Kirloskar Ferrous Industries Ltd., Pune V. Addl. CIT, Pune

ITA 1044/PUN/2010

• Counselvise Citation: 104424514 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-01-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 14-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARESHWAR SHARMA
• Keywords: Depreciation; Opportunity of being heard; Unabsorbed depreciation
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO 1044/PN/10 (ASSTT. YEAR: 2006-07) KIRLOSKAR FERROUS INDUSTRIES LTD. .. APPELLANT LAXMANRAO KIRLOSKAR ROAD, KHADKI, PUNE PAN AAACK7297E VS. ASSTT. COMMISSIONER OF INCOME-TAX, .. RESPONDENT R-9, PUNE APPELLANT BY : SHRI C.H. NANIWADEKAR RESPONDENT BY : SHRI HARESHWAR SHARMA ORDER PER G.S.PANNU, A.M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, PUNE DATED 18. 3.2010 WHICH, IN TURN, HAS ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) FOR THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING OF PI G IRON AND GREY IRON CASTINGS. THE SOLITARY ISSUE RAISED BY THE ASSESSEE IN TH IS APPEAL PERTAINS TO THE DISALLOWANCE OF METHOD OF ADJUSTMENT OF CARRIED FOR WARD BOOK LOSSES AND DEPRECIATION FOR MAT PURPOSE. AT THE TIME OF HEARIN G, IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT AN IDENTICAL ISSUE AROSE IN ASSESSEES CASE FOR ASSESSMENT YEAR 2005-06 AND THE TRIBUNAL VIDE I TA NO.519/PN/09 HAS DECIDED THE ISSUE BY SETTING ASIDE THE ORDER OF THE COM MISSIONER OF INCOME-TAX (APPEALS) AND RESTORING THE ISSUE TO THE FILE OF THE ASSE SSING OFFICER WITH CERTAIN 2 DIRECTIONS. THE LEARNED DEPARTMENTAL REPRESENTATIVE DI D NOT DISPUTE THIS FACT- SITUATION. 3. AFTER CONSIDERING THE SUBMISSIONS OF RIVAL PARTIES, WE FIND THAT THIS ISSUE STANDS CONCLUDED IN FAVOUR OF THE ASSESSEE BY DECIDED THE ISSUE BY SETTING ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) A ND RESTORING THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. THE FOLLOWING FINDINGS OF THE TRIBUNAL ARE RELEVANT AND ARE REPRODUCED HEREIN BELOW: 14 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE SUM AND SUBSTANCE OF THE DISPUTE RELATES TO THE MANNER OF COMPUTATION OF BOOK PROFITS FOR THE PURPOSES OF DETERMINING TAX LIABILITY UNDER SECTION 115JB OF TH E ACT. EXPLANATION 1 BELOW 115JB(2) OF THE ACT PRESCRIBES THE ADJUSTMENTS REQUIRED TO BE MADE TO THE AMOUNT OF NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUNT OF THE RELEVANT PREVIOUS YEAR, FOR THE PURPOSES OF COMPUTING BOOK PROFIT. THE PERTINENT DISPUTE RELATE S TO CLAUSE (III) OF THE EXPLANATION THERETO, WHICH READ AS UNDER: (III) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSO RBED DEPRECIATION, WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT. EXPLANATION- FOR THE PURPOSES OF THIS CLAUSE,-- (A) THE LOSS SHALL NOT INCLUDE DEPRECIATION; (B) THE PROVISIONS OF THIS CLAUSE SHALL NOT APPLY I F THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION IS NIL; OR 15. IN TERMS THEREOF, THE NET PROFIT SHOWN IN THE P ROFIT & LOSS ACCOUNT IS REQUIRED TO BE REDUCED BY THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT, FOR COMPUTING THE BOOK PROFITS. FOR THE PURPOSES OF AFORESAID CLAUSE, IT IS FURTHER EXPLAINED THAT THE TERM LOSS SHALL NOT INCLUDE DEPRECIATION AND THAT THIS CLAUSE IS NOT APPLICABLE WHERE THE AM OUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION IS NIL. IN THE BACKGROUND OF THE AFORESAID, NOW WE MAY FIRST EXAMINE THE COMPUTATION OF BOOK PROFIT MADE BY THE ASSESSEE IN THE RETURN OF INCOME. THE NET PROFIT AS PER PROFIT & LOSS ACCOUNT ADOPTED BY THE ASSESSEE WAS RS 20,76,31,798/-. WHILE COMPUTING THE LIABILITY UNDER SECTION 115JB, ASSESSEE, INTER ALIA, CLAIMED AN ADJUSTMENT OF RS 35,72,28,867/- IN TERMS OF AFORESAID CLAUSE (III) OF EXPLANATION BELOW 115JB OF THE ACT. IN THIS MANNER, THE BOOK PROFIT FOR THE PURPOSES OF 115JB(2) WAS DETERMINED AT NIL. THE CLAIM OF THE ASSESSEE WAS BASED ON THE HEREINAFTER MENTIONED WORKINGS. AS ON 1.4.2005, THE AGGREGATE OF CARRIED FORWARD LOSSES AND DEPRECIATION AFTER NETTING OF THE PROFITS FOR I NTERMITTENT YEARS WAS DETAILED AS UNDER: FINANCIAL YEAR PROFIT LOSS DEPRECIATION 1994-95 3,15,54,669 1995-96 7,03,62,878 1996-97 8,44,03,032 8,97,39,166 1997-98 9,11,09,266 10,58,61,822 1998-99 28,05,39,414 11,57,42,667 1999-00 8,08,79,470 11,57,42,667 2000-01 21,99,52,999 11,93,65,159 2001-02 5,74,86,634 11,84,38,447 2002-03 2,97,02,890 2002-03 20,38,22,257 2003-04 31,71,55,566 65,25,98,260 81,43,70,815 66,85,72,522 16. THEREFORE, THE TOTAL CARRIED FORWARD DEFICIT WA S RS 83,03.45.077/-. THIS DEFICIT COMPRISES OF BUSINESS LOSS AND/OR UNABSORBED DEPREC IATION WHICH IS RELEVANT FOR THE PURPOSES OF CLAUSE (III) OF EXPLANATION 1 TO SECTIO N 115JB(2) OF THE ACT. THE SET-OFF OF THE 3 LOSSES AND DEPRECIATION PERTAINING TO FINANCIAL YEA RS 1996-97 TO 2001-02 AGAINST THE AVAILABLE PROFITS OF OTHER YEARS WAS DONE BY THE AS SESSEE IN THE FOLLOWING MANNER: FINANCIAL YEAR BUSINESS LOSS UNABSORBED DEPRECIATION TOTAL LOSSES 1996-97 8,44,03,032 8,97,39,166 17,41,42,198 1997-98 9,11,09,266 10,58,61,822 19,69,71,088 1998-99 28,05,39,414 11,57,42,667 39,62,82,081 1999-00 8,08,79,470 11,94,25,261 20,03,04,731 2000-01 21,99,52,999 11,93,65,159 33,93,18,158 2001-02 5,74,86,634 11,84,38,447 17,59,25,081 81,43,70,815 66,85,72,522 148,29,48,337 THUS, ON THE AFORESAID BASIS THE BREAK UP OF THE CO NSOLIDATED DEFICIT OF RS 83,03,45,077/- AS ON 1.4.2004 CLAIMED WAS AS UNDER: FINANCIAL YEAR BUSINESS LOSS UNABSORBED DEPRECIATION TOTAL LOSSES 1996-97 8,44,03,032 8,97,39,166 17,41,42,198 1997-98 9,11,09,266 10,58,61,822 19,69,71,088 1998-99 16,57,42,307 11,57,42,667 28,14,84,974 34,12,54,605 31,13,43,655 65,25,98,260 BREAK UP OF CARRIED FORWARD LOSSES AS ON 31.3.2004 FINANCIAL YEAR BUSINESS LOSS UNABSORBED DEPRECIATION TOTAL LOSSES 1998-99 11,47,97,107 - 11,47,97,107 1999-00 8,08,79,470 11,94,25,261 20,03,04,731 2000-01 21,99,52,999 11,93,65,159 33,93,18,158 2001-02 5,74,86,634 11,84,38,447 17,59,25,081 47,31,16,210 35,72,28,867 83,03,45,077 17. FROM THE AFORESAID TABULATIONS, THE TOTAL DEFIC IT OF RS 83,03,45,077/- WAS COMPRISING OF A BUSINESS LOSS OF RS 47,31,16,210/- AND UNABSORBED DEPRECIATION OF RS 35,72,28,867/-. THE AMOUNT OF UNABSORBED DEPRECIATI ON BEING LOWER OF THE TWO AT RS 35,72,28,867/- WAS CONSIDERED BY THE ASSESSEE AS AN ADJUSTMENT AGAINST THE NET PROFIT PERMISSIBLE IN TERMS OF CLAUSE (III) OF EXPLANATION 1 BELOW 115J B(2) OF THE ACT. 18. THE ASSESSING OFFICER, ON THE OTHER HAND, OBSER VED THAT THE UNABSORBED DEPRECIATION AS ON 1.4.2003 OF RS 66,85,72,522/- IS TO BE ADJUSTED AGAINST THE AGGREGATE PROFITS OF 10,19,17,557/- FOR THE FINANCIAL YEARS 1 994-95 AND 1995-96. THUS, AS PER HIM, THE UNABSORBED DEPRECIATION BROUGHT FORWARD FOR AY 2003-04 WAS ONLY RS 56,66,54,975/- . THEREAFTER, THE ASSESSING OFFICER APPLIED CLAUSE (III) OF EXPLANATION 1 FOR THE ASSESSMENT YEAR 2003-04 TO THE INSTANT YEAR, I. E. ASSESSMENT YEAR 2005-06 IN THE FOLLOWING MANNER.: FOR A.Y. 2003-04 NET PROFITS TO THE AUDITED PROFIT & LOSS A/C. (AS P ER PARA 3.9 ABOVE) RS 23,35,25,147/- LESS: I) B/F. BUSINESS LOSS OF RS 81,43,70,815/- (II) UNABSORBED DEPRECIATION RS 56,66,54,975/- (AS PER PARA 3.8 ABOVE) WHICHEVER IS LESS RS 56,66,54,975/- BOOK PROFITS/LOSS (-) RS 33,31,29,828/- AMOUNTS TO BE CARRIED FORWARD TO AY 2004-05 BUSINESS LOSS RS 81,43,70,815/- UNABSORBED DEPRECIATION (RS 56,66,54,975 23,35,25,147) RS 33,31,29,828/- FOR A.Y 2004-05 NET PROFITS TO THE AUDITED PROFIT & LOSS A/C. R S 31,71,55,566/- 4 LESS: I) B/F. BUSINESS LOSS OF RS 81,43,70,815/- (II) UNABSORBED DEPRECIATION RS 33,31,29,828/- WHIC HEVER IS LESS RS 33,31,29,828/- BOOK PROFITS/LOSS (-) RS 1,59,74,262/- AMOUNTS TO BE CARRIED FORWARD TO AY 2005-06 BUSINESS LOSS RS 81,43,70,815/- UNABSORBED DEPRECIATION (RS 33,31,29,828 31,71,55,566) RS 1,59,74,262/- A.Y. 2005-06 NET PROFITS TO THE AUDITED PROFIT & LOSS A/C. (AS P ER PARA 3.10 ABOVE) RS 21,84,09,500/- LESS: I) B/F. BUSINESS LOSS OF RS 81,43,70,815/- (II) UNABSORBED DEPRECIATION RS 1,59,74,262 WHICHEV ER IS LESS RS 1,59,74,262/- BOOK PROFITS RS 20,24,35,238/- AMOUNTS TO BE CARRIED FORWARD TO AY 06-07 BUSINESS LOSS RS 81,43,70,815/- UNABSORBED DEPRECIATION (RS 1,59,74,262 1,59,74,262) RS NIL 19. IN THIS MANNER, THE ASSESSING OFFICER COMPUTED BOOK PROFITS FOR SECTION 115JB AT RS 20,24,35,238/- AS AGAINST NIL DETERMINED BY THE ASSESSEE. WE HAVE EXAMINED THE POSITION SET-UP BY THE ASSESSING OFFICER. QUITE CLE ARLY, CLAUSE (III) OF EXPLANATION 1 TO SECTION 115JB ENVISAGES ADJUSTMENT FOR THE AMOUNT O F LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS AS PER B OOKS OF ACCOUNT. IT IS QUITE CLEAR THAT THE LOSS DEPICTED IN THE ACCOUNT BOOKS WHICH COMPRI SES OF BUSINESS LOSSES AND DEPRECIATION IS REQUIRED TO BE SPLIT UP FOR THE PU RPOSES OF CLAUSE (III) OF EXPLANATION 1 TO SECTION 115JB(2). SO, HOWEVER, THE MANNER OF DETERM INING THE INDIVIDUAL FIGURES OF LOSS AND DEPRECIATION IS NOT INDICATED IN SECTION 115JB INASMUCH AS THE MANNER IN WHICH THE LOSSES AND DEPRECIATION ARE SET OFF AGAINST THE PRO FITS HAS NOT BEEN SPELT OUT. HOWEVER, AN INDICATION WHICH IS MANIFESTED IN SECTION 115JB ITSELF IS A SAFE PREMISE TO FOLLOW IN SUCH A SITUATION. CLAUSE (III) SPEAKS OF ADJUSTMENT FOR THE LOWER OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION. THEREFORE, THE LEGISLATURE ENVISAGED THAT WHILE COMPUTING BOOK PROFITS FOR 115JB, REDUCTION BE ALLOWED FOR TH E LOWER OF CARRIED FORWARD LOSSES OR UNABSORBED DEPRECIATION OF THE PAST YEARS. THEREFOR E, THE DETERMINATION OF SUCH LOSSES OR DEPRECIATION IN THE PAST YEARS BE ALSO MADE ON S IMILAR PROPOSITION, IN THE ABSENCE OF ANY SPECIFIC PROVISION IN THE STATUTE. EVEN IN THE PAST YEARS, THE LOSSES AND DEPRECIATION TO BE CARRIED FORWARD BE DETERMINED ON THE SIMILAR PRINCIPLES, I.E. AFTER SETTING OFF OF THE LOWER OF DEPRECIATION OR LOSSES. APART FROM THE FAC T THAT THERE IS NO SPECIFIC PROVISION IN THE STATUTE, WE ARE ALSO GUIDED BY THE SPIRIT OF SE CTION 205(1)(B) OF THE COMPANIES ACT, 1956. IN TERMS OF SECTION 205(1)(B) ALSO, THE SURPL US IS TO BE DETERMINED AFTER REDUCING LOWER OF THE LOSS OR DEPRECIATION. THOUGH STRICTLY SPEAKING THE RULE OF SECTION 205(1)(B) OF THE COMPANIES ACT IS NOT APPLICABLE, INASMUCH AS FO R THE PURPOSES OF THE SAID SECTION THE EXPRESSION LOSS INCLUDES DEPRECIATION, WHEREAS FO R THE PURPOSES OF SECTION 115JB IT IS SPECIFICALLY PROVIDED THAT FOR CLAUSE (III) OF EXPL ANATION 1 THE EXPRESSION LOSS SHALL NOT INCLUDE DEPRECIATION. SO, HOWEVER, WE WANT TO EMPHA SIS ON THE BASIC PRINCIPLE ENSHRINED IN SECTION 115JB WHEREBY THE LOWER OF LOSS OR DEPRE CIATION IS REDUCIBLE TO ARRIVE AT THE SURPLUS. SECTION 115JB(2) ITSELF REFERS TO A PROFIT & LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF COMPANIES ACT, 1956 AND THER EFORE, IN OUR VIEW, THE PROPOSITION IN SECTION 205(1)(B) BECOMES RELEVANT. FOR THE AFORESA ID TWIN REASONS, IN OUR VIEW, IN ORDER TO DETERMINE THE LOSSES CARRIED FORWARD AND UNABSOR BED DEPRECIATION IN THE PAST YEARS ALSO, IT WOULD BE APPROPRIATE TO REDUCE THE LOWER O F THE TWO AND THEREAFTER, ASCERTAIN THE AMOUNT OF LOSSES BROUGHT FORWARD AND UNABSORBED DEP RECIATION. 20. CONSIDERED IN THE AFORESAID MANNER, IN OUR VIEW , THE METHODOLOGY ADOPTED BY THE ASSESSING OFFICER HAS TO FAIL. THIS IS FOR THE REASON THAT HE HAS PROCEEDED TO ADJUST THE UNABSORBED DEPRECIATION AS ON 31.3.2003, WHEREA S THE CORRECT APPROACH WOULD HAVE BEEN TO COMPARE AND DETERMINE THE LOSSES IN EACH OF THE FINANCIAL YEARS STARTING FROM THE FINANCIAL YEAR 1996-97 AND DETERMINE THE LOSS OR DE PRECIATION WHICH IS REQUIRED TO BE CARRIED FORWARD IN ACCORDANCE WITH THE AFORESAID DI SCUSSION. IN FACT, WE FIND THAT EVEN THE WORKING ADOPTED BY THE ASSESSEE IN THE RETURN OF IN COME ALSO DOES NOT CORRESPOND TO THE AFORESAID PRINCIPLES. UNDER THESE CIRCUMSTANCES, WE , THEREFORE, DEEM IT FIT AND PROPER TO SET-ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-T AX (APPEALS) AND TO REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER, WHO SHAL L REVISIT THE WORKING OF BOOK PROFIT FOR THE PURPOSES OF SECTION 115JB IN SO FAR AS IT RELATES T O CLAUSE (III) OF EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT. THE ASSESSING OFFICER SHALL C ARRY OUT THE AFORESAID LIMITED EXERCISE IN ACCORDANCE WITH OUR AFORESAID DISCUSSION AND AFT ER ALLOWING THE ASSESSEE AREASONABLE OPPORTUNITY OF BEING HEARD AS PER LAW. 5 FOLLOWING THE PARITY OF REASONING, WE SET ASIDE THE OR DER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND RESTORE THE ISSUE TO THE FILE O F THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS AS EXTRACTED ABOVE. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWE D. DECISION PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 3 1 ST JANUARY, 2012 SD/- SD/- (I.C. SUDHIR) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER PUNE: DATED: 31 ST JANUARY, 2012 B COPY OF THE ORDER IS FORWARDED TO : 1. KIRLOSKAR FERROUS INDUSTRIES LTD., PUNE 2. THE ADDL. CIT, R-9, PUNE 3. THE CIT(A)-V, PUNE 4. THE CIT-V PUNE 5. THE D.R, A BENCH, PUNE 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE