SHREE RAM MILLS LTD.(PRESENTLY KNOWN AS SHREE RAM URBAN INFRASTRUCTURES LTD.), MUMBAI V. ASST.C.I.T. CIRCLE-7(2), MUMBAI

ITA 2934/MUM/2009

• Counselvise Citation: 293419914 RSA 2009
• Duration Of Justice: 2 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-11-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 07-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K SHIVRAMSH AJAY SINGH
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 143(3); 32; 263; 154

Judgement Text

1 SHREE RAM MILLS LTD IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI D DD D BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI R K PANDA, R K PANDA, R K PANDA, R K PANDA, AM & AM & AM & AM & SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM ITA NO. ITA NO. ITA NO. ITA NO. 2934/MUM/2009 2934/MUM/2009 2934/MUM/2009 2934/MUM/2009 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2004 2004 2004 2004- -- -05 0505 05) )) ) SHREE RAM MILLS LTD (PRESENTLY KNOWN AS SHREE RAM URBAN INFRASTRUCTURES LTGD) GANPATRAO KADAM MARG LOSER PAREL MUMBAI 13 VS THE ASST COMMR OF INCOME TAX 7(2), MUMBAI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO. AAACS0454P AAACS0454P AAACS0454P AAACS0454P ASSESSEE BY SH K SHIVRAM/SH AJAY SINGH REVENUE BY DR B SENTHILKUMAR DT.OF HEARING 23 RD NOV 2011 DT OF PRONOUNCEMENT 28 TH DEC 2011 ORDER ORDER ORDER ORDER PER PER PER PER VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO, , , , JM JMJM JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE REVISION ORDER DATED 4.2.2009 OF THE CIT PASSED U/S 263 OF THE I T ACT F OR THE AY 2004-05. 2 THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION W AS COMPLETED VIDE ORDER DATED 14.12.2006 PASSED U/S 143(3). THEREAFTE R, AN ORDER U/S 154 WAS PASSED ON 28.3.2007 IN PURSUANCE TO THE PETITION FI LED BY THE ASSESSEE ON 12.1.2007. SUBSEQUENTLY, THE CIT PROPOSED TO REVIS E THE ASSESSMENT ORDER BY ISSUING THE NOTICE U/S 263 ON 20.10.2008. THE RELEV ANT PART OF THE NOTICE AS REPRODUCED BY THE CIT IN THE IMPUGNED ORDER IS AS U NDER: AS PER PROVISIONS OF SECTION 24(A) OF THE INCOME T AX ACT, 1961 A DEDUCTION OF 30% OF ANNUAL RENT IS ALLOWABLE. THE A SSESSING OFFICER ALLOWED DEDUCTION ON `.4,00,71,000 @ 30% INSTEAD O F ` 2,14,82,000/- I.E. THE ACTUAL RENT RECEIVED, QUOTIN G THE DECISION OF SHAMBHU INVESTMENTS LTD V CIT 263 ITR 143(SC). THIS DECISION IS NOT APPLICABLE IN THE INSTANT CASE AS THE RENT AND THE BUSINESS 2 SHREE RAM MILLS LTD CENTER INCOME WERE RECEIVED SEPARATELY BY THE ASSES SEE COMPANY. IN SUCH CASE THE PROVISIONS OF SECTION 24(A) ARE CLEAR. FURTHER, IN THE CASE OF CIT VS SARABHAI (P) LTD (2003) 219 TAXMAN 43/263 ITR 197 (GUJ) DEDUCTION IS TO BE ALLOWED IN RESPECTIVE HEAD S OF THE INCOME. THUS, THE ASSESSING OFFICER ALLOWED EXCESS & IRRE GULAR DEDUCTION OF ` 55,76,700/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER HAS TREATED BUSINESS CENTRE INCOME AS INCOME FROM H OUSE PROPERTY AND HAD ALLOWED DEDUCTION U/S 24(A) @ @ 30%. . HOWEVER, THE ASSESSING OFFICER HAD NOT DISALLOWED THE EXPENSES C LAIMED BY YOU PERTAINING TO THE BUSINESS CENTRE INCOME WHICH YOU HAD CLAIMED IN THE PROFIT & LOSS ACCOUNT. 2.1 THE CIT FURTHER ISSUED A NOTICE U/S 263 ON 1.12 .2008 WITH RESPECT TO THE EXCESS/INCORRECT AMOUNT OF BROUGHT FORWARD LOSSES A ND UNABSORBED DEPRECIATION ALLOWED BY THE ASSESSING OFFICER WHILE PASSING THE ORDER U/S 154 . THUS, THE CIT ISSUED TWO NOTICES U/S 263; THE FIRST NOTICE DATED 20.10.2008 FOR EXCESS ALLOWANCE OF DEDUCTION U/S 24(A) OF THE I T ACT AN D THE SECOND NOTICE DATED 1.12.2008 WAS FOR EXCESS ALLOWANCES OR BROUGHT FORW ARD LOSSES AND UNABSORBED DEPRECIATION. AFTER CONSIDERING THE REPLY OF THE AS SESSEE, THE CIT HELD THAT THE DEDUCTION U/S 24(A) BE ALLOWED AT 30% ON `. 214.82 LACS ONLY AND THE BALANCE AMOUNT OF RS. 185.89 LACS SHOULD BE RETAINED AS INC OME FROM BUSINESS CENTRE. ACCORDINGLY, THE CIT DIRECTED THE ASSESSING OFFICER TO MODIFY THE ASSESSMENT WITHDRAWING THE EXCESS ALLOWANCES OF DEDUCTION U/S 24(A) AMOUNTING TO `. 55,76,700/-. 2.3 AS REGARDS TO THE BROUGHT FORWARD LOSSES AND UN ABSORBED DEPRECIATION, THE ASSESSEE VIDE REPLY DATED 28.1.2009 ACCEPTED TH AT THE AMOUNTS SUBMITTED BEFORE THE ASSESSING OFFICER WERE INCORRECT AND THE AMOUNT AS PER THE AUDIT REPORT SHOULD BE ALLOWED. ACCORDINGLY, THE CIT HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE REVISED STATEMENT OF BROUGHT FORWARD LOSSES AND UNABSORBED 3 SHREE RAM MILLS LTD DEPRECIATION AND ALLOWED THE CLAIM OF UNABSORBED DE PRECIATION AS PER THE PROVISIONS OF SEC. 32(2)AS AMENDED FROM TIME TO TIM E. 2.4 ON THE ISSUE OF DISALLOWANCE OF EXPENSES, THE C IT DIRECTED THE ASSESSING OFFICER TO EXAMINE THE REPLY OF THE ASSESSEE AND D ECIDE THE ISSUE AS THE SAME WAS NOT EXAMINED BY THE ASSESSING OFFICER IN THE A SSESSMENT ORDER U/S 143(3). 3 BEFORE US, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE HONBLE CIT - 7 HAS ERRED IN INVOKING PROVIS IONS OF SECTION 263 OF THE INCOME TAX ACT, 1961 BY ISSUING THE NOTI CE IN SPITE OF THE FACT THAT SCRUTINY ASSESSMENT HAS BEEN COMPLETED BY THE ACIT RANGE 7 (2) U/S 143 (3) OF THE INCOME TAX ACT, 1961 AFTER DULY EXAMINED AND CONSIDERING FACTS WHILE FRAMING THE AS SESSMENT ORDER U/S 143 (3) OF INCOME TAX ACT, 1961. IT IS THEREFOR E SUBMITTED THAT THE ORDER PASSED U/S 263 SHOULD BE CANCELLED. 2. WITHOUT PREJUDICE TO GROUND NO. 1, THE HONBLE C IT HAS ERRED IN RAISING THE ISSUES AND MAKING ROWING ENQUIRIES IN T HE PROCEEDINGS U/S 263 OF THE INCOME TAX ACT, 1961. THE ISSUE RAIS ED WITH REGARD TO BUSINESS CENTRE INCOME TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY AS AGAINST INCOME FROM BUSINESS OFFERED BY APPELLANT WAS MERGED WITH THE ORDER OF HONBLE CIT (A) AND ACCORD INGLY, THE SAME CAN NOT BE CONSIDERED IN THE ORDER U/S 263 OF THE I NCOME TAX ACT, 1961. ACCORDINGLY, THE NECESSARY DIRECTION SHOULD B E GIVEN IN THIS REGARD. 3. WITHOUT PREJUDICE TO GROUND NO. 1, THE HONBLE C IT HAS ERRED IN RAISING THE ISSUE OF EXCESS ALLOWANCE OF DEDUCTION U/S 24 (A) OF THE INCOME TAX ACT, 1961. THE SAID ISSUE RAISED WITH RE GARD TO DEDUCTION U/S 24 (A) IN RELATION TO BUSINESS CENTRE INCOME ASSESSED AS INCOME FROM HOUSE PROPERTY WAS MERGED WITH THE O RDER OF HONBLE CIT (A) AND ACCORDINGLY, THE SAME CAN NOT B E CONSIDERED IN THE ORDER U/S 263 OF THE INCOME TAX ACT, 1961. ACCO RDINGLY, THE NECESSARY DIRECTION SHOULD BE GIVEN IN THIS REGARD. 4. WITHOUT PREJUDICE TO GROUND NO.1, THE HONBLE CI T HAS ERRED IN NOT ALLOWING SET OFF OF THE UNABSORBED DEPRECIATION AS PER THE SECTION 32 (2) OF THE INCOME TAX ACT, 1961 AND DIRE CTING THE ACIT RG - 7 (2) NOT TO ALLOW UNABSORBED DEPRECIATION OF EARLIER ASSESSMENT YEARS. IT IS SUBMITTED THAT UNABSORBED D EPRECIATION HAS BEEN ALLOID157 THE ACIT RG - 7(2) AFTER CONSIDERING THE SUBMISSION OF THE APPELLANT AND BY REVISING THE ORDER U/S 154 OF THE INCOME TAX ACT, 1961 WHICH CLEARLY INDICATES THE APPLICATION O F MIND ON THE ISSUE UNDER CONSIDERATION. THE HONBLE CIT HAS ERRE D IN CONCLUDING WITHOUT CONSIDERING THE FACT THAT THE A.O. HAS FULL Y APPLIED HIS MIND 4 SHREE RAM MILLS LTD TO ALLOW SUCH UNABSORBED DEPRECIATION BY FRAMING AN OPINION ON THE FACTS. HOWEVER, THE HONBLE CITS DIRECTIONS TO DIS ALLOW THE UNABSORBED DEPRECIATION TANTAMOUNTS TO CHANGE OF OP INION WHICH IS NOT REMISSIBLE. IT IS THEREFORE SUBMITTED THAT U NABSORBED DEPRECIATION CLAIMED BY THE APPELLANT SHOULD BE ALL OWED IN FULL. 4 GROUND NOS 1 TO 3 REGARDING DEDUCTION U/S 24(A) O N BUSINESS CENTRE INCOME. 4.1 THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT, I N THE ORIGINAL ASSESSMENT PROCEEDINGS, ON ALL THE ISSUES/QUERIES WERE RAISED BY THE ASSESSING OFFICER, WHICH THE CIT RAISED IN THE REVISED PROCEEDINGS. TH EREFORE, WHEN THE ASSESSING OFFICER HAS APPLIED HIS MIND IN THE ORIGINAL ASSESS MENT PROCEEDINGS, THE CIT CANNOT TAKE A DIFFERENT VIEW AS OF THE ASSESSING OF FICER. HE HAS FURTHER SUBMITTED THAT THE ASSESSMENT ORDER WAS SUBJECT MAT TER OF APPEAL BEFORE THE CIT(A) ON THE ISSUE OF BUSINESS CENTRE INCOME AND S ET OFF OF UNABSORBED DEPRECATION. THEREFORE, THE ASSESSMENT ORDER WAS ME RGED WITH THE APPELLATE ORDER DATED 15.10.2007 AND THE JURISDICTION OF THE COMMISSIONER IS BARRED ON THE ISSUE, WHICH ARE SUBJECT MATTER OF APPEAL BEFORE TH E CIT(A). 4.2 THE LD AR OF THE ASSESSEE HAS FURTHER SUBMITTED THAT THE ORIGINAL ORDER PASSED U/S 143(3) WAS NEITHER ERRONEOUS NOR PREJUDI CIAL TO THE INTEREST OF THE REVENUE AND AS SUCH THE REVISION U/S 263 IS NOT JUS TIFIED. HE HAS RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS GABRIEL INDIA REPORTED IN 203 ITR 108(BOM) AND SUBMITTED TH AT WHEN THE ASSESSING OFFICER HAS MADE ENQUIRIES IN REGARD TO THE BUSINES S CENTRE INCOME AND ASSESSED THE SAME AS INCOME FROM HOUSE PROPERTY INSTEAD OF B USINESS INCOME, THEN SUCH ORDER OF THE ASSESSING OFFICER CANNOT BE HELD TO B E ERRONEOUS SIMPLY BECAUSE THE CIT DID NOT AGREE WITH THE VIEW OF THE ASSESSI NG OFFICER. HE HAS ALSO RELIED UPON THE DECISION OF THE JURISDICTIONAL HIGH COUR T IN THE CASE OF GRASIM IND. LTD VS CIT REPORTED IN 321 ITR 92(BOB) AND SUBMITTED T HAT WHEN THE AO HAS TAKEN A POSSIBLE VIEW, THEN THE ASSESSMENT ORDER IS NEITHE R ERRONEOUS NOR PREJUDICIAL TO 5 SHREE RAM MILLS LTD THE INTEREST OF THE REVENUE. HE HAS FURTHER CONTEND ED THAT WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER TAKES ONE OF THE VIEWS PERMISSIBLE UNDER THE LAW, THE ORDER CANNOT BE TREATED AS ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF THE REVENUE. IN SUPPORT OF HIS CONTENTION, HE HAS R ELIED UPON THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUS TRIES CO LTD REPORTED IN 243 ITR 83 (SC). 4.3 THE ASSESSING OFFICER ASKED FOR THE DETAILS AND RECORDS WITH RESPECT TO THE BUSINESS CENTRE INCOME AND AFTER EXAMINING THE SAME HE HAS ASSESSED THE INCOME FROM BUSINESS CENTRE AS INCOME FROM HOUSE PR OPERTY AND ACCORDINGLY ALLOWED DEDUCTION U/S 24(A). ONCE THE ASSESSING OFF ICER CONSIDERED THE MATERIAL AND TAKEN A VIEW, THE CIT IS NOT PERMITTED TO TAKE A DIFFERENT VIEW. 4.4 HE HAS ALSO RELIED UPON THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS ARVIND JEWELLERS REPORTED IN 259 ITR 502(GUJ) AS WELL AS THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS ASHISH RAJPAL REPORTED IN 320 ITR 674(DEL) AND SUBMITTED THAT EVE N IF THE ASSESSMENT ORDER DOES NOT REFER TO ENQUIRIES RAISED BY THE ASSESSING OFFICER DURING THE SCRUTINY AND THE RESPONSE OF THE ASSESSEE THERETO, IT CANNO T BE SAID THAT THERE WAS NO ENQUIRY AND THE ASSESSMENT IS ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF THE REVENUE. 4.5 ON THE OTHER HAND, THE LD DR HAS RELIED UPON TH E ORDER OF THE CIT PASSED U/S 263 AND SUBMITTED THAT WHEN THE ASSESSEE HAS RE CEIVED THE RENTAL INCOME IN RESPECT TO THE PROPERTY IN QUESTION AS WELL AS FOR THE OTHER SERVICES, FURNITURE AND FIXTURES AND FACILITIES, THEN THE RENT RECEIVED ONLY IN RESPECT OF THE BUILDING IS ELIGIBLE FOR DEDUCTION U/S 24(A) AND NOT IN RESP ECT OF THE OTHER SERVICES AND FACILITIES PROVIDED. 6 SHREE RAM MILLS LTD 5 WE HAVE CONSIDERED THE RIVAL CONTENTION AND PERUS ED THE RELEVANT MATERIAL ON RECORD. THE ISSUE OF RENTAL INCOME FROM BUSINESS CENTRE HAS BEEN EXTENSIVELY EXAMINED, DISCUSSED AND THEN ADJUDICATE D BY THE ASSESSING OFFICER BY TREATING THE SAME AS INCOME FROM HOUSE PROPERTY AS AGAINST BUSINESS INCOME CLAIMED BY THE ASSESSEE. ONCE THE ISSUE HAS BEEN D ECIDED BY THE ASSESSING OFFICER BY TAKING A VIEW THAT THE SAID INCOME IS AS SESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND SUBSEQUENTLY ALLOW ED THE DEDUCTION U/S 24(A) ON THE ENTIRE SUMS SO TREATED AS INCOME FROM HOUSE PROPERTY, THEN THE CIT WHILE EXERCISING HIS JURISDICTION U/S 263 CANNOT TAKE A D IFFERENT VIEW TO ASSESS THE PART OF THE SAID INCOME OTHER THAN THE INCOME FROM HOUSE PROPERTY. THE ASSESSING OFFICER DULY APPLIED HIS MIND AND TOOK A POSSIBLE V IEW, THEN THE CIT IS PRECLUDED FROM TAKING A DIFFERENT VIEW WHILE ASSUMING HIS JUR ISDICTION U/S 263 AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MALABAR IN DUSTRIES (SUPRA). 5.1 IT IS EVIDENT FROM THE ASSESSMENT ORDER THAT TH E ASSESSING OFFICER ASSESSED THE BUSINESS CENTRE INCOME AS INCOME FROM HOUSE PROPERTY BY FOLLOWING THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF SHAMBU INVESTMENT REPORTED IN 263 ITR 143. IN VIEW OF THE MATTER, IT IS A CLEAR CASE WHERE THERE IS A POSSIBILITY OF TWO VIEWS AND THE A SSESSING OFFICER HAS TAKEN A PARTICULAR VIEW, THEN THE CIT WHO DOES NOT AGREE WI TH THE VIEW TAKEN BY THE ASSESSING OFFICER DOES NOT RENDER THE ASSESSMENT OR DER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5.2 MOREOVER, UNDISPUTEDLY THE ISSUE WAS RAISED BY THE ASSESSEE BEFORE THE CIT(A) AGAINST THE ASSESSMENT ORDER PASSED U/S 143 (3). THEREFORE, THE SAID ISSUE WAS VERY MUCH BEFORE THE CIT(A) AND MERGED WITH THE ORDER OF THE CIT(A). AS PER CLAUSE (C) OF EXPLANATION II TO SUBSEC.1 OF SEC . 263, THE JURISDICTION AND POWER OF THE COMMISSIONER SHALL EXTENT TO THE MATTERS AS IT HAS NOT BEEN CONSIDERED 7 SHREE RAM MILLS LTD AND DECIDED IN THE APPEAL AGAINST THE ASSESSMENT OR DER. ACCORDINGLY, THE ISSUES, WHICH ARE SUBJECT MATTER OF THE APPEAL BEFORE THE C IT(A) ARE NOT OPEN TO THE CIT U/S 263. 5.3 EVEN OTHERWISE, THE DISALLOWANCE OF DEDUCTION U /S 24(A) BY THE CIT WHILE PASSING THE IMPUGNED ORDER U/S 263 IS BASED ON SEPA RATION OF INCOME ASSESSED BY THE ASSESSING OFFICER UNDER THE HEAD INCOME FRO M HOUSE PROPERTY INTO TWO PARTS WITHOUT DISCUSSING AND GIVING ANY DETAIL, HO W THE INCOME HAS BEEN SEPARATED AND DEDUCTION U/S 24(A) IS NOT ALLOWABLE IN ONE PART OF THE SAID INCOME. THEREFORE, THE JURISDICTION INVOKED BY THE CIT U/S 263 ON THE ISSUE OF DISALLOWANCE OF DEDUCTION U/S 24(A) IS NOT JUSTIFIE D AND VALID AND LIABLE TO BE SET ASIDE. 6 GROUND NO.4 IS REGARDING SETTING OFF OF UNABSORBE D DEPRECIATION. 7.1 THIS CLAIM OF THE ASSESSEE WAS ALLOWED BY THE A SSESSING OFFICER WHILE PASSING THE ORDER U/S 154 OF THE I T ACT. THE CIT, IN THE SHOW CAUSE NOTICE ISSUED U/S 263 DT 1.12.2008 HAS GIVEN THE DETAILS OF DISCR EPANCIES OF THE AMOUNT CLAIMED BY THE ASSESSEE DURING THE ASSESSMENT YEAR AND AS PER DEDUCTIONS UNDER: SL NO SL NO SL NO SL NO AS PER TAX AU AS PER TAX AU AS PER TAX AU AS PER TAX AUDIT REPORT DIT REPORT DIT REPORT DIT REPORT AS SUBMITTED BEFORE THE AS SUBMITTED BEFORE THE AS SUBMITTED BEFORE THE AS SUBMITTED BEFORE THE ASSESSING OFFICER DURING ASSESSING OFFICER DURING ASSESSING OFFICER DURING ASSESSING OFFICER DURING ASSESSMENT. ASSESSMENT. ASSESSMENT. ASSESSMENT. 1 UNABSORBED DEPRECIATION 5,79,45,132 8,58,64,773 2 BUSINESS LOSS 70,67,98,358 1,57, 98,99,241 3 INVESTMENT ALLOWANCE 48,26,738 48,26,738 7.2 DURING THE REVISION PROCEEDINGS, THE ASSESSEE A CCEPTED THE WRONG AMOUNT CLAIMED BEFORE THE ASSESSING OFFICER AND THE CORREC T FIGURE IS WHAT IS GIVEN IN THE TAX AUDIT REPORT. THEREFORE, SO FAR AS THE INCORREC T CLAIM IS CONCERNED, THE ASSESSEE HAS NOT RAISED ANY GRIEVANCE AGAINST THE R EVISION ORDER. THE ASSESSEE 8 SHREE RAM MILLS LTD HAS AGGRIEVED WITH THE FINDINGS OF THE COMMISSIONER ON THE POINT THAT THE PROVISIONS OF SEC. 32(2), AS EXISTS AT THE RELEVANT POINT OF TIME, IS APPLIED FOR NUMBER OF YEARS UNABSORBED DEPRECATION CAN BE SET OFF. 7.3 THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT TH E UNABSORBED DEPRECIATION HAS BEEN ALLOWED BY THE ASSESSING OFFICER AFTER C ONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY REVISING THE ORDER U/S 154 OF T HE I T ACT, WHICH CLEARLY INDICATES THE APPLICATION OF MIND ON THE ISSUE UNDE R CONSIDERATION. THEREFORE, THE CIT HAS COMMITTED AN ERROR IN CONCLUDING THAT THE A SSESSING OFFICER HAS WRONGLY ALLOWED THE CLAIM. THE ISSUE IS DEBATABLE ONE AND T HEREFORE, WHEN THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEW, THEN TH E CIT CANNOT TAKE A DIFFERENT VIEW. HE HAS RELIED UPON THE DECISION OF THE SPECIA L BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS TIMES GUARANTY LTD (2010)4 ITR (TR IB) (SB) 210 (SB). 7.4 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THERE WAS NO ENQUIRY ON THE ISSUE BY THE ASSESSING OFFICER. THE ASSESSING O FFICER HAS NOT APPLIED HIS MIND AND THE ISSUE WAS NOT BEFORE THE CIT(A). THEREFORE , THERE IS NO MERGER OF THE SAID ISSUE WITH THE ORDER OF THE CIT(A). HE HAS REL IED UPON THE FOLLOWING DECISIONS: I)GEE VEE ENTERPRISES V. ACIT ( 99 ITR 375 (DEL)) II)ACITV. MUKUR CORPORATION (111 ITR 312 (GUJ)) III)CIT V. EMERY STONE MFG. CO. (213 ITR 43 (RAJ)) IV)DUGGAL AND CO. V. CIT (220 ITR 456 (DEL) ) V)CIT V. KOHINOOR TOBACCO PRODUCTS P. LTD.(234 ITR 557 (MP) 8 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. AS FAR AS THE FACTUAL ERROR IN THE ORDER PA SSED U/S 154 IS CONCERNED, THERE IS NO DISPUTE AND THE ASSESSEE HAS ACCEPTED THE SAM E AND FILED THE REVISED STATEMENT OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION. THUS, THE ORDER PASSED U/S 154 IS ERRONEOUS AND PREJUDICIAL T O THE INTEREST OF THE REVENUE 9 SHREE RAM MILLS LTD ON THIS ADMITTED POINT OF FACTUAL ERROR ITSELF. IT IS ALSO MANIFEST FROM THE ORDER U/S 154 THAT THE ASSESSING OFFICER NEITHER MADE ANY EN QUIRY NOR APPLIED HIS MIND WHILE ALLOWING THE CLAIM OF THE ASSESSEE ON BROUGH T FORWARD LOSSES AND UNABSORBED DEPRECIATION AT THE TIME OF PASSING THE SAID ORDER U/S 154. ONCE THE ORDER IS FOUND ERRONEOUS AND PREJUDICIAL TO THE INT EREST OF THE REVENUE THEN THE CIT IS JUSTIFIED IN DECIDING THE ISSUES ON THE BASI S OF CORRECT LEGAL PROPOSITION AND APPLICATION OF PROVISIONS OF LAW. 8.1 FROM THE ORDER PASSED U/S 154 THERE IS NO INDIC ATION THAT THE ASSESSING OFFICER HAS DELIBERATED THE ISSUE OR MADE ANY ENQUI RY EVEN TO VERIFY THE CORRECTNESS OF THE AMOUNT CLAIMED BY THE ASSESSEE. WHEN THE ASSESSING OFFICER PASSED AN ORDER WITHOUT APPLICATION OF MIND, THE SA ME IS ERRONEOUS AND THE EXERCISE OF JURISDICTION BY THE CIT U/S 263 IS JUST IFIED. 8.2 IT IS SETTLED PROPOSITION OF LAW THAT WHEN AN O RDER IS PASSED WITHOUT APPLICATION OF MIND, THEN THE SAME IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AS HELD BY THE VARIOUS JUDICIAL PRONOUN CEMENTS RELIED UPON BY THE LD DR. THE CIT, IN THE IMPUGNED ORDER HAS DISCUSSED TH E ISSUE IN PARA 6 AS UNDER: 6. I HAVE CONSIDERED THE AFORESAID REPLY OF THE AS SESSEE. IF THE REASONING GIVEN BY THE IS ACCEPTED THAT THE UNABSOR BED DEPRECIATION OF EARLIER YEARS IS TO BE CONSIDERED A S PART OF THE CURRENT DEPRECIATION AND UNABSORBED DEPRECIATION IS TO BE CARRIED FORWARD TO SUBSEQUENT YEARS ACCORDINGLY, THIS WILL MAKE THE PROVISIONS OF SECTION 32(2) AS AMENDED BY THE FINAN CE ACT, 1996 AS REDUNDANT. THE REASONING OF THE ASSESSEE CAN BE VAL ID ONLY WHEN UNABSORBED DEPRECIATION COULD HAVE BEEN ALLOWED TO BE CARRIED FORWARD FOR AN UNLIMITED PERIOD. ONCE A TIME LIMIT WAS FIXED, THE UNABSORBED DEPRECIATION ALSO NEEDED TO BE ALLOWED T O BE SET OFF ON THE SAME FOOTINGS AS THE BUSINESS LOSS. IN VIEW OF THIS, THE CONTENTION OF THE A.R IS REJECTED. WHILE ALLOWING S ET OFF OF UNABSORBED DEPRECIATION, THE A.O. WILL WORKOUT THE CORRECT AMOUNT OF BROUGHT FORWARD DEPRECIATION ADMISSIBLE FOR SET OFF FOR AND FROM A.Y.1997-98 ONWARDS AS PER THE AMENDED PROVISIONS O F LAW. IN SHORT, FOR BEING SET OFF AGAINST INCOME FOR A.Y.199 7-98, THE ASSESSEE COULD HAVE CARRIED FORWARD UNABSORBED DEPRECIATION ONLY FOR A.Y.1989-90 AND ONWARDS (UPTO A.Y.1996-97). FOR SET OFF AGAINST INCOME FOR A.Y.2001-02, THE ASSESSEE COULD CARRY FO RWARD UNABSORBED DEPRECIATION FOR A.Y.1993-94 AND ONWARDS (UPTO 10 SHREE RAM MILLS LTD A.Y.2000-O1). ANY UNABSORBED DEPRECIATION PRIOR TO THESE PERIODS WILL HAVE TO BE TREATED AS LAPSED FOR AND FROM A. Y . 2002-03 ONWARDS. ONLY THE UNABSORBED DEPRECIATION OF THE PR OSPECTIVE PERIOD CAN BE ALLOWED TO BE CARRIED FORWARD FOR AN UNLIMITED PERIOD. THE A.O. WILL TAKE INTO CONSIDERATION THIS DIRECTIO N WHILE WORKING OUT THE CORRECT AMOUNT OF UNABSORBED DEPRECIATION AND U NABSORBED BUSINESS LOSS TO BE ALLOWED TO BE CARRIED FORWARD A ND SET OFF WHILE GIVING EFFECT TO THE ORDER FOR THE A.Y.2004-05 (AS DIRECTED IN S.NO.3(I) ABOVE). 8.3 THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE T IMES GUARANTY LTD (SUPRA) HAS BROUGHT OUT THE LEGAL POSITION ON UNABSORBED D EPRECATION OF ALLOWANCE FOR THE DIFFERENT PERIOD DURING WHICH THE PROVISIONS OF SEC 32 WERE AMENDED IN PARA 38 AS UNDER: 38. THE LEGAL POSITION OF CURRENT AND BROUGHT FORW ARD UNADJUSTED/UNABSORBED DEPRECIATION ALLOWANCE IN THE THREE PERIODS IS SUMMARISED AS UNDER: (I) CURRENT DEPRECIATION, THAT IS THE AMOUNT OF ALL OWANCE FOR THE YEAR UNDER SECTION 32(1), CAN BE SET OFF AGAINS T INCOME UNDER ANY HEAD WITHIN THE SAME YEAR. (II) AMOUNT OF SUCH CURRENT DEPRECIATION WHICH CANN OT BE SO SET OFF WITHIN THE SAME YEAR AS PER (I) ABOVE SHALL BE DEEMED AS DEPRECIATION UNDER SECTION 32(1), THAT IS DEPREC IATION FOR THE CURRENT YEAR IN THE FOLLOWING YEAR(S) TO BE SET OFF AGAINST INCOME UNDER ANY HEAD, LIKE CURRENT DEPRECIATION. (B) IN THE SECOND PERIOD (I.E., ASSESSMENT YEARS 1 997-98 TO 2001-02) (I) BROUGHT FORWARD UNADJUSTED DEPRECIATION ALLOWAN CE FOR AND UP TO THE ASSESSMENT YEAR 1996-97 (HEREINAFTER CALLED THE FIRST UNADJUSTED D DEPRECIATION ALLOWANCE), W HICH COULD NOT BE SET OFF UPTO THE ASSESSMENT 1 YEAR 1996-97, SHALL BE CARRIED FORWARD FOR SET OFF AGAINST INCOME UNDER AN Y HEAD FOR A MAXIMUM PERIOD OF EIGHT ASSESSMENT YEARS STARTING FROM THE S S S S ASSESSMENT YEAR 1997-98. (II) CURRENT DEPRECIATION FOR THE YEAR UNDER SECTI ON 32(1) (FOR EACH YEAR SEPARATELY STARTING FROM THE ASSESSMENT Y EARS 1997-98 UP TO 2001-02) E CAN BE SET OFF FIRSTLY AGA INST BUSINESS INCOME AND THEN AGAINST INCOMES UNDER ANY OTHER HEAD. 11 SHREE RAM MILLS LTD (III) AMOUNT OF CURRENT DEPRECIATION FOR THE ASSESS MENT YEARS 1997-98 TO 2001-02 WHICH CANNOT BE SO SET OFF AS PE R (II) ABOVE, HEREINAFTER CALLED THE SECOND UNABSORBED DEPRECIATION ALLOWANCE SHALL BE CARRIED FORWARD FO R A MAXIMUM PERIOD OF EIGHT ASSESSMENT YEARS FROM THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE ASSESSME NT YEAR FOR WHICH IT WAS FIRST COMPUTED, TO BE SET OFF ONLY AGAINST THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION. (C) IN THE THIRD PERIOD (I.E., ASSESSMENT YEAR 200 2-03 ONWARDS) (I) FIRST UNADJUSTED DEPRECIATION ALLOWANCE CAN B E SET OFF UPTO THE ASSESSMENT YEAR 2004-05, THAT IS, THE REMA INING PERIOD OUT OF MAXIMUM PERIOD OF EIGHT ASSESSMENT YE ARS (AS PER (BI) ABOVE) AGAINST INCOME UNDER ANY HEAD. (II) SECOND UNABSORBED DEPRECIATION ALLOWANCE CAN BE SET OFF ONLY AGAINST THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION WITHIN A PERIOD OF EIGHT ASSESSMENT YEARS SUCCEEDING THE ASSESSMENT YEAR FOR WHICH IT W AS FIRST COMPUTED. (III) CURRENT DEPRECIATION FOR THE YEAR UNDER SECTI ON 32(1), FOR EACH YEAR SEPARATELY, STARTING FROM THE ASSESSMENT YEAR 2002-03 CAN BE SET OFF AGAINST INCOME UNDER ANY HEA D. AMOUNT OF DEPRECIATION ALLOWANCE NOT SO SET OFF (HE REINAFTER CALLED THE THIRD UNADJUSTED DEPRECIATION ALLOWANCE ) SHALL BE CARRIED FORWARD TO THE FOLLOWING YEAR. IV) THE THIRD UNADJUSTED DEPRECIATION ALLOWANCE S HALL BE DEEMED AS DEPRECIATION U/S 32(1), THAT IS DEPRECIAT ION FOR THE CURRENT YEAR IN THE FOLLOWING YEAR)S_ TO BE SET OFF AGAINST INCOME UNDER ANY HEAD, LIKE CURRENT DEPRECIATION, I N PERPETUITY. 8.4 ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE DEDUCTION OF UNABSORBED DEPRECIATION IN THE LIGHT OF THE DECISIO N OF THE SPECIAL BENCH (SUPRA). 12 SHREE RAM MILLS LTD 9 IN CONCLUSION, THE REVISION ORDER ON THE ISSUE OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION IS VALID AND JURISDICTI ON EXERCISED BY THE COMMISSIONER IS PROPER AND JUSTIFIED. 10 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 28 TH ,DAY OF DEC 2011. SD/ SD/- ( (( ( R K R K R K R K PANDA PANDA PANDA PANDA ) )) ) ACCOUNTANT MEMBER ( (( ( VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO ) )) ) JUDICIAL MEMBER PLACE: MUMBAI : DATED:28 TH , DEC 2011 RAJ* RAJ* RAJ* RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI