Hamdard Laboratories India Vs DCIT (ITAT Delhi)
Depreciation Cannot Be Denied Ignoring Accepted Use and Past Treatment: Hamdard Laboratories Gets Relief
Delhi ITAT Deletes ₹4.72 Lakh Disallowance on Immovable Property
In Hamdard Laboratories India v. DCIT, ITA No.5821/Del/2026, concerning AY 2018–19, the Delhi ITAT deleted a depreciation disallowance of ₹4,72,179 relating to an immovable property.
The Tribunal accepted the assessee’s unrebutted submission that the property had been used for the institution’s activities and that depreciation had been allowed in preceding years. It also examined the income computation and fixed-asset schedule supporting the claim.
The order was pronounced on 12 August 2026 by Mahavir Singh, Vice President, and Krinwant Sahay, Accountant Member. The concluding administrative date is 11 November 2026.
Background: Registered Institution Carrying on Medicine Business
The assessee was registered under Section 12A and carried on the manufacture and trading of Ayurvedic and Unani medicines.
Its case was selected for scrutiny covering matters including exports and imports, accumulation of income, refund claims and transactions with specified persons.
However, the sole dispute before the Tribunal concerned depreciation on an immovable property.
The assessee maintained that the property was used for the activities of the institution and that the depreciation claim was consistent with the treatment accepted in earlier years.
The Assessing Officer took a different view, treating the property as leased out and therefore not used for the assessee’s business activities.
Assessing Officer Relied on Rental Use of the Property
The Assessing Officer noted that depreciation had been claimed on properties generating rental income described as licence fees.
According to the assessment findings reproduced in the order, the relevant asset was not used for the assessee’s business. Depreciation on the residential building was consequently disallowed.
The assessment discussion also referred to similar treatment in the preceding year.
Thus, the dispute was fundamentally about the factual use of the property and the basis on which depreciation had been claimed, rather than the depreciation rate or calculation itself.
CIT(A) Confirmed the Disallowance
The CIT(A) sustained the Assessing Officer’s action.
The appellate authority observed that the properties had been leased out and were not used for the assessee’s approved activities. It further recorded that the assessee had not furnished an explanation demonstrating why the disallowance was incorrect.
On that basis, the disallowance of ₹4,72,179 was confirmed.
The assessee approached the Tribunal, challenging both the factual premise concerning use and the rejection of its claim.
Assessee Emphasised Institutional Use and Earlier Allowance
Before the Tribunal, the assessee submitted that the immovable property had been used for the institution’s activities.
It also asserted that depreciation on the property had been allowed in preceding years.
The Tribunal specifically recorded that the Departmental Representative did not controvert this contention.
This was significant because the lower authorities’ disallowance rested on the opposite premise—that the property was not used for the relevant activities.
The Tribunal therefore considered the claim in light of the factual position presented before it and the absence of a departmental rebuttal.
Computation and Fixed-Asset Schedule Supported the Claim
The assessee also drew attention to its computation of income and application of income for the year ended 31 March 2018, relevant to AY 2018–19.
The computation reflected depreciation on fixed assets of ₹14,09,37,557, as supported by Schedule D of the fixed assets.
The disputed depreciation of ₹4,72,179 formed part of that amount.
The Tribunal considered this material along with the submission concerning institutional use and the consistent treatment claimed for earlier years. It found the depreciation claim genuine and held that the disallowance could not be sustained.
Accordingly, the addition was deleted, and the assessee’s appeal was allowed.
Scope of the Decision Must Be Read Carefully
The decision should not be understood as establishing that every property leased out by a charitable institution automatically qualifies for depreciation.
The Tribunal granted relief on the factual record before it: the assessee’s assertion of institutional use remained unrebutted, the claim appeared in the supporting computation and asset schedule, and earlier allowance was relied upon.
The short order does not separately analyse the broader statutory treatment of depreciation where an institution has also claimed the acquisition cost as application of income.
It therefore provides a fact-specific ruling, rather than a comprehensive determination of all depreciation issues affecting registered institutions.
Author’s Comments
The useful lesson is that depreciation disputes require a clear examination of the property’s actual use, the accounting records and the precise reason for disallowance.
A fixed-asset schedule substantiates the claim’s inclusion in the accounts, while evidence of use addresses the underlying factual objection. Both deserve attention.
The order also contains a tension: the assessment narrative refers to an earlier disallowance, whereas the assessee asserted earlier allowance and the Tribunal accepted that submission as unrebutted. The earlier assessment records should therefore be checked before invoking consistency in another case.
The operative conclusion nevertheless remains clear: on the facts accepted by the Tribunal, Hamdard Laboratories’ ₹4,72,179 depreciation claim was allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the Assessee is directed against the order dated 11.3.2026 of the National Faceless Appeal Centre (NFAC), Delhi relevant to assessment year 2018-19. The solitary issue raised in this appeal is as follows:-
“The Ld. CIT(A)/NFAC erred both on facts and in law in disallowing depreciation to the tune of Rs. 4,72,179/- on an immovable property, which had been used for the activities of the institution and on which depreciation had been allowed in preceding years as well.”
2. The brief facts of the case are that the case of the assessee was selected for Compulsory Scrutiny Assessment under the E-assessment Scheme, 2019 on the issues viz. exports/imports; accumulation of income by trust; refund claim and transaction of trust with specified persons. In this case return declaring total income of Rs. NIL was filed by the assessee on 31.10.2016. Subsequently, the case was selected for complete scrutiny under CASS. The assessee trust is registered u/s. 12A of the Act. Assessee runs a manufacturing and trading business of Ayurvedic and Unani medicines. Notice u/s. 14392) of the Act was issued to the assessee on 22.9.2019, and served upon the assessee online. Notice u/s. 142(1) of the Act accompanied with questionnaire was issued on 27.2.2020 and 31.12.2020. In response to these notices assessee submitted reply and evidences online as called for. On the issue in dispute, before us, AO noted from the previous year that assessee has claimed depreciation in respect of lease out properties which was disallowed as the asset was not used for the purpose of business of the assessee as the same is earning rental income viz. license fees. Therefore, the depreciation on building (residential) held by the assessee was disallowed as in the preceding year. In appeal, Ld. CIT(A) noted that AO has observed that the depreciation of Rs. 4,72,179/- has been claimed on properties which have been lease out and which are not used for the approved activities of the assessee. Before the Ld. CIT(A) assessee has not filed any explanation or reason to show that this addition has been incorrectly made by the AO. Thus, he affirmed the action of the AO by holding that since these assets are not used by the assessee for the stated activities but have been lease out. Aggrieved, assesse is in appeal before us.
3. We have heard the rival contentions and gone through the facts and circumstances of the case. Ld.AR has submitted that assessee has rightly claimed depreciation to the tune of Rs. 4,72,179/- on an immovable property, which had been used for the activities of the institution and on which depreciation had been allowed in the preceding years as well. The said contention of the Ld. AR was not controverted by the Ld. DR Further, Ld. AR drew our attention towards the Computation of Income and its application for the year ended 2017-18 relevant to assessment 2018-19 wherein under the head Surplus as per Profit and Loss Account the depreciation on fixed assets was Rs. 140,937,557/- as per Schedule ‘D’ of fixed assets, which includes the depreciation claim of Rs. 4,72,179/-, thus, the said claim of depreciation to be allowed, by following the consistent view of previous years. In view of the aforesaid factual matrix, we find genuineness of the claim of depreciation of the assessee amounting to Rs. 4,72,179/-, thus, in our view the disallowance made by the AO and confirmed by the CIT(A) is liable to be deleted. Thus, we delete the addition in dispute.
4. In the result, the assessee’s appeal is allowed.
Order pronounced in the Open Court on 12.08.2026.
