Keerthi Industries Limited, Hyderabad V. Asst.CIT,Circle-2(1), Hyderabad

ITA 145/HYD/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2848 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 08-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M RAVINDRA SAI
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 142(1); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 145/HYD/2013 ASSESSMENT YEAR: 2007-08 KEERTHI INDUSTRIES LTD., APP ELLANT HYDERABAD. (PAN AAFCS3938P) VS. ASST. COMMISSIONER OF INCOME-TAX, RESPONDE NT CIRCLE 2(1), HYDERABAD. APPELLANT BY : SHRI V. SIVAKUMAR RESPONDENT BY : SHRI M. RAVINDRA SAI DATE OF HEARING : 20/05/2013 DATE OF PRONOUNCEMENT : 31/07/ 2013 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER OF CIT(A)-III, HYDERABAD DATED 23/01/2013 FOR THE ASSESSMENT YEAR 2007-08. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SAL E OF CLINKER AND CEMENT. THE CLINKER & CEMENT MANUFACTURING UNIT COMMENCED ITS COMMERCIAL OPERATIONS FROM 18/06/1986. DURING T HE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SET OFF OF BR OUGHT FORWARD LOSSES TO THE EXTENT OF RS. 14,76,08,608/- PERTAINI NG TO AYS 1988-89 TO 2006-07. HOWEVER, THE ASSESSEE IS ELIGIB LE TO SET OFF 2 ITA NO.145/H/13 KEERTHI INDUSTRIES LTD. OF BROUGHT FORWARD LOSSES TO THE EXTENT OF RS. 8,31 ,93,807/- ONLY AS PR FINANCE (NO.) BILL, 1996 I.E., LOSSES FROM TH E AY 1988-89 TO AY 2000-01 CANNOT BE SET OFF. HENCE, THERE IS AN EX CESS CLAIM OF BROUGHT FORWARD LOSSES TO THE EXTENT OF RS. 6,44,14 ,801/-. IN THIS REGARD, VIDE NOTICE U/S 142(1) DATED 21/07/2011, TH E ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE EXCESS SET OFF O F BROUGHT FORWARD LOSSES OF RS. 6,44,14,801/- SHOULD NOT BE D ISALLOWED. IN RESPONSE, THE ASSESSEE VIDE LETTER DATED 16/08/2011 SUBMITTED THAT UPTO 31/03/1997, UNABSORBED DEPRECIATION COULD BE CARRIED FORWARD WITHOUT ANY TIME LIMIT AS PER THE PROVISION S OF SECTION 32(2) OF THE ACT AND COULD BE SET OFF AGAINST THE I NCOME OF SUBSEQUENT ASSESSMENT YEARS. FURTHER ASSESSEE HAD Q UOTED THE DECISION OF THE ITAT, DELHI BENCH IN THE CASE OF JA I USHIN LTD. VS. DCIT, 305 ITR 210 AND HENCE SUBMITTED THAT THE OBSE RVATION OF EXCESS CLAIM TO THE EXTENT OF RS. 6,44,14,801/- IS NOT CORRECT AND NOT BORN OUT FROM RECORD. AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE, THE AO OBSERVED THAT ON PERUSAL OF THE DE CISION QUOTED BY THE ASSESSEE, THE FACTS ARE DIFFERENT AND ARE NO T APPLICABLE TO THE ASSESSEES CASE. AFTER SUMMARIZING THE LEGAL PO SITION OF CURRENT AND BROUGHT FORWARD UNADJUSTED/UNABSORBED D EPRECIATION IN THE THREE PERIODS, THE AO HELD THAT THE ASSESSEE COMPANY IS NOT ELIGIBLE FOR THE CLAIM OF SET OFF OF BROUGHT FO RWARD LOSSES PERTAINING TO THE ASSESSMENT YEARS 1988-89 TO 2000- 01 AND, HENCE, THE BROUGHT FORWARD LOSSES TO THE EXTENT OF RS. 6,44,14,801/- PERTAINING TO THE ABOVE PERIOD WAS DI SALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A), THE ASSESSEE ARGUED THAT THE STAND TAKEN BY THE AO WAS INCORRECT AND THE LEGAL POSITION DEMA NDED THAT THE 3 ITA NO.145/H/13 KEERTHI INDUSTRIES LTD. ENTIRE CLAIM BE ALLOWED. IT WAS FURTHER ARGUED THAT EVEN IF THE FULL CLAIM WAS NOT TO BE ALLOWED, THE UNABSORBED DEPRECI ATION OF THE ASSESSMENT YEARS 1999-2000 AND 2000-01 WERE ELIGIBL E FOR SET OFF AGAINST THE INCOME FOR THE ASSESSMENT YEAR 2007 -08, THEREFORE, THIS SHOULD BE ALLOWED AND THE WDV OF TH E BLOCK OF ASSETS SHOULD BE CHANGED ACCORDINGLY. 5. THE CIT(A) AFTER DISCUSSING THE ISSUE ELABORATEL Y, HELD AS FOLLOWS: 5. THE SECOND ARGUMENT OF THE APPELLANT IS THAT THE CURRENT DEPRECIATION FOR THE AYS. 1999-2000 AND 200 0-01 IS ELIGIBLE FOR SET OFF AGAINST THE INCOME FOR THE AY 2007-08 AS IT FALLS WITHIN A PERIOD OF 8 ASSESSMENT YEARS. 5.1 GIVEN THE ABOVE FACTS AND CIRCUMSTANCES, I HOLD THAT FOR THE ASSESSMENT YEARS 1997-98 TO 2001-02, THE PE RIOD OF 08 YEARS FOR CARRY FORWARD OF UNABSORBED DEPRECIATI ON APPLIES. THE INTERPRETATION OF THE AO IS CORRECT. H OWEVER, THE APPELLANT IS TO BE ALLOWED THE CARRY FORWARD OF THE DEPRECIATION PERTAINING TO ASSESSMENT YEARS 1999-20 00 AND 2000-01 AS THEY FALL WITHIN A PERIOD OF 8 SUCCEEDIN G ASSESSMENT YEARS. THE AO IS DIRECTED TO RECOMPUTE T HE DEPRECIATION GIVING EFFECT AS ABOVE. THIS ISSUE IS DECIDED PARTLY IN FAVOUR OF THE APPELLANT. 6. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E US AND HAS RAISED THE FOLLOWING SUBSTANTIVE GROUNDS OF APPEAL: 2. A) CIT(A) ERRED IN UPHOLDING THE VIEW OF THE AO THAT UNABSORBED DEPRECIATION OF ASSESSMENT YEARS UPTO ASSESSMENT YEAR 1998-99 CANNOT BE ALLOWED TO BE SET OFF AGAINST THE INCOME OF THE ASSESSMENT YEAR 2007-08 S TATING THAT THE AMENDMENT MADE IN 2001 TO SECTION 32(2) IS ONLY PROSPECTIVE AND THEREFORE LIMIT OF 8 YEARS FOR CARR Y FORWARD OF UNABSORBED DEPRECIATION AS EXISTED PRIOR TO SUCH AMENDMENT SHALL APPLY FOR THE UNABSORBED DEPRECIATI ON OF ASSESSMENT YEARS UPTO ASSESSMENT YEAR 1998-99. B) CIT(A) FAILED TO APPRECIATE THAT THE AMENDMENT M ADE TO SECTION 32(2) BY FINANCE ACT, 2001 RESTORED THE POS ITION OF CARRY FORWARD UNABSORBED DEPRECIATION AS IT EXISTED PRIOR TO 01/04/1997 AND TO THE LEGAL POSITION APPLICABLE ORI GINALLY. CIT(A) ALSO FAILED TO GIVE A FINDING ON THE APPLICA BILITY OF 4 ITA NO.145/H/13 KEERTHI INDUSTRIES LTD. DECISION OF HONBLE HIGH COURT OF GUJARAT IN THE CA SE OF GENERAL MOTORS INDIA PVT. LTD. VS. DCIT [2012 25 TAXMANN.COM 364], WHEREIN IT IS HELD THAT UNABSORBE D DEPRECIATION PERTAINING TO ASSESSMENT YEARS UPTO 19 99-2000 IS TO BE SET OFF EVEN THOUGH SUCH CARRIED FORWARD I S MORE THAN 8 YEARS, ON WHICH THE APPELLANT RELIED DURING THE ASSESSMENT PROCEEDINGS. 7. THE LEARNED DR PLACED RELIANCE ON THE ORDER OF T HE CIT(A). 8. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECI SION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS IN DIA (P) LTD. VS. DCIT, [2012] 25 TAXMANN.COM 364. 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES, PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS ALSO THE DECISIONS CITED. FROM THE FACT THAT THE ISSUE OF CARRY FORWARD OF UNABSORBED DEPRECIATION IN THE CON TEXT OF VARIOUS AMENDMENTS TO SEC 32(2) FROM 1.4.1998 HAS BEEN TAKE N TO THE SPECIAL BENCH IN THE CASE OF TIMES GUARANTY LTD WOULD SHOW THAT THERE IS MORE THAN ONE POSSIBLE VIEW ON THIS ISSUE. FURTHER PUNJA B & HARYANA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. G. T. M. SYNTHETICS LTD.(347 ITR 458) HAS HELD THAT: SECTION 32(2) OF THE INCOME-TAX ACT, 1961, RELATES TO CARRY FORWARD OF UNABSORBED DEPRECIATION. IT WAS AMENDED BY THE FINANCE ACT, 2000, WITH EFFECT FROM APRIL 1, 2001, AND IS APPLICABLE TO THE ASSESSMENT YEAR 2001-02. THE FIRS T PROVISO AND THE WORD 'FURTHER' IN THE SECOND PROVISO WERE DELET ED. THE EFFECT OF OMISSION OF THE PROVISO WAS ENUMERATE D BY THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. 794, DAT ED AUGUST 9, 2000, ([2000] 245 ITR (ST.) 21) TO THE EFFECT THAT THE UNABSORBED DEPRECIATION ALLOWANCE COULD BE SET OFF AGAINST THE INCOME UNDER ANY OTHER HEAD EVEN WHERE THE BUSINESS WAS NOT CARRIED ON. 5 ITA NO.145/H/13 KEERTHI INDUSTRIES LTD. 10. IN THE RECENT DECISION OF GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA LIMITED(SUPRA) HELD AS FOLLOWS : PRIOR TO THE FINANCE ACT NO. 2 OF 1996, THE UNABSORBED DEPRECIATION FOR ANY YEAR WAS ALLOWED TO BE CARRIED FORWARD INDEFINITELY AND BY A DEEMING FICTION BECAME ALLOWANCE OF THE IMMEDIATELY SUCCEEDING YEAR. THE FINANCE ACT NO. 2 OR 1996 RESTRICTED THE CARRY FORWARD OF UNABSORBED DEPRECIATION AND SET-OFF' TO A LIMIT OF 8 YEARS, FROM THE ASSESSMENT YEAR 1997-98. CBDT CIRCULAR NO. 762, DATED 18-2-1998 IN THE FORM OF EXPLANATORY NOTES CATEGORICALLY PROVIDED, THAT THE UNABSORBED DEPRECIATION ALLOWANCE FOR ANY PREVIOUS YEAR TO WHICH FULL EFFECT CANNOT HE GIVEN IN THAT PREVIOUS YEAR S HALL BE CARRIED FORWARD AND ADDED TO THE DEPRECIATION ALLOWANCE OF THE NEXT YEAR AND HE DEEMED TO BE PART THEREOF.' [PARA 31] SO, THE UNABSORBED DEPRECIATION ALLOWANCE OR ASSESS MENT YEAR 1996-97 WOULD BE ADDED TO THE ALLOWANCE OF ASSESSMENT YEAR 1997-98 AND THE LIMITATION OR 8 YEARS FOR THE CARRY-FORWARD AND SET- OFF' OF SUCH UNABSORBED DEPRECIATION WOULD START FR OM ASSESSMENT YEAR 1997-98. [PARA 32] THE PROVISION OF SECTION 32(2) WAS INTRODUCED BY FINANCE (NO. 2) ACT, 1996 AND FURTHER AMENDED BY THE FINANCE ACT, 2000. THE PROVISION INTRODUCED BY FINANCE (NO. 2) ACT WAS CLARIFIED BY THE FINANCE MINISTER TO BE APPLICABLE WITH PROSPECTIVE EFFECT. [PARA 34] THE SAID CBDT CIRCULAR CLARIFIES THE INTENT OF THE AMEN DMENT 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 Y EARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THIS AMENDMENT HAS BECOME APPLICABLE FROM ASSESSMENT YEAR 2002-03 AND SUBSEQUENT YEARS M EANING THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSE E ON 1 ST DAY OF APRIL,. 2002 (ASSESSMENT YEAR 2002-(3) WILL BE DEAL T WITHIN 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. IF THE INTENTION O F THE LEGISLATURE HAS BEEN TO ALLOW THE UNABSORBED DEPRECIATION ALLOWANCE WORKED OUT IN ASSESSMENT YEAR 1997-98 ONLY FOR EIGHT SUBSEQUENT ASSESSMENT YEARS EVEN AFTER THE AMENDMENT OF SECTIO N 32(2) B Y FINANCE ACT, 2001, IT WOULD HAVE INCORPORATED A PRO VISION TO THAT EFFECT. HOWEVER. IT DOES NOT CONTAIN ANY SUCH PROVI SION. HENCE, A PURPOSIVE AND HARMONIOUS INTERPRETATION HAS TO B E TAKEN KEEPING IN VIEW THE PURPOSE OF AMENDMENT OF SECTION 32(2). 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 REVE NUE. BUT IF THE 6 ITA NO.145/H/13 KEERTHI INDUSTRIES LTD. LEGISLATURE FAILS TO EXPRESS CLEARLY AND THE ASSESS EE BECOMES ENTITLED FOR A BENEFIT WITHIN THE AMBIT OF SECTION BY THE CLEAR WORDS USED IN SECTION, THE BENEFIT ACCRUING TO THE ASSESS EE CANNOT BE DENIED HOWEVER. CIRCULAR NO. 14 OF 2001 HAD CLARIFIED THAT UNDER SECTION 32(2). IN COMPUTING THE PROFITS AND GAINS 01 BUSINESS OR PROFESSION FOR ANY PREVIOUS YEAR, DEDUCTION OF DEPR ECIATION UNDER SECTION 32 SHALL HE MANDATORY. THEREFORE. THE PROVISIONS OF SE CTION 32(2) AS AMENDED BY FINANCE ACT, 2001 WOULD ALLOW THE UNABSORBED DEPRECIATION ALLOWANCE AVAILABLE IN THE ASSESSMENT YEARS 1997-98, 1999-2000, 2000-01 AND 2001-02 TO BE CARRIED FORWARD TO THE SUCCEEDING YEARS. AND IF ANY UNABSOR BED DEPRECIATION OR PART THERE OF COULD NOT SET OFF TIL L THE ASSESSMENT YEAR 2002-03 THEN IT WOULD BE CARRIEDFORWARD -TILL THE TIME IT IS SET OFF AGAINST THE PROFIT AND GAINS OF SUBSEQUENT YEAR S. (PARA 37) THEREFORE, IT CAN BE SAID THAT, CURRENT DEPRECIATIO N IS DEDUCTIBLE IN THE FIRST PLACE FROM THE INCOME OF THE BUSINESS TO WHICH IT RELATES. IF SUCH DEPRECIATION AMOUNT IS IN EXCESS THAN THE AMOUNT OF THE PROFITS OF THAT BUSINESS, THEN SUCH EXCESS SHOULD H E ADJUSTED AGAINST THE PROFITS AND GAINS FROM ANY OTHER BUSINE SS, IF ANY, CARRIED ON BY THE ASSESSEE. IF A BALANCE IS LEFT EVEN THEREAFTER, THAT BECOMES DEDUCTIBLE FROM OUT OF INCOME FROM ANY SOUR CE UNDER ANY OF THE OTHER HEADS OF INCOME DURING THAT YEAR. IN C ASE THERE IS A STILL BALANCE LEFT OVER, IT IS TO BE TREATED AS UNABSORBE D DEPRECIATION AND IT IS TAKEN TO THE NEXT YEAR. WHERE THERE IS CURREN T DEPRECIATION FOR SUCH SUCCEEDING YEAR, THE UNABSORBED DEPRECIATION I S ADDED TO THE CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR AND I S DEEMED AS PART THEREOF IF, HOWEVER, THERE IS NO CURRENT DEPRECIATI ON FOR SUCH SUCCEEDING YEAR. THE UNABSORBED DEPRECIATION BECOME S THE DEPRECIATION ALLOWANCE FOR SUCH SUCCEEDING YEAR. IT IS HELD THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1ST DAY OF APRIL, 2002 (A. Y 2002-03) WILL BE DEALT WITH IN AC CORDANCE 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 D EPRECIATION HAD BEEN DISPENSED WITH UNABSORBED DEPRECIATION FROM ASSESSMENT YEAR 1997-98 UP TO THE ASSESSMENT YEAR 2001-02 GOT CARRIED FORWARD TO THE ASSESSMENT YEAR2002-03 AND BECAME P ART THEREOF, IT CAME TO BE GOVERNED BY THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 AND WERE AVAILABLE FOR CARRY FORWARD AND SET OF/AGAINST THE PROFITS AND GAINS OF SUBSEQU ENT YEARS, WITHOUT ANY LIMIT WHATSOEVER. [PARA 38] 11. IN VIEW OF THE ABOVE DECISION, WE ARE INCLINED TO HOLD THAT RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OF F OF UNABSORBED DEPRECIATION HAS BEEN DISPENSED WITH FROM AY 2002-0 3. THUS, WHATEVER 7 ITA NO.145/H/13 KEERTHI INDUSTRIES LTD. THE UNABSORBED DEPRECIATION UP TO 2001-02 IS GOVERN ED BY THE EARLIER PROVISIONS OF SECTION 32(2) OF THE IT ACT. BEING SO , THE UNABSORBED DEPRECIATION RELATING TO AY 1994-95 TO 2001-02 CANN OT BE CONSIDERED TO BE CARRIED FORWARD FOR SET OFF IN AY 2007-08. ON THE OTHER HAND, THE UNABSORBED DEPRECIATION FROM AY 2002-03 COULD BE SE T OFF OF BY THE ASSESSEE IN AY 2007-08. ACCORDINGLY, WE DIRECT THE AO TO CONSIDER THE UNABSORBED DEPRECIATION OF THE ASSESSEE FROM AY 200 2-03 TILL AY 2006- 07 TO BE SET OFF OF IN AY 2007-08. THE APPEAL OF TH E ASSESSEE IS, THEREFORE, PARTLY ALLOWED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 31/07/2013. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAV AN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 31 ST JULY, 2013. KV COPY TO:- 1) KEERTHI INDUSTRIES LTD., PLOT NO. 40, IDA, BALANAGA R, HYDERABAD 500 037. 2) ACIT, CIRCLE 2(1), HYDERABAD. 3) THE CIT (A)-III, HYDERABAD 4) THE CIT-II, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.