M/s. Ucal Fuel Systems Ltd., CHENNAI V. ACIT, CHENNAI

CO 128/CHNY/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 5891 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 20 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 01-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: R VE NKATANARAYANAN
• Keywords: Depreciation; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) .. I.T.A. NO. 1487/MDS/2010 ASSESSMENT YEAR : 2005-06 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(3), CHENNAI 600 034. (APPELLANT) V. M/S UCAL FUEL SYSTEMS LTD., RAHEJA TOWERS, DELTA WING, UNIT 705, 177, ANNA SALAI, CHENNAI 600 002. PAN : AAACU0514K (RESPONDENT) C.O. NO. 128/MDS/2010 (IN I.T.A. NO. 1487/MDS/10) ASSESSMENT YEAR : 2005-06 M/S UCAL FUEL SYSTEMS LTD., RAHEJA TOWERS, DELTA WING, UNIT 705, 177, ANNA SALAI, CHENNAI 600 002. (CROSS OBJECTOR) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(3), CHENNAI 600 034. (RESPONDENT) REVENUE BY : SHRI P.B. SEKARAN ASSESSEE BY : SHRI R. VE NKATANARAYANAN O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEAL AND CROSS OBJECTION FILED BY THE REVENUE AND ASSESSEE RESPECTIVELY AGAINST AN ORDER DATED 23 .6.2010 OF I.T.A. NO. 1487/MDS/10 C.O. NO. 128/MDS/10 2 COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENNAI, FOR ASSESSMENT YEAR 2005-06. 2. THE CROSS OBJECTION WAS FILED BY THE ASSESSEE BE LATEDLY BY 14 DAYS. ASSESSEE HAS FILED A CONDONATION PETITION AN D THE JUSTIFICATIONS MENTIONED IN THE CONDONATION PETITION BEING REASONA BLE, THE DELAY IS CONDONED AND CROSS OBJECTION IS ACCEPTED. 3. FIRST WE TAKE UP THE REVENUES APPEAL. THE SOLE GRIEVANCE RAISED BY THE REVENUE IS THAT THE CIT(APPEALS) HELD THAT ASSESSEE WOULD BE ELIGIBLE FOR CLAIMING DEDUCTION UNDER SECT ION 80-IA OF INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) . 4. ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURIN G OF CARBURETORS AND FUEL PUMPS, HAD FILED A RETURN FOR IMPUGNED ASSESSMENT YEAR WHEREIN IT HAD CLAIMED DEDUCTION UN DER SECTION 80- IA OF THE ACT ` 85,35,842/-. THE SAID CLAIM RELATED TO UNIT SET U P BY THE ASSESSEE FOR GENERATION OF POWER. A.O. REJECTE D SUCH CLAIM FOR A REASON THAT THE SAID UNIT HAD UNABSORBED DEPRECIATI ON TO THE EXTENT OF ` 2,46,96,632/- FOR EARLIER YEARS WHICH, THOUGH SET OFF AGAINST PROFITS FROM OTHER UNITS, HAD TO BE NOTIONALLY CONSIDERED F OR THE IMPUGNED ASSESSMENT YEAR FOR THE PURPOSE OF WORKING OUT ITS ELIGIBLE DEDUCTION UNDER SECTION 80-IA OF THE ACT. THE NET EFFECT WAS THAT ASSESSEE WAS I.T.A. NO. 1487/MDS/10 C.O. NO. 128/MDS/10 3 DENIED CLAIM OF DEDUCTION UNDER SECTION 80-IA OF TH E ACT SINCE AFTER UNABSORBED DEPRECIATION WAS NOTIONALLY CARRIED FORW ARD, THERE WAS NOTHING WHATSOEVER FOR A CLAIM UNDER SECTION 80-IA OF THE ACT. 5. IN ITS APPEAL BEFORE THE CIT(APPEALS), CLAIM OF THE ASSESSEE WAS THAT THERE COULD BE NO SUCH NOTIONAL CARRY FORW ARD OF BUSINESS LOSS/DEPRECIATION. ACCORDING TO ASSESSEE, IT HAD O PTION TO CLAIM DEDUCTION UNDER SECTION 80-IA OF THE ACT FOR TEN CO NSECUTIVE YEARS OUT OF FIFTEEN YEARS FROM THE COMMENCEMENT OF GENER ATION OF POWER. AS PER THE ASSESSEE, IT HAD CLAIMED DEDUCTION ONLY FOR THE PERIOD STARTING FROM ASSESSMENT YEAR 2002-03 AND THEREFORE , THE ASSESSING OFFICER COULD NOT HAVE SET OFF ANY NOTIONAL DEPRECI ATION PERTAINING TO EARLIER YEARS WHICH STOOD ADJUSTED AGAINST PROFITS FROM OTHER UNITS IN SUCH EARLIER YEARS. THE CIT(APPEALS) WAS APPRECIAT IVE OF THIS CONTENTION AND FOR THIS PURPOSE HE RELIED ON THE DE CISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHAS WAMY SPINNING MILLS LTD. V. ACIT (2010) 231 CTR (MAD) 368. 6. NOW BEFORE US, THE LEARNED D.R., STRONGLY ASSAIL ING THE ORDER OF CIT(APPEALS), SUBMITTED THAT NOTIONAL DEPRECIATION HAD TO BE SET OFF BEFORE WORKING OUT RELIEF UNDER SECTION 80-IB OF TH E ACT. I.T.A. NO. 1487/MDS/10 C.O. NO. 128/MDS/10 4 7. PER CONTRA, LEARNED A.R. SUBMITTED THAT THE ISSU E WAS NO MORE RES INTEGRA . HE RELIED ON THE DECISION OF HON'BLE JURISDICTIO NAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS LTD. (SUPRA). 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF VE LAYUDHASWAMY SPINNING MILLS LTD. (SUPRA) HAD CLEARLY HELD THAT D EPRECIATION OF AN ELIGIBLE UNIT WHICH HAS SET OFF AGAINST OTHER INCOM E OF YEARS PRIOR TO INITIAL ASSESSMENT YEAR, COULD NOT BE NOTIONALLY CA RRIED FORWARD AND SET OFF AGAINST INCOME OF ELIGIBLE UNIT FOR THE INI TIAL ASSESSMENT YEAR BEFORE WORKING OUT DEDUCTION UNDER SECTION 80-IA OF THE ACT. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE LD. CIT(APP EALS) WAS ABSOLUTELY JUSTIFIED IN GIVING A RULING IN FAVOUR OF ASSESSEE THAT NOTIONAL UNABSORBED DEPRECIATION COULD NOT BE CARRIED FORWAR D TO SET OFF IN THE INITIAL ASSESSMENT YEAR FOR THE PURPOSE OF WORKING OUT DEDUCTION UNDER SECTION 80-IA OF THE ACT. WE DO NOT FIND ANY REASON TO INTERFERE. 9. APPEAL FILED BY THE REVENUE STANDS DISMISSED. 10. NOW WE TAKE UP THE CROSS OBJECTION OF THE ASSES SEE. THE SOLE ISSUE RAISED IN THE CROSS OBJECTION IS THAT FOR THE PURPOSE OF WORKING OUT DEDUCTION UNDER SECTION 80-IA OF THE ACT, ASSES SING OFFICER HAD I.T.A. NO. 1487/MDS/10 C.O. NO. 128/MDS/10 5 ALLOCATED ` 1,28,081/- AS COMMON EXPENSES TO THE PONDICHERRY U NIT OF THE ASSESSEE. ASSESSEE HAD ONLY MADE ALLOCATION OF EXPENSES IN RELATION TO SALARIES TO THE DIRECTORS TO THE PONDIC HERRY UNIT. THERE WAS NO ALLOCATION FOR HEAD OFFICE RENT AND ELECTRIC ITY CHARGES. THEREFORE, THE A.O. MADE THE ALLOCATION OF SUCH COM MON EXPENSES TO THE PONDICHERRY UNIT. 11. BEFORE THE CIT(APPEALS), ARGUMENT OF THE ASSESS EE WAS THAT EVEN PRIOR TO COMMENCEMENT OF PONDICHERRY UNIT, SIM ILAR EXPENDITURE WAS INCURRED AND THEREFORE, THERE COULD NOT BE ANY SUCH ALLOCATION. HOWEVER, THE CIT(APPEALS) WAS OF THE OPINION THAT T HERE COULD NOT BE INCREMENTAL BIFURCATION OF EXPENSES AND THEREFORE, THE TREATMENT OF THE A.O. WAS JUSTIFIED. 12. NOW BEFORE US, LEARNED A.R. STRONGLY ASSAILING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT THE HEAD OFFICE EXPENS ES INCURRED FOR OLD UNIT AND NEW UNIT COULD NOT BE PRO RATA DISTRIB UTED SINCE THE HEAD OFFICE EXPENSES INCURRED FOR ALL UNITS WOULD ALWAYS BE HIGHER. 13. PER CONTRA, LEARNED D.R. SUPPORTED THE ORDER OF THE CIT(APPEALS). I.T.A. NO. 1487/MDS/10 C.O. NO. 128/MDS/10 6 14. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. NOTHING HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO SHOW HOW THE HEAD OFFICE EXPENSES FOR THE OLD UNIT WAS HIGHE R THAN THE NEW UNIT OF PONDICHERRY. IN THE ABSENCE OF SUCH DETAIL S, THE A.O. HAD RESORTED TO A REASONABLE PROCEDURE IN ALLOCATING CO MMON EXPENSES IN PROPORTION OF THE TOTAL TURNOVER. WE DO NOT FIN D ANY ERROR IN SUCH ACTION OF THE ASSESSING OFFICER. THE CIT(APPEALS) WAS JUSTIFIED IN CONFIRMING THE ALLOCATION MADE BY THE A.O. NO INTE RFERENCE IS REQUIRED. THE CROSS OBJECTION IS THUS DISMISSED. 15. IN THE RESULT, REVENUES APPEAL AND CROSS OBJEC TION OF THE ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON THE TWENTY FIRST DAY OF APRIL, 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 21 ST APRIL, 2011. KRI. COPY TO: ASSESSEE/ASSESSING OFFICER/CIT(A)-III, CHE NNAI/ CIT, CHENNAI-I, CHENNAI/D.R./GUARD FILE