ACIT, Chandigarh V. M/s Glossy Foods Ltd., Chandigarh

ITA 63/CHANDI/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0983 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-02-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 20-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS RITU MOHAN
• Assessee Lawyers: N K SAINI
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition; Unabsorbed depreciation
• Section: 133(6); 32; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, J M ITA NO. 63/CHD/2011 ASSESSMENT YEAR : 2007-08 A.C.I.T. C-5(1) V M/S GLOSSY FOODS LTD CHANDIGARH 1041, SECTOR 27-B CHANDIGARH AABCG 3924 B ITA NO. 38/CHD/2011 ASSESSMENT YEAR : 2007-08 M/S GLOSSY FOODS LTD V DY. C.I.T. CIRCLE 5(1) 1041, SECTOR 27-B CHANDIGARH CHANDIGARH (APPELLANT) (RESPONDENT) APPELLANT BY SHRI VISHAL MOHAN & MRS. RITU MOHAN RESPONDENT BY: SHRI N.K. SAINI DATE OF HEARING 4.3.2013 DATE OF PRONOUNCEMENT 14.3.2013 O R D E R PER T.R.SOOD, A.M THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST TH E ORDERS PASSED BY THE LD. CIT(A), CHANDIGARH DATED 1 7.8.2010. ITA NO. 63/CHD/2011- REVENUES APPEAL 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING EFFECTIVE GROUNDS: 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F DISALLOWANCE OF COMMISSION PAID OF RS. 16,62,150/- TO VARIOUS PERSONS FOR SALE OF ITS COMPLETE UNIT I.E. LAND, BUILDING ALONG WITH COMPLETE PLANT AND MACHINERY. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE OF RS. 2,10,48,147/- BY THE ASSESSING 2 OFFICER ON SET OFF BROUGHT FORWARD UNABSORBED DEPRECIATION ETC. AGAINST THE INCOME DECLARED UNDER THE HEAD CAPITAL GAIN. 3. GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE ASSESSEE HAS CLAIMED COMMISSION EXPENSES AMOUNTING TO RS. 16,62,150/-. THE COMMISSIONS WERE STATED TO HAVE B EEN PAID TO THE FOLLOWING PARTIES: A) SHRI SUNIL KUMAR, 3215, SECTOR 28-D, CHANDIGARH RS. 15,15,150/-. B) SHRI BALBIR CHAND S/O SHRI GOPAL CHAND, VILLAGE KOT DISTT. PANCHKULA RS. 78,500/- C) SHRI AJAY GARG S/O SHRI GOPAL CHAND, VILLAGE KOT , DISTT. PANCHKULA, RS. 39,250/-. D) SHRI IQBAL SINGH S/O SHRI NASEEB SINGH, VILLALGE BUNGA, DISTT. PANCHKULA, RS. 39,250/-. IN ORDER TO VERIFY THE PAYMENT OF COMMISSION AMOUNT ING TO RS. 15,15,150/- TO SHRI SUNIL KUMAR, SUMMONS WERE ISSUE D THROUGH INSPECTOR FOR HIS PERSONAL ATTENDANCE AT THE ADDRES S SUPPLIED BY THE ASSESSEE. THE INSPECTOR REPORTED BACK AFTER VISITING THE HOUSE THAT THE SAID HOUSE I.E. H NO. 3215, SECTOR 2 8-D, CHANDIGARH WAS OWNED BY SHRI LAJPAT RAI GARG AND HE HAD INFORMED THAT THE SAID HOUSE WAS NEVER LET OUT TO A NYBODY AND HE DID NOT KNOW SHRI SUNIL KUMAR. THEREFORE, THE A SSESSEE WAS ASKED TO PRODUCE SHRI SUNIL KUMAR ALONG WITH HI S BANK PASSBOOK AND HIS PAN TO JUSTIFY THE CLAIM. INFORMA TION THAT SHRI SUNIL KUMAR WAS NOT LIVING IN H NO. 3215, SECT OR 28-D, CHANDIGARH WAS ALSO CONFRONTED TO THE ASSESSEE. IT WAS SUBMITTED THAT THE ASSESSEE HAS NOTHING TO COMMENT IN RESPECT OF SHRI SUNIL KUMAR. FURTHER SHRI SUNIL KUMAR WAS NOT PRODUCED BEFORE THE ASSESSING OFFICER. IT WAS SUBM ITTED THAT TDS HAS ALREADY BEEN DEDUCTED, THEREFORE, COMMISSIO N SHOULD 3 BE ALLOWED. THE ASSESSING OFFICER DID NOT FIND FORC E IN THE SUBMISSIONS BECAUSE ACCORDING TO HIM TDS RETURNS HA D NOTHING TO DO WITH GENUINENESS OF THE PAYMENT AND SINCE THE ASSESSEE HAS FAILED TO PROVE THE PAYMENT, THE SAME WAS NOT A LLOWABLE. IN RESPECT OF OTHER PARTIES I.E. S/SHRI BALBIR CHAN D, AJAY GARG AND IQBAL SINGH, ENQUIRIES WERE MADE BY WRITING A L ETTER U/S 133(6) BUT NO RESPONSE WAS RECEIVED. WHEN THE ASSE SSEE WAS ASKED TO PRODUCE THESE PERSONS THESE PERSONS WERE N OT PRODUCED AND ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE IN THESE CASES ALSO FAILED TO PROVE THE PAYMENT. T HEREFORE, SAME WAS HELD NOT ALLOWABLE AND ACCORDINGLY THE ADD ITION OF RS. 16,62,150/- WAS MADE. 4 BEFORE THE LD. CIT(A), IT WAS MAINLY SUBMITTED TH AT THE ASSESSEE HAD SOLD ITS LAND AND BUILDING FOR A SUM O F RS. 7.57 CRORES AND FOR FACILITATING THE SAID DEAL, SERVICES OF SHRI SUNIL KUMAR, REAL ESTATE AGENT WERE TAKEN WHO WAS PAID CO MMISSION @ 2%. IT WAS SUBMITTED THAT TDS WAS DEDUCTED U/S 1 94H AND COPY OF TDS RETURN WAS FILED. AS FAR AS COMMISSION PAID TO S/SHRI BALBIR CHAND, AJAY GARG AND IQBAL SINGH WERE CONCERNED, THE SAME WERE PAID FOR PURCHASE OF LAND AT VILLAGE SAMNVA AND THE COMMISSION WAS PAID FOR FACILITATING THE PURCHASE OF LAND. IT WAS FURTHER SUBMITTED THAT SU CH COMMISSION WAS PAID FOR PURCHASE OF LAND AND THE SA ME WERE CAPITALIZED BY SHOWING ADDITION TO THE FIXED ASSETS . THE LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS, DELETED THE ADDITION ON ACCOUNT OF PAYMENT OF COMMISSION BY OBSERVING T HAT THERE WAS NO DISPUTE REGARDING SELLING OF FOOD PROCESSING UNIT AND IT WAS COMMON KNOWLEDGE THAT COMMISSION OF 1 TO 2% IS PAID. IT WAS ALSO OBSERVED THAT THE ASSESSEE HAD ALREADY DED UCTED TAX 4 AND COMMISSION WAS PAID THROUGH CHEQUE AND THE SAME WAS ALLOWABLE. 5 BEFORE US, THE LD. DR FOR THE REVENUE SUBMITTED T HAT THE ASSESSING OFFICER HAD MADE SPECIFIC ENQUIRIES FROM THE ADDRESS GIVEN BY THE ASSESSEE AND SHRI SUNIL KUMAR WAS NOT FOUND AT THE GIVEN ADDRESS. THEREAFTER THE ASSESSEE WAS ASK ED TO PRODUCE THIS PERSON AND THE ASSESSEE WAS ALSO CONFR ONTED WITH THE FACT THAT THIS PERSON WAS NOT AVAILABLE ON THE GIVEN ADDRESS. THE ASSESSEE HAS CLEARLY STATED THAT THE ASSESSEE HAS NO MORE COMMENTS TO OFFER AND THE ASSESSEE HAD FAILED TO PRODUCE SUCH PERSONS. EVEN PAN WAS ALSO NOT FURNIS HED. IT IS SETTLED POSITION OF LAW THAT FOR CLAIMING ANY EXPEN DITURE THE BURDEN IS ON THE ASSESSEE TO PROVE THE GENUINENESS OF SUCH EXPENSES. 6 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSE E REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AU THORITIES. HE ALSO REFERRED TO COPY OF BANK ACCOUNT WHICH CLEA RLY SHOWS ENCASHMENT OF CHEQUES. HE ALSO REFERRED TO ACCOUNT S OF THESE PARTIES WHICH SHOW THAT TDS WAS DEDUCTED AND DEPOSI TED WITH THE GOVERNMENT. HE ALSO REFERRED TO PAGE 4 OF LD. CIT(A)S ORDER AND SUBMITTED THAT PHOTOCOPY OF RECEIPT FROM SHRI SUNIL KUMAR AS AN ACKNOWLEDGEMENT, WAS ALSO FURNISHED BEF ORE THE LD. CIT(A), THEREFORE, THE ASSESSEE HAS DISCHARGED ITS BURDEN. HE SUBMITTED THAT COMMISSION WAS PAID IN THE YEAR 2 007 WHEREAS THE ASSESSMENT PROCEEDINGS WERE TAKEN UP SOMEWHERE IN 2009 AND WHAT HAPPENED TO THE RECIPIEN T OF THE COMMISSION IN THOSE TWO YEARS MAY NOT KNOWN TO THE ASSESSEE. 5 7 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. W E ARE UNABLE TO AGREE WITH THE SUBMISSIONS OF THE LD. COU NSEL OF THE ASSESSEE. FIRST OF ALL WHEN LARGE AMOUNT OF COMMIS SION IS PAID TO A PARTY THEN THE ASSESSEE IS EXPECTED TO KNOW TH AT PERSON. THE ASSESSEE HAS NOT EVEN FILED COPY OF PAN OF SHRI SUNIL KUMAR THOUGH IN THE WRITTEN SUBMISSIONS MADE BEFORE THE LD. CIT(A), IT IS STATED THAT PHOTOCOPY OF THE RECEIPT OF SHRI SUNIL KUMAR WAS PRODUCED BEFORE HER BUT NO COPY OF SUCH R ECEIPT HAS BEEN PLACED IN THE PAPER BOOK. IF SHRI SUNIL KU MAR WAS NOT AVAILABLE AT THE ADDRESS GIVEN WHICH SEEMS TO BE FA KE ADDRESS BECAUSE THE SAID HOUSE BELONGS TO SHRI LATPAT RAI G ARG WHO HAD CLEARLY STATED THAT HE HAD INFORMED THAT THE SA ID HOUSE WAS NOT LET OUT TO ANYBODY. MERELY TO SHOW THE PAYMENT BY CHEQUE AND DEDUCTION OF TAX IS NOT SUFFICIENT FOR CLAIMING EXPENSES BECAUSE IT IS WELL SETTLED POSITION THAT THE PERSON WHO CLAIMS THE EXPENSES THE BURDEN IS ALWAYS ON HIM TO PROVE T HE GENUINENESS OF EXPENDITURE. REFERENCE MAY BE MADE T O CIT V. CALCUTTA AGENCY LTD. 19 ITR 191 (SC): LAXMI RATTAN COTTON CO. V CIT, 73 ITR 634 (SC): DEYS MEDICAL STORE V CIT, 162 ITR 630 (CAL) & CIT V. CHANDER VILAS HOTEL, 164 ITR 102 (GUJ). THIS IS SO BECAUSE THE REVENUE HAS RIGHT TO TAX THE PERSON WHO IS IN RECEIPT OF COMMISSION. IT IS NOT POSSIBLE TO BELIEVE THAT A PERSON WHO HAS RECEIVED A COMMISSION AMOUNTING TO R S. 15.00 LAKHS WOULD GIVE FAKE ADDRESS AND THAT PERSON IS NO T AVAILABLE AT THE TIME OF ASSESSMENT PROCEEDINGS OR APPELLATE PROCEEDINGS. THEREFORE, WE ARE OF THE OPINION THA T THE ASSESSING OFFICER WAS CORRECT IN DISALLOWING THE CO MMISSION PAID TO SHRI SUNIL KUMAR ACCORDINGLY WE CONFIRM TH E DISALLOWANCE OF COMMISSION PAID TO SHRI SUNIL KUMAR . 6 8 AS FAR AS PAYMENT OF COMMISSION TO S/SHRI BALBIR CHAND AND AJAY GARG AND IQBAL SINGH IS CONCERNED, THE SAM E WAS NOT CLAIMED AS REVENUE EXPENSES, THEREFORE, AT BEST THE ASSESSING OFFICER COULD HAVE REFUSED TO ALLOW CAPITALISATION THE SAME BUT A SEPARATE ADDITION IS NOT JUSTIFIED. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSIN G OFFICER TO REDUCE THE COMMISSION PAID TO S/SHRI BALBIR CHAND, AJAY GARG AND IQBAL SINGH FROM THE COST OF FIXED AS SETS PURCHASED BY THE ASSESSEE. 9 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE ASSESSEE HAS CLAIMED SET OFF OF UNABSORBED DEPRECIA TION OF EARLIER YEARS AGAINST LONG TERM CAPITAL GAINS EARNE D DURING THE YEAR. HE FURTHER NOTED THAT THE ASSESSEE HAD SOLD COMPLETE UNIT OF FOOD PROCESSING AT DERA BASSI AND HENCE THE BUSINESS OF PROCESSING OF FRUITS AND VEGETABLES IS CLOSED PE RMANENTLY. ON ENQUIRY THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS EARNED LONG TERM CAPITAL GAINS ON SALE OF LAND AND SHORT TERM CAPITAL GAINS ON DEPRECIABLE ASSETS AND THEREFORE, UNABSORBED DEPRECIATION CAN BE SET OFF AGAINST SUCH GAINS. TH E ASSESSING OFFICER DID NOT FIND ANY FORCE IN THE SUBMISSIONS. HE ADMITTED THAT THERE WAS NO DISPUTE REGARDING CARRY FORWARD O F UNABSORBED DEPRECIATION BUT THE ASSESSEE HAS SOLD O UT ENTIRE PROCESSING UNIT AND THE BUSINESS WAS CLOSED PERMANE NTLY. UNIT WAS NON-FUNCTIONAL FOR THE FULL YEAR. WHEN THE UNI T REMAINED NON-FUNCTIONAL DURING THE YEAR, THERE WAS NO QUESTI ON OF SET OFF OF UNABSORBED DEPRECIATION. HE ALSO OBSERVED THAT T HE DECISION RELIED ON BY THE ASSESSEE IN CASE OF CIT V. VIRMANI INDUSTRIES LTD. 216 ITR 607 (SC) IS DISTINGUISHABLE. IN THIS B ACKGROUND 7 SET OFF OF UNABSORBED DEPRECIATION WAS NOT ALLOWED AGAINST CARRY FORWARD. 10 BEFORE THE LD. CIT(A), IT WAS MAINLY SUBMITTED T HAT AS PER SECTION 32(2) THE DEPRECIATION WHICH CAN NOT BE SET OFF IN A PARTICULAR YEAR BECAUSE OF DEFICIENCY OF PROFITS TH EN SUCH DEPRECIATION CAN BE CARRIED FORWARDED TO THE NEXT Y EAR AND IS ALLOWABLE AS CURRENT YEARS DEPRECIATION FOR SUCH SU CCEEDING YEAR. RELIANCE WAS AGAIN PLACED ON CIT V. VIRMANI I NDUSTRIES LTD. (SUPRA). 11 LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS ALLOW ED THE SET OFF OF UNABSORBED DEPRECIATION CARRY FORWARD FR OM EARLIER YEARS IN VIEW THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT V. VIRMANI INDUSTRIES LTD. (SUPRA) AND DECISION OF HON'BLE GUJARAT HIGH COURT IN CASE OF CIT V. FABRIQUIP P. L TD., 260 ITR 207 (GUJ). 12 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY S UPPORTED THE ORDER OF ASSESSING OFFICER AND SUBMITTED THAT S INCE THE ASSESSEE HAD ALREADY SOLD THE FOOD PROCESSING UNIT AND THEREFORE, THE ASSESSEE WAS NOT ENTITLED TO SET OF F OF THE CARRY FORWARD UNABSORBED DEPRECIATION. 13 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT( A). HE ALSO SUBMITTED THAT DURING THE YEAR THE ASSESSEE WAS CAR RYING ON THE RESIDUARY BUSINESS AND IN THIS REGARD HE REFERR ED TO PAGE 27 OF THE PAPER BOOK WHICH IS A COPY OF PROFIT AND LOSS ACCOUNT WHICH SHOWS THE TURNOVER OF RS. 29,100/-. 8 14 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. SECTION 32(2) READS AS UNDER: 32(2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, F ULL EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB-SECTION (1) IN ANY PREVIOUS YEAR, OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR T HAT PREVIOUS YEAR, OR 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 SECTION 73 , THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHI CH 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 THERE IS NO SUCH ALLO WANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR THAT PREVIO US YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS.] THE PLAIN READING OF THE ABOVE CLEARLY SHOWS THAT I F THE DEPRECIATION CANNOT BE FULLY ADJUSTED AGAINST PROFI TS AND GAINS CHARGEABLE IN THE RELEVANT YEAR BECAUSE OF INSUFFIC IENCY OF THE PROFITS THEN THE SAME WOULD BE ADDED TO THE DEPRECI ATION OF THE FOLLOWING YEAR. THIS MEANS THAT UNABSORBED DEPRE CIATION WHICH CAN NOT BE SET OFF IN A PARTICULAR YEAR, WOUL D BECOME CURRENT YEARS DEPRECIATION IN THE FOLLOWING YEAR A ND THERE IS NO RESTRICTION AGAINST SUCH SET OFF. THEREFORE, UN-AB SORBED DEPRECIATION WHICH IS CARRY FORWARD AS CURRENT DEPR ECIATION U/S 32(2) IS CLEARLY AVAILABLE FOR SETTING OFF. 15 HON'BLE SUPREME COURT IN CASE OF CIT V. VARMANI INDUSTRIES (SUPRA) HAS EXPLAINED THE DIFFERENCE BET WEEN THE BUSINESS LOSS AND UNABSORBED DEPRECIATION AND HAS H ELD THAT UNABSORBED DEPRECIATION IS ALLOWABLE EVEN AGAINST I NCOME FROM OTHER HEADS. IT WAS ALSO OBSERVED THAT IT WAS NOT NECESSARY THAT SAME BUSINESS SHOULD BE CARRIED ON EVEN IN THE SUBSEQUENT YEAR. IT WAS ALSO OBSERVED THAT EVEN ASS ETS ON WHICH SUCH UNABSORBED DEPRECIATION GOT GENERATED NE ED NOT BE IN EXISTENCE IN THE SUBSEQUENT YEAR. THE OBSERVATI ON OF THE HON'BLE SUPREME COURT ARE AS UNDER: 9 THE WORDS 'NO PROFITS OR GAINS CHARGEABLE FOR THAT YEAR' IN SECTION 32(2) OF THE INCOME-TAX ACT, 1961, ARE NOT CONFINED TO PROFITS AND GAINS DERIVED FROM BUSINESS. THEY REFER TO THE TOTALITY O F THE PROFITS OR GAINS COMPUTED UNDER THE VARIOUS HEADS AND CHARGEABLE TO TAX. IT IS, THEREFORE, CLEAR THAT EFFECT MUST BE GIVEN TO DEPRECIATION ALL OWANCE FIRST AGAINST THE PROFITS AND GAINS OF THE PARTICULAR BUS INESS WHOSE INCOME IS BEING COMPUTED UNDER SECTION 28 AND IF THE PROFI TS OF THAT BUSINESS ARE NOT SUFFICIENT TO ABSORB THE DEPRECIATION ALLOWANCE , THE ALLOWANCE TO THE EXTENT TO WHICH IT IS NOT ABSORBED WOULD BE SET OFF AGAINST THE PROFITS OF ANY OTHER BUSINESS AND IF A PART OF THE DEPRECIATION ALLOWANCE STILL REMAINS UNABSORBED, IT WOULD BE LIA BLE TO BE. SET OFF AGAINST THE PROFITS AND GAINS CHARGEABLE UNDER ANY OTHER HE AD AND IT IS ONLY IF SOME PART OF THE DEPRECIATION ALLOWANCE STILL REMAI NS THAT IT CAN BE CARRIED FORWARD TO THE NEXT ASSESSMENT YEAR. BUT WH ERE ANY PART OF THE DEPRECIATION ALLOWANCE REMAINS UNABSORBED AFTER BEI NG SET OFF AGAINST THE TOTAL INCOME CHARGEABLE TO TAX, IT CAN BE CARRI ED FORWARD TO THE FOLLOWING YEAR AND SET OFF AGAINST THE YEAR'S INCOM E AND SO ON FOR SUCCEEDING YEARS. THE METHOD ADOPTED BY THE STATUTE FOR ACHIEVING THIS RESULT IS THAT THE CARRIED FORWARD DEPRECIATION ALL OWANCE IS DEEMED TO BE PART OF AND STANDS ON EXACTLY THE SAME FOOTING A S THE CURRENT DEPRECIATION FOR THE, ASSESSMENT YEAR AND IS THUS A LLOWABLE AS A DEDUCTION (SEE PP. 616E, 617A E ). CIT V. JAIPURIA CHINA CLAY MINES (P.) LTD . [1966] 59 ITR 555 (SC) AND RAJAPALAYAM MILLS LTD . V. CIT [1978] 115 ITR 777 (SC) /ALLOWED, IN ORDER TO AVAIL OF THE BENEFIT OF SECTION 32(2), IT IS NOT NECESSARY THAT THE BUSINESS CARRIED ON IN THE FOLLOWING PREVIOUS Y EAR SHOULD BE THE SAME BUSINESS AS WAS CARRIED ON IN THE PRECEDING PREVIOU S YEAR. IN THE ABSENCE OF ANY WORDS TO THAT EFFECT, NO SUCH REQUIR EMENT OUGHT TO BE READ INTO THE SAID SUB-SECTION. A LOOK AT SECTION 72 SHO WS THAT WHERE PARLIAMENT INTENDED TO PROVIDE SUCH A LIMITATION, I T DID SO EXPRESSLY. SECTION 72 OF WITH CARRY /ONWARD AND SET OFF OF BUS INESS LOSS. THE PROVISO TO CLAUSE : OF SUB-SECTION (1) OF SECTION 72 EXPRES SLY PROVIDES THAT SUCH A COURSE I PERMISSIBLE ONLY WHERE 'THE BUSINESS OR PROFESSION FOR WHICH, THE LOSS TO ORIGINALLY COMPUTED CONTINUED TO BE CAR RIED ON BY HIM IN THE PREVIOUS YEAR RELEVANT FOR THAT ASSESSMENT YEAR'. I N THE ABSENCE OF ANY WORDS -THAT EFFECT, IT MUST BE HELD THAT, FOR AVAIL ING OF THE BENEFIT OF SECTION 32 . IT IS NOT NECESSARY THAT THE BUSINESS CARRIED ON IN THE FOLLOWING YEAR : THE SAME BUSINESS AS WAS CARRIED ON IN THE PREVIO US YEAR. THE OTHER QUESTION IS WHETHER THE ASSETS WHICH EARNED THE DEP RECIATION IN THE PRECEDING YEAR SHOULD EXIST AND SHOULD CONTINUE TO BE USED FOR THE PURPOSE OF BUSINESS IN THE FOLLOWING YEAR. IN THE A BSENCE OF ANY WORDS IN THE SAID SUB-SECTION TO THAT EFFECT, ONE CANNOT REA D THIS REQUIREMENT ALSO INTO THE SAID SUBSECTION. THIS IS EVIDENT FROM THE WORDS 'OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE. THE ALLOWA NCE FOR THE PREVIOUS. YEAR' OCCURRING IN THE SUB-SECTIO N. IN THE FOLLOWING YEAR THE ASSESSEE NEED NOT CARRY ON ANY BUSINESS OR PROF ESSION FOR AVAILING OF THE BENEFIT OF SUB- SECTION (2) OF SECTION 32 (SEE PP. 617S H , 618A, B , E)' 16 WE FURTHER FIND THAT DURING THE YEAR THE ASSESSE E HAS CARRIED ON SOME BUSINESS AND THERE WAS TURNOVER OF RS. 29,100/ -. AS OBSERVED EARLIER, IT IS NOT NECESSARY THAT THE SAME BUSINESS SHOULD HAVE BEEN CARRIED ON DURING THE LATTER YEAR FOR OBTAINING BENEFIT OF SET OFF OF CARRY FORWARD UNABSORBED DEPRECIATION. IN VIEW OF THIS FACT ALSO CARRY FORWARD 10 UNABSORBED DEPRECIATION CAN BE SET OFF AGAINST THE INCOME FROM OTHER HEADS. 17 HOWEVER, AT THE SAME TIME THE PROVISIONS OF SECT ION 32(2) WAS AMENDED TWICE W.E.F. 1.4.1997 BY FINANCE ACT (N O. 2 OF 1996) AND AGAINST ON 1.4.2002 BY FINANCE ACT, 2001. CERTAIN RESTRICTIONS WERE INTRODUCED AGAINST SET OFF OF SUC H UNABSORBED DEPRECIATION. CONTROVERSY ALSO AROSE IN THIS RESPEC T. ULTIMATELY THE MATTER TRAVELED TO THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF DCIT V. TIMES GUARANTY LTD. (20 10) 4 ITR (TRIB ) 210 (MUM)(SB). IN THIS CASE IT WAS HELD AS UNDER:- UNDER SECTION 32(2) OF THE INCOME-TAX ACT, 1961, P RIOR TO ITS SUBSTITUTION, BY THE FINANCE (NO. 2) ACT, 1996 WITH EFFECT FROM A PRIL 1,1997 THE CURRENT DEPRECIATION UNDER SECTION 32(1) COULD BE ADJUSTED AGAINST INCOME UNDER ANY HEAD INCLUDING 'CAPITAL GAINS' AN D 'INCOME FROM HOUSE PROPERTY' IN THE SAME YEAR. IF THERE REMAINE D SOME UNADJUSTED DEPRECIATION ALLOWANCE, THAT WAS CARRIED FORWARD IN THE FOLLOWING YEAR(S) FOR SET OFF AGAINST INCOME UNDER ANY OTHER HEADS JUST L IKE CURRENT DEPRECIATION ALLOWANCE UNDER SECTION 32(1) PERTAINING TO SUCH YE AR. UNDER SUB-SECTION (2) OF SECTION 32 AS SUBSTITUTED BY THE FINANCE (NO. 2) ACT, 1996, WITH EFFECT FROM APRIL 1,1997, THE SCOPE OF SET-OFF OF THE BROUGHT FORWARD UNABSORBED DEPRECIATION ALLOWANCE WAS RESTR ICTED TO THE INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION'. UNDER CLAUSE (I) OF SUBSTITUTED SUB-SECTION (2), TH E UNABSORBED DEPRECIATION ALLOWANCE COULD BE SET OFF AGAINST 'PROFITS AND GAI NS' OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE FOR THAT ASSE SSMENT YEAR. UNDER CLAUSE (II) OF SUB-SECTION (2) IF THE UNABSOR BED DEPRECIATION ALLOWANCE COULD NOT BE WHOLLY SET OFF UNDER CLAUSE (I), THE AMOUNT NOT SO SET OFF COULD BE SET OFF FROM THE 'INCOME UNDER ANY OTHER HEAD', IF ANY, ASSESSABLE FOR THAT ASSESSMENT YEAR. THE PROVISION FOR CARRY FORWARD AND SET-OFF OF UNAB SORBED DEPRECIATION FOR ANY NUMBER OF YEARS AGAINST INCOME UNDER ANY HEAD, WAS FURTHER DILUTED BY WAY OF CLAUSE (III)(B) TO SECTIO N 32(2) RESTRICTING THE RIGHT TO SET-OFF OF UNABSORBED DEPRECIATION FOR A P ERIOD OF NOT MORE THAN EIGHT ASSESSMENT YEARS SUCCEEDING THE ASSESSMENT YEAR IN WHICH THE ALLOWANCE WAS FIRST COMPUTED. THIS PART OF THE PROVISION DID NOT DEAL WITH THE TREATMENT OF UNADJUSTED BROUGHT FORWARD DEPRECIATIO N ALLOWANCE FOR AND UP TO THE ASSESSMENT YEAR 1996-97. THE FINANCE MINISTE R CLARIFIED THE AMENDMENT AS PROSPECTIVE INASMUCH AS THE CUMULATIVE UNABSORBED DEPRECIATION BROUGHT FORWARD AS ON APRIL 1, 1997, C OULD BE SET OFF AGAINST TAXABLE PROFITS OR INCOME UNDER ANY OTHER H EAD FOR THE ASSESSMENT YEAR 1997-98 AND SEVEN SUBSEQUENT ASSESS MENT YEARS. IN OTHER WORDS, THE PERIOD OF EIGHT YEARS UNDER CLAUSE (III) (B) OF SECTION 32(2) CAME TO BE RECKONED FROM ASSESSMENT YEAR 1997-98 IRRESPECTI VE OF THE FACT THAT THE UNADJUSTED BROUGHT FORWARD DEPRECIATION AROSE IN AN EARLIER ASSESSMENT YEAR. THUS, ON THE STRENGTH OF THE CLARIFICATION GI VEN BY THE FINANCE MINISTER, 11 THE UNADJUSTED DEPRECIATION BROUGHT FORWARD UP TO A PRIL 1,1997 BECAME ELI- GIBLE FOR SET OFF NOT ONLY AGAINST THE BUSINESS INC OME BUT ALSO AGAINST INCOME UNDER OTHER HEADS IN EIGHT ASSESSMENT YEARS. TWO LIKE EXPRESSIONS ARE USED IN SUB-SECTION (2), V IZ, FIRSTLY, 'PROFITS OR GAINS ' IN THE MAIN PART OF SUB-SECTION (2) AND THEN, 'PROFITS AND GAINS' IN CLAUSE (I). THE EXPRESSION ' PROFITS AND GAINS' AS USED IN CLAUSE (I) OR (III)(A) REFERS ONLY TO INCOM E UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. SECTION 32(2) WAS AGAIN SUBSTITUTED BY THE FINANCE ACT, 2001 WITH EFFECT FROM APRIL 1, 2002 RESTORING THE PROVIS ION AS PREVAILING PRIOR TO THE AMENDMENT MADE BY THE FINANCE (NO. 2) ACT, 1996 WI TH EFFECT FROM APRIL 1,1997. SUB-SECTION (2) OF SECTION 32 IS A SUBSTANTIVE PROV ISION AND NOT A PROCEDURAL ONE. IT IS SETTLED LEGAL POSITION THAT THE AMENDMENT TO A S UBSTANTIVE PROVISION IS NORMALLY PROSPECTIVE UNLESS EXPRESSLY STATED OTHERW ISE OR IT APPEARS SO BY NECESSARY IMPLICATION. IT IS NOWHERE SEEN EIT HER FROM THE NOTES ON CLAUSES OR MEMORANDUM EXPLAINING THE PROVISION O F THE FINANCE BILL 2001, THAT SUBSTITUTION OF SUB-SECTION (2) OF SECTION 32 IS RETROSPECTIVE. THEREFORE, THE SUBSTANTIVE PROVISION CONTAINED IN S ECTION 32(2) AS SUBSTITUTED BY THE FINANCE ACT, 2001 WITH EFFECT FROM APRIL 1, 200 2, IS PROSPECTIVELY APPLICABLE TO THE ASSESSMENT YEAR 2002-03 ONWARDS. SECTION 32(2) IS A DEEMING PROVISION AND BY A LEGAL FICTION, THE AMOUNT OF DEPRECIATION ALLOWANCE UNDER SECTION 32(1) WHICH IS NOT FULLY ABSORBED AGAINST INCOME FOR THAT YEAR IS DEEMED TO BE PART OF THE DE PRECIATION ALLOWANCE FOR THE SUCCEEDING YEAR(S). A DEEMING PROVISION CANNOT BE E XTENDED BEYOND THE PURPOSE FOR WHICH IT IS INTENDED. SECTION 32(1) DEALS WITH DEPRECIATION ALLOWANCE FOR THE CURRENT YEAR. IT IS ONLY WHEN THE ASSESSMENT OF THE ASSESSEE FROM ASSESSMENT YEAR 2002-03 ONWARDS IS MADE IN WHICH DEPRECIATION ALLOW ANCE FOR THE CURRENT YEAR UNDER SECTION 32(1) CANNOT BE GIVEN FULL EFFECT, OW ING TO THE INADEQUACY OF PROFITS, THAT THE DIRECTIVE OF THE DEEMING PROVISIO N UNDER SECTION 32(2) SHALL APPLY. WHEREVER THERE IS MENTION OF LOSS UNDER A PARTICULA R HEAD FOR THE CURRENT YEAR WHICH IS SOUGHT TO BE SET OFF AGAINST THE INCOME UNDER TH E SAME HEAD OR OTHER HEADS OF THE INCOME FOR THAT VERY YEAR, THE WORDS 'CANNOT BE ' AND 'HAS NOT BEEN' HAVE BEEN BROUGHT INTO PLAY. THE WORDS, 'CANNOT BE' AND 'HAS NOT BEEN' USED IN THE PRESENT TENSE IN SECTION 32(2) SUGGEST THAT THE REFERENCE T O DEPRECIATION ALLOWANCE UNDER SECTION 32(1), WHICH COULD NOT BE ADJUSTED DUE TO I NADEQUACY OF PROFITS, IS FOR THE CURRENT YEAR ALONE STARTING FROM ASSESSMENT YEAR 20 02-03 ONWARDS. THE BROUGHT FORWARD UNABSORBED DEPRECIATION OF EARLIER YEARS CANNOT BE INCLUDED WITHIN THE SCOPE OF SECTION 32(2). IN SECTION 32(2) THE DEPRECIATION ALLOWANCE FOR THE CURRENT YEAR TO WHICH FULL EFFECT CANNOT BE GIVEN DUE TO THE PAUCITY OF PROFIT S, HAS BEEN REFERRED TO AS 'UNABSORBED DEPRECIATION ALLOWANCE'. SUCH UNA BSORBED DEPRECIATION ALLOWANCE FOR THE ASSESSMENT YEARS 199 7-98 TO 2001-02 STRICTLY COMES UNDER SECTION 32(2) AS 'UNABSORBED DEPRECIATI ON ALLOWANCE'. AS THE LANGUAGE OF THIS DEEMING PROVISION DOES NOT TALK OF ANY BROUGHT FORWARD 'UNABSORBED DEPRECIATION ALLOWANCE' OR DEPRECIATION ALLOWANCE WHICH COULD NOT BE GIVEN EFFECT TO IN THE EARLIER YEARS THAT RESULTANT LY BECAME PART OF SECTION 32(2), THERE IS NO QUESTION OF EXPANDING THE SCOPE OF THE LEGAL FICTION. THE PURPOSE OF A LEGAL FICTION IN SECTION 32(2) IS TO MAKE THE UNABSORBED CARRIED FORWARD DEPRECIATION PARTAKE OF THE SAME CH ARACTER AS THE CURRENT DEPRECIATION IN THE FOLLOWING YEAR. IN OTHER WORDS THE OBJECT OF THE PROVISION IS TO TREAT THE WHOLE OR PART OF THE DEPRECIATION A LLOWANCE UNDER SECTION 12 32(1), WHICH COULD NOT BE ADJUSTED IN THE FIRST YEA R, AS THE CURRENT DEPRECIATION UNDER SECTION 32(1) IN THE SECOND YEAR . IN THE SECOND YEAR, SUCH DEPRECIATION OF FIRST YEAR BECOMES PART AND PA RCEL OF DEPRECIATION UNDER SECTION 32(1) OF THE SECOND YEAR. IF AGAIN IN THE S ECOND YEAR, THE TOTAL OF DEPRECIATION UNDER SECTION 32(1) (INCLUDING THE AMO UNT OF ALLOWANCE WHICH CAME FROM FIRST YEAR AND BECAME DEP RECIATION UNDER SECTION 32(1) IN THE SECOND YEAR) CANNOT BE A BSORBED, IT SHALL BECOME CURRENT DEPRECIATION FOR THE THIRD YEAR TO B E DEALT WITH IN THE SAME MANNER AS THE AMOUNT OF DEPRECIATION IN THE THIRD Y EAR AND SO ON. ONCE THE UNABSORBED DEPRECIATION FOR THE FIRST YEAR IS GIVEN THE CHARACTER OF CURRENT DEPRECIATION IN THE SECOND YEAR, THE PURPOSE OF SEC TION 32(2) IS FULFILLED. THE 'UNABSORBED DEPRECIATION ALLOWANCE' OF THE PERIOD A FTER SUBSTITUTION BY THE FINANCE (NO. 2) ACT, 1996 CANNOT BE GIVEN THE CHARA CTER OF CURRENT DEPRECIATION IN THE ASSESSMENT YEARS AFTER SUBSTITU TION WITH EFFECT FROM APRIL 1, 2002. CIT V. MOTHER INDIA REFRIGERATION INDUSTRIES P. LTD . [1985] 155 ITR 711 (SC) RELIED ON. THEREFORE, THE LAW PREVAILING AS ON THE 1ST APRIL O F THE ASSESSMENT YEAR 2002-03 AND SUBSEQUENT YEARS DOES NOT PERMIT THE BR OUGHT FORWARD UN- ABSORBED DEPRECIATION ALLOWANCE OF THE PERIOD AFTER SUBSTITUTION BY THE FINANCE (NO. 2) ACT, 1996 TO ASSUME THE CHARACTER O F DEPRECIATION UNDER SECTION 32(1) IN THESE ASSESSMENT YEARS. IF THERE IS BOTH REPEAL OF THE OLD PROVISION AND SI MULTANEOUS INSERTION OF A NEW PROVISION IN ITS PLACE, IT IS CALLED 'SUBSTITUT ION'. BUT FOR THE RELAXATION GIVEN BY THE FINANCE MINISTE R IN PARLIAMENT, THE BROUGHT FORWARD UNADJUSTED DEPRECIA TION OF THE PERIOD PRIOR TO THE AMENDMENT MADE BY THE FINANCE (NO. 2) ACT, 1996 WITH EFFECT FROM APRIL 1,1997 WOULD HAVE ELAPSED. THERE IS NO S UCH CONCESSION GIVEN BY THE FINANCE MINISTER WHILE SUBSTITUTING THE PROV ISIONS OF SECTION 32(2) WITH EFFECT FROM APRIL 1, 2002. THEREFORE, THE BROU GHT FORWARD UNABSORBED DEPRECIATION ALLOWANCE OF THE PERIOD AFTER SUBSTITU TION BY THE FINANCE (NO. 2) ACT, 1996 CANNOT BE TREATED AS THE CURRENT DEPRE CIATION IN THE ASSESSMENT YEARS UNDER CONSIDERATION. THE POSITION CAN BE SUMMED UP AS FOLLOWS : FOR THE ASSESSMENT YEARS 1997-98 TO 2001-02 BROUGHT FORWARD UNADJUSTED DEPRECIATION ALLOWANCE FOR AND UP TO ASSESSMENT YEA R 1996-97 (THE 'FIRST UNADJUSTED DEPRECIATION ALLOWANCE'), WHICH COULD NO T BE SET OFF UP TO ASSESSMENT YEAR 1996-97, SHALL BE CARRIED FORWARD F OR SET OFF AGAINST INCOME UNDER ANY HEAD FOR A MAXIMUM PERIOD OF EIGHT ASSESSMENT YEARS STARTING FROM ASSESSMENT YEAR 1997-98. CURRENT DEPR ECIATION FOR THE YEAR UNDER SECTION 32(1) (FOR EACH YEAR SEPARATELY START ING FROM ASSESSMENT YEARS 1997-98 UP TO 2001-02) CAN BE SET OFF FIRSTLY AGAINST BUSINESS INCOME AND THEN AGAINST INCOME UNDER ANY OTHER HEAD . THE AMOUNT OF CURRENT DEPRECIATION FOR ASSESSMENT YEARS 1997-98 T O 2001-02 WHICH CANNOT BE SO SET OFF, THE 'SECOND UNABSORBED DEPREC IATION ALLOWANCE', SHALL BE CARRIED FORWARD FOR A MAXIMUM PERIOD OF EIGHT AS SESSMENT YEARS FROM THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH IT WAS FIRST COMPUTED, TO BE SET OFF ONLY AGAINST THE INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION'. FOR THE ASSESSMENT YEAR 2002-03 ONWARDS THE 'FIRST UNADJUSTED DEPRECIATION ALLOWANCE' CAN BE SET OFF UP TO ASSESS MENT YEAR 2004-05, THAT IS, THE REMAINING PERIOD OUT OF MAXIM UM PERIOD OF EIGHT ASSESSMENT YEARS AGAINST INCOME UNDER ANY HEA D. THE 'SECOND UNABSORBED DEPRECIATION ALLOWANCE' CAN BE SET OFF O NLY AGAINST THE INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION' WITHIN A PERIOD 13 OF EIGHT ASSESSMENT YEARS SUCCEEDING THE ASSESSMENT YEAR FOR WHICH IT WAS FIRST COMPUTED. CURRENT DEPRECIATION FOR THE YEAR U NDER SECTION 32(1), FOR EACH YEAR SEPARATELY, STARTING FROM ASSESSMENT YEAR 2002-03 CAN BE SET OFF AGAINST INCOME UNDER ANY HEAD. THE AMOUNT OF DEPREC IATION ALLOWANCE NOT SO SET OFF (THE 'THIRD UNADJUSTED DEPRECIATION ALLO WANCE') SHALL BE CARRIED FORWARD TO THE FOLLOWING YEAR. THE 'THIRD UNADJUSTE D DEPRECIATION ALLOWANCE' SHALL BE DEEMED DEPRECIATION UNDER SECTION 32(1), T HAT IS DEPRECIATION FOR THE CURRENT YEAR IN THE FOLLOWING YEAR(S) TO BE SET OFF AGAINST INCOME UNDER ANY HEAD, LIKE CURRENT DEPRECIATION, IN PERPETUITY. 18 FROM THE ABOVE IT IS CLEAR THAT UNABSORBED DEPRE CIATION FOR THE BLOCK OF ASSESSMENT YEAR 1997-98 TO 2001-02 WHICH COULD NOT HAVE BEEN SET OFF EARLIER, CANNOT BE ALLO WED TO BE SET OFF NOW. THEREFORE, THE LD. CIT(A) HAS CORRECTLY A LLOWED THE SET OFF OF UNABSORBED DEPRECIATION AGAINST OTHER HEADS OF INCOME. HOWEVER, IT HAS NOT BEEN VERIFIED TO WHICH YEAR THE DEPRECIATION BELONGS. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO ONLY ALLOW SET OFF OF U NABSORBED DEPRECIATION WHICH IS OUTSIDE THE BLOCK OF ASSESSME NT YEAR 1997-98 TO 2001-02. 19 IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED. ITA NO. 38/CHD/2011 ASSESSEES APPEAL 20 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUND: THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE DEDUCTION OF RS. 25.00 LAKH IN RESPECT OF THE SUBSIDY RECEIVED FROM THE VALUE OF THE ASSETS FOR THE COMPUTATION OF CAPITAL GAINS. 21 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASS ESSEE HAD RECEIVED A CAPITAL SUBSIDY OF RS. 25 LAKHS FROM NAT IONAL HORTICULTURE BOARD, GOVERNMENT OF INDIA FOR SETTING UP ITS FOOD 14 PROCESSING UNIT AT DERA BASSI. IT WAS CLAIMED THAT THIS SUBSIDY WAS NOT DIRECTLY ATTRIBUTABLE TO ANY FIXED ASSETS A ND THEREFORE, IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT V. P.J. CHEMICALS LTD. 210 ITR 830, THE SUBSIDY WAS TREATED AS CAPITAL RESERVE AND WAS NOT REDUCED FROM COST OF AN Y FIXED ASSETS. THE ASSESSING OFFICER OBSERVED THAT AS PER SECTION 43(1) ACTUAL COST MEANS ACTUAL COST TO THE ASSESSEE REDUCED BY THAT PORTION WHICH HAS BEEN MET DIRECTLY OR INDIREC TLY BY ANY OTHER PERSON OR AUTHORITY. EXPLANATION 10 TO THE S ECTION MAKES IT CLEAR. ACCORDINGLY TO HIM THE SUBSIDY GIVEN BY NATIONAL HORTICULTURE BOARD, GOVERNMENT OF INDIA FOR ESTABLI SHING UNIT ON FIXED PERCENTAGE OF FIXED ASSETS SO ACQUIRED WAS SP ECIFICALLY GIVEN ON SPECIFIED ASSETS OF LAND AND BUILDING, THE REFORE, SAME IS REQUIRED TO BE REDUCED FROM THE ACTUAL COST. AC CORDINGLY THIS AMOUNT WAS ADDED TO THE INCOME OF THE ASSESSEE . 22 ON APPEAL, THE LD. CIT(A) AFTER DISCUSSING THE I SSUE IN DETAIL AND BY REFERRING VARIOUS DECISIONS CONFIRMED THE ADDITION. 23 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT THE SUBSIDY GIVEN TO THE ASSESSEE BY NATIONAL HORTI CULTURE BOARD, GOVERNMENT OF INDIA CANNOT BE CALLED DIRECT SUBSIDY FOR MEETING THE COST OF ASSETS. IN FACT IT WAS A BACK ENDED SUBSIDY WHICH HAS NOTHING TO DO WITH THE FIXED ASSTS. IN T HIS REGARD HE RELIED ON THE DECISION OF VISHAKHAPATNAM BENCH OF T HE TRIBUNAL IN CASE OF COASTAL CORPORATION LTD. V JCIT, 307 IT R (AT) 78 (VISHAKHAPATNAM). HE ALSO REFERRED TO PAGE 81 OF T HE PAPER BOOK WHICH IS A COPY OF THE LETTER ISSUED BY NATION AL HORTICULTURE BOARD, GOVERNMENT OF INDIA SANCTIONING THE SUBSIDY WHICH CLARIFY THAT IT WAS BACK ENDED SUBSID Y. 15 24 THE LD. COUNSEL OF THE ASSESSEE FURTHER REFERRED TO ASSESSMENT ORDER FOR ASSESSMENT YEAR 2004-05, COPY OF WHICH IS PLACED A T PAGE 73 TO 76 OF PAPER BOOK AND POINT ED OUT THAT SINCE THE SUBSIDY WAS RECEIVED IN 2002 AND THEREAFT ER THE ASSESSEE TREATED THE SUBSIDY AS CAPITAL RESERVE AND DEPRECIATION HAS BEEN CLAIMED IN FULL VALUE OF THE ASSETS WHICH WAS ALLOWED THROUGH THIS ASSESSMENT ORDER. NOW THE REVENUE CANNOT TAKE U TURN AND CHANGE THIS POSITION. 25 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE ST RONGLY SUPPORTED THE ORDER OF ASSESSING OFFICER AND THE LD . CIT(A). 26 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D FIND SOME FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. IF THE SUBSIDY WAS TREATED AS CAPITAL RE SERVE FOR ASSESSMENT YEAR 2004-05 THEN THE SAME COULD NOT HAV E BEEN ADDED IN THIS YEAR BECAUSE THAT WOULD MEAN DEPRECIA TION HAS BEEN ALLOWED WITHOUT REDUCING THE SUBSIDY IN THE EA RLIER YEARS. EVEN IF THIS AMOUNT WAS BEING REDUCED FROM COST OF ACQUISITION FOR THE PURPOSE OF LONG TERM CAPITAL GAINS/SHORT TE RM CAPITAL GAINS EVEN THEN SAME CAN NOT BE REDUCED AT THIS STA GE BECAUSE AS PER SECTION 50 WHICH PRESCRIBES THE METHOD FOR C OMPUTATION OF SHORT TERM CAPITAL GAINS ON DEPRECIABLE ASSETS C LEARLY PROVIDES THAT WRITTEN DOWN VALUE AT THE BEGINNING O F THE PREVIOUS YEAR IS TO BE REDUCED FROM THE FULL VALUE OF CONSIDERATION. SECTION 50 READS AS UNDER: NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE (42A) OF SECTION 2 , WHERE THE CAPITAL ASSET IS AN ASSET FORMING PART OF A BLO CK OF ASSETS IN RESPECT OF WHICH DEPRECIATION HAS BEEN ALLOWED UNDER THIS ACT OR UNDER THE INDIAN INCOME-TAX ACT, 1922 (11 OF 1922), THE PROVISIONS O F SECTIONS 48 AND 49 SHALL BE SUBJECT TO THE FOLLOWING MODIFICATIONS : (1) WHERE THE FULL VALUE OF THE CONSIDERATION RECE IVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE ASSET TOGETHER WITH THE FULL VALUE OF SUCH CONSIDERATION 16 RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF ANY OTHER CAPITAL ASSET FALLING WITHIN THE BLOCK OF THE ASSETS DURING THE P REVIOUS YEAR, EXCEEDS THE AGGREGATE OF THE FOLLOWING AMOUNTS, NAMELY : (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY I N CONNECTION WITH SUCH TRANSFER OR TRANSFERS; (II) THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YEAR; AND (III) THE ACTUAL COST OF ANY ASSET FALLING WITHIN T HE BLOCK OF ASSETS ACQUIRED DURING THE PREVIOUS YEAR, SUCH EXCESS SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISING FROM THE TRANSFER OF SHORT-TERM CAPITAL ASSETS; (2) WHERE ANY BLOCK OF ASSETS CEASES TO EXIST AS S UCH, FOR THE REASON THAT ALL THE ASSETS IN THAT BLOCK ARE TRANSFERRED DURING THE PREVIOUS YEAR, THE COST OF ACQUISITION OF THE BLOCK OF ASSETS SHALL BE THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YE AR, AS INCREASED BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK OF ASSETS, ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND THE INCOME RE CEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER OR TRANSFERS SHALL BE DEE MED TO BE THE CAPITAL GAINS ARISING FROM THE TRANSFER OF SHORT-TERM CAPITAL ASS ETS.] THUS FROM ABOVE IT IS CLEAR THAT FROM THE SALE CONS IDERATION WHAT IS TO BE REDUCED IS WRITTEN DOWN VALUE OF THE ASSETS AT THE BEGINNING OF THE PREVIOUS YEAR. SINCE THE ASSESSEE HAS ALREADY CLAIMED DEPRECIATION WHICH WAS ALLOWED AS CLAIMED BY THE LD. COUNSEL OF THE ASSESSEE WITHOUT REDUCING TH E SUBSIDY THE WRITTEN DOWN VALUE OF THE ASSETS ALREADY STANDS REDUCED AT THE BEGINNING OF THE YEAR AND NO FURTHER ADJUSTMENT IS POSSIBLE. HOWEVER, IT IS NOT CLEAR FROM THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2004-05 WHETHER SUBSIDY HAS ACTUALL Y BEEN RECEIVED IN 2002 OR NOT? THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE RECEIPT OF SUBSIDY A ND IF THE SAME WAS RECEIVED IN THE EARLIER YEARS THEN NOT TO MAKE ANY ADDITION DURING THE YEAR. IF OTHERWISE THE ISSUE MAY BE DECIDED IN ACCORDANCE WITH LAW. 17 27 IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED AND THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTIC AL PURPOSES. ORDER PRONOUNCED ON 14.3.2013 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 14 .3.2013 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 18