O R D E R

Per : Narender Kumar Choudhry, Judicial Member:

This appeal has been preferred by the Assessee against the order dated 05.02.2025, impugned herein, passed by the National Faceless Appeal Centre (NFAC)/Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2020-21.

In this case, the Assessee has claimed depreciation amounting to Rs.33,03,108/- bifurcating the fixed assets into two parts i.e. (i) fixed assets which have been acquired out of funds accumulated under section 11(2) on which depreciation is not allowable since under section 11(2), accumulation has already been considered as application of income in earlier years, secondly, the fixed assets which have been acquired with the funds other than from funds accumulated under section 11(2), cost of which have not been considered as application of income in the year of acquisition and therefore, the same is allowable for deduction under section 11(6) of the Act.

The AO though considered the said claim of the Assessee however, by observing that the Assessee’s explanation was relevant before insertion of Section 11(6) of the Act vide Finance Act No.2/2014 which became effective from A.Y. 2015-16, whereas, in this case the relevant assessment year being 2020-21 which is subsequent to assessment year 2015-16, the provisions of section 11(16) of the Act is applicable. Accordingly, the said amount of claim of depreciation is not allowable. The AO thus, on the aforesaid reasons made the disallowance of Rs.33,03,108/- and added to the income of the Assessee.

The Assessee, thus being aggrieved, challenged the said addition/disallowance by filing first appeal before the Ld. Commissioner and claimed inter-alia that section 11(6) clearly states that depreciation shall not be allowed on those assets, which have been treated as application of income in earlier years. Further, section 11 of the Act restricts the trust to claim application of income only to the extent of income available, unlike a commercial organization. There is a fundamental difference between charge against income and application of income. The Assessee Trust has segregated assets into two schedules, i.e., (i) assets acquired from income subject to obligation, and (ii) assets acquired from sources other than income. Therefore, the Assessee claimed depreciation against assets acquired from sources other than income, which is permissible under section 11(6). The Assessee also claimed some assets may appear in both the schedules. Further, the Assessee has claimed that it has claimed the depreciation only in respect of assets, which were not acquired through accumulation of income. Whereas, the depreciation against assets acquired by accumulation income under section 11(2) was Rs.52,04,734/-, which has not been claimed as expense and therefore, the Assessee’s case was not hit by the provisions of section 11(6) of the Act.

The Ld. Commissioner though considered the claim of the Assessee, however, not being satisfied with the same, ultimately affirmed the disallowance made by the AO and dismissed the appeal of the Assessee by observing and holding as under:-

5.4 The submission made by the appellant and contents of the assessment order has been considered. The appellant's submission making artificial separation of the assets into two categories viz. assets acquired from income subject to application and assets acquired from sources other than income is not correct. Whatever the assets acquired by the Trust will be out of the total receipts of the Trust only, which were claimed either as application of income or accumulation of income each year as per the convenience of the Trust. In view of that appellant's submission stating that it has only claimed depreciation against assets purchased from non-accumulation of income not against assets acquired from accumulated income is hereby rejected. Apart from that, bar