2016 (6) TMI 256 - AT - Income Tax

Tribunal upholds assessee's depreciation claim over prior expenditure, citing legal precedent

M/s. Integrated Education Research Centre for Engineering and Management Versus Commissioner of Income Tax (Exemption), Kolkata

M/s. Integrated Education Research Centre for Engineering and Management Versus Commissioner of Income Tax (Exemption), Kolkata - TMI Issues Involved:1. Whether depreciation can be claimed on assets whose cost of acquisition has already been claimed as capital expenditure and application of income for charitable purposes.2. Validity of the CIT's revision order under Section 263 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Depreciation on Assets with Prior Capital Expenditure Claims:The assessee, a charitable trust, claimed depreciation of Rs. 68,43,455 on assets whose cost of acquisition had already been treated as capital expenditure and application of income for charitable purposes. The Assessing Officer (AO) allowed this claim, but the Commissioner of Income Tax (Exemptions) [CIT (E)], Kolkata, found this allowance erroneous and prejudicial to the interest of the revenue. The CIT (E) argued that allowing depreciation on such assets results in a double deduction, citing the Supreme Court's decision in Escorts Limited & another Vs. Union of India 199 ITR 43, which disallowed depreciation on assets used for scientific research when capital expenditure on those assets had already been deducted.In response, the assessee cited multiple High Court decisions, including CIT Vs. Institute of Banking Personnel Selection (IBPS) and Society of Sisters of St. Ann, which held that depreciation could be claimed even when the cost of acquisition had been treated as capital expenditure. The CIT (E) countered by referring to the Kerala High Court decision in DDIT(E) v. Lissie Medical Institutions, which supported the view that allowing depreciation in such cases amounts to double deduction.The Tribunal noted that the issue had been settled by various High Courts, including the jurisdictional Calcutta High Court, which consistently held that depreciation is allowable on capital assets for charitable trusts. The Tribunal emphasized that the decision of the Supreme Court in Escorts Ltd. was not directly applicable, as it dealt with different provisions of the Act.2. Validity of the CIT's Revision Order under Section 263:The CIT (E) invoked Section 263 of the Income Tax Act, 1961, to revise the AO's order, arguing that it was erroneous and prejudicial to the interest of the revenue. The Tribunal highlighted that for a revision under Section 263, the order must be both erroneous and prejudicial to the revenue. It cited the Supreme Court's ruling in Malabar Industrial Co. 243 ITR 83, which clarified that not every loss of tax revenue qualifies as prejudicial to the interest of the revenue.The Tribunal observed that the AO's decision to allow depreciation was based on a possible legal view supported by multiple High Court rulings. Therefore, the CIT (E)'s disagreement with the AO's view did not justify a revision under Section 263, especially when the view taken by the AO was in line with the jurisdictional High Court's decision. The Tribunal also noted that the amendment introduced by the Finance (No.2) Act, 2014, which disallowed depreciation on assets whose cost was treated as application of income, was effective from 1.4.2015 and did not apply to the assessment year in question (2012-13).Conclusion:The Tribunal quashed the CIT (E)'s order under Section 263, holding that the AO's decision to allow depreciation was neither erroneous nor prejudicial to the interest of the revenue. The appeal by the assessee was allowed, and the stay application was dismissed as infructuous. The Tribunal emphasized the importance of judicial discipline and the binding nature of jurisdictional High Court decisions.