Dy. CIT, Circle-9, Pune V. Kirloskar Ferrous Industries Ltd., Pune

ITA 1059/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85157 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 10-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Unabsorbed depreciation
• Section: 14A; 32; 147; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 911/PN/2013 (ASSESSMENT YEAR 2008-09) KIRLOSKAR FERROUS INDUSTRIES LTD., LAXMANRAO KIRLOSKAR ROAD, KHADKI, PUNE 411003 PAN NO.AAACK7297E .. APPELLANT VS. ADDL.CIT, RANGE-9, AKURDI, PUNE .. RESPONDENT ITA NO. 1059/PN/2013 (ASSESSMENT YEAR 2008-09) DY.CIT, CIRCLE-9, PUNE .. APPELLANT VS. KIRLOSKAR FERROUS INDUSTRIES LTD., A-13, LAXMANRAO KIRLOSKAR ROAD, KHADKI, PUNE 411003 PAN NO.AAACK7297E .. RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR REVENUE BY : SHRI RAJESH DAMOR DATE OF HEARING : 19-11-2014 DATE OF PRONOUNCEMENT : 27-11-2014 ORDER PER R.K. PANDA, AM : THESE ARE CROSS APPEALS. THE FIRST ONE IS FILED BY THE ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIR ECTED AGAINST THE ORDER DATED 26-02-2013 OF THE CIT(A)-V, PUNE RELATI NG TO ASSESSMENT YEAR 2008-09. FOR THE SAKE OF CONVENIEN CE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER. 2 ITA NO.911/PN/2013 (BY ASSESSEE) : 2. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS U NDER : 1. DISALLOWANCE OF CASH CREDIT INTEREST THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN UPHO LDING DISALLOWANCE OF CASH CREDIT INTEREST OF RS. 11,173/- U/ S 14A ON THE GROUND THAT THE ONLY INTEREST ELEMENT THAT CAN BE AT TRIBUTABLE TO THE EARNING OF DIVIDEND INCOME WHICH IS TAX FREE. HE FAI LED TO APPRECIATE FACT THAT THE AMOUNTS INVESTED IN THE MUTUAL FUNDS ARE THE SURPLUS AMOUNT AVAILABLE WITH THE COMPANY DURING THE YEAR A ND NOT FROM THE BORROWED FUNDS. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESS EE HAS CLAIMED THE DIVIDEND INCOME AS EXEMPT. FROM THE VARIOUS DE TAILS FURNISHED BY THE ASSESSEE, HE OBSERVED THAT THE ASSESSEE COMP ANY HAS USED HIS CASH CREDIT ACCOUNT TOWARDS PURCHASE OF SHARES, THE DIVIDEND INCOME OF WHICH HAS BEEN CLAIMED AS EXEMPT. THE AO HOWEVE R NOTED THAT THE TERM LOAN OF THE COMPANY AND THE OTHER INTEREST BEARING FUNDS HAVE NOT BEEN USED FOR PURCHASE OF INCOME EXEMPT A SSETS. APPLYING THE PROVISIONS OF SECTION 14A R.W. RULE 8D, THE AO DISALLOWED AN AMOUNT OF RS.11,173/- TO THE TOTAL INCOME OF THE AS SESSEE. 3. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE AO ON THE GROUND THAT THERE IS A SPECIFIC FINDING BY THE AO T HAT THE CASH CREDIT FUNDS HAS BEEN DIVERTED FOR PURCHASE OF SHARES, THE INCOME OF WHICH HAS BEEN CLAIMED AS EXEMPT. IN VIEW OF THE ABOVE, HE DISTINGUISHED THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT RELIANCE UTILITIES AND POWER LTD., REPORTED IN 313 ITR 340 RELIED ON BY THE ASSESSEE BEFORE HIM. 3 3.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 4. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. SINCE THERE IS A CATEGORICAL FINDING BY THE AO THAT THE ASSESSEE COMPANY HAS USED FUNDS FRO M THE CASH CREDIT ACCOUNT FOR INVESTMENT IN SHARES, THE DIVIDE ND OF WHICH HAS BEEN SHOWN AS EXEMPT, THEREFORE, WE FIND NO INFIRMI TY IN THE ORDER OF THE LD.CIT(A) UPHOLDING THE ACTION OF THE AO IN DIS ALLOWING INTEREST OF RS.11,173/- U/S.14A R.W. RULE 8D OF THE I.T. ACT . ACCORDINGLY, THIS GROUND BY THE ASSESSEE IS DISMISSED. 5. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS U NDER : 2. DISALLOWANCE OF COST OF DIESEL GENERATOR SET THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW BY UPHO LDING DISALLOWANCE OF THE COST OF RS. 5,27,95,285/- OF SECOND HAND DIESEL GENERATOR SET INCURRED BY THE COMPANY BY REPLACING IT BY THE WDV OF RS. 4,05,14,509/- OF THE DIESEL GENERATOR SET IN THE BOOKS OF KIRLOSKAR OIL ENGINES LIMITED (THE SELLER)AND THEREBY DISALLOWING DEPRECIATION OF RS. 18,42,116/-. HE FAILED TO APPREC IATE THE FACTS THAT EVEN THOUGH THE COMPANY AND KIRLOSKAR OIL ENGINES LI MITED ARE GROUP COMPANIES, BOTH THE COMPANIES ARE RUN BY THE SEP ARATE INDEPENDENT MANAGEMENTS. HE ALSO FAILED TO CONSIDER TH E ARGUMENTS AND CONTENTIONS ADVANCED IN THIS BEHALF. 5.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF GREY IRON CASTING AND PIG IRON. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE COMPANY HAS PURCHASED THE SECOND HAND GENERATOR SET FROM KIRLOSKAR OIL ENGINES LTD. (KOEL) FOR A CO NSIDERATION OF RS.5,27,95,285/-. FROM THE VARIOUS DETAILS FURNISH ED BY THE ASSESSEE, THE AO NOTED THAT THE WDV OF SAID GENERATOR SET WAS APPEARING AT 4 RS.4,05,14,509/- IN THE BOOKS OF KIRLOSKAR OIL ENGI NES LTD. THE AO, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY EXPLANATION 3 TO SECTION 43(1) SHOULD NOT BE APPLIED. IT WAS EXPLAI NED BY THE ASSESSEE THAT KIRLOSKAR OIL ENGINES LTD., WHICH IS A GROUP C OMPANY DECIDED TO CLOSE DOWN ITS POWER DIVISION DURING A.Y. 2008-0 9 AND IT WAS DECIDED TO DISPOSE OF ALL THE GENERATOR SETS. AS A RESULT, THE ASSESSEE HAS TO MAKE ALTERNATE ARRANGEMENTS FOR ITS POWER NE EDS. IT WAS SUBMITTED THAT THE COST OF A NEW GENERATOR SET IS A ROUND RS.30.50 CRORES AT THAT TIME WHICH WAS NOT POSSIBLE FOR THE ASSESSEE COMPANY TO BUY. FURTHER, DURATION OF PROCUREMENT AND COMMI SSIONING OF A NEW GENERATOR SET WAS ABOUT 10 MONTHS, THEREFORE, I T WAS DECIDED TO PURCHASE THE SECOND HAND GENERATOR SET FROM KIRLOSK AR OIL ENGINES LTD. IT WAS FURTHER SUBMITTED THAT BOTH THE COMPAN IES ARE IN 30% TAX BRACKET AND THE TRANSACTION WAS CARRIED OUT AT ARM S LENGTH. 6. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLA NATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM, THE GENERATORS WERE 10 TO 15 YEARS OLD AND ORIGINALLY THE SAME WAS OWNED BY KIRL OSKAR POWER LTD., WHICH WAS SUBSEQUENTLY AMALGAMATED WITH KIRLO SKAR OIL ENGINES LTD., WHICH USED TO SUPPLY ELECTRICITY FROM THE GENERATOR SUPPLIED TO THE ASSESSEE COMPANY AND OTHER COMPANIE S WITH THE VICINITY. THE AO FURTHER HELD THAT SINCE THE MAIN PURPOSE OF TRANSFER OF SUCH GENERATOR SET AT HIGHER THAN THE WDV WAS TO CLAIM DEPRECIATION, PROVISIONS OF SECTION 43 R.W. EXPLANA TION 3 WAS CLEARLY APPLICABLE. THE AO ACCORDINGLY SUBSTITUTED THE VAL UE OF RS.4,05,14,509/- BEING WDV IN THE BOOKS OF ACCOUNT IN KIRLOSKAR 5 OIL ENGINES LTD. TOWARDS PURCHASE OF THE SAME AND A CCORDINGLY DISALLOWED DEPRECIATION AMOUNTING TO RS.18,42,116/- . 6.1 THE ASSESSEE REITERATED THE SAME ARGUMENTS BEFO RE THE LD.CIT(A). HOWEVER, HE WAS ALSO NOT IMPRESSED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE ACTION OF T HE AO BY OBSERVING AS UNDER : 9. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. FROM THE PERUSAL OF FACTS ASSOC IATED WITH THIS CASE, AS HIGHLIGHTED BY THE ASSESSING OFFICER AND ALSO SUB MITTED BY THE APPELLANT, IT IS SEEN THAT KOEL DECIDED TO CLOSE POWER DIVISION AND ACCORDINGLY IT WAS IN THE PROCESS OF DISMANTLING TH E INFRASTRUCTURE IN RESPECT OF DG SETS LOCATED IN THE VIC INITY WHICH ALSO PROVIDED POWER CONNECTION TO THE APPELLANT. THIS BEI NG SO, THE PURCHASE OF GENERATOR SETS BY THE APPELLANT FROM KOIL WAS MUTUALLY CONVENIENT. HOWEVER, AS FAR AS PRICING IS CONCERNED, I T IS SEEN THAT THERE WAS NO TRANSPARENCY IN THIS REGARD. EVEN THE VAL UATION OF DG SET WAS NOT DONE BY THE REGISTERED VALUER. FURTHER, T HE APPELLANT COULD NOT PRODUCE ANY EVIDENCE THAT SIMILAR DG SETS W ERE SOLD TO OTHER PARTIES AT A HIGHER PRICE AS CLAIMED IN THE STA TEMENT OF FACTS. THEREFORE, THE ASSESSING OFFICER WAS QUITE JUSTIFIED IN C OMING TO THE CONCLUSION THAT PROVISIONS OF SEC. 43 READ WITH EXPLAN ATION 3 WERE ATTRACTED IN THIS CASE, PARTICULARLY WHEN BOTH THE CO NCERNS ARE RELATED PARTIES. EVEN THOUGH, BOTH THE CONCERNS ARE I N THE SAME TAX BRACKET AS CLAIMED BY THE APPELLANT, PROVISIONS OF SEC . 43 READ WITH EXPLANATION 3 ARE ATTRACTED AND THEREFORE I DO NOT FIND ANY MERIT IN THE SUBMISSIONS OF THE APPELLANT AND ACTION OF THE ASSESSIN G OFFICER IN DISALLOWING THE CLAIM OF RS.18,42,116/- IS UPHELD. THE GROUND IS THUS DISMISSED. 6.2 AGGRIEVED WITH SUCH ORDER OF THE LD.CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLE NGED THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE FACTORY OF TH E ASSESSEE COMPANY WAS SITUATED AT HOSPET IN KARNATAKA WHICH W AS A PERENNIALLY POWER SHORTAGE STATE AT THAT TIME. THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF GREY IRON CASTING AND PIG IRON. THE ASSESSEE COMPANY HAD PURCHASED THE SECOND HAND GENE RATOR SET FROM 6 KIRLOSKAR OIL ENGINES LTD., AT A COST OF RS.5,27,95 ,285/- ALTHOUGH THE WDV OF THE SAME WAS STANDING AT RS.4,05,14,509/- IN ITS BOOKS OF ACCOUNT. HE SUBMITTED THAT THE AO INVOKING EXPLANA TION 3 TO SECTION 43(1) SUBSTITUTED THE COST OF DIESEL GENERA TOR SET AT RS.4,05,14,509/-, THEREBY DISALLOWING DEPRECIATION OF RS.18,42,116/-. HE SUBMITTED THAT THE ASSESSEE, I.E. KIRLOSKAR FERR OUS INDUSTRIES LTD., AND THE SELLER KIRLOSKAR OIL ENGINES LTD. ARE LISTE D PUBLIC COMPANIES AND ARE GOVERNED BY SEBI CORPORATE GOVERNMENT NORMS . BOTH THE COMPANIES HAVE INDEPENDENT BOARD OF DIRECTORS AND T HE TRANSACTIONS ARE ALWAYS AT ARMS LENGTH PRICE. HE SUBMITTED TH AT THE ASSESSEE WOULD HAVE INCURRED A COST OF RS.30.50 CRORES FOR I NSTALLATION OF NEW GENERATOR SET. FURTHER, THAT WOULD HAVE HAMPERED T HE PRODUCTION SCHEDULE SINCE THE PURCHASE OF NEW GENERATOR SET WO ULD HAVE TAKEN CONSIDERABLE TIME WHICH IN TURN WOULD HAVE AFFECTED THE PRODUCTION SCHEDULE. HOWEVER, BOTH THE COMPANIES ARE UNDER 30 % TAX BRACKET. THEREFORE, MERELY BECAUSE THESE ARE GROUP COMPANIES THERE WAS NO NEED OF INVOKING THE PROVISIONS OF EXPLANATION 3 TO SECTION 43(1). HE DREW THE ATTENTION OF THE BENCH TO EXPLANATION 3 TO SECTION 43(1) WHICH READS AS UNDER : EXPLANATION 3.- WHERE, BEFORE THE DATE OF ACQUISITI ON BY THE ASSESSEE, THE ASSETS WERE AT ANY TIME USED BY ANY OTHER PE RSON FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION AND THE ASSESSING] OFFICER IS SATISFIED THAT THE MAIN PURPOSE OF THE TRANSFER OF SUC H ASSETS, DIRECTLY OR INDIRECTLY TO THE ASSESSEE, WAS THE REDUCTIO N OF A LIABILITY TO INCOME-TAX (BY CLAIMING DEPRECIATION WITH REFERE NCE TO AN ENHANCED COST), THE ACTUAL COST TO THE ASSESSEE SHALL BE SUCH AN AMOUNT AS THE ASSESSING] OFFICER MAY, WITH THE PREVIOUS APPROVAL OF THE DEPUTY] COMMISSIONER, DETERMINE HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. REFERRING TO THE SAME HE SUBMITTED THAT THERE WAS N O QUESTION OF REDUCING THE TAX LIABILITY SINCE BOTH THE COMPANIES ARE FALLING UNDER 7 THE SAME TAX BRACKET. MERELY BECAUSE THERE WAS NO INDEPENDENT VALUATION OF THE DIESEL GENERATOR SET BY A REGISTER ED VALUER, THE SAME CANNOT BE THE BASIS FOR DISALLOWING THE CLAIM OF THE ASSESSEE. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD.C IT(A) ON THIS ISSUE BE SET-ASIDE AND THE GROUND RAISED BY THE ASS ESSEE BE ALLOWED. 8. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND STRONGLY SUPPORTED THE ORDER OF THE LD.CIT(A). 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS PURCHASED THE DIESEL GENERATOR SET AT RS.5,27,95,285/- FROM KIRLOSKAR OI L ENGINES LTD., IN BOOKS THE WDV OF THE SAID GENERATOR SET WAS SHOWN A T RS.4,05,14,509/-. WE FIND THE AO INVOKING EXPLANAT ION 3 TO SECTION 43(1) SUBSTITUTED THE COST OF THE DIESEL GENERATOR SET AT RS.4,05,14,509/- AND CONSEQUENTLY DISALLOWED DEPREC IATION AMOUNTING TO RS.18,42,116/- WHICH WAS UPHELD BY THE CIT(A). 9.1 IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE THERE WAS NO INTENTION OF AVOIDING OR REDUCIN G THE INCOME-TAX LIABILITY BY CLAIMING HIGHER DEPRECIATION, THEREFOR E, PROVISIONS OF EXPLANATION 3 TO SECTION 43(1) ARE NOT APPLICABLE. IT IS HIS SUBMISSION THAT BOTH THE COMPANIES ARE LISTED PUBLI C COMPANIES AND ARE GOVERNED BY SEBI CORPORATE GOVERNANCE NORMS. B OTH THE COMPANIES HAVE INDEPENDENT BOARD OF DIRECTORS. THE SUBMISSION OF 8 THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT THE COST OF NEW GENERATOR SET WAS AROUND RS.30.50 CRORES HAS NOT BE EN DISPUTED. 9.2 WE ALSO FIND FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE COST OF DURATION OF THE PROCUREME NT AND COMMISSIONING OF A NEW GENERATOR SET WHICH IS ABOUT 10 MONTHS WOULD HAVE AFFECTED THE PRODUCTION SCHEDULE OF THE ASSESSEE COMPANY. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT BOTH THE COMPANIES ARE M ANAGED BY SEPARATE BOARD OF DIRECTORS HAS NOT BEEN DISPUTED. SINCE UNDISPUTEDLY BOTH THE COMPANIES WHICH ARE LISTED PU BLIC COMPANIES AND ARE FALLING IN THE 30% TAX BRACKET, THEREFORE, THE APPREHENSION THAT SUCH TRANSFER WAS TO REDUCE THE TAX LIABILITY IS ALSO NOT CORRECT. FURTHER, THE AO HAS ALSO NOT ASCERTAINED THE MARKET VALUE OF A 10 TO 15 YEARS OLD GENERATOR SET OF SIMILAR CAPACITY PURC HASED BY THE ASSESSEE FROM KIRLOSKAR OIL ENGINES LTD. UNDER THE SE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THA T THE LD.CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE AO IN INVOKING EXPLANATION 3 TO SECTION 43(1). WE ACCORDINGLY SET -ASIDE THE ORDER OF THE LD.CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE DEPRECIATION AS CLAIMED BY THE ASSESSEE. ITA NO.1059/PN/2013 (BY REVENUE) : 10. GROUNDS OF APPEAL NO.1 AND 2 BY THE REVENUE REA DS AS UNDER : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD.CIT(A) WAS JUSTIFIED IN HOLDING THAT C OMMISSION PAID OF RS. 22 LACS TO NON-EXECUTIVE DIRECTOR IS AN ALLOWABLE EXPENSE SIMPLY BECAUSE THE SAME IS PAID IN ACCORDANCE WITH THE PROVIS IONS OF SEC. 309 OF THE COMPANIES ACT WHEN THE ONUS TO SUBMIT EVI DENCE TO PROVE THAT THE NON-EXECUTIVE DIRECTORS HAVE RENDERED ANY SERVICE 9 FOR WHICH COMMISSION WAS PAID WAS NOT DISCHARGED EVEN WH EN ASKED TO DO SO BY THE A.O. AND HENCE IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED FALLS WITHIN THE AMBIT OF SEC. 3 7 OF THE IT. ACT, 1961. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD.CIT(A) WAS JUSTIFIED IN NOT APPLYING T HE RATIO LAID DOWN IN THE DECISION OF THE LD. ITAT, HYDERABAD 'A' BENCH IN THE CASE OF ORIENT LONGMAN P. LTD VS. CIT IN ITA NO. 529/HYD/200 9, TO THE PRESENT ASSESSEE'S CASE. 10.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE C OMPANY HAS PAID RS.22 LAKHS AS COMMISSION TO NON EXECUTIVE DIRECTOR S. HE ASKED THE ASSESSEE TO JUSTIFY THE EXPENSES INCURRED AND EXPLA IN THE ALLOWABILITY OF THE SAME AS ACCORDING TO HIM NO SERVICES APPEAR TO HAVE BEEN RENDERED BY THESE PERSONS. IN RESPONSE TO THE SAME THE ASSESSEE SUBMITTED THAT THE PAYMENTS WERE MADE AS PER COMPAN IES ACT AND THEREFORE THE EXPENSES WERE ALLOWABLE. HOWEVER, TH E AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSE E AS ACCORDING TO HIM FOR EARNING THE COMMISSION SERVICES HAVE TO BE RENDERED. SINCE NO DOCUMENTARY EVIDENCE OF RENDERING SERVICES BY NO N EXECUTIVE DIRECTORS WAS PRODUCED, THE AO DISALLOWED THE COMMI SSION OF RS.22 LAKHS. 11. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE C OMMISSION PAID TO THE NON EXECUTIVE DIRECTORS WAS CALCULATED AS PER PROVISIONS OF SECTION 309 OF THE COMPANIES ACT, 1956. AS PER THE SAID SECTION THE COMPANY COULD HAVE PAID COMMISSION OF RS.64,74, 648/- TO ITS DIRECTORS SINCE ITS NET PROFIT FOR DISTRIBUTION OF REMUNERATION AND COMMISSION TO DIRECTORS WAS RS.64.75 CRORES. HOWEV ER, THE COMPANY HAS RESTRICTED THE PAYMENT OF COMMISSION TO RS.22 LAKHS 10 ONLY WHICH IS MUCH LESS THAN THE ALLOWABLE COMMISSI ON TO BE PAID TO THE DIRECTORS. 11.1 THE LD.CIT(A) ALLOWED THE CLAIM OF THE ASSESSE E BY OBSERVING AS UNDER : 12. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. IN THIS CASE, THE PAYMENT HAS BEEN MADE TO NON-EXECUTIVE DIRECTORS FOR WHICH NO SERVICES HAVE CLA IMED TO BEEN RENDERED BY THEM AS PER ASSESSING OFFICER. ON THE CONTRA RY, THE APPELLANT HAS SUBMITTED THAT THE PAYMENT TO NON-EXECU TIVE DIRECTORS WAS CALCULATED AS PER SEC. 309 OF THE COMPAN IES ACT. IT WAS ALSO SUBMITTED THAT THE LEARNED ASSESSING OFFICER FAILED TO APPRECIATE THE FACT IN PROPER PROSPECTIVE AND SIMILAR CLAIMS IN T HE HAND OF COMPANY WERE NEVER DISALLOWED IN THE PAST. IN THIS REG ARD, IT MUST BE APPRECIATED THAT NON-EXECUTIVE DIRECTORS ARE THE MEMBERS OF BOARD OF DIRECTORS AND THEY ENJOY POWERS AS DELEGATED TO THEM BY THE BOARD OF DIRECTORS OR VESTED IN THEM BY ARTICLES O F ASSOCIATION OF THE COMPANY. FURTHER, THE COMMISSION IS APPROVED BY TH E BOARD OF DIRECTORS AS PER COMPANIES ACT. IN THIS CASE, AS PER ANNU AL REPORT, COMMISSION TO THESE DIRECTORS WAS ALLOWABLE UP TO RS. 64 ,74,648/- AND AGAINST THIS, THE CLAIM WAS RESTRICTED TO RS. 22 L ACS ONLY. FURTHER, I ALSO FIND SUFFICIENT MERIT IN THE CLAIM OF APPELLAN T THAT NO SUCH DISALLOWANCE WAS MADE IN THE PAST. ACCORDINGLY, FROM THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THAT THE ASSESSING OF FICER WAS NOT JUSTIFIED IN DISALLOWING THE COMMISSION OF RS.22 LAC S TO NON- EXECUTIVE DIRECTORS. ACCORDINGLY, HE IS DIRECTED TO DELETE THE ADDITION OF RS.22 LACS. THE GROUND IS THUS ALLOWED. 11.2 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 12. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SU PPORTED THE ORDER OF THE AO AND SUBMITTED THAT SINCE THE ASSESS EE HAS NOT SUBSTANTIATED WITH EVIDENCE THE SERVICES RENDERED B Y THE NON- EXECUTIVE DIRECTORS, THEREFORE, THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. 13. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER H AND WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT T HE COMMISSION 11 WAS PAID AFTER DULY APPROVED BY THE BOARD OF DIRECT ORS AND THE COMMISSION IS WITHIN THE PERMISSIBLE LIMITS. FURTH ER, NO SUCH DISALLOWANCE WAS MADE IN THE PRECEDING ASSESSMENT Y EARS. REFERRING TO PAGE 19 OF THE AUDITED ACCOUNTS, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE LIST OF DIRE CTORS IN THE BOARD WHICH GIVES THE NAMES OF INDEPENDENT NON-EXECUTIVE DIRECTORS. HE SUBMITTED THAT NOW IT IS MANDATORY FOR EVERY LISTED PUBLIC COMPANY TO HAVE SPECIFIED NUMBER OF NON-EXECUTIVE DIRECTORS . THUS, NON- EXECUTIVE DIRECTORS ARE PART OF THE BOARD OF DIRECT ORS AND ARE RESPONSIBLE FOR THE MANAGEMENT OF THE COMPANY. UND ER THEIR OVERALL DIRECT SUPERVISION/MANAGEMENT THE EXECUTIVES OF THE COMPANY FUNCTION. CERTAIN COMMITTEES OF THE COMPANIES SUCH AS AUDIT COMMITTEE, SHARE HOLDERS GRIEVANCE COMMITTEE ETC. A RE MANDATORILY TO BE HEADED BY SUCH NON-EXECUTIVE DIRECTORS. REFE RRING TO PAGE 20 OF THE AUDITED ACCOUNTS, THE LD. COUNSEL FOR THE AS SESSEE DREW THE COMPOSITION OF THE AUDIT COMMITTEE AND THE NUMBER O F MEETINGS ATTENDED BY SUCH NON-EXECUTIVE DIRECTORS. FURTHER, TDS HAS BEEN DEDUCTED FROM SUCH PAYMENTS. THEREFORE, THERE WAS NO JUSTIFICATION ON THE PART OF THE AO TO DISALLOW THE COMMISSION SO PAID TO THE NON- EXECUTIVE DIRECTORS. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD.CIT(A) ON THIS ISSUE BE UPHELD. 13.1 SO FAR AS THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF ORIENT LONGMAN PVT. LTD., IS CONCERN ED, HE SUBMITTED THAT IT WAS A PRIVATE LIMITED COMPANY WHEREAS THE A SSESSEE COMPANY IS A LISTED PUBLIC COMPANY AND IT IS MANDATORY FOR THE COMPANY TO 12 HAVE SPECIFIED NUMBER OF NON-EXECUTIVE DIRECTORS WH O ARE REQUIRED TO HEAD VARIOUS COMMITTEES. THEREFORE, THE SAID DE CISION IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IT IS MANDATO RY FOR LISTED PUBLIC COMPANIES TO HAVE SPECIFIED NUMBER OF INDEPENDENT N ON-EXECUTIVE DIRECTORS COULD NOT BE CONTROVERTED BY THE LD. DEPA RTMENTAL REPRESENTATIVE. THEREFORE, THE DECISION OF THE HYD ERABAD BENCH OF THE TRIBUNAL IN THE CASE OF ORIENT LONGMAN PVT. LTD ., (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE A UDITED ACCOUNTS OF THE ASSESSEE COMPANY SHOW THE MEETINGS ATTENDED BY THE NON- EXECUTIVE DIRECTORS IN THE BOARD MEETING AS WELL AS MEETINGS OF THE AUDIT COMMITTEE. FURTHER, SIMILAR PAYMENTS MADE IN THE PAST HAVE NOT BEEN DISALLOWED. THE PAYMENT OF COMMISSION HAS ALSO BEEN APPROVED BY THE BOARD OF DIRECTORS AND WITHIN THE P ERMISSIBLE LIMIT OF THE COMPANIES ACT. IN VIEW OF THE ABOVE, WE FIN D NO INFIRMITY IN THE ORDER OF THE LD.CIT(A) DELETING THE DISALLOWANC E OF RS. 22 LAKHS BEING COMMISSION PAID TO NON-EXECUTIVE DIRECTORS. ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENU E ARE DISMISSED. 15. GROUNDS OF APPEAL NO.3 AND 4 BY THE REVENUE REA DS AS UNDER : 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD.CIT(A) WAS JUSTIFIED IN DIRECTING THE A.O. TO ALLOW SET OFF OF UNABSORBED DEPRECIATION RELATING TO A.Y. 1997 -98 TO 1999-00 13 AGAINST THE INCOME OF A.Y. 2008-09 WHEN AS PER THE PR OVISIONS OF SEC. 32(2) OF THE I.T.ACT AS APPLICABLE FOR THE A.Y. 199 7-98 TO 1999-00 UNABSORBED DEPRECIATION CANNOT BE SET-OFF FOR A PERI OD OF MORE THAN EIGHT ASSESSMENT YEARS SUCCEEDING THE ASSESSMENT YEAR IN WHIC H THE ALLOWANCE WAS FIRST COMPUTED? 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD.CIT(A) WAS JUSTIFIED IN NOT APPLYING T HE RATIO LAID DOWN IN THE DECISION OF THE LD. ITAT, SPECIAL BENCH 'E' M UMBAI IN THE CASE OF M/S. TIMES GUARANTEE LIMITED IN ITA NOS. 4917 & 4918.MUM/2008, TO THE PRESENT ASSESSEE'S CASE. 15.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED FROM THE DETAILS ON BROUGHT FORWARD LOSSES/UNABSORBED DEPRECIATION FILED BY THE ASSESSEE THAT THE ASSESSEE HAS SET OFF UNABSORBED DEPRECIATION OF RS. 10,42,25,278/- PERTAINING TO A.Y. 1999-2000 AGAINST THE INCOME OF THE CURRENT YEAR. RELYING ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TIMES GUARANTEE LTD., WHERE IT HAS BEEN HEL D THAT FOR A.Y. 1998-99 TO 2001-02 THE UNABSORBED DEPRECIATION IS P ERMITTED TO BE CARRIED FORWARD TO 8 YEARS ONLY AND SET OFF AGAINST PROFIT AND GAIN FOR THE BUSINESS AND PROFESSION, THE. AO DISALLOWED TH E CLAIM OF SET OFF OF UNABSORBED DEPRECIATION OF A.Y. 1999-2000. HE A CCORDINGLY MADE ADDITION OF RS.10,42,25,278/- TO THE TOTAL INC OME OF THE ASSESSEE. 16. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE D ECISION OF THE SPECIAL BENCH HAS BEEN OVERRULED BY THE HONBLE GUJ ARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA PVT. LTD., VS. DCIT. FURTHER, THE SAME HAS BEEN FOLLOWED BY THE MUMBAI BENCH OF THE T RIBUNAL IN THE CASE OF WEIZMANN LTD. VS. DCIT VIDE ITA NO.5697/MUM /2008 ORDER DATED 07-02-2013. FOLLOWING THE ABOVE DECISI ONS, THE 14 LD.CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOR WHI CH THE REVENUE IS IN APPEAL BEFORE US. 17. AFTER HEARING BOTH THE SIDES, WE FIND THE ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS I NDIA PVT. LTD., VS. DCIT VIDE SPECIAL CIVIL APPLICATION NO.1773/201 2 ORDER DATED 23-08-2012. WE FIND THE HONBLE HIGH COURT WHILE D ECIDING THE ISSUE HAS OBSERVED 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 PE RIOD OF EIGHT YEARS OR IT WOULD BE GOVERNED BY SECTION 32 AS AMENDED BY FINANCE ACT 2001? THE REASON GIVEN BY THE ASSESSING OFFICER UNDER SEC TION 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 DEPRECIA TION FOR THE A.Y. 1997-98 COULD BE CARRIED FORWARD UP TO THE MAX IMUM 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 OF F AGAINST THE INCOME FOR THE A.Y. 2005-06. BUT THE ASSESSEE WAS NOT EN TITLED 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 UNABSO RBED DEPRECIATION FOR ANY YEAR WAS ALLOWED TO BE CARRY F ORWARD INDEFINITELY AND BY A DEEMING FICTION BECAME ALLOWA NCE OF THE IMMEDIATELY SUCCEEDING YEAR. THE FINANCE ACT NO.2 OF 1996 RESTRICTED THE CARRY FORWARD OF UNABSORBED DEPRECIATI ON AND SET-OFF TO A LIMIT OF 8 YEARS, FROM THE A.Y.1997-98. CIRCULA R NO.762 DATED 18.2.1998 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES (CBDT) IN THE FORM OF EXPLANATORY NOTES CATEGORICALLY PROVIDED, TH AT THE UNABSORBED DEPRECIATION ALLOWANCE FOR ANY PREVIOUS YE AR TO WHICH FULL EFFECT CANNOT BE GIVEN IN THAT PREVIOUS YEAR SHA LL 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 U NABSORBED DEPRECIATION WOULD START FROM A.Y. 1997-98. 33. WE MAY NOW EXAMINE THE PROVISIONS OF SECTION 32(2) OF THE ACT BEFORE ITS AMENDMENT BY FINANCE ACT 2001. THE SECTIO N PRIOR TO ITS AMENDMENT BY FINANCE ACT, 2001, READ AS UNDER:- 15 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 CHARGE ABLE FOR THAT PREVIOUS YEAR OR OWING TO THE PROFITS OR GAINS BEING L ESS THAN THE ALLOWANCE, THEN, THE ALLOWANCE OR THE PART OF ALLOW ANCE TO WHICH EFFECT HAS NOT BEEN GIVEN (HEREINAFTER REFERRED TO A S UNABSORBED DEPRECIATION ALLOWANCE), AS THE CASE MAY BE,- (I) SHALL BE SET OFF AGAINST THE PROFITS AND GAINS, IF A NY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT A SSESSMENT YEAR; (II) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SET OFF UNDER CLAUSE (I), THE AMOUNT NOT SO SET OFF SHALL B E SET OFF FROM THE INCOME UNDER ANY OTHER HEAD, IF ANY, ASSESSABLE FOR THA T ASSESSMENT YEAR; (III) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNO T BE WHOLLY SET OFF UNDER CLAUSE (I) AND CLAUSE (II), THE AMOUNT OF A LLOWANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSM ENT YEAR AND (A) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAINS, I F ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR; (B) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SO SET OFF, THE AMOUNT OF UNABSORBED DEPRECIATION ALLOWANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEA R NOT BEING MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING T HE ASSESSMENT YEAR FOR WHICH THE AFORESAID ALLOWANCE WAS FIR ST COMPUTED: PROVIDED THAT THE TIME LIMIT OF EIGHT ASSESSMENT YEARS SP ECIFIED 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 S ICK INDUSTRIAL COMPANY UNDER SUB-SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANY (SPECIAL PROVISIONS) ACT, 1985 (1 O F 1986) AND ENDING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIO US YEAR IN WHICH THE ENTIRE NET WORTH OF SUCH COMPANY BECOMES EQ UAL 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 TH E 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 CANN OT BE GIVEN TO ANY ALLOWANCE UNDER SUB-SECTION (1) IN ANY PREVIOU S YEAR, OWING 16 TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THA T PREVIOUS YEAR, OR OWING TO THE PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THA N THE ALLOWANCE, THEN, SUBJECT TO THE PROVISIONS OF SUB-SECTIO N (2) OF SECTION 72 AND SUB-SECTION (3) OF SECTION 73, THE ALLOW ANCE OR THE PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN G IVEN, AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANC E FOR DEPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DEE MED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE F OR THAT PREVIOUS YEAR, BE DEEMED TO BE ALLOWANCE OF THAT PREVIOUS YEA R, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS. 36. THE PURPOSE OF THIS AMENDMENT HAS BEEN CLARIFIED B Y 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 DEPRECIA TION IS ALLOWED FOR 8 ASSESSMENT YEARS. 30.2 WITH A VIEW TO ENABLE THE INDUSTRY TO CONSERVE SU FFICIENT FUNDS TO REPLACE PLANT AND MACHINERY, SPECIALLY IN AN ERA WHERE OBSOLESCENCE TAKES PLACE SO OFTEN, THE ACT HAS DISPENSED W ITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THE ACT HAS ALSO CLARIFIED THAT IN COMP UTING 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 D EPRECIATION IS ALLOWED ON ANY MOTOR CAR MANUFACTURED OUTSIDE INDIA UNLESS IT IS USED (I) IN THE BUSINESS OF RUNNING IT ON HIRE FOR TOUR ISTS, OR (II) OUTSIDE IN THE ASSESSEES BUSINESS OR PROFESSION IN ANOTHER CO UNTRY. 30.4 THE ACT HAS ALLOWED DEPRECIATION ALLOWANCE ON A LL IMPORTED MOTOR CARS ACQUIRED ON OR AFTER 1ST APRIL, 2001. 30.5 THESE AMENDMENTS WILL TAKE EFFECT FROM THE 1ST AP RIL, 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 AM ENDMENT 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 ASSESSMEN T YEAR 2002-03 AND SUBSEQUENT YEARS. THIS MEANS THAT ANY UNABSO RBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1ST DAY OF APRI L, 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 A MENDMENT. HAD THE INTENTION OF THE LEGISLATURE BEEN TO ALLOW T HE UNABSORBED DEPRECIATION ALLOWANCE WORKED OUT IN A.Y. 1997-98 O NLY FOR EIGHT SUBSEQUENT ASSESSMENT YEARS EVEN AFTER THE AMENDMENT OF SEC TION 32(2) BY FINANCE ACT, 2001 IT WOULD HAVE INCORPORAT ED A PROVISION TO THAT EFFECT. HOWEVER, IT DOES NOT CONTAIN ANY SUCH PR OVISION. HENCE KEEPING IN VIEW THE PURPOSE OF AMENDMENT OF SECTION 3 2(2) OF THE ACT, A PURPOSIVE AND HARMONIOUS INTERPRETATION HAS TO BE TAKEN. 17 WHILE CONSTRUING TAXING STATUTES, RULE OF STRICT INTERP RETATION HAS TO BE APPLIED, GIVING FAIR AND REASONABLE CONSTRUCTION T O THE LANGUAGE OF THE SECTION WITHOUT LEANING TO THE SIDE OF ASSESSEE OR T HE REVENUE. BUT IF THE LEGISLATURE FAILS TO EXPRESS CLEARLY AND THE ASSESSEE BECOMES ENTITLED FOR A BENEFIT WITHIN THE AMBIT OF T HE SECTION BY THE CLEAR WORDS USED IN THE SECTION, THE BENEFIT ACCRUING TO THE ASSESSEE CANNOT BE DENIED. HOWEVER, CIRCULAR NO.14 OF 2001 H AD CLARIFIED THAT UNDER SECTION 32(2), IN COMPUTING THE PROFITS AND GA INS OF BUSINESS OR PROFESSION FOR ANY PREVIOUS YEAR, DEDUCTION OF DEPR ECIATION UNDER SECTION 32 SHALL BE MANDATORY. THEREFORE, THE PROVISI ONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 WOULD ALLOW TH E UNABSORBED DEPRECIATION ALLOWANCE AVAILABLE IN THE A.Y. 1997-9 8, 1999-2000, 2000-01 AND 2001-02 TO BE CARRIED FORWARD TO THE SUC CEEDING YEARS, AND IF ANY UNABSORBED DEPRECIATION OR PART THEREOF C OULD 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 DEPRECIA TION IS DEDUCTIBLE IN THE FIRST PLACE FROM THE INCOME OF THE BUSINESS TO W HICH IT RELATES. IF SUCH DEPRECIATION AMOUNT IS LARGER THAN THE AMOUNT OF THE PROFITS OF THAT BUSINESS, THEN SUCH EXCESS COMES FOR ABSORPTION FRO M THE PROFITS AND GAINS FROM ANY OTHER BUSINESS OR BUSINESS, IF A NY, CARRIED ON BY THE ASSESSEE. IF A BALANCE IS LEFT EVEN THEREAFTE R, THAT BECOMES DEDUCTIBLE FROM OUT OF INCOME FROM ANY SOURCE UNDER ANY OF THE OTHER HEADS OF INCOME DURING THAT YEAR. IN CASE THER E IS A STILL BALANCE LEFT OVER, IT IS TO BE TREATED AS UNABSORBED DEPRECIA TION AND IT IS TAKEN TO THE NEXT SUCCEEDING YEAR. WHERE THERE IS CU RRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR THE UNABSORBED DEPRECIATION IS ADDED TO THE CURRENT DEPRECIATION FOR SUCH SUCCEED ING YEAR AND IS DEEMED AS PART THEREOF. IF, HOWEVER, THERE IS NO CURR ENT DEPRECIATION FOR SUCH SUCCEEDING YEAR, THE UNABSORBED DEPRECIATION BECOMES THE DEPRECIATION ALLOWANCE FOR SUCH SUCCEEDING YEAR. WE A RE OF THE CONSIDERED OPINION THAT ANY UNABSORBED DEPRECIATION A VAILABLE 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 AMEN DED BY FINANCE ACT, 2001. AND ONCE THE CIRCULAR NO.14 OF 2 001 CLARIFIED THAT THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET O FF OF UNABSORBED DEPRECIATION HAD BEEN DISPENSED WITH, THE UNABSORBED D EPRECIATION FROM A.Y.1997-98 UPTO THE A.Y.2001-02 GOT CARRIED F ORWARD TO THE ASSESSMENT YEAR 2002-03 AND BECAME PART THEREOF, IT CAM E TO BE GOVERNED BY THE PROVISIONS OF SECTION 32(2) AS AMENDE D 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. 17.1 SINCE THE LD.CIT(A) WHILE DECIDING THE ISSUE I N FAVOUR OF THE ASSESSEE HAS FOLLOWED THE DECISION OF THE HONBLE G UJARAT HIGH COURT, THEREFORE, THE SAME SHALL PREVAIL OVER THE D ECISION OF THE SPECIAL BENCH OF THE TRIBUNAL. WE, THEREFORE, DO N OT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A). ACCORDING LY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DI SMISSED. 18 18. GROUND OF APPEAL NO. 5 BEING GENERAL IN NATURE IS DISMISSED. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 27-11-2014. SD/- SD/- (SUSHMA CHOWLA) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT ME MBER PUNE DATED: 27 TH NOVEMBER, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-V, PUNE 4. THE CIT-V, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE