The Visakhapatnam Bench of Income Tax Appellate Tribunal ( ITAT ) quashed the Commissioner of Income Tax (Exemption)[CIT(E)]’s order, upholding the nil income assessment for Mother Theresa Educational Society, on grounds that the assessee had properly applied its funds in compliance with the Income Tax Act,1961.
Mother Theressa Educational Society, the appellant-assessee, filed an appeal against the order of theCIT(E) under section 263 of the Act, concerning the assessment year(AY) 2018-19.
The assessee, registered under sections 12A and 80G of the Act, submitted its return of income declaring nil income after applying funds as per section 11. During the assessment under section 143(3), the Assessing Officer(AO) disallowed a depreciation claim of ₹7,95,54,942, stating that it constituted a double deduction, not permissible under section 11(6) of the Act.
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Despite disallowing the depreciation, the AO accepted the income as nil, confirming that the assessee had met the requirement of applying more than 85% of total receipts for charitable purposes.
The CIT(E), however, reviewed the assessment and deemed it erroneous and prejudicial to the interests of revenue, asserting that the AO had not adequately addressed the double deduction issue. He directed the AO to re-evaluate the assessment concerning the disallowed depreciation.
In its appeal, the assessee argued that the CIT(E)’s intervention was unnecessary, as the depreciation had already been disallowed. The assessee asserted that there was no merit in the CIT(E)’s claim that both depreciation and capital applications were allowed. Since the original assessment determined the income at nil due to the proper application of funds exceeding 85%, the appeal maintained that the order under section 263 was unjustified.
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The Division Bench of Duvvuru RL Reddy(Judicial member) and S.Balakrishnan(Accountant Member)found merit in the assessee’s arguments. It confirmed that the AO had properly disallowed the depreciation and assessed the income as nil.
Therefore, the order of the CIT(E) was quashed, and the appeal by the assessee was allowed, reaffirming the correctness of the original assessment.
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