Depreciation Income not claimed as Corresponding Deferred Grant Income was included as Receipts u/s 11: ITAT directs Re adjudication [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) directed re-adjudication as depreciation income was not claimed, given that corresponding deferred grant income was included as receipts under Section 11 of the Income Tax Act, 1961

The Assessee is a Trust registered under section 12A of the Income Tax Act as a scientific and industrial research organization. For the Assessment Year 2021-22, the return of income was filed on 27.2.2021 declaring nil income. The assessment was selected for scrutiny and notice under section 143(2) of the Income Tax Act was issued on 29.06.2021.

The assessee was directed to justify the claim of exemption under section 12A/12AA of the Act. In reply to the show cause notice dated 30.11.2022, assessee submitted a response dated 06.12.2022 wherein valid registration under section 12AA of the Act was brought to the notice of the AO. The AO completed the Assessment Order vide order dated 20.12.2022 under section 143(3) r.w.s. 144B of the Act

The AO stated that assessee is eligible for exemption under Section 11 of the Income Tax Act. However, the AO held that assessee a sum of Rs.83,64,55,006/- claimed as depreciation in the return of income filed for Assessment Year 2021-22 is not an allowable expense under Section 11 of the Income Tax Act.

The CIT(A) confirmed the view taken by the AO. The CIT(A) held that assessee was provided with ample opportunity to prove its point through various notices and since no submissions were made by the assessee, a sum of Rs.83,64,55,006/- claimed as depreciation is not allowable expense under Section 11 of the Income Tax Act.

The counsel for the assessee Sunaina Bhatia submitted that assessee has not claimed application of income towards depreciation as corresponding income shown under the head “deferred grant income” was also included in receipts under Section 11 of the Income Tax Act and therefore both the receipts and depreciation mutually cancel out the effect of each other on determination of income and application under Section 11 of the Income Tax Act.

The bench submitted that it has not claimed application of income towards depreciation as corresponding income shown under the head “deferred grant income” was also included in the receipts under section 11 of the Income Tax Act. If the aforesaid contention of the assessee is true, then the assessee has not claimed depreciation allowance as application of income as both receipts and depreciation mutually cancel out the effect of each other

The claim of depreciation has been disallowed by the AO as well as the CIT(A) since there was no response to the show cause notices issued.

In the interest of justice and equity, accordingly, the two member bench consisting Chandra Poojari ( Accountant member ) and George George K ( Vice President ) restored the matter to the files of the AO. The assessee is directed to cooperate with the Revenue and shall not seek unnecessary adjournment. Accordingly appeal filed by the assessee was allowed

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