DCIT, CHENNAI V. SSF Ltd., CHENNAI

ITA 1303/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8695 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 21-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 11-05-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH J
• Assessee Lawyers: K BALASUBR AMANIAN
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 40A(3); 32

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , ! , ' #$ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A.NO.1303/MDS./2016 / ASSESSMENT YEAR : 2010-11 DY. COMMISSIONER OF INCOME TAX,CORPORATE CIRCLE 6(2), AAYAKAR BHAVAN, NEW BLOCK, 7 TH FLOOR, CHENNAI 600 034. VS. M/S.S.S.F LTD., (FORMERLY KNOWN AS SOUTHERN SEA FOODS LTD.) K-16,OLD NO.28,FIRST MAIN ROAD, ANNA NAGAR EAST, CHENNAI 600 012. [PAN AABCS 0556 K ] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : MR.A.V.SREEKANTH,JCIT,DR /RESPONDENT BY : MR.K.BALASUBRAMANIAN,ADVOCATE / DATE OF HEARING : 21 - 07 - 201 6 / DATE OF PRONOUNCEMENT : 29 - 07 - 2016 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-15,CHENNA I DATED 15.02.2016 PERTAINING TO ASSESSMENT YEAR 2010-11. 2. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD TO DELETING THE DISALLOWANCE MADE U/S.40A(3) OF THE ACT AT ` 36,46,706/-. ITA NO.1303/MDS./16 :- 2 -: 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS ENGAGED IN THE BUSINESS OF PROCESSING, PACKING AND EXPORT OF MARINE PRODUCTS. THE PURCHASE OF FISH AND FISH PRODUCTS AR E MADE DIRECTLY FROM THE JETTY AND PAYMENTS ARE ALSO MADE THEN AND THERE. IT IS SUBMITTED THAT THE FISHERMAN DOES NOT HAVE ANY BANK ACCOUNT AND AS REGARDS PAYMENTS TO THE PRIVATE LIMITED COMPANY, TH E PAYMENTS WERE MADE TO THE HEAD FISHERMEN WHO REPRESENTS THE COMPA NY AND AS SUCH MADE IN CASH. THE ASSESSEE FILED IT RETURN OF INCOM E FOR ASSESSMENT YEAR 2010-11 ON 15.10.2010 DECLARING NIL INCOME. SUBSEQUENTLY THE CASE WAS TAKEN UP SCRUTINY AND THE ASSESSMENT U/S.1 43(3) OF THE ACT WAS COMPLETED ON 18.03.2013 WHEREIN THE LD. ASSESSI NG OFFICER MADE CERTAIN DISALLOWANCES AND RESTRICTED THE CLAIM OF D EPRECIATION. 3.1 REGARDING THE DISALLOWANCE U/S.40A(3) OF THE AC T, THE AO DISALLOWED AN AMOUNT OF ` 36,46,706/-, ON THE REASON THAT THESE PAYMENTS IN EXCESS OF ` 20,000/- OTHERWISE THAN BY CROSSED CHEQUE OR DEMAND DRAFT. AGGRIEVED, THE ASSESSEE CARRIED THE A PPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.CIT(A) DELETED THE DISALLO WANCE MADE U/S.40A(3) OF THE ACT OBSERVING THAT THE ASSESSEE D EALS IN MARINE PRODUCTS AND PURCHASES ITS FISH PRODUCTS DIRECTLY F ROM THE JETTY THROUGH HEADMAN AND HENCE, THE ASSESSEE HAS TO MAKE PAYMENT S IN CASH AND THAT THESE PAYMENTS ARE COVERED BY THE EXEMPTION UN DER RULE 6DD/CIRCULAR 10/2008 DATED 05.12.2008. FURTHER, LD. CIT(A) OBSERVED ITA NO.1303/MDS./16 :- 3 -: THAT TDS WAS DEDUCTED ON THIS PAYMENT AND NO SINGLE PAYMENT TO WORKMAN EXCEEDED TO ` 20,000/- ON A SINGLE DAY. ACCORDING TO CIT(A), THE AO HAD CONSIDERED PAYMENT OF PROCESSING CHARGES FOR THE MONTH OF SEPTEMBER 2009 TWICE INADVERTENTLY. THE CIT(A) D IRECTED TO AO TO DELETE THE ADDITION MADE U/S.40A(3) AT ` 36,46,706/-, AS THE ASSESSEE IS MAKING PURCHASES DIRECTLY FROM THE JETTY AND TDS AS DEDUCTED ON PROCESSING CHARGES. AGGRIEVED WITH THE ORDER OF CI T(A), NOW REVENUE IS IN APPEAL BEFORE US. 3.2 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN PLEA OF THE LD.A.R IS THAT CERTAIN PAYMENTS ARE MADE TO THE AGENTS CALLED JETTY AND ALL THESE PAYMENTS C OVERED BY EXEMPTION UNDER RULE 6DD READ WITH CIRCULAR NO.10/2 008 DATED 05.12.2008. REGARDING PROCESSING CHARGES, HE SUBMI TTED THAT THESE PAYMENTS WERE MADE TO VARIOUS LABOURERS AS WAGES AN D ISSUED TO ONE GROUP HEADMAN AND BEING SO, PROVISIONS OF THE SECTI ON 40A(3) OF THE ACT CANNOT BE APPLIED. ON THE OTHER HAND, DEPARTME NTAL REPRESENTATIVE SUBMITTED THAT EVIDENCES BROUGHT ON RECORD ARE NOT ENOUGH TO HOLD THAT THESE PAYMENTS WERE MADE AGENTS OR LABOURERS AS WAGES. LD.D.R FURTHER SUBMITTED THAT SINCE CIT(A) A CCEPTED FRESH EVIDENCES WITHOUT CALLING REMAND REPORT FROM THE AO , HE PRAYED TO REMIT THE ISSUE IN DISPUTE TO THE FILE OF THE AO FO R FRESH CONSIDERATION. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE , CIT(A) FAILED TO ITA NO.1303/MDS./16 :- 4 -: GIVE OPPORTUNITY TO THE AO FOR VERIFYING THE DOCUME NTS FILED BY THE ASSESSEE FIRST TIME BEFORE HIM. IN OUR OPINION, IT IS APPROPRIATE TO REMIT THE ISSUE TO THE FILE OF THE AO TO CONSIDER ALL THE EVIDENCES OF THE ASSESSEE FILED BEFORE THE LD.CIT(A) AND DECIDE AFRE SH. ACCORDINGLY, THE ISSUE IS REMITTED TO THE FILE OF AO FOR FRESH C ONSIDERATION AFTER GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSES SEE. HENCE, THE ISSUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 4. THE NEXT GROUND IS WITH REGARD TO ALLOWABILITY OF UNABSORBED DEPRECIATION PERTAINING TO ASSESSMENT YEARS 1999-20 00, 2000-01 & 2001-02. 5. THE FACTS OF THE ISSUE ARE THAT THE AO FOUND TH AT THE ASSESSEE COMPANY HAD FURNISHED A MEMO OF INCOME TAX COMPUTAT ION IN WHICH BUSINESS INCOME UNDER NORMAL COMPUTATION WAS ARRIVE D AS ` 71,66,166/-. HOWEVER, THE SAME WAS SET OFF AGAINST UNABSORBED DEPRECIATION PERTAINING TO ASSESSMENT YEARS 1999-20 00, 2000-01 & 2001-02. LD. ASSESSING OFFICER, FOLLOWING THE JUDG EMENT OF MUMBAI SPECIAL BENCH IN THE CASE OF M/S.TIMES GUARANTY LTD ., [2010] 40 SOT 14, DISALLOWED THE SET OFF OF UNABSORBED DEPRECIAT ION OF ` 71,66,166/-. AGGRIEVED WITH THE ORDER OF THE AO, THE ASSESSEE CA RRIED THE APPEAL BEFORE THE LD.CIT(A). 6. ON APPEAL, LD.CIT(A) RELYING ON THE DECISION O F CHENNAI BENCH OF TRIBUNAL IN THE CASE OF DCIT VS. M/S.ARGUS COSM ETICS LTD. VIDE ITA ITA NO.1303/MDS./16 :- 5 -: NO.1275/MDS./2013 DATED 25.09.2013, ALLOWED THE CLA IM OF ASSESSEE. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 7. `WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY, THIS ISSUE WAS CONSIDERED BY TH IS TRIBUNAL IN THE CASE OF M/S.ARGUS COSMETICS LTD., IN ITA NO.1275/MD S./2013 DATED 25.09.2013 WHEREIN HELD AS FOLLOWS:- 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGMENT RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. THE ONLY ISSUE IN THE APPEAL IS WHETHER THE ASSESSEE IS ENTITLED TO SET-OFF OF UN- ABSORBED DEPRECIATION FOR THE PERIOD PRIOR TO AY. 2002-03 THAT IS PRIOR TO THE AMENDMENT BROUGHT IN BY THE FINANCE ACT, 2001 WHICH HAD REMOVED THE GAP OF EIGHT YEARS AND CARRY FORWARD DEPRECIATION. WE FIND THAT THE CASE IN HAND IS IDENTICAL TO THE ONE ALREADY ADJUDICATED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA (P) LTD., VS. DCIT (SUPRA). THE HONBLE GUJARAT HIGH COURT AFTER EXAMINING THE PROVISIONS PRIOR TO THE AMENDMENT BROUGHT IN BY THE FINANCE ACT OF 2001AND AFTER THE AMENDMENT TO THE PROVISIONS OF SECTION 32(2) BROUGHT IN BY THE FINANCE ACT, 2001 AS WELL AS CLARIFICATION GIVEN BY THE CBDT IN CIRCULAR NO. 14/2001 CONCLUDED THAT THE RESTRICTION ITA NO.1303/MDS./16 :- 6 -: OF EIGHT YEARS FOR CARRY FORWARD AND SET OFF UN- ABSORBED DEPRECIATION HAD BEEN DISPENSED WITH THE UN-ABSORBED DEPRECIATION FROM AY. 1997-98 OR TO THE AY. 2001-02 GOT CARRIED FORWARD TO THE AY. 2002-03 AND BECOME PART THEREOF. IT CAN BE GOVERNED BY THE PROVISIONS OF SECTION 32(2) AS AMENDED BY THE FINANCE ACT, 2001 AND ARE AVAILABLE FOR CARRY FORWARD AND SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS WITHOUT ANY LIMIT WHATSOEVER. THE RELEVANT EXTRACT OF THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IS REPRODUCED HEREIN BELOW: 37. THE CBDT CIRCULAR CLARIFIES THE INTENT OF THE AMENDMENT THAT IT IS FOR ENABLING THE INDUSTRY TO CONSERVE SUFFICIENT FUNDS TO REPLACE PLANT AND MACHINERY AND ACCORDINGLY THE AMENDMENT DISPENSES WITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THE AMENDMENT IS APPLICABLE FROM ASSESSMENT YEAR 2002-03 AND SUBSEQUENT YEARS. THIS MEANS THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1ST DAY OF APRIL, 2002 (A.Y. 2002-03 ) WILL BE DEALT WITH IN ACCORDANCE WITH THE PROVISION S OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 AND NOT BY THE PROVISIONS OF SECTION 32(2) AS IT STOOD BEFORE THE SAID AMENDMENT. HAD THE INTENTION OF THE LEGISLATURE BEEN TO ALLOW THE UNABSORBED DEPRECIATI ON ALLOWANCE WORKED OUT IN A.Y. 1997-98 ONLY FOR EIGHT SUBSEQUENT ASSESSMENT YEARS EVEN AFTER THE ITA NO.1303/MDS./16 :- 7 -: AMENDMENT OF SECTION 32(2) BY FINANCE ACT, 2001 IT WOULD HAVE INCORPORATED A PROVISION TO THAT EFFECT. HOWEVER, IT DOES NOT CONTAIN ANY SUCH PROVISION. HENCE KEEPING IN VIEW THE PURPOSE OF AMENDMENT OF SECTION 32(2) OF THE ACT, A PURPOSIVE AND HARMONIOU S INTERPRETATION HAS TO BE TAKEN. WHILE CONSTRUING TA XING STATUTES, RULE OF STRICT INTERPRETATION HAS TO BE A PPLIED, GIVING FAIR AND REASONABLE CONSTRUCTION TO THE LANG UAGE OF THE SECTION WITHOUT LEANING TO THE SIDE OF ASSESSEE OR THE REVENUE. BUT IF THE LEGISLATURE FAILS TO EXPRESS CLEARLY AND THE ASSESS EE BECOMES ENTITLED FOR A BENEFIT WITHIN THE AMBIT OF THE SECTION BY THE CLEAR WORDS USED IN THE SECTION, THE BENEFIT ACCRUING TO THE ASSESSEE CANNOT BE DENIED. HOWEVER, CIRCULAR NO.14 OF 2001 HAD CLARIFIED THAT UNDER SECTION 32(2), IN COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION FOR ANY PREVIOUS YE AR, DEDUCTION OF DEPRECIATION UNDER SECTION 32 SHALL BE MANDATORY. THEREFORE, THE PROVISIONS OF SECTION 32( 2) AS AMENDED BY FINANCE ACT, 2001 WOULD ALLOW THE UNABSORBED DEPRECIATION ALLOWANCE AVAILABLE IN THE A.Y. 1997-98, 1999-2000, 2000-01 AND 2001- 02 TO BE CARRIED FORWARD TO THE SUCCEEDING YEARS, AND IF ANY UNABSORBED DEPRECIATION OR PART THEREOF COULD NOT B E SET OFF TILL THE A.Y. 2002-03 THEN IT WOULD BE CARR IED FORWARD TILL THE TIME IT IS SET OFF AGAINST THE PRO FITS AND GAINS OF SUBSEQUENT YEARS. 38. THEREFORE, IT CAN BE SAID THAT, CURRENT DEPRECI ATION IS DEDUCTIBLE IN THE FIRST PLACE FROM THE INCOME OF THE BUSINESS TO WHICH IT RELATES. IF SUCH DEPRECIATION AMOUNT IS LARGER THAN THE AMOUNT OF THE PROFITS OF THAT ITA NO.1303/MDS./16 :- 8 -: BUSINESS, THEN SUCH EXCESS COMES FOR ABSORPTION FRO M 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 B E TREATED AS UNABSORBED DEPRECIATION AND IT IS TAKEN TO THE NEXT SUCCEEDING YEAR. WHERE THERE IS CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR THE UNABSORBED DEPRECIATION IS ADDED TO THE CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR AND IS DEEMED AS PART THEREOF. IF, HOWEVER, THERE IS NO CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR, THE UNABSORB ED DEPRECIATION BECOMES THE DEPRECIATION ALLOWANCE FOR SUCH SUCCEEDING YEAR. WE ARE OF THE CONSIDERED OPINION THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1ST DAY OF APRIL 2002 (A.Y. 2002-03) WILL BE DEALT WITH IN ACCORDANCE WITH THE PROVISION S 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 OF F OF UNABSORBED DEPRECIATION HAD BEEN DISPENSED WITH, TH E UNABSORBED DEPRECIATION FROM A.Y.1997-98 UPTO THE A.Y.2001-02 GOT CARRIED FORWARD TO THE ASSESSMENT YEAR 2002- 03 AND BECAME PART THEREOF, IT CAME TO B E GOVERNED BY THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 AND WERE AVAILABLE FOR CARRY FORWARD AND SET OFF AGAINST THE PROFITS AND G AINS OF SUBSEQUENT YEARS, WITHOUT ANY LIMIT WHATSOEVER. ITA NO.1303/MDS./16 :- 9 -: THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA (P) LTD., VS. DCIT (SUPRA). 6. IN VIEW OF THE ABOVE, THE ASSESSEE CAN CARRY FORWARD UNABSORBED DEPRECIATION FOR THE AYS. 1996-97 TO 1999-2000 TO BE SET OFF IN SUBSEQUENT AYS WITHOUT ANY TIME LIMIT. WE DO NOT FIND ANY ERROR IN THE IMPUGNED ORDER, THE SAME IS UPHELD AND THE APPEAL OF THE REVENUE IS DISMISSED BEING DEVOID OF MERIT. THE ABOVE JUDGEMENT OF THE TRIBUNAL IS BASED ON THE JUDGEMENT OF GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS IN DIA(P) LTD., VS. DCIT REPORTED AS 354 ITR 244(GUJ.), WHICH HAS BEEN FOLLOWED BY THE JUDGEMENT OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. GUJARAT THEMIS BIOSYN LTD. (2014) REPORTED IN 105 DTR 72(GUJ.). 8. IN THIS CASE, THE HONBLE GUJARAT HIGH COURT U PHELD THE VIEW TAKEN BY THE TRIBUNAL WHEREIN FOLLOWED THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS I NDIA(P) LTD., VS. DCIT. IT WAS HELD THAT CARRY FORWARD OF UNABSORBED DEPRECIATION CONCERNING A.Y 2001-02 AND ASSESSMENT YEARS PRIOR T HERETO CAN BE SET OFF IN SUBSEQUENT YEARS WITHOUT ANY SET TIME LIMIT. THUS, THE JUDGEMENT OF GUJARAT HIGH COURT IN THE CASE OF GEN ERAL MOTORS ITA NO.1303/MDS./16 :- 10 - : INDIA(P) LTD., VS. DCIT HAS THE EFFECT OF OVERRULIN G THE DECISION OF THE SPECIAL BENCH IN THE CASE OF M/S. TIMES GURANTEE RE PORTED IN 40 SOT 14 RELIED BY THE AO AND THUS, IN OUR OPINION, THE C IT(A) HAS TAKEN A CORRECT VIEW OF THE FACTS OF THE CASE AND DOES NOT CALL FOR ANY INTERFERENCE FROM US. ACCORDINGLY, THIS GROUND OF A PPEAL OF REVENUE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 29 TH JULY, 2016, AT CHENNAI. SD/ - SD/ - ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! ) (CHANDRA POOJARI) ' / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 29 TH JULY, 2016 K S SUNDARAM %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 3. ' +',! / CIT(A) 5. )-.' / / DR 2. / RESPONDENT 4. ' + / CIT 6. .0'1 / GF