Tamilnadu Small Industries corporation Ltd., CHENNAI V. ACIT, CHENNAI

ITA 515/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7995 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 07-03-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: B GOWTHAMAN
• Keywords: Reopening of assessment; Depreciation; Difference of opinion; Reason to believe; Unabsorbed depreciation; Change of opinion
• Section: 143(3); 37(1); 32; 147; 148; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . . ' #$ , % &' ( [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D. S. SUNDER SINGH, ACCOUNTANT MEMBER ] ./ I.T.A.NO. 515/MDS/2016 / ASSESSMENT YEAR : 2008-09 M/S TAMILNADU SMALL INDUSTRIES CORPORATION LTD THIRU-VI-KA INDUSTRIAL ESTATE GUINDY, CHENNAI 600 032 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX CORPORATE CIRCLE 3(1) CHENNAI [PAN AAACT 1239 K ] ( )* / APPELLANT) ( +,)* /RESPONDENT) ./ I.T.A.NO. 584/MDS/2016 / ASSESSMENT YEAR : 2008-09 THE ASSTT. COMMISSIONER OF INCOME-TAX CORPORATE CIRCLE 3(1) CHENNAI VS. M/S TAMILNADU SMALL INDUSTRIES CORPORATION LTD THIRU-VI-KA INDUSTRIAL ESTATE GUINDY, CHENNAI 600 032 ( )* / APPELLANT) ( +,)* /RESPONDENT) ASSESSEE BY : SHRI B. GOWTHAMAN, CA DEPARTMENT BY : SHRI SHIVA SRINIVAS, JCIT / DATE OF HEARING : 24 - 10 - 2016 / DATE OF PRONOUNCEMENT : 25 - 11 - 2016 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER THESE CROSS APPEALS FILED BY THE ASSESSEE AND TH E REVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-11,CHENNAI, DATED 30.12.205 FOR ASSESSMEN T YEAR 2008-09. ITA NO. 515 &584/16 :- 2 -: 2. FIRST WE WILL TAKE UP ASSESSEES APPEAL I.T.A.NO. 515/MDS/2016. 3.0 GROUND NO.1 TO 3 RAISED BY THE ASSESSEE AR E RELATING TO REOPENING OF ASSESSMENT U/S 147 OF THE INCOME-TAX ACT, 1961[IN SHORT THE ACT]. THE ASSESSEE FILED THE RETURN O F INCOME ADMITTING TOTAL INCOME OF ` 11,04,22,407/- AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. SUBSEQUENTLY, THE ASSESSMEN T WAS REOPENED U/S 147 OF THE ACT BY ISSUE OF NOTICE U/S 148 OF T HE ACT. THE ASSESSEE CHALLENGED THE VALIDITY OF REOPENING OF AS SESSMENT. CHALLENGING THE NOTICE ISSUED U/S 148, THE ASSESS EE ARGUED BEFORE THE LD. CIT(A) THAT THE ISSUE OF NOTICE U/S 148 WAS BAD IN LAW AND SHOULD BE QUASHED. THE LD. CIT(A) DISMISSED THE A SSESSEES APPEAL ON THIS ISSUE OBSERVING THAT THE ASSESSMENT HAS BEEN REOPENED WITHIN 4 YEARS AS PER LAW. JUST BECAUSE AN ASSESSMENT WAS COMPLETED U/S 143(3), IT DOES NOT ME AN THAT THE A.O HAS CONSIDERED ALL THE ISSUES AND THE RELEV ANT PROVISIONS OF THE ACT. IT IS POSSIBLE THAT SOMETIM ES, THE A.O MAY HAVE MISSED CERTAIN CRUCIAL POINTS LEADING TO ESCAPEMENT OF INCOME. THE LD CIT(A) TAKEN THE SUPPO RT FROM THE FOLLOWING JUDICIAL PRONOUNCEMENTS IN UPHOLDING THE ITA NO. 515 &584/16 :- 3 -: VALIDITY OF NOTICE ISSUED U/S 148 OF I.T.ACT. PRAFUL PATEL VS ACIT 236 ITR 832(GUJARAT HIGH COURT) (I) VENUS INDUSTRIAL CORPORATION VS ACIT 236 ITR 742 (II) INDIA FORGE AND DROPS STAMPING LTD VS CIT 233 ITR 112(MADRAS HIGH COURT) (III)THE HON'BLEHIGH COURT OF GUJARAT IN PRAFUL CHU NILAL PATEL VS M.J. MAKWANAF ASSISTANT COMMISSIONER OF INCOME-TAX REPORTED IN 236 ITR 832 3. AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE ASSESS EE IS IN APPEAL BEFORE THIS TRIBUNAL. APPEARING FOR THE ASSE SSEE THE LD A.R SUBMITTED THAT THE ORIGINALLY THE ASSESSMENT WAS C OMPLETED IN THIS CASE U/S 143(3) OF THE ACT ON 22.09.2010 AND THE AS SESSING OFFICER HAS CALLED FOR THE DETAILS AND VERIFIED THE ENTIR E INFORMATION INCLUDING THE SET OFF OF LOSSES AND UNABSORBED DEPRECIATION A ND ALLOWED IT IN THE ORIGINAL ASSESSMENT. HAVING VERIFIED THE DETAILS IN THE ORIGINAL ASSESSMENT, THE ASSESSING OFFICER IS NOT ENTITLED TO REOPEN THE ASSESSMENT SINCE IT IS A MERE CHANGE OF OPINION. TH E ASSESSEE RELIED ON THE DECISION OF HONBLE HIGH COURT OF GUJARAT IN THE CASE OF GENERAL MOTORS INDIA LTD VS DCIT 354 ITR 147. 4. ON THE OTHER HAND, THE LD. DR ARGUED THAT THE AS SESSMENT WAS REOPENED WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ITA NO. 515 &584/16 :- 4 -: ASSESSMENT YEAR AND THE ASSESSING OFFICER HAS RECOR DED THE REASONS FOR REOPENING OF THE ASSESSMENT. THE ASSESSEE HAS N OT MADE OUT A CASE THAT THE ASSESSING OFFICER HAS VERIFIED THE DE TAILS AND FORMED AN OPINION ON THE ISSUES OF REOPENING. UNLESS THE ASSE SSING OFFICER FORMS AN OPINION ON AN ISSUE IT CANNOT BE CONSTRUED THAT IT IS MERE CHANGE OF OPINION. IN THE APPELLANTS CASE THERE WAS NO SUCH F INDING IN THE ORIGINAL ASSESSMENT ORDER AND THEREFORE THE LD.D.R CONTENDED THAT THE ASSESSING OFFICER HAS RIGHTLY ISSUED THE NOTICE U/ S 148 WHICH SHOULD BE UPHELD. 5. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL PLACED BEFORE US. THE ASSESSING OFFICER HAS ISSUED NOTICE U/S 148 OF THE ACT WITHIN FOUR YEARS FROM THE END OF THE RELE VANT ASSESSMENT YEAR. THE LD. AR ARGUED THAT SINCE THE ASSESSMENT W AS COMPLETED U/S 143(3) OF THE ACT AFTER EXAMINING ALL THE DETAILS, THE REOPENING OF ASSESSMENT IS NOTHING BUT A MERE CHANGE OF OPINION WHICH IS NOT PERMISSIBLE AS PER LAW. ON PERUSAL OF THE MATERIAL PLACED BEFORE US, WE FIND THAT THERE IS NOTHING TO SUGGEST THAT THE A SSESSING OFFICER HAS EXAMINED THE ISSUE OF SET OFF OF UNABSORBED DEPRECI ATION AND FORMED AN OPINION. CHANGE OF OPINION COMES TO THE RESCUE OF THE ASSESSEE ONLY WHEN THE ASSESSING OFFICER IS TAKEN ONE PERMIS SIBLE VIEW AT THE TIME OF ORIGINAL PROCEEDINGS. IN THE CASE OF THE ASSESSEE, THERE ITA NO. 515 &584/16 :- 5 -: WAS NO EVIDENCE TO SHOW THAT THE ASSESSING OFFICER HAS TAKEN ONE OF THE PERMISSIBLE VIEWS. IN FACT, THE ORIGINAL ASSES SMENT MADE U/S 143(3) WAS NOT PLACED BEFORE US. THIS TRIBUNAL IS CONSISTENTLY TAKING A DECISION THAT ASSESSMENT CAN BE REOPENED WITHIN FOU R YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR EVEN THOUGH THE RE IS NO FAILURE ON THE PART OF THE ASSESSEE. THE HON'BLE JURISDICTIO NAL HIGH COURT IN THE CASE OF SRI SAKTHI TEXTILES LTD VS JT. CIT, 340 ITR 144, HELD THAT IT WOULD BE SUFFICE IF THE ASSESSING OFFICER HAS RECOR DED THE REASONS FOR HIS BELIEF THAT THERE HAD BEEN ESCAPEMENT OF TAXABL E INCOME FROM THE ASSESSEES HANDS. IN THIS CASE, THE ASSESSING OFFI CER HAS RECORDED THE REASONS AS UNDER: 'THE RETURN OF INCOME FOR A. Y. 2008-09 WAS FILED BY THE ASSESSEE ON 30/09/2008 DECLARING AN INCOME OF RS.11,04,22,407/-. ORDER U/S 143(3) OF THE ACT WAS PASSED ON 22/09/2010 COMPUTING THE INCOME AT RS.58.48.39.921/- AFTER SETTING OFF LOSS PERTAINING TO A. Y 1996-97 TO 2001-02, 2005-06 TO 2007-08 TOTALLING TO RS.4, 74,19,672/ -. IT IS SEEN THAT UNABSORBED DEPRECIATION PERTAINING TO FOLLOWING ASSESSMENT YEARS WERE ADJUSTED AGAINST TH E INCOME FOR THE YEAR UNDER CONSIDERATION: 1. A.Y 1997-98 ` 40,99,000 2. A.Y 1998-99 ` 87,19,000 3. A.Y 1999-00 ` 87,21,000 ITA NO. 515 &584/16 :- 6 -: HOWEVER, IN VIEW THE POSITION OF THE LAW WITH REGAR D TO CARRY FORWARD OF UNABSORBED DEPRECIATION PRIOR TO THE AME NDMENT OF SECTION 32(2) OF THE ACT, W.E.F. FROM 01/04/2002, WHICH WAS THAT THE UNABSORBED DEPRECIATION REFERRED TO IN ACT AS 'UNABSORBED DEPRECIATION ALLOWANCE' COULD HAVE BEEN CARRIED FORWARD FOR ONLY EIGHT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH THE DEPRECIATION WAS FIRS T COMPUTED. HOWEVER, THE UNABSORBED-DEPRECATION FOR THE ABOVE MENTIONED THREE YEARS HAS BEEN ALLOWED TO SET OFF A GAINST AN INCOME BEYOND A PERIOD OF EIGHT YEARS, HENCE THE SA ID ALLOWANCE IS NOT IN COMPLIANCE TO THE PROVISIONS OF THE LAW. AS A REASON OF ALLOWING THE SET OFF UNABSOR BED LOSSES PERTAINING TO A. Y. 1997-98 TO 1999-2000, INCOME TO THE TUNE OF RS.21539000/ - HAS BEEN UNDER ASSESSED. IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THAT INCOME TO THE TUNE OF RS.21539000/ - HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF THE PROVISIONS OF EXPLANATION 2(C)(I ) OF SECTION 147 OF THE I. T. ACT 1961 AND THIS IS THEREFORE A FIT CASE FOR ISSUE OF NOTICE U/ S.148 OF THE I. T. ACT, 1961.' THE ASSESSEE HAS CLAIMED UNABSORBED DEPRECIATION BEYOND THE PERIOD OF EIGHT YEARS WHICH WAS NOT PERMISSIBLE DURING THE INTERVENING PERIOD. THEREFORE, THE ASSESSING OFFICE R HAS MADE A VALID REASON TO BELIEVE THAT THE INCOME HAD ESCAPED TO BE TAXED IN THE HANDS OF THE ASSESSEE. HENCE, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS THE GROUNDS OF APPEAL OF THE ASSESSEE. 6. GROUND NOS.4 TO 5 ARE RELATED TO THE ADDITION OF ` 1,08,99,000/-. THE AMOUNT WAS DEBITED IN THE PROFI T & LOSS ACCOUNT AS PROVISION FOR LEAVE SALARY. THE ASSESSING OFFIC ER DISALLOWED THE ABOVE AMOUNT U/S 43B(F) OF THE ACT SINCE THE SAID AMOUNT BEING A PROVISION AND NOT ALLOWABLE IN THE YEAR UNDER CONS IDERATION. ITA NO. 515 &584/16 :- 7 -: 7. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE WENT ON APPEAL BEFORE THE LD. CIT(A) AND T HE LD. CIT(A) DISMISSED THE ASSESSEES GROUND. 8. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSE SSEE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. AR APPEARING FOR THE ASSESSEE ARGUED THAT THE ASSESSEE HAS MADE A PROVISION OF ` 1,08,99,000/- FOR THE LEAVE SALARY AGAINST WHICH NO PAYMENTS WERE MAD E BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME. IT WAS SUBMIT TED THAT THE PROVISION MADE FOR LEAVE SALARY IS NEITHER A STATUTORY NOR A CONTINGENT LIABILITY AND IN ALL THE EARLIER ASSESSMENT YEARS, THE LD. CI T(A) HAS DELETED THE ADDITION AND NO FURTHER APPEAL FILED BY THE DEPARTM ENT, THIS TRIBUNAL HAS CONFIRMED THE ORDERS OF THE LD. CIT(A) IN ITA N O.1565,1566 &1567/MDS/2014 DATED 19/12/2014 IN ASSESSEES OWN C ASE.. THEREFORE, THE LD. AR REQUESTED TO DELETE THE ADDIT ION MADE BY THE ASSESSING OFFICER. 9. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 10. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL PLACED BEFORE US. THE ASSESSEE HAS MADE A PROVISI ON FOR LEAVE SALARY AMOUNTING TO ` 1,08,99,000/- REPRESENTING LEAVE SALARY. AS PER T HE ITA NO. 515 &584/16 :- 8 -: PROVISIONS OF SEC. 43B(F), THE EXPENDITURE IS ONLY ON PAYMENT BASIS. FOR READY REFERENCE, WE REPRODUCE HEREUNDER SEC. 43 B(F) OF THE ACT: CERTAIN DEDUCTIONS TO BE ONLY ON ACTUAL PAYMENT 6 . 7 43B. 8 NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE 6 UNDER THIS ACT IN RESPECT OF 17 [(F) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER IN L IEU OF ANY LEAVE AT THE CREDIT OF HIS EMPLOYEE, 17A [ OR ] ] SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOU S YEAR 18 IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSES SEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) ONL Y IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM : 11. THE ABOVE PROVISION HAS BEEN INTRODUCED IN INCOME- TAX ACT, 1961 WITH EFFECT FROM 1.4.2002 THROUGH FINANCE ACT 2001.THIS TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A.NOS.1565, 1566 & 1 567/MDS/2014 DATED 19.12.2014 FOR ASSESSMENT YEARS 2006-07 TO 20 09-10, DISMISSED THE REVENUES APPEALS FOLLOWING THE JUDGMENT OF HON 'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS PANASONIC HOME APPLIANC ES 323 ITR 344 AND BHARAT EARTH MOVERS VS CIT 245 ITR 428(SC). THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R FOLLOWING THE SUBSEQUENT JUDGMENT OF HON'BLE KERALA HIGH COURT IN THE CASE OF SOUTH INDIAN BANK LTD VS CIT, 45 TAXMANN.COM 428 AN D DECISION OF THIS TRIBUNAL IN THE CASE OF ACIT VS M/S WARDEX PH ARMACEUTICALS LTD. IN I.T.A.NOS.2146 & 2147/MDS/2014 DATED 11.9.2015 ITA NO. 515 &584/16 :- 9 -: 12. THE LD. DR ARGUED THAT THE ISSUE IS COVERED IN FAVO UR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL IN THE ASSE SSEES OWN CASE (SUPRA) BUT WHILE RENDERING THE DECISION, THIS TRIB UNAL HAS NOT CONSIDERED THE JUDGMENT OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF SOUTH INDIAN BANK LTD.(SUPRA). THE ISSUE BEFORE THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE LAW CITED WAS THE ALLOWABILITY OF EXPENDITURE/S 37(1) BUT NOT THE DISALLOWANCE U/S 43 B(F) THEREFORE HONBLE JURISDICTIONAL HIGH COURT HAD NO OCCASION T O CONSIDER THE ISSUE OF DISALLOWANCE U/S43B(F). FURTHER, THIS TRIBUNAL SUBSEQUENTLY PASSED AN ORDER IN THE CASE OF WARDEX PHARMACEUTICALS LTD. (SUPRA) HOLDING THAT PROVISION FOR LEAVE ENCASHMENT CANNOT BE ALLOW ED AS A DEDUCTION. THE LD. AR HAS NOT BROUGHT ANY MATERIAL TO CONTROVE RT THE JUDGMENT OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF SOUTH INDI AN BANK LTD(SUPRA). THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMENT OF H ON'BLE KERALA HIGH COURT, AND THE DECISION OF COORDINATE BENCH OF THI S TRIBUNAL WE HOLD THAT THE EXPENDITURE RELATING TO LEAVE ENCASHMENT C ANNOT BE ALLOWED AS DEDUCTION. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THE GROUND OF APPEAL RAISED BY THE ASSESSE E. 13. IN ITS WRITTEN SUBMISSIONS THE ASSESSEE STATED THA T IN THE ABSENCE OF ASSESSMENT OR RE-ASSESSMENT THE INCOME I NDICATED TO HAVE BEEN ESCAPED ASSESSMENT IN THE REASONS, NO OTHER IN COME COULD BE ITA NO. 515 &584/16 :- 10 -: ASSESSED OR REASSESSED INDEPENDENTLY FOR WHICH HE H AS RELIED O THE JUDGMENT OF BOMBAY HIGH COURT IN CIT VS JET AIRWAYS (I) LTD. 331 ITR 236. NO ARGUMENTS WERE ADVANCED BEFORE US ON THE S UBMISSION MADE BY THE ASSESSEE. 14. THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT FOR CLAIM OF EXCESS DEPRECIATION AND THE SAME WAS ADDE D BACK TO THE INCOME IN ASSESSMENT ORDER MADE U/S 143(3) R.W.S 1 47 OF THE ACT. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS, IT HAS COME TO THE NOTICE OF THE ASSESSING OFFICER THAT THE ASSESSEE CLAIMED THE PROVISION OF LEAVE SALARY WHICH IS NOT PERMISSIBLE U/S 43B( F) OF THE ACT. NOW IT IS WELL SETTLED THAT ONCE THE ASSESSMENT IS VALI DLY REOPENED, NO FURTHER NOTICE U/S 143(2) IS NECESSARY FOR ANY FRE SH MATERIAL CAME TO THE NOTICE OF THE ASSESSING OFFICER. HAVING MADE T HE ADDITION RELATING TO THE UNABSORBED DEPRECIATION, THE ADDITION OF ` 1,08,99,000/- TOWARDS PROVISION FOR LEAVE SALARY HAS BEEN MADE VA LIDLY IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. ACCORDINGLY, THE S UBMISSION MADE BY THE ASSESSEE ON THIS ISSUE IS REJECTED. 15. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSED. ITA NO. 515 &584/16 :- 11 -: 16. NOW COMING TO THE REVENUES APPEAL I.T.A.NO.584/MDS/2016, ALL THE GROUNDS OF APPEAL AR E RELATED TO THE UNABSORBED DEPRECIATION CARRIED FORWARD FROM ASSESS MENT YEAR 1997- 98 TO 1999-2000 AND TO ADJUST THE SAME IN THE INCOM E OF ASSESSMENT YEAR 2008-09. 17. THE ASSESSMENT WAS REOPENED TO DISALLOW THE DEPRECI ATION RELATED TO ASSESSMENT YEARS 1997-98 TO 1999-2000. THE ASSESSEE HAS CLAIMED SET OFF OF LOSS RELATING TO THE ASSESSMENT YEARS 1997-98 TO 1999-2000 AGAINST THE INCOME DECLARED BY THE ASSES SEE FOR THE ASSESSMENT YEAR 2007-08. IN THE FINANCE ACT, 1996, THE GOVERNMENT OF INDIA, MINISTRY OF FINANCE HAS BROUGHT AN AMENDM ENT TO THE INCOME-TAX ACT, 1961 TO RESTRICT THE CARRY FORWARD OF SET OFF DEPRECIATION FOR EIGHT ASSESSMENT YEARS FROM THE AS SESSMENT YEAR 1997-98. SUBSEQUENTLY, BY FINANCE ACT, 2001, THE A CT WAS AMENDED AND DISPENSED WITH RESTRICTION OF EIGHT YEARS. 18. ON IDENTICAL FACTS, THIS TRIBUNAL IN THE CASE O F M/S BEST & CROMPTON VS ACIT IN I.T.A.NO.457/MDS/2012 DATED 19 .2.2014 FOR ASSESSMENT YEAR 2007-08, BY FOLLOWING THE JUDGMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS IN DIA PVT. LTD VS DCIT ALLOWED THE ASSESSEES APPEAL. FOR THE SAKE OF CONVENIENCE WE EXTRACT THE RELEVANT PARAGRAPH OF THE TRIBUNAL S ORDER. ITA NO. 515 &584/16 :- 12 -: 10. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITIES AND THE DECISIONS RELIED ON. ON READING OF THE ORDER OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA PVT. LTD. (SUPRA), WE FIND THA T THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE . THE HONBLE HIGH COURT CONSIDERING THE ISSUE ELABORATEL Y HELD AS UNDER:- 30. THE LAST QUESTION WHICH ARISES FOR CONSIDERATIO N IS THAT WHETHER THE UNABSORBED DEPRECIATION PERTAINING TO A.Y. 1997-98 COULD BE ALLOWED TO BE CARRIED FORWARD AND SET OFF AFTER A PERIOD OF EIGHT YEARS OR IT WOU LD BE GOVERNED BY SECTION 32 AS AMENDED BY FINANCE ACT 2001? THE REASON GIVEN BY THE ASSESSING OFFICER UNDER SECTION 147 IS THAT SECTION 32(2) OF THE ACT WAS AMENDED BY FINANCE ACT NO.2 OF 1996 W.E.F. A.Y. 1997-98 AND THE UNABSORBED DEPRECIATION FOR THE A.Y . 1997-98 COULD BE CARRIED FORWARD UP TO THE MAXIMUM PERIOD OF 8 YEARS FROM THE YEAR IN WHICH IT WAS FIR ST COMPUTED. ACCORDING TO THE ASSESSING OFFICER, 8 YEA RS EXPIRED IN THE A.Y. 2005-06 AND ONLY TILL THEN, THE ASSESSEE WAS ELIGIBLE TO CLAIM UNABSORBED DEPRECIATION OF A.Y. 1997-98 FOR BEING CARRIED FORW ARD AND SET OFF AGAINST THE INCOME FOR THE A.Y. 2005-06 . BUT THE ASSESSEE WAS NOT ENTITLED FOR UNABSORBED DEPRECIATION OF RS.43,60,22,158/- FOR A.Y. 1997-98, WHICH WAS NOT ELIGIBLE FOR BEING CARRIED FORWARD AN D SET OFF AGAINST THE INCOME FOR THE A.Y. 2006-07. 31. PRIOR TO THE FINANCE ACT NO.2 OF 1996 THE UNABSORBED DEPRECIATION FOR ANY YEAR WAS ALLOWED TO BE CARRY FORWARD INDEFINITELY AND BY A DEEMING FICT ION BECAME ALLOWANCE OF THE IMMEDIATELY SUCCEEDING YEAR . THE FINANCE ACT NO.2 OF 1996 RESTRICTED THE CARRY FORWARD OF UNABSORBED DEPRECIATION AND SET-OFF TO A LIMIT OF 8 YEARS, FROM THE A.Y.1997-98. CIRCULAR NO .762 DATED 18.2.1998 ISSUED BY THE CENTRAL BOARD OF DIRE CT TAXES (CBDT) IN THE FORM OF EXPLANATORY NOTES CATEGORICALLY PROVIDED, THAT THE UNABSORBED DEPRECIATION ALLOWANCE FOR ANY PREVIOUS YEAR TO WHI CH FULL EFFECT CANNOT BE GIVEN IN THAT PREVIOUS YEAR S HALL BE CARRIED FORWARD AND ADDED TO THE DEPRECIATION ALLOWANCE OF THE NEXT YEAR AND BE DEEMED TO BE PART THEREOF. 32. SO, THE UNABSORBED DEPRECIATION ALLOWANCE OF A. Y. 1996-97 WOULD BE ADDED TO THE ALLOWANCE OF A.Y. 1997-98 AND THE LIMITATION OF 8 YEARS FOR THE CARRY - FORWARD AND SET-OFF OF SUCH UNABSORBED DEPRECIATION WOULD START FROM A.Y. 1997- 98. ITA NO. 515 &584/16 :- 13 -: 33. WE MAY NOW EXAMINE THE PROVISIONS OF SECTION 32(2) OF THE ACT BEFORE ITS AMENDMENT BY FINANCE AC T 2001. THE SECTION PRIOR TO ITS AMENDMENT BY FINANCE ACT, 2001, READ AS UNDER:- WHERE IN THE ASSESSMENT OF THE ASSESSEE FULL EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER CLAUSE (II) OF SUB-SECTION (1) IN ANY PREVIOUS YEAR OWNING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR OR OWING TO THE PROFITS OR GAINS BEING LESS THAN THE ALLOWANCE, THEN, THE ALLOWANCE OR THE PART OF ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN (HEREINAFTER REFERRED TO AS UNABSORBED DEPRECIATION ALLOWANCE), AS THE CASE MAY BE,- (I) SHALL BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR; (II) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SET OFF UNDER CLAUSE (I), THE AMOUNT NOT SO SET OFF SHALL BE SET OFF FROM THE INCOME UNDER ANY OTHER HEAD, IF ANY, ASSESSABLE FOR THAT ASSESSMENT YEAR; (III) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SET OFF UNDER CLAUSE (I) AND CLAUSE (II), THE AMOUNT OF ALLOWANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND (A) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR; (B) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SO SET OFF, THE AMOUNT OF UNABSORBED DEPRECIATION ALLOWANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR NOT BEING MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH THE AFORESAID ALLOWANCE WAS FIRST COMPUTED: PROVIDED THAT THE TIME LIMIT OF EIGHT ASSESSMENT YEARS SPECIFIED IN SUB CLAUSE (B) SHALL NOT APPLY I N CASE OF A COMPANY FOR THE ASSESSMENT YEAR BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR I N WHICH THE SAID COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUB-SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANY (SPECIAL PROVISIONS) ACT, 1985 ( 1 OF 1986) AND ENDING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE ENTIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES. ITA NO. 515 &584/16 :- 14 -: EXPLANATION.- FOR THE PURPOSES OF THIS CLAUSE, NET WORTH SHALL HAVE THE MEANING ASSIGNED TO IT I N CLAUSE (GA) OF SUB-SECTION (1) OF SECTION 3 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 . 34. THE AFORESAID PROVISION WAS INTRODUCED BY FINAN CE (NO.2) ACT, 1996 AND FURTHER AMENDED BY THE FINANCE ACT, 2 000. THE PROVISION INTRODUCED BY FINANCE (NO.2) ACT WAS CLAR IFIED BY THE FINANCE MINISTER TO BE APPLICABLE WITH PROSPECTIVE EFFECT. 35. SECTION 32 (2) OF THE ACT WAS AMENDED BY FINANC E ACT, 2001 AND THE PROVISION SO AMENDED READS AS UNDER :- 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 PROFI TS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING T O THE PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE, THEN, SUBJECT TO THE PROVISIONS OF SUB- SECTION (2) OF SECTION 72 AND SUB-SECTION (3) OF SE CTION 73, THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO W HICH EFFECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHAL L BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATI ON FOR THE FOLLOWING PREVIOUS YEAR AND DEEMED TO BE PA RT OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE ALLOWANCE OF TH AT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOU S YEARS. 36. THE PURPOSE OF THIS AMENDMENT HAS BEEN CLARIFIE D BY CENTRAL BOARD OF DIRECT TAXES IN THE CIRCULAR NO.14 OF 2001. THE RELEVANT PORTION OF THE SAID CIRCULAR READS AS UNDER :- MODIFICATION OF PROVISIONS RELATING TO DEPRECIATION 30.1 UNDER THE EXISTING PROVISIONS OF SECTION 32 OF THE INCOME-TAX ACT, CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION IS ALLOWED FOR 8 ASSESSMENT YEARS. 30.2 WITH A VIEW TO ENABLE THE INDUSTRY TO CONSERVE SUFFICIENT FUNDS TO REPLACE PLANT AND MACHINERY, SPECIALLY IN AN ERA WHERE OBSOLESCENCE TAKES PLACE SO OFTEN, THE ACT HAS DISPENSED WITH THE RESTRICTION O F 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THE ACT HAS ALSO CLARIFIED THAT IN COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION FOR ANY PREVIOUS YEAR, DEDUCTION OF DEPRECIATION UNDER SECTION 32 SHALL BE MANDATORY. ITA NO. 515 &584/16 :- 15 -: 30.3 UNDER THE EXISTING PROVISIONS, NO DEDUCTION FO R DEPRECIATION IS ALLOWED ON ANY MOTOR CAR MANUFACTUR ED OUTSIDE INDIA UNLESS IT IS USED (I) IN THE BUSINESS OF RUNNING IT ON HIRE FOR TOURISTS, OR (II) OUTSIDE IN THE ASSESSEES BUSINESS OR PROFESSION IN ANOTHER COUNTR Y. 30.4 THE ACT HAS ALLOWED DEPRECIATION ALLOWANCE ON ALL IMPORTED MOTOR CARS ACQUIRED ON OR AFTER 1 ST APRIL, 2001. 30.5 THESE AMENDMENTS WILL TAKE EFFECT FROM THE 1 ST APRIL, 2002, AND WILL, ACCORDINGLY, APPLY IN RELATI ON TO THE ASSESSMENT YEAR 2002-03 AND SUBSEQUENT YEARS. 37. THE CBDT CIRCULAR CLARIFIES THE INTENT OF THE A MENDMENT THAT IT IS FOR ENABLING THE INDUSTRY TO CONSERVE SU FFICIENT FUNDS TO REPLACE PLANT AND MACHINERY AND ACCORDINGLY THE AMENDMENT DISPENSES WITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THE AMENDMENT IS APPLICABLE FROM ASSESSMENT YEAR 2002-0 3 AND SUBSEQUENT YEARS. THIS MEANS THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1ST DAY OF APRIL, 2002 (A.Y. 2002- 03) WILL BE DEALT WITH IN ACCORDANCE WI TH THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE A CT, 2001 AND NOT BY THE PROVISIONS OF SECTION 32(2) AS IT ST OOD BEFORE THE SAID AMENDMENT. HAD THE INTENTION OF THE LEGISL ATURE BEEN TO ALLOW THE UNABSORBED DEPRECIATION ALLOWANCE WORK ED OUT IN A.Y. 1997-98 ONLY FOR EIGHT SUBSEQUENT ASSESSMENT Y EARS EVEN AFTER THE AMENDMENT OF SECTION 32(2) BY FINANC E 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) OF THE ACT, A PURPOSIVE AND HARMONIOUS INTERPRETATION HAS TO BE TAKEN. WHILE CONSTRUING TAXING STATUTES, RULE OF ST RICT INTERPRETATION HAS TO BE APPLIED, GIVING FAIR AND R EASONABLE CONSTRUCTION TO THE LANGUAGE OF THE SECTION WITHOUT LEANING TO THE SIDE OF ASSESSEE OR THE REVENUE. BUT IF THE LEG ISLATURE FAILS TO EXPRESS CLEARLY AND THE ASSESSEE BECOMES ENTITLE D FOR A BENEFIT WITHIN THE AMBIT OF THE SECTION BY THE CLEA R WORDS USED IN THE SECTION, THE BENEFIT ACCRUING TO THE ASSESSE E CANNOT BE DENIED. HOWEVER, CIRCULAR NO.14 OF 2001 HAD CLARIFI ED THAT UNDER SECTION 32(2), IN COMPUTING THE PROFITS AND G AINS OF BUSINESS OR PROFESSION FOR ANY PREVIOUS YEAR, DEDUC TION OF DEPRECIATION UNDER SECTION 32 SHALL BE MANDATORY. T HEREFORE, THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINAN CE ACT, 2001 WOULD ALLOW THE UNABSORBED DEPRECIATION ALLOWA NCE AVAILABLE IN THE A.Y. 1997-98, 1999-2000, 2000-01 A ND 2001- 02 TO BE CARRIED FORWARD TO THE SUCCEEDING YEARS, A ND 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 SUBSEQU ENT 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 ITA NO. 515 &584/16 :- 16 -: 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 FRO M ANY OTHER BUSINESS OR BUSINESS, IF ANY, CARRIED ON BY THE ASS ESSEE. IF A BALANCE IS LEFT EVEN THEREAFTER, THAT BECOMES DEDUC TIBLE FROM OUT OF INCOME FROM ANY SOURCE UNDER ANY OF THE OTHE R HEADS OF INCOME DURING THAT YEAR. IN CASE THERE IS A STILL B ALANCE LEFT OVER, IT IS TO BE TREATED AS UNABSORBED DEPRECIATIO N AND IT IS TAKEN TO THE NEXT SUCCEEDING YEAR. WHERE THERE IS C URRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR THE UNABSORBE D DEPRECIATION IS ADDED TO THE CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR AND IS DEEMED AS PART THEREOF. IF, HOWEVER, THERE IS NO CURRENT DEPRECIATION FOR SUCH SUCCEEDI NG YEAR, THE UNABSORBED DEPRECIATION BECOMES THE DEPRECIATION AL LOWANCE FOR SUCH SUCCEEDING YEAR. WE ARE OF THE CONSIDERED OPINION THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN A SSESSEE ON 1 ST DAY OF APRIL 2002 (A.Y. 2002-03) WILL BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001. AND ONCE THE CIRCULAR NO.14 O F 2001 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 T HE A.Y.2001-02 GOT CARRIED FORWARD TO THE ASSESSMENT Y EAR 2002- 03 AND BECAME PART THEREOF, IT CAME TO BE GOVERNED BY THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE A CT, 2001 AND WERE AVAILABLE FOR CARRY FORWARD AND SET OFF AG AINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS, WITHOUT ANY LIMIT WHATSOEVER. 11. RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE GUJARAT HIGH COURT, WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 19. RESPECTFULLY FOLLOWING THE JUDGMENT OF HON'BLE GUJA RAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA PVT. LTD. (SUPRA) AND THE CO- ORDINATE BENCH DECISION CITED SUPRA, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE GROUNDS OF THE REVENUE. 20. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ITA NO. 515 &584/16 :- 17 -: 21. TO SUMMARIZE, BOTH THE APPEAL OF THE ASSESSEE AND REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH NOVEMBER, 2016, AT CHENNAI. SD/- SD/- ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( . . ' #$ ) (D.S. SUNDER SINGH) % / ACCOUNTANT MEMBER / CHENNAI ! / DATED: 25 TH NOVEMBER, 2016 RD !' # $% &% / COPY TO: 1 . '( / APPELLANT 4. ) / CIT 2. #*'( / RESPONDENT 5. %+, # - / DR 3. ) () / CIT(A) 6. ,/ 0 / GF