Tribunal affirms CIT(A) decisions on interest income and depreciation eligibility under section 35AC

The Tribunal upheld the decisions of the CIT(A) on both issues, ruling in favor of the appellant regarding the treatment of undisclosed interest income and the eligibility for depreciation on assets purchased from grants under section 35AC. The judgments referenced supported the allowance of depreciation for charitable trusts, emphasizing the principles of commercial computation of income for such entities. The appeal filed by the department was dismissed, affirming the correctness of the appellant's approach in both matters.

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Issues:
1. Disallowance of undisclosed interest income by the assessee.
2. Disallowance of depreciation on assets purchased out of grant received u/s.35AC of the I.T. Act.

Issue 1: Disallowance of Undisclosed Interest Income
The appeal was against the order of the Learned Commissioner of Income Tax (Appeals) regarding the interest income discrepancy. The assessee argued that the interest income agreed for taxation already included the undisclosed interest income discovered by the assessing officer. The appellant maintained books on a mercantile basis and accounted for all accrued income. The appellant offered to tax a total interest amount higher than assessed by the officer, based on Form 26AS. The CIT(A) accepted the appellant's contention, concluding that no additional amount needed to be added to the returned income. The Tribunal upheld the CIT(A)'s decision, stating that the appellant's approach was acceptable.

Issue 2: Disallowance of Depreciation on Assets
The second ground of appeal concerned disallowance of depreciation on assets purchased from a grant received under section 35AC of the I.T. Act. The assessing officer disallowed the depreciation, considering the investment in infrastructure facilities out of exempted income. The CIT(A) allowed the appeal, emphasizing that depreciation forms an appropriate charge against the income of the trust under sections 11 to 13 of the I.T. Act. The CIT(A) referenced a judgment of the Gujarat High Court, supporting the allowance of depreciation on assets purchased from donations received under section 35AC. The Tribunal also cited a judgment of the Supreme Court, affirming that depreciation can be considered a legitimate deduction in computing the real income of a charitable trust. The Tribunal agreed with the CIT(A)'s reasoned order, stating that the matter was covered by the Supreme Court's judgment. Consequently, the appeal filed by the department was dismissed.

In conclusion, the Tribunal upheld the decisions of the CIT(A) on both issues, highlighting the correctness of the appellant's approach regarding interest income and the eligibility for depreciation on assets purchased from grants under section 35AC. The judgments cited by the CIT(A) and the Tribunal supported the allowance of depreciation for charitable trusts, emphasizing the principles of commercial computation of income for such entities.

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