ITO, New Delhi V. M/s. Air Liquide North India (P) Ltd., New Delhi

ITA 5548/DEL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5032 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-05-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 14-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Difference of opinion; Unabsorbed depreciation
• Section: 32; 56; 28; 154

Judgement Text

~ 1 ~ IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: A , NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 5548 /DEL/201 3 A.Y.: 20 05 - 06 ITO, WARD 1(3) C.R.BUILDING IP ESTATE NEW DELHI VS . AIR LIQUIDE NORTH INDIA (P) LTD. 24/09, MOHAN CO O PERATIVE INDUSTRIAL AREA MATHURA ROAD NEW DELHI 110 044 PAN: AABCA 0563 G (APPELLANT) (RESPONDENT) APPELLAN T BY SHRI ARUN KUMAR YADAV, CIT(DR) RESPONDENT BY SH. PC YADAV, ADV. DATE OF HEARING 09 TH AUGUST, 2017 DATE OF PRONOUNCEMENT 2 5 T H AUGUST, 2017 ORDER PER L.P. SAHU, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) - IV, NEW DELHI DATED 0 5. 0 7.2013 PERTAINING TO THE ASSESSMENT YEAR (A.Y.) 2005 - 06 ON THE FOLLOWING GROUNDS OF APPEAL. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS NOT JUSTIFIED IN GIVING RELIEF TO THE ASSESSEE AGAINST ORDER U/S 154 OF THE ACT WITHOUT VERIFYING THE FACT THAT S.72 OF THE ACT PROVIDES THAT WHERE THE NET RESULT OF THE COMPUTATION UNDER THE HEAD PROFIT AND GAIN OF BUSINESS OR ~ 2 ~ PROFESSION IS A LOSS TO THE ASSESSEE AND SUCH LOSS INCLUDING DEPRECIATION CANNOT BE WHOLLY SET OFF AGAINST INCOME UNDER ANY OTHER HEAD OF THE RELEVANT YEAR, SO MUCH OF THE LOSS AS HAD NOT BEEN SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING A.Y. TO BE SET OFF AGAI NST THE PROFITS AND GAINS OF BUSINESS AND PROFESSION . 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL . 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME FOR THE ABOVE A.Y. DECLARING NIL INCOME WHICH WAS ASSESSED UNDER THE SPECIAL PROVISIONS OF THE INCOME TAX ACT,1961 (THE ACT) AT RS.1,44,34,707/ - . AN AMOUNT OF RS.1,21,84,164/ - WAS ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCE S AN D WAS SET OFF AGAINST BROUGHT FORWARD LOSSES. THE CASE WAS TRAVELLED BEFORE THE FIRST APPELLATE AUTHORITY. THE LD. CIT(A) IN HIS ORDER DATED 13.5.2009 OBSERVED THAT THERE WAS DIFFERENCE OF OPINION AS TO WHETHER UNABSORBED BUSINESS LOSS OF EARLIER YEARS WAS TO BE TAKEN AT RS.5,25,91,692/ - AND BROUGHT FORWARD DEPRECIATION FOR ALL THE YEARS TAKEN TOGETHER AND CONSOLIDATED FIGURE OF UNABSORBED DEPRECIATION AND ALLOW THE LOWER OF THESE TWO TO THE EXTENT OF ADJUSTED NET PROFIT. 2.1. THEREAFTER THE LD.AO SUO MOTTO ISSUED NOTICE U/S 154 OF THE ACT ON THE GROUND THAT INCOME FROM OTHER SOURCES CANNOT BE SET OFF FROM BROUGHT FORWARD LOSSES AND THE SAME WAS NOT ALLOWABLE. HE ALSO OBSERVED THAT IN THE AUDITED BALANCE SHEET SCHEDULE X V THE ASSESSEE HAD SHOWN OTHER INCOME GIVING THE FOLLOWING SUB HEADS. LEASE RENT INCOME RS.10,718,878/ - INTEREST RECEIVED RS. 1,008,598/ - ~ 3 ~ MISC. INCOME RS. 456,688/ - --- ------------------ TOTAL: RS.12,184,164/ - ============== 2.2. THE ASSESSEE CONTENDED BEFORE THE A.O. THAT INCOME FROM OTHER SOURCES CAN BE SET OFF AGAINST BROUGHT FORWARD DEPRECIATION LOSSES WHICH WERE NOT ACCEPTED BY THE A.O. AND THE LD. CIT(A).AO DISALLOWED THE SET OF BROUGHT FORWARD LOSSES OF RS.1,24,84,164/ - . 3 . BEING AGGRIEVED BY THE ORDER PASSED U/S 154 OF THE ACT THE ASSESSEE APPEARED BEFORE THE FIRST APPELLATE AUTHORITY AND THE LD. CIT(A) AFTER CONSIDERING THE DETAILED SUBMISSIONS ALLOWED THE APPEAL OF THE ASSESSEE. 4 . LD.DR SUBMITTED THAT THE A.O. HAD RIGHT LY REOPENED THE ASSESSMENT U/S 154 OF THE ACT. HE STATED THERE WAS APPARENT MISTAKE ON RECORD THAT THE ASSESSEE HAS SHOWN UNDER THE OTHER INCOME TO THE RENT INCOME AND MISC. INCOME UNDER OTHER HEADS AND THEREFORE THESE CANNOT BE SET OFF FROM THE BROUGHT F ORWARD DEPRECIATION LOSS FROM THE EARLIER YEARS. THEREFORE IT CAN BE RECTIFIED U/S 154 OF THE ACT AND HE SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE ASSESSEE ARE ON DIFFERENT FOOTINGS, THEREFORE, NOT APPLICABLE. 5 . ON THE OTHER HAND LD.AR REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND RELIED ON THE ORDER OF THE LD. CIT(A). 6 . AFTER HEARING BOTH SIDES, PERUSING MATERIAL ON RECORD, CASE LAWS CITED, IT IS NOTED THAT THE BROUGHT FORWARD LOSSES OF DEPRECIATION OF EARLIER YEARS ~ 4 ~ CAN BE SET OFF FRO M THE INCOME FROM OTHER SOURCES, THE ASSESSEE HAS SHOWN OTHER INCOME OF RS.12 , 184 , 164 / - AS STATED (SUPRA) UNDER DIFFERENT HEADS. THE ASSESSEE HAS JUSTIFIED BEFORE THE LD. CIT(A) REGARDING LEASE RENT INCOME OF RS.10 , 718 , 878 / - AND MISC. INCOME OF RS.456 , 6 88 / - REASONS FOR SHOWING UNDER THE HEAD OTHER INCOME OF THE BALANCE SHEET WHICH CANNOT BE CONTROVERTED BY THE LD.DR , U NABSORBED DEPRECIATION AND CARRY FORWARD OF LOSSES IS GOVERNED U/S 32(2) AND S.72(2) OF THE ACT . LD. CIT(A) HAS RIGHTLY DISCUSSED THE IS SUE IN DETAIL IN HIS ORDER AS UNDER . 5.3. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE L D. AR AND PERUSED THE ORD ER PASSED BY THE AO. I FIND THAT THERE IS NO MISTAKE APPARENT FROM THE CASE R ECORDS WHICH CAN BE RECTIFIED U/S 154. THEREFORE, THE AO WAS NOT JUSTIFIED IN TAKING RECOURSE TO RECTIFICATION U/S 154. REGARDING UNABSORBED DEPRECIATION TO BE SET OFF, I FIND THAT THE JURISDICTIONAL ITAT IN THE CASE OF UTTAM AIR PRODUCTS (P) LTD. V DCIT [ 2006] 99,TTJ 718 (DELHI) HAS HELD AS UNDER: 'SECTION 32 OF THE INCOME - TAX ACT, 1961 - DEPRECIATION 'EFFECT OF AMENDMENT OF SECTION 32(2) WITH EFFECT FROM 1 - 4 - 1997 THE EFFECT OF THE AMENDMENT OF SECTION 32(2) BY THE FINANCE (NO. 2) ACT, 1996 WITH EFFECT FROM 1 - 4 - 1997, AS CLARIFIED BY THE FINANCE MINISTER IN HIS BUDGET SPEECH AND CBD T IN CIRCULAR NO. 762, DATED 18 - 2 - 1998, IS THAT UNABSORBED DEPRECIATION OF THE ASSESSEE PERTAINING TO THE ASSESSMENT YEAR 1996 - 97 IS LIABLE TO BE CONSIDERED AS A PART OF THE DE PRECIATION ALLOWANCE FOR THE ASSESSMENT YEAR 1997 - 98 AND, THEREFORE, IT SHALL BE ENTITLED TO BE SET OFF EITHER AGAINST THE INCOME FROM BUSINESS OR PROFESSION OR AGAINST INCOME UNDER ANY OTHER HEAD RESULTING IN THE HANDS OF THE ASSESSEE FOR THE ASSESSMENT Y EAR 1997 - 98.' SIMILARLY, THE ITAT DELHI IN THE CASE OF SAIN PROCESSING & WEAVING MILLS V ACIT [2008] 19 SOT 560 (DELHI) HAS HELD AS UNDER: '8. IN VIEW OF THE ABOVE DISCUSSION AND DECISIONS OF CO - ORDINATE BENCHES DISCUSSED HEREINABOVE, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER ~ 5 ~ AUTHORITIES FOR DECLINING SETTING OFF OF UNABSORBED DEPRECIATION ALLOWANCE ALLOWED UP TO AND INCLUSIVE OF THE ASSESSMENT YEAR 1996 - 97, AND THE SAME CAN BE SET - OFF OF AGAINST THE TAXABLE BUSINESS PROFIT OR INCOME UNDER ANY OTHER HEAD, WHICH IN THE INSTANT CASE IS INCOME FROM HOUSE PROPERTY. ACCORDINGLY, WE REVERSE THE FINDING AND CONCLUSION OF BOTH THE LOWER AUTHORITIES AND DIRECT THE ASSESSING OFFICER TO ALLOW SETTING OFF OF UNABSORBED DEPRECIATION BROUGHT FORWARD UP TO THE ASSESSMENT YEAR 1996 - 97. WE DIRECT ACCORDINGLY' I FURTHER FIND THAT THE JURISDICTIONAL HIGH COURT IN THE CASE OF ESCORTS ELECTRONICS LTD. V CIT [2002] 124 TAXMAN 718 (DELHI) HAS HELD AS UNDER: '6 . SINCE, IN OUR OPINION, THE ISSUE, SUBJECT - MATTER OF THE FIRST QUESTION, STANDS ANSWERED BY THE SUPREME COURT IN CIT V. VIRMANI INDUSTRIES (P) LTD. [1995] 2161TR 607, WE DEEM IT UNNECESSARY TO DWELL ON THE QUESTION IN GREATER DETAIL. IN VIRMANI INDUSTRIES (P) LTD.'S CASE (SUPRA) THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF SOAP AND OIL DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1956 - 57. THE BUSINESS WAS STOPPED IN THAT YEAR, WHEREAFTER THE FACTORY WAS LET OUT ON HIRE. TEN YEARS LATER, I.E., IN THE PREVIOUS YEAR RELATING TO THE YEAR 1965 - 66, THE A SSESSED STARTED THE BUSINESS OF MANUFACTURE OF STEEL PIPES. FOR THE PURPOSE OF THIS BUSINESS, A PART OF THE OLD MACHINERY USED IN THE MANUFACTURE OF SOAP AND OIL WAS UTILISED. I THE ASSESSMENT PROCEEDINGS RELATING TO THE ASSESSMENT YEAR 1965 - 66, TH ASSESSE E CLAIMED THAT UNABSORBED DEPRECIATION, TO THE EXTENT IT PERTA MACHINERY UTILISED IN THE NEW BUSINESS, SHOULD BE BROUGHT FORWARD AND AGAINST THE PROFITS OF THE NEW BUSINESS. THE CLAIM WAS REJECTED BY THE INCOME TAX OFFICER AND BY THE APPELLATE ASSISTANT CO MMISSIONER. THE TRIBUNAL, HO WEVER UPHELD THE ASSESSEE'S CLAIM. THE VIEW OF THE TRIBUNAL WAS AFFIRMED BY THE HIGH COURT. UPHOLDING THE DECISION OF THE HIGH COURT, THE APEX COURT HELD THAT IF AFTER SETTING OFF THE UNABSOR BED DEPRECIATION ALLOWANCE RELATING TO THE ASSESSMENT YEAR 1956 - 57 AGAINST THE INCOME FOR THE FOLLOWING ASSESSMENT YEARS, ANY DEPRECIATION ALLOWANCE STILL REMAINED UNABSORBED, IT COULD BE SET OFF AGAINST THE INCOME FOR THE ACCOUNTING PERIOD RELEVANT TO THE ASSESSMENT YEAR 1965 - 66. FOR COMIN G TO THE SAID CONCLUSION, THE SUPREME COURT RELIED ON ITS EARLIER TWO DECISIONS IN CIT V. JAIPURIA CHINA CLAY MINES (P) LTD. (1966) 59 ITR 555 AND RAJAPA LA YAM MILLS LTD. V. CIT (1978) 1151TR 777, ~ 6 ~ WHEREIN IT WAS OBSERVED THAT THE UNABSORBED DEPRECIATION WAS NOT ONLY TO BE SET OFF AGAINST OTHER HEADS OF INCOME IN THE RELEVANT PREVIOUS YEAR BUT WHERE IT IS CARRIED FORWARD, IT 'STANDS EXACTLY ON THE SAME FOOTING AS THE CURRENT DEPRECIATION'. THUS, REITERATING THE VIEW EXPRESSED IN THE AFORE - NOTED DECISIONS, IN VIRMANI INDUSTRIES (P) LTD'S CASE (SUPRA), THE APEX COURT HAS HELD THAT THOUGH ON THE FIRST IMPRESSION THE EXPRESSION 'PROFITS OR GAINS CHARGEABLE' APPEARS TO REFER ONLY TO PROFITS OR GAINS OF BUSINESS OR PROFESSION CHARGEABLE UNDER SECTION 28 BUT IN VIEW OF THE SAID DECISIONS, THE SAID EXPRESSION IS NOT SO CONFINED AND IT REFERS TO INCOME FROM ALL THE HEADS OF INCOME SPECIFIED IN SECTION 14 OF THE ACT, WHICH INCLUDES 'INCOME FROM OTHER SOURCES'. 7. IN VIEW OF THE SAID AUTHORITATIVE PRONOUNCEMENT, WE ARE O F THE OPINION THAT THE TRIBUNAL WAS NOT RIGHT IN HOLDING THAT THE UNABSORBED DEPRECIATION CARRIED FORWARD FROM EARLIER YEARS COULD NOT BE ALLOWED AGAINST THE INCOME ASSESSED UNDER SECTION 56 OF THE ACT UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. CONSEQUENT LY, THE FIRST QUESTION IS ANSWERED IN THE NEGATIVE, I.E., IN FAVOUR OF THE ASSESSED AND AGAINST THE REVENUE. IT IS CLEAR FROM THE ABOVE DECISIONS THAT UNABSORBED DEPRECATION CAN BE SET OFF EVEN AGAINST OTHER HEADS OF INCOME UNDER PROVISO TO SECTION 32(2) OF THE ACT. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, LEGAL POSITION ON THE ISSUE AND VARIOUS JUDIC IAL PRONOUNCEMENTS RELIED UPON BY THE LD. AR, I AGREE WITH THE SUBMISSION OF L D. AR THAT AO WAS NOT JUSTIFIED' IN MAKING THE DISALLOWANCE OF SETTING OFF OF UNABSORBED DEPRECIATION. IN VIEW OF THE ABOVE DISCUSSION, THE 'GROUNDS OF APPEAL ARE ALLOWED. 7. THE ABOVE ORDER OF LD. CIT(A) DOES NOT REQUIRE ANY INTERFERENCE WITH REGARD TO CARRY FORWARD AND SETTING OF F UNABSORBED DEPRECIATION OF EARLIER YEARS , T HE ASSESSEE HAD RIGHTLY CLAIMED FOR SETTING OFF THE UNABSORBED DEPRECIATION FROM THE INCOME FROM OTHER S OURCES . W E UPHOLD THE ORDER OF LD. CIT(A) AND PASSING OF ORDER U/S 154 BY THE A.O. IS NOT JUSTIFIED BECAUSE THERE IS NO MISTAKE APPARENT ON RECORD. THER EFORE WE DISMISS THE APPEAL OF THE REVENUE. ~ 7 ~ 8 . IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 2 5 T H AUGUST, 2017. S D / - S D / - (AMIT SHUKLA) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 2 5 T H AUGUST, 2017 * GMV COPY FORWARDED TO: - 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES NEW DELHI