PRIME SECURITIES LTD, MUMBAI V. CIT - 7, MUMBAI

ITA 2091/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83756 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 15-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Bad and doubtful debts; Unabsorbed depreciation
• Section: 143(3); 115JB; 10B; 32; 68; 6; 263; 12; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; ,OA ,OA ,OA ,OA JH JH JH JH UJSUNZ DQEKJ FCYYS;K UJSUNZ DQEKJ FCYYS;K UJSUNZ DQEKJ FCYYS;K UJSUNZ DQEKJ FCYYS;K] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER VK;DJ VIHY LA[;K / ITA NO.2091/MUM/2013 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2008-09 PRIME SECURITIES LTD. M/S GANDHI & ASSOCIATES, CHARTERED ACCOUNTANTS, 5 TH FLOOR, ICICI BANK BUILDING, 296 NARIMAN STREET, FORT, MUMBAI 400 001. VS.` COMMISSIONER OF INCOME TAX -7, MUMBAI. PAN:- AAACP4089M APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE REVISION ORDER DATED 15.01.2013 PASSED BY THE COMMISSIONER OF INCOME TAX U/S 263 OF THE INCOME TAX ACT FOR THE A.Y. 2008-09. 2. THE ASSESSMENT FOR THE A.Y. UNDER CONSIDERATION WA S COMPLETED U/S 143(3) ON 14.10.2012, WHEREBY THE TOTAL INCOME ASSESSED BY THE ASSESSING OFFICER IS RS. 23,30,01,140/- AS AGAINST THE RETURNED INCOME OF RS . 21,77,49,288/-. SUBSEQUENTLY ON PERUSAL AND EXAMINATION OF THE ASSES SMENT ORDER THE ASSESSEE BY / FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS SHRI J.P. BAIARGRA REVENUE BY/ JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS SHRI A.C. TEJPAL DATE OF HEARING 04.09.2014 DATE OF PRONOUNCEMENT 10.09.2014 PRIME SECURITIES LTD. 2 | P A G E COMMISSIONER NOTED THAT THE ORDER IS ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF REVENUE ON THE ISSUES SUMMARIZED AS UNDER:- 1. THE AMOUNT OF RS. 22,73,88,800/- SET ASIDE BY THE A SSESSEE AS 'PROVISION FOR DIMINUTION IN VALUE OF THE INVESTMEN T' SHOULD HAVE BEEN ADDED BACK TO DETERMINE 'BOOK PROFITS' TAXABLE U/S 115JB OF THE I-T ACT IN VIEW OF CLAUSE (I) IN THE EXPLANATION 1 TO S ECTION 115JB OF THE ACT. II. SIMILARLY, THE AMOUNT OF RS. 2,02,97,500/- SET ASIDE BY THE ASSESSEE AS 'PROVISION FOR DOUBTFUL DEBTS' SHOULD HAVE BEEN ADDED BACK TO DETERMINE 'BOOK PROFITS' TAXABLE U/S 115JB OF THE I -T ACT IN VIEW OF CLAUSE (I) IN THE EXPLANATION 1 TO SECTION 115JB OF THE ACT. III THE UNABSORBED DEPRECIATION AGGREGATING TO RS. 5,57,25,131,/- PERTAINING TO A.Y. 1996-97 TO 1999-00 SHOULD NOT BE ALLOWED AS DEDUCTION AS PER SECTION 32 OF THE INCOME TAX ACT I N VIEW OF THE AMENDMENT IN SECTION 32(2) OF THE INCOME TAX ACT VI DE FINANCE ACT 2001. IV. THE MAT CREDIT WAS CLAIMED BEFORE APPLYING SURC HARGE & EDUCATION CESS. 3. ACCORDINGLY THE COMMISSIONER ISSUED THE SHOW-CAUSE NOTICE U/S 263 AND FIXED THE CASE FOR HEARING ON 14.05.2012 WHEREBY PR OPOSED TO REVISE THE ASSESSMENT ORDER BEING ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF REVENUE. THE ASSESSEE SUBMITTED ITS REPLY DATED 1.10.2012 AND OBJECT ED TO THE PROPOSED REVISION OF THE ORDER ON THESE ISSUES AS CONTEMPLAT ED IN THE SHOW-CAUSE NOTICE. THE COMMISSIONER DID NOT AGREE WITH THE REPLY OF THE ASSESSEE AND SET ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO BE MADE DENOVO ON ALL THE FOUR ISSUES. 4. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE AS W ELL AS LD. DR HAVE ADVANCED THEIR ARGUMENTS ON THESE FOUR ISSUES WHICH A RE BEING DISCUSSED AS UNDER:- PRIME SECURITIES LTD. 3 | P A G E 5 DIMINUTION IN THE VALUE OF INVESTMENT 5.1 THE COMMISSIONER HAS OBSERVED THAT AN AMOUNT OF RS. 22,73,88,800/- SET ASIDE BY THE ASSESSEE AS PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT SHOULD HAVE BEEN ADDED BACK TO DETERMINE THE BOOK PROFIT TAXABLE U/S 115JB, IN VIEW OF THE CLASUE (I)OF THE EXPLANAT ION 1 TO SECTION 115JB. 5.2 THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED T HAT THE ASSESSEE HAS EXPLAINED BEFORE THE COMMISSIONER THAT THE AMOUN T PERTAINED TO DIMINUTION IN THE VALUE OF INVESTMENT HAS BEEN WRITT EN OFF AND IT IS NOT A MERE PROVISION, THEREFORE, THE SAID AMOUNT DOES NOT FALL U NDER EXPLANATION 1 TO SECTION 115JB TO BE ADDED BACK FOR THE PURPOSE OF COMP UTATION OF BOOK PROFIT. HE HAS FURTHER POINTED OUT THAT THE NET WRITTEN OFF ON THIS ACCOUNT IS RS. 23,26,97,400/- AFTER REDUCING A SUM OF RS. 53.09 LA KHS AS WRITTEN BACK DUE TO SALE OF INVESTMENT DURING THE YEAR. THE LD. AUTHORIZ ED REPRESENTATIVE HAS THUS CONTENDED THAT EVEN IN THE P&L ACCOUNT THE PROVI SION WORD IS NOT MENTIONED AS IT IS CLEAR FROM THE RECORD AND P&L ACCO UNT AT PAGE NO. 49 OF THE PAPER BOOK. HE HAS FURTHER SUBMITTED THAT THE ASSESS EE HAS BEEN FOLLOWING THIS ACCOUNTING POLICY SINCE LONG TIME AND LOSS OR PROFIT ON THE VALUATION OF THE INVESTMENT AS ON 31 ST MARCH OF EACH YEAR HAS BEEN SHOWN AS INCOME OR LO SS IN THE P&L ACCOUNT WHICH HAS BEEN ACCEPTED BY THE ASSES SING OFFICER IN THE EARLIER YEAR. THEREFORE, THE ASSESSEE HAS BEEN FOLL OWING A CONSISTENT ACCOUNTING POLICY OF VALUATION OF THE CURRENT INVE STMENT AT COST OR MARKET VALUE OF INVESTMENT WHICHEVER IS LOWER AND LONG TERM INVESTMENT AT COST OR AT MARKET VALUE IF THERE IS A DIMINUTION IN ITS VALU E IS PERMANENT. THEREFORE, WHEN THE ASSESSEE IS MAINTAINING ITS ACCOUNTS AS PE R THE ACCOUNTING STANDARD AND THE AMOUNT ON ACCOUNT OF DIMINUTION IN THE VALUE OF INVESTMENT IS ACTUALLY WRITTEN OFF THEN THE ASSESSING OFFICER HAS NO JURIS DICTION TO TINKER WITH THE PRIME SECURITIES LTD. 4 | P A G E ACCOUNTS PREPARED BY THE ASSESSEE AS PER THE PROVISI ONS OF COMPANIES ACT., AND IN THE ABSENCE OF ANY PROVISION MADE BY THE ASSES SEE TO SET ASIDE THE AMOUNT ON ACCOUNT OF DIMINUTION OF VALUE OF INVESTME NT. HE HAS REFERRED STATEMENT OF DIMINUTION IN THE VALUE OF EACH INVEST MENT IN SHARES AT PAGE 27 OF THE PAPER BOOK AS WELL AS THE SCHEDULE OF INVEST MENT AT PAGE 64 OF THE PAPER BOOK AND SUBMITTED THAT THE AMOUNTS ARE ACTUALLY WRIT TEN OFF AGAINST EACH AND EVERY ITEM OF INVESTMENT AND CARRIED THE VALUE OF IN VESTMENT AT LESSER VALUE AND, THEREFORE, IT IS NOT A MERE PROVISION WHICH COU LD BE ADDED BACK AS PER THE EXPLANATION-1 TO SECTION 115JB. BY REFERRING THE SC HEDULE OF INVESTMENT, P&L ACCOUNT AS WELL AS STATEMENT OF DIMINUTION IN THE VA LUE OF INVESTMENT, THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE ACT UAL AMOUNT ON ACCOUNT OF DIMINUTION IN VALUE HAS BEEN GIVEN EFFECT IN THE SCHEDULE OF INVESTMENT AND THE SAME HAS BEEN WRITTEN OFF IN THE P&L ACCOUNT. T HUS THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT WHEN THE ASSESSEE HAS SPECIFICALLY POINTED OUT THAT IT IS ACTUAL WRITTEN OFF AND NOT A PROVISIO N THEN THE COMMISSIONER SHOULD NOT HAVE GONE BY THE MERE NOMENCLATURE OF WO RD PROVISION, IF WRONGLY USED IN THE NOTES ATTACHED TO THE STATEMENT OF COMPUTATION OF TOTAL INCOME. HE HAS FURTHER SUBMITTED THAT A SUM OF RS. 5 3.09 LAKH HAS BEEN WRITTEN BACK DURING THE YEAR ON ACCOUNT OF DIMINUTIO N IN THE VALUE OF INVESTMENT AS THE SAID AMOUNT WAS WRITTEN OFF IN THE LAST YEAR WHICH IS REQUIRED TO BE WRITTEN BACK IN THE CURRENT YEAR AS THE SHARES ON WHICH AMOUNT WRITTEN OFF ARE SOLD DURING THE YEAR. HE HAS REFERRE D SCHEDULE TO INVESTMENT AT PAGE 65 OF THE PAPER BOOK TO SHOW THAT AFTER THE WR ITTEN BACK AMOUNT OF RS. 53.09 LAKHS, THE NET AMOUNT ON ACCOUNT OF DIMINUTION OF VALUE OF INVESTMENT WRITTEN OFF DURING THE YEAR IS RS. 23,26,97,000/-, I N SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HON'BLE SUPREME CO URT IN THE CASE OF VIJAYA BANK VS. CIT (323 ITR 166) AND SUBMITTED THAT THE HONBLE APEX COURT HAS HELD THAT ONCE THE PROVISIONS FOR BAD AND DO UBTFUL DEBTS IS DEBITED PRIME SECURITIES LTD. 5 | P A G E TO THE P&L ACCOUNT SO AS TO REDUCE THE PROFITS OF THE YEAR, SIMULTANEOU SLY, THE AMOUNT OF LOANS AND ADVANCES OR DEBTORS STOOD REDUCED AN D, CONSEQUENTLY, THE PROVISION ACCOUNT STOOD OBLITERATED AND, THEREFOR E, THE LOANS AND ADVANCES OR THE SUNDRY DEBTORS OF THE ASSESSEE AS AT THE END OF THE YEAR LYING IN THE BALANCE SHEET WERE SHOWN AS NET OF PROVISIO NS FOR DOUBTFUL DEBT CREATED BY WAY OF DEBIT TO THE PROFIT AND LOSS ACCOUN T OF THE YEAR, THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 36(1)( VII )AND IT WAS NOT NECESSARY FOR THE COMPANY TO CLOSE INDIVIDUAL ACCOUNT OF EACH OF THE DE BTOR IN THE BOOKS. THUS THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEES CASE IS AT BETTER FOOTING WHEN THE ASSESSEE HAS ACTUAL WRITTEN OFF THE AMOUNT AND REDUCED THE VALUE OF THE INVESTMENT IN THE SCHEDULE AS WELL AS THE BALANCE SHOWN IN THE BALANCE-SHEET AS NET OF THE AMOUNT WRI TTEN OFF ON ACCOUNT OF DIMINUTION IN THE VALUE, THEREFORE, THE SAID WRITTEN OFF CANNOT BE CONSIDERED AS PROVISION IN TERMS OF EXPLANATION 1 TO SECTION 115J B. 6 BAD DEBTS WRITTEN OFF. 6. 1 THE COMMISSIONER WAS OF THE VIEW THAT THE NET PRO FIT SHOWN IN THE P&L ACCOUNT HAS TO BE INCREASED BY CERTAIN ITEMS INC LUDING THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIAB ILITIES AS PER EXPLANATION 1 TO SECTION 115JB FOR COMPUTAITON OF B OOK PROFIT. THE COMMISSIOENR HAS PROCEEDED ON THE BASIS THAT THE AMO UNT OF RS. 20,297,500/- IS A PROVISION MADE IN RESPECT OF DOUBT FUL DEBTS AND, THEREDORE, IT HAS TO BE ADDED BACK. THEREFORE, ON THE SIMILAR ANA LOGY AS IN THE CASE OF DIMINUTION IN THE VALUE OF INVESTMENT, THE COMMISSIO NER HELD THAT THE SAID AMOUNTS IN THE PROVISION ON ACCOUNT OF DOUBTFUL DEBT S HAS TO BE ADDED BACK AS PER P&L ACCOUNT FOR COMPUTATION OF BOOK PROFIT. 6.2 THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT IT IS NOT A PROVISION AT ALL BUT IT IS ACTUAL WRITT EN OFF BAD DEBTS. HE HAS REFERRED PRIME SECURITIES LTD. 6 | P A G E P&L ACCOUNT AND SUBMITTED THAT THE COMMISSIONER HAS F AILED TO APPRECIATE THE FACTS THAT THIS IS ACTUAL WRITTEN OFF AMOUNT OF RS. 20,297,500/- WHICH HAS BEEN REDUCED FROM THE BALANCE OF THE DEBTORS. HE HAS REFERRED THE LEDGER ACCOUNT OF THE DEBTORS NAMELY BUSINESS INDIA AND INT ERNATIONAL HOMETEX LTD AT PAGE 81 AND 82 OF THE PAPER BOOK AND SUBMITTED THA T THE AMOUNT HAS BEEN ACTUALLY WRITTEN OFF AND REDUCED FROM THE BALANCE OF DEBTORS, THEREFORE, IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT (SUPRA), THE WRITTEN OFF AMOUNT CANNOT BE DISALLOWED AND ADDED BACK BY CONSIDERING AS A PROVISION. 7 UNABSORBED DEPRECIATION AMOUNTING TO RS. 5,57,25,13 1/- 7.1 THE COMMISSIONER HAD DISALLOWED THE UNABSORBED DEPR ECIATION ON THE GROUND THAT THE DEPRECIATION PERTAINS TO A.Y. 199 6-97 TO 1999-00 AND, THEREFORE, THE SUBSEQUENT AMENDMENT IN THE PROVISIO NS OF SECTION 32(2) ARE NOT APPLICABLE AND ACCORDINGLY THIS CANNOT BE CARRY FORWARDED AND SET OFF FOR UNLIMITED PERIOD BEYOUND THE ALLOWABLE LIMIT OF EIGHT YEARS AS PER THE PREVAILING LAW FOR THE A.Y. 1996-97 TO 1999-00. 7.2 THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS NOW SETTLED BY THE HONBLE GUJARAT HIG H COURT IN THE CASE OF GENERAL MOTORS INDIA (P) LTD., VS. DEPUTY COMMISSIO NER OF INCOME TAX ( 354 ITR 244), WHEREIN THE HONBLE HIGH COURT HAS HELD THAT THE INTENT OF THE AMENDMENT IS FOR ENABLING THE INDUSTRY TO CONSERVE SUFFICIENT FUNDS TO REPLACE PLANT AND MACHINERY AND, ACCORDINGLY, THE AMENDMENT D ISPENSES WITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THE HONBLE HIGH COURT HAS OBSERVED THAT THE AMENDME NT IS APPLICABLE FROM 2002-03 AND SUBSEQUENT YEARS THIS MEANS THAT ANY UNA BSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1ST DAY OF APRIL, 2002 ( ASSESSMENT YEAR 2002-03) WILL BE DEALT WITHIN ACCORDANCE WITH THE PROVISIONS O F SECTION 32(2) AS IT STOOD PRIME SECURITIES LTD. 7 | P A G E BEFORE THE AMENDMENT. THE LD. AUTHORIZED REPRESENTATIV E HAS POINTED OUT THAT HON'BLE SUPREME COURT HAS DISMISSED THE SPECIAL LEAVE PETITION (SLP) FILED BY THE DEPARTMENT AND, THEREFORE, THE DECISION OF HONBLE GUJARAT HIGH COURT HAS ATTAINED FINALITY. IN THE CASE OF GUJARAT TEHMIS BIOSYN LTD. (44 TAXMANN.COM 24) (GUJ. HC), THE HONBLE GUJARATE HIGH COURT HAS REITERATED THE VIEW EXPRESSED IN THE CASE OF GENERAL MOTORS INDIA (P) LTD., VS. DEPUTY COMMISSIONER OF INCOME TAX (SUPRA). THUS THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THIS ISSUE IS NOW SETTLEDIN FAVOUR OF THE ASSESSEE AND NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF RESTRICTION OF EIGHT YEARS WITH RESPECT TO THE UNASBORBED DEPRECIATION WHI CH WAS AVAILABLE WITH THE ASSESSEE ON 01 ST APRIL 2002. 8 MAT CREDIT U/S 115JAA 8.1 THE COMMISSIONER HAS HELD THAT MAT CREDIT HAS TO BE ALLOWED AFTER ADDING SUR-CHARGE AND EDUCATION CESS AND THE ASSESSING O FFICER HAS ALLOWED THE CLAIM OF THE ASSESSEE WITHOUT ANY ENQUIRY. 8.2 THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE WORD TAX IS DEFINED U/S 2(43), THE DEFINITION OF TAX DOES NOT INCLUDE SUR- CHARGE AND OR EDUCATION CESS, THEREFORE, THE CREDT O F TAX ALLOWED IS ONLY FOR THE AMOUNT TAX PAID, WITHOUT INCLUDING SUR-CHARGE AND ED UCATION CESS. SIMILARLY THE TAX CREDIT WILL BE ALLOWED FROM THE AMOUNG OF T AX PAYABLE WHICH IS BEFORE SURCHARGE AND EDUCATION CESS. TO EMPHASIZE HIS POINT, HE HAS INVITED OUR ATTENTION TO THE PRESCRIBED INOCME TAX RETURN FORM N O. ITR-6 AND SUBMITTED THAT IN COMPUTATION SHEET CREDIT FOR MAT U/S 115JAA HAS TO BE ALLOWED BEFORE APPLYING SURCHARGE AND EDUCATION CESS. THE SECOND A RGUMENT OF THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ON THIS P OINT IS THAT WHEN THE CREDIT OF MAT IS ALLOWED WITHOUT INCLUDING SURCHARGE AND EDUCA TION CESS THEN THE DIFFERENCE BETWEEN THE NORMAL TAX AND MAT SHOULD BE BY CONSIDERING THE PRIME SECURITIES LTD. 8 | P A G E NORMAL TAX WITHOUT SURCHARGE AND EDUCATION CESS AS THE MAT HAS ALSO TAKEN INTO ACCOUNT WITHOUT INCLUDING SURCHARGE AND EDUCATION CESS. THEREFORE, THERE SHOULD BE PARITY WHILE COMPUTING THE DIFFERENCE BET WEEN THE MAT AND NORMAL TAX TO BE GIVEN AS A CREDIT, IN OTHER WORDS IF THE N ORMAL TAX COMPUTATION INCLUDES SURCHARGE AND EDUCATION CESS THEN THE AMOUNT UNDER MAT SHOULD ALSO INCLUDE SURCHARGE AND EDUCATION CESS AND, THEREFO RE, THE DIFFERENCE OF THE TWO TAX VIZ. NORMAL COMPUTAITON AND MAT SHOULD ALSO I NCLUDE SURCHARGE AND EDUCTION CESS. 9. WHILE CONCLUDING HIS ARGUMENT, THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE PROVISIONS OF SECTION 263 CANNOT BE INVOKED TO CORRECT EACH OF ERROR COMMITTED BY THE ASSESSING OFFICER AND IT I S ONLY WHEN AN ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE, THE SECTION WILL BE ATTRACTED. IN SUPPORT OF HIS CONTENTION HE HAS RELI ED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT (243 ITR 83). HE HAS ALSO RELIED UPON THE FOLLOWING DECISIONS:- (I) CIT VS. TAMILNADU WAREHOUSING CORPN. 292 ITR 310(MA D) (II) CIT VS. GABRIAL INDIA LTD. 203 ITR 108 (BOM) (III) DCIT VS. HINDUSTAN COCA COLA BEVERAGES (P) LTD 34 S OT 171 (DEL TRIB.) (IV) CIT VS. VIKAS POLYMERS 194 TAXMAN 57 (DEL) (V) INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA VS. DIR ECTOR OF INCOME TAX (EXEMPTIONS) 136 TTJ (DEL) 548. (VI) CIT VS. HONDA SIEL POWER PRODUCTS LTD 194 TAXMAN 17 5 (DEL). 10. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT T HE ASSESSING OFFICER HAS NOT CONDUCTED ANY ENQUIRY IN RESPECT OF ALL THE FOUR ISSUES WHICH ARE SUBJECT MATTER OF THE IMPUGNED REVISION ORDER, THEREFORE, THE RE IS A LACK OF ENQUIRY ON THE PART OF THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT U/S 143(3) WHICH RENDERS THE ORDER ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF REVENUE. HE HAS STRONGLY RELIED UPON THE IMPUGNED ORDER OF COMMISSION ER AND SUBMITTED THAT THE LACK OF ENQUIRY ON THE PART OF THE ASSESSING OF FICER, AMOUNTS TO NON PRIME SECURITIES LTD. 9 | P A G E APPLICATION OF MIND WHICH RENDERS THE ASSESSMENT ORDER ERRONEOUS SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE AND, THEREFORE , THE COMMISSIONER IS JUSTIFIED IN INVOKING THE PROSIONS OF SECTION 263 AN D SETTING ASIDE THE ASSESSMENT ORDER FOR DECIDING THESE ISSUES DE NOVO BY CONDUCTING P ROPER ENQUIRY. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND REL EVANT MATERIAL ON RECORD. WE HAVE ALSO GIVEN OUR DEEP THOUGHT TO EACH AND EVERY ISSUE RAISED IN THE REVISION ORDER PASSED U/S 263 BY THE COMMISSIONER. 12. THE FIRST ISSUE IS REGARDING DISALLOWANCE OF AD DITION OF RS. 22.73 CRORE ON ACCOUNT OF PROVISIONS FOR DIMINUTION IN THE VALU E OF INVESTMENT WHILE COMPUTING THE BOOK PROFIT U/S 115JB . 12.1 THE COMMISSIONER HAS PROCEEDED ON THE ASSUMPTION THAT THIS AMOUNT IS A PROVISION MADE BY THE ASSESSEE ON ACCOUNT OF DIMINUT ION IN THE VALUE OF ASSET/INVESTMENT AND, THEREFORE, AS PER CLAUSE (I) O F EXPLANATION 1 TO SECTION 115JB, IT HAS TO BE ADDED BACK WHILE COMPUTING BOOK PR OFIT U/S 115JB. FOR READY REFERENCE, WE QUOTE EXPLANATION 1 TO SECTION 115JB. EXPLANATION[1]. FOR THE PURPOSES OF THIS SECTION, BOOK PROFIT ME ANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS INCREASED BY ( A ) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE, AND TH E PROVISION THEREFOR; OR ( B ) THE AMOUNTS CARRIED TO ANY RESERVES, BY WHATEVER NAME CALLED 67 [, OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33AC ]; OR ( C ) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MA DE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; OR ( D ) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF SUB SIDIARY COMPANIES; OR ( E ) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROPO SED ; OR ( F ) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE T O ANY INCOME TO WHICH SECTION 10 68 [( OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE ( 23G ) THEREOF )] OR SECTION 10A OR SECTION 10B OR SECTION 11 OR SECTION 12 APPLY, IF ANY AMOUNT REFERRED TO IN CLAUSES ( A ) TO ( F ) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT, AND AS REDUCED BY PRIME SECURITIES LTD. 10 | P A G E 69 [( I ) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVISIO N (EXCLUDING A RESERVE CREATED BEFORE THE 1ST DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CREDITED TO THE PRO FIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO AN ASSESSE E IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMME NCING ON OR AFTER THE 1ST DAY OF APRIL, 1997 SHALL NOT BE REDUCED FROM THE BO OK PROFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RES ERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATION OR EXPLANATION BELOW THE SECOND PROVISO TO SECTION 115JA , AS THE CASE MAY BE; OR] ( II ) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISI ONS OF SECTION 10 70 [( OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE ( 23G ) THEREOF )] OR SECTION 10A OR SECTION 10B OR SECTION 11 OR SECTION 12 APPLY, IF ANY SUCH AMOUNT IS CREDITED TO THE PROFI T AND LOSS ACCOUNT; OR (IIA) THE AMOUNT OF DEPRECIATION DEBITED TO TE PROF IT AND LOSS ACCOUNT (EXCLUDING THE DEPRECIATION ON ACCOUNT OF REVALUATION OF ASSETS); OR (IIB) THE AMOUNT WHITHDRAWN FROM REVALUATION RESERV E AND CREDITED TO THE PROFIT AND LOSS ACCOUNT, TO THE EXTENT IT DOES NOT EXCEED THE AMOUN T OF DEPRECIATION ON ACCOUNT OF REVALUATION OF ASSETS REFERRED TO IN CLAUSE (IIA);O R] 71 [( III ) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT. 12.2 FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT, THE NET PROFIT SHOWN IN THE PROFIT & LOSS ACCOUNT IS REQUIRED TO BE INCREASED INTER ALIA BY THE AMOUNT SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ASS ET. THE CLAUSE (I) OF EXPLANATION 1 TO SECTION 115JB STIPULATES WITHOUT A NY AMBIGUITY OR DOUBT THAT THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTI ON IN THE VALUE OF ANY ASSET AND, THEREFORE, IF AN AMOUNT WHICH IS SET ASIDE AS PR OVISION WILL BE ADDED BACK. THIS STIPULATION UNDER CLAUSE (I) OF EXPLANATION 1 C ANNOT BE EXPANDED AND INCLUDES THE AMOUNT WHICH IS ACTUALLY WRITTEN OFF ON ACCOUNT OF DIMINUTION IN THE VALUATION OF ASSET AS A MATTER OF PRACTICE AND ACCOU NTING POLICY REGULARLY FOLLOWED BY THE ASSESSEE AND ACCEPTED BY THE REVENUE FOR THE LAST MANY YEARS. IN THE CASE IN HAND, WE FIND THAT AS PER THE SCHEDULE OF INVESTME NT, THE AMOUNT ON ACCOUNT OF DEVALUATION HAS BEEN ACTUALLY REDUCTED FROM THE BALAN CE OF THE INVESTMENT AS ON 31.03.2008. IT IS FURTHER TO BE NOTED THAT IN CASE OF SALE OF THE ASSET, WHEN ANY PRIME SECURITIES LTD. 11 | P A G E AMOUNT WAS EARLIER WRITTEN OFF AND DEBITED TO THE P&L ACCOUNT, THE ASSESSEE IS WRITING BACK THE SAME AT THE TIME OF SALE, THEREORE , WHEN THE ASSESSEE IS CONSISTENTLY FOLLWING THIS PRACTICE AND THE AMOUNT H AS BEEN ACTUALLY WRITTEN OFF AND REDUCED FROM THE BALANCE OF THE ASSET THEN IT CAN NOT BE TERMED AS AMOUNT OR AMOUNTS SET ASIDE AS A PROVISION. THE HON'BLE SUPREM E COURT IN THE CASE OF VIJAYA BANK VS. CIT (SUPRA) IN PARA 6 AND 7 HELD AS UNDER:- 6. THE FIRST QUESTION IS NO MORE RES INTEGRA. RECENTL Y, A DIVISION BENCH OF THIS COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. V. JT. CIT[2010] 320 ITR 577 1 , [IN WHICH ONE OF US (S.H. KAPADIA, J.) WAS A PARTY] HAD AN OCCASION TO DEAL W ITH THE FIRST QUESTION AND IT HAS BEEN ANSWERED, ACCORDINGLY, IN FAVOUR OF THE ASSESSEE VI DE PARAGRAPH (25), WHICH READS AS UNDER : PRIOR TO APRIL 1, 1989, THE LAW, AS IT THEN STOOD, TOOK THE VIEW THAT EVEN IN CASES IN WHICH THE ASSESSEE(S) MAKES ONLY A PROVISION IN ITS ACCOUNTS FOR BAD DEBTS AND INTEREST THEREON AND EVEN THOUGH THE AMOUNT IS NOT ACTUALLY WRITTEN OFF BY DEBITING THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE AND CREDITING THE AMOUNT TO THE ACCOUNT OF THE DEBTOR, THE ASSESSEE WAS STILL ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VII). [ SEE CIT V. JWALA PRASAD TIWARI [1953] 24ITR 537 (BOM.) AND VITHALDAS H. DHANJIBHAI BARDANWALA V. CIT [1981] 130 ITR 95 (GUJ.)]. SUCH STATE OF LAW PREVAILED UP TO AND INCLUDING THE ASSESSMENT YEAR 1988-89. HOWEVER, BY INSERTION (WITH EFFECT FROM APRIL 1, 1989) OF A NEW EXPLANATION IN SECTION 36(1)(VII), I T HAS BEEN CLARIFIED THAT ANY BAD DEBT WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT OF THE ASSESSEE WILL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBT MADE IN THE ACCOUNTS OF T HE ASSESSEE. THE SAID AMENDMENT INDICATES THAT BEFORE APRIL 1, 1989, EVEN A PROVISI ON COULD BE TREATED AS A WRITE OFF. HOWEVER, AFTER APRIL 1, 1989, A DISTINCT DICHOTOMY IS BROUGHT IN BY WAY OF THE SAID EXPLANATION TO SECTION 36(1)(VII). CONSEQUENTL Y, AFTER APRIL 1, 1989, A MERE PROVISION FOR BAD DEBT WOULD NOT BE ENTITLED TO DED UCTION UNDER SECTION 36(1)(VII). TO UNDERSTAND THE ABOVE DICHOTOMY, ONE MUST UNDERSTAND HOW TO WRITE OFF. IF AN ASSESSEE DEBITS AN AMOUNT OF DOUBTFUL DEBT TO THE PROFIT AND LOSS ACCOUNT AND CREDITS THE ASSET ACCOUNT LIKE SUNDRY DEBTORS ACCOUNT, IT WOULD CONS TITUTE A WRITE OFF OF AN ACTUAL DEBT. HOWEVER, IF AN ASSESSEE DEBITS PROVISION FOR DOUBT FUL DEBT TO THE PROFIT AND LOSS ACCOUNT AND MAKES A CORRESPONDING CREDIT TO THE CURRENT LI ABILITIES AND PROVISIONS ON THE LIABILITIES SIDE OF THE BALANCE-SHEET, THEN IT WOUL D CONSTITUTE A PROVISION FOR DOUBTFUL DEBT. IN THE LATTER CASE, THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION AFTER APRIL 1, 1989. 7. ONE POINT NEEDS TO BE CLARIFIED. ACCORDING TO SHRI BISHWAJIT BHATTACHARYA, LEARNED ADDITIONAL SOLICITOR GENERAL APPEARING FOR THE DEPA RTMENT, THE VIEW EXPRESSED BY THE GUJARAT HIGH COURT IN THE CASE OF VITHALDAS H. DHAN JIBHAI BARDANWALA (SUPRA) WAS PRIOR TO THE INSERTION OF THE EXPLANATION VIDE FINANCE ACT, 2001, WITH EFFECT FROM 1-4-1989, HENCE, THAT LAW IS NO MORE A GOOD LAW. ACCORDING TO THE LE ARNED COUNSEL, IN VIEW OF THE INSERTION OF THE SAID EXPLANATION IN SECTION 36(1)(VII) WITH EFF ECT FROM 1-4-1989, A MERE DEBIT OF THE IMPUGNED AMOUNT OF BAD DEBT TO THE PROFIT AND LOSS ACCOUNT WOULD NOT AMOUNT TO ACTUAL WRITE OFF. ACCORDING TO HIM, THE EXPLANATION MAKES IT VERY CLEAR THAT THERE IS A DICHOTOMY BETWEEN ACTUAL WRITE OFF ON THE ONE HAND AND A PROV ISION FOR BAD AND DOUBTFUL DEBT ON THE PRIME SECURITIES LTD. 12 | P A G E OTHER. HE SUBMITTED THAT A MERE DEBIT TO THE PROFIT AND LOSS ACCOUNT WOULD CONSTITUTE A PROVISION FOR BAD AND DOUBTFUL DEBT, IT WOULD NOT C ONSTITUTE ACTUAL WRITE OFF AND THAT WAS THE VERY REASON WHY THE EXPLANATION STOOD INSERTED. ACCORDING TO HIM, PRIOR TO FINANCE ACT, 2001, MANY ASSESSEES USED TO TAKE THE BENEFIT OF DE DUCTION UNDER SECTION 36(1)(VII) OF 1961 ACT BY MERELY DEBITING THE IMPUGNED BAD DEBT TO THE PROFIT AND LOSS ACCOUNT AND, THEREFORE, THE PARLIAMENT STEPPED IN BY WAY OF EXPLANATION TO SAY THAT MERE REDUCTION OF PROFITS BY DEBITING THE AMOUNT TO THE PROFIT AND LOSS ACCOUNT PER SE WOULD NOT CONSTITUTE ACTUAL WRITE OFF. TO THIS EXTENT, WE AGREE WITH THE CONTENTIONS OF SHRI BHATTACHARYA. HOWEVER, AS STATED BY THE TRIBUNAL, IN THE PRESENT CASE, BESIDES DEBIT ING THE PROFIT AND LOSS ACCOUNT AND CREATING A PROVISION FOR BAD AND DOUBTFUL DEBT, THE ASSESSEE-BANK HAD CORRESPONDINGLY/SIMULTANEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND AD VANCES/DEBTORS ON THE ASSET SIDE OF THE BALANCE SHEET AND, CONSEQUENTLY, AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR THE DEBTORS ON THE ASSET SIDE OF THE BA LANCE SHEET WAS SHOWN AS NET OF THE PROVISION FOR IMPUGNED BAD DEBT. IN THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF VITHALDAS H. DHANJIBHAI BARDANWALA (SUPRA), A ME RE DEBIT TO THE PROFIT AND LOSS ACCOUNT WAS SUFFICIENT TO CONSTITUTE ACTUAL WRITE OFF WHERE AS, AFTER THE EXPLANATION, THE ASSESSEE(S) IS NOW REQUIRED NOT ONLY TO DEBIT THE PROFIT AND LO SS ACCOUNT BUT SIMULTANEOUSLY ALSO REDUCE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSET SI DE OF THE BALANCE SHEET TO THE EXTENT OF THE CORRESPONDING AMOUNT SO THAT, AT THE END OF THE YEAR, THE AMOUNT OF LOANS AND ADVANCES/DEBTORS IS SHOWN AS NET OF PROVISIONS FOR IMPUGNED BAD DEBT. THIS ASPECT IS LOST SIGHT OF BY THE HIGH COURT IN ITS IMPUGNED JUDGMENT . IN THE CIRCUMSTANCES, WE HOLD, ON THE FIRST QUESTION, THAT THE ASSESSEE WAS ENTITLED TO T HE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VII) OF 1961 ACT AS THERE WAS AN ACTUAL WRITE OFF BY THE ASSESSEE IN ITS BOOKS, AS INDICATED ABOVE. 12.3 THEREFORE, WHEN THE FACT BORNE OUT FROM THE RE CORD THAT THE AMOUNT IS ACTUALLY WRITTEN OFF AND REDUCED FROM THE BALANCE OF T HE INVESTMENT THEN, IT CANNOT BE TREATED AS A PROVISION IN TERMS OF CLAUSE (I) OF EXPLANATION 1 TO SECTION 115JB AND CONSEQUENTLY CANNOT BE ADDED BACK FOR COMPUTA TION OF BOOK PROFIT U/S 115JB. 13. THE SECOND ISSUE IS REGARDING PROVISION FOR BAD AND DOUBTFUL DEBTS. 13.1 THE COMMISSIONER HAS PROCEEDED WHILE DECIDING THIS ISS UE ON THE PREMISE THAT THIS IS A MERE PROVISION IN THE NATURE OF DOUBT FUL DEBT AND IT IS NOT A BAD DEBT WRITTEN OFF. WHEREAS WHILE GOING THROUGH THE RECO RD OF BOOKS OF ACCOUNTS, WE FIND THAT THOUGH THE NOMENCLATURE MENTIONED IS A PRO VISION, HOWEVER, THE AMOUNT OF RS. 20,297,500/- IS ACTUALLY WRITTEN OFF AND THE SAME HAS BEEN REDUCED PRIME SECURITIES LTD. 13 | P A G E FROM THE BALANCE OF THE RESPECTIVE PARTIES (DEBTORS) AS PER THE RESPECTIVE LEDGER ACCOUNTS. ONCE THIS FACT IS ESTABLISHED FROM THE REC ORD THAT THIS AMOUNT IS NOT A MERE PROVISION BUT IS ACTUALLY WRITTEN OFF THEN IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT (SUPRA), IT CANNOT TREATED AS A PROVISION. THE COMMISSIONER WHILE DECIDING THESE IS SUES HAS EVEN NOT EXAMINED THE CONCERNED RECORD AND BOOKS OF ACCOUNTS OF THE ASSE SSEE DESPITE THE FACT THAT THE ASSESSEE HAS TAKEN A SPECIFIC PLEA AND ARGUMENT THAT THESE ARE NOT PROVISIONS BUT ACTUAL WRITTEN OFF AMOUNTS FROM THE BALANCE PEN DING IN THE DEBTORS LEDGER ACCOUNTS. ACCODINGLY, THE COMMISSIONER IS NOT JUSTI FIED IN HOLDING THAT THIS IS A PROVISION AND TO BE ADDED BACK AS PER THE EXPLANATION 1 TO SECTION 115JB OF THE INCOME TAX ACT. 14. THIRD ISSUE IS REGARDING UNABSORBED DEPRECIATIO N 14. THE COMMISSIONER HAS ORDERED FOR DISALLOWANCE OF UNABSORBED DEPRECIATION TO BE CARRY FORWARD AND SET OFF FOR THE YEAR UNDER CONSIDERATION ON THE GROUND THAT THE UNABSORBED DEPRECIATION PERTAINS TO A.Y. 1996-97 TO 1999-00 AND AS PER THE LAW APPLICABLE FOR THOSE AYS, IT WAS ALLOWED TO BE CARRY FORWARD ONLY FOR EIGHT YEARS. THUS IN VIEW OF THE COMMISSIO NER, THE AMENDED PROVISION VIDE FINANCE ACT, 2001 ARE NOT APPLICABLE FOR CARRY FORWARD OF UNABSORBED DEPRECIATION PERTAINING TO A.Y. 1996-97 TO 1999-00. AT THE OUTSET WE NOTE THAT THIS ISSUE IS NO LONGER RES INTEGRA AS THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA (P) LTD., VS. DEPUTY COMMISSIO NER OF INCOME TAX (SUPRA) HAS HELD IN PARA 39 AND 40 AS UNDER:- 39. THE CBDT CIRCULAR CLARIFIES THE INTENT OF THE AMEN DMENT THAT IT IS FOR ENABLING THE INDUSTRY TO CONSERVE SUFFICIENT FUNDS TO REPLACE PL ANT 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 APPLICABL E FROM ASSESSMENT YEAR 2002-03 AND SUBSEQUENT YEARS. THIS MEANS THAT ANY UNABSORBE D DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1ST DAY OF APRIL, 2002 (A.Y. 2002-03) W ILL BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE A CT, 2001 AND NOT BY THE PROVISIONS OF PRIME SECURITIES LTD. 14 | P A G E SECTION 32(2) AS IT STOOD BEFORE THE SAID AMENDMENT . HAD THE INTENTION OF THE LEGISLATURE BEEN TO ALLOW THE 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 INCORPORATED A PROVISION TO THAT EFFECT. HOWEVER, IT DOES NOT CONTAIN ANY SUCH PROVISION. HENCE KEEPING IN VIEW T HE PURPOSE OF AMENDMENT OF SECTION 32(2) OF THE ACT, A PURPOSIVE AND HARMONIOUS INTERP RETATION HAS TO BE TAKEN. WHILE CONSTRUING TAXING STATUTES, RULE OF STRICT INTERPRE TATION HAS TO BE APPLIED, 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 LEGISLATURE FAI LS TO EXPRESS CLEARLY AND THE ASSESSEE 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 C ANNOT 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 YEAR, DEDUC TION OF DEPRECIATION UNDER SECTION 32 SHALL BE MANDATORY. THEREFORE, THE PROVISIONS OF SE CTION 32(2) AS AMENDED BY FINANCE ACT, 2001 WOULD ALLOW THE UNABSORBED DEPRECIATION ALLOWA NCE AVAILABLE IN THE A.Y. 1997-98, 1999-2000, 2000-01 AND 2001-02 TO BE CARRIED FORWAR D 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 CARRIED FORWARD TILL THE TIME IT IS SET OF F AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS. 40. THEREFORE, IT CAN BE SAID THAT, CURRENT DEPRECIATI ON 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 BUSINESS, THEN SU CH EXCESS COMES FOR ABSORPTION FROM THE PROFITS AND GAINS FROM ANY OTHER BUSINESS OR BUSINE SS, IF ANY, CARRIED ON BY THE ASSESSEE. IF A BALANCE IS LEFT EVEN THEREAFTER, THAT BECOMES DEDUC TIBLE FROM OUT OF INCOME FROM ANY SOURCE UNDER ANY OF THE OTHER HEADS OF INCOME DURIN G THAT YEAR. IN CASE THERE IS A STILL BALANCE LEFT OVER, IT IS TO BE TREATED AS UNABSORBE D DEPRECIATION AND IT IS TAKEN TO THE NEXT SUCCEEDING YEAR. WHERE THERE IS CURRENT DEPRECIATIO N FOR SUCH SUCCEEDING YEAR THE UNABSORBED DEPRECIATION IS ADDED TO THE CURRENT DEP RECIATION FOR SUCH SUCCEEDING YEAR AND IS DEEMED AS PART THEREOF. IF, HOWEVER, THERE I S NO CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR, THE UNABSORBED DEPRECIATION BECOME S THE DEPRECIATION ALLOWANCE FOR SUCH SUCCEEDING YEAR. WE ARE OF THE CONSIDERED OPIN ION 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 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 DIS PENSED WITH, THE UNABSORBED DEPRECIATION FROM A.Y. 1997-98 UPTO THE A.Y. 2001-0 2 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 FINANCE A CT, 2001 AND WERE AVAILABLE FOR CARRY FORWARD AND SET OFF AGAINST THE PROFITS AND GAINS O F SUBSEQUENT YEARS, WITHOUT ANY LIMIT WHATSOEVER. 14.2 THE HONBLE HIGH COURT HAS ANALYZED THE PROVISI ON AS WELL AS THE INTENT OF LEGISLATURE AND HELD THAT THE RESTRICTION OF EIGHT Y EARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION HAS BEEN DISPENSED WI TH BY THE AMENDMENT AND AS PER THE POST AMENDED PROVISION OF SECTION 32(2) VIDE FINANCE ACT, 2001, UNABSORBED DEPRECIATION IS AVAILABLE FOR CARRY FORWA RD AND SET OFF AGAINS THE PRIME SECURITIES LTD. 15 | P A G E PROFITS AND GAINS OF SUBSEQUENT YEARS, WITHOUT ANY L IMIT WHATSOEVER. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND THE ORDER OF COMMISSIONER QUA THIS ISSUE IS SET ASIDE. 15. THE FOURTH ISSUE IS REGARDING MAT CREDIT 15.1 THE COMMISSIONER HAS HELD THAT THE ASSESSEE CLA IMED MAT CREDIT BEFORE APPLYING SURCHARGE AND EDUCATION CESS WHICH IS NOT A S PER THE PROVISIONS OF SECTION 115JAA. THE CONCLUDING PART OF THE IMPUGNED ORDER OF COMMISSIONER IS AS UNDER:- THE SUBMISSION OF THE ASSESSEE THAT IT IS CORRECT LAW TO ALL MAT CREDIT BEFORE ALLOWING SURCHARGE AND EDUCATION CESS IS NOT CORRECT. IF THE LEGAL PROVISIONS ARE CONSTRUED CORRECTLY, IT IS CLEAR THA T MAT CREDIT HAS TO BE ALLOWED AFTER APPLYING SURCHARGE AND EDUCATION CESS . ON THIS ASPECT, THERE IS NO DISCUSSION IN ORDER UJS.LL5JB . THEREFORE, IT IS CLEAR THAT ASSESSING OFFICER HAS ALLOWED THIS CLAIM WITHOUT ENQUIRY. THU S ORDER PASSED BY HIM IS ERRONEOUS AND SO FAR AS IT IS PREJUDICIAL TO THE IN TEREST OF REVENUE AND IT IS SET ASIDE. 15.2 IT IS PERTINENT TO NOTE THAT THE ISSUE OF MAT CREDIT PERTAINS TO COMPUTATION OF TAX AND DIFFERENCE BETWEEN NORMAL TA X AND MAT GENERALLY DO NOT FORM PART OF THE ASSESSMENT ORDER, THEREFORE, IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAS NOT A PPLIED ITS MIND ON THIS ISSUE. FURTHER THE COMMISSIONER HAS ALSO NOT D ISCUSSED ANY DETAIL AND THE AMOUNT OF NORMAL COMPUTATION OF TAX AS WELL AS MAT AND THE DIFFERENCE BEING MAT CREDIT TO BE ALLOWED. WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT IF THE MAT IS TAKEN INTO ACCOUNT WITHOUT INCLUDING SURCHARGE AND EDUCATION CESS THEN FOR THE MAT CREDIT THE TAX UNDER NORMAL PROVISIONS OF THE ACT, SHOULD ALSO BE TAKEN INTO ACCOUNT WITHOUT ADDING SURCHARGE AND EDUCATION CESS OTHERWISE BOTH THE AMOUNTS SHOULD BE INCLUSIVE OF SURCHARGE A ND EDUCATION CESS. THEREFORE, THE MAT AS WELL AS THE NORMAL TAX UNDER THE PROVISIONS OF THE ACT SHOULD BE COMPUTED ON PARITY EITHER EXCLUSI ON OF SURCHARGE PRIME SECURITIES LTD. 16 | P A G E AND EDUCATION CESS OR INCLUSIVE OF SURCHARGE AND ED UCATION CESS. THE COMMISSIONER HAS NOT GIVEN ANY FINDING HOW THE MAT CREDIT ALLOWED BY THE ASSESSING OFFICER IS INCORRECT BECAUSE IT IS ONLY A MATTER OF COMPUTATION OF TAX AND NOT AN ISSUE ARISES DURING T HE ASSESSMENT PROCEEDINGS. ACCORDINGLY, WE DO NOT FIND ANY JUSTIF ICATION IN THE ORDER OF COMMISSIONER FOR DIRECTING THE ASSESSING OFFICER TO DECIDE THIS ISSUE DE NOVO. THE COMMISSIONERS FINDING IS BASED ON APP REHENSION AND DOUBTS AND NOT ON THE ACTUAL FACTS AND FIGURES IN C OMPUTATION OF TAX. THUS THE FINDING OF THE COMMISSIONER ARE NOT SUSTAI NABLE AND LIABLE TO BE SET ASIDE. 16. IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE T HE IMPUGNED REVISION ORDER PASSED U/S 263. 17. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 10-9 -2014 SD/- SD/- ( N.K. BILLAIYA ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 10 -9 -2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI