No Claim of Purchase of Asset as an application of Income: ITAT directs to allow Depreciation [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench directed to allow depreciation on the ground that there was no claim of purchase of asset as application of income.

The assessee, Vidya Vikas Education Trust is a Society involved in running of educational institution, duly registered under section 12A with the office of CIT(E). The assessee filed its return under section 1394A (applicable to Charitable Trust/Society) declaring Nil income. Return was filed along with Audit Report in Form No.10B, Income and Expenditure A/c, Receipt and Payment A/c and Balance-sheet. The case was selected for scrutiny under section 143(2) of the Act and a questionnaire was also issued to examine the matter.

In response to the questionnaire issued assessee furnished requisite details and produced books of accounts for verification. The books of accounts of assessee were examined along with Income and Expenditure A/c and Balance-sheet. After this examination, Assessee Officer (AO) observed that assessee has claimed depreciation amounting to Rupees six crores. AO again issued a show-cause to the assessee for disallowing this depreciation by virtue of section 11(6) of the Act inserted w.e.f. A.Y. 2015-16.

The newly inserted section 11(6) of the Act w.e.f. A.Y. 2015-16 restricts allowance of depreciation for the purposes of application of income, as this section assumes that assessee must have taken purchase of asset itself as application of income in the year, the asset was acquired. So, it will tantamount to double claim by the assessee i.e. once on the purchase itself and then depreciation thereon.

In the instant case, assessee already following the sprit and intentions of section 11(6) of the Act by not claiming purchase of asset as application of income. Section 11(6) of the Act is applicable only in those cases where assessee has already claimed purchase of asset as application of income in any of the previous years and simultaneously claiming depreciation also as application of income relying on various judicial pronouncements in their favour.

A Coram consisting of Kuldip Singh, Judicial Member and Gagan Goyal, Accountant Member observed that “We found the interpretation taken by AO as wrong and found the practice being adopted by assessee consistently as correct even after the insertion of section 11(6) of the Act. In view of above, we are not inclined to interfere in the order of CIT(A) and dismissed the appeal of Revenue and directed the AO to allow depreciation amounting to Rupees six crores as application of income.”

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