2014 (1) TMI 483 - AT - Income Tax

Tribunal directs reassessment of depreciation on assets for charitable purposes

Astt. Director of Income Tax(Exemption) -I Versus M/s. Kamineni Educational Society

The Tribunal allowed the appeals by the Revenue for statistical purposes, directing the Assessing Officer to reexamine the allowability of depreciation on ... Depreciation on assets – Held that:- merely because entire value of asset is allowable as expenditure under S.11, it is not sufficient to deny claim for depreciation unless the value of asset has been actually allowed as expenditure – Following Mahila Sidh Nirman Yojna V/s. IAC [1994 (7) TMI 117 - ITAT DELHI-A] - if the value of the asset was not allowed as expenditure under S.11, the Assessing Officer is required to allow depreciation as per the rate applicable to those assets – The issue was restored to the file of AO for examining the fact in respect of each asset on which depreciation claimed, whether the value of such asset was in fact allowed under S.11, and if it was so allowed, the depreciation would not be allowed in respect of such asset. Issues:Allowability of deduction towards depreciation on assets claimed by the assessee.Analysis:Issue: Allowability of deduction towards depreciation on assets claimed by the assesseeThe appeals by the Revenue were directed against the orders of the Commissioner of Income-tax(Appeals) for the assessment years 2008-09 and 2009-10, as a common issue was involved. The effective grounds of the Revenue in appeal for the assessment year 2008-09 highlighted that the order of the CIT(Appeals) was considered erroneous both on facts and in law. The primary contention was that the depreciation disallowance made by the Assessing Officer should have been sustained based on a specific Apex Court order. Furthermore, it was argued that allowing depreciation when the assessee society had applied part of its gross receipts towards capital expenditure and also claimed depreciation on such capital assets would result in double deduction, which is impermissible. The same grounds were reiterated in the other appeal, indicating that the core issue in both cases revolved around the allowability of deduction towards depreciation on assets claimed by the assessee.During the hearing, the assessee did not appear despite receiving a notice, and no adjournment petition was submitted. Consequently, the Tribunal proceeded to dispose of the appeal based on the available record. Upon reviewing the material and considering precedents, the Tribunal found that the issue of allowability of depreciation claimed by the assessee was consistent with previous decisions. Citing relevant case law and tribunal judgments, it was established that depreciation on fixed assets is an allowable deduction necessary to determine income available for charitable purposes. The Tribunal directed the Assessing Officer to verify whether the value of each asset for which depreciation was claimed had been allowed under the relevant section. If the value was already allowed as expenditure, depreciation would not be permissible for that asset. However, if the value was not previously allowed, depreciation could be granted based on the applicable rates. In alignment with the Tribunal's consistent view on similar matters, the impugned order of the CIT(A) was set aside, and the matter was remanded to the Assessing Officer for a fresh examination in accordance with the legal provisions. The Assessing Officer was instructed to redecide the issue after providing a reasonable opportunity for the assessee to present their case.In conclusion, both appeals by the Revenue were allowed for statistical purposes, emphasizing the need for a thorough reassessment by the Assessing Officer regarding the allowability of depreciation on assets claimed by the assessee.