Depreciation Disallowed Without Verifying Application of Income: ITAT Restores Rs. 26.84 Lakh Addition Matter [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) restored the matter to the file of the Assessing Officer for fresh verification in a case where depreciation was disallowed under Section 11(6) of the Income Tax Act without verifying whether the cost of acquisition of assets was claimed as application of income.

Indian Institute of Information Technology Society Vadodara, (assessee) established under Public-Private Partnership by the Ministry of Human Resource Development (MHRD), challenged the disallowance of depreciation amounting to Rs. 26,84,786 under Section 11(6) for the Assessment Year 2017–18.

The Assessing Officer had disallowed the depreciation on the ground that the cost of acquisition of the assets had already been claimed as application of income under Section 11 of the Income Tax Act.

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Aggrieved by the order of AO, the assessee filed an appeal before the Commissioner of Income Tax (appeals). The assessee argued that the depreciation should not be disallowed because the acquisition of assets had not been claimed as application of income in the present or earlier years.

The assessee also submitted a Chartered Accountant’s certificate to substantiate that the cost of fixed assets was never claimed as application of income. However, the CIT(A) dismissed the appeal, holding that under Section 11(6) disallowed depreciation on such assets to prevent dual benefits.

Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the Tribunal. The counsel for the assessee highlighted that the lower authorities failed to examine the factual assertion that the cost of the assets had not been claimed as application of income.

The two-member bench comprising Siddhartha Nautiyal (Judicial Member) and Narendra Prasad Sinha (Accountant Member) held that Section 11(6) disallows depreciation only in respect of assets whose acquisition cost was claimed as application of income.

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The Tribunal observed that the important aspect of whether the assets were ever claimed under application of income was not verified.

The tribunal referred to the assessee’s submissions and the CA certificate on record and the Tribunal observed that the lower authorities failed to verify the factual position from records and passed the order without appreciating this key contention.

The Tribunal restored the matter to the Assessing Officer with a direction to verify whether the assessee claimed the cost of acquisition of the assets as application of income in the current or earlier assessment years.

The appeal of the assessee was allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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