Tax Appeal: ITAT Chennai rules on unutilized amount tax, depreciation disallowance

The ITAT Chennai allowed the Revenue's appeal, ruling in favor of taxing the unutilized accumulated amount in the specific assessment year and disallowing depreciation on assets where costs were treated as application of income for exemption under section 11 of the Act. The ITAT Chennai emphasized the independence of claims for each assessment year, setting aside the CIT(A)'s decision in both issues and restoring the Assessing Officer's order.

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Issues:
1. Taxability of unutilized accumulated amount in a specific assessment year.
2. Allowance of depreciation on assets treated as application of income for exemption under section 11 of the Act.

Issue 1: Taxability of unutilized accumulated amount:

The appeal by the Revenue challenged the Commissioner of Income-tax(Appeals)'s decision regarding the unutilized accumulated amount of Rs. 1.17 crores from assessment year 1999-2000 not being taxed in assessment year 2010-11. The Revenue contended that as per Circular No.29 dated 23.8.1969, unspent amount including 25% of permissible accumulation should be taxed under sec.11(3)(c). The CIT(A) observed utilization of amounts from previous years and concluded that the surplus from AY 1999-2000 was utilized in subsequent years, thus deleting the addition. However, the ITAT Chennai disagreed, stating that each assessment year is independent, and the assessee cannot revise claims for earlier years during scrutiny for subsequent years. The ITAT Chennai set aside the CIT(A)'s decision and restored the Assessing Officer's order, emphasizing the independence of claims for each assessment year.

Issue 2: Allowance of depreciation on assets treated as application of income:

The ITAT Chennai considered the allowance of depreciation when the acquisition costs of assets were treated as application of income for exemption under section 11 of the Act. It noted that depreciation should be allowed on the cost of the asset, but since the cost was treated as NIL under section 11, no depreciation could be claimed to avoid double deduction. The Tribunal held that if exemption under section 11 is claimed, depreciation under section 32 cannot be allowed. Therefore, the ITAT Chennai set aside the CIT(A)'s decision and restored the Assessing Officer's order, disallowing depreciation on assets where costs were treated as application of income for exemption under section 11.

In conclusion, the ITAT Chennai allowed the Revenue's appeal, ruling in favor of taxing the unutilized accumulated amount in the specific assessment year and disallowing depreciation on assets where costs were treated as application of income for exemption under section 11 of the Act.

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