Heubach Colour Pvt.Ltd., Ankleshwar V. The ACIT.,Bharuch Circle, Bharuch

ITA 60/AHD/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63115 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-09-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 03-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRASR
• Assessee Lawyers: J P SHAH
• Keywords: Business income; Depreciation; Rectification of order; Earning of tax free income; Unabsorbed depreciation
• Section: 143(3); 14A; 10B; 54

Judgement Text

ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO.60/AHD/2008 (ASST. YEAR: 2002-03) M/S.HEUBACH COLOUR PVT. LTD., PLOT NO.9003-9010 PHASE-VI, GIDC INDL. ESTATE, ANKLESHWAR-393 002. (APPELLANT) VS. ASSISTANT COMMISSIONER OF INCOME TAX, BHARUCH CIRCLE, BHARUCH. (RESPONDENT) I.T. A. NO. 61 & 62/AHD/2008 (ASSESSMENT YEAR: 20 03-04 & 2004-05) HEUBACH COLOUR PVT. LTD., PLOT NO.9003-9010,PHASE-IV, GIDC INDL. ESTATE, ANKLESHWAR. (APPELLANT) VS. ASSISTANT COMMISSIONER OF INCOMETAX, BHARUCH CIRCLE, BHARUCH. (RESPONDENT) PAN: AAACH 2578P APPELLANT BY : MR. J.P.SHAH RESPONDENT BY : MR. RAJ MEHRA,SR. D.R. ( )/ ORDER DATE OF HEARING : 4 - 9 -2012 DATE OF PRONOUNCEMENT : 30- 11-2012 PER: SHRI ANIL CHATURVEDI, A.M. ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 2 THESE THREE APPEALS ARE FILED BY THE ASSESSEE AGAIN ST THE ORDERS OF LD. CIT (A)-VI, BARODA DATED 28-11-2007 FOR THE ASS ESSMENT YEAR 2002-03 , 2003-04 AND 2004-05 RESPECTIVELY. 2. SINCE THE ISSUES IN ALL THE 3 APPEALS ARE INTER CONNECTED, ALL 3 APPEALS ARE HEARD TOGETHER AND DECIDED BY THIS CONS OLIDATED ORDER. ITA NO.60/AHD/2008 ASSESSMENT YEAR 2002-03. 3. ALL THE THREE GROUNDS ARE WITH RESPECT TO ORDER PASSED U/S. 154 OF THE ACT. SINCE THE GROUNDS ARE INTERCONNECTED THEY ARE BEING DISPOSED OFF TOGETHER FOR THE SAKE OF CONVENIENCE. 4. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE, SALE AND DISTRIBUTION OF COLOUR PIGMENTS AND PIGMEN T PREPARATION. ASSESSEE HAD SET UP A 100% EOU AT ANKLESHWAR TO MANUFACTURE THE PIGMENTS AND IT CLAIMED BENEFIT U/S. 10B. 5. DURING ASSESSMENT YEAR 2001-02, ASSESSEE CLAIMED ITS ENTIRE BUSINESS PROFITS AS NOT SUBJECT TO TAX IN ACCORDANC E WITH THE PROVISIONS OF SEC.10B OF THE ACT AND ACCORDINGLY THE BROUGHT FORW ARD UNABSORBED BUSINESS LOSS/DEPRECIATION OF A.Y. 1995-96 AND 1996 -97 WAS CARRIED FORWARD TO BE SET AGAINST THE TAXABLE PROFITS OF SU BSEQUENT ASSESSMENT YEARS. THE A.O. DID NOT AGREE WITH THE TREATMENT GI VEN BY THE ASSESSEE AND WHILE PASSING THE ORDER U/S. 143(3) HE FIRST AL LOWED SET OFF OF UNABSORBED LOSS/DEPRECIATION OF A.Y. 1995-96 AND 19 96-97 AND THEN ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 3 APPLIED PROVISIONS OF SEC. 10B WHICH RESULTED INTO A SITUATION WHERE THE ASSESSEE DID NOT HAD ANY AMOUNT OF UNABSORBED BUSIN ESS LOSS/DEPRECIATION OF A.Y. 1995-96 AND 1996-97 TO BE CARRIED FORWARD FOR SET OFF AGAINST THE TAXABLE PROFITS OF SUBSEQUENT ASSES SMENT YEARS. AGGRIEVED BY THE ACTION OF A.O., THE ASSESSEE CARRIED THE MAT TER BEFORE CIT (A). CIT (A) VIDE ORDER DATED 9-3-2005 ALLOWED THE APPEAL OF THE ASSESSEE AND HELD THAT THE ASSESSEE IS ELIGIBLE TO CARRY FORWARD THE AGGREGATE UNABSORBED BUSINESS LOSS/DEPRECIATION OF RS.3,95,98,591/- (FOR A.Y. 1995-96 AND A.Y. 1996-97) FOR SET OFF AGAINST THE TAXABLE OF THE SUB SEQUENT ASSESSMENT YEARS. 6. FOR A.Y. 2002-03 THE ASSESSMENT WAS COMPLETED BY ACIT U/S. 143(3) VIDE ORDER DATED 25-2-2005 AND THE INCOME WA S DETERMINED AT RS.1,27,00,150/-. SUBSEQUENTLY ASSESSEE FILED AN AP PLICATION DATED 22-3- 2005 U/S.154 WITH A REQUEST TO RECTIFY CERTAIN MIST AKES APPARENT FROM THE RECORD. IN RESPONSE TO THE ASSESSEES APPLICATION ACIT VIDE ORDER DATED 2- 4-2005 PASSED U/S.154 RECTIFIED THE MISTAKES AND DE TERMINED THE GROSS TOTAL INCOME AT RS.1,12,63,574/-. ASSESSEE SUBSEQUE NTLY FILED AN APPLICATION DATED 29-4-2005 BEFORE ACIT REQUESTING HIM TO GRANT SET OFF OF THE UNABSORBED BUSINESS LOSS/DEPRECIATION OF A.Y. 1 995-96 AND 1996-97 PURSUANT TO THE APPELLATE ORDER OF CIT (A) FOR A.Y. 2001-02. ACIT AFTER CONSIDERING ALL THE FACTS, VIDE ORDER DATED 22-7-20 05 ALLOWED THE SET OFF OF THE UNABSORBED BUSINESS LOSS/DEPRECIATION OF A.Y. 1 995-96 AND A.Y. 1996- 97 AMOUNTING TO RS.1,12,43,784/- AFTER THE APPLICAT ION OF PROVISIONS OF SEC. 10B AND THE BALANCE UNABSORBED DEPRECIATION OF RS. 2,83,54,807/- OF THE ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 4 A.Y. 1995-96 AND 1996-97 WAS ALLOWED TO BE CARRIED FORWARD FOR SET OFF AGAINST THE PROFITS OF SUBSEQUENT ASSESSMENT YEARS. 7 LATER ON A.O. ISSUED NOTICE U/S.154/155 OF THE AC T SEEKING TO RECTIFY HIS ORDER DATED 22-7-2005 ISSUED U/S.154. HE WAS OF THE VIEW THAT WHILE PASSING RECTIFICATION ORDER THE BROUGHT FORWARD LOS S AND DEPRECIATION AGGREGATING TO RS.3,95,98,591/- WAS SET OFF FROM TO TAL INCOME AFTER ALLOWING DEDUCTION U/S.10B. ACCORDING TO HIM THE BROUGHT FOR WARD LOSS OF EARLIER YEAR SHOULD HAVE BEEN DEDUCTED FROM TOTAL INCOME BEFORE ALLOWING DEDUCTION U/S. 10B. ASSESSEE OBJECTED TO THE PROPOSED VIEW OF ACIT. ACIT HOWEVER IGNORED THE SUBMISSIONS AND VIDE ORDER DATED 23-3-2 006 PASSED U/S.154 ALLOWED THE SET OFF OF UNABSORBED BUSINESS LOSS/DEP RECIATION FOR A.Y. 1995- 96 AND 1996-97 BEFORE THE APPLICATION OF PROVISIONS OF SEC.10B OF THE ACT. AGGRIEVED BY THE ORDER OF ACIT PASSED U/S. 154, THE ASSESSEE CARRIED THE MATTER BEFORE CIT (A). 8. BEFORE CIT (A) THE ASSESSEE SUBMITTED THAT THERE WAS NO MISTAKE APPARENT ON RECORD WHICH WARRANTS RECTIFICATION. CI T (A) DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND VIDE ORDER DATE D 28-11-2007 DISMISSED THE APPEAL OF THE ASSESSEE BY HOLDING AS UNDER: 4.2.1. IT IS ALSO SEEN THAT DURING A.Y. 2001-02 T HE APPELLANT COMPANY HAD EARNED BUSINESS PROFIT OF RS.10.67 CROR ES AND AFTER CLAIMING BENEFIT OF SECTION 10B THE TOTAL INCOME WA S RETURNED AS NIL. THE ASSESSING OFFICER ON THE OTHER HAND SET OFF THE BROUGHT FORWARD BUSINESS LOSS AND DEPRECIATION FOR A.Y.1995-96 AND 1996-97 AMOUNTING TO RS.3.95 CRORES AGAINST THE PROFIT AND GAIN OF THE APPELLANT COMPANY AND DETERMINED THE TOTAL INCOME A T NIL. THE ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 5 ASSESSMENT ORDER DATED 25-2-2002 FOR A.Y.2002-03 RE ITERATED THE STAND OF THE DEPARTMENT FOR A.Y. 2001-02. 4.2.2. THEREAFTER THE ORDER OF CIT (A)-IV, BAR ODA DATED 9-3-2005 FOR A.Y. 2001-02 WAS RECEIVED UPHOLDING THE STAND O F THE APPELLANT THAT THE BROUGHT FORWARD DEPRECIATION AND BUSINESS LOSS SHOULD NOT BE FIRST ADJUSTED AGAINST THE BUSINESS INCOME, BUT THE SAME MAY BE ALLOWED TO BE CARRIED FORWARD. IN LIGHT OF THE ORDE R OF CIT (A) FOR A.Y. 2001-02 THE ASSESSEE FILED THE RECTIFICATION APPLIC ATION UNDER SEC. 154 FOR A.Y. 2002-03. VIDE ORDER DATED 22-7-2005 OU T OF TAXABLE INCOME OF RS.1,12,43,784/- THE UNABSORBED DEPRECIAT ION/BUSINESS LOSS OF RS.1,12,43,784/- WAS ALLOWED AND THE BALANC E OF RS.2,83,54,807/- WAS ALLOWED TO BE CARRIED FORWARD. HOWEVER VIDE ORDER DATED 23-3-2006 UNDER SEC. 154 IT IS MENTIONE D THAT THERE WAS A MISTAKE APPARENT FROM RECORDS AS IN THE ORIGINAL ASSESSMENT ORDER A CLEAR STAND WAS TAKEN BY THE DEPARTMENT THAT SET OFF OF EARLIER YEARS BUSINESS LOSS/DEPRECIATION BE FIRST PROVIDED OUT OF THE BUSINESS PROFIT AND THAT BY MISTAKE ON THE RECTIFICATION APPLICATIO N OF THE ASSESSEE FOR A.Y. 2002-03 THE PLEA OF THE ASSESSEE WAS ACCEPTED AND MISTAKENLY THE UNABSORBED BUSINESS LOSS AND DEPRECIATION WAS A LLOWED TO BE CARRIED FORWARD. THE ASSESSEE ON THE OTHER HAND WAS OF THE VIEW THAT THE ASSESSING OFFICER PASSED THE RECTIFICATION ORDE R U/S. 154 DATED 22-7-2005 AFTER CONSIDERING ALL THE FACTS ON RECORD S. 4.2.3. ON GOING THROUGH THE FACTS ON RECORDS AS WE LL AS THE SEQUENCE OF EVENTS, I AM CONVINCED THAT ASSESSING O FFICER HAS ERRONEOUSLY AND UNDER A MISTAKEN IMPRESSION PASSED RECTIFICATION ORDER FOR A.Y. 2002-03 UNDER SECTION 154 ON 22-7-20 05 FOLLOWING THE ORDER OF CIT (A) FOR A.Y.2001-02.THIS VIEW IS FURTH ER STRENGTHENED BY THE FACT THAT FOR A.Y. 2001-02 AND 2002-03 THE DEPA RTMENT HAS CONSISTENTLY TAKEN THE VIEW THAT SET OFF OF EARLIE R YEARS BUSINESS LOSS AND UNABSORBED DEPRECIATION BE FIRST ADJUSTED AGAIN ST THE BUSINESS PROFIT AND ONLY THEREAFTER THE EXEMPTION UNDER SECT ION 10B BE ALLOWED. IN FACT THE DEPARTMENT IS ALSO IN APPEAL B EFORE TRIBUNAL AGAINST THE ORDER OF CIT (A) FOR A.Y. 2001-02. HAD THE DEPARTMENT ACCEPTED THE ORDER OF CIT (A) AS IT IS MADE OUT BY THE APPELLANT THERE WOULD HAVE BEEN NO FURTHER APPEAL BEFORE THE TRIBUN AL. IN VIEW OF ABOVE THE FIRST GROUND IS DECIDED IN FAVOUR OF THE DEPARTMENT. ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 6 9. AGGRIEVED BY THE AFORESAID ORDER OF CIT (A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 10. BEFORE US, THE LD. A.R. SUBMITTED THAT THE RECT IFICATION ORDER U/S. 154 DATED 23-3-2006 OF ACIT IS THE RECTIFICATION OF THE EARLIER RECTIFICATION ORDER DATED 22-7-2005 PASSED U/S. 154. THE LD. A.R. SUBMI TTED THAT THE ORDER DATED 22-7-2005 THAT WAS PASSED U/S. 154 WHEREBY AC IT ALLOWED THE SET OFF OF THE UNABSORBED BUSINESS LOSS/DEPRECIATION AF TER THE APPLICATION OF PROVISIONS OF SEC. 10B AND ALLOWED THE BALANCE UNAB SORBED DEPRECIATION OF RS.2,83,54,807/- TO BE CARRIED FORWARD DEPRECIATION WAS PASSED PURSUANT TO THE ORDER OF CIT (A) FOR A.Y. 2001-02. THE AFORESA ID RECTIFICATION ORDER WAS PASSED BY ACIT AFTER VERIFICATION OF ALL THE FACTS AND AFTER PROPER APPLICATION OF MIND. ACCORDINGLY, THE ORIGINAL RECTIFICATION OR DER DATED 22-7-2005 CANNOT BE CONSIDERED TO BE ONE HAVING MISTAKE AND THEREFOR E COULD NOT BE RECTIFIED BY SUBSEQUENT ORDER DATED 23-3-2006. THE LD. A.R. F URTHER SUBMITTED THAT THE BASIC REQUIREMENT FOR PASSING A RECTIFICATION O RDER U/S. 154 IS THAT THERE SHOULD BE A MISTAKE APPARENT ON RECORD. THE MISTAKE MUST BE OBVIOUS AND PATENT MISTAKE. A MATTER CARRYING TWO OPINIONS CANN OT BE CONSIDERED TO BE A MISTAKE APPARENT FROM RECORD WHICH CAN BE RECTIFI ED U/S. 154. THE LD. A.R. FURTHER POINTED OUT TO THE ORDER OF CIT (A) DA TED 9-3-2005 FOR A.Y. 2001-02 WHEREIN CIT (A) HAS GIVEN A FINDING TO THE EFFECT THAT THE INCOME OF A.Y. 2001-02 HAS BEEN CORRECTLY ASSESSED AT RS. NIL BY THE A.O. BUT THE SET OFF OF BUSINESS LOSS AND UNABSORBED DEPRECIATIO N OF EARLIER YEAR (FOR NON 10B PERIOD) HAS BEEN WRONGLY REDUCED BY THE A.O . FROM THE BUSINESS PROFIT OF A.Y. 2001-02. CIT (A) FURTHER HELD THE DECISION OF THE A.O. IN NOT ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 7 ALLOWING ANY CARRY FORWARD OF BUSINESS LOSS AND UNA BSORBED DEPRECIATION OF EARLIER YEARS TO THE APPELLANT COMPANY IN THIS YEAR IS NOT CORRECT. THEREFORE, THE CARRY FORWARD OF THE SAME MAY BE ALLOWED TO THE APPELLANT COMPANY. HOWEVER SUCH LOSS AND UNABSORBED DEPRECIATION WILL AUTOMATICALLY LAPSE IN THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE LAST OF THE RELEVANT ASSESSMENT YEAR I.E. AFTER THE EXPIRY OF TEN YEARS PERIOD DURING WHICH THE APPELLANT COMPANY HAD CLAIMED BENEFIT OF PROVISIONS OF SECTION 10B OF THE I. T. ACT. 11. LD. A.R. ALSO RELIED ON THE DECISION OF APEX CO URT IN THE CASE OF T.S. BALARAM ITO VS. VOLKART BROTHERS & ORS. (1971) 82 I TR 50 (SC) WHERE THE HONBLE APEX COURT HAS HELD THAT A MISTAKE APPARENT ON THE RECORD MUST BE AN OBVIOUS AND PATENT MISTAKE AND NOT SOMETHING WHICH CAN BE ESTABLISHED BY A LONG DRAWN PROCESS OF REASONING ON POINTS ON WHICH THERE MAY CONCEIVABLY BE TWO OPINIONS. IT IS NOT OPEN TO ITO TO GO INTO THE TRUE SCOPE OF RELEVANT PROVISIONS OF THE ACT IN PROCEEDI NG U/S.154. HE THUS SUBMITTED THAT IN THE FACTS OF THE PRESENT CASE THE A.O. DID NOT HAVE POWER TO RECTIFY U/S.154 AN EARLIER ORDER PASSED U/S.154 AS THERE WAS NO APPARENT MISTAKE ON RECORD. HE THUS URGED THAT THE ORDER PAS SED U/S.154 WAS A BAD ORDER. 12. THE LD. A.R. FURTHER SUBMITTED THAT THE ISSUE I N THE PRESENT APPEAL IS ALSO COVERED IN ITS FAVOUR IN VIEW OF THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. BLACK & VEATCH CONSULTANCY (P) LTD. (2012) 72 DTR (BOM.) 252, CIT VS. TEI TECHNOLOGIES PVT. LTD. (ITA NO.347/2011 AND 2067/2010. HE PLACED ON RECORD THE COPY OF THE DECI SIONS. ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 8 13, ON THE OTHER HAND THE LD. D.R. SUBMITTED THAT I N ASSESSMENT ORDER FOR A Y. 2002-03 THE A.O. HAD HELD BASED ON THE DET AILED DISCUSSION AND ON THE BASIS OF OBSERVATION MADE IN THE ORDER FOR A .Y. 2001-02 THAT THERE WAS NO BROUGHT FORWARD LOSS/UNABSORBED DEPRECIATION . IN VIEW OF THESE FACTS THERE WAS A MISTAKE ON THE PART OF A.O IN ALL OWING BROUGHT FORWARD BUSINESS LOSS/UNABSORBED DEPRECIATION FROM THE INCO ME COMPUTED IN THE ASSESSMENT ORDER INSTEAD OF BEFORE ALLOWING DEDUCTI ON U/S. 10B.THUS THERE WAS MISTAKE APPARENT FROM RECORD WHICH COULD BE REC TIFIED U/S. 154 AND THE A.O. WAS RIGHT IN DOING SO. THE LD. D.R. FURTHER RE LIED ON THE DECISION IN THE CASE OF MARUTI UDYOG 105 TTJ 764 (DEL.) AND THE DEC ISION IN THE CASE OF CIT VS. MCLEOD & CO. LTD. (1982) 134 ITR 674 WHERE IT WAS HELD THAT WHERE BY MISREADING A SECTION WHICH IS CLEAR, A DIFFERENT VIEW WAS TAKEN AND IT WAS HELD THAT IF A WRONG VIEW WAS TAKEN AND AT LEAS T A WRONG CALCULATION WAS MADE IT WOULD CERTAINLY COME WITHIN THE PURVIEW OF SEC. 154 AS A MISTAKE APPARENT ON THE FACT OF THE RECORD AND HENC E CAN BE RECTIFIED. HE THUS URGED THAT THE ORDER OF A.O. BE UPHELD. 14. THE LD. D.R. FURTHER RELIED ON THE DECISION IN THE CASE OF SWORD GLOBAL (I) (P) LTD. VS. ITO (2008) 119 TTJ (CHEN) 4 27 AND CIT VS. PATSPIN INDIA LTD. (2011) 15 TAXMANN.COM. 122 (KAR). HE FUR THER SUBMITTED THAT THE DECISION OF BOMBAY HIGH COURT IN ON SEC. 10A WHEREA S IN THE PRESENT APPEAL THE ISSUE IS WITH RESPECT TO SEC. 10B. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE FACTUAL MATRIX OF THE CASE IS THAT FOR A.Y. 2001-02, THE ASSESSEE WHILE COMPUTING THE DEDUCTION U/S. 10B DID NOT REDUCE THE ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 9 BROUGHT FORWARD UNABSORBED BUSINESS LOSS AND DEPREC IATION OF A.Y. 1995- 96 AND 1996-97 BUT CARRIED FORWARD IT FOR SET OFF A GAINST THE TAXABLE PROFITS OF SUBSEQUENT ASSESSMENT YEARS. A.O. DID NOT AGREE WITH THE METHOD FOLLOWED BY THE ASSESSEE. HE FIRST SET OFF OF UNABS ORBED BUSINESS LOSS/ DEPRECIATION OF A.Y. 1995-96 AND 1996-97 AND THEN A PPLIED PROVISIONS OF SEC.10B WHICH RESULTED IN A SITUATION WHERE THE ASS ESSEE DID NOT HAD ANY AMOUNT OF UNABSORBED BUSINESS LOSS/DEPRECIATION TO BE CARRIED FORWARD FOR SET OFF AGAINST THE TAXABLE PROFITS OF SUBSEQUENT A SSESSMENT YEARS. IN APPEAL CIT (A) HELD THAT ASSESSEE WAS ELIGIBLE TO C ARRY FORWARD UNABSORBED BUSINESS LOSS/DEPRECIATION FOR SET OFF AGAINST THE TAXABLE PROFITS OF THE SUBSEQUENT YEARS. FOR A.Y. 2002-03 AFTER PASSING OF THE ORDER U/S. 143(3), ASSESSEE FILED APPLICATION U/S.154 BEFORE A.O. WHER EIN THE A.O. WAS REQUESTED TO GRANT SET OFF THE UNABSORBED BUSINESS LOSS/DEPRECIATION PURSUANT TO CIT (A) ORDER FOR A.Y. 2001-02. A.O. AF TER CONSIDERING ALL THE FACTS, VIDE ORDER DATED 22-7-2005 PASSED U/S. 154 A LLOWED THE SET OFF OF THE UNABSORBED BUSINESS LOSS/DEPRECIATION OF A.Y. 1995- 96 AND A.Y. 1996-97 AMOUNTING TO RS.1,12,43,784/- AFTER THE APPLICATION S OF PROVISIONS OF SEC.10B AND THE BALANCE UNABSORBED DEPRECIATION OF RS.2,83,54,807/- WAS ALLOWED TO BE CARRIED FORWARD FOR SET OFF AGAIN ST THE PROFITS OF SUBSEQUENT ASSESSMENT YEARS. LATER ON THE A.O. VIDE ORDER DATED 23-3- 2006 PASSED U/S. 154 ALLOWED THE SET OFF OF UNABSOR BED BUSINESS LOSS/DEPRECIATION BEFORE APPLICATION OF PROVISIONS OF SEC. 10B. IN VIEW OF THE AFORESAID FACTS, THE ISSUE THAT HAS TO BE DECID ED IN THE PRESENT APPEAL IS WHETHER IT CAN BE SAID THAT THE RECTIFICATION OR DER OF 22-7-2005 HAD APPARENT MISTAKE AND WHETHER RECTIFICATION ORDER OF EARLIER RECTIFICATION ORDER BE PASSED IN TERMS OF PROVISIONS OF SECTION 1 54 OF THE I. T. ACT. ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 10 16. HONBLE APEX COURT IN THE CASE OF VOLKART BROS & ORS (SUPRA) HAS HELD THAT A MISTAKE APPARENT FROM RECORD MUST BE A GLARING, OBVIOUS AND SELF EVIDENT MISTAKE AND SHOULD NOT BE ONE WHICH CO ULD BE DISCOVERED BY INVESTIGATION OF FACTS OR LONG DRAWN ARGUMENTS AND SHOULD NOT INVOLVE A POINT ON WHICH TWO VIEWS COULD BE REASONABLY CONCEI VED OR IN OTHER WORDS SHOULD NOT INVOLVE A DEBATABLE POINT. 17. VIEWED IN THE LIGHT OF THE AFORESAID LEGAL POS ITION IN THE PRESENT CASE IT CAN BE SEEN THAT THERE WERE DIFFERENT VIEWS WITH RESPECT TO THE SETTING OFF OF THE UNABSORBED BUSINESS LOSS/DEPRECIATION FOR TH E PURPOSE OF COMPUTING DEDUCTION U/S.10B. CIT (A) VIDE ORDER DATED 9-3-200 5 FOR A.Y. 2001-02 HAD UPHELD THE STAND OF THE ASSESSEE THAT BROUGHT FORWA RD DEPRECIATION AND BUSINESS LOSS SHOULD NOT BE FIRST ADJUSTED AGAINST THE BUSINESS INCOME BUT THE SAME BE ALLOWED TO BE CARRIED FORWARD. WE FIND THAT CIT (A) VIDE ORDER DATED 28-11-2007 FOR A.Y. 2002-03, RELYING ON THE D ECISION OF CIT VS. HIMATASINGIKA SEIDE LTD. 286 ITR 255 (KAR) HELD THA T A.O. WAS JUSTIFIED IN ADJUSTING UNABSORBED DEPRECIATION AND BROUGHT FORWA RD LOSS AGAINST BUSINESS PROFIT AND THEREAFTER ALLOW DEDUCTION U/S. 10B. 18. IN THE CASE OF DAMODAR SHAH VS. ACIT (2000) 245 ITR 774 (GUJ.) HONBLE HIGH COURT HAS HELD THAT IF ON EXISTING STATE OF RECORD, PERMISSIBLE DISCRETION IS EXERCISED OR TWO VIEWS ARE REASONABLY POSSIBLE INCLUDING THE ONE WHICH HAS BEEN TAKEN, THEN IT CANNOT BE SAID WI TH THE REQUIRED CERTAINTY THAT THERE IS MISTAKE IN THE ORDER WHICH IS APPAREN T FROM RECORD. ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 11 19. IN VIEW OF AFORESAID FACTS WE ARE OF THE CONSID ERED VIEW THAT IN THE PRESENT FACTS AND CIRCUMSTANCES THERE WAS NO APPARE NT MISTAKE ON RECORD AS PROVIDED UNDER SECTION 154 AND THEREFORE, THE A. O. HAD ERRED IN PASSING A RECTIFICATION ORDER U/S. 154 AGAINST THE RECTIFIC ATION ORDER PASSED EARLIER U/S. 154. FURTHER WE FIND THAT THERE ARE TWO CONTR ARY DECISIONS OF DIFFERENT HIGH COURTS WHEREIN DIFFERENT VIEWS HAVE BEEN TAKEN AS TO WHETHER THE PROVISIONS OF SEC. 10B ARE DEDUCTION PROVISION OR E XEMPTION PROVISION. WE, RESPECTFULLY FOLLOW THE DECISION OF DELHI HIGH COUR T IN VIEW OF THE FACT THAT IT IS THE LATEST DECISION AND HAS FOLLOWED THE DECISIO N OF BOMBAY HIGH COURT AND KARNATAKA HIGH COURT. THE DECISION RELIED UPON BY REVENUE ARE DISTINGUISHABLE ON FACTS. WE THUS, FOLLOWING THE DE CISION ALSO HOLD THAT ON MERITS ALSO, THERE WAS NO MISTAKE ON RECORD. WE TH US ALLOW THE APPEAL OF THE ASSESSEE. ITA NO.61 & 62/AHD/2008 A.YRS. 2003-04 & 2004-05 . 20. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 20 03-04 ON 28-11-2003 AND FOR A.Y. ON 29-10-2004 COMPUTING THE TOTAL INCO ME AT RS.9,72,340/- FOR A.Y,. 2003-04 AND FOR A.Y.2004-05 AT RS.1,24,82,539 /- RESPECTIVELY UNDER THE NORMAL PROVISIONS OF THE ACT AFTER CLAIMING DED UCTION U/S. 10B OF RS. 15,61,77,848/- AND RS.10,42,16,113/- AND SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION OF EARLIER YEARS OF RS.2,76 ,47,303/- AND RS.8,31,545/- IN THESE TWO ASSESSMENT YEARS. THE CA SE WAS SELECTED FOR SCRUTINY. 21. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. OBSERVED THAT THE ASSESSEE IS 100% EOU AND HAD COMMENCED ITS PROD UCTION ACTIVITIES ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 12 DURING PREVIOUS YEAR 1994-95 RELEVANT TO A.Y. 1995- 96.ASSESSEE HAD OPTED TO AVAIL THE DEDUCTION U/S. 10B FROM A.Y. 1998-99 O NWARDS. A.O. OBSERVED THAT ASSESSEE IN ITS COMPUTATION HAD SHOWN THAT THE POSITION OF UNABSORBED DEPRECIATION WAS AS UNDER: ASSTT. YEAR UNABSORBED DEPRECIATION BROUGHT FORWARD AS ON 1-4- 2002 (RS.) 1995-96 80,73,008 1996-97 2,28,65,151 TOTAL 3,09,38,159 22. OUT OF THE TOTAL UNABSORBED DEPRECIATION OF RS. 3,09,38,159/- THE ASSESSEE CLAIMED SET OFF OF RS. 2,76,47,303/- AGAIN ST ITS TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION AND THE BALANCE UNABSO RBED DEPRECIATION OF RS.32,90,856/- WAS STATED TO BE CARRIED FORWARD AS ON 31-3-2003. 23.. HE FURTHER OBSERVED THAT THE BROUGHT FORWARD L OSS AND UNABSORBED DEPRECIATION MENTIONED HEREINABOVE WAS SET OFF AGAI NST THE BUSINESS PROFIT OF A.Y. 2002-03 AS PER ORDER DATED 23-3-2006 PASSED U/S. 154 AND THEREFORE THERE WAS NO UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATION FOR SET OFF AGAINST THE INCOME FOR A.Y . 2003-04. HE ALSO RELIED ON THE OBSERVATIONS MADE IN THE ASSESSMENT ORDERS F OR A.Y. 2001-02, 2002-03 AND ORDER DATED 23-6-2006 PASSED U/S. 154 F OR A.Y. 2002-03. 24. AGGRIEVED WITH THE ACTION OF A.O., THE ASSESSEE CARRIED THE MATTER BEFORE CIT (A). CIT (A) RELYING ON THE DECISION IN THE CASE OF CIT VS. HIOMATASINGIKE SEIDE LTD., 286 ITR 255 (KAR.) VIDE ORDER DATED 28-11-2007 UPHELD THE ACTION OF THE A.O. AND DISMISSED THE ASS ESSEES APPEAL. ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 13 AGGRIEVED WITH THE ACTION OF CIT (A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 25. WE FIND THAT THE ISSUES IN PRESENT APPEAL ARE C ONNECTED TO THOSE OF THE FACTS IN ITA NO.60/AHD/2008 DECIDED BY US VIDE ORDER OF EVEN NUMBER FOR ASSESSMENT YEAR 2002-03. IN THE AFORESAID APPEA L WE HAVE HELD THAT THE ORDER OF A.O. PASSED ON 22-7-2005 U/S. 154 WHER EIN HE HAD ALLOWED THE SET OFF OF UNABSORBED BUSINESS LOSS/DEPRECIATION OF A.Y. 1995-96 AND A.Y. 1996-97 AFTER APPLICATION OF PROVISIONS OF SEC. 10B AS NOT BEING APPARENT MISTAKE. THE CONSEQUENCE OF WHICH IS THEREFORE THA T THE ASSESSEE WILL BE ENTITLED TO CARRY FORWARD BUSINESS LOSS AND DEPRECI ATION IN SUBSEQUENT YEARS. IN VIEW OF THESE FACTS, THIS GROUND OF ASSES SEE IS ALLOWED. 26. IN ITA NO.62/AHD/2008 GROUND NO.3 READS AS UNDE R:- 3. THE CIT (A) ERRED IN UPHOLDING THE ACTION OF TH E A.O. IN DELETING RS.20,823/- TO BE INTEREST AND ADMINISTRATIVE EXPEN SES FOR EARNING EXEMPT INCOME OF DIVIDEND OF RS.13,22,445/- WHERE I N FACT NO EXPENSE WAS INCURRED FOR EARNING THE SAME. 27. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O . OBSERVED THAT ASSESSEE HAS EARNED DIVIDEND OF RS.13,22,446/- WHIC H WAS TAX FREE INCOME. HE ACCORDINGLY APPLYING PROVISIONS OF SEC. 14A HELD THAT [PROPORTIONATE ADMINISTRATIVE EXPENSES AND INTEREST NEEDS TO BE DISALLOWED. HE ACCORDINGLY COMPUTED THE DISALLOWANCE IN PROPORT ION OF TAX FREE INCOME TO TOTAL TURNOVER AND DISALLOWED RS.20,825/-.ASSESS EE CARRIED THE MATTER BEFORE CIT (A). CIT (A) UPHELD THE DISALLOWANCE BY HOLDING AS UNDER:- ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 14 5.3. I HAVE CAREFULLY CONSIDERED THE RIVAL; SUBMIS SIONS. CERTAINLY SOME ADMINISTRATIVE EFFORTS AND TIME OF THE SENIOR PERSONNEL IS INVOLVED IN MAKING INVESTMENT DECISIONS AS WELL AS CARRYING OUT FOR MAKING INVESTMENT DECISIONS, BROKERAGE, DOCUMENTATI ON AND OTHER ROUTINE TASKS, ETC THE ASSESSING OFFICER IN MY VIEW IS THEREFORE JUSTIFIED IN DISALLOWING THE PROPORTIONATE EXPENSES IN THE RATIO OF TAX FREE INCOME TO THE TOTAL TURNOVER. THE DISALLOWANCE IS THEREFORE SUSTAINED. GROUND IS DISMISSED. 28. AGGRIEVED BY THE ORDER OF CIT (A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US, THE LD. A.R. SUBMITTED THAT I T HAD NOT INCURRED ANY EXPENDITURE FOR EARNING TAX FREE INCOME AND THE DIS ALLOWANCE HAS BEEN MADE ON ADHOC BASIS. HE SUBMITTED THAT FOR DISALLOW ING A FINDING OF FACT IS REQUIRED. HE RELIED ON THE DECISION OF DELHI HIGH C OURT IN THE CASE OF MAXOPP INVESTMENT LTD. & OTHERS VS. CIT (2012) 247 CTR (DEL) 162. HE THUS URGED THAT THE DISALLOWANCE MADE BE DELETED. O N THE OTHER HAND THE LD. D.R. SUPPORTED THE ORDER OF A.O. 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, A.O. HAS NOT POINTED OUT THE EXPENDITURE THAT HAS BEEN INCURRED FOR TAX FREE INCOME. THE DISALLOW ANCE HAS BEEN MADE ON ADHOC BASIS. 30. IN THE CASE OF MAXOPP(SUPRA) THE HONBLE DELHI HIGH COURT HAS HELD:- THE EXPRESSION 'EXPENDITURE INCURRED' REFERS TO ACT UAL EXPENDITURE AND NOT TO SOME IMAGINED EXPENDITURE BUT THE ACTUA L EXPENDITURE THAT IS IN CONTEMPLATION UNDER S. 14A (1) IS THE A CTUAL EXPENDITURE IN RELATION TO OR IN CONNECTION WITH OR PERTAINING TO EXEMPT INCOME. THE COROLLARY TO THIS IS THAT IF NO EXPENDITURE IS INCU RRED IN RELATION TO THE EXEMPT INCOME, NO DISALLOWANCE CAN BE MADE UNDER S. 14A. THE REQUIREMENT OF THE A.O. EMBARKING UPON A DETERMINAT ION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMP T INCOME WOULD ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 15 BE TRIGGERED ONLY IF THE A.O. RETURNS A FINDING THA T HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF SUCH EXPENDITURE. IT IS ONLY IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT THE AO GETS JURISDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD, THE PRESCRIB ED METHOD BEING THE METHOD STIPULATED IN R. 8D. WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPEN DITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE AO W OULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. 31. IN VIEW OF THE AFORESAID FACTS AND RESPECTFULLY FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT WE ARE OF THE VIEW THAT, S INCE NO FINDING HAS BEEN GIVEN BY A.O. WITH RESPECT TO INCURRING OF EXPENSES , NO DISALLOWANCE U/S.14A CAN BE MADE IN THE PRESENT CASE. WE THUS DE LETE THE ADDITION MADE BY A.O. THUS THIS GROUND OF ASSESSEE IS ALLOWE D. 31. IN THE RESULT, APPEALS OF THE ASSESSEE FOR ALL THE YEARS ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 30- 11- 2012. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) VI, BARODA. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD ITA. NOS.60 TO 62 /AHD/2008 . ASSESSMENT YEAR S 2002-03,03-04 & 04- 05 . 16 1.DATE OF DICTATION 4 - 9 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 1,9,22 / 10 / 2012 & 5,6/11/12 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S - -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT - -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S - -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK - -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER