Rajasthan Petro Synthetics Ltd., New Delhi V. ACIT, New Delhi

ITA 1397/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81616 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2008-2009
• Appeal Filed On: 08-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL BAJPAI
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Rectification of order; Capital receipt; Unabsorbed depreciation
• Section: 143(3); 32; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D: NEW DELHI BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTAN T MEMBER ITA NO. 1397/DEL/2013 ASSESSMENT YEAR 2008-09 RAJASTHAN PETRO SYNTHETICS LTD. VS. ACIT 307, SURYA COMPLEX 21, CIRCLE-15(1) VEER SAVARKAR BLOCK NEW DELHI. SHAKARPUR, VIKAS MARG, NEW DELHI 110 092 (PAN AAACR1304F) (APPELLANT) (RE SPONDENT) APPELLANT BY : SHRI SA NJEEV DEORA, CA, SHRI RAKESH JAIN RESPONDENT BY : SHRI S UNIL BAJPAI, DR ORDER PER GEORGE GEORGE K, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEE COMPANY IS DIRECT ED AGAINST THE ORDER OF THE CIT (A)-XVIII, NEW DELHI DATED 13.12.2012. THE RELEVANT ASSESSMENT YEAR IS 2008-09. 2. THE ASSESSEE COMPANY HAS, IN ITS CONCISE GROUNDS, AMONG OTHERS, RAISED THE FOLLOWING TWO ISSUES IN AN ELABORATE AND NARRAT IVE MANNER, THE SUBSTANCE OF WHICH, ARE AS UNDER: (1) THAT THE CIT (A) HAS ERRED IN SUSTAINING THE ADDITI ON OF SHORT TERM CAPITAL GAINS [STCG] OF RS.61,73,27,440/- AS MADE BY THE AO ; & ITA NO. 1397/DEL/13 2 (2) THAT THE CIT(A) HAS ALSO ERRED IN DENYING THE BENEF IT OF SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION FROM THE AYS 1997-9 8 TO 2001-02 AND ALSO UPHOLDING THE ADDITION OF RS.51,21,95,551/- MA DE BY THE AO. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE AS UNDER: THE ASSESSEE IS A PUBLIC LIMITED COMPANY . IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND TRADE OF SYNTHETIC YARN AND FREI GHT FORWARDING. THE ASSESSEE HAD FILED ITS RETURN OF INCOME FOR THE ASSESSMENT Y EAR UNDER DISPUTE ON 30.9.2008 AND, SUBSEQUENTLY, REVISED ITS RETURN OF INCOME ON 2.3.2010 DECLARING A NIL INCOME. THE ASSESSEES RETURN OF INCOME WA S ORIGINALLY PROCESSED U/S 143(1) OF THE ACT AND, SUBSEQUENTLY, SUBJECTED TO S CRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD SUBMITTED THAT IT HAD BORROWED LOANS FROM VARIOUS FINANCIAL INSTITUTIONS TO PURCHASE CAP ITAL ASSETS PRIOR TO 1999. ACCORDING TO THE ASSESSEE, WHEN IT RAN INTO LOSSES AND UPON ITS NET WORTH WAS BEING FULLY ERODED, IT BECAME SICK AS PER THE PROV ISIONS OF SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 [SICA]. I N THE MEANWHILE, THE ASSESSEE WAS SERVED A NOTICE U/S 13(2) OF THE SECUR ITIZATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTE REST ACT, 2002 [SARFAESI] FROM STRESSED ASSETS STABILIZATION FUND [SASF] (A F INANCIAL TRUST THAT HAD TAKEN OVER THE LOANS ADVANCED BY IDBI BANK LIMITED] WHO W AS AUTHORISED TO ACT FOR SELF AND ON BEHALF OF ALL SECURED LENDERS OF THE AS SESSEE THE SASF TOOK OVER PHYSICAL POSSESSION OF THE SECURED MOVABLE AND IMMO VABLE ASSETS OF THE ASSESSEE U/S 13(4) OF SARFAESI ON 28.9.2007. THE ASSE TS OF THE ASSESSEE COMPANY WERE SOLD BY SASF SOMETIME IN MARCH, 2008 F OR A SALE PRICE OF RS.10 ITA NO. 1397/DEL/13 3 CRORES. THE PRINCIPAL AMOUNT OF LOANS OUTSTANDING TO THE SECURED LENDERS AMOUNTED TO RS.97.42 CRORES, OF WHICH, RS.24.46 CRO RES WAS DUE ON ACCOUNT OF UNPAID PRINCIPAL AMOUNT OF BORROWINGS UTILIZED FOR PURCHASE OF WORKING CAPITAL ASSETS. IT WAS STAND OF THE ASSESSEE THAT THE AMOU NT OF RS.24.46 CRORES BEING THE UNPAID AMOUNT OF WORKING CAPITAL BORROWINGS AS PART OF ITS TAXABLE INCOME AND RS.72.96 CRORES [RS.97.42 CRORES RS.24.46 CRO RES] ON ACCOUNT OF UNPAID PRINCIPAL AMOUNT OF BORROWINGS UTILIZED FOR CREATIO N OF DEPRECIABLE FIXED ASSETS NOT TO BE FORMED AS PART OF TAXABLE INCOME. THE AS SESSMENT WAS, HOWEVER, CONCLUDED ON 12.12.2010 U/S 143(3) OF THE ACT BY MA KING AN ADDITION OF RS.59.56 CRORES WHICH WAS, SUBSEQUENTLY, RECTIFIED ON 21.2.2011 BY REDUCING THE ASSESSED INCOME AT RS.35.09 CRORES. THE ADDITIONS M ADE BY THE AO WHICH ARE SUBJECT MATTER OF THIS APPEAL BEING AS FOLLOWS: (I) ADDITION OF STCG OF RS.61,73,27,400/- [NET AFTER GAVE EFFECT TO RECTIFICATION ORDER DATED 21.2.2011 PASSED BY THE A O]; (II) DENIAL OF THE BENEFIT OF RS.26,63,33,506/ - BEING CLAIM FOR SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION PERTAINING TO THE AYS 1997- 98 TO 2001-02. 4. ON AN APPEAL BY THE ASSESSEE, THE CIT (A) D ISMISSED THE ASSESSEES APPEAL FOR THE FOLLOWING REASONS: SHORT TERM CAPITAL GAINS: 4.5 IN THE CASE UNDER CONSIDERATION, THE ASSESSING OFFI CER HAS TAKEN RECOURSE TO SECTION 48 AND 50 AND HELD THAT AS DEPRECIATED ASSETS HAD B EEN TRANSFERRED; THEREFORE, THE DIFFERENCE BETWEEN THE FULL VALUE OF CONSIDERATION RECEIVED AND THE WDV OF THE ASSETS WAS TO BE TAXED AS SHORT TERM CAPITAL GAINS. THE APPELLANT HAS CLAIMED THAT TAKING OVER OF ASSETS DOES NOT AMOUNT TO TRANSFER O F ASSETS AND SHORT TERM CAPITAL ITA NO. 1397/DEL/13 4 GAIN CANNOT BE CHARGED ON THIS TRANSFER. HOWEVER, THIS VIEW OF THE APPELLANT IS NOT SUPPORTED BY THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF CIT V. ATTILI N. RAO, 252 ITR 880, AS PER WHICH A PROPERTY OF THE ASSESSEE HAS BEEN MORTGAGED BY THE EXCISE DEPARTMENT WHICH WAS LYING WITH THEM AS SECURITY FOR AMOUNTS OF KIST DUE TO THE STATE. THE HONBLE SUPREME COURT REVERS ING THE DECISION OF THE HIGH COURT HELD WHAT WAS SOLD AT THE AUCTION WAS THE IMMOVEABLE PRO PERTY BELONGING TO THE ASSESSEE AND THE PRICE REALISED, THEREFORE, BEL ONGED TO THE ASSESSEE. FROM THAT PRICE, THE STATE DEDUCTED ITS DUES TOWARDS KIST. C APITAL GAINS HAVE TO BE COMPUTED ON THE FULL PRICE (LESS ADMISSIBLE DEDUCTIONS). IN THE CASE OF THE APPELLANT, DURING THE YEAR UNDER CONSIDERATION, THE PROPERTY/ASSETS OF THE APPELLANT COMPANY HAVE BEEN SOLD FOR A CERTAIN CONSIDERATION, IN RETURN THE APPELLANT HAS RECEIVED AS BENEFIT THE WAIVER OF THE ENTIRE LOAN OUTSTANDING IN ITS BOOKS AMOUNTING TO R S.97.42 CRORES. THUS, THE FULL VALUE OF CONSIDERATION FOR THE APPELLANT IS RS.97.4 2 CRORES. SINCE THE WDV OF THE ASSETS AS PER THE BOOKS OF THE APPELLANT COMPANY WA S RS.11.23 CRORE, THE DECISION OF THE ASSESSING OFFICER TO CHARGE SHORT TERM CAPIT AL GAINS OF RS.61.73 CRORES IS UPHELD. SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECAT ION: EXTENSIVELY QUOTING THE ASSESSEES CLAIM AND ALSO EX TRACTING THE OPERATIONAL PORTION OF THE FINDINGS OF THE HONBLE MUMBAI TRIBUNAL (SB) IN TIMES GUARANTY LTD (ITA NOS. 4917 & 4918], THE CIT (A) HA D OBSERVED THUS 5.2 (ON PAGE 17) SINCE THE APPELLANTS CLAIM FALLS WITH IN THE ASSESSMENT YEAR 1997-98 TO 2001-02 FOR WHICH THE CHANGE OF LAW WAS APPLICAB LE, THE UNABSORBED DEPRECIATION AS HELD BY THE ASSESSING OFFICER CANNO T BE ALLOWED TO BE CARRIED FORWARD. THE APPELLANT FURTHER CLAIM THAT THE SECO ND PROVISO WHICH LATER BECAME THE PROVISO TO SECTION 32(2) OF THE ACT PROVIDED TH AT THE TIME LIMIT OF EIGHT ASSESSMENT YEARS SPECIFIED IN SUB-CLAUSE (B) SHALL NOT APPLY IN THE CASE OF A COMPANY FOR THE ASSESSMENT YEARS THAT IT WAS A SICK INDUSTRIAL COMPANY AS IT WAS REGISTERED AS A SICK INDUSTRIAL COMPANY UNDER SICA ON AUGUST 16, 1999 AND WAS DISCHARGED BY WAY OF ABATEMENT OF PROCEEDINGS BEFOR E BIFR ON JANUARY 16, 2008 IS ALSO NOT ACCEPTED AS THE APPELLANT WAS DECLARED SICK UNDER SICA BY THE HONBLE BIFR ONLY AFTER ITS HEARING HELD ON MARCH 21, 2001 I.E., ASSESSMENT YEAR 2001-02. THE PROVISO WOULD, THEREFORE, BE APPLICABLE IN THE CASE OF THE APPELLANT ONLY AFTER ASSESSMENT YEAR 2001-02, FOR WHICH, THE CLAIM OF TH E UNABSORBED DEPRECIATION HAS ALREADY BEEN ALLOWED BY THE ASSESSING OFFICER.. ITA NO. 1397/DEL/13 5 5. AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE U S WITH THE PRESENT APPEAL. DURING THE COURSE OF HEARING, THE LEARNED AR REITER ATED WHAT HAS BEEN SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY. IN FURTHERANC E, IT WAS SUBMITTED THAT THE CIT (A) HAD ERRED IN DISMISSING THE ASSESSEES APPEAL W ITHOUT CONSIDERING AND APPRECIATING FULL FACTS AND PREVAILING LEGAL POSITI ON IN THE MATTER. ALSO, IT WAS ARGUED, THAT THE CIT (A) HAD ERRED IN HOLDING THAT A UNILATERAL WAIVER OF PRINCIPAL AMOUNT OF TERM LOAN BY THE LENDERS TO THE ASSESSEE UPON SUCH AMOUNT BECOMING IRRECOVERABLE RESULTS IN INCOME ASSESSABLE IN THE H ANDS OF THE ASSESSEE IN THE NATURE OF SHORT TERM CAPITAL GAINS. THE LEARNED AR HAD, FURTHER, ARGUED THAT THE CIT (A) ERRED IN UPHOLDING THE ADDITION ON SUCH ACC OUNT COMPLETELY OVER-LOOKING THE FACT THAT THE AFORESAID WAIVER OF BORROWINGS AV AILED BY THE ASSESSEE TO PURCHASE AND INSTALL CAPITAL ASSETS AT ITS FACTORY SITE DOES NOT IN ANY MANNER BE INTERPRETED TO RESULT IN THE TRANSFER OF ASSETS OF THE ASSESSEE AS STCG OF THE ASSESSEE. THE LEARNED AR HAD ALSO DISPUTED THE STA ND OF THE CIT (A) TO PLACE RELIANCE ON THE SUPREME COURTS JUDGMENT (SUPRA) TO JUSTIFY HER ACTION AS THE ISSUE BEFORE THE HONBLE COURT WAS ON A DIFFERENT F OOTING. WITH REGARD TO THE DENIAL OF BENEFIT OF SET OFF OF BROUGHT FORWARD UNA BSORBED DEPRECIATION FROM THE AYS 1997-98 TO 2001-02 BY THE CIT (A) AND ERRONEOUS LY UPHOLDING THE ADDITION OF RS.51.21 CRORES MADE BY THE AO, IT WAS THE STAND OF THE LEARNED AR THAT THE CIT (A) HAD GROSSLY IGNORED THE FACT THAT 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 DISPENSED WITH, TH E UNABSORBED DEPRECATION ITA NO. 1397/DEL/13 6 FROM AYS 1997-98 UP-TO THE AY 2001-02 GOT CARRIED F ORWARD TO THE AY 2002-03 AND BECAME PART THEREOF AND HAS, THUS, OVERLOOKED T HE FACT THAT THE ACCUMULATED DEPRECIATION CAME TO BE GOVERNED BY THE PROVISIONS OF S. 32(2) AS AMENDED BY FINANCE ACT, 2001 AND THIS WAS AVAILABLE FOR CARRY FORWARD AND SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEA RS WITHOUT ANY LIMIT WHATSOEVER. TO STRENGTHEN HIS SUBMISSION ON BOTH THE ISSUES, TH E LEARNED AR HAD PLACED STRONG RELIANCE, AMONG OTHERS, ON THE FO LLOWING CASE LAWS, NAMELY: (1) TRANSCORE V. UNION OF INDIA IN APPEAL NO.3228 O F 2006 DT.29.11.2006; (2) CIT V. ATTILI N.RAO (2001) 252 ITR 0880 (SC); (3) GENERAL MOTORS INDIA PVT. LTD V. DCIT APPL. NO.1773/2012/GUJ/23/8/2012 (4) THE SECURITISATION AND RECONSTRUCTION OF FINANC IAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT 2002. 5.1. IN VIEW OF THE ABOVE, IT WAS PLEADED THAT TH E TWIN ISSUES URGED BY THE ASSESSEE (SUPRA) REQUIRE TO BE ALLOWED IN ITS FAVOU R. 6. ON THE OTHER HAND, THE LEARNED D R SUPPORTE D THE STAND OF THE AUTHORITIES BELOW ON BOTH THE ISSUES UNDER CONSIDERATION. IT W AS SUBMITTED THAT AS THERE WAS NO ANY INFIRMITY IN THE ACTION OF THE AO AS WEL L AS THE CIT (A), THE PLEA OF THE ASSESSEE ON BOTH THE COUNTS DESERVE TO BE REJEC TED. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMI SSIONS, PERUSED THE RELEVANT MATERIALS ON RECORD AND ALSO THE CASE LAWS/ACT ON W HICH THE LEARNED A R PLACED RELIANCE. THE MOOT QUESTION NOW REQUIRES TO BE ADDRESSED TO IS: WHETHER THE TAKING OVER OF THE POSSESSION AND CONTROL OVER OF T HE ASSETS OF THE BORROWER (THE ITA NO. 1397/DEL/13 7 ASSESSEE) BY THE SECURED LENDER(S) TANTAMOUNT TO TR ANSFER OF ASSETS FROM THE BORROWER IN DEFAULT TO THE SECURED LENDERS? 7.1. WHEN THE SECURED LENDER TAKES OVER THE POSSE SSION OF MORTGAGED ASSETS, THE LENDER WHO WAS NEVER THE OWNER OF THE ASSETS DO ES NOT BECOME OR ACQUIRE OWNERSHIP OF THE SAID ASSETS. THE ONLY SITUATION I N WHICH THE SECURED LENDERS ACQUIRE OWNERSHIP INTEREST IN THE ASSETS IS WHEN TH E SECURED LENDERS APPROPRIATE THE ASSET TO THEIR OWN BOOKS OF ACCOUNT AND REFLECT THE SAME AS THEIR ASSETS FOR WHICH THE SECURED LENDERS ARE REQUIRED TO OBSERVE D UE PROCESS OF LAW AND, ADMITTEDLY, SUCH PROCESS OF LAW WAS NOT FOLLOWED IN THE INSTANT CASE. 7.1.1. THE SECURITIZATION AND RECONSTRUCTION OF FI NANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 20002 [SARFAESI] PROVIDES THAT IF THE DUES OF THE SECURED LENDERS ARE NOT FULLY SATISFIED WITH THE SALE PROCEEDS OF THE SECURED ASSETS, THE SECURED LENDER MAY FILE AN APPL ICATION TO THE DEBT RECOVERY TRIBUNAL HAVING JURISDICTION OR A COURT OF COMPETEN T JURISDICTION, AS THE CASE MAY BE, FOR RECOVERY OF THE BALANCE AMOUNT FROM THE BOR ROWER IN DEFAULT. THE SECURED LENDER, AT NO STAGE OF THE PROCESS OF SALE OF THE ASSETS, DOES ACQUIRE ANY RIGHT OF OWNERSHIP IN THE SECURED ASSETS AND THE AC TIONS TAKEN BY THE SECURED LENDER IN PURSUANCE OF THE PROVISIONS OF SARFAESI WE RE ACTIONS OTHERWISE STATUTORILY PERMITTED TO BE TAKEN BY THE SECURED LE NDERS TO PREVENT FRITTERING AWAY OF VALUE IN THE MORTGAGED ASSETS. SECTION 13 (2) OF SARFAESI SUBSCRIBES THAT WHERE ANY BORROWER WHO IS UNDER A LIABILITY TO A SE CURED CREDITOR UNDER A SECURITY AGREEMENT MAKES ANY DEFAULT IN REPAYMENT O F SECURED DEBT OR ANY ITA NO. 1397/DEL/13 8 INSTALMENT THEREOF, AND HIS ACCOUNT IN RESPECT OF S UCH DEBT IS CLASSIFIED BY THE SECURED CREDITOR AS NON-PERFORMING ASSET, THEN, TH E SECURED CREDITOR MAY REQUIRE THE BORROWER BY NOTICE IN WRITING TO DISCHA RGE IN FULL HIS LIABILITIES TO THE SECURED CREDITOR WITHIN SIXTY DAYS FROM THE DATE OF NOTICE FAILING WHICH THE SECURED CREDITOR SHALL BE ENTITLED TO EXERCISE ALL OR ANY OF THE RIGHTS UNDER SUB- SECTION (4). THUS, THE REQUIREMENT FOR THE SECURED LENDERS IS TO ISSUE NOTICE TO THE BORROWER FOR REPAYMENT OF DUES BEFORE TAKING OV ER POSSESSION, BUT NOT FOR TAKING OVER OWNERSHIP, OF THE MORTGAGED ASSETS. ON RECEIPT OF SUCH A NOTICE FOR REPAYMENT, THE BORROWER IS PLACED UNDER RESTRAINT F ROM DEALING WITH MORTGAGED ASSETS IN ANY MANNER WHATSOEVER AND ON FAILURE OF T HE BORROWER TO DISCHARGE HIS/ITS LIABILITY WITHIN THE TIME PROVIDED IN THE S AID NOTICE, THE RIGHTS VESTED WITH THE SECURED LENDERS EXTEND: (I) TO TAKE POSSESSION OF THE SECURED ASSETS O F THE BORROWER, INCLUDING THE RIGHT TO TRANSFER BY WAY OF LEASE, ASSIGNMENT OR SA LE FOR REALISING THE SECURED ASSET; (II) TO TAKE OVER THE MANAGEMENT OF THE BUSINE SS OF THE BORROWER INCLUDING THE RIGHT TO TRANSFER BY WAY OF LEASE, ASSIGNMENT O R SALE FOR REALISING THE SECURED ASSET; (III) TO APPOINT ANY PERSON [HEREAFTER REFERRE D TO AS THE MANAGER] TO MANAGE THE SECURED ASSETS THE POSSESSION OF WHICH H AS BEEN TAKEN OVER BY THE SECURED LENDER; & (IV) TO REQUIRE ANY TIME BY NOTICE IN WRITING , ANY PERSON WHO HAS ACQUIRED ANY OF THE SECURED ASSETS FROM THE BORROWER TO PAY THE SECURED LENDER SO MUCH OF THE MONEY AS IS SUFFICIENT TO PAY THE SE CURED DEBT. 7.1.2. IT IS APPARENT THAT TAKING OVER OF POSSES SION UNDER THIS CLAUSE IS FOR THE PURPOSE OF ENFORCEMENT OF SECURITY INTEREST AS IT I S ESSENTIAL TO SEE WHAT THE SECURITY INTEREST IS A SPECIAL INTEREST IN THE SECU RED ASSET AND NOT A PROPRIETARY OR ITA NO. 1397/DEL/13 9 GENERAL INTEREST. A RIGHT TO FORECLOSE THE SECURED ASSET IS AVAILABLE ONLY IN THE CASES SPECIFIED U/S 67(A) OF THE TRANSFER OF PROPER TY ACT, 1882. AS MORTGAGE BY WAY OF CONDITIONAL OF SIMPLE MORTGAGE, HYPOTHECATIO N OR PLEDGE WILL NOT GIVE TO THE SECURED LENDER ANY MORE THAN A SPECIAL INTEREST , I.E., RIGHT TO SELL THE PROPERTY AND, THEREFORE, THE TAKING OF POSSESSION B Y THE SECURED LENDER IS ONLY PREPARATORY TO THE SALE OF THE PROPERTY AND NOT AN END BY ITSELF. 7.1.3. IN VIEW OF THE ABOVE PROPOSITION AS PREVAI LING, THE LATTER PART OF THE CLAUSE (1) ABOVE READING INCLUDING THE RIGHT TO TRANSFER BY WAY OF LEASE, ASSIGNMENT OR SALE FOR REALISING THE SECURED ASSET IS ONLY A SURPLUS AGE. 7.1.4. THE ISSUE OF WHETHER RECOURSE TO TAKE POSSESSION OF THE SECURED ASSETS OF THE BORROWER UNDER SECTION 13(4) OF SARFAESI COMPREHENDS THE POWER TO TAKE ACTUAL POSSESSION OF THE IMMOVABLE PROPERTY CA ME UP FOR DELIBERATION BEFORE THE HONBLE SUPREME COURT IN THE CASE OF M/S . TRANSCORE V. UNION OF INDIA & ANOTHER IN CIVIL APPEAL NOS.1374/06, 2841/06, 322 5/06, 3226/06 AND 908/06 DATED 29.11.2006. AFTER ANALYSING THE PROVISIONS OF SECTIONS 13 AND 17 OF SARFAESI ACT AS WELL RULES EXTENSIVELY, THE HONBLE APEX COURT WAS OF THE VIEW THAT THE WORD POSSESSION IS A RELATIVE CONCEPT. IT IS NOT AN ABSOLUTE CONCEPT. THE DICHOTOMY BETWEEN SYMBOLIC AND PHYSICAL POSSESSION DOES NOT FIND PLACE IN THE ACT. AS STATED ABOVE, THERE IS A CONCEPTUAL DISTINCTION BETWEEN SECURITIES BY WHICH THE CREDITOR OBTAINS OWNERSHIP OF OR INTEREST IN THE PR OPERTY CONCERNED (MORTGAGES) AND SECURITIES WHERE THE CREDITOR OBTAINS NEITHER A N INTEREST IN NOR POSSESSION OF THE PROPERTY BUT THE PROPERTY IS APPROPRIATED TO TH E SATISFACTION OF THE DEBT (CHARGES). BASICALLY, THE NPA ACT DEALS WITH THE F ORMER TYPE OF SECURITIES UNDER WHICH THE SECURED CREDITOR, NAMELY, THE BANK/FI OBT AINS INTEREST IN THE PROPERTY ITA NO. 1397/DEL/13 10 CONCERNED. IT IS FOR THIS REASON THAT THE NPA ACT OUSTS THE INTERVENTION OF THE COURTS/TRIBUNALS FURTHER IT WAS HELD BY THE HONBLE SUPREME COURT AS FOLLOWS THEREFORE, IT CANNOT BE SAID THAT IF POSSESSI ON IS TAKEN BEFORE CONFIRMATION OF SALE, THE RIGHTS OF THE BORROWER TO GET THE DISPUTE ADJUDICATED UPON IS DEFEATED BY THE AUTHORISED OFFICER TAKING POSSES SION. AS STATED ABOVE, THE NPA ACT PROVIDES FOR RECOVERY OF POSSESSION BY NON-ADJ UDICATORY PROCESS, THEREFORE, TO SAY THAT THE RIGHTS OF THE BORROWER WOULD BE DEFEAT ED WITHOUT ADJUDICATION WOULD BE ERRONEOUS. RULE 8, UNDOUBTEDLY, REFERS TO SALE O F IMMOVABLE SECURED ASSET. HOWEVER, RULE 8(4) INDICATES THAT WHERE POSSESSION IS TAKEN BY THE AUTHORISED OFFICER BEFORE ISSUANCE OF SALE CERTIFICATE UNDER R ULE 9, THE AUTHORISED OFFICER SHALL TAKE STEPS FOR PRESERVATION AND PROTECTION OF SECUR ED ASSETS TILL THEY ARE SOLD OR OTHERWISE DISPOSED OF. UNDER SECTION 13(8),IF THE D UES OF THE SECURED CREDITOR TOGETHER WITH ALL COSTS, CHARGES AND EXPENSES INCUR RED BY HIM ARE TENDERED TO THE CREDITOR BEFORE THE DATE FIXED FOR SALE OR TRANSFER , THE ASSET SHALL NOT B E SOLD OR TRANSFERRED. THE COSTS, CHARGES AND EXPENSES REFERR ED TO IN SECTION 13(8) WILL INCLUDE COSTS, CHARGES AND EXPENSES WHICH THE AUTHO RISED OFFICER INCURS FOR PRESERVING AND PROTECTING THE SECURED ASSETS TILL T HEY ARE SOLD OR DISPOSED OF IN TERMS OF RULE 8(4). THUS, RULE 8 DEALS WITH THE STA GE ANTERIOR TO THE ISSUANCE OF SALE CERTIFICATE AND DELIVERY OF POSSESSION UNDER RULE 9 . TILL THE TIME OF ISSUANCE OF SALE CERTIFICATE, THE AUTHORISED OFFICER IS LIKE A COURT RECEIVER UNDER ORDER XL, RULE 1 CPC 7.1.5. IN A NUTSHELL, THE HONBLE SUPREME COURT HA D HELD THAT THE WORD POSSESSION IS A RELATIVE CONCEPT AND NOT AN ABSOL UTE CONCEPT AND, THEREFORE, DRAWING OF DICHOTOMY BETWEEN SYMBOLIC AND ACTUAL PO SSESSION DOES NOT FIND PLACE IN THE SCHEME OF THE NPA ACT READ WITH THE 20 02 RULES. HENCE, POSSESSION TAKEN MAY BE EITHER ACTUAL OR CONSTRUCTIVE. 7.1.6. THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT V. ATTILI N RAO REPORTED IN (2001) 252 ITR 880 (SC) RELIED ON BY T HE CIT(A) IS CLEARLY DISTINGUISHABLE SINCE THE ISSUE FOR CONSIDERATION BEFORE THE HONBL E COURT WAS ON THE DIFFERENT FOOTING. THE ISSUE BEFORE THE HONBLE COURT, IN BRIEF, WAS THAT THE ASSESSEE WHO CARRIED ON ITA NO. 1397/DEL/13 11 ABKARI BUSINESS HAD MORTGAGED IMMOVABLE PROPERTY BE LONGING TO HIM TO THE EXCISE DEPARTMENT OF THE STATE GOVERNMENT AS SECURIT Y FOR AMOUNTS OF KIST DUE TO THE STATE. ON SALE BY THE STATE GOVERNMENT OF T HE IMMOVABLE PROPERTY BY AUCTION, A SUM OF RS.5.62 LAKHS WAS REALISED WHEREF ROM THE GOVERNMENT DEDUCTED RS.1.29 LAKHS DUE TOWARDS KIST AND PAID OV ER THE BALANCE TO THE ASSESSEE. IN COMPUTING THE CAPITAL GAINS FROM THE SALE OF THE PROPERTY, THE ASSESSEE SOUGHT DEDUCTION OF RS.1.29 LAKHS. THE TR IBUNAL UPHELD THE CLAIM ON THE GROUND THAT THERE WAS A CLEAR CHARGE OR MORTGAG E OVER THE PROPERTY AND THE AMOUNT REALISED UNDER THE CHARGE OR MORTGAGE WAS AN AMOUNT WHICH NEVER REACHED THE ASSESSEE BUT REACHED THE GOVERNMENT BY OVERRIDING TITLE. ON A REFERENCE, THE HIGH COURT HELD THAT BY THE MORTGAGE AN INTEREST WAS CREATED IN FAVOUR OF THE STATE AND WHEN THE PROPERTY WAS SOLD BY AUCTION ITS VALUE HAD TO BE REDUCED TO THE EXTENT OF THE INTEREST CREATED IN FAVOUR OF THE STATE. ON APPEAL, THE HONBLE SUPREME COURT HAD HELD AS UNDER : 4 WE ARE OF THE VIEW THAT THE TRIBUNAL AND THE HIGH COURT WERE IN ERROR. WHAT WAS SOLD BY THE STATE AT THE AUCTION WAS THE IMMOVABLE PROPERTY THAT BELONGE D TO THE ASSESSEE. THE PRICE THAT WAS REALISED THEREFOR BELONGED TO THE ASSESSEE . FROM OUT OF THAT PRICE, THE STATE DEDUCTED ITS DUE TOWARDS KIST AND INTEREST DUE FROM THE ASSESSEE AND PAID OVER THE BALANCE TO HIM. THE CAPITAL GAIN THAT THE ASSESSEE MADE WAS ON THE IMMOVABLE PROPERTY THAT BELONGED TO HIM. THEREFORE , IT IS ON THE FULL RICE REALISED [LESS ADMITTED DEDUCTIONS] THAT THE CAPITAL GAIN AN D THE TAX THEREON HAS TO BE COMPUTED 7.1.7. THE CLAIM OF THE PRESENT ASSESSEE UNDER C ONSIDERATION IS THAT TAKING OVER OF ASSETS DOES NOT AMOUNT TO TRANSFER OF ASS ETS AND SHORT TERM CAPITAL GAIN ITA NO. 1397/DEL/13 12 ON SUCH TRANSFER CANNOT BE CHARGED. THEREFORE, THE CASE LAW RELIED ON BY THE CIT(A) HAS NO RELEVANCE TO THE ISSUE UNDER DISPUTE. 7.1.8. REVERTING TO THE MAIN ISSUE, THE PREVAILIN G LEGAL POSITION IS THAT A RESTRAINT ON DEALING WITH THE ASSETS IN ANY MANNER RESULTING IN FROM ISSUANCE OF NOTICE FOR RECOVERY IS MERELY A PROHIBITION AGAINST PRIVATE ALIENATION AND DOES NOT PASS ANY TITLE TO THE AUTHORITY WHICH HELD A LIEN O R CHARGE ON THE AFORESAID CLASS OF ASSETS. THE TAKING OVER POSSESSION OF MORTGAGED ASSETS BY THE SECURED LENDERS FACILITATE THEM TO DEAL WITH THE ASSETS AS PART OF PROTECTION OF THEIR RIGHTS IN AND OVER THE SUBJECT ASSETS, BUT, NOT RESULTING IN THE TITLE AND OWNERSHIP PASSING OVER OR VESTED WITH THE SECURED LENDERS. T HUS, TAKING OVER OF POSSESSION OF MORTGAGED ASSETS MERELY CONVERTS THE LEGAL ABILI TY OF THE SECURED LENDERS TO TAKE POSSESSION OF MORTGAGED ASSETS INTO PHYSICAL P OSSESSION. 7.1.9. MOREOVER, THE PURPOSE OF EXERCISE OF POWE RS REFERRED TO IN SECTION 13(4) OF SARFAESI IS FOR THE REALISATION OF SECURITY AND, THEREFORE, AFTER TAKING OVER THE POSSESSION OF ASSETS, THE SECURED CREDITORS SHOULD ARRANGE TO SELL THE SECURED ASSETS OF THE BORROWER FOR REALISING THEIR OUTSTAND ING LIABILITIES. SECTION 13 OF SARFAESI PROV IDES THE FOLLOWING: (5) ANY PAYMENT MADE BY ANY PERSON REFERRED TO IN CLAUSE (D) OF THE SUB-SECTION (4) TO THE SECURED CREDITOR SHALL GIVE SUCH PERSON A VALID DISCHARGE AS IF HE HAS MADE PAYMENT TO THE BORROWER; (6) ANY TRANSFER OF SECURED ASSET AFTER TAKING POSS ESSION THEREOF OR TAKEOVER OF MANAGEMENT UNDER SUB-SECTION (4), BY THE SECURED CR EDITOR OR BY THE MANAGER ON BEHALF OF THE SECURED CREDITORS SHALL VEST IN THE T RANSFEREE ALL RIGHTS IN, OR IN RELATION TO, THE SECURED ASSET TRANSFERRED AS IF TH E TRANSFER HAD BEEN MADE BY THE OWNER OF SUCH SECURED ASSET; ITA NO. 1397/DEL/13 13 (7) WHERE ANY ACTION HAS BEEN TAKEN AGAINST A BORR OWER UNDER THE PROVISIONS OF SUB- SECTION (4), ALL COSTS, CHARGES AND EXPENSES WHICH, IN THE OPINION OF THE SECURED CREDITOR, HAVE BEEN PROPERLY INCURRED BY HIM OR AN Y EXPENSES INCIDENTAL THERETO, SHALL BE RECOVERABLE FROM THE BORROWER AND THE MONE Y WHICH IS RECEIVED BY THE SECURED CREDITOR SHALL, IN THE ABSENCE OF ANY CONTR ACT TO THE CONTRARY, BE HELD BY HIM IN TRUST, TO BE APPLIED, FIRSTLY, IN PAYMENT OF SUC H COSTS, CHARGES AND EXPENSES AND SECONDLY, IN DISCHARGE OF THE DUES OF THE SECURED C REDITOR AND THE RESIDUE OF THE MONEY SO RECEIVED SHALL BE PAID TO THE PERSON ENTI TLED THERETO IN ACCORDANCE WITH HIS RIGHTS AND INTERESTS. (8) IF THE DUES OF THE SECURED CREDITOR TOGETHE R WITH ALL COSTS, CHARGES AND EXPENSES INCURRED BY HIM ARE TENDERED TO THE SECURED CR EDITOR AT ANY TIME BEFORE THE DATE FIXED FOR SALE OR TRANSFER, THE SECURED ASSET SHALL NOT BE SOLD OR TRANSFERRED BY THE SECURED CREDITOR, AND NO FURTHER STEP SHALL BE TAKEN BY HIM FOR TRANSFER OR SALE OF THAT SECURED ASSET. 7.1.10. BASED ON THE ABOVE REFERRED PROVISIONS OF SARFAESI ACT, THE FOLLOWING POINTS EMERGE, NAMELY: (I) FOR ENFORCEMENT OF SECURITY INTEREST, THE SECURED LENDER TAKE THE POSSESSION OF THE ASSETS AFTER SERVING NOTICES UNDE R SECTIONS 13(2) AND 13(4) OF SARFAESI ACT; (II) THE SECOND LENDER THEN TAKES STEPS TO SEL L THE ASSETS SO POSSESSED. HOWEVER, THE SECURED LENDER, AT NO STAGE, DOES ACQ UIRE ANY TITLE OVER THE ASSETS, BUT, MERELY HOLDS IT TILL ITS DUES ARE SETTLED EITHER BY THE BORROWER BEFORE THE DATE OF SALE OR TRANSFER OR FRO M THE SALE PROCEEDS OF THE ASSETS; (III) COSTS INCURRED BY THE SECURED LENDER IN CONNECTION WITH THE SALE OF THE SECURED ASSETS CAN BE RECOVERED FROM THE BORROWER; (IV) IF THE DUES OF THE SECURED LENDER ARE NO T COMPLETELY SETTLED OUT OF SALE PROCEEDS REALISED FROM SALE OF SUCH SECURED ASSETS, THE SECURED LENDER CAN FILE AN APPLICATION BEFORE THE DEBT RECO VERY TRIBUNAL FOR RECOVERY OF THE BALANCE AMOUNT(S) FROM THE BORROWER ; (V) IF THE DUES OF THE SECURED LENDER TOGETHE R WITH ALL COSTS, CHARGES AND EXPENSES INCURRED BY IT, ARE TENDERED TO THE SECURE D LENDER AT ANY TIME BEFORE THE DATE FIXED FOR SALE OR TRANSFER, THE SEC URED ASSET SHALL NOT BE SOLD OR TRANSFERRED BY THE SECURED LENDER AND NO FU RTHER STEP SHALL BE TAKEN BY HIM FOR TRANSFER OR SALE OF THAT SECURED A SSET. 7.1.11. TAKING ALL THE ABOVE FACTS AND CIRCUMSTA NCES OF THE ISSUE AND ALSO THE JUDGMENT OF THE HONBLE SUPREME COURT (SUPRA), WE A RE OF THE VIEW THAT THE AO ITA NO. 1397/DEL/13 14 HAD ERRED IN APPLYING THE PROVISIONS OF S. 2 (47) O F THE ACT IN CONSIDERING THAT THE SECURED LENDER ACQUIRE TITLE TO THE SECURED ASSETS OF THE ASSESSEE COMPANY ON TAKING OVER OF POSSESSION OF ASSETS OF THE ASSESSEE BY OVERLOOKING THE FACT THAT WHAT THE SECURED LENDERS ACQUIRED ON TAKING OVER OF POSSESSION OF THE SECURED ASSETS WERE MERELY A SPECIAL RIGHT TO EXECUTE OR IM PLEMENT THE RECOVERY OF ITS DUES FROM DEALING WITH THOSE ASSETS OF THE ASSESSE E COMPANY. HAD THE ASSESSEE COMPANY TENDERED THE AMOUNTS PAYABLE TO TH E SECURED LENDERS BEFORE THE DATE OF SALE OF SUCH ASSETS WITHOUT ANY FURTHER ACT, DEED OR THING BEING REQUIRED TO BE CARRIED OUT OR COMPLETED TOWARDS TIT LE OF ASSETS, THE ASSESSEE COMPANY COULD HAVE REGAINED OR TAKEN POSSESSION OF THE SECURED ASSETS FROM THE SECURED LENDERS. 7.1.12. AS THE POSITION OF LAW IS VERY CLEAR, WE A RE OF THE VIEW THAT THE OWNERSHIP RIGHTS IN THE ASSETS DID NOT AT ANY STAGE STAND TRANSFERRED TO THE SECURED LENDERS BY TAKING OVER THE POSSESSION OF SE CURED ASSETS. THUS, THE SALE CONSIDERATION RECEIVED BY THE SECURED LENDER(S) ACT UALLY BELONGED TO THE BORROWER WHICH BY OPERATION OF LAW REMAINED RETAINE D BY THE SECURED LENDERS TO RECOVER THEIR COSTS, DUES ETC., 7.1.13. FURTHER, IF THE CONSIDERATION TO THE AS SESSEE IS TO BE CONSIDERED AS THE SALE AMOUNT RECEIVED BY THE LENDING BANKS, THEN, TH E LOANS WAIVED BY SUCH BANKS [AVAILED BY THE ASSESSEE FOR THE PURCHASE OF CAPITAL ASSETS SUCH AS LAND, BUILDING, PLANT AND MACHINERY ETC.,] WAS NOTHING BU T A CAPITAL RECEIPT NOT LIABLE FOR TAX SINCE NEITHER THE PROVISIONS OF S. 28(IV) N OR S. 41(1) OF THE ACT IS ITA NO. 1397/DEL/13 15 ATTRACTED. FOR THE ABOVE PROPOSITION, WE WOULD LIK E TO REFER TO THE JUDICIAL PRECEDENTS ON THE ISSUE AS UNDER: (I) MAHINDRA AND MAHINDRA LTD V. CIT (2003) 261 ITR 0501 (BOM): THE ASSESSEE MANUFACTURED JEEPS. IN JUNE , 1964, IT ENTERED INTO AN AGREEMENT WITH AN AMERICAN COMPANY WHICH AGREED TO SELL TO THE ASSESSEE DIES, WELDING EQUIPMENT AND DIE MODELS TOOLING FOR PRODUC TION OF SPECIAL TYPES OF JEEPS BY THE ASSESSEE IN INDIA. THE PRICE OF THE TO OLING WAS AGREED AT $ 6,50,000 C.I.F., BOMBAY. THE IMPORT OF THE TOOLING WAS APPRO VED BY GOI. SINCE THE ASSESSEE COULD NOT SECURE FOREIGN EXCHANGE, THE AME RICAN COMPANY AGREED TO PROVIDE A LOAN OF THE SAID AMOUNT REPAYABLE AFTER T EN YEARS IN INSTALMENTS WITH INTEREST AT 6%. APPROVAL OF THE GOI, THE ASSESSEE HAD RECEIVED THE LOAN AMOUNT. IN FEBRUARY, 1976, THE AMERICAN COMPANY WA S TAKEN OVER AND AS A TERM THEREOF, IT HAD BEEN AGREED TO WAIVE THE PRINC IPAL AMOUNT OF LOAN ADVANCED TO THE ASSESSEE AND TO CANCEL THE PROMISSORY NOTES AS AND WHEN THEY MATURED. IN ITS RETURN OF INCOME FOR THE AY 1976-77, THE ASS ESSEE HAD SHOWN AN AMOUNT OF RS.57.74 LAKHS AS CESSATION OF ITS LIABILITY TOW ARDS THE AMERICAN COMPANY. HOWEVER, THE AO TOOK A STAND THAT WITH THE WAIVER O F THE LOAN; THE CREDITS REPRESENTED INCOME AND NOT A LIABILITY. WHEN THE I SSUE REACHED THE HONBLE COURT FOR CONSIDERATION, THE HONBLE COURT HAD HELD AS UNDER: (I) THAT THERE WERE TWO IMPORTANT FACTS WHICH HAD BEEN OVERLOOKED BY THE ASSESSING OFFICER. FIRSTLY, THE ASSESSEE CONTINUED TO PAY INTEREST AT 6 PER CENT FOR A PERIOD OF TEN YEARS ON THE LOAN AMOUNT. THE AGREEM ENT FOR PURCHASE OF TOOLINGS WAS ENTERED INTO MUCH PRIOR TO THE APPROVAL OF THE LOAN ARRANGEMENT GIVEN BY THE RESERVE BANK OF INDIA. THEREFORE, THE LOAN AGREEME NT, IN ITS ENTIRETY, WAS NOT ITA NO. 1397/DEL/13 16 OBLITERATED BY SUCH WAIVER. SECONDLY, THE PURCHASE CONSIDERATION RELATED TO CAPITAL ASSETS. THE TOOLINGS WERE IN THE NATURE OF DIES. THE ASSESSEE WAS A MANUFACTURER OF HEAVY VEHICLES AND JEEPS. IT REQUIRED THESE DIE S FOR EXPANSION. THEREFORE, THE IMPORT WAS THAT OF PLANT AND MACHINERY. THE CONSID ERATION PAID WAS FOR SUCH IMPORT. IN THE CIRCUMSTANCES, SECTION 28(IV) WAS N OT ATTRACTED. LASTLY, THE PRINCIPAL AMOUNT OF LOAN HAD BEEN FORGONE AS A PART OF TAKEOVER ARRANGEMENT TO WHICH THE ASSESSEE WAS NOT A PARTY. THE WAIVER OF THE PRINCIPAL AMOUNT WAS UNEXPECTED IN THE CIRCUMSTANCES, SUCH WAIVER WOULD NOT CONSTITUTE BUSINESS INCOME. (II) THAT IN ORDER TO APPLY SECTION 41(1), AN ASSES SEE SHOULD HAVE OBTAINED A DEDUCTION IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE. THE ASSESSEE H AD NOT OBTAINED SUCH ALLOWANCE OR DEDUCTION IN RESPECT OF EXPENDITURE OR TRADING LIAB ILITY. THE ASSESSEE HAD PAID INTEREST AT 6 PER CENT OVER A PERIOD OF TEN YEARS O N RS.57,75,064/-. IN RESPECT OF THAT INTEREST, THE ASSESSEE NEVER GOT DEDUCTION UND ER SECTION 36(1)(III) OR SECTION 37. IN THE CIRCUMSTANCES, SECTION 41(1) OF THE ACT WAS NOT APPLICABLE. SECONDLY, EVEN ASSUMING THAT THE ASSESSEE HAD GOT DEDUCTION O N ALLOWANCE SECTION 41(1) WAS NOT APPLICABLE BECAUSE SUCH DEDUCTION WAS NOT IN RE SPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY. LASTLY, THE TOOLINGS CONSTITUTED CAPITAL ASSETS AND NOT STOCK-IN- TRADE. THEREFORE, TAKING INTO ACCOUNT ALL THE ABOV E FACTS SECTION 41(1) OF THE ACT WAS NOT APPLICABLE. (II) CIT V. TOSHA INTERNATIONAL LTD. ITA NO.1143/2008 DT:23.9.2008 DELHI HC: BRIEFLY, THE ASSESSEE WAS ENGAGED IN THE MAN UFACTURING OF BLACK AND WHITE PICTURE TUBES. THE ASSESSEE COMPANY RAN INTO HUGE LOSSES AND IT ULTIMATELY BECAME A SICK COMPANY AND REGISTERED WITH THE BIFR. UNDER THE ONE TIME SETTLEMENT SCHEME, THE FIS AND BANKS REQUIRED THE A SSESSEE TO PAY 60% OF THE AMOUNT DUE TOWARDS PRINCIPAL AND WAIVED THE ENTIRE INTEREST PAYMENT. THERE WAS NO DISPUTE WITH REGARD TO WAIVER OF INTEREST PA YMENT, BUT, THE AO TOOK AN OBJECTION IN RESPECT TO THE WAIVER OF THE PRINCIPAL AMOUNT OF RS.10.47 CRORES WHICH THE ASSESSEE HAD DIRECTLY CREDITED TO THE CAP ITAL RESERVE ACCOUNT. ACCORDING TO THE AO, THE ASSESSEE HAD DERIVED BENEF IT ON THE BASIS OF EITHER DEPRECIATION OR UTILIZING THE WORKING CAPITAL WHICH WOULD HAVE FORMED PART OF THE EARLIER YEARS INCOME AND SINCE THE LOANS CEASED TO EXIST, THIS AMOUNTED TO ITA NO. 1397/DEL/13 17 CESSATION OF LIABILITY AND, THEREFORE, IT HAS TO BE TREATED AS AN INCOME. WHEN THE ISSUE FINALLY PLACED BEFORE THE HONBLE HIGH COURT FOR ITS RULING, THE HONBLE COURT HAD HELD AS UNDER: 4. WE SEE NO REASON TO INTERFERE WITH THE CONCLUSI ONS OF THE TRIBUNAL AS THE SAME HAVE BEEN RENDERED ON A CORRECT APPRECIATION OF LAW . THE PRINCIPLES ENUNCIATED IN MAHINDRA AND MAHINDRA LIMITED V. CIT 261 ITR 501 (B OM) ARE FULLY APPLICABLE AND WE SEE NO REASON TO TAKE A DIFFERENT VIEW. DENIAL OF THE BENEFIT OF SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION FROM THE AYS 1997-98 TO 2001-02 AND ALSO UPHOLDING THE A DDITION OF RS.51,21,95,551/- MADE BY THE AO . 8. THE AO HAD HELD THAT THE CARRY FORWARD UNA BSORBED DEPRECIATION FOR THE PERIOD 1996-97 TILL 2001-02 WOULD BE DETERMINED BY THE PROVISIONS OF S. 32(2) OF THE ACT AND ON THIS BASIS THOUGH THE ASSESSEE HAD C LAIMED BENEFIT OF UNABSORBED DEPRECIATION FOR THE AYS 1996-97 TO 2007-08, THE AS SESSEE WAS NOT ALLOWED TO SET OFF OF UNABSORBED DEPRECIATION FOR THE AYS 1997 -98 TO 2001-2002. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE BEFORE TH E CIT (A). AFTER DUE CONSIDERATION OF THE ASSESSEES SUBMISSIONS, THE CI T (A) REJECTED THE ASSESSEES PLEA FOR THE REASONS RECORDED IN HER FINDINGS UNDER DISPUTE (SUPRA). 8.1. BEFORE US, IT WAS THE STAND OF THE ASSES SEE THAT THE CIT (A) HAD GROSSLY IGNORED THE FACT THAT ONCE THE CIRCULAR NO.14 OF 2 001 CLARIFIED THAT THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSOR BED DEPRECIATION HAD BEEN DISPENSED WITH, THE UNABSORBED DEPRECATION FROM AYS 1997-98 UP-TO THE AY 2001-02 GOT CARRIED FORWARD TO THE AY 2002-03 AND B ECAME PART THEREOF AND HAS, THUS, OVERLOOKED THE FACT THAT THE ACCUMULATED DEPRECIATION CAME TO BE ITA NO. 1397/DEL/13 18 GOVERNED BY THE PROVISIONS OF S. 32(2) AS AMENDED B Y FINANCE ACT, 2001 AND THIS WAS AVAILABLE FOR CARRY FORWARD AND SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS WITHOUT ANY LIMIT WHATSOEVER. 8.2. WE HAVE DULY CONSIDERED THE ASSESSEES SUB MISSION ON THE ISSUE. THE LEARNED D.R PRESENT WAS HEARD. THE AO HAD ALLOWED THE UNABSORBED DEPRECIATION TO THE EXTENT OF RS.2,49,74,566/- PERT AINING TO THE AYS 1996-97 AND 2000-01 AND DENIED UNABSORBED DEPRECATION TO THE EX TENT OF RS.50.18 CRORES FOR THE AYS 1997-98 TO 2001-02. PRIOR TO THE FINANCE A CT (NO.2) OF 1996, UNABSORBED DEPRECIATION COULD BE CARRY FORWARD INDE FINITELY. HOWEVER, THE FINANCE ACT (NO.2) OF 1996 HAD RESTRICTED THE PERIO D OF CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECATION TO EIGHT YEARS FROM THE A Y 1997-98. SUBSEQUENTLY, S. 32(2) OF THE ACT WAS AMENDED BY FINANCE ACT, 2001 I .E., W. E. F. THE ASSESSMENT YEAR 2002-03 TO RESTORE THE STATUS QUO AS IT WAS PR EVAILED PRIOR TO THE FINANCE ACT (NO.2) OF 1996, AS A RESULT OF WHICH, RESTRICTI NG OF THE PERIOD OF EIGHT YEARS WAS REMOVED. IN SUBSTANCE, THE EFFECT OF THE AMEND MENT IS THAT THE UNABSORBED DEPRECIATION TO AN ASSESSEE AS ON 1.4.20 02 [A Y 2002-03] HAS TO BE DEALT WITH IN ACCORDANCE WITH S. 32(2) OF THE ACT A S AMENDED BY THE FINANCE ACT, 2001 AND NOT BY S. 32(2) OF THE ACT AS IT STOOD BEFORE THE SAID AMENDMENT. THUS, THE PROVISIONS OF S. 32(2) OF THE ACT AS AMEN DED BY THE FINANCE ACT, 2001 WOULD ALLOW THE UNABSORBED DEPRECIATION ALLOWANCE P ERTAINING TO THE AYS 1997- 98, 1998-99, 1999-2000 AND 2000-01 TO BE CARRIED FO RWARD FOR SET OFF ITA NO. 1397/DEL/13 19 INDEFINITELY. AS SUCH, THE ASSESSEE COMPANY IS ENT ITLED TO SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECATION FOR THE AYS 1997-98 TO 2001-02. 8.2.1. MOREOVER, THE LEGAL POSITION AS PREVAILS I N THE CASE OF THE ASSESSEE COMPANY IS THAT THE PROVISION RELATING TO ALLOWING SET OFF OF UNABSORBED DEPRECIATION U/S 32(2) OF THE ACT AS AMENDED BY THE FINANCE ACT, 1996 PROVIDES THAT THE CURRENT DEPRECIATION BECOMES ELIGIBLE FOR SET OFF AGAINST THE BUSINESS INCOME AND AGAINST INCOME UNDER ANY OTHER HEAD. TH E CARRY FORWARD TIME IS ALSO RESTRICTED TO EIGHT ASSESSMENT YEARS SUCCEEDIN G THE AY IN WHICH IT WAS FIRST COMPUTED. FURTHER, THE AFORESAID CHANGED LAW WAS A PPLICABLE UP-TO THE AY 2001-02. THE SECOND PROVISO WHICH LATER BECAME THE PROVISO TO S. 32 (2) OF THE ACT PROVIDES THAT THE TIME LIMIT OF EIGHT ASSESSMEN T YEARS SPECIFIED IN SUB-CLAUSE (B) SHALL NOT APPLY IN THE CASE OF A COMPANY FOR TH E ASSESSMENT YEARS THAT IF IT WAS A SICK INDUSTRIAL COMPANY. INCIDENTALLY, THE P RESENT ASSESSEE COMPANY WAS REGISTERED AS A SICK INDUSTRIAL COMPANY UNDER SICA ON 16.8.1999 AND WAS DISCHARGED BY WAY OF ABATEMENT OF PROCEEDINGS BEFOR E BIFR ON 16.1.2008. 8.2.2. TO STRENGTHEN OUR VIEW ON THE ABOVE FINDING S, WE WOULD LIKE TO REFER TO THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF GENERAL MOTORS INDIA PVT. LTD V. DCIT REPORTED IN 354 ITR 244 (GUJ ). BRIEFLY, THE ASSESSEE COMPANY IS A PRIVATE LIMITED COMPANY AND ENGAGED IN MANUFACTURING AND TRADING OF AUTOMOBILES AND ITS PARTS UNDER THE BRAND NAME CHEVROLET. THE ASSESSEE FILED ITS RETURN OF INCO ME FOR THE AY 2006-07, DECLARING A TOTAL INCOME AT RE. NIL. THE TRANSFER PRICING OF FICER PASSED AN ORDER BY ITA NO. 1397/DEL/13 20 DIRECTING THE AO TO MAKE AN ADDITION OF RS.53.15 CR ORES TO THE TOTAL INCOME OF THE ASSESSEE. BEING AGGRIEVED BY THE TPOS DIRECTI ON, THE ASSESSEE FILED ITS OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL [DRP] . THE DRP DIRECTED THE AO TO MAKE ADDITIONS UNDER VARIOUS HEADS, BUT, ALLOWED UNABSORBED DEPRECIATION OF AY 1997-98 OF RS.43.6 CRORES AND ACCEPTED THE TOTAL INCOME AT RE. NIL. SUBSEQUENTLY, THE ASSESSMENT WAS RE-OPENED U/S 147 OF THE ACT ON THE GROUND THAT THE UNABSORBED DEPRECIATION PERTAINING TO AY 1 997-98 OF RS.43.60 CRORES WAS WRONGLY ALLOWED TO BE SET OFF AGAINST THE INCOM E OF AY 2006-07 THOUGH S. 32(2) OF THE ACT AS AMENDED BY THE FINANCE ACT NO.2 , 1996, THE UNABSORBED DEPRECATION FOR THE AY 1997-98 COULD BE CARRIED FOR WARD UP-TO A MAXIMUM PERIOD OF 8 YEARS FROM THE YEAR IN WHICH IT WAS FIR ST COMPUTED AND, THEREFORE, BROUGHT FORWARD DEPRECIATION WAS ELIGIBLE FOR CARRY FORWARD AND SET OFF AGAINST THE INCOME FOR AY 2005-06 ONLY. FINALLY, WHEN THE ISSUE REACHED THE HONBLE HIGH COURT FOR CONSIDERATION, THE HONBLE COURT HAD RULED THAT THE ASSESSEE WAS ELIGIBLE TO CARRY FORWARD OF UNABSORBED DEPRECIATIO N AND SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS WITHOUT ANY L IMIT BY THE PROVISIONS OF S. 32(2) AS AMENDED BY THE FINANCE ACT, 2001. THE OPE RATIONAL AND RELEVANT PORTIONS OF THE JUDGMENT OF THE HONBLE COURT ARE REPRODUCED AS UNDER:- 30. THE LAST QUESTION WHICH ARISES FOR CONSIDER ATION IS THAT WHETHER THE UNABSORBED DEPRECIATION PERTAINING TO A.Y. 1997-98 COULD BE ALLOWED TO BE CARRIED FORWARD AND SET OFF AFTER A PERIOD OF EI GHT YEARS OR IT WOULD BE GOVERNED BY SECTION 32 AS AMENDED BY FINANCE ACT 20 01? 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. 1997-9 8 COULD BE CARRIED ITA NO. 1397/DEL/13 21 FORWARD UP TO THE MAXIMUM PERIOD OF 8 YEARS FROM TH E YEAR IN WHICH IT WAS FIRST COMPUTED. ACCORDING TO THE ASSESSING OFFI CER, 8 YEARS EXPIRED IN THE A.Y. 2005-06 AND ONLY TILL THEN, THE ASSESSEE W AS ELIGIBLE TO CLAIM UNABSORBED DEPRECIATION OF A.Y. 1997-98 FOR BEING C ARRIED FORWARD AND SET OFF AGAINST THE INCOME FOR THE A.Y. 2005-06. BUT TH E ASSESSEE WAS NOT ENTITLED FOR UNABSORBED DEPRECIATION OF RS. 43,60,2 2,158/- FOR A.Y. 1997- 98, WHICH WAS NOT ELIGIBLE FOR BEING CARRIED FORWAR D AND SET OFF AGAINST THE INCOME FOR THE A.Y. 2006-07. 31. PRIOR TO THE FINANCE ACT NO. 2 OF 1996 THE U NABSORBED DEPRECIATION FOR ANY YEAR WAS ALLOWED TO BE CARRY FORWARD INDEFI NITELY AND BY A DEEMING FICTION BECAME ALLOWANCE OF THE IMMEDIATELY SUCCEEDING YEAR. THE FINANCE ACT NO. 2 OF 1996 RESTRICTED THE CARRY FORWARD OF UNABSORBED DEPRECIATION AND SET-OFF IN A LIMIT OF 8 YEARS, FRO M THE A.Y. 1997-98. CIRCULAR NO. 762 DATED 18.2.1998 ISSUED BY THE CENT RAL BOARD OF DIRECT TAXES (CBDT) IN THE FORM OF EXPLANATORY NOTES CATEGO RICALLY PROVIDED, THAT THE UNABSORBED DEPRECIATION ALLOWANCE FOR ANY PREVIOUS YEAR TO WHICH FULL EFFECT CANNOT BE GIVEN IN THAT PREVIOUS YEAR SHALL 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 LIMI TATION OF 8 YEARS FOR THE CARRY-FORWARD AND SET OFF OF SUCH UNABSORBED DE PRECIATION WOULD START FROM A.Y. 1997-98. 33. WE MAY NOW EXAMINE THE PROVISIONS OF SECTION 3 2(2) OF THE ACT BEFORE THE 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 EFFEC T 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 CHARGEABL E FOR THAT PREVIOUS YEAR OR OWING TO THE PROFITS OR GAINS BEING LESS TH AN THE ALLOWANCE, THEN THE ALLOWANCE OR THE PART OF ALLOWANCE TO WHICH EF FECT HAS NOT BEEN GIVEN (HEREINAFTER REFERRED TO AS UNABSORBED DEPRECIATION ALLOWANCE), AS THE CASE MAY BE :- (I) SHALL BE SET OFF AGAINST THE PROFITS AND GA INS, IF ANY, OF ANY , OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND AS SESSABLE FOR THAT ASSESSMENT YEAR : ITA NO. 1397/DEL/13 22 (II) IF THE UNABSORBED DEPRECIATION ALLOWAN CE CANNOT BE WHOLLY SET OFF UNDER CLAUSE (I), THE AMOUNT NOT SO SET O FF SHALL BE SET OFF FROM THE INCOME UNDER ANY OTHER HEAD, IF ANY , AS SESSABLE FOR THAT ASSESSMENT YEAR; (III) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANN OT BE WHOLLY SET OFF UNDER CLAUSE (I) AND CLAUSE (II) THE AMOUNT OF ALLO WANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMEN T 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 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 YEAR NO T BEING MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE A SSESSMENT YEAR FOR WHICH THE AFORESAID 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 BECOME A SICK INDUSTRIAL COMPA NY UNDER SUB-SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANY (S PECIAL PROVISIONS) ACT, 1985 (1 OF 1986) AND ENDING WITH THE ASSESSMENT YEA R RELEVANT TO THE PREVIOUS YEAR 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 SUB-SECTIO N (1) OF SECTION 3 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985. 34. THE AFORESAID PROVISION WAS INTRODUCED BY FI NANCE (NO. 2) ACT, 1996 AND FURTHER AMENDED BY THE FINANCE ACT, 2000. THE P ROVISION INTRODUCED BY FINANCE (NO. 2) ACT WAS CLARIFIED BY THE FINANCE MINISTER TO BE APPLICABLE WITH PROSPECTIVE EFFECT. 35. SECTION 32(2) OF THE ACT WAS AMENDED BY FINAN CE 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 PREVI OUS YEAR, OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING TO THE PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOU S YEAR, OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALL OWANCE, THEN, SUBJECT TO ITA NO. 1397/DEL/13 23 THE PROVISIONS OF SUB-SECTION (2) OF SECTION 72 AND SUB-SECTION (3) OF SECTION 73, THE ALLOWANCE OR THE PART OF THE ALLOWA NCE TO WHICH EFFECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIO US YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH A LLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO B E ALLOWANCE OF THAT P REVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEAR. 36. THE PURPOSE OF THIS AMENDMENT HAS BEEN CLARI FIED BY CENTRAL BOARD OF DIRECT TAXES IN THE CIRCULAR NO. 14 OF 2001. THE RELEVANT PORTION OF THE SAID CIRCULAR READS AS UNDER :- MODIFICATIONS OF PROVISIONS RELATING TO DEPRECIATION 30.1 UNDER THE EXISTING PROVISIONS OF SECTION 32 O F 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 SO OFTEN, THE ACT HAS DISPENSED WITH THE REST RICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATIO N. THE ACT HAS ALSO CLARIFIED THAT IN COMPUTING THE PROFITS AND GAINS O F BUSINESS OR PROFESSION FOR ANY PREVIOUS YEAR, DEDUCTION OF DEPRECIATION UN DER 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 TOURISTS, OR (II) OUTSIDE IN THE ASSESSEES BUSINESS OR PROFESSION IN ANOTHER COUNTR Y. 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 1 ST APRIL, 2002, AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSM ENT YEAR 2002-03 AND SUBSEQUENT YEARS. 37. THE CBDT CIRCULAR CLARIES THE INTENT OF THE A MENDMENT THAT IT IS FOR ENABLING THE INDUSTRY TO CONSERVE SUFFICIENT FUNDS TO REPLACE PLANT AND MACHINERY AND ACCORDINGLY THE AMENDMENT DISPENSES W ITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSOR BED DEPRECIATION. THE AMENDMENT IS APPLICABLE FROM ASSESSMENT YEAR 2002-0 3 AND SUBSEQUENT YEARS. THIS MEANS THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1 ST DAY OF APRIL, 2002 (A.Y. 2002-03) WILL BE DEALT WI TH 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 AMENDMENT. HAD THE INTENTION OF THE LEGISLATU RE BEEN TO ALLOW THE ITA NO. 1397/DEL/13 24 UNABSORBED DEPRECIATION ALLOWANCE WORKED OUT IN A.Y . 1997-98 ONLY FOR EIGHT SUBSEQUENT ASSESSMENT YEARS EVEN AFTER THE AM ENDMENT OF SECTION 32(2) BY FINANCE ACT, 2001 IT WOULD HAVE INCORPORAT ED A PROVISION TO THAT EFFECT. HOWEVER, IT DOES NOT CONTAIN ANY SUCH PROVI SION. HENCE KEEPING IN VIEW THE PURPOSE OF AMENDMENT OF SECTION 32(2) OF T HE ACT, A PURPOSIVE AND HARMONIOUS INTERPRETATION HAS TO BE TAKEN. WHIL E CONSTRUING TAXING STATUTES, RULE OF STRICT INTERPRETATION HAS TO BE A PPLIED, GIVING FAIR AND REASONABLE CONSTRUCTION TO THE LANGUAGE OF THE SECT ION WITHOUT LEANING TO THE SIDE OF ASSESSEE OR THE REVENUE. BUT IF THE LEG ISLATURE FAILS TO EXPRESS CLEARLY AND THE ASSESSEE BECOMES ENTITLED FOR A BEN EFIT 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 TH E PROFITS AND GAINS OF BUSINESS OR PROFESSION FOR ANY PREVIOUS YEAR, DEDUC TION OF DEPRECIATION UNDER SECTION 32 SHALL BE MANDATORY. THEREFORE, THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 WOULD ALLOW T HE UNABSORBED DEPRECIATION ALLOWANCE AVAILABLE IN THE A.Y. 1997-9 8, 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 BE SET OFF TILL THE A.Y. 2002-03 THEN IT WOULD BE CARRIED FORWARD TILL THE T IME IT IS SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS. 38. THEREFORE, IT CAN BE SAID THAT CURRENT DEPREC IATION 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 TH E PROFITS OF THAT 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, THA T 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 E LEFT OVER, IT IS TO BE TREATED AS DEPRECIATION FOR SUCH SUCCEEDING YEAR THE UNABSORBED DEPRECIATION IS ADDED TO THE CURRENT DEPRECIATION F OR SUCH SUCCEEDING YEAR, THE UNABSORBED DEPRECIATION BECOMES THE DEPRE CIATION ALLOWANCE FOR SUCH SUCCEEDING YEAR. WE ARE OF THE CONSIDERED OPIN ION THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1 ST DAY OF APRIL, 2002 (A.Y. 2002-03) WILL BE DEALT WITH IN ACCORDANCE WIT H 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 YEAR S FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION HAD BEEN DISPENS ED WITH, THE UNABSORBED DEPRECIATION FORM 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 BE GOVERNED BY THE PROVISIONS OF SECTION 32(2) AS AMENDED BY ITA NO. 1397/DEL/13 25 FINANCE ACT 2001 AND WERE AVAILABLE FOR CARRY FORWA RD AND SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS, WITHOUT ANY LIMIT WHATSOEVER. 8.2.3. FURTHER, THE HONBLE GUJARAT COURT I N THE CASE OF CIT V. GUJARAT THEMIS BIOSYN LTD IN TAX APPEAL NO.3 OF 2014 DATED 24.2.2014 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN CONFORMITY WITH THE JU DGMENT OF THE EARLIER BENCH OF THE SAME COURT IN THE CASE OF GENERAL MOTORS INDIA P. LTD (SUPRA) 8.2.4. CONSIDERING ALL THE RELEVANT FACTS AND CIRCUMSTANCES OF THE ISSUE AS DELIBERATED UPON IN THE FOREGOING PARAGRAPHS AND AL SO INCONSONANCE WITH THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN GENER AL MOTORS INDIA PVT. LTD (SUPRA), WE ARE OF THE VIEW THAT THE ASSESSEE COMPA NY IS ELIGIBLE FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION FOR ALL THE ASSESSMENT YEARS UNDER REFERENCE. IT IS ORDERED ACCORDINGLY. 9. IN THE RESULT, THE ASSESSEE APPEAL IS ALLOWE D. PRONOUNCED IN THE OPEN COURT ON 22 ND AUGUST, 2014. SD/- SD/- (B.C. MEENA) ( GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 22 ND AUGUST, 2014 *VEENA COPY OF ORDER FORWARDED TO: 1. APPELLANT ITA NO. 1397/DEL/13 26 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR, ITAT