ADOR TECHNOPAK LTD ( NOW MERGED WITH J.B. ADVANI & CO. P.LTD ), MUMBAI V. ITO 2(1)(1), PUNE

ITA 4678/MUM/2009

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88066 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2015
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 13-10-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 10-08-2009
• Court: TRIBUNAL
• Department Lawyers: VIVEK BATRA
• Assessee Lawyers: P J PARDIWALLA AARTI SATHE
• Keywords: Business income; Depreciation; Opportunity of being heard; Unabsorbed depreciation; Capital expenditure

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO. 4678/M/2009 ( / ASSESSMENT YEAR : 2005 - 2006 ) ADOR TECHNOPAK LIMITED, (NOW MERGED WITH J .B. ADVANI & CO PVT. LTD.) 6K, DUBASH MARG, FORT, MUMBAI 400 023. / VS. INCOME TAX OFFICER 2(1)(1), AAYAKAR BHAVAN, M.K. MARG, MUMBAI 400 020. ./ PAN : AAACJ 1161 A ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI P.J. PARDIWALLA, AARTI SATHE / RESPONDENT BY : SHRI VIVEK BATRA, DR / DATE OF HEARING : 15.12.2014 / DATE OF PRONOUNCEMENT : 14 .01.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT (A) - III, MUMBAI DATED 18.6.2009 FOR THE ASSESSMENT YEAR 2005 - 06. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. THE CIT (A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING SET OFF OF SHORT TERM CAPITAL GAINS AGAINST THE UNABSORBED DEPRECIATION AS PER THE PROVISIONS OF SECTION 32(2) READ WITH SECTION 71(2) OF THE ACT. 2.(A) THE CIT (A) ERRED IN STATING THAT THE APPELLANT DISPOSED OF ITS ENTIRE PLANT AND MACHINERY BY SELLING THEM TO THIRD PARTIES BEFORE AMALGAMATION WITH THE SUCCESSOR COMPANY. (B) THE CIT (A) ERRED IN NOT APPRECIATING THAT THE BLOCK OF PLANT AND MACHINER Y EXISTED AS ON THE LAST DAY OF THE PREVIOUS YEAR RELEVANT TO AY 2005 - 2006. HOWEVER, SINCE THE SALE PROCEEDS OF THE ASSETS TRANSFERRED DURING THE YEAR EXCEEDED THE IT WDV OF THE BLOCK OF PLANT AND MACHINERY, RESULTED IN THE ENTIRE BLOCK BEING WIPED OFF AND A LIABILITY UNDER SECTION 50 ARISING. 3. THE CIT (A) ERRED IN HOLDING THAT AS THE BLOCK CEASED TO EXIST ON THE LAST DAY OF THE PREVIOUS YEAR, THE ASSETS THAT EARLIER CONSTITUTED THE BLOCK ARE NEITHER OWNED BY NOR USED BY THE APPELLANT AND THEREFORE, U NDER SECTION 32(1) DEPRECIATION IS NOT PERMISSIBLE TO THE APPELLANT. 4. THE CIT (A) OUGHT TO HAVE HELD THAT SINCE THERE EXISTED ASSETS IN EACH OF THE BLOCK OF ASSETS AS ON THE LAST DAY OF THE PREVIOUS YEAR RELEVANT TO THE 2 ASSESSMENT YEAR 2005 - 2006, THE APP ELLANT WAS ENTITLED TO CURRENT DEPRECIATION UNDER SECTION 32(1) READ WITH EXPLANATION 5 THERETO, EVEN THOUGH THE APPELLANT HAD NOT CLAIMED THE SAME WHILE COMPUTING THE TOTAL INCOME IN THE RETURN OF INCOME. 5. THE CIT (A) ERRED IN HOLDING THAT PROVISIONS OF SECTION 32(2) HAVE RELEVANCE ONLY WHEN AN ASSESSEE IS ENTITLED TO CURRENT DEPRECIATION UNDER SECTION 32(1) AND THEREFORE, THE APPELLANT IS NOT ENTITLED TO THE UNABSORBED DEPRECIATION UNDER SECTION 32(2). 6. WITHOUT PREJUDICE TO THE ABOVE, THE CIT (A) OUGH T TO HAVE COMPUTED THE SHORT TERM CAPITAL GAINS BY ENHANCING THE WDV OF ASSETS BY THE AMOUNT OF UNABSORBED DEPRECIATION. 7. THE CIT (A) ERRED IN HOLDING THAT THE GROUND ON INTEREST UNDER SECTION 234D CANNOT BE SUSTAINED ON THE GROUND THAT IT REVOLVED AROUND CALCULATION OF INTEREST UNDER THE SAID SECTION. 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. NIL AND THE ASSESSMENT WAS COMPLETED DETERMINING THE ASSESSED INCOME AT RS. 9,87,48,962/ - . DURING THE YEAR UNDER CONSIDERATION, ASSESSEE COMPANY WAS AMALGAMATED WITH M/S. J.B. ADVANI & COMPANY PVT LTD W.E.F 1.11.2014. ASSESSEE IS ENGAGED IN THE BUSINESS OF PRINTING AND PACKAGING. DURING THE YEAR ASSESSEE SOLD CERTAIN ASSETS AND EARNED SHORT TERM CAPITAL GAINS. PAGE 4 OF THE PAPER BOOK IS RELEVANT IN THIS REGARD. ASSESSEE REPORTED THE UNABSORBED DEPRECIATION OF EARLIER YEARS. IN THE RETURN OF INCOME, ASSESSEE SET OFF OF THE SAID BROUGHT FORWARD UNABSORBED DEPRECIATION AGAI NST THE IMPUGNED SHORT TERM CAPITAL GAINS. ASSESSING OFFICER, AFTER DUE VERIFICATION DENIED THE SAID CLAIM OF UNABSORBED DEPRECIATION OF EARLIER YEARS WITH SHORT TERM CAPITAL GAINS OF THE CURRENT YEAR BY STATING THAT THE SET OFF IS ALLOWED ONLY AGAINST TH E BUSINESS LOSS OF THE ASSESSEE. PARA 38 AND 39 OF THE ASSESSMENT ORDER ARE RELEVANT IN THIS REGARD AND THE SAME READ AS UNDER: 38. THEREFORE, AS PER THE PROVISIONS OF SECTION 32(2) UNABSORBED DEPRECIATION GETS MERGED WITH THE CURRENT DEPRECIATION AND CA N BE CARRY FORWARD INDEFINITELY AND CAN BE SET OFF FROM PROFITS & GAINS CHARGEABLE FOR SUBSEQUENT YEARS. THEREFORE, HERE DEPRECIATION CAN BE SET OFF ONLY AGAINST THE PROFITS AND GAINS OF THE BUSINESS AND NOT AGAINST ANY OTHER INCOME. 39. FURTHER EVEN IN THE ORDER F SET OFF LAID DOWN BY THE INCOME TAX ACT. UNABSORBED DEPRECIATION, UNABSORBED CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH AND UNABSORBED EXPENDITURE ON FAMILY PLANNING ARE NOT PARTS OF BUSINESS LOSSES AND THEY CAN ALSO BE CARRIED FORWARD. HOWEV ER, AS PER SECTION 72(2), THE BUSINESS LOSS SHOULD BE SET OFF BEFORE SETTING OFF UNABSORBED DEPRECIATION ETC. SUCH CARRIED FORWARD BUSINESS LOSS WILL BE SET OFF AGAINST BUSINESS HEAD ONLY AFTER THE CURRENT YEARS DEPRECIATION, CURRENT CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH AND EXPENDITURE ON FAMILY PLANNING HAVE BEEN CLAIMED. THEREFORE, THE ORDER OF SET OFF WILL BE AS UNDER: (I) CURRENT YEAR DEPRECIATION [SECTION 32(1)] (II) CURRENT YEAR CAPITAL EXPENDI9TURE ON SCIENTIFIC RESEARCH AND CURRENT YEAR EXPENDITURE ON FAMILY PLANNING TO THE EXTENT ALLOWED. 3 (III) BROUGHT FORWARD BUSINESS OR PROFESSION LOSSES [SECTION 72(1)] (IV) UNABSORBED DEPRECIATION [SECTION 32(2)] (V) UNABSORBED CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH [SECTION 35(4)] (VI) UNABSORBED EXPENDITURE ON FAMILY PLANNING [SECTION 36(1)(IX)] 3. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, ASSESSEE MADE WRITTEN SUBMISSIONS AND MENTIONED THAT ASSESSEE CONDUCTED THE BUSINESS DURING THE AY UNDER CONSIDERATION DESPITE THE SALE OF CERTAIN PLANT AND MACHINERY AND THEREFORE, THE CLAIM OF THE ASSESSEE THAT THE SET OFF OF THE UNABSORBED DEPRECIATION AGAINST THE SHORT TERM CAPITAL GAINS SHOULD BE ALLOWED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. CIT (A) CONSIDERED THE SAID SUBMISSIONS OF THE ASSESSEE AND DESCRIBED THE FACTS IN PARA 4 OF THE IMPUGNED ORDER. EVENTUALLY, AS HELD IN PARA 4.2 OF THE IMPUGNED ORDER, THE CIT (A) OPINED THAT THE BUSINESS IS CEASED TO EXIST. IN SUCH CIRCUMSTANCES, THERE IS NO QUESTION OF EXISTENCE OF BUSINESS LOSS AND THEREFORE, ASSESSING OFFICER HAS RIGHTLY DIS ALLOWED THE CLAIM OF THE ASSESSEE AND THE RELEVANT FINDINGS OF THE CIT (A) READS AS UNDER: 4.2..THE ISSUE THEN IS WHETHER ON CLOSURE OF BUSINESS AND WHEN THE BLOCK OF ASSETS ITSELF HAS CEASED TO EXIST, UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATI ON CAN BE ALLOWED TO BE GIVEN SET OFF AGAINST INCOME OF APPELLANT UNDER THE HEAD OF INCOME, CAPITAL GAINS. AS FAR S UNABSORBED BUSINESS LOSS IS CONCERNED, I HAVE NO DOUBT IN MY MIND THAT ONCE THE BUSINESS ACTIVITY CEASES TO EXIST, THE SET OFF CANNOT BE AL LOWED. IT IS A PRELIMINARY CONDITION FOR ALLOWABILIY OF SET OFF OF UNABSORBED BUSINESS LOSS THAT BUSINESS SHOULD NECESSARILY BE CONTIN U ED IN THE YEAR IN WHICH SET OFF IS CLAIMED. IN THE INSTANT CASE THIS IS NOT SO. THE LOSS WAS FROM THE BUSINESS WHICH A PPELLANT WAS CAR RYING ON AND WHICH HAS BEEN CLO SED DOWN DURING THE YEAR UNDER CONSIDERATION. MOREOVER, BUSINESS LOSS CAN BE GIVEN SET OFF ONLY AGAINST BUSINESS INCOME. THEREFORE, SET OFF OF UNABSORBED BUSINESS LOSS CANNOT BE ALLOWED AGAINST CAPITAL GAINS INCOME. HE ALSO EXAMINED THE PROVISIONS OF SECTION 32(2) OF THE ACT AS WELL AS THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF VIRMANI INDUSTRIES PRIVATE LIMITED REPORTED IN 216 ITR 607 AND UPHELD THE CONCLUSIONS OF THE ASSESSING OFFICER. PARA 4.5 OF THE IMPUGNED ORDER IS RELEVANT IN THIS REGARD. AGGRIEVED WITH THE SAME ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE SAID PAGE 4 OF THE PAPER BOOK AND THE WR ITTEN SUBMISSIONS MADE BY THE ASSESSEE TO THE CIT (A), COPIES OF WHICH ARE PLACED AT PAGE 26 TO 41 OF THE PAPER BOOK, LD COUNSEL FOR THE ASSESSEE MENTIONED THE FACT OF EXISTENCE OF THE BUSINESS WAS THOROUGHLY EXPLAINED TO THE CIT (A) DESPITE SOME PATENT ER RORS HAVE 4 BEEN CREPT INTO THE ORDER OF THE CIT (A) WHERE THE CIT (A) HELD THAT THE BUSINESS ACTIVITY OF THE ASSESSEE CEASED TO EXIST DURING THE YEAR UNDER CONSIDERATION. LD COUNSEL FOR THE ASSESSEE DEMONSTRATED FROM 4.2 ONWARDS OF THE IMPUGNED ORDER THAT THE CIT (A) IS UNDER WRONG SURMISES THAT THE BUSINESS CEASED TO EXIST AND HIS CONCLUSIONS NATURALLY BASED ON THE WRONG PRESUMPTIONS. FURTHER, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE JUDGMENT IN THE CASE OF VIRMANI INDUSTRIES PRIVATE LIMITE D (SUPRA) AND MENTIONED THAT IN THE PROVISIONS OF SECTION 32(2) OF THE ACT THE EXPRESSION PROFIT AND GAINS CHARGEABLE WAS EXPLAINED BY THE HONBLE APEX COURT AND IT CONCLUDED THAT ALL THE HEADS OF BUSINESS INCOME OF THE CURRENT YEAR ARE NOT RELEVANT WHEN COMES TO SET OFF OF THE UNABSORBED DEPRECIATION BROUGHT FORWARD FROM EA RLIER YEARS. FURTHER, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THIS CASE, SUCH DEPRECIATION OF LOSS WERE SET OFF AGAINST DIVIDEND INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. 5. ON THE OTHER HAND, LD DR HEAVILY RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. FURTHER ON FIND THE PATENT ERRORS IN THE CONCLUSIONS OF THE CIT (A) RELATING TO THE CESSATION OF THE BUSINESS ACTIVITY OF IN THE YEAR UNDER CONSIDERATION, LD DR FAIRLY ARGUED THAT THE CASE MAY BE REMANDED TO THE FILE OF THE CIT (A) FOR FRESH ADJUDICATION AND DECISION IN ACCORDANCE WITH LAW. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US AND ALSO THE BINDING JUDGMENT OF THE APEX COURT IN THE CA SE OF VIRMANI INDUSTRIES PRIVATE LIMITED (SUPRA). RIGHT FROM PARA 4 ONWARDS DESPITE THE SUBMISSIONS BY THE ASSESSEE, CIT (A) WAS IN WRONG BELIEF THAT THE ASSESSEE SOLD THE ENTIRE BLOCK OF ASSETS AND THEREFORE, NO EXISTENCE OF ANY BUSINESS ACTIVITY IN THE YEAR UNDER CONSIDERATION. THIS IS AN INCORRECT FINDING OF THE FACT BY THE CIT (A). THEREFORE, IT IS IN THE INTEREST OF JUSTICE THAT THE CIT (A) SH OULD GO THROUGH THE ENTIRE SET OF DOCUMENTS AS WELL AS THE WRITTEN SUBMISSIONS OF THE ASSESSEE FILED BEFORE HIM AND DECIDE THE ISSUE AFRESH AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. CIT (A) IS ALSO DIRECTED TO TAKE INTO CONSIDERATION THE APEX COURT JUDGMENT IN THE CASE OF VIRMANI INDUSTRIES PRIVATE LIMITED (SUPRA) AND APPLY THE SA ME IN CORRECT PERSPECTIVE 5 TO THE FACTS OF THE PRESENT CASE IN THE REMANDING PROCEEDINGS. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUN CED IN THE OPEN COURT ON 14 TH JANUARY, 2015. SD/ - SD/ - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 14 .1.2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI