ACIT, Muzaffarnagar V. M/s HRJ Steels (P) Ltd., Muzaffarnagar

ITA 4983/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4162 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 27-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 12-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: K L ANEJA
• Keywords: Depreciation; Unabsorbed depreciation
• 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 BENCH BENCH BENCH C CC C : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI C.L.SETHI, JM AND SHRI BEFORE SHRI C.L.SETHI, JM AND SHRI BEFORE SHRI C.L.SETHI, JM AND SHRI BEFORE SHRI C.L.SETHI, JM AND SHRI K. K.K. K.D.RANJAN D.RANJAN D.RANJAN D.RANJAN, AM , AM , AM , AM ITA NO. ITA NO. ITA NO. ITA NO.4983/DEL/2010 4983/DEL/2010 4983/DEL/2010 4983/DEL/2010 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2004 2004 2004 2004- -- -05 0505 05 ASSTT.COMMISSIONER OF ASSTT.COMMISSIONER OF ASSTT.COMMISSIONER OF ASSTT.COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -1, 1,1, 1, MUZAFFARNAGAR. MUZAFFARNAGAR. MUZAFFARNAGAR. MUZAFFARNAGAR. VS. VS. VS. VS. M/S HRJ STEELS (P) LTD M/S HRJ STEELS (P) LTD M/S HRJ STEELS (P) LTD M/S HRJ STEELS (P) LTD., .,., ., 124, SOUTH BHOPA ROAD, 124, SOUTH BHOPA ROAD, 124, SOUTH BHOPA ROAD, 124, SOUTH BHOPA ROAD, MUZAFFARNAGAR. MUZAFFARNAGAR. MUZAFFARNAGAR. MUZAFFARNAGAR. PAN NO. PAN NO. PAN NO. PAN NO.AABFH0286Q. AABFH0286Q. AABFH0286Q. AABFH0286Q. (APPELLANT) (RESPONDENT) APPELLANT BY : SMT.MONA MOHANTY, SR.DR RESPONDENT BY : SHRI K.L.ANEJA AND SHRI ANIL GUPTA, ADVOCATES. 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 REVENUE IS IN APPEAL AGAINST THE ORDER DATED 1 2.8.2010 PASSED BY THE LEARNED CIT(A) IN THE MATTER OF AN AS SESSMENT MADE U/S 143(3)/254 OF THE INCOME-TAX ACT, 1961 FOR THE AY 2 004-05. 2. THE ONLY GROUND RAISED BY THE REVENUE IN THIS AP PEAL 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. 3. IN THIS CASE, THE ASSESSEE FILED ITS RETURN OF I NCOME ON 16.3.2005 DECLARING TOTAL INCOME AT RS.NIL. SUBSEQUENTLY, TH E AO COMPLETED THE ASSESSMENT U/S 143(3) ON 26.12.2006 DETERMINING TOT AL INCOME AT `8,49,210/-. BEING AGGRIEVED WITH THE AOS ORDER, THE ASSESSEE FILED ITA-4983/DEL/2010 2 APPEAL BEFORE THE LEARNED CIT(A), WHO VIDE ORDER DA TED 6.3.2007, DELETED THE ADDITION OF `4,41,213/- IN RESPECT OF T RADE TAX/CENTRAL SALES TAX. THE CIT(A) ALSO HELD THAT UNABSORBED DEPRECIA TION CLAIMED BY THE ASSESSEE MAY BE ADJUSTED AGAINST THE INCOME FROM AN Y HEAD KEEPING IN VIEW THE PROVISIONS OF SECTION 32(2) OF THE ACT AND DIRECTED THE AO TO LOOK INTO THE MATTER AND GIVE SET OFF OF UNABSOR BED DEPRECIATION AS PER LAW. AGAINST THE ORDER OF LEARNED CIT(A), THE REVENUE PREFERRED SECOND APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING ADDITIONS DELETED BY THE LEARNED CIT(A):- (I) ADDITION OF `4,41,213/- ON ACCOUNT OF TRADE TAX/CEN TRAL SALES TAX. (II) DISALLOWANCE OF SET OFF OF UNABSORBED DEPRECIATION U/S 32(2) OF THE ACT. 4. THE TRIBUNAL THEN VIDE ITS ORDER DATED 19.9.2008 IN ITA NO.2821/DEL/2007 SET ASIDE THE ASSESSMENT AND RESTO RED THE MATTER TO THE FILE OF THE AO ON BOTH THE AFORESAID POINTS. W ITH REGARD TO SET OFF OF UNABSORBED DEPRECIATION, THE TRIBUNAL OBSERVED THAT THEY DID NOT FIND ANY INFIRMITY IN THE DIRECTION GIVEN BY THE LEARNED CIT(A) AS AO HAD BEEN GIVEN A FREE HAND TO CONSIDER THE CASE OF THE ASSESSEE AGAIN AS PER LAW. 5. IN THE LIGHT OF THE DIRECTION GIVEN BY THE TRIBU NAL, THE AO THEN PROCEEDED TO COMPLETE THE FRESH ASSESSMENT. 6. IN THE FRESH ASSESSMENT, THE ASSESSEES CLAIM OF `4,41,213/- ON ACCOUNT OF TRADE TAX/CENTRAL SALES TAX WAS ACCEPTED BY THE AO. HOWEVER, THE ASSESSEES CLAIM OF SET OFF OF UNABSOR BED DEPRECIATION HAD BEEN DISALLOWED BY THE AO BY OBSERVING THAT IT COULD HAVE BEEN SET OFF ONLY AGAINST INCOME OF BUSINESS OR PROFESSI ON AS WOULD BE CLEAR ITA-4983/DEL/2010 3 FROM THE LANGUAGE OF SUB-SECTION (2) OF SECTION 32 OF THE ACT USED BY THE LEGISLATURE. 7. BEING AGGRIEVED WITH THE AOS ORDER IN DISALLOWI NG THE CLAIM OF THE ASSESSEE FOR SETTING OFF OF DEPRECIATION, THE A SSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(A). 8. BEFORE THE LEARNED CIT(A), THE ASSESSEE HAS TAKE N A GROUND THAT AO WAS NOT JUSTIFIED IN NOT ALLOWING SET OFF OF UNA BSORBED DEPRECIATION OF `22,50,000/- AGAINST INCOME UNDER THE HEAD OTHE R SOURCES. AFTER CONSIDERING THE PROVISIONS CONTAINED IN SECTION 32( 2) AND THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. VIR MANI INDUSTRIES (P) LTD. (1995) 216 ITR 607, THE LEARNED CIT(A) DIREC TED THE AO TO ALLOW SET OFF OF UNABSORBED DEPRECIATION OF `22,50,000/- AGAINST INCOME FROM OTHER SOURCES AND ALLOW CONSEQUENTIAL RELIEF TO THE ASSESSEE. 9. HENCE, THE DEPARTMENT IS IN FURTHER APPEAL BEFOR E US. 10. IN THE COURSE OF HEARING OF THIS APPEAL, THE LE ARNED COUNSEL FOR THE ASSESSEE HAS PLACED BEFORE US THE RECENT DECISI ON OF SPECIAL BENCH OF ITAT MUMBAI E IN THE CASE OF DCIT VS. TIMES GU ARANTY LIMITED (2010) 131 TTJ (MUMBAI)(SB) 257 AND SUBMITTED THAT THE ISSUE IS NOW COVERED BY THIS DECISION. 11. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E AOS ORDER. 12. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFUL LY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. 13. WE HAVE CAREFULLY PERUSED THE ORDER OF THE SPEC IAL BENCH IN THE ABOVE REFERRED CASE OF DCIT VS. TIMES GUARANTY LIMI TED (SUPRA). IN ITA-4983/DEL/2010 4 THIS CASE, THE HONBLE TRIBUNAL HAS CONSIDERED SUB- SECTION (2) OF SECTION 32 VIS-A-VIS SECTION 32(1) AS IT STOOD PRIO R TO 1.4.1997, AS IT STOOD FROM 1.4.1997 TO 31.3.2002 AND THEN AS IT STO OD FOR THE PERIOD FROM 1.4.2002. THE HONBLE SPECIAL BENCH HAS OBSER VED THAT THE LEGISLATURE SUBSTITUTED SUB-SECTION (2) OF SECTION 32 BY THE FINANCE (NO.2) ACT, 1996 W.E.F. 1.4.1997. AFTER ANALYZING THE PROVISIONS OF SECTION 32(2) AS SUBSTITUTED W.E.F. 1.4.1997, THE H ONBLE SPECIAL BENCH HAS HELD THAT THE SCOPE OF SET OFF OF THE BROUGHT F ORWARD UNABSORBED DEPRECIATION WAS CONSTRICTED TO THE INCOME UNDER TH E HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE HONBLE TRIB UNAL FURTHER OBSERVED THAT SUB-SECTION (2) OF SECTION 32 WAS FUR THER SUBSTITUTED BY THE FINANCE ACT, 2001 W.E.F. AY 2002-03 ONWARDS. T HEY HELD THAT SECTION 32(2) SUBSTITUTED FROM AY 2002-03 IS PROSPE CTIVE IN NATURE AND SHALL BE PROSPECTIVELY APPLICABLE W.E.F. AY 2002-03 ONWARDS. IT WAS FURTHER OBSERVED BY THE BENCH THAT BY SUBSTITUTING SUB-SECTION (2) OF SECTION 32 BY THE FINANCE ACT, 2001 W.E.F. AY 2002- 03, THE LEGISLATURE HAS RESTORED THE POSITION OF LAW AS IT EXISTED PRIO R TO 1.4.1997. THE LEGAL POSITION OF CURRENT AND BROUGHT FORWARD UNADJ USTED/ UNABSORBED DEPRECIATION ALLOWANCE IN THREE PERIODS I.E. (I) IN THE FIRST PERIOD PRIOR TO 1.4.1997, I.E. UPTO AY 1996-97, (II) IN THE SECO ND PERIOD I.E. FROM AY 1997-98 TO 2001-02, AND (III) FOR THE THIRD PERIOD FROM AY 2002-03 ONWARDS HAS BEEN EXERCISED BY THE HONBLE SPECIAL B ENCH OF THE TRIBUNAL AS UNDER:- 38. THE LEGAL POSITION OF CURRENT AND BROUGHT FORW ARD UNADJUSTED/ UNABSORBED DEPRECIATION ALLOWANCE IN TH E THREE PERIODS, IS SUMMARIZED AS UNDER: A. IN THE FIRST PERIOD (I.E. UPTO ASST.YR. 1996-97) (I) CURRENT DEPRECIATION, THAT IS THE AMOUNT OF ALL OWANCE FOR THE YEAR UNDER S. 32(1), CAN BE SET OFF AGAINST INCOME UNDER ANY HEAD WITHIN THE SAME YEAR. ITA-4983/DEL/2010 5 (II) AMOUNT OF SUCH CURRENT DEPRECIATION WHICH CANN OT BE SO SET OFF WITHIN THE SAME YEAR AS PER (I) ABOVE SH ALL BE DEEMED AS DEPRECIATION UNDER S. 32(1), THAT IS DEPR ECIATION FOR THE CURRENT YEAR IN THE FOLLOWING YEAR(S) TO BE SET OFF AGAINST INCOME UNDER ANY HEAD, LIKE CURRENT DEPRECI ATION. B. IN THE SECOND PERIOD (I.E. ASST.YRS. 1997-98 TO 2001- 02) (I) BROUGHT FORWARD UNADJUSTED DEPRECIATION ALLOWAN CE FOR AND UPTO ASST.YR. 1996-97 (HEREINAFTER CALLED T HE FIRST UNADJUSTED DEPRECIATION ALLOWANCE), WHICH COULD NO T BE SET OFF UPTO ASST.YR. 1996-97, SHALL BE CARRIED FOR WARD FOR SET OFF AGAINST INCOME UNDER ANY HEAD FOR A MAXIMUM PERIOD OF EIGHT ASSESSMENT YEARS STARTING FROM ASST . YR. 1997-98. (II) CURRENT DEPRECIATION FOR THE YEAR UNDER S. 32( 1) (FOR EACH YEAR SEPARATELY STARTING FROM ASST.YR. 1997-98 UPTO 2001-02) CAN BE SET OFF FIRSTLY AGAINST BUSINESS IN COME AND THEN AGAINST INCOME UNDER ANY OTHER HEAD. (III) AMOUNT OF CURRENT DEPRECIATION FOR ASST.YRS. 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 P ERIOD OF EIGHT ASSESSMENT YEARS FROM THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHIC H IT WAS FIRST COMPUTED, TO BE SET OFF ONLY AGAINST THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. C. IN THE THIRD PERIOD (I.E. ASST.YR. 2002-03 ONWAR DS) (I) FIRST UNADJUSTED DEPRECIATION ALLOWANCE CAN B E SET OFF UPTO ASST.YR. 2004-05, THAT IS, THE REMAINING P ERIOD 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 PRO FITS AND GAINS OF BUSINESS OR PROFESSION WITHIN A PERIOD OF EIGHT ASSESSMENT YEARS SUCCEEDING THE ASSESSMENT YEAR FOR WHICH IT WAS FIRST COMPUTED. (III) CURRENT DEPRECIATION FOR THE YEAR UNDER S. 32 (1), FOR EACH YEAR SEPARATELY, STARTING FROM ASST.YR. 2002-0 3 CAN BE ITA-4983/DEL/2010 6 SET OFF AGAINST INCOME UNDER ANY HEAD. AMOUNT OF DEPRECIATION ALLOWANCE NOT SO SET OFF (HEREINAFTER CALLED THE THIRD UNADJUSTED DEPRECIATION ALLOWANCE) SHAL L BE CARRIED FORWARD TO THE FOLLOWING YEAR. (IV) THE THIRD UNADJUSTED DEPRECIATION ALLOWANCE SHALL BE DEEMED AS DEPRECIATION UNDER S. 32(1), THAT IS DEPRECIATION FOR THE CURRENT YEAR IN THE FOLLOWING YEAR(S) TO BE SET OFF AGAINST INCOME UNDER ANY HEAD, LIKE CURR ENT DEPRECIATION, IN PERPETUITY. 14. ADVERTING TO THE FACTS OF THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAS ALSO CLAIMED SET OFF OF UNABSORBED DEP RECIATION AROSE IN THE SECOND PERIOD I.E. AY 197-98 TO 2001-02, WHICH WAS NOT ADJUSTED AGAINST THE INCOME UNDER THE HEAD PROFITS AND GAIN S OF BUSINESS OR PROFESSION PRIOR TO THE AY 2004-05 UNDER CONSIDERA TION. THEREFORE, NOW, THE ASSESSEE CANNOT CLAIM SET OFF OF UNABSORBE D DEPRECIATION ALLOWANCE PERTAINING TO THE AY 1997-98 TO 2001-02 A GAINST INCOME UNDER ANY HEAD OTHER THAN PROFITS AND GAINS OF BUSI NESS OR PROFESSION IN THE PRESENT YEAR UNDER CONSIDERATION. HOWEVER, THE ASSESSEE CAN CLAIM SET OFF OF UNABSORBED DEPRECIATION AGAINST IN COME UNDER ANY HEAD OTHER THAN PROFITS AND GAINS OF BUSINESS OR PR OFESSION PROVIDED THE SAME IS RELATED TO THE ASSESSMENT YEAR PRIOR TO AY 1997-98 OR TO THE AY 2002-03 AND THEREAFTER. IT IS ALSO TO BE NO TED THAT DEPRECIATION PERTAINING UPTO AY 1996-97 CAN ONLY BE ALLOWED TO B E SET OFF AGAINST INCOME UNDER ANY HEAD FOR A MAXIMUM PERIOD OF EIGHT ASSESSMENT YEARS STARTING FROM AY 1997-98. WE, THEREFORE, HOL D THAT THE AO SHALL ALLOW ASSESSEES CLAIM OF SET OFF OF UNABSORBED DEP RECIATION AROSE IN THE AY 1997-98 TO 2001-02 ONLY AGAINST THE INCOME U NDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. HOW EVER, THE AO SHALL BE ENTITLED TO ALLOW SET OFF OF UNABSORBED DEPRECIATIO N PERTAINING UPTO THE AY 1996-97 AGAINST INCOME UNDER ANY HEAD FOR A MAXI MUM PERIOD OF EIGHT YEARS STARTING FROM AY 1997-98. THE AO MAY A LLOW SET OFF OF UNABSORBED DEPRECIATION PERTAINING TO THE AY 2002-0 3 ONWARDS AGAINST INCOME UNDER ANY HEAD. THE AO SHALL EXAMINE THE AS SESSEES CLAIM OF ITA-4983/DEL/2010 7 UNABSORBED DEPRECIATION AND SHALL ASCERTAIN THE REL EVANT ASSESSMENT YEARS IN WHICH THE UNABSORBED DEPRECIATION HAD ARIS EN, AND THEN DECIDE THE MATTER IN THE LIGHT OF OUR OBSERVATION M ADE ABOVE AFTER FOLLOWING THE DECISION OF THE SPECIAL BENCH IN THE CASE OF DCIT VS. TIMES GUARANTY LIMITED (SUPRA). WE DIRECT ACCORDIN GLY. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED IN THE MANNER AS INDICATED ABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL, 2011. SD/- SD/- (K.D.RANJAN (K.D.RANJAN (K.D.RANJAN (K.D.RANJAN) )) ) (C.L.SETHI (C.L.SETHI (C.L.SETHI (C.L.SETHI) )) ) ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 29.04.2011. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR