STARFLEX SEALING INDIA P.LTD, MUMBAI V. ITO WD 7(2)(4), MUMBAI

CO 223/MUM/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1039 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-06-2015
• Appeal Filed By: Assessee
• Bench Allotted: E
• Next Hearing Date: 08-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 20-10-2014
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 43B; 32

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & MS. SUSHMA CHOWLA , J M ./ I TA NO S . 5354 &5455 / MUM/20 1 3 ( / ASSESSMENT YEAR : 200 9 - 2010 & 2010 - 11 ) ITO - 7(2)(4), MUMBAI - 20 VS. M/S STARFLEX SEALING INDIA PVT. LTD., 124, NAGDEVI STREET, NAGDEVI, MUMBAI - 400003 ./ ./ PAN/GIR NO. : A AACN 1679 B ( / APPELLANT ) .. ( / RESPONDENT ) CROSS OBJECTION NO. 223 &224 / MUM/20 1 4 (ARISING OUT OF ITA NO.5354 &5355 /MUM/2013) ( / ASSESSMENT YEAR :2009 - 2010 & 2010 - 11 ) M/S STARFLEX SEALING INDIA PVT. LTD., 124, NAGDEVI STREET, NAGDEVI, MU MBAI - 400003 VS. ITO - 7(2)(4), MUMBAI - 20 ./ ./ PAN/GIR NO. : A AACN 1679 B ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI NEIL PHILIP /ASSESSEE BY : SHRI SUNIL HIRAWAT / DATE OF HEARING : 08 /0 6 / 2015 / DATE OF PRONOUNCEMENT 08 /06 /2015 / O R D E R PER R.C.SHARMA (A.M) : THE REVENUE HAS FILED APPEAL S AND THE ASSESSEE HAS FILED CROSS OBJECTION S AGAINST THE ORDER CIT (A), FOR THE ASSESSMENT YEAR 2009 - 2010 & 2010 - 2011 . THE REVENUE IN ITS APPEAL S HAS TAKE N THE FOLLOWING GROUNDS : - I) THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE SET OFF THE UNABSORBED DEPRECIATION PERTAINING TO A.Y. 2000 - 01 BEYOND 8 YEARS WI THOUT PROPERLY APPRECIATING THE FACTUAL AND LEGAL MATRIX AS CLEARLY BROUGHT OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. ITA NO S . 5354&5355 /1 3 A ND CO NO.223&224/14 2 II) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS - IN ALLOWING THE SET OFF THE UNABSORBED DEPRECIATION PERTAINING TO A.Y. 2000 - 01 BEYOND 8 YEARS WITHOUT APPRECIATING THE FACTS THAT AS PER APPLICABLE PROVISION OF SECTION 32(2), IN RESPECT OF A.Y. 2000 - 01, THE ASSESSEE WAS ALLOWED TO CARRY FORWARD THE SAID UNABSORBED DEPRECIATION FOR THE PERIOD OF 8 YEARS ONLY AND THE AMENDMEN T INTRODUCED W.E.F. 01.04.2002 IS PROSPECTIVE AND APPLICABLE TO UNABSORBED DEPRECIATION PERTAINING TO A.Y. 2003 - 04 ONWARD. 2 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ASBESTOS & NON - ASBESTOS SHEET, SPIRAL WOUND GAS KET & PACKING ASBESTOS AND NON - ASBESTOS, ETC.. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME AT RS.NIL UNDER THE NORMAL PROVISIONS OF INCOME - T AX ACT AND BOOK PROFIT U/S.115JB AT RS.22,57,598/ - . IN THE SAID RETURN OF INCOME, THE ASSESSEE CLAIMED SET OFF OF UNABSORBED DEPRECIATION OF RS.81,79,076/ - (TO THE EXTENT OF INCOME) PERTAINING TO THE ASSESSMENT YEAR 2000 - 01. HOWEVER, THE AO DID NOT ALLOW S ET OFF OF UNABSORBED DEPRECIATION OF A.Y.2000 - 01 STATING THAT THE SAID DEPRECIATION LOSS TO BE CARRIED FORWARD TO 8 YEARS ONLY. FURTHER THE AO HAD ALSO MADE VARIOUS DISALLOWANCES/ADDITIONS AND DETERMINED THE GROSS ASSESSED INCOME AT RS.84,44,419/ - WHICH HA S BEEN SET OFF AGAINST THE UNABSORBED DEPRECIATION (TO THE EXTENT OF INCOME) OUT OF THE ASSESSMENT YEARS 2002 - 03 & 2003 - 04. 3 . IN APPEAL, THE CIT(A) ALLOWED THE SET OFF OF UNABSORBED DEPRECIATION PERTAINING TO A.Y.2000 - 01 AFTER HAVING THE FOLLOWING OBSERVA TIONS : - 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE. THERE WAS AMENDMENT IN SECTION 32(2) OF THE ACT W.E.F.1 - 4 - 2002. AS PER UNAMENDED PROVISIONS THE UNABSORBED DEPRECIATION OF EARLIER YEARS COULD BE CARRIED FORWARD TO A MAXIMUM OF EIGHT ASSESSM ENT YEARS AND SET OFF AGAINST INCOME OF THOSE EIGHT ASSESSMENT YEARS. AFTER ITA NO S . 5354&5355 /1 3 A ND CO NO.223&224/14 3 LAPSE OF EIGHT ASSESSMENT YEARS, NO CARRY FORWARD AND SET OFF WAS ALLOWED. HOWEVER, AFTER AMENDMENT THIS CONDITION OF EIGHT ASSESSMENT YEARS HAS BEEN REMOVED AND UNABSORBED DEPRECI ATION IS REQUIRED TO BE CONSIDERED AS PART OF NEXT / SUBSEQUENT ASSESSMENT YEARS, DEPRECIATION AND ALLOWED AS SUCH. IF THERE IS NO SUCH INCOME FOR ADJUSTMENT OF SUCH UNABSORBED DEPRECIATION, SUCH UNABSORBED DEPRECIATION HAS BEEN ALLOWED TO BE CARRIED FORWA RD FOR SUBSEQUENT ASSESSMENT YEARS WITHOUT ANY RESTRICTIONS OF ANY YEARS. THE DISPUTE WAS AS TO WHETHER OR NOT THE UNABSORBED DEPRECIATION OF ASSESSMENT YEARS PRIOR TO AY 2000 - 01 IS ALLOWED TO BE CARRIED FORWARD AND SET OFF AGAINST THE INCOME OF SUBSEQUENT YEARS IN VIEW OF AMENDMENT MADE IN SECTION 32 OF THE ACT. THIS DISPUTE AROSE IN VARIOUS CASES. THE ITAT SPECIAL BENCH MUMBAI IN - THE CASE OF M/ S. TIMES GUARANTY LTD. DISCUSSED THIS ISSUE AND DIVIDED THE UNABSORBED DEPRECIATION IN THREE PARTS I.E. (I) UN ABSORBED DEPRECIATION PERTAINING TO THE ASSESSMENT YEAR UP TO AY 1996 - 97; (II) PERTAINING TO ASSESSMENT YEAR 1997 - 98 TO AY 2001 - 02 & (III) DEPRECIATION PERTAINING TO ASSESSMENT YEAR FROM AY 2002 - 03 ONWARDS. THE SPECIAL BENCH HELD THAT THE UNABSORBED DEPRECIATION FOR THE SECOND PERIOD I.E. FOR AY 1997 - 98 TO AY 2001 - 02 CAN BE CARRIED FORWARD AND SET OFF FOR A MAXIMUM PERIOD OF EIGHT ASSESSMENT YEARS AND SUBSEQUENTLY IT COULD NOT BE SET OFF AGAINST INCOME OTHER THAN BUSINESS INCOME. AS PER DECISION OF !TAT SPECIAL BENCH., MUMBAI IN THE CASE OF M/S . TIMES GUARANTY LTD., THE APPELLANT'S DEPRECIATION FOR AY 2000 - 01 WAS NOT ALLOWABLE TO BE SET OFF AGAINST THE INCOME OF YEAR UNDER CONSIDERATION. HOWEVER, THEREAFTER THE GUJARAT HIGH COURT IN THE CASE OF M/ S. GENERAL MOTORS INDIA PVT. LTD. 257 ITR 123 HAS HELD THAT. - 'I) AMENDMENT TO SEC.32(2) BY FINANCE ACT 2001 IS APPLICABLE FROM A. Y.2002 - 03 AND SUBSEQUENT YEARS. THEREFORE, UNABSORBED DEPRECIATION FROM A. Y 97 - 98 UPTO A. Y 2001 TO GOT CARRIED FORWARD TO TH E A. Y.2002 - 03 AND BECOME PART THEREOF', II) IT CAME TO THE GOVERNED BY THE PROVISIONS OF SEC.32(2) AS AMENDED BY FINANCE ACT 2001 AND WAS AVAILABLE FOR CARRY FORWARD AND SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS, WITHOUT ANY LIMITS W HATS OE V ER.' THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS P. LTD. IS SUBSEQUENT TO THE DECISION OF. ITAT SPECIAL BENCH, MUMBAI. HOWEVER, WHILE ADJUDICATING THE ISSUE, THE DECISION OF ITAT SPECIAL BENCH, MUMBAI HAS NOT BEEN CONSIDERE D BY THE ITA NO S . 5354&5355 /1 3 A ND CO NO.223&224/14 4 GUJARAT HIGH COURT. HOWEVER, BEING A HIGHER JUDICIAL FORUM / AUTHORITY, THE DECISION OF GUJARAT HIGH COURT IS REQUIRED TO BE FOLLOWED. THERE IS NO ANY CONTRARY DECISION OF ANY OTHER HIGH COURT ON THIS ISSUE. IN VIEW OF ABOVE AND FOLLOWING THE AB OVE DECISION OF GUJARAT HIGH COURT, THE AO IS DIRECTED TO ALLOW SET OFF OF UNABSORBED DEPRECIATION OF ASSESSMENT YEAR 2000 - 01. THIS GROUND OF APPEAL IS THEREFORE, ALLOWED. AGAINST THIS ORDER OF CIT(A), THE REVENUE IS IN APPEAL S BEFORE US AGAINST ALLOW ING SET OFF OF DEPRECIATION AND THE ASSESSEE IS IN CROSS OBJECTION S AGAINST THE CONFIRMATION OF ADDITION SO MADE BY THE AO ON ACCOUNT OF ESIC CONTRIBUTION FOR THE ASSESSMENT YEARS 2009 - 10 & 2010 - 2011 . 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE THROUG H THE ORDERS OF AUTHORITIES BELOW. THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF M/S GENERAL MOTORS PVT. LTD., 257 C TR 123, BY RELYING ON WHICH CIT(A) HAS ALLOWED SETTING OFF OF DEPRECIATION. HENCE, THERE IS NO INFIRMITY IN THE ORDER OF CIT(A). ACCORDINGLY, WE DISMISS THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2009 - 2010. 6. IN THE CROSS OBJECTION, THE ASSESSEE IS AGGRIEVED FOR DISALLOWANCE OF RS.25,850/ - BEING AN AMOUNT OF ESI C CONTRIBUTION FOR THE ASSESSMENT YEAR 2009 - 2010. THE CIT(A) HAS CONFIRMED THE DISALLOWANCE BY OBSERV ING THAT IT WAS NOT PAID BEFORE THE DUE DATE AS PER ESIC REGULATIONS. WE FOUND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CAS E OF GHATGE PATIL TRANSPORTS LTD., 368 ITR 749 , WHEREIN IT WAS HELD THAT THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION ITA NO S . 5354&5355 /1 3 A ND CO NO.223&224/14 5 OF CONTRIBUTIONS TO THE EMPLOYEES WELFARE FUND ONLY IF THE CONTRIBUTION STOOD CREDITED ON OR BEFORE THE DUE DATE AND NOT OTHERWISE. UPON R EPRESENTATIONS TO THE MINISTRY OF FINANCE BY INDUSTRIES TO REMOVE THIS ANOMALY AN AMENDMENT WAS INSERTED WHICH CAME INTO FORCE WITH EFFECT FROM APRIL 1, 2004, AND TWO CHANGES WERE MADE IN SECTION 43B OF THE INCOME - TAX ACT, 1961, FIRSTLY, BY DELETING THE SE COND PROVISO AND FURTHER AMENDMENT IN THE FIRST PROVISO. IN THIS MANNER, THE AMENDMENT PROVIDED BY THE FINANCE ACT, 2003, PUT ON PAR THE BENEFIT OF DEDUCTIONS OF TAX DUTY, CESS AND FEE ON THE ONE HAND WITH CONTRIBUTIONS TO VARIOUS EMPLOYEES WELFARE FUNDS ON THE OTHER. IN THE INSTANT CASE BEFORE US , THE ASSESSEE HAS PAID THE CONTRIBUTION BEFORE THE LAST DATE OF FINDING OF RETURN. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE DISALLOWANCE. 7. IN THE GROUNDS OF APPEAL OF THE REVENUE AND THE GROUNDS RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION FOR THE ASSESSMENT YEAR 2010 - 2011 ARE SAME AS DISCUSSED ABOVE, FOLLOWING THE REASONING GIVEN FOR THE ASSESSMENT YEAR 2009 - 2010, WE DISMISS BOTH APPEALS OF THE REVENUE AND ALLOW THE CROSS OBJECTIONS OF THE ASSESSEE. 8 . IN TH E RESULT, BOTH APPEAL S OF THE REVENUE ARE DISMISSED AND CROSS OBJECTIONS OF THE ASSESSEE ARE ALLOWED . O RDER PRONOUNCED IN THE OPEN COURT ON THIS 08 /06 / 201 5 . SD/ - SD/ - ( ) ( SUSHMA CHOWLA ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 08 /06 /201 5 . . /PKM , . / PS ITA NO S . 5354&5355 /1 3 A ND CO NO.223&224/14 6 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APP ELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY/