DCM Hyundai Ltd., Thiruninravur V. ACIT, CHENNAI

ITA 1125/CHNY/2012

• Counselvise Citation: 112521714 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 22-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T BANUSEKAR
• Keywords: Business income; Revision of order; Depreciation; Unabsorbed depreciation
• Section: 143(3); 32; 147; 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI S. S. GODARA, JUDICIAL MEMBER] I.T.A.NO.1125/MDS/2012 ASSESSMENT YEAR : 2007-08 M/S DCM HYUNDAI LTD NO.2, GROUND FLOOR SRIRAM NAGAR PRAKASH NAGAR MAIN ROAD THIRUNINRAVUR THIRUVALLUVAR DISTRICT 602 024 VS THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I(4) CHENNAI [PAN AAACD 2712 K] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T. BANUSEKAR, CA RESPONDENT BY : SHRI SHAJI P. JACOB, ADDL. CIT DATE OF HEARING : 02-01-2014 DATE OF PRONOUNCEMENT : 06-01-2014 O R D E R PER S.S.GODARA, JUDICIAL MEMBER THIS APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2007-08, IS DIRECTED AGAINST THE ORDER OF THE COMMI SSIONER OF INCOME- TAX CHENNAI-I, DATED 29.3.2012, PASSED IN C.NO.218( 49)/CIT-I/263/ 2011-12, IN PROCEEDINGS UNDER SECTION 263 OF THE IN COME-TAX ACT, 1961 (IN SHORT THE ACT). I.T.A.NO.1125/12 :- 2 -: 2. IN THE COURSE OF HEARING, THE ASSESSEE SUBMITS TH AT THE CIT HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO RE- EXAMINE THE ISSUE OF SETTING OF BROUGHT FORWARD UNABSORBED DEPRECIATION IN PROCEEDINGS U/S 263 OF THE ACT. IT IS CONTENDED THAT THE ASSE SSING OFFICER, WHILE FRAMING REGULAR ASSESSMENT VIDE ORDER DATED 23.12 .2009, HAD RIGHTLY HELD IT ENTITLED FOR THE RELIEF OF UNABSORBED DEPRE CIATION OF ` 8,21,94,859/- AGAINST SHORT TERM CAPITAL GAINS OF E VEN AMOUNT. IN SUPPORT OF THE ARGUMENTS, THE ASSESSEE SUBMITS TWO PAPER BOOKS. ONE OF THEM CONTAINS THE FOLLOWING DOCUMENTS: (I) DECLARATION FROM AUTHORIZED REPRESENTATIVE. (II) COPY OF RETURN OF INCOME AND COMPUTATION OF INCOME FOR THE ASSESSMENT YEAR 2007-08. (III) COPY OF ANNUAL REPORT FOR THE FINANCIAL YEAR 2006-0 7. (IV) COPY OF THE ASSESSMENT ORDER U/S 143(3) FOR THE ASSESSMENT YEAR 2007-08. (V) COPY OF SHOW CAUSE NOTICE U/S 263 DATED 9.3.2012 F OR THE ASSESSMENT YEAR 2007-08. (VI) COPY OF THE ORDER OF THE BIFR. THE OTHER PAPER BOOK COMPRISES OF CATENA OF CASE L AW AS UNDER: I.T.A.NO.1125/12 :- 3 -: (I) GENERAL MOTORS INDIA (P) LTD VS DCIT [2013] 25 7 CTR(GUJ) 123. (II) DEVESH METCAST LTD VS JCIT [2011] 338 ITR 130 (GUJ) . (III) A. AMBOIRAM VS DCIT IN I.T.A.NO. 1952/MDS/2012 DATED 5.8.2013. (IV) CONFIDENCE PETROLEUM INDIA LTD VS DCIT IN I.T.A.NO. 1937/MUM/2012 DATED 24.7.2013. (V) DCIT VS ANDHRA PETROCHEMICALS LTD [2010] 123 ITD 89(VISAKHA). (VI) RELIANCE JUTE & INDUSTRIES LTD VS CIT [1979] 120 IT R 921 (SC). (VII) JAI USHIN LTD VS DCIT [2009] 117 ITD 1 (DELHI). (VIII) CIT VS MAX INDIA LTD [2007] 295 ITR 282(SC) ACCORDINGLY, ACCEPTANCE OF APPEAL HAS BEEN PRAYED F OR. 3. THE REVENUE IN ITS ARGUMENTS STRONGLY JUSTIFIES THE ORDER OF THE CIT IN SECTION 263 PROCEEDINGS. IT SUBMITS THA T SINCE IMPUGNED BROUGHT FORWARD UNABSORBED DEPRECIATION OF THE ASSE SSMENT YEAR 1996-97 HAD BEEN WRONGLY ALLOWED TO BE SET OFF BY T HE ASSESSING OFFICER, THE CIT HAS APPROPRIATELY EXERCISED HIS J URISDICTION VESTED U/S 263 OF THE ACT. SIMILARLY, IT IS ALSO ARGUED THAT THE ASSESSING OFFICER HAD FAILED TO CONDUCT NECESSARY ENQUIRY BEFORE FRAM ING REGULAR ASSESSMENT, THE ONLY RECOURSE OPEN TO THE CIT WAS T O INVOKE SECTION 263 JURISDICTION. IT PLACES RELIANCE ON THE CASE L AW OF 243 ITR 83(SC) I.T.A.NO.1125/12 :- 4 -: MALABAR INDUSTRIAL CO. LTD. VS CIT, [2010]4 ITR (TR IB) 210(MUMBAI) (SB) DCIT VS TIMES GUARANTY LTD., AND [2011] 337 IT R 56 (DELHI) CIT VS EASTERN MEDIKIT LTD. AND PRAYS FOR UPHOLDING THE CITS ORDER. 4. THE ASSESSEE/COMPANY, MANUFACTURERS DRY FREIGHT SPE CIAL CONTAINERS. IT HAD FILED ITS RETURN ON 29.10.2007 DISCLOSING ` NIL AS INCOME. THE ASSESSEE HAD SET OFF BROUGHT FORWARD BUSINESS LOSSES OF ` 32,02,08,249/- AGAINST BUSINESS INCOME AND UNABSORB ED DEPRECIATION OF ` 8,21,94,859/- AS AGAINST SHORT TERM CAPITAL GAINS. THE RETURN WAS SUMMARILY PROCESSED ON 15.10.2008. THEREAFTER, T HE ASSESSING OFFICER FRAMED REGULAR ASSESSMENT ON 23.12.2009, INTER ALIA, MAKING ADDITIONS TOWARDS WAIVER OF PRINCIPAL PORTION OF UN SECURED LOAN FROM M/S DSIL, CURRENT LIABILITIES OF THE SAME ENTITY, W AIVER OF TRADE CREDITORS AND DISALLOWANCE U/S 37 OF THE ACT AGGRE GATING TO ` 53,77,48,249/-. ALONGWITH THE SAME, THERE WERE SHO RT TERM CAPITAL GAINS OF ` 82,19,04,859/- TAKING THE TOTAL INCOME TO ` 61,99,43,108/-. THEREAFTER, THE ASSESSING OFFICER REDUCED FROM THE SAME BROUGHT FORWARD BUSINESS LOSSES OF ASSESSMENT YEARS 1999-20 00, 2000-01, 2001-02, 2002-03 AND 2005-06 OF ` 12,89,72,887/-, ` 11,14,98,322/-, ` 12,83,47,855/-, ` 11,75,67,528/-, AND ` 5,13,61,657, RESPECTIVELY. HE ALSO SET OFF IMPUGNED UNABSORBED DEPRECIATION OF AS SESSMENT YEAR I.T.A.NO.1125/12 :- 5 -: 1996-97 (SUPRA). IN VIEW OF THE FACT THAT THE GROS S INCOME AS WELL AS THE TOTAL BROUGHT FORWARD LOSSES AND UNABSORBED DEP RECIATION STOOD AT ` 61,99,43,108/-, THE ASSESSEES INCOME WAS COMPUTED AS ` NIL. IN THIS MANNER, REGULAR ASSESSMENT IN ASSESSEES CA SE ATTAINED FINALITY. 5. IT IS TO BE SEEN FROM THE CASE FILE THAT ON 9.3.201 2, THE CIT ISSUED SECTION 263 NOTICE TO THE ASSESSEE PROPOSIN G TO REVISE THE ASSESSMENT ON THE GROUND THAT THE SAME WAS ERRONEO US CAUSING PREJUDICE TO THE INTEREST OF THE REVENUE. THE RE ASONS STATED IN THE NOTICE READ AS UNDER: 2. SO FAR AS THE ADJUSTMENT OF UNABSORBED DEPRECIA TION OF A.Y 1996-97 AGAINST SHORT TERM CAPITAL GAINS OF ` 8,21,94,859 IS CONCERNED, THE SUCH UNABSORBED DEPRECIATION GETS ME RGED WITH THE VALUE OF UNABSORBED DEPRECIATION AS AT 1/04/199 7 AND THE SAME IS ALLOWED TO BE ADJUSTED AGAINST BUSINESS INC OME AND AVAILABLE FOR SET OFF FOR THE NEXT EIGHT YEARS. TH EREFORE, THE ADJUSTMENT OF UNABSORBED DEPRECIATION OF A.Y 1996-9 7 AGAINST SHORT TERM CAPITAL GAINS OF ` 8,21,94,859/- IS INCORRECT FOR THE REASON THAT THE TIME LIMIT OF EIGHT YEARS HAS ELAPS ED. FURTHER SUCH AN UNABSORBED DEPRECIATION OF A.Y 1996-97 COUL D NOT BE SET OFF AGAINST ANY HEAD OF INCOME OTHER THAN PROFITS AND GAINS OF BUSINESS. IN REPLY, THE ASSESSEE QUOTED SECTION 32(2) AMENDE D VIDE FINANCE ACT, 1997, REMOVING THE DEEMING FICTION OF UNABSORB ED DEPRECIATION PERTAINING TO PRECEDING ASSESSMENT YEARS AS THAT OF CURRENT YEARS DEPRECIATION AND ALSO SPEECH OF THE FINANCE MINISTE R TENDERED IN THE I.T.A.NO.1125/12 :- 6 -: PARLIAMENT CLARIFYING THAT THE UNABSORBED DEPRECIAT ION WOULD BE ALLOWED TO BE SET OFF AGAINST TAXABLE INCOME UNDER ANY HEAD. ITS FURTHER SUBMISSION WAS THAT SUCH DEPRECIATION COULD BE SET OFF EVEN BEYOND EIGHT YEARS PERIOD AS WELL AND FOR THAT MATT ER, IT COULD BE TAKEN TO UNLIMITED PERIOD OF TIME. PER ASSESSEE, THE PRESENT WAS A DEBATABLE ISSUE WHICH COULD NOT BE SUBJECT MATTER O F SECTION 263 PROCEEDINGS. IT ALSO HIGHLIGHTED THE FACT THAT BEI NG A SICK UNIT DECLARED BY THE BIFR ORDER DATED 7.9.2007, AFORESAID TIME LI MIT OF EIGHT YEARS WOULD NOT APPLY IN ITS CASE. 6. IT TRANSPIRES TO US FROM THE CITS ORDER THAT HE HA S NOT CONCURRED WITH THE ASSESSEES AFORESAID PLEADINGS. BY QUOTING DECISION OF [2010] 4 ITR (TRIB) 210 (MUMBAI)(SB) DCIT VS TIM ES GUARANTY LTD., HE HOLDS THAT SINCE THE IMPUGNED UNABSORBED DEPRECI ATION PERTAINS TO ASSESSMENT YEAR 1996-97, THE SAME COULD BE SET OFF FOR A MAXIMUM PERIOD OF EIGHT ASSESSMENT YEARS I.E UPTO 2005-06 A ND NOT IN THE IMPUGNED ASSESSMENT YEAR I.E 2007-08 AGAINST ANY HE AD OF INCOME; WHATSOEVER IT MAY BE. COMING TO ASSESSEES PLEA OF SICK UNIT (SUPRA), T HE CIT IS FAIR ENOUGH NOT TO DISPUTE ITS STATUS. HOWEVER, HE IS O F THE VIEW THAT WITH EFFECT FROM 1.4.2002 SUCH RELIEF U/S 32(2) OF THE A CT STANDS WITHDRAWN. I.T.A.NO.1125/12 :- 7 -: IN OTHER WORDS, THE CIT OBSERVES THAT THERE IS NO S UCH PROVISION IN THE ACT AS ON 1.4.2006 I.E RELEVANT ACCOUNTING PERIOD O F THE IMPUGNED ASSESSMENT YEAR. PER CIT, THERE IS ONLY ONE VIEW P OSSIBLE SO FAR AS ASSESSEES CLAIM IS CONCERNED AND THAT FAVOURS THE REVENUE ONLY. THEREFORE, HE HAS TURNED DOWN ASSESSEES RELEVANT E XPLANATION AND DIRECTED THE ASSESSING OFFICER TO RE-FRAME ASSESSM ENT IN ASSESSEES CASE AFTER EXAMINING THE CLAIM AFRESH. THEREFORE, THE ASSESSEE HAS PREFERRED THE INSTANT APPEAL. 7. WE HAVE HEARD BOTH PARTIES AT LENGTH AND PERUSED TH E CASE FILE. THE JUDICIAL PRECEDENTS QUOTED BY THE ASSES SEE AS WELL AS THE REVENUE (SUPRA) HAVE BEEN GONE THROUGH. IN VIEW OF THE CONTRADICTING PLEAS OF BOTH THE PARTIES, THE QUESTI ON WHICH ARISES FOR OUR CONSIDERATION IS AS TO WHETHER THE ASSESSING OF FICER HAD RIGHTLY ALLOWED BENEFIT OF SETTING OFF OF UNABSORBED DEPREC IATION PERTAINING TO ASSESSMENT YEAR 1996-97 IN THE IMPUGNED ASSESSMENT YEAR I.E 2007- 08 AGAINST SHORT TERM CAPITAL GAINS. WE NOTICE THA T ON 23.12.2009 THE ASSESSING OFFICER HAD ALLOWED THE ASSESSEE TO SET OFF THE IMPUGNED UNABSORBED DEPRECIATION AGAINST SHORT TERM CAPITAL GAINS. UNDISPUTEDLY, AT THAT TIME, APART FROM THE RELEVANT PROVISION IN THE STATUTE, THERE WAS NO DECISION EITHER OF THE TRIBU NAL OR THAT OF ANY I.T.A.NO.1125/12 :- 8 -: HON'BLE HIGH COURT OR APEX COURT. AFTER FINALIZATI ON OF REGULAR ASSESSMENT ON 23.12.2009, THE SPECIAL BENCH OF THE TRIBUNAL IN TIMES GUARANTY LTD.S CASE (SUPRA) TRISECTED THE APPLICAT ION OF THE RELEVANT PROVISION I.E SECTION 32(2) AS UNDER: 38. THE LEGAL POSITION OF CURRENT AND BROUGHT FOR WARD UNADJUSTED/ UNABSORBED DEPRECIATION ALLOWANCE IN THE THREE PERI ODS, IS SUMMARISED AS UNDER: (A) IN THE FIRST PERIOD (I.E UPTO THE ASSESSMENT YE AR 1996-97) (I) CURRENT DEPRECIATION, THAT IS THE AMOUNT OF ALL OWANCE FOR THE YEAR UNDER SECTION 32(1), CAN BE SET OFF AGAINST IN COME UNDER ANY HEAD WITHIN THE SAME YEAR. (II) AMOUNT OF SUCH CURRENT DEPRECIATION WHICH CANN OT BE SO SET OFF WITHIN THE SAME YEAR AS PER (I) ABOVE SHALL BE DEEMED AS DEPRECIATION UNDER SECTION 32(1), THAT IS DEPRECIAT ION FOR THE CURRENT YEAR IN THE FOLLOWING YEAR(S) TO BE SET OFF AGAINST INCOME UNDER ANY HEAD, LIKE CURRENT DEPRECIATION. (B) IN THE SECOND PERIOD (I.E., ASSESSMENT YEARS 19 97-98 TO 2001-02) (I) BROUGHT FORWARD UNADJUSTED DEPRECIATION ALLOWAN CE FOR AND UP TO THE ASSESSMENT YEAR 1996-97 (HEREINAFTER CALL ED THE 'FIRST UNADJUSTED DEPRECIATION ALLOWANCE'), WHICH COULD NO T BE SET OFF UPTO THE ASSESSMENT YEAR 1996-97, SHALL BE CARRIED FORWARD FOR SET OFF AGAINST INCOME UNDER ANY HEAD FOR A MAXIMUM PERIOD OF EIGHT ASSESSMENT YEARS STARTING FROM THE ASSESSMENT YEAR 1997-98. (II) CURRENT DEPRECIATION FOR THE YEAR UNDER SECTIO N 32(1) (FOR EACH YEAR SEPARATELY STARTING FROM THE ASSESSMENT Y EARS 1997- 98 UP TO 2001-02) CAN BE SET OFF FIRSTLY AGAINST BU SINESS INCOME AND THEN AGAINST INCOME UNDER ANY OTHER HEAD. (III) AMOUNT OF CURRENT DEPRECIATION FOR THE ASSESS MENT YEARS 1997-98 TO 2001-02 WHICH CANNOT BE SO SET OFF AS PE R (II) ABOVE, HEREINAFTER CALLED THE 'SECOND UNABSORBED DE PRECIATION ALLOWANCE' SHALL BE CARRIED FORWARD FOR A MAXIMUM P ERIOD OF EIGHT ASSESSMENT YEARS FROM THE ASSESSMENT YEAR IMM EDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH IT WAS FIR ST I.T.A.NO.1125/12 :- 9 -: COMPUTED, TO BE SET OFF ONLY AGAINST THE INCOME UND ER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. (C) IN THE THIRD PERIOD (I.E., ASSESSMENT YEAR 2002 -03 ONWARDS) (I) 'FIRST UNADJUSTED DEPRECIATION ALLOWANCE' CAN B E SET OFF UPTO THE ASSESSMENT YEAR 2004-05, THAT IS, THE REMAINING PERIOD OUT OF MAXIMUM PERIOD OF EIGHT ASSESSMENT YEARS (AS PER (BI) ABOVE) AGAINST INCOME UNDER ANY HEAD. (II) 'SECOND UNABSORBED DEPRECIATION ALLOWANCE' CAN BE SET OFF ONLY AGAINST THE INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' WITHIN A PERIOD OF EIGHT AS SESSMENT YEARS SUCCEEDING THE ASSESSMENT YEAR FOR WHICH IT W AS FIRST COMPUTED. (III) CURRENT DEPRECIATION FOR THE YEAR UNDER SECTI ON 32(1), FOR EACH YEAR SEPARATELY, STARTING FROM THE ASSESSMENT YEAR 2002- 03 CAN BE SET OFF AGAINST INCOME UNDER ANY HEAD. AM OUNT OF DEPRECIATION ALLOWANCE NOT SO SET OFF (HEREINAFTER CALLED THE 'THIRD UNADJUSTED DEPRECIATION ALLOWANCE') SHALL BE CARRIED FORWARD TO THE FOLLOWING YEAR. (IV) THE 'THIRD UNADJUSTED-DEPRECIATION ALLOWANCE' SHALL BE DEEMED AS DEPRECIATION UNDER SECTION 32(1), THAT IS DEPRECIATION FOR THE CURRENT YEAR IN THE FOLLOWING YEAR(S) TO BE SET OFF AGAINST INCOME UNDER ANY HEAD, LIKE CURRENT DEPRECIATION, IN PERPETUITY. 8. HOWEVER, THE HON'BLE GUJARAT HIGH COURT ON 11.4.201 1 TOOK A CONTRARY VIEW IN THE CASE OF DEVESH METCAST LTD (SU PRA) AND HELD THAT IN SUCH CIRCUMSTANCES, UNABSORBED DEPRECIATION COUL D BE ALLOWED TO BE SET OFF. SIMILAR VIEW HAS BEEN REITERATED IN THE CASE OF GENERAL MOTORS (SUPRA) ON 23.8.2012 OBSERVING AS UNDER: I.T.A.NO.1125/12 :- 10 -: 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 O FF AFTER A PERIOD OF EIGHT YEARS OR IT WOULD BE GOVERNED BY SE CTION 32 AS AMENDED BY FINANCE ACT 2001? THE REASON GIVEN BY THE 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. 199 7-98 COULD BE CARRIED FORWARD UP TO THE MAXIMUM PERIOD OF 8 YE ARS FROM THE YEAR IN WHICH IT WAS FIRST COMPUTED. ACCORDING TO T HE ASSESSING OFFICER, 8 YEARS EXPIRED IN THE A. Y., 2005-06 AND ONLY TILL THEN, THE ASSESSEE WAS ELIGIBLE TO CLAIM UNABSORBED DEPRECIAT ION OF A.Y. 1997-98 FOR BEING CARRIED FORWARD AND SET OFF AGAIN ST 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 AN D SET OFF AGAINST THE INCOME FOR THE A.Y; 2006-07. 31. PRIOR TO THE FINANCE ACT NO.2 OF 1996 THE UNAB SORBED 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 O F 1996 RESTRICTED THE CARRY FORWARD OF UNABSORBED DEPRECIA TION AND SET- OFF TO A LIMIT OF 8 YEARS, FROM THE A. Y.1997-98. C IRCULAR NO.762 DATED 18.2.1998 ISSUED BY THE CENTRAL BOARD OF DIRE CT TAXES (CBDT) IN THE FORM OF EXPLANATORY NOTES CATEGORICAL LY PROVIDED, THAT THE UNABSORBED DEPRECIATION ALLOWANCE FOR ANY PREVIOUS YEAR TO WHICH FULL EFFECT CANNOT BE GIVEN IN THAT P REVIOUS YEAR SHALL BE CARRIED FORWARD AND ADDED TO THE DEPRECIATION ALLOWANCE OF THE NEXT YEAR AND BE DEEMED TO BE PAR T 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 SUC H UNABSORBED 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 SECTI ON 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-SEC TION (1) IN ANY PREVIOUS YEAR OWNING TO THERE BEING NO PROFITS OR G AINS CHARGEABLE FOR THAT PREVIOUS YEAR OR OWING TO THE P ROFITS OR GAINS BEING LESS THAN THE ALLOWANCE, THEN, THE ALLOWANCE OR THE PART OF ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN(HEREIN AFTER I.T.A.NO.1125/12 :- 11 -: 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 CANNO T BE WHOLLY SET OFF UNDER CLAUSE (I),' THE AMOUNT NOT SO SET OF F SHALL BE SET OFF FROM THE INCOME UNDER ANY OTHER HEAD, IF ANY, ASSES SABLE ' FOR THAT ASSESSMENT YEAR; (III) IF THE UNABSORBED DEPRECIATION ALLOWANCE CAN NOT BE WHOLLY SET OFF UNDER CLAUSE(I) AND CLAUSE (II), THE AMOU NT OF ALLOWANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLL OWING ASSESSMENT YEAR AND - (A) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND AS SESSABLE FOR THAT ASSESSMENT YEAR; (B) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SO SET OFF, THE AMOUNT OF UNABSORBED DEPRECIATION ALLO WANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING A SSESSMENT YEAR NOT BEING MORE THAN EIGHT ASSESSMENT YEARS IMMEDIAT ELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH THE AFORES AID ALLOWANCE WAS FIRST COMPUTED: PROVIDED THAT THE TIME LIMIT OF EIGHT ASSESSMENT YE ARS 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 BEC OME 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 PRE VIOUS EYAR 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 S UB-SECTION(1) OF SECTION 3 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985. 34. THE AFORESAID PROVISION WAS INTRODUCED BY FINA NCE (NO.2) ACT, 1996 AND FURTHER AMENDED BY THE FINANCE ACT, 2 000. I.T.A.NO.1125/12 :- 12 -: THE PROVISION INTRODUCED BY FINANCE (NO.2) ACT WAS CLARIFIED BY THE FINANCE MINISTER TO BE APPLICABLE WITH PROSPECT IVE EFFECT. 35. SECTION 32(2) OF THE ACT WAS AMENDED BY FINA NCE ACT, 2001 AND THE PROVISION SO AMENDED READS AS UNDER:- 'WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FULL EFF ECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB-SECTION (1) IN ANY PREVIOUS YEAR, OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING TO TH E PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OWING T O THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN TH E ALLOWANCE, THEN, SUBJECT TO THE PROVISIONS OF SUB-S ECTION (2) OF SECTION 72 AND SUB-SECTION (3) OF SECTION 73, TH E ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EF FECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FO LLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF THAT' ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THA T PREVIOUS YEAR, BE DEEMED TO BE ALLOWANCE OF THAT PREVIOUS Y EAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS.' 36. THE PURPOSE OF THIS AMENDMENT HAS BEEN CLARIFI ED 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 DEPRECIATIO N IS ALLOWED FOR 8 ASSESSMENT YEARS. 30.2 WITH A VIEW TO ENABLE THE INDUSTRY TO CONSERV E SUFFICIENT FUNDS TO REPLACE PLANT AND MACHINERY, SPECIALLY IN AN ERA WH ERE OBSOLESCENCE TAKES PLACE TO OFTEN, THE ACT HAS DISPENSED WITH TH E RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED D EPRECIATION. THE ACT HAS ALSO CLARIFIED THAT IN COMPUTING THE PROFIT S AND GAINS OF BUSINESS OR PROFESSION FOR ANY PREVIOUS YEAR, DEDUC TION OF DEPRECIATION UNDER SECTION 32 SHALL BE MANDATORY. 30.3 UNDER THE EXISTING PROVISIONS, NO DEDUCTION FO R DEPRECIATION IS ALLOWED ON ANY MOTOR CAR MANUFACTURED OUTSIDE INDIA UNLESS IT IS USED (I) IN THE BUSINESS OF RUNNING IT ON HIRE FOR TOURI STS, OR (II) OUTSIDE IN THE ASSESSEES BUSINESS OR PROFESSION IN ANOTHER COUNTR Y. I.T.A.NO.1125/12 :- 13 -: 30.4 THE ACT HAS ALLOWED DEPRECIATION ALLOWANCE ON ALL IMPORTED MOTOR CARS ACQUIRED ON OR AFTER 1 ST APRIL, 2001. 30.5 THESE AMENDMENTS WILL TAKE EFFECT FROM THE 1ST APRI L, 2002, AND WILL, ACCORDINGLY, APPLY IN RELATION TO T HE 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 SUFFICI ENT FUNDS TO REPLACE PLANT AND MACHINERY AND ACCORDINGLY THE AME NDMENT DISPENSES WITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THE AMENDMENT IS AP PLICABLE 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 D EALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 AND NOT BY THE PROVISIONS OF SECT ION 32(2) AS IT STOOD BEFORE THE SAID AMENDMENT. HAD THE INTENTION OF THE LEGISLATURE BEEN TO ALLOW THE UNABSORBED DEPRECIATI ON ALLOWANCE WORKED OUT IN A.Y. 1997-98 ONLY FOR EIGHT SUBSEQUEN T 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. HE NCE KEEPING IN VIEW THE PURPOSE OF AMENDMENT OF SECTION 32(2) O F THE ACT, A PURPOSIVE AND HARMONIOUS INTERPRETATION HAS TO BE T AKEN. WHILE CONSTRUING TAXING STATUTES, RULE OF STRICT INTERPRETATION HAS TO BE APPLIED, GIVING FAIR AND REASONABLE 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 AC CRUING TO THE ASSESSEE CANNOT BE DENIED. HOWEVER, CIRCULAR NO.14 OF 2001 HAD CLARIFIED THAT UNDER SECTION 32(2), IN COMPUTING TH E PROFITS AND GAINS OF BUSINESS OR PROFESSION FOR ANY PREVIOUS YE AR, DEDUCTION OF DEPRECIATION UNDER SECTION 32 SHALL BE MANDATORY . THEREFORE, THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINAN CE ACT, 2001 WOULD ALLOW THE UNABSORBED DEPRECIATION ALLOWA NCE AVAILABLE IN THE A.Y. 1997-98, 1999-2000, 2000-01 A ND 2001-02 TO BE CARRIED FORWARD TO THE SUCCEEDING YEARS, AND IF ANY UNABSORBED DEPRECIATION OR PART THEREOF COULD NOT B E SET OFF TILL THE A.Y. 2002-03 THEN IT WOULD BE CARRIED FORW ARD TILL THE TIME IT IS SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS. I.T.A.NO.1125/12 :- 14 -: 38. THEREFORE, IT CAN BE SAID THAT, CURRENT DEPRECI ATION IS DEDUCTIBLE IN THE FIRST PLACE FROM THE INCOME OF TH E BUSINESS TO WHICH IT RELATES. IF SUCH DEPRECIATION AMOUNT IS LA RGER THAN THE AMOUNT OF THE PROFITS OF THAT BUSINESS, THEN SUCH E XCESS 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 UNABSORBE D DEPRECIATION IS ADDED TO THE CURRENT DEPRECIATION F OR SUCH SUCCEEDING YEAR AND IS DEEMED AS PART THEREOF. IF, HOWEVER, THERE IS NO CURRENT DEPRECIATION FOR SUCH SUCCEEDIN G YEAR, THE UNABSORBED DEPRECIATION BECOMES THE DEPRECIATION AL LOWANCE FOR SUCH SUCCEEDING YEAR. WE ARE OF THE CONSIDERED OPINION THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSE E ON 1ST DAY OF APRIL 2002 (A.Y. 2002-03)WILL BE DEALT W ITH 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 DISPENS ED WITH, THE UNABSORBED DEPRECIATION FROM A.Y.1997-98 UPTO T HE A.Y.2001-02 GOT CARRIED FORWARD TO THE ASSESSMENT . YEAR 2002-03 AND BECAME PART THEREOF, IT CAME TO BE GOVE RNED BY THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINAN CE ACT, 2001 AND WERE AVAILABLE FOR CARRY FORWARD AND SET O FF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS, WITHOUT ANY LIMIT WHATSOEVER. IN VIEW OF THE DECISION OF THE HON'BLE GUJARAT HIG H COURT, THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL NO MORE HOLD S A GOOD LAW. CONFRONTED WITH THIS, THE REVENUE SUBMITS THAT SINC E THE CASE LAW OF HON'BLE HIGH COURT WAS NOT THERE WHEN THE ASSESSING OFFICER HAD FRAMED THE ASSESSMENT, THE SPECIAL BENCH DECISION S TOOD VIOLATED. IN OUR VIEW, THE SAME IS NOT LIABLE TO BE ACCEPTED. W E MAKE IT CLEAR THAT WE ARE DEALING WITH A CASE OF INTERPRETATION OF A T AXING STATUTE. THERE I.T.A.NO.1125/12 :- 15 -: IS NO QUARREL BETWEEN THE PARTIES ABOUT FACTS OF TH E CASE. RATHER THE ISSUE BETWEEN THEM IS ABOUT INTERPRETATION OF SECTI ON 32(2) AS IT STOOD BEFORE AND AFTER 1.4.1997 UPTO AMENDMENT INTRODUCE D BY THE FINANCE ACT, 2001. THAT BEING THE CASE, THE NECESSARY INT ERPRETATION OF THE RELEVANT PROVISION MADE BY THE TRIBUNAL, HIGH COU RT OR FOR THAT MATTER, HON'BLE APEX COURT WOULD GOVERN THE QUESTION RAISED HEREINABOVE. THEREFORE, WE ACCEPT THE ARGUMENTS OF THE ASSESSEE AND HOLD THAT THE ASSESSING OFFICER HAD RIGHTLY FOUND IT ENTITLED FOR SET OFF OF THE IMPUGNED UNABSORBED DEPRECIATION. 9. THIS LEAVES WITH THE OTHER CASE LAW QUOTED BY THE R EVENUE OF MALABAR INDUSTRIAL CO. LTD AND THAT OF HON'BLE DELHI HIGH COURT (SUPRA). IN OUR VIEW, THE FORMER ONE HOLDS THAT W HERE TWO VIEWS ARE POSSIBLE, THE ONE TAKEN BY THE ASSESSING OFFICER IN FRAMING ASSESSMENT HAS TO BE UPHELD IN SECTION 263 PROCEEDINGS. KEEPI NG IN MIND THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE AND IN VIEW OF CONTRADICTORY VIEWS OF THE TRIBUNAL AND HIGH COUR T(SUPRA), SINCE WE HAVE ALREADY HELD THAT THE IMPUGNED BROUGHT FORWARD UNABSORBED DEPRECIATION PERTAINING TO ASSESSMENT YEAR 1996-97 IS ENTITLED TO BE SET OFF IN THE IMPUGNED ASSESSMENT YEAR AS WELL, IT EMERGES THAT THERE IS ONLY ONE INTERPRETATION POSSIBLE WHICH FA VOURS THE ASSESSEE. I.T.A.NO.1125/12 :- 16 -: SO, THE CASE LAW OF MALABAR INDUSTRIAL CO. LTD. ( SUPRA) GOES AGAINST CASE OF THE REVENUE. 10. NOW, WE COME TO THE CASE LAW OF HON'BLE DELHI HIGH COURT (SUPRA). IN THAT CASE, SINCE THE ASSESSING OFFICER HAD NOT DECIDED ABOUT THE COMMENCING YEAR OF BUSINESS IN FRAMING AS SESSMENT, THE CIT HAD RESORTED TO SECTION 263 PROCEEDINGS. THE T RIBUNAL HAD ALLOWED ASSESSEES APPEAL. THE HON'BLE HIGH COURT REVERSED THE TRIBUNALS ORDER BY HOLDING THAT SINCE THE ASSESS ING OFFICER HAD NOT DECIDED THE YEAR OF COMMENCEMENT, THE ASSUMPTION OF SECTION 263 JURISDICTION WAS WELL WARRANTED. IN THE CASE IN HAN D, UNDISPUTEDLY, THERE IS NO SUCH REASON IN THE SHOW CAUSE NOTICE. IN OUR VIEW, JURISDICTION U/S 263 CANNOT BE STRETCHED BEYOND RE ASONS IN SHOW CAUSE NOTICE. WE REITERATE THAT THERE ARE ONLY TWO REASONS IN THE SHOW CAUSE NOTICE I.E IMPUGNED DEPRECIATION OF ASSESSMEN T YEAR 1996-97 COULD NOT HAVE BEEN SET OFF IN ASSESSMENT YEAR 2007 -08 AND OTHER ONE IS THAT THE DEPRECIATION HAD BEEN WRONGLY ALLOWED T O BE SET OFF BY THE ASSESSING OFFICER AGAINST SHORT TERM CAPITAL GAINS( SUPRA). IN VIEW OF THE CASE LAW OF GENERAL MOTORS INDIA (P) LTD. (SUPR A), BOTH REASONS ARE NO MORE SUSTAINABLE. SIMILARLY, WE ALSO SEE NO REAS ON TO AGREE WITH THE ARGUMENTS OF THE REVENUE THAT SINCE THE CIT HAS ONLY DIRECTED THE I.T.A.NO.1125/12 :- 17 -: ASSESSING OFFICER TO REFRAME THE ASSESSMENT AFTER E XAMINING THE ISSUE AFRESH NEED NOT BE DISTURBED IN THE INSTANT APPEAL AS THE ASSESSEE WOULD BE AT LIBERTY TO CITE THE AFORESAID DECISIONS . IN OUR CONSIDERED OPINION, ONCE THE LAW SETTLED BY THE HON'BLE HIGH C OURT FAVOURS THE ASSESSEE, THERE IS NO JUSTIFICATION IN REVIVING YE T ANOTHER INNINGS BEFORE THE ASSESSING OFFICER IN CONSEQUENTIAL PROCE EDINGS. IN HOLDING SO, WE DRAW SUPPORT FROM THE CASE LAW OF MAX INDIA LTD (SUPRA) WHEREIN THE HON'BLE APEX COURT OBSERVES THAT POSITI ON OF LAW IN 263 PROCEEDINGS HAS TO BE SEEN WHEN THE CIT PASSES ORDE R. ACCORDINGLY, THE ARGUMENTS OF THE ASSESSEE CHALLENGING THE ORDE R PASSED BY THE CIT U/S 263 PROCEEDING STAND ACCEPTED. 11. THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 6 TH OF JANUARY, 2014, AT CHENNAI SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (S. S. GODARA) JUDICIAL MEMBER DATED: 6 TH JANUARY, 2014 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR