Deprecation allowable u/s 11(6) if capital expenditure not claimed as application of income

Assessee entitled to claim deprecation u/s 11(6) if corresponding capital expenditure was not claimed as application of income – ITAT

In a recent judgment ITAT has held that assessee society was entitled to claim deprecation u/s 11(6) towards application of income in view of the fact that corresponding capital expenditure on the acquisition of the Fixed Assets was not claimed as application of income.

ABCAUS Case Law Citation:
5212 (2026) (08) abacus.in ITAT

The assessee was a charitable society registered under section 12A of the Income Tax Act, 1961 (the Act). The AO inter alia disallowed depreciation claimed on assets claimed as application of income in the return filed for the impugned year.

The AO disallowed the depreciation as application of income in terms of section 11(6) of the Act ignoring that the capital expenditure of acquisition of such fixed assets was not treated as application of income for the impugned year as well up to three preceding financial years.

Before the CIT(A), the assessee in support of his claim submitted Audited Financial Statement for the year under consideration. It was submitted that since the amount of capital expenditure had not been included in the amount of the application of the income for the year under consideration, the embargo contained in section 11(6) was not attracted in its case. 

The CIT(A) observed that the assessee had not furnished any documentary evidence in support of his contention. In the absence of satisfactory proof demonstrating that the cost of acquisition of the relevant fixed assets was not claimed as application of income in any preceding year, the bar contained in section 11(6) squarely applies.

Consequently, the CIT(A) upheld the disallowance.

Before the Tribunal the assessee contended that CIT(A) erred in concluding that the appellant failed to provide satisfactory proof that the cost of acquisition was not claimed as an application of income. The assessee submitted that the CIT(A) should have appreciated that the audited financial statements for the year under consideration demonstrated that capital expenditure was not included in the revenue application of income.

The Tribunal noted that upon verification of the documents and the facts it was clear that the assessee had not claimed the capital expenditure on the acquisition of the Fixed Assets towards the application of income towards revenue expenditure. Thus, the assessee was not claiming double deduction on the expenditure towards the fixed assets once towards application of income and again by claiming depreciation on the same.

The Tribunal opined that the assessee had claimed only depreciation on the fixed assets in respect of expenditure on the fixed assets and not towards application of income. Therefore, considering the provision of section 11(6) of the Act, the assessee was entitled for the deprecation as claimed by the assessee u/s 11(6) of the Act.

Accordingly, the Tribunal directed the AO to allow the deprecation as claimed by the assessee towards application of income.

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