Tribunal upholds CIT(A)'s decisions for Assessment Year 2010-11, allowing depreciation and deficit carry forward.

The Tribunal dismissed the Revenue's appeal for Assessment Year 2010-11, upholding the CIT(A)'s decisions on both issues. The claim for depreciation on assets was allowed, clarifying that depreciation on assets treated as application of income should be permitted. Additionally, the carry forward of deficits from earlier years was approved, in line with precedents allowing such adjustments for charitable trusts. The order was pronounced on June 12, 2019.

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Issues Involved:

1. Disallowance of claim of depreciation on assets.
2. Denial of carry forward of deficit (excess application over income) to subsequent years.

Issue-Wise Detailed Analysis:

1. Disallowance of Depreciation on Assets:

The Revenue appealed against the CIT(A)'s decision to allow depreciation on assets, arguing it amounted to a double deduction since the cost of acquisition was already treated as application of income in previous years. The AO relied on the Supreme Court's decision in *Escorts Ltd. vs. Union of India* (199 ITR 43) and the Kerala High Court's decision in *Lissie Medical Institutions vs. CIT* (348 ITR 344), which held that depreciation on such assets constitutes double deduction.

On appeal, the assessee cited several judicial precedents, including the Karnataka High Court's decision in *DIT (Exemption) vs. Al-Ameen Charitable Fund Trust* (383 ITR 517) and *CIT vs. Society of Sisters of St. Anne* (146 ITR 28), which supported the claim for depreciation. The CIT(A) allowed the claim based on these precedents.

The Tribunal upheld the CIT(A)'s decision, referencing the Karnataka High Court's ruling in *Al-Ameen Charitable Fund Trust*, which clarified that depreciation on assets, whose cost was treated as application of income, should be allowed. The Tribunal also noted that Section 11(6) of the Income Tax Act, which disallows such depreciation, is prospective and applicable from Assessment Year 2015-16 onwards. Thus, the assessee's claim for depreciation for Assessment Year 2010-11 was valid. Consequently, Revenue's ground of appeal on this issue was dismissed.

2. Carry Forward of Deficit to Subsequent Years:

The Revenue contended that the CIT(A) erred in allowing the carry forward of the current year's deficit and brought forward deficits from earlier years, arguing that the Income Tax Act does not provide for computing losses for charitable trusts in this manner. The CIT(A) allowed the carry forward, resulting in Revenue's appeal.

The Tribunal examined precedents, including decisions from the Co-ordinate Benches in cases like *City Hospital Charitable Trust* (ITA No.676/Bang/2014) and *Shraddha Trust* (ITA No.899/Bang/2016). These cases established that excess expenditure over income in one year could be carried forward and set off against income in subsequent years, treating such adjustments as application of income for charitable purposes.

The Tribunal upheld the CIT(A)'s decision, allowing the carry forward of the current year's deficit and earlier years' deficits for set off in subsequent years. This decision was consistent with the judicial precedents that supported the assessee's position. Consequently, Revenue's ground of appeal on this issue was also dismissed.

Conclusion:

The Tribunal dismissed the Revenue's appeal for Assessment Year 2010-11, upholding the CIT(A)'s decisions on both issues: allowing depreciation on assets and permitting the carry forward of deficits to subsequent years. The order was pronounced on June 12, 2019.

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