DHADDA DIAMONDS P.LTD, MUMBAI V. ITO 5(1)(3), MUMBAI

ITA 3910/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9201 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 15-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 16-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: YOGESH A THAR
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NOS. 3908, 3909, 3910 & 3911/MUM/2013 ASSESSMENT YEARS: 2005-06, 2006-07, 2007-08 & 2008 -09 DHADDA DIAMONDS PVT. LTD. 1208, PANCHRATNA, OPERA HOUSE, MUMBAI 400 004 PAN:-AAACD 0539 L VS. ITO 5(1)(3) R. NO. 569, 5 TH FLOOR, M.K. RD MUMBAI (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI YOGESH A THAR REVENUE BY : SHRI LOVE KUMAR DATE OF HEARING : 1 7 .03.2015 DATE OF ORDER : 25 . 03.2015 O R D E R PER BENCH: THE AFORESAID APPEALS HAVE BEEN FILED BY THE ASSE SSEE AGAINST SEPARATE IMPUGNED ORDER OF EVEN DATE 22.03. 2013, PASSED BY LD. CIT(A)-9, MUMBAI FOR THE A.YS. 2005-06, 2006-07 , 2007-08 & 2008- 09. THE SOLE ISSUE RAISED IN THE GROUNDS OF APPEAL IN ALL THE YEARS ARE THAT, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN U PHOLDING THE ORDER OF THE AO THAT UNABSORBED DEPRECIATION FOR THE FOLLOWI NG YEARS HAVE LAPSED IN VIEW OF THE PROVISIONS OF SECTION 32(2) AND THER EFORE, WILL NOT BE AVAILABLE FOR SET OFF:- A.Y. 2005 - 06 A.Y. 2006 - 07 A.Y. 2007 - 08 A.Y. 2008 - 09 RS.5,60,855/ - FOR THE A.Y. 1997-98 RS.5,49,314/ - FOR THE A.Y. 1998-99 RS. 7,35,730/ - FOR THE A.Y. 1999-2000 RS. 24,40,070/ - FOR THE A.Y. 2000-01 ITA NOS. 3908, 3909, 3910 & 3911/MUM/2013 ASSESSMENT YEARS: 2005-06, 2006-07, 2007-08 & 2008 -09 2 2. THE BRIEF BACKGROUND OF THE CASE ARE THAT, ASSES SEE IS ENGAGED IN THE BUSINESS OF TRADING IN CUT AND POLISHED DIAMOND S. IN THE ASSESSMENT ORDERS PASSED U/S 143(3) READ WITH SECTION 147, THE ASSESSING OFFICER HELD THAT UNABSORBED BUSINESS LOSSES WERE NOT SET O FF PRIOR BUT UNABSORBED DEPRECIATION. FURTHER UNABSORBED DEPRECI ATION FOR THE ASSESSMENT YEAR, WHERE 8 YEARS HAVE LAPSED WILL NOT BE ALLOWED TO BE CARRIED FORWARD. IN THE FIRST APPEAL, THE LD. CIT(A ) GAVE DIRECTION TO THE AO TO ALLOW THE SET OFF AS PER THE PROVISIONS OF TH E LAW. IN THE ORDER GIVING EFFECT TO THE LD. CIT(A) ORDER, ASSESSING OF FICER ALLOWED THE SET OFF OF UNABSORBED BUSINESS LOSSES PRIOR TO SETTING OF UNABSORBED DEPRECIATION AND ALSO WORKED OUT THE BUSINESS LOSSE S AND DEPRECIATION WHICH WERE ALLOWED TO BE CARRIED FORWARD. HOWEVER, HE HELD THAT UNABSORBED DEPRECIATION FOR THE ASSESSMENT YEARS, W HERE 8 YEARS HAVE LAPSED WILL NOT BE SET OFF/CARRIED FORWARD AS THE S AME HAS LAPSED AS PER THE PROVISIONS OF SECTION 32(2). IN SUPPORT HE RELI ED UPON THE DECISION OF HONBLE SPECIAL BENCH IN THE CASE OF TIMES GUARANTEE LTD. REPORTED IN (2010) 40 SOT 14 (MUM) (SB). THE LD. CIT(A) TO CONFIRM THE ACTION OF THE AO RELYING UPON THE DECISION OF SPECIAL BENCH I N THE CASE OF TIMES GUARANTEE LTD. (SUPRA). 3. BEFORE US, LEARNED COUNSEL SUBMITTED THAT THE DE CISION OF THE SPECIAL BENCH IN THE CASE OF TIMES GUARANTEE LTD., IS NO LONGER A GOOD LAW IN VIEW OF THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA PVT. LTD. VS. CIT REPORTED IN (2013) 354 ITR 244 . HE ALSO INFORMED THAT SLP AGAINST SAID DECISION FIL ED BY THE REVENUE HAS ALSO BEEN DISMISSED. FURTHER FOLLOWING THE SAID DEC ISION OF THE HONBLE GUJARAT HIGH COURT, CO-ORDINATE BENCHES OF MUMBAI T RIBUNAL HAVE FOLLOWED THE DECISION OF HONBLE GUJARAT HIGH COURT AND HELD THAT ITA NOS. 3908, 3909, 3910 & 3911/MUM/2013 ASSESSMENT YEARS: 2005-06, 2006-07, 2007-08 & 2008 -09 3 UNABSORBED DEPRECIATION COULD BE ALLOWED TO BE CARR IED FORWARD AND SET OFF, AFTER A PERIOD OF 8 YEARS WITHOUT ANY LIMIT. T HE COPY OF SUCH DECISIONS WERE ALSO FILED BEFORE US. 4. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER OF THE LD. CIT(A). 5. AFTER CONSIDERING THE MATERIAL PLACED ON RECORD AND THE RELEVANT FINDING OF THE LD. CIT(A) AND THE DECISIONS RELIED UPON BEFORE US, THE ONLY ISSUE FOR OUR ADJUDICATION IS, WHETHER THE FIN DING OF THE AO AND LD. CIT(A) BASED ON THE DECISION OF SPECIAL BENCH IN TH E CASE OF TIMES GUARANTEE WOULD BE APPLICABLE OR NOT. THE AO AS WEL L AS LD. CIT(A) AFTER RELYING UPON THE SPECIAL BENCH DECISION HAVE HELD THAT THE UNABSORBED DEPRECIATION FOR THE A.Y. 1997-98; A.Y. 1998-99; A.Y. 1999- 2000 AND A.Y. 2000-01 SHALL BE CONSIDERED AS LAPSED IN THE A.Y. 2005- 06, A.Y. 2006-07, A.Y. 2007-08 AND A.Y. 2008-09 RES PECTIVELY BECAUSE 8 YEARS HAVE LAPSED. THE SPECIAL BENCH IN THE CASE OF TIMES GUARANTEE LTD. IN PARA 38 OF THE JUDGMENT CAME TO THE FOLLOWI NG CONCLUSION:- 38. THE LEGAL POSITION OF CURRENT AND BROUGHT FORW ARD UNADJUSTED/UNABSORBED DEPRECIATION / ALLOWANCE IN T HE THREE PERIODS, IS SUMMARIZED AS UNDER:- A. IN THE FIRST PERIOD (I.E. UP TO ASSESSMENT YEAR 1996-97) (I) CURRENT DEPRECIATION, THAT IS AMOUNT OF ALLOWANCE F OR THE YEAR UNDER SECTION 32(1), CAN BE SET OFF AGAINST 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 A PER (I) ABOVE SHALL BE D EEMED AS DEPRECIATION UNDER SECTION 32( 1), THAT IS DEPRECIA TION 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 1997 -98 TO 2001- 02) (I) BROUGHT FORWARD UNADJUSTED .DEPRECIATION AL LOWANCE FOR AND UP TO ASSESSMENT YEAR 1996-97 (HEREINAFTER CALL ED THE 'FIRST UNADJUSTED DEPRECIATION ALLOWANCE'), WHICH COULD NO T BE SET OFF UP TO ASSESSMENT YEAR 1996-97, SHALL BE CARRIED FOR WARD FOR SET ITA NOS. 3908, 3909, 3910 & 3911/MUM/2013 ASSESSMENT YEARS: 2005-06, 2006-07, 2007-08 & 2008 -09 4 OFF AGAINST INCOME UNDER ANY HEAD FOR A MAXIMUM PER IOD OF EIGHT ASSESSMENT YEARS STARTING FROM ASSESSMENT YEAR 1997 -98. (II) CURRENT DEPRECIATION FOR THE YEAR UNDER SECTIO N 32(1) (FOR EACH YEAR SEPARATELY STARTING FROM ASSESSMENT YEAR 1997-98 UP TO 2001-02) CAN BE SET OFF FIRSTLY AGAINST BUSINESS INCOME AND THEN AGAINST INCOME UNDER ANY OTHER HEAD. (III) AMOUNT OF CURRENT DEPRECIATION FOR ASSESSMENT YEARS 1997-98 TO 2001-02 WHICH CANNOT BE SO SET OFF AS PER (II) A BOVE, HEREINAFTER CALLED THE 'SECOND UNABSORBED DEPRECIAT ION ALLOWANCE' SHALL BE CARRIED FORWARD FOR A MAXIMUM PERIOD OF EI GHT ASSESSMENT YEARS FROM THE ASSESSMENT YEAR IMMEDIATE LY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH IT WAS FIR ST COMPUTED, TO BE SET OFF ONLY AGAINST THE INCOME UNDER THE HEA D 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. C. IN THE THIRD PERIOD (I.E., ASSESSMENT YEAR 2002- 03 ONWARDS) (I) 'FIRST UNADJUSTED DEPRECIATION ALLOWANCE' CAN B E SET OFF UP TO ASSESSMENT YEAR 2004-05, THAT IS, THE REMAINING PER IOD OUT OF MAXIMUM PERIOD OF EIGHT ASSESSMENT YEARS [AS PER B( I) 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 AS SESSMENT YEARS SUCCEEDING THE ASSESSMENT YEAR FOR WHICH IT WAS FIR ST COMPUTED. (III) CURRENT DEPRECIATION FOR THE YEAR UNDER SECTI ON 32(1), FOR EACH YEAR SEPARATELY, STARTING FROM ASSESSMENT YEA R 2002-03 CAN BE SET OFF AGAINST INCOME UNDER ANY HEAD. AMOUN T OF DEPRECIATION ALLOWANCE NOT SO SET OFF (HEREINAFTER CALLED THE 'THIRD UNADJUSTED DEPRECIATION ALLOWANCE') SHALL BE CARRIE D FORWARD TO THE FOLLOWING YEAR. (IV) THE 'THIRD UNADJUSTED DEPRECIATION ALLOWANCE' SHALL BE DEEMED AS DEPRECIATION UNDER SECTION 32( 1), THAT I S DEPRECIATION FOR THE CURRENT YEAR IN THE FOLLOWING YEAR(S) TO BE SET OFF AGAINST INCOME UNDER ANY HEAD, LIKE CURRENT DEPRECIATION, I N PERPETUITY. HOWEVER, IN A LATER DECISION, THE HONBLE GUJARAT H IGH COURT VIDE ORDER DATED 23.08.2012 IN THE CASE OF GENERAL MOTORS INDI A PVT. LTD (SUPRA), AFTER CONSIDERING THE PROVISION OF SECTION 32(2), B EFORE ITS AMENDMENT ITA NOS. 3908, 3909, 3910 & 3911/MUM/2013 ASSESSMENT YEARS: 2005-06, 2006-07, 2007-08 & 2008 -09 5 BY FINANCE ACT 2001 AND ALSO AFTER THE AMENDMENT AN D ALSO THE BOARD CIRCULAR NO. 14 OF 2001 OBSERVED AND HELD AS UNDER: - 37. THE CBDT CIRCULAR CLARIFIES THE INTENT OF THE AMENDMENT THAT IT IS FOR ENABLING THE INDUSTRY TO CONSERVE SUFFICI ENT FUNDS TO REPLACE PLANT AND MACHINERY AND ACCORDINGLY THE AME NDMENT DISPENSES WITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THE AMENDMENT IS AP PLICABLE FROM ASSESSMENT YEAR 2002-03 AND SUBSEQUENT YEARS. THIS MEANS THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1 ST DAY OF APRIL, 2002 (A.Y. 2002-03) WILL BE DEALT W ITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 AND NOT BY THE PROVISIONS OF SECT ION 32(2) AS IT STOOD BEFORE THE SAID AMENDMENT: HAD THE INTENTION OF THE LEGISLATURE BEEN TO ALLOW THE UNABSORBED DEPRECIATI ON ALLOWANCE WORKED OUT IN A.Y. 1997-98 ONLY FOR EIGHT SUBSEQUEN T ASSESSMENT YEARS EVEN AFTER THE AMENDMENT 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. HE NCE KEEPING IN VIEW THE PURPOSE OF AMENDMENT OF SECTION 32(2) O F THE ACT, A PURPOSIVE AND HARMONIOUS INTERPRETATION HAS TO BE T AKEN. WHILE CONSTRUING TAXING STATUTES, RULE OF STRICT INTERPRE TATION HAS TO BE APPLIED, GIVING FAIR AND REASONABLE CONSTRUCTION TO THE LANGUAGE OF THE SECTION WITHOUT LEANING TO THE SIDE OF ASSES SEE OR THE REVENUE. BUT IF THE LEGISLATURE FAILS TO EXPRESS CL EARLY 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 ASSESSEE CANNOT BE DENIED. HOWEVER, CIR CULAR 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 DEPRECIATION UNDER SECTION 32 SHALL BE MANDATORY. THEREFORE, THE PROVISIONS OF SECTION 32(2) AS AMEND ED BY FINANCE ACT, 2001 WOULD ALLOW THE UNABSORBED DEPRECIATION A LLOWANCE AVAILABLE IN THE A.Y. 1997-98, 1999-2000, 2000-1 AN D 2001-02 TO BE CARRIED FORWARD 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 T ILL THE TIME IT IS SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS. 38. THEREFORE, IT CAN BE SAID THAT, CURRENT DEPRECI ATION IS DEDUCTIBLE IN THE FIRST PLACE FROM THE INCOME OF TH E BUSINESS TO WHICH IT RELATES. IF SUCH DEPRECIATION AMOUNT IS LA RGER THAN THE AMOUNT OF THE PROFITS OF THAT BUSINESS, THEN SUCH E XCESS COMES FOR ABSORPTION FROM THE PROFITS AND GAINS FROM ANY OTHER BUSINESS ITA NOS. 3908, 3909, 3910 & 3911/MUM/2013 ASSESSMENT YEARS: 2005-06, 2006-07, 2007-08 & 2008 -09 6 OR BUSINESS, IF ANY, CARRIED ON BY THE ASSESSEE. IF A BALANCE IS LEFT EVEN THEREAFTER, THAT BECOMES DEDUCTIBLE FROM OUT O F INCOME FROM ANY SOURCE UNDER ANY OF THE OTHER HEADS OF INC OME DURING THAT YEAR. IN CASE THERE IS A STILL BALANCE LEFT OV ER, IT IS TO BE TREATED AS UNABSORBED DEPRECIATION AND IT IS TAKEN TO THE NEXT SUCCEEDING YEAR. WHERE THERE IS CURRENT DEPRECIATIO N FOR SUCH SUCCEEDING YEAR THE UNABSORBED DEPRECIATION IS ADDE D TO THE CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR AND I S DEEMED AS PART THEREOF. IF, HOWEVER, THERE IS NO CURRENT DEPR ECIATION FOR SUCH SUCCEEDING YEAR, THE UNABSORBED DEPRECIATION B ECOMES THE DEPRECIATION ALLOWANCE FOR SUCH SUCCEEDING YEAR. WE ARE OF THE CONSIDERED OPINION 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 3 2(2) AS AMENDED BY FINANCE ACT, 2001. AND ONCE THE CIRCULAR NO.14 OF 200 I CLARIFIED THAT THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION HAD BEEN DISPENS ED WITH, THE UNABSORBED DEPRECIATION FROM A.Y.1997-98 UPTO THE A .Y.2001-02 GOT CARRIED FORWARD TO THE ASSESSMENT YEAR 2002-03 AND BECAME PART THEREOF, IT CAME TO BE GOVERNED BY THE PROVISI ONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 AND WERE AVA ILABLE FOR CARRY FORWARD AND SET OFF AGAINST THE PROFITS AND G AINS OF SUBSEQUENT YEARS. WITHOUT ANY LIMIT WHATSOEVER. THIS DECISION OF THE HONBLE GUJARAT HIGH COURT HAS BEEN FOLLOWED IN SEVERAL DECISIONS RENDERED BY THE CO-ORDINATE BENCH ES OF THE TRIBUNAL. RESPECTFULLY FOLLOWING THE RATIO OF HONBLE GUJARAT HIGH COURT, WE DIRECT THE AO TO ALLOW THE SET OFF OF UNABSORBED DEPRECIAT ION PERTAINING TO THE A.Y. 1997-98 TO 2000-01 IN THE RESPECTIVE A.YS. 200 5-06 TO 2008-09 IN ACCORDANCE WITH THE DECISION OF GENERAL MOTORS INDI A PVT. LTD. (SUPRA). ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IN A LL THE APPEALS ARE TREATED AS ALLOWED. 7. OTHER GROUNDS RELATE TO LACK OF OPPORTUNITY AND NON CONSIDERATION OF SUBMISSIONS WERE NOT ARGUED BEFORE US, THEREFORE , SAME ARE TREATED AS DISMISSED. ACCORDINGLY, ALL THE APPEALS OF THE A SSESSEE ARE TREATED AS PARTLY ALLOWED. ITA NOS. 3908, 3909, 3910 & 3911/MUM/2013 ASSESSMENT YEARS: 2005-06, 2006-07, 2007-08 & 2008 -09 7 8. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF MARCH, 2015. SD/- SD/- (B.R. BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 25.03.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR D BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.