ACIT Circle 1, Salem V. Dhandapani Spinning Mills Ltd., Salem

ITA 3170/CHNY/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5026 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 26-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NETHRA PAL
• Assessee Lawyers: R LAKSHMI RATAN
• Keywords: Depreciation; Opportunity of being heard; Unabsorbed depreciation; Capital expenditure; Set aside
• Section: 41(2)

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.3170/CHNY/2017 / ASSESSMENT YEAR: 2012-13 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE I, SALEM. VS. M/S. DHANDAPANI SPINNING MILLS LTD., NO. 17-F, RAJAJI ROAD, SALEM 636 007. [PAN: AAACD7676C] ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI M.S. NETHRA PAL, JCIT / RESPONDENT BY : SHRI R. LAKSHMI RATAN, ADVOCATE / DATE OF HEARING : 14.05.2019 /DATE OF PRONOUNCEMENT : 21.05.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), SALEM DATED 29.09.2017 RELEVANT TO THE ASSESSMENT YEAR 2012-13. THE SOLITARY GROUNDS RAISED BY THE REVENUE ARE THAT (I) THE LD. CIT(A) HAS ERRED DIRECTING TO ALLOW CARRY FORWARD UNABSORBED DEPRECIATION AND (II) THE LD. CIT(A) HAS ERRED IN ADMITTING FRESH CLAIM OF THE ASSESSEE WITHOUT GIVEN AN OPPORTUNITY TO THE ASSESSING OFFICER AS PER RULE 46A. I.T.A. NO. 3170/CHNY/17 2 2. AT THE OUTSET, BY FILING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE CIT V. SUBHULAXMI MILLS LTD. 249 ITR 795, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. IT WAS FURTHER SUBMISSION THAT THE HONBLE SUPREME COURT HAS AGREED WITH THE FINDINGS OF THE HONBLE HIGH COURT THAT THE PROVISIONS OF SECTION 79 OF THE INCOME TAX ACT, 1961 [ACT IN SHORT] SPEAKS ABOUT BUSINESS LOSS AND IT DOES NOT INCLUDE UNABSORBED DEPRECIATION AND THUS, PRAYED FOR FOLLOWING THE SAME. 3. ON THE OTHER HAND, THE LD. DR FAIRLY CONCEDED THE SUBMISSIONS OF THE LD. COUNSEL. 4. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW INCLUDING CASE LAW RELIED ON BY THE LD. COUNSEL. AS PER ASSESSMENT ORDER, THE ASSESSEE COMPANY IS NOT A COMPANY IN WHICH PUBLIC IS SUBSTANTIALLY INTERESTED AND MAJOR CHANGES (MORE THAN THAT 51%) TO SHARE HOLDING PATTERN HAS TAKEN PLACE ON 07.08.2004. THE ASSESSING OFFICER OBSERVED THAT THE CLAIM OF THE ASSESSEE WAS NOT IN ACCORDANCE WITH SECTION 79(A) OF THE ACT. AS PER SECTION 79 OF THE ACT, WHERE A CHANGE IN SHAREHOLDING HAS TAKEN PLACE IN A PREVIOUS YEAR IN THE CASE OF A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, NO LOSS INCURRED IN ANY YEAR PRIOR TO THE PREVIOUS I.T.A. NO. 3170/CHNY/17 3 YEAR SHALL BE CARRIED FORWARD AND SET OFF AGAINST THE INCOME OF THE PREVIOUS YEAR UNLESS ON THE LAST DAY OF THE PREVIOUS YEAR THE SHARES OF THE COMPANY CARRYING NOT LESS THAN FIFTY-ONE PERCENT OF THE VOTING POWER ON THE LAST DAY OF THE YEAR OR YEARS IN WHICH THE LOSS WAS INCURRED. ACCORDINGLY, THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE. ON APPEAL, BY FILING A LETTER THAT THE ASSESSEE IS NOT PRESSING FOR THE CASH LOSS, THE AR OF THE ASSESSEE REQUESTED TO ALLOW THE DEPRECIATION LOSS TO SET OFF. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED THAT THE RESTRICTION OF SECTION 79 OF THE ACT IS APPLICABLE ONLY IN CASE OF BUSINESS LOSS AND IS NOT APPLICABLE IN CASE OF ADJUSTMENT OF UNABSORBED DEPRECIATION, UNABSORBED CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH. ACCORDINGLY, THE LD. DR DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE ON UNABSORBED DEPRECIATION. WE HAVE PERUSED THE CASE RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE, WHEREIN, THE HONBLE SUPREME COURT HAS HELD AS UNDER: 3. SO FAR AS QUESTION NO. 2 IS CONCERNED, THE QUESTION IS WHETHER IN APPLYING SECTION 79 OF THE ACT, ONLY THE BUSINESS LOSS SHOULD BE TAKEN INTO ACCOUNT AND NOT THE UNABSORBED DEPRECIATION OR UNABSORBED DEVELOPMENT REBATE. THE HIGH COURT HAS ANSWERED THE QUESTION SAYING THAT WHEN SECTION 79 SPEAKS OF LOSS, IT DOES NOT INCLUDE UNABSORBED DEPRECIATION OR UNABSORBED DEVELOPMENT REBATE. WE AGREE WITH THE HIGH COURT. IN VIEW OF THE ABOVE DECISION OF THE HONBLE SUPREME COURT, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). THUS, THE GROUND RAISED BY THE I.T.A. NO. 3170/CHNY/17 4 REVENUE STANDS DISMISSED. 5. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) ERRONEOUSLY ADMITTED FRESH CLAIM UNDER SECTION 32(1)(III) OF THE ACT RELATING TO LOSS CLAIMED ON DEMOLITION OF BUILDING WITHOUT GIVING AN OPPORTUNITY TO THE ASSESSING OFFICER. THE ASSESSEE HAS CLAIMED LOSS ON DEMOLITION OF BUILDING OF .80,74,040/- AND CLAIMED THE RESIDUAL VALUE AS LOSS UNDER SECTION 41(2) OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT THE PROVISIONS OF SECTION 41(2) OF THE ACT ARE IN RESPECT OF PROFIT CHARGEABLE TO TAX AND NOT FOR ALLOWING LOSSES. FURTHER, HE NOTICED THAT THE ASSESSEE HAS NOT DEMOLISHED THE ENTIRE STRUCTURE AND MOREOVER, THE BLOCK OF ASSET CONSISTING OF BUILDINGS ON WHICH 10% DEPRECIATION CLAIMED WAS DISCLOSED IN THE ASSESSEES DEPRECIATION SCHEDULE AND THE CLOSING WDV WAS SHOWN AT .8.02,372/-. AS THE BUILDING BLOCK OF ASSET IS STILL IN EXISTENCE, THE CLAIM OF THE ASSESSEE OF LOSS ON DEMOLITION OF BUILDING WAS REJECTED AND ADDED TO THE INCOME OF THE ASSESSEE. 6. ON APPEAL, BY FILING REVISED WORKING FOR THE EXPENDITURE CLAIMED, THE AR OF THE ASSESSEE HAS SUBMITTED THAT THE AMOUNT OF .80,74,040/- PERTAINS TO THE WDV AS PER THE COMPANIES ACT SINCE THE BOOKS OF ACCOUNT IS MAINTAINED AS PER THE COMPANIES ACT AND THE RATES AS PRESCRIBED BY THE SAID ACT HAS BEEN APPLIED TILL DATE. THE WRITING OFF SHOULD HAVE BEEN BY THE I.T.A. NO. 3170/CHNY/17 5 DEPRECIATION RATES AS PRESCRIBED BY THE INCOME TAX ACT. IT WAS FURTHER SUBMISSION THAT THE DEPRECIATION STATEMENT DEPICTS THE OPENING WDV OF .43,61,813/- AND THE BALANCE WDV OF BUILDING AFTER DEMOLITION IS .8,91,524/-. THEREFORE, A SUM OF .34,70,289/- ONLY SHOULD HAVE BEEN WRITTEN OFF UNDER SECTION 32(1)(II). IN EFFECT A SUM OF .46,03,751/- (WHICH IS 80,74,040 34,70,289) IS THE EXCESS AMOUNT CLAIMED WHICH IS REQUIRED TO BE SET OFF AGAINST THE CUMULATIVE DEPRECIATION, WHICH CAN BE ADJUSTED AND SET OFF DURING THE CURRENT YEARS INCOME. BY CONSIDERING THE ABOVE SUBMISSIONS, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW WRITE OFF OF LOSS CLAIMED ON DEMOLITION OF BUILDING BY RESTRICTING TO THE REVISED WORKING FURNISHED BY THE ASSESSEE AND ALLOW A SUM OF .34,70,289/- ONLY AS A DEDUCTION. HOWEVER, WHILE DOING SO, THE LD. CIT(A) HAS NOT OBTAINED ANY REMAND REPORT FROM THE ASSESSING OFFICER SINCE THE CLAIM OF WRITE OFF UNDER SECTION 32(1)(II) OF THE ACT WAS NOT AVAILABLE BEFORE THE ASSESSING OFFICER, WHICH IS IN CLEAR VIOLATION OF THE RULE 46A OF THE INCOME TAX RULE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE ASSESSEE UNDER SECTION 32(1)(II) OF THE ACT AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, THE GROUND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 3170/CHNY/17 6 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 21 ST MAY, 2019 AT CHENNAI. SD/- SD/- (A.MOHAN ALANKAMONY) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, 22.05.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.