Appeal Details
Counselvise Citation
[2011] 140 COUNSELVISE.COM (IT) 50739 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 5 month(s) 12 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-09-2011
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
12-09-2011
Assessment Year
2005-2006
Appeal Filed On
17-04-2009
Judgement Text
, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD .., !'# $ $ $ $ %% % &, ' ( # BEFORE SHRI G.D.AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER $./ I.T.A. NO.1193/AHD/2009 ( * * * * / / / / ASSESSMENT YEAR : 2005-06) GUJARAT DAIRY DEVELOPMENT CORPN.LTD. SECTOR-16 GANDHINAGAR / VS. THE INCOME TAX OFFICER WARD-2 GANDHINAGAR '+ (, $./- $./ PAN/GIR NO. : AABCG 4321 Q ( +. / // / APPELLANT ) .. ( /0+. / RESPONDENT ) +. 1 ( / APPELLANT BY : SHRI M.G. PATEL, A.R. /0+. 2 1 ( / RESPONDENT BY : SHRI RAVINDRA KUMAR, CIT-D.R. % 3 2 &, / / / / DATE OF HEARING : 12/09/2011 45* 2 &, / DATE OF PRONOUNCEMENT : 30/09/2011 (6 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL ARISING FROM THE ORDER OF CIT-GA NDHINAGAR PASSED U/S.263 OF THE I.T. ACT, 1961 DATED 17/02/2009. THE APPELLANT HAS CHALLENGED THE ORDER OF THE LD.CIT ON THE FOLLO WING GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX, GANDHINAGAR HAS ERRED IN LAW AND ON FACTS OF THE CASE BY INVOKING THE PRO VISIONS OF SECTION 263 OF THE INCOME TAX ACT, 1961, AND ACCORDINGLY HA S CANCELLED ASSESSMENT ORDER PASSED U/S.143(3) OF THE INCOME TA X ACT, 1961, AND SET ASIDE AFTER HOLDING THE SAME TO BE ERRONEOU S AND PREJUDICIAL TO THE INTEREST OF THE REVENUE WITH REGARD TO THE F OLLOWING ISSUES: ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 2 - (A) INCOME FROM OTHER SOURCES OF RS.10,16,010/- WRONGLY SET OFF AGAINST UNABSORBED DEPRECIATION BY THE ASSESSING OF FICER. (B) SURPLUS ON TRANSFER OF ASSETS TO NDDB AND REMISSION OF LIABILITIES REQUIRES TO BE TAXED. (C) BOOK PROFIT U/S.115JB OF THE INCOME TAX ACT, 1961, CLAIMED AS EXEMPT UNDER THE PROVISIONS OF SICA, 1985, REQU IRES TO BE EXAMINED. 2. THE LEARNED COMMISSIONER OF INCOME TAX, GANDHINAGAR HAS ERRED IN LAW IN HOLDING THAT THE INCOME FROM OTHER SOURCE S OF RS.10,16,010/- CANNOT BE SET OFF AGAINST UNABSORBED DEPRECIATION. 3. THE LEARNED COMMISSIONER OF INCOME TAX, GANDHINAGAR HAS ERRED IN LAW AND ON FACTS OF THE CASE BY HOLDING THAT THE SURPLUS ON TRANSFER OF ASSETS TO NDDB AND REMISSION OF LIABILI TIES IS TAXABLE IN SPITE OF THE FACT THAT BIFR ORDER DATED 14/01/2003 HAS BEEN PASSED IN CASE OF THE APPELLANT, EXEMPTING CAPITAL GAIN AN D PROFIT U/S.41 OF THE INCOME TAX ACT, 1961. 4. THE LEARNED COMMISSIONER OF INCOME TAX, GANDHINAGAR HAS ERRED IN LAW IN HOLDING THAT TAX ON BOOK PROFIT U/S.115JB IS LEVIABLE THOUGH PROFITS OF SICK INDUSTRIAL COMPANY ARE TO BE REDUCE D FROM BOOK PROFIT OF THE COMPANY AS PER THE PROVISION OF EXPLANATION (VII) OF SECTION 115JB(2) OF THE INCOME TAX ACT, 1961. 5. YOUR APPELLANT, THEREFORE, PRAYS TO CANCEL THE ORDE R PASSED U/S.263 OF THE INCOME TAX ACT, 1961, AND TO RESTORE THE ASS ESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S.143(3) OF THE I NCOME TAX ACT, 1961. 6. YOUR APPELLANT PRAYS TO RESERVE THE RIGHT TO ADD, A LTER, AMEND AND/OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEAL. 2. THE LD.CIT HAS RAISED THREE ISSUES VIDE A NOTICE DATED 08/12/2008, RELEVANT PORTIONS EXTRACTED BELOW:- (A) THE FIRST OBJECTION OF LD.CIT IS IN RESPECT OF SET OFF OF INTEREST TAXED UNDER THE HEAD INCOME FROM OTHER ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 3 - SOURCES AGAINST THE UNABSORBED DEPRECIATION WHICH WAS QUESTIONED BY THE LD.CIT AS FOLLOWS:- 3.. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON VERIFICATION OF THE PROFIT AND LOSS ACCOUNT, IT IS SEEN THAT THE ASSESSEE HAS EARNED INTEREST OF RS.10,16,010/- WHIC H IS NOT BUSINESS ACTIVITY OF THE ASSESSEE AND HENCE IS LIAB LE TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCE IN VIEW O F THE SUPREME COURT DECISION IN THE CASE OF CIT VS. LAHORE ELECTR IC SUPPLY CO. [1996 (601 ITR SC)]. 4. THE ASSESSEE BY THE A.O. WAS, THEREFORE, SHOW C AUSED AS TO WHY THE SAID INCOME SHOULD NOT BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE HAD CONSENTED TO THE ADDITION BUT HAS REQUESTED THAT THE UNABSORBED DEPRECIATION OF E ARLIER YEARS 1998-99 TO 2005-06 AMOUNTED TO RS.3.28 CRORES MAY B E ADJUSTED AGAINST THE SAME. THE A.O. HAD THUS MADE THE PROPO SED ADDITION UNDER THE HEAD OTHER INCOME AND HAD ALSO GIVEN SE T OFF FOR THE UNABSORBED DEPRECIATION AS CLAIMED BY THE ASSESSEE. THE FINAL INCOME ASSESSED WAS THUS NIL. IT APPEARS THAT THE A.O. COULD NOT UNDERSTAND THE N UANCES OF THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET OF THE CO MPANY. THE OTHER INCOME WAS ALREADY ACCOUNTED FOR IN THE PRO FIT AND LOSS ACCOUNT AND ADJUSTED AGAINST THE BROUGHT FORWARD BU SINESS LOSS IN THE STATEMENT OF TOTAL INCOME ACCOMPANYING THE RETU RN OF INCOME. AS SUCH, THE ASSESSMENT ORDER IS ERRONEOUS AND PREJ UDICED TO THE INTEREST OF REVENUE. (B) THE SECOND OBJECTION WAS IN RESPECT OF TRANSFER OF ASSETS TO NDDB AND SALE CONSIDERATION WAS TREATED AS CAPITAL RESERVE AS FOLLOWS:- 5. SCRUTINY OF THE ASSESSMENT RECORD REVEALS THAT THE ASSESSEE WAS DECLARED SICK BY THE ORDER OF THE BIFR DATED 29 .10.1994. THE BIFR HAS PASSED A FINAL ORDER ON 14.01.2003 SETTING OUT TO TRANSFER ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 4 - PART OF ITS ASSETS TO NDDB AGAINST THEIR DUES FROM THE ASSESSEE AS PER THE TERMS DETERMINED IN THE SAID ORDER. THE AS SESSEE IS STILL HAVING THE OWNERSHIP OF SURPLUS LAND OF THE DAIRY A T JAMNAGAR MEASURING 20405 SQ.MT AND AHMEDABAD DAIRY ALONG WIT H THE PLANT AND MACHINERY LAND MEASURING 37,729 SQ.MT (EQUIVALE NT TO 45107 SQ.YD). IN COMPLIANCE TO THE BIFRS ORDER, THE ASSETS WERE TRANSFERRED TO NDDB ON 01.03.2005. THE SALE CONSIDERATION IN EXCE SS OF THE LIABILITY OF THE ASSESSEE RECEIVABLE FROM THE NDDB WAS TREATED BY THE ASSESSEE AS CAPITAL RESERVE WRITTEN BACK TO THE PROFIT AND LOSS ACCOUNT AMOUNTING TO RS.12.23 CRORES. FURTHER, AN AMOUNT OF RS.15.86 CRORES WAS ALSO CREDITED TO THE PROFIT AND LOSS ACCOUNT AS REMISSION OF LIABILITY OF NDDB ACCOUNT. THE ASSESS EE HAS SHOWN A NET PROFIT OF RS.26,38,48,170 IN THE PROFIT AND LOS S ACCOUNT BEFORE DEDUCTING VOLUNTARY RETIREMENT SCHEME EXPENSES. FR OM THE ABOVE AMOUNT, THE ASSESSEE HAD REDUCED RS.12.23 CRORES AS CAPITAL RESERVE WRITTEN BACK AND AFTER MAKING SOME OTHER DE DUCTIONS THERE WAS A POSITIVE INCOME OF RS.14,15,00,443 WHICH WAS SET OFF AGAINST THE BUSINESS LOSSES OF THE A.YS. 1997-98 TO 2003-20 04. (C) THE THIRD OBJECTION WAS CLAIMING EXEMPTION ON THE GROUND OF SICK INDUSTRIAL COMPANY WHILE APPLYING THE PROVISIONS OF SECTION 115JB OF THE ACT AS FOLLOWS:- 7. THE ASSESSEE WAS HAVING BOOK PROFIT DURING THE YEAR AS PER COMPANIES ACT, 1956 UNDER THE PROVISIONS OF SEC TION 115JB OF THE ACT, 1961 AT RS.26,19,75,975/- WHICH WAS CLAIME D AS EXEMPT UNDER THE PROVISIONS OF SICK INDUSTRIAL COMPANIES A CT, 1985. THE ORDER OF THE BIFR LAYS DOWN THE RELIEFS AND CON CESSIONS, RIGHTS AND OBLIGATIONS IN PARA 6 THEREOF. AS PER P ARA 6.1(G) IT HAS BEEN LAID DOWN THAT THE GOVERNMENT OF GUJARAT SHALL EXEMPT THE ASSESSEE, AS A ONE TIME MEASURE, FROM APPLICABILITY OF SALES TAX LIABILITY ON SALE OF ASSETS BY THE ASSESSEE IN RESP ECT OF ALL THE ASSETS IDENTIFIED FOR SALE IN THE SCHEME. REGARDING THE C ENTRAL GOVERNMENT DUES, PARA 6.7 LAYS DOWN AS UNDER: ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 5 - (I) TO CONSIDER EXEMPTING THE COMPANY FROM, TAXATI ON LIABILITY, IF ANY, UNDER SECTION 41(1) OF THE INCOME-TAX ACT, (II) TO CONSIDER EXEMPTING THE COMPANY FROM CAPITA L GAINS TAX LIABILITY, IF ANY, ARISING FROM PROPOSED SALE / TRA NSFER OF ASSETS. (III) TO CONSIDER PERMITTING FREE AND UNHINDERED S ALE OF ASSETS BY GDDCL/GOG AS ENVISAGED IN THESCHEME SO AS TO ENSURE SUCCESSFUL IMPLEMENTATION OF THE SCHEME. (IV) TO CONSIDER NOT INSISTING ON TDS AND/DEMAND A DVANCE TAX WHATSOEVER ON THE ASSETS SALE. IT IS FURTHER SEEN THAT THE ASSESSEE HAS BEEN GETTI NG VARIOUS GRANTS AGAINST MACHINERIES AND ALSO IN KIND IN THE PAST. THE ASSESSEE HAS BEEN AVAILING OF DEPRECIATION ON ALL ITS ASSETS WIT HOUT DEDUCTION OF THE GRANT / SUBSIDY AS PER THE INCOME-TAX ACT. THE AUDITORS REPORT, NOTE NO.(III) OF SCHEDULE XV READS AS UNDER : NOTE A-7 : REGARDING TREATMENT OF GRANTS AS AGAIN ST AS-12 (ACCOUNTING FOR GOVERNMENT GRANTS) ISSUED BY ICAI W HEREIN IT IS PROVIDED THAT AMOUNT OF GRANT EQUAL TO DEPRECIATION OF ASSETS PURCHASED BY THESE GRANTS, SHOULD BE CREDITED TO PR OFIT AND LOSS ACCOUNT BY DEBITING CAPITAL RESERVE. BUT IN ABSENC E OF DETAILS OF SUCH ASSETS AND DEPRECIATION, THE SAID ENTRY COULD NOT BE PASSED. THIS HAS EFFECT OF OVERSTATING CAPITAL RESERVE AND LOSSES. 8. 9. IN VIEW OF THE ABOVE REASONS, THE ASSESSMENT ORD ER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. YOU AR E, THEREFORE, HEREBY GIVEN ON OPPORTUNITY TO SHOW CAUSE AS TO WHY THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (S UPRA) SHOULD NOT BE CANCELLED U/S.263 OF THE I.T.ACT, 1961 AND D IRECTED TO MAKE FRESH ASSESSMENT AS PER THE LAW. YOUR EXPLANATION IN THE MATTER SHOULD REACH THE UNDERSIGNED WITHIN 7 DAYS OF THE R ECEIPT OF THIS NOTICE. 3. FINALLY, IT WAS HELD BY LD.COMMISSIONER THAT THE ORDER PASSED BY THE AO U/S.143(3) OF THE ACT FOR AY 2005-06 DATED 03/09 /2007 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. THE SAID ORDER ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 6 - OF THE AO WAS CANCELLED WITH A DIRECTION TO MAKE A FRESH ASSESSMENT AFTER VERIFYING THE FACTS OF THE CASE. 4. IN RESPECT OF THE FIRST OBJECTION, WHILE PASSING THE ORDER U/S.263, LD. COMMISSIONER HAVE COMMENTED THAT ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT, IT WAS FOUND THAT THE INTEREST INCOME OF R S.10,16,010/- WAS SHOWN UNDER THE HEAD OTHER INCOME WHICH HAD ALRE ADY BEEN ACCOUNTED FOR AND ADJUSTED AGAINST THE BROUGHT FORWARD BUSINE SS LOSS IN THE STATEMENT OF INCOME. IN RESPECT OF THE SECOND IS SUE, LD. COMMISSIONER HAS NOTED THAT THE BUSINESS OF THE ASSESSEE WAS CLO SED SINCE LONG. THE ASSESSEE HAS NOT SHOWN THE BROUGHT FORWARD LOSSES IN THE STATEMENT OF INCOME WHILE FILING THE RETURN OF INCOME FOR AYS 19 98-99 TO 2202-03. LD. COMMISSIONER HAS COMMENTED THAT SINCE THE ASSES SEE WAS NOT CARRYING ON THE BUSINESS, THEREFORE, THERE WAS NO Q UESTION OF ALLOWING THE DEPRECIATION OF EARLIER YEARS. 4.1. IN RESPECT OF THE PROVISIONS OF SECTION 115JB, LD. COMMISSIONER HAS NOTED THAT THE BOOK PROFIT AMOUNTING TO RS.26,1 9,75,975/- WAS CLAIMED AS EXEMPT ON THE GROUND THAT THE PROVISIONS OF SICK INDUSTRIAL COMPANIES ACT, 1985 WOULD APPLY. LD. COMMISSIONE R HAS DISCUSSED CERTAIN RIGHTS AND OBLIGATIONS AS PRESCRIBED UNDER THE SAID ACT AND ALSO VERIFIED THAT THE ASSESSEE WAS OBTAINING CERTAIN GR ANTS AGAINST MACHINERIES IN THE PAST BUT AVAILING THE DEPRECIATI ON ON THOSE ASSETS WITHOUT DEDUCTING THE SUBSIDY/GRANT. LD. COMMISSI ONER HAS ALSO NOTED AN ANOTHER OBJECTION THAT THE ASSESSEE HAD DEDUCTED RS.12.23 CRORES AS CAPITAL RESERVE FROM THE GROSS PROFIT OF RS.26.38 CRORES. IN HIS OPINION, ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 7 - THE CAPITAL RESERVE SHOULD HAVE REDUCED THE WDV OF THE ASSETS TRANSFERRED BY THE COMPANY. HE WAS OF THE VIEW THA T THE DIFFERENCE BETWEEN THE WDV AND THE ACTUAL COST WHICH WERE STAT ED TO BE TRANSFERRED TO NDDB WOULD HAVE RESULTED INTO CAPITAL GAIN. T HERE WAS AN OBJECTION IN RESPECT OF LIABILITY FOR CAPITAL GAIN. FROM T HE ORDER OF BIFR IT WAS NOT CLEAR TO LD. COMMISSIONER THAT WHETHER THE ASSE SSEE HAD SPECIFICALLY APPLIED FOR ITS EXEMPTION FROM THE BOARD. THAT ASP ECT WAS NOT PROBED BY THE AO. THE ASSESSEE HAD DEDUCTED RS.12.23 CRORES F ROM THE GP OF RS.26.38 CRORES. SINCE THE ISSUE WAS NOT TAKEN UP BY THE AO, THEREFORE, HE HAS HELD THAT DUE TO LACK OF ENQUIRY, THE TOTAL INCOME WAS NOT CORRECTLY ASSESSED BY THE AO. 5. LASTLY, HE HAS OBJECTED THAT THE COMPANY HAD WRO NGLY CLAIMED EXEMPTION U/S.115JB OF THE BOOK PROFIT OF RS.26,19, 75,975/-. IN THE RESULT, THE ORDER OF THE AO WAS CANCELLED WITH A DI RECTION TO MAKE A FRESH ASSESSMENT AFTER CORRECTLY VERIFYING THE FACTS OF T HE CASE. THE APPELLANT HAS CHALLENGED OF THE SAID ORDER OF THE LD.COMMISSI ONER. 6. FROM THE SIDE OF THE APPELLANT, LD.AR MR.M.G.PAT EL APPEARED AND FROM THE SIDE OF THE REVENUE LD.DR MR.RAVINDRA KUMA R CIT APPEARED. LD.AR HAS INFORMED THAT WHILE PASSING THE ORDER U/S.143(3), THE AO HAS ISSUED A SHOW-CAUSE NOTICE DATED 09/08/ 2007 AND ASKED AS TO WHY THE INTEREST INCOME OF RS.10,16,010/- SHOULD NO T BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. ON VERIFICATION OF THE ACCOUNTS OF THE ASSESSEE, IT WAS NOTED BY THE AO THAT IT WAS EVIDEN T THAT THE INTEREST INCOME WAS TAXABLE U/S.56 OF THE I.T. ACT, AND NOT AS BUSINESS INCOME ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 8 - U/S.28 OF THE I.T. ACT. THE AO HAS, THEREFORE, HE LD THAT THE SAID INTEREST INCOME WAS TO BE ADDED TO THE TOTAL INCOME OF THE A SSESSEE, UNDER THE HEAD OTHER SOURCES. TO THAT EXTENT THE UNABSOR BED DEPRECIATION WAS GRANTED AND TOTAL INCOME AT RS.NIL WAS ASSESSED. LD.AR HAS FURTHER MENTIONED THAT THE AO HAD PROPERLY APPLIED HIS MIND AND DECIDED THE ISSUE AFTER CONSIDERING THE LEGAL AS WELL AS THE FA CTUAL ASPECT OF THE CASE. THE AO HAS DISCUSSED A DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF INDIAN BANK LTD. 152 ITR 557 (MAD), WHEREIN THE ASSESSEE HAS CLAIMED UNABSORBED CARRIED FORWARD LOSS OF THE PREV IOUS YEARS TO BE SET OFF AGAINST THE INTEREST INCOME. ACCORDING TO AO , IN THAT CASE, THE HONBLE COURT HAD HELD THAT BECAUSE THE ASSESSEE WA S NOT CARRYING ON THE BUSINESS DURING THAT YEARS OF CLAIM, THEREFORE, NOT ENTITLED FOR SUCH SET OFF. HOWEVER, ASSESSEE WAS ENTITLED FOR THE CLAIM OF SET OFF OF UNABSORBED DEPRECIATION AND IN THIS CONNECTION THE AO HAS PLACED RELIANCE ON DEEPA TEXTILE 168 ITR 773 (GUJ). 6.1. IN RESPECT OF SURPLUS ON TRANSFER OF ASSETS TO NATIONAL DAIRY DEVELOPMENT BOARD (NDDB), LD.AR HAS MENTIONED THAT THE SAID AMOUNT OF SURPLUS OF RS.15.86 CRORES WAS SET OFF AGAINST T HE BUSINESS LOSS FOR AYS 1997-98 TO 2003-04. ACCORDING TO LD.AR, BIFR VIDE AN ORDER DATED 14/01/2003 HAS DIRECTED THE CENTRAL GOVERNMEN T TO EXEMPT THE ASSESSEE-COMPANY FROM THE FOLLOWINGS: I) TO CONSIDER EXEMPTING THE COMPANY FROM TAXATIO N LIABILITY, IF ANY, U/S 41(1) OF THE INCOME TAX ACT. II) TO CONSIDER EXEMPTING THE COMPANY FROM CAPI TAL GAINS TAX LIABILITY, IF ANY, ARISING FROM PROPOSED SALE/TRANSFER OF ASSETS. ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 9 - III) TO CONSIDER PERMITTING FREE AND UNHINDERED SALE OF ASSETS BY GDDC/GOG AS ENVISAGED IN THE SCHEME SO AS TO ENSURE SUCCESSFUL IMPLEMENTATION OF THE SCHEME. IV) TO CONSIDER NOT INSISTING ON TDS AND/DEMAND AD VANCE TAX WHATSOEVER ON THE ASSETS SALE. ACCORDINGLY, CAPITAL GAIN ON TRANSFER OF ASSETS TO NDDB WAS CLAIMED AS EXEMPT UNDER IT ACT. HE HAS ARGUED THAT THE SAID ORDER OF THE BIFR DATED 14/01/2003 HAD OVERRIDING EFFECT OVER T HE PROVISIONS OF THE IT ACT, THEREFORE, THE SAME WERE APPLIED BY THE ASS ESSEE. 6.2. ABOUT THE BOOK PROFIT U/S.115JB, LD. AR HAS S TATED THAT VIDE EXPLANATION-(VII) OF SECTION 115JB(2) A SICK INDUS TRIAL COMPANY IS ENTITLED FOR RELIEF AND PROFITS OF SUCH A SICK UNIT IS TO BE REDUCED FROM THE BOOK PROFIT. THERE WAS NO LIABILITY TO TAX THE BO OK PROFIT U/S.115JB. ON LEGAL ASPECT, LD. A.R HAS ARGUED THAT THE AO HAS EXAMINED ALL THE NECESSARY DETAILS AND THEREAFTER FRAMED THE ASSESSM ENT ORDER. SINCE THE AO HAS PASSED THE ORDER AFTER DUE APPLICATION OF MI ND, THEREFORE, THE SAID ORDER WAS NOT AN ERRONEOUS ORDER. FOR THIS LEGAL PROPOSITION, HE HAS PLACED RELIANCE ON CIT VS. ARVIND JEWELLERS 259 ITR 502(GUJ), CIT VS. DEVELOPMENT CREDIT BANK LTD. 323 ITR 206 (BOM) AND CIT VS. R.K. CONSTRUCTION CO. 313 ITR 65 (GUJ). 7. FROM THE SIDE OF THE REVENUE, LD. CIT(DR) M R. RAVINDRA KUMAR HAS SUPPORTED THE ORDER OF THE AO. HIS FIRST OBJE CTION WAS THAT IN RESPECT OF GAIN EARNED BY THE ASSESSEE ON TRANSFER OF ASSE TS TO NDDB WAS NOT AT ALL ENQUIRED UPON BY THE AO. LIKEWISE AO HAS NOT APPLIED HIS MIND IN RESPECT OF THE APPLICABILITY OF THE PROVISIONS OF S ECTION 115JB ON A SICK INDUSTRIAL UNIT. SINCE THERE IS NO ENQUIRY AT ALL MADE BY THE AO, THEREFORE, THAT ASSESSMENT ORDER WAS PREJUDICIAL TO THE INTEREST OF THE ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 10 - REVENUE. FOR THIS LEGAL PROPOSITION LD.DR MR.RAVIN DRA KUMAR HAS PLACED RELIANCE ON THE DECISION OF RAJESH JHAVERI S TOCK BROKER (P) LTD 291 ITR 500(SC). LD.DR HAS ALSO PLACED RELIANCE ON PARAGRAPH NO.11 OF THE ORDER IN QUESTION REPRODUCED BELOW FOR READY R EFERENCE:- 11. FROM THE AFORESAID FACTS AND CIRCUMSTANCE S, REASONS GIVEN, A FORTIORI, IT BECOMES EVIDENT AND PALPABLY MANIFEST THAT THE A SSESSMENT ORDER DATED 3-9-2007 (SUPRA) IS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF REVENUE. ACCORDINGLY, THE SAID ORDER IS HEREBY CANCELLED WIT H A DIRECTION TO MAKE A FRESH ASSESSMENT BY CORRECTLY VERIFYING THE FACTS O F THIS CASE BY AFFORDING REASONABLE OPPORTUNITY TO THE ASSESSEE.' HE HAS THUS ARGUED THAT NO PREJUDICE HA D CAUSED TO THE ASSESSEE BY THE SAID DIRECTIONS OF LD. COMMISSIONER BECAUSE HE HAS NOT GIVEN ANY FINAL FINDING, BUT SIMPLY DIRECTED THE AO TO PASS A FRESH ASSESSMENT AFTER VERIFYING THE FACTS OF THE CASE. AS FAR AS THE CLAI M OF UNABSORBED DEPRECIATION, LD.DR HAS ALSO POINTED OUT THAT THE B USINESS WAS NOT CARRIED OUT DURING THE INTERVENING PERIOD, HENCE, RETURNS W ERE NOT FILED IN TIME, THEREFORE, THERE WAS NO QUESTION OF CARRIED FORWARD LOSSES FOR THE SUBSEQUENT YEARS. HE HAS ALSO POINTED OUT THAT TH E QUESTION OF SUBSIDY WHICH WAS RECEIVED BY THE ASSESSEE HAS NOT BEEN CO NSIDERED BY THE AO. 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE ORDER OF THE LD.CIT. WE SHALL TAKEN UP ALL THE THREE ISSUES ONE BY ONE A S FOLLOWS: A) AS FAR AS THE ISSUE OF CLAIM OF DEPRECIATI ON IS CONCERNED, IT IS EVIDENT FROM THE ORDER OF THE AO THAT INDEED AN ENQUIRY WAS MADE. AFTER DUE APPLICATION OF MIND AS ALSO THE PROVISI ONS OF THE ACT, AO HAS ARRIVED AT THE CONCLUSION THAT T HE INTEREST ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 11 - INCOME THOUGH TAXED U/S.56 AND TO BE ASSESSED UNDER THE HEAD OTHER SOURCES, BUT ENTITLED FOR SET OFF OF UNABSO RBED DEPRECIATION TO THAT EXTENT ONLY. WE HAVE BEEN IN FORMED THAT A LETTER DATED 09/08/2007 WAS ISSUED BY THE AO AND TH ROUGH THAT LETTER IT WAS ENQUIRED AS UNDER:- 2. IT IS SEEN THAT NO BUSINESS ACTIVITY IS CARRIE D OUT BY YOU, HENCE YOU HAVE NOT SHOWN YOUR INCOME FROM BUSINESS AS NIL DUR ING THE YEAR. HOWEVER, ON VERIFICATION OF THE DETAILS SUBMITTED B Y YOU, IT IS SEEN THAT YOU HAVE EARNED INTEREST INCOME OF RS.10,16,010/- W HICH IS REFLECTED AS INCOME IN THE RETURN OF INCOME. SINCE THE INCOM E HAS ARISEN FROM DEPOSITS OF SURPLUS FUND IN FIXED DEPOSITS IN BANKS , THE SAME IS TAXABLE U/S.56 OF THE IT ACT AS INCOME FROM OTHER S OURCES. B) IN COMPLIANCE, THE ASSESSEE HAS SUBMITTED BEFORE AO VIDE A LETTER DATED 10/08/2007 THAT THERE WAS UNABS ORBED DEPRECIATION TO THE TUNE OF RS.3,28,75,495/- FROM T HE AYS 1998-99 TO 2005-06. THROUGH THAT LETTER, IT WAS REQUESTED TO GRANT BENEFIT OF SET OFF OF UNABSORBED DEPRECIATION AND ASSESS THE INCOME AT RS.NIL. AS FAR AS THE LEGAL ASPECT O F THIS QUESTION IS CONCERNED, THE DECISION CITED BEFORE TH E LD.COMMISSIONER WERE AS FOLLOWS:- I) ITO VS. SELCHEM ENGINEERS (P) LTD. [272 ITR 10(DE L)] II) ACIT VS. PODDAR PROJECTS LTD. [275 ITR 1 (KOL)] III) CIT VS. JAIPURIA CHINA MINES (P) LTD. [59 ITR 555 ( SC)] IV) CIT VS. DEEPAK TEXTILE INDUSTRIES LTD. [168 ITR 773 (GUJ)] V) CIT VS. VIRMANI INDUSTRIES P.LTD. [216 ITR 607 (SC) ] ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 12 - THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT, PRONOUNCED IN THE CASE OF DEEPAK TEXTILE INDUSTRIES LTD. 168 ITR 773(GUJ) SAYS THAT THE UNABSORBED DEPRECIATION IS TO BE ALLO WED TO BE CARRIED FORWARD AND SET OFF AGAINST ASSESSABLE INCOME OF A SUBSEQUENT YEAR NOTWITHSTANDING THE FACT THAT THE BUSINESS IN RESPE CT OF WHICH IT AROSE CEASED TO EXIST IN THE YEAR OF SUCH SET OFF. THE HONBLE COURT HAS ALSO SAID THAT THE RECEIPT OF INCOME DURI NG THE RELEVANT PREVIOUS YEAR IS NOT A SINE-QUA-NON FOR THE DEDUCTI ON OF ALLOWANCES LIKE DEPRECIATION. UPTO THIS EXTENT, ONCE THE AO HA D MADE REQUISITE ENQUIRY AND ON INVESTIGATION HE WAS OF THE VIEW THA T THE SET OFF OF DEPRECIATION AGAINST THE INTEREST INCOME WAS LEGALL Y SUSTAINABLE FOLLOWING HONBLE GUJARAT HIGH COURT DECISION OF DE EPAK TEXTILE INDUSTRIES LTD.(SUPRA), THEREFORE, WE CAN HOLD THAT NO PREJUDICE WAS CAUSED TO THE REVENUE AND UPTO THAT EXTENT THE ORD ER OF THE AO CANNOT BE TERMED AS AN ERRONEOUS ORDER. 7.1. NOW THE QUESTION OF ABOUT REST OF THE TWO OBJE CTIONS AS RAISED BY THE LD.COMMISISIONER ARE CONCERNED , THOSE WERE IN RESPECT OF SURPLUS ON TRANSFER OF ASSETS TO NDDB AND THE TAXABILITY OF BO OK PROFIT U/S.115JB OF THE ACT. AT THE OUTSET, IT IS TO BE PLACED ON RECO RD THAT THE ADMITTED FACTUAL POSITION WAS THAT THE AO HAD NOT MADE ANY ENQUIRY IN RESPECT OF THESE TWO ISSUES. IT HAS NOT BEEN DEMONSTRATE D BEFORE US THAT THE AO HAD EITHER ISSUED A SHOW CAUSE NOTICE TO ENQUIRE TH ESE TWO ASPECTS OR FROM THE SIDE OF THE ASSESSEE ANY CLARIFICATION/EXP LANATION WAS EVER TENDERED BEFORE THE AO FOR HIS CONSIDERATION. SO, IT IS APPARENT THAT THE AO AS WELL AS THE ASSESSEE BOTH WERE SILENT ON THES E TWO ISSUES. THE OMISSION OF ENQUIRY DURING THE COURSE OF ASSESSMENT PROCEEDINGS WERE ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 13 - HELD BY THE COURTS AS CAUSING PREJUDICE TO THE REVE NUE. THERE ARE LARGE NUMBER OF DECISIONS WHEREIN IT WAS HELD THAT AN AO IS EXPECTED TO COMPLETE THE ASSESSMENT AFTER PROPER ENQUIRY AND TH OROUGH INVESTIGATION. IF UNDER THE CIRCUMSTANCES, AS IN THE PRESENT CASE, AN ASSESSMENT WAS COMPLETED WITHOUT ASCERTAINING CERTAIN LEGAL AS WEL L AS FACTUAL ASPECT, THEN SUCH AN ORDER OF THE AO WAS TERMED AS AN ERRON EOUS ORDER. REASONS ASSIGNED FOR HOLDING SO WERE THAT THE RELEV ANT MATERIAL FACTS WERE NOT BEFORE THE AO HENCE NEITHER THERE WAS AN E NQUIRY NOR THERE WAS APPLICATION OF MIND AND DUE TO THIS REASON THERE WA S NO QUESTION OF DIFFERENCE OF OPINION. APPLYING THIS BASIC PRINC IPLE ON THE PRESENT FACTS OF THE CASE, WE HEREBY HOLD THAT THE LD. COMMISSION ER WAS LEGALLY CORRECT IN DIRECTING THE AO TO INVESTIGATE AND DECIDE ACCOR DINGLY AS PER LAW. 7.2. LD.AR HAS CITED R.K. CONSTRUCTION CO. 313 ITR 65 (SUPRA), BUT THE FACTS OF THAT PRECEDENT WERE THAT THE NECESSARY INFORMATIONS WERE FURNISHED TO THE AO AND ON THE BASIS OF THOSE EVIDE NCES THE AO HAD TAKEN A PARTICULAR VIEW. HOWEVER, THIS IS NOT THE F ACT IN THE PRESENT APPEAL BECAUSE IT HAS NOT BEEN DEMONSTRATED BEFORE US THAT IN RESPECT OF THESE TWO ISSUES ALL THE NECESSARY DETAILS WERE FURNISHED TO THE AO. LD.AR HAS ALSO CITED DEVELOPMENT CREDIT BANK LTD. 323 ITR 206 (BOM)[SUPR A] BUT THE FACTS OF THAT CASE WERE THAT THE AO HAD ARR IVED AT CERTAIN FINDING AFTER A SPECIFIC ENQUIRY AND THOSE FINDINGS WERE TR EATED BY THE LD.COMMISSIONER AS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. ONCE THE AO HAD MADE AN ENQUIRY AND A RE SPONSE CAME FROM THE ASSESSEE AND THEREAFTER A VIEW WAS ADOPTED BY T HE AO THEN THE HONBLE BOMBAY HIGH COURT HAS HELD THAT THERE WAS N O JUSTIFICATION FOR INVOCATION OF THE PROVISIONS OF SECTION 263 OF THE I.T. ACT. AS AGAINST ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 14 - THAT, IN THE PRESENT CASE, AN ENQUIRY WAS LACKING A ND REQUISITE INFORMATION WAS NOT CALLED FOR THEREFORE LD.COMMISISONER HAS PO WER TO INVOKE THE PROVISIONS OF SECTION 263 OF I.T. ACT. LD.AR HAS ALSO CITED CIT VS. ARVIND JEWELLERS 259 ITR 502 (GUJ), BUT THE FACTS WERE THAT THE ASSESSEE HAD PRODUCED RELEVANT MATERIAL AND OFFERED AN EXPLANATION IN PURSUANT TO CERTAIN NOTICES AND AFTER CONSIDERING T HE MATERIAL AS ALSO THE EXPLANATION THE HONBLE COURT HAD FOUND THAT THE IT O HAD COME TO A DEFINITE CONCLUSION. AFTER CONSIDERING THOSE FACTS , IT WAS HELD BY THE COURT THAT MERE FACT THAT A DIFFERENT VIEW WAS TAKE N, THEN THAT SHOULD NOT BE THE BASIS FOR AN ACTION U/S.263 OF I.T. ACT. 7.3. LD.AR HAS ALSO CITED A DECISION OF HONBLE SUP REME COURT PRONOUNCED IN THE CASE OF INDIAN SHAVING PRODUCTS LTD. VS. BOARD OF INDUSTRIAL AND FINANCIAL RECONSTRUCTION 218 ITR 14 0 (SC) FOR A LEGAL PROPOSITION THAT U/S.72 AN AMALGAMATED COMPANY CAN AVAIL THE BENEFIT OF THE LOSS, OR AS THE CASE MAY BE, THE ALLOWANCE FOR DEPRECIATION OF THE AMALGAMATING COMPANY FOR THE PREVIOUS YEAR IN WHICH THE AMALGAMATION WAS EFFECTED IS ADMISSIBLE. THE HONBLE COURT HAS SAID THAT THE SCHEME OF AMALGAMATION IN RESPECT OF A SICK UNIT WAS TO BE SANCTIONED BY BIFR. BUT THE HONBLE COURT HAS ALSO HELD THAT BIFR CANNO T SANCTION SCHEME OF AMALGAMATION WITHOUT DECLARING THAT CARRIED FORWARD IS ALLOWABLE AND THEREFORE DIRECTED TO MAKE A DECLARATION IN THIS RE GARD. IF WE CORRECTLY FOLLOW THE INTENT OF THIS DECISION, THEN ALSO IT IS REQUIRED TO EXAMINE THE DIRECTIONS OF BIFR THAT WHETHER ANY RECOMMENDAT ION WAS MADE FOR THE PROPOSED BENEFITS. LD.AR HAS ALSO CITED CIT VS. J.K. CORPORATION LTD. 331 ITR 303(CAL.) AND IN THAT CASE AS WELL IT WAS HELD THAT THE BIFR ACTS ON BEHALF OF THE CENTRAL GOVERNM ENT AND WHEN THE ITA NO. 1193/AHD/2009 GUJARAT DAIRY DEVELOPMENT CORPN.LTD. VS. ITO ASST.YEAR - 2005-06 - 15 - BIFR IS SATISFIED THAT ALL THE CONDITIONS ARE FULFI LLED FOR GIVING CONSENT FOR TAKING REHABILITATION MEASURES BY WAY OF AMALGAMATI ON, THEN IN VIEW OF THE PROVISIONS OF 1985 ACT WHICH IS A SPECIAL ONE, THE INCOME TAX AUTHORITY CANNOT HAVE ANY JURISDICTION TO RENDER TH E OPERATION OF THE SCHEME A NUGATORY. 7.4. IN VIEW OF THESE CIRCUMSTANCES AND CONSIDERIN G THE LEGAL ASPECTS OF THE PRECEDENTS AS DISCUSSED IN DETAIL HEREINABOVE, WE ARE OF THE VIEW THAT THE ORDER OF THE LD.COMMISISONER PASSED U/S.263 DES ERVES TO BE PARTLY UPHELD . IN THE RESULT, GROUNDS RAISED BY THE ASSE SSEE ARE PARTLY ALLOWED. 8. AS A RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED . ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 30/ 09 /2011. SD/- SD/- ( G.D. AGARWAL ) ( MUKUL KR. SHRAWAT ) VICE PRESIDENT (AZ) JUDICIAL ME MBER AHMEDABAD; DATED 30 / 09 /2011 7.. , . ../ T.C. NAIR, SR. PS (6 2 /&8 (8*& (6 2 /&8 (8*& (6 2 /&8 (8*& (6 2 /&8 (8*&/ COPY OF THE ORDER FORWARDED TO : 1. +. / THE APPELLANT 2. /0+. / THE RESPONDENT. 3. $$ & %9 / CONCERNED CIT 4. %9() / THE CIT(A)-CONCERNED 5. 8<= /& , , / DR, ITAT, AHMEDABAD 6. = >3 / GUARD FILE. (6 % (6 % (6 % (6 % / BY ORDER, 08& /& //TRUE COPY// ! !! !/ // / $ $ $ $ ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD
Other Referred Cases
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Laws Referred To
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1:1 Consultation on Business Valuations
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1:1 Consultation on Salary Structuring
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1:1 Consultation on Tax Litigation
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Co-Founder Separation Agreement
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Convertible Note Agreement
Mehul₹5000
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