M/s. Cochin Port Trust, Cochin V. DY.Director of IT (Exemption), Cochin

ITA 404/COCH/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8438 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 26-07-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 10-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A DHANARAJ
• Assessee Lawyers: V SATHYANARAYANAN
• Keywords: Reopening of assessment; Depreciation; Charitable institution; Retrospective amendment; Cost of acquisition; Revenue expenditure; Capital expenditure
• Section: 143(3); 12A; 32; 148; 6; 12; 11; 139

Judgement Text

COCHIN PORT TRUST 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH KOCHI BEFORE S/ SHRI B P JAIN , AM & GEORGE GEORGE K, JM ITA NO . 65/COCH/2015 (AY 2004 - 05) & ITA NOS 404 TO 406/COCH/2015 (AYS 2003 - 04 TO 2005 - 06) COCHIN PORT TRUST COCHIN VS THE DY DIRECTOR OF INCOME TA X(EXEMPTION) RANGE 4, KOCHI ( APPELLANT) (RESPONDENT) PAN NO. AADFC8201E ASSESSEE BY SH V SATHYANARAYANAN REVENUE BY SH A DHANARAJ, SR DR DATE OF HEARING 26 TH JU LY 2016 DATE OF PRONOUNCEMENT 28 TH JU LY 2016 ORDER PER BENCH ; THESE FOUR APPEALS , AT THE INSTANCE OF THE ASSESSEE , ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE CIT(A). THE RELEVANT ASSESSMENT YEARS ARE 2003 - 04 TO 2005 - 06. ITA NOS. 404 TO 406/COCH/2015 ARISE OUT OF ASSESSMENT ORDER COMPLETED U/S 143(3) R.W.S 254 OF THE ACT. W HEREAS ITA NO.65/COCH/2015 ARISES OUT OF THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S 147 OF THE I T ACT. 2 WE SHALL FIST TAKE UP FOR ADJUDICATION THE APPEAL IN ITA NO S . 404 TO 406/COCH/2015. COCHIN PORT TRUST 2 ITA NO S . 404 TO 406/COCH/2015. THE COMMON ISSUE IN ALL THE T HREE APPEALS IS REGARDING DISALLOWANCE OF DEPRECATION CLAIMED BY THE ASSESSEE. WITH REGARD TO THE ABOVE ISSUE, THE ASSESSEE HAS RAISED TWO EFFECTIVE GROUNDS, WHICH ARE AS FOLLOWS: I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECATION MADE BY THE AO IN COMPUTING THE APPLICATION OF INCOME OF THE ASSESSEE U/S 11 OF THE I T ACT, 1961. II) NOTWITHSTANDING THE ABOVE, IN ANY CASE, THE CIT(A) ERRED IN DISALLOWING THE DEPRECIATION ON FIXED ASSETS, THE COST OF WHICH WAS NOT CLAIMED AS APPLICATION OF INCOME BY THE ASSESSEE U/S 11 OF THE ACT. THE CIT(A) ERRED IN HOLDING THAT THE ITAT HAD DECIDED THE ISSUE IN FAVOUR OF THE DEPARTMENT. THE CIT(A) OUGHT TO HAVE NOTED THAT THE ISSUE DECIDED BY THE TRIBUNAL IS AN ENTIRELY DIFFERENT ISSUE AND HENCE CANNOT BE MADE APPLICABLE IN THIS CASE. 3 WE SHALL NARRATE THE FACTS PERTAINING T O AY 2003 - 04 AND DECISION TAKEN THEREIN WOULD BE EQUALLY APPLICABLE FOR THE AYS 2004 - 05 & 2005 - 06. THE UNDISPUTED FACTS ARE AS FOLLOWS: THE ASSESSEE IS A PORT. SINCE INCEPTION TO ASSESSMENT YEAR 2002 - 03 THE ASSESSEE HAD BEEN ENJOYING EXEMPTION FROM INCOME TAX IN TERMS OF THE PROVISIONS OF SECTION 10(20) OF THE I T ACT. THE ASSESSEE WAS BROUGHT INTO THE AMBIT OF INCOME TAX FOR THE FIRST TI ME FROM THE AY 2003 - 04 ONWARDS. THE ASSESSEE FILED ITS RETURN OF INCOME OFFERING THE INCOME U/S 28 OF THE I T ACT. NO EXEMPTION U/S 11 WAS CLAIMED IN THE RETURN. SUBSEQUENTLY, THE ASSESSEE FILED AN APPLICATION BEFORE THE CIT FOR GRANT OF REGISTRATION U/S 12A OF THE I T ACT, 1961. EVEN THOUGH INITIALLY REGISTRATION U/S 12A OF THE I T ACT WAS NOT GRANTED, THE CIT COCHIN PORT TRUST 3 GRANTED EXEMPTION VIDE HIS ORDER DATED 6/10/2008 WITH EFFECT FROM AY 2003 - 04 BASED ON THE ORDER OF THE ITAT COCHIN BEN CH. THE ASSESSMENT U/S 143(3 ) R.W.S 254 OF THE ACT GRANTING EXEMPTION U/S 11, 12 AND 13 OF THE SAID ACT FOR THE ABOVE ASSESSM ENT YEAR WAS COMPLETED BY THE AO ON 17.10.2010. THE ASSESSEE HAD CLAIMED RS. 1,281.45 LAK HS AS DEPRECATION ON ASS E TS, AS UNDER: I ) DEPRECIATION ON BOOK VALU E OF ASSETS AS ON 31.03.2002, TAKEN AS PER EXPLANATION 6 TO SECTION 43(6C) OF THE I T ACT RS. 1246.45 LAKHS II ) DEPRECIATION ON ASSETS ACQUIRED DURING THE EAR 2002 - 03 RS 34.90 LAKHS TOTAL RS. 1281.45 LAKHS 3 .1 WHILE COMPLETING THE ASSESSMENT, THE AO DISALLOWED THE DEPRECATION AS AN EXPENDITURE IN COMPUTING THE APPLICATION OF INCOME. 3 .2 ON APPEAL, THE FIRST APPELLATE AUTHORITY DISMISSED THE APPEAL OF THE ASSESSEE. THE CIT(A) HELD THAT THE DEPRECATION CANNOT BE GRANTED SINCE INCOME OF THE ASSESSEE IS COMPUTED AS PER THE PROVISIONS OF SECTION 11,12 & 13 OF THE I T ACT. FOR HOLDING SO, THE C IT (A) RELIED ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS VS CIT REPORTED IN 348 ITR 344. THE CIT(A) A LS O REJECTED THE ALTERNATIVE PLEA OF THE ASSESSEE NAMELY DEPRECI ATION IS TO BE GRANTED ON THE W DV OF THE ASSETS HELD IN THE BEGINNING OF THE AY 2003 - 04 SINCE THE COST OF THE SAID ASSET WAS NOT CLAIMED/ALLOWED AS APPLICATION OF INCOME. THE CIT(A) RELIED ON THE ORDER OF THE COCHIN PORT TRUST 4 COCHIN BENCH OF THE TRIBUNAL IN ITA NO. 239/COCH/2007 FOR THE AY 2004 - 05 (ORDER DATED 30.1.2009) FOR REJECTING THE ALTERNATIVE CLAIM OF THE ASSESSEE. 3.3 AGGRIEVED BY THE DISMISSAL OF THE APPEAL BY THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DEPRECIATION CLAIMED ON THE ASSETS USED FOR PORT OPERATIONS AND IS A LOSS AND THE SAME IS TO BE ALLOWED EVEN IF THE COST OF THE ASSET IS ALLOWED AS APPLICATION OF INCOME. FOR THE ABOVE PROPOSITION , THE LD AR RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS : I) CIT VS INSTITUTE OF BANKING - 264 ITR 110 (BOM) II) CIT VS SOCIETY OF THE SISTERS OF ST ANNE - 146 ITR 28 (KAR) III ) CIT VS SETH MANILAL RAMCHHODDAS VISHARAM BHAVAM TRUST 105 CTR 303 (GUJ) IV ) CIT V S BHORUKA PUBLIC WELFARE TRUST 240 ITR 513 (CAL) 3.3.1 ALTERNATIVELY, IT WAS CONTENDED BY THE LD AR THAT THE ASSESSEE WAS ENTITLED TO CLAIM EXEMPTION U/S 11 OF THE I T ACT ONLY FROM THE AY 2003 - 04 ONWARDS AND THE COST OF THE ASSETS ACQUIRED PRIOR TO A Y 2003 - 04 WAS NOT CLAIMED/ALLOWED AS APPLICATION OF INCOME. HENCE, IT WAS SUBMITTED BY THE LD AR THAT THE CIT(A) OUGHT TO HAVE ALLOWED DEPRECIATION ON THE WDV OF THE ASSETS HELD IN THE BEGINNING OF THE A Y 2003 - 04 BEING NOT CLAIMED / ALLOWED AS AN APPLICATION OF INCOME EARLIER. THE LD AR RELIED ON THE EXPLANATION 6 TO SECTION 43(6) OF THE I T ACT IN SUPPORT OF HIS ALTERNATIVE PLEA . 3.3.2 THE LD DR PRESENT WAS DULY HEARD. COCHIN PORT TRUST 5 3.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE DEPRE CIATION CLAIMED FOR THE AY 2003 - 04 HAS TWO COMPONENTS ; (I ) DEPRECATION ON ASSETS ACQUIRED IN AY 2003 - 04; & (II) DEPRECIATION ON ASSETS ACQUIRED UPTO 31.3.2002 RELEVANT TO AY 2002 - 03. A) DEPRECIATION ON ASSETS ACQUIRED IN AY 2003 - 04: 3.4.1 THE LD AR , REFERRING TO GROUND NUMBER ONE IN ITA NOS 404 TO 406/COCH /2015, CONTENDED THAT DEPRECIATION IS TO BE ALLOWED AS A DEDUCTION, IRRESPECTIVE WHETHER THE COST OF ASSETS IS ALLOWED AS AN APPLICATION OF INCOME IN THE PREVIOUS YEARS. THIS PLEA O F THE ASSESSEE HAS BEEN REJECTED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS (SUPRA). THEREFORE, THE GROUND NO.1 RAISED IN THE APPEALS IN ITA NOS. 404 TO 406/COCH/2015 , IS REJECTED. B ) DEPRECIATION O N ASSETS ACQUIRED UPTO 31.3.2012: 3.4.2 FROM THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS ( SUPRA), IT IS CLEAR THAT THE HONBLE HIGH COURT HAD ONLY DENIED THE CLAIM OF DEPRECIATION ON THE ASSETS FOR WHIC H EXPENDITURE/COST OF ACQUISITION WAS ALLOWED AS APPLICATION OF INCOME. THIS IS EVIDENT FROM PARA 2 OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS (SUPRA), WHICH READS AS FOLLOWS: COCHIN PORT TRUST 6 2. AFTER HEARING BO TH SIDES WHAT WE NOTICE IS THAT IF THE ASSESSEE TREATS THE EXPENDITURE ON ACQUISITION OF ASSETS AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES UNDER SECTION 11(1)(A) AND IF THE ASSESSEE CLAIMS DEPRECIATION ON THE VALUE OF SUCH ASSETS, THEN IN ORDER TO RE FLECT THE TRUE INCOME TO BE AVAILABLE FOR APPLICATION FOR CHARITABLE PURPOSES, THE ASSESSEE SHOULD WRITE BACK IN THE ACCOUNTS THE DEPRECIATION AMOUNT TO FORM PART OF THE INCOME TO BE ACCOUNTED FOR APPLICATION FOR CHARITABLE PURPOSES. THIS IS OBVIOUSLY NOT DONE BY THE ASSESSEE AND SO MUCH SO, THE INCOME WHICH SHOULD BE AVAILABLE FOR APPLICATION FOR CHARITABLE PURPOSES GETS REDUCED BY THE DEPRECIATION AMOUNT, WHICH IS NOT PERMISSIBLE UNDER SECTION 11(1)(A) OF THE ACT. IN FACT THE NET EFFECT IS THAT AFTER WRIT ING OFF FULL VALUE OF THE CAPITAL EXPENDITURE ON ACQUISITION OF ASSETS AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES AND WHEN THE ASSESSEE AGAIN CLAIMS THE SAME AMOUNT IN THE FORM OF DEPRECIATION, SUCH NOTIONAL CLAIM BECOMES CASH SURPLUS AVAILABLE WITH THE ASSESSEE, WHICH GOES OUTSIDE THE BOOKS OF ACCOUNT OF THE TRUST UNLESS IT IS WRITTEN BACK WHICH IS NOT DONE. WE DO NOT THINK IT IS PERMISSIBLE FOR A CHARITABLE INSTITUTION TO GENERATE INCOME OUTSIDE THE BOOKS IN THIS FASHION. 3.4.3 IT IS THE CASE OF THE ASSESSEE THAT IT WAS ENTITLED TO EXEMPTION U/S 11OF THE ACT ONLY FROM AY 2003 - 04 AND PRIOR TO AY 2003 - 04, THE COST OF ASSETS WAS NOT ALLOWED AS APPLICATION OF INCOME. THEREFORE, ACCORDING TO THE ASSESSEE, DEPRECIATION IS TO BE ALLOWED ON WDV OF THE ASS ETS HELD IN THE BEGINNING OF THE AY 2003 - 04 BEING NOT CLAIMED/ALLOWED AS AN APPLICATION OF INCOME. THE CIT(A) DISMISSED THIS ALTERNATIVE PLEA OF THE ASSESSEE STATING THAT THE DEPRECIATION ON WDV OF THE ASS E TS ACQUIRED PRIOR TO 1.4.2002 IS DECIDED IN FAVOU R OF THE REVENUE BY THE COCHIN BENCH OF THE TRIBUNAL IN ITA NO.239/COCH/2007 (ORDER DATED 30.1.2009).THIS FINDING OF THE CIT(A), ACCORDING TO US IS ERRONEOUS; BECAUSE IN THE SAID ORDER OF THE TRIBUNAL, THE ISSUE INVOLVED WAS WDV TO BE ADOPTED FOR THE PURP OSE OF ALLOWING DEPRECIATION U/S 32 OF THE I T ACT, AS THE ASSESSEE WAS BROUGHT INTO THE AMBIT OF INCOME TAX ACT FOR THE FIRST TIME IN AY 2003 - 04. ACCORDING TO US, THE SAID ORDER OF THE TRIBUNAL IN ITA NO.239/COCH2002 ONLY COCHIN PORT TRUST 7 SUPPORTS THE CASE OF THE ASSESSEE BECAUSE IN THE ORIGINAL RETURN, WHILE CLAIMING THE DEPRECIATION U/S 32 OF THE ACT, THE ASSESSEE HAD ADOPTED THE COST OF ASSETS PURCHASED SINCE ITS INCEPTION. HOWEVER, THE AO DURING THE COST OF ASSESSMENT PROCEEDINGS RESTRICTED THE SAME TO THE WDV OF S UCH ASSETS AS ON 1.4.2002. THIS WAS ON APPEAL CONFIRMED BY THE CIT(A) AND ALSO BY THE ITAT COCHIN BENCH VIDE THE ORDER RELIED BY THE CIT(A). IT IS ON THIS ISSUE, THE COCHIN BENCH OF THE TRIBUNAL VIDE THE ORDER RELIED BY THE CIT(A) CONFIRMED THE ACTION T AKEN BY THE AO IN RESTRICTING THE DEPRECIATION ON THE BASIS OF WDV OF ASSETS AS ON 1.4.2002. THEREFORE , IN FACT, THE ORDER OF THE TRIBUNAL RELIED BY THE CIT(A) ONLY GIVES CREDENCE TO THE GROUND OF THE ASSESSEE THAT DEPRECIATION ON W DV OF ASSETS AS ON 1.4.2 002 , IS TO BE ALLOWED AS AN EXPENDITURE IN COMPUTING THE APPLICATION OF INCOME. 3.4. 4 MOREOVER , EXPLANATION 6 TO SECTION 43 ( 6) OF THE I T ACT WAS BROUGHT INTO STATUTE BOOK BY FINANCE ACT, 2008 WITH RETROSPECTIVE EFFECT FRO M 2003 - 04 TO SPECIFICALLY ENTIT LE THE ASSESSEE, SUCH AS PORT TRUST , TO CLAIM DEPRECIATION ON WDV. 3.4.5 BEFORE CONCLUDING, IT IS TO BE MENTIONED THAT FOR THE AY 2007 - 08, THE COCHIN BENCH OF THE TRIBUNAL IN ITS ORDER DATED 10.9.2015 HAD DISMISSED THE SIMILAR CLAIM OF DEPRECIATION OF THE ASSESSEE WITHOUT EXPRESSING ITS OPINION ON MERITS , FOR THE REASONS THAT THIS ALTERNATIVE PLEA WAS NOT RAISED BEFORE THE CIT(A). WHEREAS FOR THE RELEVANT APPEALS, THE ASSESSEE HAD RAISED THIS GROUND BEFORE COCHIN PORT TRUST 8 THE CIT(A) AND THE CIT(A) HAD DISMISSED THE CLAIM OF DEPRECIATION ON WDV OF THE ASSETS ACQUIRED UPTO 31.3.2002, ERRONEOUSLY RELYING ON THE ORDER OF THE TRIBUNAL IN ITA NO. 239/COCH/2007 (ORDER DATED 31.1.2009). THEREFORE, IN VIEW OF THE AFORESAID DISCUSSION AND EXPLANATION 6 TO SECTION 43(6) OF THE ACT , WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION ON WDV ON ASSETS ACQUIRED UPTO 31.3.2002 PROVIDED THAT THE COST OF ASSETS WERE NOT ALLOWED AS APPLICATION/DEDUCTION IN ANY OF THE PREVIOUS ASSESSMENT YEARS. THEREFORE, TO DETERMINE/TO CALCULATE THE CLAIM, WHICH IS ALLOWABLE, THE ALTERNATIVE PLEA OF THE ASSESSEE IN GROUND 2 IN ITA NO.404 TO 406/COCH/2015 , IS RESTORED TO THE AO. IT IS ORDERED ACCORDINGLY. IN THE RESULT, G ROUND NO.2 IN ITA NO.404 TO 406/COCH/2015 IS ALLOWED FOR STATISTICAL PURPOSE. 4 SINCE THE COMMON ISSUES (GROUND NOS 1 & 2) ARE DISPOSED OFF, THE APPEALS IN ITA NOS. 404 & 406/COCH/2015, WHICH HAS ONLY GROUND S RELATING TO THE COM MON ISSUE ARE ALSO DISPOSED OFF. T HE ONLY OTHER ISSUE FOR ADJUDICATION IS GROUND NO.3 IN ITA NO.405/COCH/ 2015. THE GROUND NO.3 READ AS FOLLOWS: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON LAW, THE CIT(A) ERRED ON CONFIRMATION THE ADDITION MADE BY THE AO IN RESPECT OF LOSS OF RS. 5,77,39,950/ - DUE TO CONVERSION OF UNITS O F UTI INVESTMENTS. THE CIT(A) ERRED IN HOLDING THAT THE ITAT HAD DECIDED THE ISSUE IN FAVOUR OF THE DEPARTMENT. ON FACTS, THE C I T(A) OUGHT TO HAVE NOTED THAT THE ITAT HAS HELD THAT THE SAID EXPENDITURE IS TO BE TREATED AS A CAPITAL EXPENDITURE AND HENCE O UGHT TO HAVE ALLOWED THE SAME AS AN APPLICATION OF INCOME. IN ANY CASE, THE CIT(A) OUGHT TO HAVE TAKEN ONLY RS. 2,94,90,000/ INCLUDED IN THE P&L ACCOUNT AND NOT THE ENTIRE AMOUNT OF RS. 5,77,39,950/ - . THE CIT(A) OUGHT TO COCHIN PORT TRUST 9 HAVE NOTED THAT THE BALANCE AMOUNT OF RS. 2,82,49,950/ - HAS NOT BEEN CLAIMED AS AN EXPENDITURE BY THE ASSESSEE IN THE P&L ACCOUNT . NOTWITHSTANDING THE ABOVE, IF FOR ANY REASON THE SAME IS NOT ALLOWED, AS AN EXPENDITURE, THE AO OUGHT TO HAVE REDUCED THE SAID AMOUNT OF RS.2,94,90,000/ - FRO M THE EXPENDITURE AND NOT TAKEN AS INCOME. 4.1 THE CIT(A) S NARRATION OF THE FACTS AND THE FINDINGS READ AS UNDER: 9 GROUND NO.4 RELATES TO DISALLOWANCE OF LOSS OF RS. 5,77,39,950/ - . 9.1 THE AO IN THE IMPUGNED ORDER HAS DISALLOWED THE CLAIM OF LOS S OF RS. 5,77,39,950/ - DUE TO CONVERSION OF UNITS OF UTI INVESTMENTS . IT WAS ARGUED THAT THE LOSS IS AN APPLICATION OF INCOME AND THEREFORE, HAS TO BE ALLOWED AS DEDUCTION. 9.2 THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE DEPARTME NT BY THE HONBLE ITAT, COCHIN BENCH IN ITA NO.239/COCH/2007 FOR THE AY 2004 - 05. THE RELEVANT PORTION OF THE HONBLE ITAT IS REPRODUCED HEREIN : WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THE FACTS AND MATERIAL ON RECORD. WE FIND FORCE IN THE CONTENTIO N OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT IS IS NOT THE BUSINESS OF THE ASSESSEE TO TRADE IN MUTUAL FUNDS AND THE ASSESSEES BUSINESS IS RELATED TO PORT ACTIVITIES . AS RIGHTY CONTENDED BY THE LD DEPARTMENTAL REPRESENTATIVE THAT INVESTMENTS IN MUTU AL FUNDS WERE NOT THE TRADING ACTIVITY OF THE ASSESSEE AND WERE ONLY HELD AS INVESTMENT, IT IS CAPITAL IN NATURE. HENCE, WE FIND NO INFIRMITY IN THE ORDER OF THE FIRST APPELLATE AUTHORITY IN NOT ADJUSTING THE LOSS ON SALE OF UNITS AGAINST THE INCOME OF THE ASSESSEE. 10 IN THE ABOVE CIRCUMSTANCES AND RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE ITAT THE APPELLANTS CLAIM IS NOT APPRECIATED AND THE DISALLOWANCE MADE BY THE AO IS CONFIRMED. 4.2 AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS I N APPEAL BEFORE US. 4.3 THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LOSS ON CONVERSION OF UTI UNITS, THE CIT(A) ERRED IN HOLDING THAT THE ISSUE IS DECIDED AGAINST THE ASSESSEE VIDE THE ORDER OF THE ITAT COCHIN BENCH IN ITA NO. 239/COCH/2007. COCHIN PORT TRUST 10 RELIE D BY HIM. THE LD AR FURTHER SUBMITTED THAT THE CIT(A) OUGHT TO HAVE FOUND THAT THE ISSUE BEFORE THE TRIBUNAL IN THE SAID ORDER WAS WHETHER THE SAID EXPENDITURE IS CAPITAL OR REVENUE. THE DECISION OF THE TRIBUNAL THAT THE SAID LOSS ON CONVERSION OF UTI UNI TS IS CAPITAL IN NATURE DOES NOT IN ANY MANNER MAKE THE SAID EXPENDITURE INELIGIBLE TO BE CLAIMED AS AN APPLICATION OF INCOME. IT WAS FURTHER SUBMITTED THAT IN ANY CASE, THE CIT(A) OUGHT TO HAVE NOTED THAT AN AMOUNT OF RS. 2,82,49,950/ - INCLUDED IN THE A BOVE SAID AMOUNT OF RS. 5,77,39,950/ - WAS NOT CLAIMED BY THE ASSESSEE AS AN EXPENDITURE IN ITS P&L ACCOUNT AND HENCE OUGHT TO HAVE DELETED THE DISALLOWANCES MADE BY THE AO. 4.4 THE LD DR SUPPORTED THE ORDER OF THE INCOME TAX AUTHORITIES. 4.5 WE HAVE HE ARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAD CLAIMED RS. 5,77,39,250/ - AS LOSS ON UTI INVESTMENTS. THE ASSESSEE HAD STATED THAT IT HAD MADE INVESTMENTS TOTALING RS. 19.50 CRORES IN UNITS UNDER US 64 SCHEME OF UTI FROM VARI OUS FUNDS. THE UTI CONVERTED THESE UNITS INTO BONDS VALUED AT RS. 13.48 CRORES IN JUNE 2003 , AS AGAINST THE COST OF RS. 19.50 CRORES TO THE ASSESSEE. THE ASSESSEE HAD CLAIMED THE DIFFERENCE BETWEEN RS. 19.50 CRORES AND RS. 13.4 8 CRORES AS BUSINESS LOSS AND WROTE IT OFF IN THE BOOKS OF ACCOUNT. 4.5.1 ACCORDING TO US, THE INCOME COMPUTED BY THE ASSESSEE IS ONLY NOTIONAL LOSS AND THERE IS NO INFLOW OR OUTFLOW OF CASH IN THE ABOVE CONVERSION OF UNITS BY COCHIN PORT TRUST 11 THE UTI. THE ASSESSEE HAD N OT APPLIED THESE AMOUNTS AS APPLICATION INCOME AND THEREFORE, THE LOSS ARISING OUT OF THIS CONVERSION CANNOT BE TREATED AS APPLICATION OF INCOME AND IT HAS RIGHTLY ADDED BACK BY THE AO WHILE COMPUTING THE INCOME AND EXPENDITURE STATEMENT OF THE ASSESSEE. MOREOVER, THE TRIBUNAL IN ITA NO.239/COCH/2007 HAD CATEGORICALLY HELD THAT THIS LOSS IS CAPITAL LOSS AND CANNOT BE CLAIMED AS REVENUE EXPENDITURE. 4. 5.2 THE ASSESSEE HAD MADE AN ALTERNATIVE CLAIM THAT A SUM OF RS. 2,82,49,950/ - WAS NOT CLAIMED, AS AN EXPENDITURE IN ITS P&L ACCOUNT AND HENCE, THE DISALLOWANCE MADE BY THE AO TO THE EXTENT OF RS. 2,82,49,950/ - IS TO BE DELETED. THIS ALTERNATIVE PLEA OF THE ASSESSEE HAS NOT BEEN PROPERLY EXAMINED NEITHER BY THE AO NOR BY THE CIT(A) ; HENCE, IN THE INTER EST OF JUSTICE AND EQUITY, WE DEEM IT APPROPRIATE TO REMIT THE ALTERNATIVE PLEA OF THE ASSESSEE FOR DE - NOVO CONSIDERATION TO THE A O . IT IS ORDERED ACCORDINGLY. 5 IN THE RESULT, THE GROUND NO.3 IN ITA NO.405/COCH/2015 IS ALLOWED FOR STATISTICAL PURPOSE . ITA NO. 65/COCH/2015 6 BRIEFLY STATED THE FACTS IN RELATION TO THIS APPEAL, ARE AS FOLLOWS: THE ORIGINAL ASSESSMENT WAS COMPETED U/S 143(3) VIDE ORDER DATED 29.12.2006 FIXING THE TOTAL INCOME AT RS. 139,45,25,558/ - . THE ORDER GIVING EFFECT COCHIN PORT TRUST 12 TO THE ORD ER OF THE CIT (A) WAS PASSED ON 10.3.2007 DETERMINING THE TOTAL INCOME AT RS. 65,94,66,840/ - . SUBSEQUENTLY, VIDE ORDER DATED 29.3.2010, THE ASSESSEE WAS ASSESSED AS A STATUS OF TRUST AND THE NET SURPLUS WAS DETERMINED AT RS. 10,58,03,788/ - . SINCE THERE WAS A MISTAKE IN COMPUTING THE INCOME AVAILABLE FOR THE PURPOSE OF SECTION 11(1)(A), NOTICE U/S 148 WAS ISSUED ON 23.10.2010. THE AO COMPLETED THE REASSESSMENT U/S 143 R.W.S 147 OF THE ACT VIDE ORDER DATED 20.12.2011 FIXING A TOTAL INCOME OF RS. 26,05,97,5 30/ - . 6.1 AGAINST THE ADDITION/ DISALLOWANCE, THE ASSESSEE FILED APPEAL TO THE FIRST APPELLATE AUTHORITY . THE ASSESSEE QUESTIONED THE VALIDITY OF REOPENING OF ASSESSMENT. THE ASSESSEE ALSO CHALLENGED THE DISALLOWANCE OF DEPRECIATION . THE CIT(A) DECIDED B OTH THE ISSUES AGAINST THE ASSESSEE; HENCE, THE PRESENT APPEAL OF THE ASSESSEE RAISING THE FOLLOWING EFFECTIVE GROUNDS: 1 . WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N HOLDING THE RE - OPENING OF THE ASSESSMENT U/S 147 AS VALID. 2 . THE LEARNED CIT(A) OUGHT TO HAVE NOTED THAT WHERE AN ASSESSMENT U/S 1 43(3) OR 147 HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER SECTION 147 AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF FAILURE ON THE PART OF THE ASSESSE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB SECT ION 1 OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR T HE ASSESSMENT FOR THAT ASSESSMENT YEAR . 3 . THE LEARNED CIT (A) OUGHT TO HAVE NOTED THAT ASSE SSMENT CANNOT BE RE - OPENED U/S 147 ON THE BASIS OF THE SUBSEQUENT DECISIONS OF ITAT AND HIGH COURT . RELIANCE IS PLACED ON THE DECISION OF HON SUPREME COURT IN THE CASE OF DCIT VS SIMPLEX CONCRETE PILES INDIA LTD (358 ITR 129) , WHEREIN THE HON A PEX COURT HELD THAT COCHIN PORT TRUST 13 ASSESSMENT CANNOT BE RE - OPENED SOLELY ON THE BASIS OF SUB SEQUENT DECISION OF SUPREME COURT. 4 . WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF DEP R ECIATION MADE BY THE ASSESSING OFFICER IN COMPUTING THE APPLICATION OF INCOM E OF THE APPELLANT U/S 11 OF THE INCOME TAX ACT 1961 . 6.2 THE LD AR REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES. THE LD DR PRESENT AS DULY HEARD 6.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. GROUND N OS 1 TO 3 RELATE TO REOPENING OF ASSESSMENT. THE ASSESSMENT WAS REOPENED BY THE AO FOR THE REASON THAT THE DEPRECIATION W AS CLAIMED AS DEDUCTION DESPITE THE FACT THAT THE COST OF THE ASSETS ON WHICH THE DEPRECIATION IS CLAIMED HAS BEEN ALLOWED AS APPLICAT ION OF INCOME. THE AO WAS IN A POSSESSION OF MATERIAL FACT BEING THE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS , WHERE IT WAS HELD THAT DEPRECIATION CANNOT BE ALLOWED AS DEDUCTION, WHEN THE COST OF ASSETS WAS A LLOWED AS APPLICATION OF INCOME. THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT CONSTITUTED INFORMATION FOR REOPENING THE ASSESSMENT. THEREFORE, REOPENING OF THE ASSESSMENT IS JUSTIFIED AND IT IS WITHIN THE PERMISSIBLE TIME LIMIT. IT IS ORDERED ACCORDINGLY. ACCORDINGLY, GROUND NOS. 1 TO 3 ARE REJECTED. 6.4 GROUND NO.4 IS REGARDING THE ISSUE ON MERITS THAT THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION. THE HONBLE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL COCHIN PORT TRUST 14 INSTITUTIONS (SUPRA) HAD CATEGORI CALLY HELD THAT WHEN THE COST OF ASSETS IS CLAIMED AS APPLICATION OF IN COME, THE DEPRECATION ON THE SAME CANNOT BE ALLOWED AS DEDUCTION. IN VIEW OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS (SUPRA), THIS GROU ND OF THE ASSESSEE IS ALSO REJECTED. 6.5 IN THE RESULT, THE APPEAL IN ITA NO.65/COCH2015 IS DISMISSED. 7 TO SUM - UP, THE APPEALS IN 404 TO 406/COCH2015 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE ; W HEREAS THE APPEAL IN ITA NO. 65/COCH/2015 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF JULY 2016 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATE D 28 TH JULY 2016 RAJ* COCHIN PORT TRUST 15 COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT, 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN 1 DATE OF DICTATION 27 JULY 2016 2 DT ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28 JU LY 20 16 3 DT ON WHICH THE APPROVED DRAFT COMES TO THE SR PS/PS 4 DT ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER 5 DT OF PRONOUNCEMENT 6 DT ON WHICH THE FILE GOES TO THE BENCH CLERK 7 DT ON WHICH THE FILE GOES TO THE HEAD CLERK 8 DT ON WHICH THE FILE GOES TO AR 9 DT OF DISPATCH OF THE ORDER