M/S. JOSHUA EDUCATIONAL TRUST, CHENNAI V. ITO (EXEMPTIONS), WARD-3, CHENNAI

ITA 764/CHNY/2020

• Counselvise Citation: [2023] 102 COUNSELVISE.COM (IT) 0379 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-10-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 10-09-2020
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Capital Gains
• Section: 32; 144; 154; 11; 142(1); 12AA; 143(2); 264

Judgement Text

अपीलीय अिधकरण, ’ए’ Ɋायपीठ, चेɄई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI ŵी वी दुगाŊ राव Ɋाियक सद˟ एवं ŵी जी. मंजुनाथा, लेखा सद˟ के समƗ Before Shri V. Durga Rao, Judicial Member & Shri Manjunatha, G., Accountant Member आयकर अपील सं./I.T.A. No.764/Chny/2020 िनधाŊरण वषŊ/Assessment Year: 2012-13 M/s. Joshua Educational Trust, 2/1, TVS Main Road, Tevar Nagar, Padi, Chennai 600 050. [PAN:AAATJ0282D] Vs. The Income Tax Officer (Exemptions), Ward 3, Chennai. (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent) अपीलाथŎ की ओर से / Appellant by : None ŮȑथŎ की ओर से/Respondent by : Shri AR V Sreenivasan, Addl. CIT सुनवाई की तारीख/ Date of hearing : 19.10.2023 घोषणा की तारीख /Date of Pronouncement : 31.10.2023 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals), Chennai, dated 31.01.2020 relevant to the assessment year 2012-13. 2. The appeal filed by the assessee is delayed by 159 days in filing the appeal before the Tribunal due to outbreak of COVID-19 pandemic and accordingly, the delay is condoned and admitted the appeal for adjudication. I.T.A. No.764/Chny/20 2 3. Brief facts of the case are that the assessee society manually filed its return of income on 20.05.2013. The Assessing Officer has noticed from the return that the gross income of the assessee as per its Income & Expenditure (I & E) account was ₹.50,95,835/-. However, a perusal of the balance sheet of the assessee, along with its I & E account, the Assessing Officer has noted that the assessee has derived gross income of ₹.3,72,40,466/-. This income consists of two items, viz., (a) fees collection: ₹.50,95,835/- and (b) profit on sale of Thangam colony property: ₹.3,21,44,631/-. The assessee was found to have incurred revenue expenditure of ₹.63,84,221/- (including depreciation of ₹.19,81,597). As per the Income & expenditure of the assessee, the excess of expenditure over income has been quantified at ₹.12,88,386/-. Thus, the Assessing Officer issued notice under section 143(2) of the Income Tax Act, 1961 [“Act” in short] on 11.09.2014. Specific questionnaire, vide notice under section 142(1) of the Act, was issued on 29.01.2015 and served on the assessee on 31.01.2015. In response to this notice, the assessee’s Authorised Representative (A.R.), Shri. G. Thangaraj, along with a PoA (Power of Attorney) executed in his favour, filed a letter through tapal on 05.02.2015 requesting for one week’s time to reply to the notice. After this letter filed by the assessee on 05.02.2015, there was no response from the assessee. The assessee was given one I.T.A. No.764/Chny/20 3 final opportunity, vide reminder letter dated 23.03.2015 to respond to the notice under section 142(1) of the Act. However, there was no response from the assessee even on 26.03.2015. Thus, the assessee has not responded to the notice under section 142(1) of the Act or to the reminder to the said notice. In this regard, it may be noted that the reminder to the notice under section 142(1) of the Act was also served on the Authorised Representative of the assessee, Shri.G. Thangaraj. Yet, there was no response from the assessee. In the reminder letter, it was specifically mentioned that the assessment will be completed as a 'best judgment assessment’, in case of default by the assessee on the date of hearing, viz., 26.03.2015. Still, the assessee has not responded, even to this reminder letter. Hence, the Assessing Officer has completed the 'best judgement assessment’ under section 144 of the Act dated 20.05.2013 assessing the income of the assessee at ₹.3,28,37,842/- after making various additions. 4. After filing of appeal before the ld. CIT(A), the assessee submitted before the Assessing Officer a petition under section 154 of the Act along with a copy of the registration certificate under section 12AA of the Act dated 16.05.1985 requesting for rectification of the assessment order. Accordingly, the Assessing Officer passed a rectification order under I.T.A. No.764/Chny/20 4 section 154 of the Act dated 19.05.2016 granting exemption under section 11 of the Act. The Assessing Officer recomputed the taxable income at ₹.2,72,51,772/-. For arriving at such taxable income, the Assessing Officer had considered the gross receipts at ₹.3,72,40,466/- which comprised of the fee collection of ₹.50,95,835/- and the profit on sale of Thangam Colony property of ₹.3,21,44,631/-. Since 85% of such gross receipts was to be applied, the amount to be applied was arrived at ₹.3,16,54,396/-. Thereafter, from the Income and Expenditure Account the Assessing Officer arrived at the application of funds to be at ₹.44,02,624/-, wherein the claim of depreciation of ₹.19,81,597/- was not allowed to the assessee. Thus, as against the amount to be applied of ₹.3,16,54,396/-, the actual application was only at ₹.44,02,624/- and hence the shortfall was arrived at ₹.2,72,51,772/- and computed as taxable income in the hands of the assessee trust. 5. The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee, the ld. CIT(A) partly allowed the appeal of the assessee. 6. On being aggrieved, the assessee is in appeal before the Tribunal. When the appeal was taken up hearing, none appeared on behalf of the I.T.A. No.764/Chny/20 5 assessee despite various opportunities afforded. Hence, we proceed to decide the appeal on merits after hearing the ld. DR. 7. We have heard the ld. DR, perused the materials available on record and gone through the orders of authorities below including the written submissions filed before the ld.CIT(A). The case of the assessee is that the depreciation could not have been denied since the Hon’ble Apex Court had allowed depreciation despite the fact that the assets concerned were claimed towards application of income in the earlier years. It is also the case of the assessee that such depreciation has been claimed in the manner prescribed under section 32 of the Act following the principle of block of assets. It was pleaded that under such principle of block of assets, any sale of any assets has to be reflected only within the block and hence the sale of property at Thangam colony had been reflected in the block of assets of Padi school. The AR of the assessee further pleaded that so long as a block of assets is not reduced to Nil, inter-se adjustments for sale of assets has to be carried out only within the block of assets. Such procedure was stated to be mandatory and that it has nothing to do with section 11 of the Act and is mandatory for all assessees including the trusts. After considering the submissions of the assessee, the ld. CIT(A) has observed as under: I.T.A. No.764/Chny/20 6 6.3.3 However, such interpretation of the assessee is not correct. Provisions of Sec.32 and provisions of Sec.11 are separate and operate independently, Since the assessee has claimed exemption u/s 11 of the Act, the same is allowable to him only when the conditions laid down for the operation of the said section are duly complied with by the assessee. As per provisions of Sec.11(1A), where a capital asset, being property held under a trust is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied for charitable or religious purposes. There is no dispute on the fact that the assessee had derived a net consideration of Rs.3,21,44,631/- on sale of property at Thangam colony. The sale proceeds have not been utilised for acquiring another capital asset. The assessee simply credited the Schedule of fixed assets of Padi school with an amount of Rs.3,52,56,950/-. The said addition was made under the head ‘land and building’, which had an opening WDV of Rs.1,80,06,371/-. In other words, there is no acquisition of any new asset. As per the written submission filed on 22.01.2020, the amounts were stated to be utilized for improvement and acquisition of other fixed assets. However, there is no acquisition of any new fixed assets. The conditions as laid down in sub section (1A) of Sec.11 stood violated and hence such amount cannot be included for the purposes of arriving at "application of income". Thus, the AO’s inclusion of profit on sale of property at Thangam colony for arriving at the gross receipts and also for not considering the said amount for the purposes of arriving at application of income, both are correct. Sec.11(1A) being violated, the impugned amount cannot be considered for application and the net consideration is taxable as capital gains. 6.3.4 However, while arriving at the shortfall vide the order passed u/s 154 of the Act, the AO did not allow the claim for the depreciation of Rs.19,81,597/-. From a perusal of para 3.4 of the assessment order passed u/s 143(3), it is seen that the AO denied the claim for depreciation since the corresponding expenditure for acquisition of the asset was already claimed towards application of income in the earlier years. However, this issue of allowing depreciation on the assets, whose expenditure has already been claimed towards "application of Income" is settled in favour of the assessee by the decision of the Hon'ble Apex Court in the case of CIT Vs. Rajasthan and Gujarat Charitable Foundation (Pune) in 402 ITR 441. The Hon'ble Apex Court further held that the decision of the Hon’ble Bombay High Court in the case of CIT Vs Institute of Banking Personnel Selection (IBPS) 264 ITR 110 is correct, wherein the claim of depreciation in the case of trusts was held allowable on the assets whose expenditure was already claimed towards application of income. Thus, the AO should not have reduced the claim of depreciation while arriving at the application of income. 6.3.5 To sum up, the AO is directed to consider the application of income at Rs.63,84,221/- (which means the claim of depreciation is allowed) against the I.T.A. No.764/Chny/20 7 income to be applied of Rs.31654396/- (which represents 85% of gross receipts of ₹.3,72,40,466/-. Accordingly ground no. 4 pertaining to the claim of depreciation is allowed and ground no. 5, 6 & 7 are dismissed. 8. Despite various opportunities afforded, none appeared on behalf of the assessee or filed any written submissions in support of its claim. Upon perusal of the appellate order, we find no reason to interfere with the order passed by the ld. CIT(A) on merits. Accordingly, the appeal filed by the assessee is dismissed. 9. In the result, the appeal filed by the assessee is dismissed. Order pronounced on 31 st October, 2023 at Chennai. Sd/- Sd/- (MANJUNATHA, G.) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER Chennai, Dated, 31.10.2023 Vm/- आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant, 2.ŮȑथŎ/ Respondent, 3. आयकर आयुƅ/CIT, 4. िवभागीय Ůितिनिध/DR & 5. गाडŊ फाईल/GF.