOSE OF DETERMINING THE SURPLUS/DEFICIT I.E. EXCESS OF INCOME OVER EXPENDITURE OR VICE VERSA. THEREFORE, THE DEPRECIATION HAS TO BE ALLOWED AS APPLICATION OF INCOME TO THE ASSESSEE IN VIEW OF CBDT CIRCULAR NO.1/2015 DATED 21.1.201 5. 4. LD COUNSEL FOR THE ASSESSEE STRENUOUSLY POINTED OUT THAT AS PER CBDT CIRCULAR NO.1 OF 21.1.2015 (SUPRA) PARA 7.5 AND 7.5.1, IT IS ABUNDANTLY CLEAR THAT THE PURPOSE OF RATIONALIZATION OF TAX REGIME IN THE CASE OF CHARITABLE TRUSTS AND INSTITUTIONS IS TO DISALLOW CLAIM OF DOUBLE BENEFIT IN CASE OF ACQUISITION OF CAPITAL ASSETS I.E. ONCE THE COST OF CAPITAL ASSET AS APPLICATION OF INCOME AND AGAIN AS CLAIM OF NOTIONAL EXPENDITURE BY WAY OF DEPRECIATION. LD COUNSEL SUBMITTED THAT THE INTENTION OF SAID CI RCULAR IS THAT THE DEPRECIATION CAN BE DISALLOWED ONLY WHEN THE COST OF RELEVANT CAPITAL ASSETS HAS BEEN CLAIMED AS APPLICATION OF INCOME IN ANY PREVIOUS YEAR BUT NOT OTHERWISE. LD COUNSEL SUBMITTED THAT IN THE PRESENT CASE, THE CLAIM OF DEPRECIATION IS NOT A DOUBLE BENEFIT AS THE ASSESSEE HAS NEVER CLAIM APPLICATION OF INCOME WHILE ACQUIRING THE ASSETS ON WHICH DEPRECIATION AMOUNTING RS.1,61,833.03 HAS BEEN CLAIMED, THEREFORE, THE ASSESSEE IS ENTITLED FOR DEPRECIATION AS APPLICATION OF INCOME AND THUS, T OTAL INCOME DETERMINED BY THE AO IS LIABLE TO BE DELETED. 5. REPLYING TO ABOVE, LD DR STRONGLY SUPPORTED THE ORDERS OF LOWER AUTHORITIES AND SUBMITTED THAT THE ASSESSEE CANNOT CLAIM TWICE APPLICATION OF INCOME ONCE AT THE TIME OF ACQUIRING ASSETS AND SECOND DURING SUBSEQUENT PERIOD IN THE FORM OF DEPRECIATION. HOWEVER, HE COULD NOT CON TROVERT THE SUBMISSION MADE BY LD COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS NEVER CLAIMED COST OF ASSETS FOR ITA NO.375/CTK/2019 ASSESSMENT YEAR : 2015 - 2016 P A G E 4 | 5 WHICH DEPRECIATION HAS BEEN CLAIMED AS APPLICATION OF INCOME. LD D.R. ALSO COULD NOT CONTROVERT THE FACTUAL POSITION THAT IF THE AMOUNT OF DE PRECIATION OF RS.1,61,833.03 IS INCLUDED IN THE AMOUNT WAS APPLIED BY THE ASSESSEE IS OUT OF GROSS RECEIPTS DURING THE YEAR THEN THE TOTAL APPLICATION COMES TO 85,.32% AND THUS, THE ASSESSEE QUALIFIES MINIMUM PRESCRIBED LIMIT OF 85% FOR CLAIMING EXEMPTION U/S.11 OF THE ACT. 6. IN VIEW OF ABOVE, WE ARE SATISFIED THAT THE ASSESSEE IS ENTITLED FOR CLAIMING DEPRECIATION ON THE ASSETS , WHICH WERE NOT CLAIMED AS APPLICATION OF INCOME AT THE TIME OF ACQUISITION OF ASSETS IN THE YEAR OF ACQUISITION OR IN SUBSEQU ENT ASSESSMENT YEAR. THEREFORE, IN VIEW OF CBDT CIRCULAR NO.1 DATED 21.1.2015, THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION AS APPLICATION OF INCOME AND CONSEQUENTLY THE PERCENTAGE OF THE APPLICATION OF INCOME CROSSES THE LIMIT OF 85% WHICH ENTITLE TH E ASSESSEE FOR CLAIMING EXEMPTION U/S.11 OF THE ACT. HENCE, THE AO IS DIRECTED TO ALLOW THE EXEMPTION U/S.11 OF THE ACT TO THE ASSESSEE. ACCORDINGLY, GROUND NOS.1 & 2 OF THE ASSESSEE ARE ALLOWED. 7. GROUND NOS. 3 TO 5 READ AS UNDER: 3. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE APPELLANT HAS MADE CAPITAL AND REVENUE EXPENSES OF RS.45,92,095/ - DURING THE CURRENT YEAR INASMUCH AS THE SAID AMOUNT OF RS.45,92,095/ - DOES NOT INCLUDE ANY CAPITAL EXPENDITURE. 4. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID CIT(A) HAS ERRED IN HOLDING THAT THE APPELLANT HAS NOT FILED FORM NO. 10 BEFORE THE DUE DATE OF FILING RETURN OF INCOME INASMUCH AS THE FILING OF FORM NO. 10 WAS NOT APPLICABLE IN THE CASE OF APPELLANT. ITA NO.375/CTK/2019 ASSESSMENT YEAR : 2015 - 2016 P A G E 5 | 5 5. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID CIT(A) HAS ERRED IN HOLDING THAT THE APPELLANT'S CLAIM OF DEPRECIATION OF RS. 1,61,866.03 IS INADMISSIBL E WITHOUT APPRECIATING THE AMENDED PROVISION OF SECTION 11 AND SECTION 10(23C) BROUGHT BY THE FINANCE(NO.2) ACT, 2014 AND THE RELEVANT CBDT CIRCULAR NO.1/2015 DATED 21.01.2015 ON NOTIONAL DEDUCTION BY WAY OF DEPRECIATION. 8. IN VIEW OF MY DECISION IN GRO UND NOS.1 & 2 ABOVE, GROUND NOS.3 TO 5 HAVE BECOME ACADEMIC AND HENCE, NOT ADJUDICATED UPON. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 20 / 0 2 /20 20 . S D/ - ( CHANDRA MOHAN GARG) JUDICIAL MEMBER CUTTACK; DATED 20 / 0 2 /20 20 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER SR . PVT. S ECRETARY ITAT, CUTTACK 1. THE APPELLANT : ORISSA COLLEGE OF ENGINEERING & MANAGEMENT, NH - 5, RUDRAPUR, PAHAL, BHUBANESWAR. 2. THE RESPONDENT. ITO (EXEMPTION), BHUBANESWAR. 3. THE CIT(A) - 1 , BHUBANESWAR 4. PR.CIT - 1 , BHUBANESWAR 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//