www.taxscan.in - Simplifying Tax Laws IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH “ C ” BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T.A. No.1268/Bang/2016 (Assessment Year : 2005-06) Dy. Commissioner of Income Tax, Vs. M/s. Agricultural Produce Circle – 1, Shivamogga. Market Committee, Sagar Road, Shivamogga. Appellant Respondent.

Appellant By : Dr.Shankar Prasad K, JCIT (D.R) Respondent By : Smt. Sheetal, Advocate. Date of Hearing : 16.08.2016. Date of Pronouncement : 31.8.2016. O R D E R Per Shri Vijay Pal Rao, J.M. : This appeal by the revenue is directed against the order dt.29.2.2016 of Commissioner of Income Tax (Appeals), Davangere for the Assessment Year 2005-06. 2.

The revenue has raised the following grounds : “1. The order of the CIT (Appeals), Davangere is opposed to the law and not on the facts and circumstances of the case. 2. The CIT (Appeals), Davangere, erred in nullifying the order under Section 143(3) rws 263 dt.27.12.2010, since the Department has filed appeal before the Hon'ble High Court of Karnataka against the order

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of the ITAT cancelling the order under Section 263 passed by the CIT, Davangere and the same is pending. 3. Depreciation is not allowable since the assessee is deriving income from other sources and not doing any business and also the assessee is a registered charitable trust. Allowing the depreciation amounts to double deduction. 4. For these reasons the order of the CIT (Appeals) may be reversed and that of the Assessing Officer may be restored. 5. For these and other grounds that may be urged upon, the order of the CIT (Appeals) may be reversed and that assessment order be restored. 6. The appellant craves leave to add, alter, amend or delete any other grounds on or before hearing of the appeal.” 3. This appeal is arising from the assessment order passed in pursuant to the revision order of CIT (Appeals) under Section 263 of the Income Tax Act, 1961 (in short 'the Act'). 4.

I have heard the learned Departmental Representative as well as learned

Authorised Representative and considered the relevant material on record. At the outset it is noted that the revision order passed under Section 263 of the Act

was quashed by this Tribunal vide order dt.10.3.2011 in ITA

No.652/Bang/2010. Therefore consequential order passed by the Assessing Officer would not survive when the revision order itself has been quashed. The CIT (Appeals) has decided the matter in favour of the assessee by following the order of this Tribunal (supra). The relevant finding of the impugned order of the CIT (Appeals) is given in paras 4a to 7 as under : “4a. In the meantime, disillusioned with the order of the CIT, Davangere, who cancelled the order passed earlier by the Assessing Officer under Section 143(3), the assessee went in appeal before the ITAT seeking relief against the order

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under Section 263 of the Act. The Hon'ble ITAT vide order in ITA No.652/Bang/2010 dt.10.3.2011 reversed the stand of the CIT, Davangere, i.e. ITAT held that allowing of depreciation to the assessee by the Assessing Officer was not correct. The following is the observation of the ITAT : “ We have already stated in paragraph above that when no specific rule is suggested for computing the income of an assessee, the generally accepted principles of accountancy has to be applied for in computing its income. Therefore, the assessee being a charitable institution is entitled to work out its income as in the case of any other entity and based on generally accepted principles and practices of accountancy which provide for deduction of depreciation allowance as well. This being the case, the Commissioner of Income-tax is not justified in holding that the assessee is not entitled to claim depreciation allowance on the ground that section 32 is not applicable to the assessee. We hold that even if section 32 does not apply to the assessee, it is entitled for claiming depreciation allowance as it is entitled to follow the generally accepted principles and practice of accountancy in computing its income. In his order, the Commissioner of Income-tax has mentioned that the assessee is deriving income from other sources like Market Fees, Leave and Licence Fees, Interest on Bank Deposits and other receipts, marketing of agricultural commodities etc., The law has prescribed specific rules for computation of income from other sources in Part 'F' under Chapter IV of the IT Act, 1961 running from sections 56 to 59. Section 57 provides for deduction allowable in computing income under other sources. Clause (ii) of section 57 provides for depreciation u/s.32(2). It shows that even in computing the income from other sources, the assessee is entitled to claim depreciation u/s.32(2). This crucial aspect also was not examined by the Commissioner of Income-tax in the right perspective. Therefore, we find that the Assessing Officer has rightly allowed the deduction of Rs.2,26,57,709/- as depreciation allowance in computing the income of assessee trust.”

5. As regards the second issue whichis about disallowance of 15% accumulation at Rs.1,00,19,901 for assessee's failure to comply with relevant rules, the ITAT has held a view disapproving the view of the CIT, Davangere. The relevant observation of the ITAT is reproduced verbatim herein below : “ The next point made out by the Commissioner of Income-tax is accumulation of income amounting to `.1,00,19,901/-. Section 11(1)(a) provides for the rules regarding accumulation of income only if the assessee does not expend 85% of its income. It means that for accumulating 15% of its income, the assessee need not comply with any rules and seek the prior approval of the assessing authority. Again to elaborate this position, it is to be seen that 15% of the income is permitted for accumulation by the statute itself without any conditions. Therefore, it is possible to qualify the same 15% as statutory accumulation provided in the Act without adhering to any procedure and rules. In the present case, the assessee has already spent 85% of its income. It has accumulated only 15% of the income which is permissible u/s.11(1)(a) of the Act. Therefore, the assessing authority is justified in accepting the said 15% statutory accumulation made by the assessee. The finding of the Commissioner of Income-tax on this point is also not sustainable in law.”

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6. Thus, the ITAT has cancelled the revision order passed under Section 263 by the CIT, Davangere and allowed the appeal of the assessee in its favour. 7. In as much as order under Section 263 passed by the CIT, Davangere which has given rise to the order under Section 143(3) rws 263 has been cancelled, this order (u/s.143(3) rws 263) fails to survive. Accordingly, the appeal is disposed as allowed in favour of the appellant.” 5.

The learned Departmental Representative has not disputed this fact that

the revision order has been quashed by this Tribunal. However the revenue is pursuing the matter before the Hon'ble High Court. In the absence of any stay or revision of the order of this Tribunal dt.10.3.2011, I do not find any substance in the appeal of the revenue. Accordingly, the impugned order of the CIT (Appeals) is upheld. 6.

In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 31.08.2016.

Sd/(VIJAY PAL RAO) JUDICIAL MEMBER *Reddy gp