ACIT, Muzaffarnagar V. M/s Parijat Paper Mills Ltd., Muzaffarnagar

ITA 4982/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0654 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 17-01-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 12-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Keywords: Depreciation; Unabsorbed depreciation; Capital expenditure
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH F BENCH F BENCH F BENCH F : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND SHRI C.L.SETHI, JUDICIAL MEMBER SHRI C.L.SETHI, JUDICIAL MEMBER SHRI C.L.SETHI, JUDICIAL MEMBER SHRI C.L.SETHI, JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO. 4982/DEL/2010 4982/DEL/2010 4982/DEL/2010 4982/DEL/2010 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2007 2007 2007 2007 - -- - 08 0808 08 ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -1, 1,1, 1, MUZAFF MUZAFF MUZAFF MUZAFFARNAGAR. ARNAGAR. ARNAGAR. ARNAGAR. VS. VS. VS. VS. M/S PARIJAT PAPER MILLS LIMITED, M/S PARIJAT PAPER MILLS LIMITED, M/S PARIJAT PAPER MILLS LIMITED, M/S PARIJAT PAPER MILLS LIMITED, 10.6 KM. BHOPA ROAD, 10.6 KM. BHOPA ROAD, 10.6 KM. BHOPA ROAD, 10.6 KM. BHOPA ROAD, MUZAFFARNAGAR. MUZAFFARNAGAR. MUZAFFARNAGAR. MUZAFFARNAGAR. PAN NO. PAN NO. PAN NO. PAN NO.AACCP0977A. AACCP0977A. AACCP0977A. AACCP0977A. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H.K.LAL. RESPONDENT BY : NONE. ORDER ORDER ORDER ORDER PER C.L.SETHI PER C.L.SETHI PER C.L.SETHI PER C.L.SETHI, J , J, J , JM : M : M : M : THE ONLY GROUND IN THIS APPEAL FILED BY THE REVENU E AGAINST THE ORDER DATED 12.8.2010 OF LEARNED CIT(A) PERTAINING TO THE AY 2007-08 IS AS UNDER:- THE LD.COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON THE FACT IN HOLDING THAT THE BROUGHT FORWARD UNABSORBED DEPRECIATION COULD BE ADJUSTED AGAINST T HE INCOME FROM OTHER SOURCES IN VIEW OF PROVISIONS OF SECTION 32(2) OF THE INCOME TAX ACT-1961. 2. NOBODY APPEARED ON BEHALF OF THE ASSESSEE-RESPON DENT AT THE TIME OF HEARING BEFORE US. THIS APPEAL OF THE REVE NUE IS THEREFORE DECIDED EX-PARTE QUA THE ASSESSEE AFTER HEARING THE ARGUMENTS OF LEARNED DR AND PERUSING RELEVANT MATERIAL ON RECORD . IN THIS CASE, THE TOTAL INCOME OF THE ASSESSEE HAS BEEN DETERMINED BY THE AO AS UNDER:- (I) UNDER THE HEAD BUSINESS OR PROFESSION : (-) ` 2,63,43,219/- (II) COMMISSION INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES : (+) ` 2,68,94,587/- BALANCE TOTAL INCOME : ` 5,51,368/- OR ` 5,51,370/- ITA-4982/DEL/2010 2 3. THE LOSS OF ` 2,63,43,219/- UNDER THE HEAD BUSI NESS INCLUDES DEPRECIATION OF ` 35,17,656/- OF THE CURRENT YEAR D ETERMINED AS PER RULES. THE LOSS OF ` 2,63,43,219/- HAS BEEN SET OF F AGAINST THE INCOME UNDER THE HEAD OTHER SOURCES OF ` 2,68,94,587/- A ND NET TOTAL INCOME HAS BEEN DETERMINED BY THE AO AT ` 5,51,368/-. 4. IN THIS CASE, THE ASSESSEE HAD UNABSORBED DEPREC IATION AMOUNTING TO ` 7,60,029/- BROUGHT FORWARD FROM AY 2 006-07. IN THE AY 2006-07, THE UNABSORBED DEPRECIATION BROUGHT FORWAR D FROM EARLIER YEARS WAS OF ` 10,58,397/- AGAINST WHICH, THE INCOM E OF THAT YEAR AMOUNTING TO ` 2,98,368/- WAS SET OFF LEAVING A BAL ANCE UNABSORBED DEPRECIATION OF ` 7,60,029/- TO BE CARRIED FORWARD TO THE SUBSEQUENT YEAR. THIS UNABSORBED DEPRECIATION OF ` 7,60,029/- BROUGHT FORWARD FROM AY 2006-07 HAS NOT BEEN ALLOWED TO BE SET OFF AGAINST THE TOTAL INCOME OF ` 5,51,370/- DETERMINED BY THE AO IN THE CURRENT ASSESSMENT YEAR. ON APPEAL, THE LEARNED CIT(A) DIR ECTED THE AO TO ALLOW SET OFF OF UNABSORBED DEPRECIATION BROUGHT FO RWARD FROM EARLIER ASSESSMENT YEAR AGAINST THE TOTAL INCOME OF ` 5,51, 370/- OF THE CURRENT YEAR BY OBSERVING AND HOLDING AS UNDER:- 5. THE FACTS OF THE CASE AND SUBMISSIONS MADE BY T HE A.R. FOR THE APPELLANT HAVE BEEN CAREFULLY CONSIDER ED. A PERUSAL OF ASSESSMENT REVEALS THAT THE AO HAS ASSES SED INCOME EARNED FROM COMMISSION AT RS.2,68,94,587/- U NDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST INC OME DECLARED FROM COMMISSION UNDER THE HEAD INCOME FRO M BUSINESS & PROFESSION, ON AGREED BASIS. FURTHER, THE AO ALSO DID NOT ALLOW SET OFF OF BROUGHT FORWARD UNABS ORBED DEPRECIATION. IN THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION, THE APPELLANT HAD BROUGHT FORWARD TO TAL UNABSORBED DEPRECIATION AT RS.10,58,397/- AND AFTER SETTING OFF UNABSORBED DEPRECIATION TOTALING TO RS.2,98,368/- AGAINST INCOME OF THE CURRENT YEAR, T HE INCOME RETURNED WAS NIL AND THE BALANCE CARRIED FOR WARD UNABSORBED DEPRECIATION STOOD AT RS.7,60,029/-. TH E APPELLANTS CONTENTION IS THAT THE AO IN THE ORDER U/S 143(3) OF THE ACT FOR THE YEAR UNDER CONSIDERATION HAS NOT ITA-4982/DEL/2010 3 ALLOWED SET OFF OF UNABSORBED DEPRECIATION AGAINST INCOME DETERMINED BY THE A.O. U/S 143(3) AT RS.5,51,370/-. FURTHER, IT HAS ALSO BEEN CONTENDED BY THE APPELLAN T THAT THE AO HAS NOT GIVEN ANY REASON TO JUSTIFY HIS ACTI ON OF NOT ALLOWED UNABSORBED DEPRECIATION. THE AO IN THE ASSESSMENT ORDER HAS MENTIONED THAT SINCE INCOME EA RNED COMMISSION WAS ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES CONSEQUENTLY NO SET OFF OF UNABSORBE D DEPRECIATION WAS ALLOWABLE TO THE APPELLANT. REGAR DING THE REASONING FORWARDED BY THE A.O. FOR NOT ALLOWING TH E SET OFF CARRIED FORWARD UNABSORBED DEPRECIATION FROM THE I NCOME FROM OTHER SOURCES, IT IS NECESSARY TO GO THROUGH THE RELEVANT PROVISIONS OF LAW IN THIS RESPECT. SECTION 32(2) SAYS WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FULL EFF ECT 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, THE N, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) OF SEC TION 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 PREVIO US YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THER E 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. SECTION 72(2) SAYS WHERE ANY ALLOWANCE OR PART THEREOF IS, UNDER SUB- SECTION (2) OF SECTION 32 OR SUB-SECTION (4) OF SECTION 35, TO BE CARRIED FORWARD, EFFECT SHALL FIRST BE GIVEN TO THE PROVISIONS OF THIS SECTION. FURTHER SECTION 73(3) SAYS IN RESPECT OF ALLOWANCE ON ACCOUNT OF DEPRECIATION OR CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH, THE PRO VISIONS OF SUB-SECTION (2) OF SECTION 72, SHALL APPLY IN RELAT ION TO SPECULATION BUSINESS AS THEY APPLY IN RELATION TO A NY OTHER BUSINESS. ITA-4982/DEL/2010 4 FURTHER RESTRICTION U/S 71(2A) IS IN RESPECT OF LOS S FROM PROFITS & GAINS OF BUSINESS & PROFESSION WHICH CANN OT BE GIVEN SET OFF FROM THE SALARY HEAD OF INCOME. TH E COMBINED READING OF THESE SECTIONS CLEARLY ESTABLIS HES THAT UNABSORBED BROUGHT FORWARD DEPRECIATION CAN BE SET OFF AGAINST THE CURRENT YEARS INCOME EVEN IF IT IS UND ER THE HEAD INCOME FROM OTHER SOURCES. FOR CLARIFYING T HE SUBJECT, IT WOULD BE MORE APPROPRIATE TO QUOTE THE OBSERVATIONS MADE BY THE HON'BLE SUPREME COURT IN CIT VS. VIRMANI INDUSTRIES (P) LTD. (1995) 216 ITR 607, 618 (SC): .YET ANOTHER QUESTION WHICH HAS TO BE ANSWERED BEFORE WE CAN ANSWER THE QUESTION CONCERNE D IN THIS APPEAL IS WHETHER IT IS NECESSARY THAT IN THE FOLLOWING YEAR THE ASSESSEE MUST CARRY ON BUSINESS I.E., SOME OR OTHER BUSINESS, TO AVAIL OF THE BENEFIT OF THE SAID SUB- SECTION? TWO VIEWS ARE POSSIBLE IN THIS BEHALF, VI Z., (1) SINCE THE SUB-SECTION SPEAK OF UNABSORBED DEPRECIAT ION BEING CARRIED FORWARD TO THE NEXT YEAR AND ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FO LLOWING PREVIOUS YEAR AND DEEMED TO PART OF THAT ALLOWANCE THE SUB-SECTION NECESSARILY CONTEMPLATES EXISTENCE OF A BUSINESS IN THE FOLLOWING YEAR, AND (2) IN AS MUCH AS THE SUB-SECTION NOT ONLY SPEAKS OF ADDING THE UNABSORBE D DEPRECIATION TO THE DEPRECIATION TO THE DEPRECIATIO N ALLOWANCE ALLOWED IN THE FOLLOWING YEAR BUT ALSO SA YS THAT IN THE ABSENCE OF SUCH ALLOWANCE, THE CARRIED FORWA RD DEPRECIATION ALLOWANCE, THE CARRIED FORWARD DEPRECI ATION ALLOWANCE SHALL BE THE ALLOWANCE FOR THAT YEAR, IT MEANS THAT IN THE FOLLOWING YEAR THE ASSESSEE NEED NOT CA RRY ON ANY BUSINESS OR PROFESSION FOR AVAILING OF THE BENE FIT OF SUB-SECTION (2) OF SECTION 32. WE ARE INCLINED TO ADOPT THE SECOND OF THE ABOVE TWO VIEWS HAVING REGARD TO THE DECISIONS OF THIS IN CIT V. JAIPURIA CHINA CLAY MI NES (P) LTD. [(1996) 59 ITR 555 (SC)] AND RAJAPALAYAM MILLS LTD. V. CIT [(1978) 115 ITR 777 (SC)]. WE HAVE EXTRACTED THE R ELEVANT OBSERVATIONS FROM BOTH THE JUDGMENTS HEREINABOVE, W HICH SAY THAT THE UNABSORBED DEPRECIATION ALLOWANCE HAS NOT ONLY TO BE SET OFF AGAINST OTHER HEADS OF INCOME IN THE RELEVANT PREVIOUS YEAR BUT WHERE IT IS CARRIED FORW ARD, IT STANDS ON EXACTLY THE SAME FOOTING AS THE CURRENT DEPRECIATION. THE AO IS THUS DIRECTED TO ALLOW SET OFF OF UNABSOR BED DEPRECIATION AT RS.5,51,370/- AGAINST INCOME FROM OTHER SOURCES AND THE BALANCE UNABSORBED DEPRECIATION IS ITA-4982/DEL/2010 5 ALLOWED TO BE CARRIED FORWARD. THE AO IS DIRECTED TO ALLOW CONSEQUENTIAL RELIEF TO THE APPELLANT. 5. WE OBSERVE THAT IN THIS CASE, THE UNABSORBED DEP RECIATION OF ` 7,60,029/- BROUGHT FORWARD FROM EARLIER AY 2006-07 HAS BECOME THE DEPRECIATION OF THE CURRENT ASSESSMENT YEAR AS PER PROVISIONS OF SECTION 32(2) OF THE ACT, WHICH PROVIDES THAT UNABS ORBED DEPRECIATION OF ANY YEAR SHALL BE ADDED TO THE AMOUNT OF THE ALL OWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DE EMED TO BE PART OF THAT ALLOWANCE, AND SO ON. WE FIND THAT THE DEPREC IATION OF THE CURRENT ASSESSMENT YEAR AMOUNTING TO ` 35,71,656/- HAS BEEN ALLOWED BY THE AO TO BE SET OFF AGAINST THE CURRENT YEARS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. WE, THEREFORE, FIND N O REASON AS TO WHY UNABSORBED DEPRECIATION BROUGHT FORWARD FROM ASSESS MENT YEAR 2006- 07, WHICH HAS BECOME DEPRECIATION OF CURRENT YEAR B Y VIRTUE OF PROVISIONS CONTAINED IN SECTION 32(2) OF THE ACT, S HOULD NOT BE ALLOWED TO BE SET-OFF AGAINST INCOME FROM OTHER SOURCES. W E, THEREFORE, UPHOLD THE ORDER OF LEARNED CIT(A) AND REJECT THIS GROUND RAISED BY THE REVENUE. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 20 TH JANUARY, 2011. SD/- SD/- (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA ) )) ) (C.L.SETHI (C.L.SETHI (C.L.SETHI (C.L.SETHI ) )) ) VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 20.01.2011. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR ITA-4982/DEL/2010 6