ITO WD 7(2)(3), MUMBAI V. MORARJEE TEXTILES LTD, MUMBAI

ITA 3010/MUM/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0178 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 03-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 26-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JANARDHANAN
• Assessee Lawyers: RAUNAK DOSHI
• Keywords: Business income; Depreciation; Assessment record; Unabsorbed depreciation
• Section: 32

Judgement Text

, SMC , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.3010/MUM/2017 : ASST.YEAR 2012-2013 THE INCOME TAX OFFICER WARD 7(2)(3) MUMBAI. / VS. M/S.MORARJEE TEXTILES LIMITED PENINSULA SPENTA, MATHURADAS MILLS SENAPATI BAPAT MARG, LOWER PAREL MUMBAI 400 013. PAN : AAACM2725R. ( / APPELLANT) ( / RESPONDENT) /APPELLANT BY : SHRI V.JANARDHANAN /RESPONDENT BY : SHRI RAUNAK DOSHI / DATE OF HEARING : 07.07.2017 / DATE OF PRONOUNCEMENT : 04.09.2017 / O R D E R THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) DATED 08.02.2017 AND PERTAINS TO ASSESSMENT YEAR 2012-2013. 2. THE GROUNDS OF APPEAL READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO CARRY FORWARD AND SET OFF OF THE UNABSORBED DEPRECIATION U/S 32(1) PERTAINING TO AY 1998-99 TO 2001-02 WITHOUT PROPERLY APPRECIATING THE FACTUAL AND LEGAL MATRIX AS CLEARLY BROUGHT OUT BY THE AO. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE CARRY FORWARD OF THE UNABSORBED DEPRECIATION PERTAINING TO AY 1998-99 TO 2001-02 FOR SET OFF IN THE CURRENT PREVIOUS YEAR ITA NO.3010/MUM/2017. M/S.MORARJEE TEXTILES LIMITED. 2 WHEREAS CARRY FORWARD PERIOD OF 8 YEARS HAD ALREADY LAPSED FOR THE UNABSORBED DEPRECIATION. 3. THE APPELLANT CRAVES LEAVE TO ADD/AMEND/DELETE AND/OR MODIFY THE ABOVE GROUNDS OF APPEAL ON OR BEFORE THE FINAL HEARING. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER:- 3.1 THE ASSESSEE IS A MANUFACTURER HIGH-END COTTON SHIRTING LENGTHS. WHILE IT HAD DECLARED BUSINESS INCOME OF RS.10.84 CRORES FOR AY 2012-13, IT HAD ASKED FOR SET-OFF AGAINST BROUGHT FORWARD BUSINESS LOSSES AND HAD ACCORDINGLY DECLARED 'NIL' BUSINESS INCOME IN HIS RETURN. THE AO NOTED THAT THE ASSESSMENT ORDER FOR THE PRECEDING ASSESSMENT YEAR VIZ. AY 2011-12 HAD DISALLOWED THE CLAIM OF CARRY FORWARD OF DEPRECIATION OF AYS 1998-99 TO 2001-02 AND HAD NOT ALLOWED ANY SET-OFF ON THAT COUNT IN THE SUBSEQUENT ASSESSMENT YEARS IN VIEW OF THE PROVISIONS SECTION 32 OF INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE 'ACT'). HE ALSO NOTED THAT IN THE RETURN OF INCOME OF THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SPECIFICALLY CLAIMED BROUGHT FORWARD LOSSES ON ACCOUNT OF UNABSORBED DEPRECIATION WHICH RELATED TO AYS 1998-99 TO 2001-02 WHICH WERE NOT ALLOWABLE TO BE CARRIED FORWARD BEYOND A PERIOD OF EIGHT YEARS IN VIEW OF THE AMENDMENT MADE TO SECTION 32(2) OF THE ACT AND INSERTED WITH EFFECT FROM 1 ST APRIL 2002. HOLDING THAT THE SAID PROVISION HAD NOT BEEN INSERTED RETROSPECTIVELY, THE CLAIM OF SET-OFF OF BROUGHT FORWARD DEPRECIATION OF AYS 1998-9!9 TO 2001-02 WAS ACCORDINGLY NOT ALLOWED. 4. UPON ASSESSEES APPEAL, LEARNED CIT(A) CONSIDERED THE ISSUE AND HELD THAT IDENTICAL ISSUE HAS BEEN DECIDED BY THE HONBLE GUJARAT HIGH COURT IN FAVOUR OF THE ASSESSEE IN THE CASE OF GENERAL MOTORS LIMITED V. DCIT (25 TAXMAN 364). THE RELEVANT PORTION OF LEARNED CIT(A)S ORDER READS AS UNDER:- ITA NO.3010/MUM/2017. M/S.MORARJEE TEXTILES LIMITED. 3 I HAVE CONSIDERED THE AO'S ORDER AS WELL AS THE AR'S SUBMISSIONS. THE PROVISIONS OF SECTION 32 OF THE ACT HAVE BEEN AMENDED TWICE - WITH EFFECT FROM 1ST APRIL 1997 AND LATER WITH EFFECT FROM 1ST APRIL 2002. THERE ARE HENCE THREE SEPARATE PERIODS WHEREIN DIFFERENT PROVISIONS ARE SEEN TO BE IN PLAY - ONE TILL 31ST MARCH 1997, THE SECOND FROM 1ST APRIL 1997 TO 31ST MARCH 2002 AND THE THIRD FROM 1ST APRIL 2002 ONWARDS. WHILE NO LIMIT HAS BEEN PRESCRIBED ON THE NUMBER OF YEARS WHEN THE UNABSORBED DEPRECIATION COULD BE CARRIED FORWARD INSOFAR AS THE FIRST AND THE THIRD PERIODS ARE CONCERNED, THE SECOND PERIOD VIZ. FROM 1ST APRIL 1997 TO 31ST MARCH 2002 HAD PLACED A LIMIT OF EIGHT YEARS FOR THE PERIOD DURING WHICH THE UNABSORBED DEPRECIATION COULD BE CARRIED FORWARD. ONCE THE LAW WAS FINALLY CHANGED WITH EFFECT FROM 1ST APRIL 2002, THERE STARTED ARISING SITUATIONS WHEREIN THE DEPRECIATION RELATING TO THE SECOND PERIOD (WHEREIN THERE EXISTED A LIMITATION OF EIGHT YEARS) STARTED TO COME UP FOR SET-OFF BEYOND THE PERIOD OF EIGHT YEARS. IN THIS CONTEXT, THE HON'BLE HIGH COURT OF GUJARAT HAD HELD THIS MATTER IN FAVOUR OF THE ASSESSEE WHILE RENDERING ITS DECISION IN THE CASE OF GENERAL MOTORS INDIA LTD V. DCIT (25 TAXMAN 364). THE RELEVANT PORTION OF THE SAID -DECISION IS AS FOLLOWS. 'THEREFORE, IT CAN BE SAID THAT CURRENT DEPRECIATION 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 SUCH EXCESS COMES UP FOR ABSORPTION FROM THE PROFITS AND GAINS FROM ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE. IF ANY BALANCE IS LEFT EVEN THEREAFTER, THAT BECOMES DEDUCTIBLE FROM THE INCOME FROM ANY SOURCE UNDER ANY OF THE OTHER HEADS OF INCOME DURING THAT YEAR. IN CASE THERE IS STILL ANY 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 AND 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 YEAR. WE ARE OF THE CONSIDERED OPINION THAT ANY UNABSORBED DEPRECIATION ITA NO.3010/MUM/2017. M/S.MORARJEE TEXTILES LIMITED. 4 AVAILABLE TO AN ASSESSEE ON 1ST 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 CIRCULAR NO. 14 OF 2001 CLARIFIED THAT THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET-OFF OF UNABSORBED DEPRECIATION HAD BEEN DISPENSED WITH, THE UNABSORBED DEPRECIATION FROM AY 1997-98 UP TO 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 SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 AND WAS AVAILABLE FOR CARRY FORWARD AND SET-OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS WITHOUT ANY LIMIT WHATSOEVER.' (EMPHASIS ADDED) FROM A PLAIN READING OF THE ABOVE EXTRACT, IT WOULD BECOME CLEAR THAT THE UNABSORBED DEPRECIATION AS ON 1ST APRIL 2002 WOULD BE DEALT WITH AS PER THE LAST AMENDMENT TO SECTION 32(2) OF THE ACT WHICH CAME INTO EFFECT FROM 1ST APRIL 2002 AND THERE WOULD BE AS SUCH NO LIMITATION OF EIGHT YEARS APPLICABLE THERETO, EVEN IF PART OF IT BELONGED TO AYS 1998-99 TO 2001-02 WHEN THE SAID LIMIT OF EIGHT YEARS WAS IN OPERATION. THIS IS EXACTLY THE CASE OF THE AR. THE AFORE-EXTRACTED DECISION HAS ALSO BEEN FOLLOWED BY THE HON'BLE HIGH COURT OF GUJARAT LATER IN ANOTHER DECISION IN THE CASE OF CIT V. GUJARAT THEMIS BIOSYN LTD. (228 TAXMAN 359), THE CHENNAI BENCH OF THE HON'BLE TRIBUNAL IN THE CASE OF KMC SPECIALTY HOSPITALS INDIA LTD. V. ACIT (66 SOT 19) AND BY THE JURISDICTIONAL BENCH OF THE HON'BLE TRIBUNAL IN THE CASE OF DCIT V. BAJAJ HINDUSTAN LTD. (SUPRA) RELIED ON BY THE AR. RESPECTFULLY FOLLOWING THE AFORECITED DECISIONS OF THE AFORECITED SUPERIOR JUDICIAL AUTHORITIES THE AO IS DIRECTED TO GRANT THE SET-OFF AND CARRY FORWARD OF UNABSORBED DEPRECIATION RELATING TO AYS 1998-98, 1999-2000, 2000-01 AND 2001-02 BEYOND EIGHT YEARS. BEFORE ME, THE AR HAS SUBMITTED THAT THE TOTAL CLAIM ON THIS COUNT (PERTAINING TO AYS 1998-99 TO 2001- 02) AMOUNTED TO RS.53.27 CRORES. THE AO IS DIRECTED TO GRANT IT, SUBJECT TO VERIFICATION OF THE ACTUAL FIGURES OF SUCH UNABSORBED DEPRECIATION FROM THE ASSESSMENT RECORDS. ITA NO.3010/MUM/2017. M/S.MORARJEE TEXTILES LIMITED. 5 5. AGAINST THE ABOVE ORDER, REVENUE IS IN APPEAL BEFORE THE ITAT. 6. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE REVENUE BY THE SPECIAL BENCH OF THE ITAT IN THE CASE OF DCIT V. M/S.TIMES GUARANTY LIMITED (ITA NO.4917 & 4918/ MUM/2008) VIDE ORDER DATED 30.06.2010. 7. PER CONTRA, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT SAME ISSUE HAS BEEN DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT IN FAVOUR OF THE ASSESSEE. HENCE, HE PLEADED THAT THE ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. 8. UPON CAREFUL CONSIDERATION, I FIND THAT PROVISIONS OF SECTION 32(2) SUBSTITUTED BY FINANCE ACT, 2001 WITH EFFECT FROM 01.04.2002 READS AS UNDER:- (2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FULL EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB-SECTION (1) IN ANY PREVIOUS YEAR, OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE, THEN, SUBJECT TO THE PROVISIONS OF SUB- SECTION (2) OF SECTION 72 AND SUB-SECTION (3) OF SECTION 73, THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR THAT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS. ITA NO.3010/MUM/2017. M/S.MORARJEE TEXTILES LIMITED. 6 9. FROM THE ABOVE, IT IS CLEAR THAT AS PER THIS AMENDMENT THERE IS NO LIMIT FOR CARRY FORWARD AND ADJUSTMENT OF UNABSORBED DEPRECIATION. PRIOR TO THIS THE ACT HAS POSTULATED A LIMIT OF EIGHT YEARS FOR CARRY FORWARD AND ADJUSTMENT OF UNABSORBED PRECISION 10. THAT THE SHORT QUESTION IN THIS CASE IS WHETHER UNABSORBED DEPRECIATION AS ON 1 ST APRIL 2002 WOULD BE DEALT WITH AS PER THE LAST AMENDMENT TO SECTION 32(2) OF THE ACT WHICH CAME INTO EFFECT FROM 1 ST APRIL 2002 AND THERE WOULD BE AS SUCH NO LIMITATION OF EIGHT YEARS APPLICABLE THERETO, EVEN IF PART OF IT BELONGED TO AYS 1998-99 TO 2001-02 WHEN THE SAID LIMIT OF EIGHT YEARS WAS IN OPERATION. 11. THE SPECIAL BENCH OF THE INCOME-TAX APPELLATE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE REVENUE. HOWEVER, HONBLE JURISDICTIONAL HIGH COURT HAD DECIDED THE SAME ISSUE IN FAVOUR OF THE ASSESSEE. 12. I FIND THAT THE SPECIAL BENCH IN THE CASE OF M/S.TIMES GUARANTY LIMITED (SUPRA) WAS EXAMINING THE FOLLOWING QUESTION. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE UNABSORBED DEPRECIATION RELATING TO A.Y. 1997-1998 TO 1999- 2000 IS TO BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(2) AS APPLICABLE FOR A.Y. 1997-1998 TO 1999-2000 AS CLAIMED BY THE REVENUE OR THE SAME HAS TO BE DEALT WITH IN ACCORDANCE WITH THE SAID PROVISIONS AS APPLICABLE TO A.Y. 2003- 2004 AND 2004-2005 AS CLAIMED BY THE ASSESSEE? 13. THE SPECIAL BENCH HAD HELD AS UNDER:- THE QUESTION POSED BEFORE THIS SPECIAL BENCH IS, THEREFORE, ANSWERED IN FAVOUR OF THE REVENUE BY HOLDING THAT THE UNABSORBED DEPRECIATION RELATING TO ASSESSMENT YEAR 1997-98 TO ITA NO.3010/MUM/2017. M/S.MORARJEE TEXTILES LIMITED. 7 1999-2000 IS TO BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(2) AS APPLICABLE FOR ASSESSMENT YEAR 1997-98 TO 1999-2000. 14. I FURTHER NOTE THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. HINDUSTAN LEVER LIMITED 72 TAXMANN.COM 325 HAD EXPOUNDED AS UNDER:- THE GRIEVANCE OF THE APPELLANT IS THAT IN VIEW OF THE FETTER (OF EIGHT YEARS) IN CARRYING FORWARD DEPRECIATION FOR ASSESSMENT YEAR 1997-98 UPTO ASSESSMENT YEAR 2002-03, THE SET OFF OF THE SAME CANNOT BE ALLOWED IN THIS ASSESSMENT YEAR. WE FIND THAT THE IMPUGNED ORDER OF THE TRIBUNAL WHILE ALLOWING THE ASSESSEE - RESPONDENTS' CLAIM FOLLOWS THE DECISION OF THE GUJARAT HIGH COURT IN GENERAL MOTORS INDIA (P.) LID. V. DYCIT [2013] 354 ITR 244(2012) 210 TAXMAN 20/25 TAXMANN.COM 364 WHEREIN ON IDENTICAL FACTS IT WAS HELD THAT THE UNABSORBED DEPRECIATION FOR THE ASSESSMENT YEAR 1997-98 UPTO ASSESSMENT YEAR 2001-02 COULD BE ALLOWED TO BE SET OFF, IF IT WAS STILL UNABSORBED ON 1ST APRIL, 2001. THE ABOVE DECISION ALSO PLACED UPON THE CBDT CIRCULAR NO. 14 OF 2001 DATED 22ND NOVEMBER, 2001 TO HOLD THAT ANY UNABSORBED DEPRECIATION WHICH IS AVAILABLE ON 1ST DAY OF APRIL, 2001 WOULD BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(2) OF THE ACT AS AMENDED BY THE FINANCE ACT OF 2001. MOREOVER, THE CIRCULAR NO. 14 OF 2001 ISSUED BY THE CBDT CLARIFIES THAT RESTRICTION OF EIGHT YEARS TO CARRY FORWARD AND SET OFF THE UNABSORBED DEPRECIATION HAS BEEN DISPENSED WITH. CONSEQUENTLY, UNABSORBED DEPRECIATION FOR THE INTERVENING PERIODS BETWEEN ASSESSMENT 1997-98 UPTO 2001-02, IF AVAILABLE IN THE ASSESSMENT YEAR 2002-03 WOULD BE ALLOWABLE AS PART OF CARRIED FORWARD DEPRECIATION FROM ASSESSMENT YEAR 2002-03 ONWARDS, NO DECISION CONTRARY TO THE DECISION OF THE GUJARAT HIGH COURT HAS BEEN SHOWN TO US. IT IS CLARIFIED THAT ALTHOUGH THE DECISION OF THE GUJARAT HIGH COURT WAS RENDERED IN CONTEXT OF REOPENING NOTICE IT HAS ALSO EXAMINED THE ISSUE ON MERITS AND DREW SUPPORT FROM THE CBDT CIRCULAR WHICH IS BENEFICIAL TO THE ASSESSES TO CONCLUDE AS AFORESAID. NOTHING HAS BEEN SHOWN TO ITA NO.3010/MUM/2017. M/S.MORARJEE TEXTILES LIMITED. 8 US TO INDICATE WHY THE DECISION OF THE GUJARAT HIGH COURT IN GENERAL MOTORS (INDIA) LTD. SHOULD NOT BE FOLLOWED IN THE PRESENT FACTS. 15. FROM THE ABOVE, I FIND THAT HONBLE JURISDICTIONAL HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. IT IS NOTED THAT IN TERMS OF JUDICIAL HIERARCHY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT TAKES PRECEDENCE OVER ANY BENCH OF THE TRIBUNAL INCLUDING THE SPECIAL BENCH. HENCE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, I UPHOLD THE ORDER OF LEARNED CIT(A). 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED ON THIS 04 TH DAY OF SEPTEMBER, 2017. SD/- ( SHAMIM YAHYA ) ACCOUNTANT MEMBER MUMBAI; DATED : 04 TH SEPTEMBER, 2017. DEVDAS* / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A), MUMBAI 5. , , / DR, ITAT, MUMBAI 6. [ / GUARD FILE.