COMMISSIONER OF INCOME TAX I V. ITEGRA ENGINEERING INDIA LTD

TAXAP/380/2013

AI Insights

The case revolves around the dispute concerning the carry forward of unabsorbed depreciation by ITEGRA Engineering India Ltd. for the assessment year 2007-08. The Commissioner of Income Tax, Vadodara, initially found the assessment order erroneous and prejudicial to the interests of the revenue, leading to a revision under section 263 of the Income Tax Act. This revision was contested by the assessee before the ITAT, which set aside the Commissioner's order, citing a binding precedent from the Gujarat High Court in the General Motors case. The revenue's appeal to the High Court was dismissed, affirming the ITAT's decision and the applicability of the amended section 32(2) of the Income Tax Act, which allows for the carry forward of unabsorbed depreciation without the eight-year limit.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 728585 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 09-12-2013
• Assessment Year: misc
• Other Referred Cases: General Motors India (P) Ltd Vs. Deputy Commissioner of Income Tax
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: K M PARIKH
• Keywords: Change of opinion; Erroneous order; Prejudicial to the interests of the revenue; Revision of Assessment; Unabsorbed depreciation
• Section: 143(3); 263; 32(2)

Judgement Text

"O/TAXAP/380/2013 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 380 of 2013 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.P.DHOLARIA ============================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ============================================= COMMISSIONER OF INCOME TAX I Versus ITEGRA ENGINEERING INDIA LTD ============================================= Appearance: MR KM PARIKH, ADVOCATE for the Appellant ============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.P.DHOLARIA Date : 09/12/2013 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) Page 1 of 15 O/TAXAP/380/2013 JUDGMENT [1] Feeling aggrieved and dissatisfied with the order dated 19.10.2012 passed by the learned Income Tax Appellate Tribunal (hereinafter referred to as “ITAT”) in ITA No.1120/Ahd/2012 for A.Y. 2007-08, the revenue has preferred the present Tax Appeal to consider the following proposed substantial questions of law. (A) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in quashing the order u/s.263 of the Act holding that the review of assessment was merely on change of opinion, without appreciating that the revision of assessment was not merely an interference or change of opinion, but the revision was made for the correct interpretation of law? (B) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and facts in holding that the amendment brought in section 32(2) of the Income Tax Act w.e.f. 01/04/2002 (A.Y. 2002-03) is applicable to the present case, without appreciating that the unabsorbed depreciation in the case pertained to A.Y.1997-98 and 1998-99, which are being governed by the provisions of section 32(2) of the Income Tax Act as amended by the Finance Act No.2, 1996 w.e.f. A.Y. 1997- 98? Page 2 of 15 O/TAXAP/380/2013 JUDGMENT [2] That the assessee has filed return of income at Rs.Nil for A.Y. 2007-08 which was assessed under section 143(3) on 24.12.2009 on total income of Rs.1,11,85,117/-. That the Commissioner of Income Tax – II, Vadodara was of the opinion that the assessment order dated 24.12.2009 was erroneous in so far as it was prejudicial to the interests of the revenue on account of incorrect allowance of set off of unabsorbed depreciation, a show-cause notice under section 263 dated 26.10.2010 was issued to the assessee calling upon it to show cause why the assessment may not be cancelled and the A.O. may not be directed to reframe the assessment. That by order dated 30.03.2012, learned Commissioner of Income Tax held that the order dated 24.12.2009 passed by the A.O. was erroneous or prejudicial to the interests of the revenue on account of incorrect allowance of set off of unabsorbed depreciation and further held that the action of the A.O. in permitting the carry forward of depreciation allowance relating to A.Ys. 1997-98 and 1998-99 beyond the stipulated quarantine period of eight years and setting off the same against the income of A.Y. 2007-08 is unsustainable in law and, therefore, erroneous as well as prejudicial to the interests of revenue, since it resulted in under- assessment of income to the extent of Rs.2,40,28,608/- and short levy of tax amounting to RS.77,71,386/- and consequently directed the A.O to reframe the assessment order after withdrawal of depreciation allowances, which was earlier granted in the manner. [3] Feeling aggrieved and dissatisfied with the order passed by the Page 3 of 15 O/TAXAP/380/2013 JUDGMENT Commissioner of Income Tax whereby the learned Commissioner passed order in suo motu revision under section 263 of the Income Tax Act (hereinafter referred to as “Act”), the assessee preferred an appeal before the learned ITAT. The learned ITAT by impugned judgment and order and relying upon the decision of the Division Bench of this Court in the case of General Motors India (P) Ltd Vs. Deputy Commissioner of Income Tax reported in [2013] 354 ITR 244 (Guj.), has allowed the said appeal and set aside the order passed by the learned Commissioner. [4] Mr.K. M. Parikh, learned counsel appearing on behalf of the appellant - revenue has vehemently submitted that at the relevant time when the A.O passed the order under section 143 of the Act, which was taken in suo motu revision by the learned Commissioner in exercise of powers under section 263 of the Act, there was no judgment and order passed by this Court in the case of General Motors India (P) Ltd Vs. Deputy Commissioner of Income Tax (supra) and, therefore, as such, the learned Commissioner was justified in taking the order passed by the A.O. in suo motu revision under section 263 of the Act and rightly interfered with the order passed by the A.O., which was found to be prejudicial to the interests of the revenue. [5] Mr.K. M. Parikh, learned counsel appearing on behalf of the appellant - revenue has also submitted that though the judgment Page 4 of 15 O/TAXAP/380/2013 JUDGMENT and order rendered by the Division Bench of this Court in the case of General Motors India (P) Ltd Vs. Deputy Commissioner of Income Tax (supra) was carried further in appeal before the Hon’ble Supreme Court and the Hon’ble Supreme Court dismissed the Special Leave to Appeal, however, learned counsel appearing of behalf of the appellant – revenue has requested to consider the question on merits with respect to the set off claimed by the assessee of unabsorbed depreciation, keeping the question of law open. [6] Heard Mr.K. M. Parikh, learned counsel appearing on behalf of the appellant – revenue. On considering the impugned judgment and order passed by the learned ITAT, it appears that the learned ITAT has quashed and set aside the order passed by the learned Commissioner relying upon the decision of the Division Bench of this Court in the case of General Motors India (P) Ltd Vs. Deputy Commissioner of Income Tax (supra). It is the contention on behalf of the revenue that at the relevant time when the learned Commissioner exercised powers under section 263 of the Act and took the order passed by the A.O. in suo motu revision under section 263 of the Act, the decision of the Division Bench of this Court was not there and, therefore, the learned Commissioner rightly interfered with the order passed by the A.O. which was found to be prejudicial to the interests of revenue and therefore, it is requested to quash and set aside the impugned judgment and order passed by the learned ITAT. The aforesaid cannot be accepted. It is required to be noted Page 5 of 15 O/TAXAP/380/2013 JUDGMENT that at the relevant time, when the learned ITAT passed the impugned judgment and order, there was direct decision of jurisdictional High Court rendered in the case of General Motors India (P) Ltd Vs. Deputy Commissioner of Income Tax (supra), which was binding to the learned ITAT. Under the circumstances, it cannot be said that the learned ITAT has committed any error and/or illegality and following binding decision of this Court in the case of General Motors India (P) Ltd Vs. Deputy Commissioner of Income Tax (supra) in passing the impugned judgment and order. [7] It is required to be noted at this stage that as observed by the learned ITAT, when the A.O. considered the issue while passing the assessment order, the A.O. has adopted a possible view which is now correct view as per the decision of this Court in the case of General Motors India (P) Ltd Vs. Deputy Commissioner of Income Tax (supra). [8] In the case of General Motors India (P) Ltd Vs. Deputy Commissioner of Income Tax (supra), the Division Bench of this Court has observed and held in paragraph Nos.30 to 39 as under: “30. The last question which arises for consideration is that whether the unabsorbed depreciation pertaining to A.Y. 1997- 98 could be allowed to be carried forward and set off after a period of eight years or it would be governed by Section 32 as amended by Finance Act 2001? The reason given by the Page 6 of 15 O/TAXAP/380/2013 JUDGMENT Assessing Officer under section 147 is that Section 32(2) of the Act was amended by Finance Act No.2 of 1996 w.e.f. A.Y. 1997-98 and the unabsorbed depreciation for the A.Y. 1997-98 could be carried forward up to the maximum period of 8 years from the year in which it was first computed. According to the Assessing Officer, 8 years expired in the A.Y. 2005-06 and only till then, the assessee was eligible to claim unabsorbed depreciation of A.Y. 1997-98 for being carried forward and set off against the income for the A.Y. 2005-06. But the assessee was not entitled for unabsorbed depreciation of Rs.43,60,22,158/- for A.Y. 1997-98, which was not eligible for being carried forward and set off against the income for the A.Y. 2006-07. 31. Prior to the Finance Act No.2 of 1996 the unabsorbed depreciation for any year was allowed to be carry forward indefinitely and by a deeming fiction became allowance of the immediately succeeding year. The Finance Act No.2 of 1996 restricted the carry forward of unabsorbed depreciation and set-off to a limit of 8 years, from the A.Y.1997-98. Circular No.762 dated 18.2.1998 issued by the Central Board of Direct Taxes (CBDT) in the form of Explanatory Notes categorically provided, that the unabsorbed depreciation allowance for any previous year to which full effect cannot be given in that previous year shall be carried forward and added to the depreciation allowance of the next year and be deemed to be part thereof. 32. So, the unabsorbed depreciation allowance of A.Y. 1996- 97 would be added to the allowance of A.Y. 1997-98 and the limitation of 8 years for the carry-forward and set-off of such unabsorbed depreciation would start from A.Y. 1997-98. Page 7 of 15 O/TAXAP/380/2013 JUDGMENT 33. We may now examine the provisions of section 32(2) of the Act before its amendment by Finance Act 2001. The section prior to its amendment by Finance Act, 2001, read as under:- “Where in the assessment of the assessee full effect cannot be given to any allowance under clause (ii) of sub- section (1) in any previous year owning to there being no profits or gains chargeable for that previous year or owing to the profits or gains being less than the allowance, then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as unabsorbed depreciation allowance), as the case may be,- (i) shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (ii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year; (iii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i) and Clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year and— (a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (b) if the unabsorbed depreciation allowance cannot Page 8 of 15 O/TAXAP/380/2013 JUDGMENT be wholly so set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed: Provided that the time limit of eight assessment years specified in sub-clause (b) shall not apply in case of a company for the assessment year beginning with the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Company (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year relevant to the previous year in which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.- For the purposes of this clause, “net worth” shall have the meaning assigned to it in clause (ga) of sub- section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985.” 34. The aforesaid provision was introduced by Finance (No.2) Act, 1996 and further amended by the Finance Act, 2000. The provision introduced by Finance (No.2) Act was clarified by the Finance Minister to be applicable with prospective effect. 35. Section 32 (2) of the Act was amended by Finance Act, 2001 and the provision so amended reads as under :- “Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains Page 9 of 15 O/TAXAP/380/2013 JUDGMENT chargeable for that previous year, or owing to the profits or gains chargeable for that previous year, owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be allowance of that previous year, and so on for the succeeding previous years.” 36. The purpose of this amendment has been clarified by Central Board of Direct Taxes in the Circular No.14 of 2001. The relevant portion of the said Circular reads as under :- “Modification of provisions relating to depreciation 30.1 Under the existing provisions of section 32 of the Income-tax Act, carry forward and set off of unabsorbed depreciation is allowed for 8 assessment years. 30.2 With a view to enable the industry to conserve sufficient funds to replace plant and machinery, specially in an era where obsolescence takes place so often, the Act has dispensed with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The Act has also clarified that in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. 30.3 Under the existing provisions, no deduction for Page 10 of 15 O/TAXAP/380/2013 JUDGMENT depreciation is allowed on any motor car manufactured outside India unless it is used (i) in the business of running it on hire for tourists, or (ii) outside in the assessee’s business or profession in another country. 30.4 The Act has allowed depreciation allowance on all imported motor cars acquired on or after 1st April, 2001. 30.5 These amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years.” 37. The CBDT Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in A.Y. 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken. While construing taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable Page 11 of 15 O/TAXAP/380/2013 JUDGMENT construction to the language of the section without leaning to the side of assessee or the revenue. But if the legislature fails to express clearly and the assessee becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assessee cannot be denied. However, Circular No.14 of 2001 had clarified that under Section 32(2), in computing the profits and gains of business or profession for any previous year, deduction of depreciation under Section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the A.Y. 1997-98, 1999-2000, 2000-01 and 2001- 02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the A.Y. 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. 38. Therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such Page 12 of 15 O/TAXAP/380/2013 JUDGMENT succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002- 03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. 39. For the aforesaid reasons, this writ petition succeeds and is allowed. The notice issued under Section 148 of the Income Tax Act, 1961, dated 29.3.2011 Annexure A and the assessment order dated 27.12.2011 passed by the Assessing Officer Annexure F respectively to the writ petition are quashed. Rule is made absolute. The parties shall bear their own costs.” [9] Thus, on merits the issue / question No.(B) with respect to set off of unabsorbed depreciation claimed by the assessee which was granted by the A.O while passing the assessment order is squarely covered which is against the revenue. Under the circumstances, learned ITAT has not committed any error in allowing the appeal following the decision of the Division Bench of this Court in the case of General Motors India (P) Ltd Vs. Deputy Commissioner of Page 13 of 15 O/TAXAP/380/2013 JUDGMENT Income Tax (supra). [10] Now so far as the submission made by learned counsel appearing on behalf of the revenue that though against the decision of the Division Bench of this Court in the case of General Motors India (P) Ltd Vs. Deputy Commissioner of Income Tax (supra), as such, Special Leave to Appeal was preferred before the Hon’ble Supreme Court and the same came to be dismissed by the Hon’ble Supreme Court on the ground of delay and kept the question of law open, this Court may consider the question of law raised on merits is concerned, the same cannot be accepted. It is required to be noted that as such, consideration of the question raised with respect to set off of unabsorbed depreciation on merits, there is a direct decision of the Division Bench of this Court in the case of General Motors India (P) Ltd Vs. Deputy Commissioner of Income Tax (supra). Against the said decision, the Special Leave to Appeal was preferred and the same came to be dismissed on the ground of delay and the Hon’ble Supreme Court kept the question of law open. Therefore, it can not be said that the said question of law is kept open by the Hon’ble Supreme Court to consider subsequently by this Court – Coordinate Bench. It can be said that the said question of law is kept open by the Hon’ble Supreme Court to consider subsequently in other cases by the Hon’ble Supreme Court. So far as this Court is concerned, the decision of the Division Bench of this Court in the case of General Motors India (P) Ltd Vs. Deputy Commissioner of Page 14 of 15 O/TAXAP/380/2013 JUDGMENT Income Tax (supra) is binding unless a contrary view is taken and the matter is referred to the Larger Bench. In view of the decision of the Division Bench of this Court in the case of General Motors India (P) Ltd Vs. Deputy Commissioner of Income Tax (supra) which has been relied upon by the learned ITAT while passing the impugned judgment and order, as such, no question of law much less any substantial question of law arises now. [11] Under the circumstances, the present appeal deserves to be dismissed and is accordingly dismissed. (M.R.SHAH, J.) (R.P.DHOLARIA,J.) vijay Page 15 of 15 "