Trust can claim depreciation on assets despite previous income application claims, but property sale profits excluded from application benefits.

ITAT Chennai held that a trust's depreciation claim on assets whose acquisition expenditure was previously claimed as application of income is allowable, following SC precedent in Rajasthan and Gujarat Charitable Foundation case. However, profit from property sale at Thangam colony was correctly included in gross receipts and excluded from application of income due to violation of Section 11(1A) conditions, as no new asset acquisition occurred despite claims of improvement and acquisition of other fixed assets.

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Issues:
The appeal is directed against the order of the ld. Commissioner of Income Tax (Appeals), Chennai, relevant to the assessment year 2012-13. The delay in filing the appeal before the Tribunal due to the COVID-19 pandemic was condoned. The primary issue revolves around the assessment of the income of the assessee trust and the denial of depreciation claimed by the assessee.

Assessment of Income:
The Assessing Officer noted a discrepancy in the gross income declared by the assessee in its Income & Expenditure (I & E) account and the balance sheet. The Assessing Officer conducted a 'best judgment assessment' under section 144 of the Income Tax Act, 1961, assessing the income of the assessee at &8377;3,28,37,842 after various additions. The assessee later filed a petition under section 154 of the Act for rectification, which resulted in the taxable income being recomputed at &8377;2,72,51,772.

Claim of Depreciation:
The assessee contended that depreciation should not have been denied, citing the principle of block of assets under section 32 of the Act. The ld. CIT(A) observed that the conditions under section 11 of the Act were not complied with by the assessee regarding the sale proceeds of the Thangam colony property. The ld. CIT(A) held that the amount from the sale could not be considered for application of income and was taxable as capital gains. However, the ld. CIT(A) directed the Assessing Officer to allow the claim of depreciation, stating that the claim of depreciation on assets whose expenditure was already claimed towards application of income was settled in favor of the assessee by the decision of the Hon'ble Apex Court.

Decision:
Despite the absence of the assessee during the appeal hearing, the Tribunal found no reason to interfere with the order passed by the ld. CIT(A) on merits. Consequently, the appeal filed by the assessee was dismissed. The Assessing Officer was directed to consider the application of income at &8377;63,84,221, allowing the claim of depreciation, against the income to be applied of &8377;3,16,54,396. Ground no. 4 pertaining to the claim of depreciation was allowed, while ground no. 5, 6 & 7 were dismissed.

Separate Judgment:
The order was pronounced on 31st October 2023 at Chennai by Shri V. Durga Rao, Judicial Member, and Shri Manjunatha, G., Accountant Member.

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