DCIT-1(3), Room No. 413, Hyderabad V. M/s. Fenoplast Ltd., Secunderabad

ITA 1478/HYD/2013

• Counselvise Citation: 147822514 RSA 2013
• Duration Of Justice: 1 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 26-06-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 08-11-2013
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: M V ANIL KUMAR
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 32; 263; 154; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NOS. 1478 & 1480/HYD/2013 ASSESSMENT YEARS: 2004-05 & 2006-07 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(3), HYDERABAD VS M/S. FENOPLAST LTD., HYDERABAD [PAN: AAACF3076C] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI RAJAT MITRA , D R FOR ASSESSEE : S HRI M.V. ANIL KUMAR, A R DATE OF HEARING : 26 - 0 6 - 201 5 DATE OF PRONOUNCEMENT : 30 - 0 6 - 2015 O R D E R THESE TWO ARE REVENUE'S APPEALS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, HYDERABAD DATED 21-08-2013, FOR ASSESSMENT YEARS (AYS) 2004-05 & 2006-07 ALLOWI NG THE CARRY FORWARD DEPRECIATION TO ASSESSEE DISALLOWED U/S. 15 4/ RWS 263 OF THE INCOME TAX ACT [ACT]. 2. BRIEFLY STATED, ASSESSEE IS A COMPANY IN WHICH P UBLIC ARE SUBSTANTIALLY INTERESTED. ASSESSEE HAD UN-ABSORBED DEPRECIATION OF RS. 55,52,124/- FOR AY. 1996-97 AND RS. 1,82,68,535/- F OR AY. 1997-98. THESE AMOUNTS WERE ORIGINALLY ALLOWED TO BE SET-OFF IN AN ORDER U/S. 154 DT. 17-03-2010. SUBSEQUENTLY, LD.CIT PASSED AN ORD ER U/S. 263 ON THE ORDER U/S. 154 DT. 17-03-2010 ON THE REASON THAT DE PRECIATION PERTAINING TO YEAR 1996-97 AND 1997-98 CANNOT BE CA RRIED FORWARD BEYOND EIGHT YEARS AND ACCORDINGLY SET-OFF OF THE C ARRIED FORWARD I.T.A. NOS. 1478 & 1480/HYD/2013 M/S. FENOPLAST LTD., :- 2 -: DEPRECIATION WAS NOT CORRECT. HE ACCORDINGLY SET A SIDE THE ORDERS U/S. 154 AND DIRECTED THE AO TO MODIFY THE ORDER ACCORDI NGLY. AO PASSED CONSEQUENTIAL ORDER DENYING THE DEPRECIATION WHICH WAS APPEALED BEFORE THE CIT(A) WHO BY THE IMPUGNED ORDERS CONSIDERED AS SESSEE'S SUBMISSIONS AND NOTED THE AMENDMENT BROUGHT OUT BY FINANCE ACT, 2001 AS SUPPORTED BY CIRCULAR OF 14 OF 2001 DT. 22- 11-2001 AND ALSO THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA PVT. LTD., VS. DCIT SPECIAL CIVIL APPLICATION NO. 1773/2012 DT. 23- 08-2012, ALLOWED ASSESSEE'S CONTENTIONS AND DIRECTE D THE AO TO ALLOW THE CARRIED FORWARD DEPRECIATION AMOUNTS. REVENUE IS A GGRIEVED AND RAISED THE FOLLOWING TWO GROUNDS: '2. THE CIT(A) ERRED IN STATING THAT THE UNABSORBED DEPRECIATION OF EARLIER YEARS INCLUDING AY. 1996-97 CAN BE CARRIED FORWARD TO THE SUCCEEDING YEARS WITHOUT ANY TIME LIMIT. 3. THE CIT(A) SHOULD HAVE DISMISSED THE APPEAL AS THE ORDER U/S. 263 OF THE IT ACT WHICH IS CAUSE OF ACTION U/S. 15 4 IS UPHELD BY THE JURISDICTIONAL ITAT'. 3. THE MATERIAL GROUND NO.2 IS WITH REFERENCE TO TH E CARRIED FORWARD DEPRECIATION OF EARLIER YEARS AND GROUND NO.3 IS WI TH REFERENCE TO THE FACT THAT CIT(A) SHOULD HAVE DISMISSED THE APPEAL A S THE ORDER WAS PASSED CONSEQUENT TO THE ORDER U/S. 263 WHICH WAS U PHELD BY THE JURISDICTIONAL ITAT. 4. LD. DR REFERRING TO THE SEQUENCE OF EVENTS SUBMI TTED THAT ORDER OF THE CIT U/S. 263 WAS SUBJECT MATTER OF APPEAL BEFOR E THE HON'BLE ITAT AND IN ITA NO. 807 AND 809/HYD/2011 DT. 30-04-2013 LD.ITAT UPHELD THE ORDER OF THE CIT U/S. 263. THEREFORE, CIT(A) I S NOT EMPOWERED TO MODIFY THE ORDER. 5. LD. COUNSEL HOWEVER, RELIED ON THE ORDER OF CIT( A). I.T.A. NOS. 1478 & 1480/HYD/2013 M/S. FENOPLAST LTD., :- 3 -: 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE CO NTENTIONS. TECHNICALLY SPEAKING, CIT(A) COULD NOT HAVE ALLOWED THE APPEAL WHEN THE CONSEQUENTIAL ORDER WAS PASSED ON THE DIRECTIONS OF THE CIT(A) U/S. 263. HOWEVER, THE ORDERS OF THE ITAT WERE NOT PLACED BEF ORE THE CIT(A), CONSEQUENTLY, LD.CIT(A) DECIDED THE ISSUE ON MERITS OF THE CONTENTIONS. BE THAT AS IT MAY, AS THE LAW STANDS NOW, ASSESSEE IS ENTITLED FOR SET-OFF OF CARRIED FORWARD DEPRECIATION. THIS IS ANALYSED IN THE ORDER OF THE CIT(A) IN PARA 6, WHICH IS EXTRACTED AS UNDER: '6. THE INFORMATION ON RECORD, SUBMISSIONS OF THE A PPELLANT ARE CAREFULLY CONSIDERED. AS PER THE FINANCE ACT 1996 THE UNABSO RBED DEPRECIATION CAN BE CARRIED FORWARD FOR THE NEXT 8 SUBSEQUENT YEARS. THIS AMENDMENT TAKES EFFECT FROM 01.04.1997 AND THEREFORE, IS APPL ICABLE TO A.Y. 1997-98 AND SUBSEQUENT YEARS. FINANCE ACT, 1996 IS EXPLAIN ED IN CIRCULAR NO. 762 DATED 08.02.1998 AS UNDER: '23.5 SUB-SECTION (2) OF SECTION 32, AS IT EXISTED UPTO ASSESSMENT YEAR 1996-97, PROVIDED THAT THE UNABSORBED DEPRECIATION OF A YEAR SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE, FOR DEPRECIATION OF THE FOLLOWING PREVIO US YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE. THEREFORE, THE UNABSORBED DEPRECIATION A LLOWANCE, IF ANY, OF ASSESSMENT YEAR 1996-97 SHALL BE ADDED TO THE AMOUNT OF THE AL LOWANCE FOR DEPRECIATION OF ASSESSMENT YEAR 1997-98 AND DEEMED TO BE PART OF TH E ALLOWANCE FOR THIS YEAR. IN OTHER WORDS, THE UNABSORBED DEPRECIATION ALLOWANCE OF ASS ESSMENT YEAR 1996-97 SHALL BE ADDED TO THE ALLOWANCE OF 1997-98 AND WILL BE DEEME D TO BE THE ALLOWANCE OF THAT YEAR. THE LIMITATION OF EIGHT YEARS SHALL START FROM THE ASSESSMENT YEAR 1997-98. 23.6 THESE AMENDMENTS TAKE EFFECT FROM THE 1ST DAY OF APRIL, 1997, AND WIN ACCORDINGLY, APPLY IN RELATION TO ASSESSMENT YEAR 1 997-98 AND SUBSEQUENT YEARS'. 6.1 THE FINANCE ACT, 2001 REMOVED THE RESTRICTION O F 8 YEARS. ACCORDING TO THIS AMENDMENT OF UNABSORBED DEPRECIATION CAN BE CA RRIED FORWARD WITHOUT ANY LIMIT. CIRCULAR NO.14 OF 2001 DATED 22. 11.2001 EXPLAINS THE EFFECT OF FINANCE ACT, 2001. THE RELEVANT PORTION I S REPRODUCED AS UNDER: '30.1 UNDER THE EXISTING PROVISIONS OF SECTION 32 O F THE INCOME-TAX ACT, CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION IS ALLOWED F OR 8 ASSESSMENT YEARS. 30.2 WITH A VIEW TO ENABLE THE INDUSTRY TO CONSERVE SUFFICIENT FUNDS TO REPLACE PLANT AND MACHINERY, ESPECIALLY IN AN ERA WHERE OBSOLESCENCE TAKES PLACE SO OFTEN, THE ACT HAS DISPENSED WITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THE ACT HAS ALSO CLARIFIED THAT IN CO MPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION FOR ANY PREVIOUS YEAR, DEDUC TION OF DEPRECIATION UNDER SECTION 32 SHALL BE MANDATORY. I.T.A. NOS. 1478 & 1480/HYD/2013 M/S. FENOPLAST LTD., :- 4 -: 30.3 UNDER THE EXISTING PROVISIONS, NO DEDUCTION FO R DEPRECIATION IS ALLOWED ON ANY MOTOR CAR MANUFACTURED OUTSIDE INDIA UNLESS IT IS U SED (I) IN THE BUSINESS OF RUNNING IT ON HIRE FOR TOURISTS, OR (II) OUTSIDE INDIA IN THE ASS ESSEE'S BUSINESS OR PROFESSION IN ANOTHER COUNTRY. 30.4 THE ACT HAS ALLOWED DEPRECIATION ALLOWANCE ON ALL IMPORTED MOTOR CARS ACQUIRED ON OR AFTER 1ST APRIL, 2001. 30.5 THESE AMENDMENTS WILL TAKE EFFECT FROM THE T APRIL, 2002, AND WIN ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2002-2003 AND SUBSEQUENT YEARS. ' 6.2 THE HON'BLE GUJARAT HIGH COURT HAD DISCUSSED TH E ISSUE OF CARRYING FORWARD OF UNABSORBED DEPRECIATION AT LENGTH IN THE CASE OF GENERAL MOTORS INDIA PVT. LTD., VS. DCIT IN THE ORDER DATED 23.08.2012 AND HELD THAT THE UNABSORBED DEPRECIATION CAN BE CARRIED FOR WARD TO THE SUBSEQUENT YEARS WITHOUT ANY RESTRICTION. REFERRIN G TO AMENDMENT THROUGH FINANCE ACT, 2001 THE HON'BLE GUJARAT HIGH COURT HELD THAT 'ACCORDINGLY THE AMENDMENT DISPENSES WITH THE RESTR ICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THE AMENDME NT 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 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 LEGISLATURE BEEN TO ALLOW THE UNAB SORBED DEPRECIATION ALLOWANCE WORKED OUT IN A. Y.1997-98 ONLY FOR EIGHT SUBSEQUEN T ASSESSMENT YEARS EVEN AFTER THE AMENDMENT OF SECTION 32(2) BY FINANCE ACT, 2001 IT WOULD HAVE INCORPORATED A PROVISION TO THAT EFFECT. HOWEVER, IT DOES NOT CONT AIN ANY SUCH PROVISION. HENCE KEEPING IN VIEW THE PURPOSE OF AMENDMENT OF SECTION 32(2) O F THE ACT A PURPOSIVE AND HARMONIOUS INTERPRETATION HAS TO BE TAKEN. WHILE CO NSTRUING TAXING STATUTES, RULE OF STRICT INTERPRETATION HAS TO BE APPLIED, GIVING FAIR AND R EASONABLE CONSTRUCTION TO THE LANGUAGE OF THE SECTION WITHOUT LEANING TO THE SIDE OF ASSES SEE 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 G AINS OF BUSINESS OR PROFESSION FOR ANY PREVIOUS YEAR, DEDUCTION OF DEPRECIATION UNDER SECT ION 32 SHALL BE MANDATORY. THEREFORE, THE PROVISIONS OF SECTION 32(2) AS AMEND ED 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 SUCCEED ING YEARS, AND IF ANY UNABSORBED DEPRECIATION OR PART THEREOF COULD NOT BE SET OFF T ILL THE A.Y.2002-03 THEN IT WOULD BE CARRIED FORWARD TILL THE TIME IT IS SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS.' 6.3 HAVING CONSIDERED THE CIRCULAR NO. 762 DATED 08 .02.1998, CIRCULAR NO. 14 OF 2001 DATED 22.11.2001 AND ALSO THE DECISI ON OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA PVT. LTD. VS. DCIT, THE UNABSORBED DEPRECIATION OF EARLIER YEARS INCLUDING A.Y. 1996-97 CAN BE I.T.A. NOS. 1478 & 1480/HYD/2013 M/S. FENOPLAST LTD., :- 5 -: CARRIED FORWARD TO THE SUCCEEDING YEARS WITHOUT ANY TIME LIMIT. ACCORDINGLY, THE FIRST THREE GROUNDS OF APPEAL ARE ALLOWED'. 7. AS THINGS STAND NOW, THE RESTRICTION OF EIGHT YE ARS WAS REMOVED. EVEN THOUGH SPECIAL BENCH DECISION OF THE ITAT IN T HE CASE OF DCIT VS. TIMES GUARANTY LTD., [ITA NO.4917 & 4918/MUM/2008] [TTJ 257 (MUM) (SB)] WAS RELIED ON BY THE CIT AT THE TIME OF PASSI NG THE ORDER U/S. 263, SUBSEQUENTLY, HON'BLE GUJARAT HIGH COURT IN THE CAS E OF GENERAL MOTORS INDIA PVT. LTD., VS. DCIT (SUPRA) HAS HELD THAT RES TRICTION IS NOT VALID AND UNABSORBED DEPRECIATION COULD BE SET-OFF AGAINST TH E PROFITS AND GAINS OF SUBSEQUENT YEARS. IN VIEW OF THIS, I AGREE WITH TH E ORDER OF THE CIT(A) AND REITERATE THAT ASSESSEE IS ENTITLED TO SET-OFF THE CARRIED FORWARD DEPRECIATION OF AY 1996-97 AND 1997-98. IN VIEW OF THIS, WE DIRECT THE AO TO MODIFY THE ORDERS IF NOT DONE SO FAR AND ALLO W THE SET-OFF ACCORDINGLY. 8. IN THE RESULT, REVENUE'S APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2015. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMB ER HYDERABAD, DATED 30 TH JUNE, 2015 TNMM I.T.A. NOS. 1478 & 1480/HYD/2013 M/S. FENOPLAST LTD., :- 6 -: COPY TO : 1. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(3 ), ROOM NO. 413, 4 TH FLOOR, AAYAKAR BHAVAN, HYDERABAD. 2. M/S. FENOPLAST LTD., 306-308, CHENOY TRADE CENTR E, PARKLANE, SECUNDERABAD. 3. CIT(APPEALS)-II, HYDERABAD. 4. CIT-I, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.