Depreciation Cannot be Allowed if Cost of Acquisition Claimed: ITAT Remands for Verification of S.11(6) Compliance [Read Order]
Observing that Section 11(6) of the Income Tax Act disallows depreciation if the cost of the asset was previously claimed as an application of income, the Tribunal restored the matter to the AO to verify whether the assessee had complied with the said provision.
Dpreciation - ITAT - taxscan
Dpreciation - ITAT - taxscan
The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) remanded to the Assessing Officer (AO) to verify the factual claim that the cost of the depreciated assets had not been claimed as application of income in the past.
Mithra (Madras Institute To Habilitate Retarded Afflicted) (assessee) is a trust registered under Section 12A of the Income Tax Act. For AY 2016-17, the trust filed its return of income, declaring a total income of 'Nil'. The assessee had claimed an expenditure of ₹93,52,302 towards revenue expenditure from gross receipts of ₹98,76,907.
During the assessment proceedings, the AO noted that the assessee had claimed depreciation of ₹20,94,730 as a deduction from gross income. The AO observed that the assessee's gross income was ₹1,19,71,637, but only ₹98,76,907 was admitted, with the remaining ₹20,94,730 being claimed as depreciation.
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The AO held that the assessee was not eligible to claim depreciation, citing Section 11(6) of the Act, and completed the assessment under Section 143(3). Aggrieved by the AO’s order, the assessee appealed to the Joint Additional Commissioner of the Income Tax (appeals)[JCIT(A)].
The assessee argued that the AO erred in disallowing the depreciation. The assessee further submitted that capital expenditure of ₹40,08,670 incurred in the current year ought to be allowed as an application of income.
The CIT(A) held that Section 11(6) of the Act barred the claim for depreciation on assets whose cost had been allowed as an application of income in the current or previous years. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.
The counsel for the assessee submitted that the cost of assets was never claimed as an application of income under Section 11, asserting that the assets were purchased out of capital funds. The counsel submitted that the depreciation claimed shouldn't be disallowed under Section 11(6) under the Income Tax Act.
The two-member bench, comprising George George K (Vice President) and S.R. Raghunatha (Accountant Member), observed that Section 11(6), inserted with effect from 01.04.2015, clearly states that depreciation won't be allowed if the cost of acquisition has been allowed as an application of income.
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The Tribunal ruled that the fact needs to be verified by the AO by noting the assessee's submission that the cost of the asset was not claimed as an application of income.
The bench directed the AO to re-examine whether depreciation had been claimed on assets for which the cost was allowed as an application of income in the past or in the relevant assessment year. The appeal filed by the assessee was allowed for statistical purposes.
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