Case Law Details
Dr. Chandrashekar Foundation Vs CIT (ITAT Bangalore)
With regard to issue relating to repayment of loan, we modify the direction of the CIT (Exemptions) and direct the A.O. to examine this claim afresh i.e. if the cost of assets acquired out of loan funds have already been allowed as application of income, then the repayment of loan should not be allowed as application. On the contrary, if the cost of assets purchased out of loan was not allowed as application of income, then the repayment of loan should be allowed as application of income.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The assessee has filed this appeal challenging the revision order dated 17.3.2015 passed by Ld. CIT(Exemptions) u/s 263 of the Income-tax Act,1961 [‘the Act’ for short] for the assessment year 2010-11.
2. The appeal is barred by limitation by 396 days. The assessee has filed an affidavit requesting the bench to condone the delay. In the affidavit, it is stated that the assessee’s income tax matters were handled by a Chartered Accountant named Shri B.S. Ravi Kumar.
It is stated that he did not advise the assessee to challenge the revision order passed by Ld. CIT(Exemptions). When the assessee approached the present counsel, he was advised to challenge the revision order. Accordingly, the present appeal came to be filed by the assessee before the Tribunal. The assessee has also filed an affidavit furnished by Shri Ravi Kumar, Chartered Accountant. Accordingly, we are of the view that there is reasonable cause for the delay in filing appeal before the Tribunal. Accordingly, we condone the delay and admit the appeal.
3. The facts relating to the case are stated in brief. The assessee is a trust and it filed return of income for the year under consideration on 27.9.2010 declaring Nil income after claiming exemption u/s 11 of the Act. The assessment was completed by the A.O. u/s 143(3) of the Act on 24.1.2013. Subsequently, the Ld. CIT (Exemptions) examined the assessment record and took the view that the assessment order passed by the A.O. is erroneous and prejudicial to the interest of the revenue. The issues considered by Ld CIT(E) and his reasoning are narrated below:-
a) The assessee has claimed depreciation amount of Rs.1,36,89,422/- in its income and expenditure account. The Ld CIT(A) took the view that the same is not allowable as deduction, since the entire cost of fixed assets has been allowed as “application of income”.
b) The assessee has claimed repayment of loan of Rs.55,71,420/- as application of income. The Ld CIT(A) took the view that, since the fixed assets which were purchased out of the loan had already been allowed as deduction, repayment of loan cannot be allowed as deduction.
Accordingly, the Ld. CIT(Exemptions) initiated the present revision proceedings u/s 263 of the Act. After hearing the assessee, the LD. CIT(Exemptions) passed the impugned order holding that the assessment order is erroneous and prejudicial to the interest of the revenue. Accordingly, he directed the A.O. to recompute the income for assessment year 2010-11 disallowing the claim of depreciation and also repayment of loan. Aggrieved, the assessee has filed this appeal before us.
4. We heard the parties and perused the record. The issue relating to depreciation i.e. whether depreciation is allowable on fixed assets, whose cost have been allowed as application of income has since been settled by Hon’ble Supreme Court in the case of CIT Vs. Rajasthan & Gujarat Charitable Foundation, Pune (2018) 402 ITR 441, wherein the Hon’ble Supreme Court has held that the depreciation can be treated as application of income even if the expenditure on acquisition of capital asset was treated as application of income. We notice that the Income tax Act has been amended from AY 2015-16 disentitling the assessee to claim depreciation on assets, whose cost has been allowed as application of income. Since the year under consideration is AY 2010-11, the decision rendered by Hon’ble Supreme Court is applicable to the facts of the present case. Since the view taken by Ld. CIT(A) is contrary to the binding decision rendered by Hon’ble Supreme Court, his view on this issue cannot be sustained. Accordingly, we set aside his order on this issue.
5. The next issue relates to the question whether “repayment of loan” is application of income or not. We noticed that the Ld. CIT (Exemptions) has taken the view that if the asset acquired out of loan proceeds had been allowed as application of income, then the repayment of loan cannot be considered as application of income again, as the same will result in double deduction. We notice that the A.O. has not examined this issue during the course of assessment proceedings. Hence we are of the view that there is merit in initiation of revision proceedings on this issue. However, we notice that the Ld CIT(A) has directed the AO not to consider “repayment of loan” as application of income without giving a finding whether the cost of asset acquired out of loan funds were allowed as application of income or not. Hence his direction given on this issue requires modification.
6. In view of the foregoing discussion, we quash the order of Ld. CIT(Exemptions) with regard to issue relating to depreciation. With regard to issue relating to repayment of loan, we modify the direction of the CIT (Exemptions) and direct the A.O. to examine this claim afresh i.e. if the cost of assets acquired out of loan funds have already been allowed as application of income, then the repayment of loan should not be allowed as application. On the contrary, if the cost of assets purchased out of loan was not allowed as application of income, then the repayment of loan should be allowed as application of income. We modify the directions given by Ld. CIT(Exemptions) accordingly.
7. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 1st Nov, 2021.
