BOND SAFETY BETTS, MUMBAI V. DCIT CIR 12(2), MUMBAI

ITA 2270/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0206 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 29-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 20-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: P B CHHAPGAR
• Keywords: Business income; Depreciation; Business expenditure; Unabsorbed depreciation; Capital expenditure
• Section: 143(3); 37(1); 32; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 2270 / MUM/20 15 ASSESSMENT YEAR: 2010 - 11 M/S. BOND SAFETY BELTS VS. DCIT CIR 12(2) GR. FLOOR, BAKHTAVAR, OPP. MUMBAI COLABA POST OFFICE COLABA MUMBAI 40000 5 PAN NO. AAAF BO275C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.B.CHHAPGAR , AR REVENUE BY: SH RI B.S. BIST, DR DATE OF HEARING : 06/04 /2017 DATE OF PRONOUNCEMENT: 22/06/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE . THE RELEVANT ASSESSMENT YEAR IS 20 10 - 11 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS) 28, MUMBAI AND ARISES OUT OF ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER : 1:0 RE: DISALLOWANCE OF BALANCES WRITTEN OFF: 1:1 THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFORMING DISALLOWANCE OF DEBIT BALANCES IN SUNDRY CREDITORS OF RS. 18,264/ - , ITA NO. 2270 /MUM/201 5 2 DEPOSITS OF RS. 20,190/ - WRITTEN OFF AND CST RECOVERABLE OF RS. 1,935/ - WRITTEN OFF. 1:2 THE APPELLANT SUBMITS THAT CONSIDE RING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE APPELLANT IS ENTITLED TO CLAIM A DEDUCTION ON ACCOUNT OF THESE BALANCES WRITTEN OFF BOTH U/S 28 OR 29 OF THE INCOME - TAX ACT, 1961 AS BUSINESS LOSS OR AS BUSINESS EXPENDI TURE U/S 37(1) OF THE INCOME - TAX ACT AND THE STAND TAKEN BY THE COMMISSIONER OF INCOME - TAX (APPEALS) IN THIS REGARD IS ERRONEOUS AND NOT IN ACCORDANCE WITH THE LAW. 1:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE CLAIM FOR DE DUCTION OF BALANCES WRITTEN OFF AND TO RE - COMPUTE ITS TOTAL INCOME ACCORDINGLY. 2:0 RE: DISALLOWANCE OF BROUGHT FORWARD DEPRECIATION U/S 32(2) FOR ASSESSMENT YEAR 1996 - 97 AMOUNTING TO RS. 13,89,661/ - . 2:1 THE COMMISSIONER OF INCOME - TAX ( A PPEALS) ERRED IN U PHOLDING THE ACTION OF THE ASSESSING OFFICER OF NOT GRANTING THE APPELLANT THE SET - OFF OF UNABSORBED DEPRECIATION OF THE EARLIER YEARS I.E. 1996 - 97 TO 2001 - 02 AMOUNTING TO RS. 13,89,661/ - AGAINST INCOME FROM CAPITAL GAINS AS CLAIMED IN THE RETURN OF INCOME . 2:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE APPELLANT IS ENTITLED TO CLAIM SET - OFF OF UNABSORBED DEPRECIATIONS AS PER REVISED SECTION 32(2) OF THE INCOME - TAX ACT, 1961 AND THE STAND TAKEN BY THE ASSESSING OFFICER IN THIS REGARD IS ERRONEOUS AND THE COMMISSIONER OF INCOME - TAX (APPEALS) OUGHT TO HAVE HELD AS SUCH. 2:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO GRANT THE SET - OFF OF UNABSORBED DEPRECIATION A GAINST ITS INCOME FROM CAPITAL GAINS FOR THE YEAR UNDER CONSIDERATION AND TO RE - COMPUTE ITS TOTAL INCOME ACCORDINGLY. ITA NO. 2270 /MUM/201 5 3 3. WE BEGIN WITH THE 1 ST GROUND OF APPEAL. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS WRITTEN OFF RS. 1,29,039/ - CONSISTING OF THE FOLLOWING ITEMS: 1. SUNDRY DEBTORS RS.88,651.49 2. SUNDRY CREDITORS RS.18,262.45 3. DEPOSITS RS.20,190.00 4. CST RECOVERABLE RS.1,935.81 TOTAL RS.1,29,039.75 THE ASSESSING OFFICER (AO) FOUND THAT OUT OF THE ABOVE AMOUNT, A SUM OF RS.77,264/ - RELATED TO DEPOSITS, CREDITORS AND CST WHICH WAS NOT PART OF INCOME OFFERED TO TAX. THEREFORE, HE DISALLOWED RS.77,264/ - U/S 36(2)(I). 3.1. AGGRIEVED BY THE ORDER OF THE AO , THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A). WE FIND THAT THE LD. CIT(A) HAS CONFIRMED (I) DISALLOWANCE OF DEBIT BALANCES IN SUNDRY CREDITORS OF RS.18,264/ - , (II) DEPOSITS OF RS.20,190/ - WRITTEN OFF AND (III) CST RECOVERABLE OF RS.1,935/ - WRITTEN O FF. REGARDING THE CLAIM OF DEDUCTION ON ACCOUNT OF SUNDRY CREDITORS OF RS.18,264/ - AND DEPOSITS OF RS.20,190/ - , THE LD. CIT(A) HAS FOUND THAT THE ASSESSEE HA S NOT FURNISHED ANY EVIDENCE TO SHOW THAT EVEN IF THE ABOVE AMOUNTS REPRESENT BUSINESS LOSS, THE SA ME HAS ARISEN TO IT IN CURRENT ASSESSMENT YEAR. IN RESPECT OF THE CST RECOVERABLE OF RS.1,935.81/ - , THE LD. CIT(A) HAS FOUND THAT THE ABOVE AMOUNT WAS NOT SHOWN AS INCOME BY THE ASSESSEE. THEREFORE, HE HELD THAT NO DEDUCTION ON THE ABOVE AMOUNT WOULD BE AL LOWABLE. THE LD. CIT(A) HAS DIRECTED THE AO TO VERIFY THE CLAIM OF THE ASSESSEE OF SUNDRY DEBTORS WRITTEN OFF AMOUNTING TO RS.88,651/ - WAS OFFERED AS INCOME IN EARLIER YEAR AND IF THE CLAIM IS FOUND TO BE CORRECT THE SAME SHALL BE ALLOWED. ITA NO. 2270 /MUM/201 5 4 3.2. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE RELIES ON THE ORDER OF THE ITAT B BENCH KOLKATA IN THE CASE OF DCIT VS. M/S BOC INDIA LTD. AND BOC INDIA LTD. VS. ACIT FOR THE AY 2003 - 04 (ITA NO. 1071 & 669/KY/2008). 3.3. ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDER OF THE LD. CIT(A). HE SUBMITS THAT IN RESPECT OF DEDUCTION ON ACCOUNT OF SUNDRY CREDITORS OF RS.18,264/ - AND DEPOSITS OF RS.20,190/ - THE ASSESSEE HAS SUBMITTED THAT THESE AMOUNTS WERE NEVER SHOWN AS INCOME. ALSO THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE TO SHOW THAT EVEN IF THE ABOVE AMOUNTS REPRESENT BUSINESS LOSS, THE SAME HAS ARISEN TO IT IN THE CURRENT ASSESSMENT YEAR. ALSO IT IS HIS CONTENTION THAT THE CST RECOVERABLE OF RS.1,935.81/ - WAS NOT SHOWN AS INCOME BY THE ASSESSEE. THEREFORE, THE LD. DR SU PPORTS THE ORDER PASSED BY THE LD. CIT(A). 3.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE CASE OF M/S BOC INDIA LTD. (SUPRA) RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE, THE ASSESSEE DURING THE RELEVANT ASSES SMENT YEAR HAD WRITTEN OFF SECURITY DEPOSITS OF RS.22,59,471/ - IN THE PROFIT AND LOSS ACCOUNT U/S 28 AS TRADING LOSS DUE TO NO N RECOVERY. THESE SECURITY DEPOSITS WERE MADE BY THE ASSESSEE WITH THE ELECTRICITY BOARD, TELEPHONE DEPARTMENT, HOSPITALS AND EMD (EARNEST MONEY DEPOSITS) FOR OBTAINING COMMERCIAL CONTRACTS. HOWEVER, THE AO TREATED THE SAME AS CAPITAL LOSS AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. IN APPEAL, THE TRIBUNAL HELD THAT: THESE SECURITY DEPOSITS WERE MADE BY THE ASSESSEE IN THE NO RMAL COURSE OF BUSINESS. BY MAKING THE SECURITY DEPOSIT NO FIXED ASSETS HAS COME INTO EXISTENCE. THEREFORE, SUCH SECURITY DEPOSIT WAS CLASSIFIED AS CURRENT ASSETS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE BUSINESS EXPENDITURE WHICH ITA NO. 2270 /MUM/201 5 5 IS NOT SPECIFICALLY PROVIDED IN SECTION 30 TO 36 OF THE ACT CAN BE ALLOWED UNDER SECTION 37 OF THE ACT. SUCH EXPENDITURES BEFORE QUALIFYING FOR DEDUCTION, ARE REQUIRED TO BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND PROFESSION. BUT EXPEND ITURES IN THE NATURE OF CAPITAL EXPENDITURES OR PERSONAL EXPENSES OF THE ASSESSEE ARE NOT ADMISSIBLE UNDER THE SAID SECTION. HOWEVER, IN THE INSTANT APPEAL, THE ASSESSEE FAILED TO FILE THE EVIDENCE IN RESPECT OF CLAIM OF DEDUCTION ON ACCOUNT OF SUNDRY CR EDITORS OF RS.18,264/ - AND DEPOSITS OF RS.20,190/ - . THIS IS EVIDENT FROM THE ORDER OF THE LD. CIT(A). IN VIEW OF THE ABOVE, THE ABOVE DISALLOWANCES OF RS.18,264/ - (SUNDRY CREDITORS) AND RS.20,190/ - (DEPOSITS) ARE CONFIRMED. HOWEVER, THE ORDER OF THE LD. C IT(A) CONFIRMING THE DISALLOWANCE OF CST RECOVERABLE OF RS.1,935.81/ - IS BEREFT OF ANY REASON. THEREFORE, THE AO IS DIRECTED TO ALLOW THE CST RECOVERABLE OF RS.1,935.81/ - . THUS, THE 1 ST GROUND OF APPEAL IS PARTLY ALLOWED. 4. NOW WE TURN OF THE 2 ND GROUND OF APPEAL . THE ASSESSEE HAS SET OFF BROUGHT FORWARD UNABSORBED DEPRECIATION OF RS.39,19,416/ - FROM THE SHORT TERM CAPITAL GAINS. THE AO FOUND THAT THE UNABSORBED DEPRECIATION INCLUDES THE SAME CARRIED FORWARD FROM AY1996 - 97 TO AY 20 01 - 02 TOTALLING TO RS.1 3,89,661/ - . THE BREAK UP IS AS UNDER: AY AMOUNT (RS.) 1996 - 97 3 , 03,993 1999 - 2000 8 , 12,932 2001 - 2002 2 , 72,736 TOTAL 13,89,661 ITA NO. 2270 /MUM/201 5 6 FOLLOWING THE ORDER OF THE SPECIAL BENCH, MUMBAI IN THE CASE OF DCIT VS. TIMES GURANTEE LTD . (IN ITA NO. 4947 & 4918/M/2008) THAT B/F UNABSORBED DEPRECIATION TO THE EXTENT IT PERTAINS TO AY 1997 - 98 UP TO 2001 - 02 CAN BE CARRIED FORWARD AND SET OFF ONLY FOR A PERIOD OF 8 YEARS AND IT CAN BE SET OFF ONLY AGAINST BUSINESS INCOME, THE AO DISALLOWED T HE SET OFF OF RS.13,89,661/ - AND INCREASED THE RETURNED STCG BY THAT AMOUNT. 4.1. IN APPEAL, THE LD. CIT(A) HAS FOLLOWED THE DECISION IN THE CASE OF GENERAL MOTORS INDIA (P) LTD. VS. DCIT (2012) 25 TAXMANN.COM 364 (GUJ) AND THE ORDER OF THE ITAT, SPECIAL BENCH IN TIMES GURANTEE LTD. (SUPRA) AND HELD THAT AS THE ASSESSEE HAS CLAIMED SET OFF OF THE IMPUGNED UNABSORBED DEPRECIATION AGAINST INCOME UNDER THE HEAD CAPITAL GAINS, SUCH SET OFF CANNOT BE ALLOWED. 4.2. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS (INDIA) PVT. LTD. (SUPRA) IS APPLICABLE TO THE CASE OF THE ASSESSEE. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 4.3. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. FROM AY 1997 - 98, THERE WAS A SHARP AMENDMENT IN THE SCHEME OF CARRY - FORWARD AND SET OFF OF UNABSORBED DEPRECIATION BY SUBSTITUTION OF A NEW SUB - SECTION (2) IN SECTION 32. THE SAID PROVISIONS AP PLY NOT MERELY TO THE UNABSORBED DEPRECIATION FOR THE YEARS FROM AY 1997 - 98 BUT EVEN TO THE UNABSORBED DEPRECIATION BROUGHT FORWARD FROM EARLIER YEARS AND REMAINING UNABSORBED AS ON 1 ST APRIL 1996, BECAUSE IT IS THE LAW PREVAILING IN THE YEAR OF SET - OFF TH AT WILL BE APPLICABLE TO SUCH UNABSORBED DEPRECIATION . SUCH EARLIER UNABSORBED DEPRECIATION WOULD, AS PER THE ITA NO. 2270 /MUM/201 5 7 LAW PREVAILING THEN, GET MERGED INTO THE DEPRECIATION FOR THE AY 1997 - 98. 4.4. WE NOW REFER TO THE DECISION IN GENERAL MOTORS (INDIA) PVT. LTD. (SUPRA) . THE QUESTION BEFORE THE HONBLE HIGH COURT WAS WHETHER THE UNABSORBED DEPRECIATION PERTAINING TO AY 1997 - 98 COULD BE ALLOWED TO BE CARRIED FORWARD AND SET OFF AFTER A PERIOD OF EIGHT YEARS OR IT WOULD BE GOVERNED BY SECTION 32 AS AMENDED BY FINANCE ACT 2001? WE FIND THAT THE HONBLE GUJARAT HIGH COURT HAS HELD AS UNDER: 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, DEDUCTION OF DE PRECIATION U/S 32 SHALL BE MANDATORY. THEREFORE, THE PROVISIONS OF SECTION 32(2) AMENDED BY FINANCE ACT, 2001 WOULD ALLOW THE UNABSORBED DEPRECIATION ALLOWANCE AVAILABLE IN THE AY 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 TILL THE AY 2002 - 03 THEN IT WOULD BE CARRIED FORWARD TILL THE TIME IT IS SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS. THEREFORE, IT CAN BE SAID THAT, CURRENT DEPRECIATION IS DEDUCTIBLE IN SUCH 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 SUCH EXCESS COMES FOR ABSORPTION FROM THE PROFITS AND GAINS FRO M ANY OTHER BUSINESS OR BUSINESS, IF ANY, CARRIED ON BY THE ASSESSEE. IF A BALANCE IS LEFT EVEN THEREAFTER, THAT BECOMES DEDUCTIBLE FROM OUT OF INCOME FROM ANY SOURCE UNDER ANY OF THE OTHER HEADS OF INCOME DURING THAT YEAR. IN CASE THERE IS A STILL BALANCE LEFT OVER, IT IS TO BE TREATED AS UNABSORBED DEPRECIATION AND IT IS TAKEN TO THE NEXT SUCCEEDING YEAR. WHERE THERE IS CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR THE UNABSORBED DEPRECIATION IS ADDED TO THE CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR A ND IS DEEMED AS PART THEREOF. IF, HOWEVER, THERE IS NO CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR, THE UNABSORBED DEPRECIATION BECOMES THE DEPRECIATION ALLOWANCE FOR SUCH SUCCEEDING ITA NO. 2270 /MUM/201 5 8 YEAR. WE ARE OF THE CONSIDERED OPINION THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1 ST DAY OF APRIL 2002 (AY 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 F ORWARD AND SET OFF OF UNABSORBED DEPRECIATION HAD BEEN DISPENSED WITH, THE UNABSORBED DEPRECIATION FROM AY 1997 - 98 UPTO THE AY 2001 - 02 GOT CARRIED FORWARD TO THE ASSESSMENT YEAR 2002 - 03 AND BECAME PART THEREOF, IT CAME TO BE GOVERNED BY THE PROVISIONS OF S ECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 AND WERE AVAILABLE FOR CARRY FORWARD AND SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS, WITHOUT ANY LIMIT WHATSOEVER. [EMPHASIS UNDERLINE D ] 4. 5 IN THE INSTANT APPEAL, THE ASSESSEE HAS CLAIMED SET OFF OF THE IMPUGNED UNABSORBED DEPRECIATION AGAINST THE INCOME UNDER THE HEAD CAPITAL GAINS. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT, WE UPHOLD THE ORDER OF THE LD. CIT(A) IN RESPECT OF DISALLOWANCE OF UNABSORBED DEPRE CIATION OF RS.13,86,661/ - PERTAINING TO AY 1996 - 97 TO 2001 - 02 AGAINST INCOME FROM CAPITAL GAINS. THUS THE 2 ND GROUND OF APPEAL IS DISMISSED. 5. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/06/2017. SD/ - SD/ - ( MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : DATED: 22/06/2017 RAHUL SHARMA , SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. ITA NO. 2270 /MUM/201 5 9 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI