ITO Co. Ward-9 (1), V. Speciality Coating & Lamination Ltd,

ITA 815/DEL/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53273 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 30-09-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 03-03-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Tax effect; Unabsorbed depreciation
• Section: 43B

Judgement Text

FIT FOR PUBLICATION IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE PRESIDE NT & SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 815/DEL/2008 ASSESSMENT YEAR: 2002-03 INCOME TAX OFFICER, VS. M/S SPECIALITY COATINGS & L AMINATION LTD., COY WARD 9(1), VISHNU BHAWAN, 1 ST FLOOR, 5, ANSARI ROAD, ROOM NO. 190, DARYA GANJ, NEW DELHI. C.R. BLDG., NEW DELHI. AAECS1474R (APPELLANT) (RESPONDENT) APPELLANT BY : SH. B.R.R. KUMAR, DR RESPONDENT BY : SH. M.P. RASTOGI, ADV. & LALITA KR ISHNAMURTY, CA ORDER PER A.D. JAIN, J.M. THIS IS DEPARTMENTS APPEAL FOR A.Y. 2002-03 AGAI NST THE ORDER DATED 03.12.2007 PASSED BY THE LD. CIT(A) -XII, NEW DELHI. THE FOLLOWING GROUNDS HAVE BEEN TAKEN: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 4,09,769/- MADE BY THE AO ON ACCOUNT OF DEPRECIATION CLAIMED @ 25% OF WDV WHICH WAS RESTRICTED TO 10% BY THE AO ON THE REASONING THAT ELECTRIC ITA NO. 815/D/2008 M/S SPECIALITY COATINGS & LAMINATIONS LTD. 2 INSTALLATIONS ARE COVERED UNDER FURNITURE AND FITTINGS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE AMOUNT OF RS. 14,57,534/- BEING THE EXCESS CLAIM OF EXPENDITURE UNDER THE HEAD INTEREST CLAIMED TO HAVE BEEN PAID TO KANNARA DISTRICT CENTRAL CO-OPERATIVE BANK. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY ALTER, ADD OR FORGO ANY GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. EARLIER, VIDE ORDER DATED 05.06.2007, THE TRIBUN AL DISMISSED THE DEPARTMENTS APPEAL FOR LOW TAX EFFEC T, FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE KOLKATA TR IBUNAL IN CIT VS. PEERLESS DEVELOPERS, 103 ITD 249 (KOL.) ( SB), WHEREIN A LOSS OF RS. 5,74,69,643/- HAD BEEN DETERM INED BY THE AO. THE CIT(A) HAD DELETED THE DISALLOWANCE OF RS. 69,89,089/-. THE ASSESSEE, BEFORE THE TRIBUNAL, OB JECTED THAT THE ULTIMATE TAX EFFECT WAS NIL, SINCE ITS INCOME AGAIN REMAINED TO BE A NEGATIVE FIGURE, EVEN AFTER THE CI T(A)S ORDER. THE TRIBUNAL UPHELD THE ASSESSEES SAID CON TENTION AND DISMISSED THE DEPARTMENTS APPEAL FOR LOW TAX E FFECT. ITA NO. 815/D/2008 M/S SPECIALITY COATINGS & LAMINATIONS LTD. 3 3. BY VIRTUE OF ORDER DATED 28.09.2010, THE HONBLE HIGH COURT OF DELHI, IN ITA NO. 358/2010, PREFERRED BY T HE DEPARTMENTS AGAINST THE AFORESAID ORDER OF THE TRI BUNAL, HELD THAT THE TRIBUNAL HAD NOT DWELLED UPON THE TAX EFFE CT AND HAD WRONGLY COME TO HOLD THAT THE APPEAL OF THE REVENUE WAS NOT MAINTAINABLE. THE HONBLE HIGH COURT, AS SUCH, HAS REMITTED THIS MATTER TO THE TRIBUNAL TO FIND OUT THE TAX EFF ECT AS PER LAW AND THEREAFTER PROCEED IN ACCORDANCE WITH LAW. 4. IN THE PRESENT PROCEEDINGS, THE ASSESSEE HAS FIL ED ITS WORKING OF TAX. THIS IS AS FOLLOWS: - WORKING OF TAX EFFECT 1. RETURNED INCOME NIL 2. AO ORDER DATED 30/03/02 INCOME OF CURRENT YEAR 13,9 7,940 ADD: ADDITION ON ACCOUNT OF VALUATION OF CLOSING ST OCK 3,76,998 DISALLOWANCE U/S 43B 99,604 EXCESS CLAIM OF DEPRECIATION 4,09,769 DISALLOWANCE OF INTEREST 14,57,534 37,41,845 LESS: B/F LOSS AND UNABSORBED DEPRECIATION 37,41,845 TOTAL INCOME NIL NIL 3. CIT(A) ORDER DATED 3/12/07 DELETED ALL THE ADDITIONS MADE BY AO. HENCE EVEN AFTER CIT(A) ORDER THE TOTAL INCOME REMAINS NIL NIL 4. REVENUE FILED APPEAL BEFORE ITAT ONLY ON FOLLOWING ISSUES: 1) EXCESS CLAIMS OF DEPRECIATION 4,09,769 2) DISALLOWANCE OF INTEREST 14, 57,534 ITA NO. 815/D/2008 M/S SPECIALITY COATINGS & LAMINATIONS LTD. 4 5. WITH REFERENCE TO THE ABOVE WORKING OF TAX EFFEC T, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE TAX EFFECT IS NIL; THAT IT IS A CASE OF LOSS; THAT THE RETURN W AS FILED AT NIL INCOME; THAT THE AO MADE DISALLOWANCE REGARDING VAL UATION OF CLOSING STOCK, SECTION 43B(B) OF THE INCOME TAX ACT , EXCESS CLAIM OF DEPRECIATION AND INTEREST EXPENDITURE. TH E LD. COUNSEL HAS PLACED BEFORE US CBDT INSTRUCTION NO. 5 DATED 15.05.2008 AND CBDT INSTRUCTION NO. 2 DATED 24.10.2 005. IT HAS BEEN CONTENDED THAT THE APPEAL WAS FILED BY THE REVENUE BEFORE THE TRIBUNAL IN MARCH, 2008; THAT ON THAT DA TE, CBDT INSTRUCTION NO. 2 DATED 24.10.2005 WAS IN FORCE; TH AT AS PER CBDT INSTRUCTION NO. 2 DATED 24.10.2005, THE TAX EF FECT FOR AN APPEAL BY THE DEPARTMENT BEFORE THE TRIBUNAL SHOULD BE OF MORE THAN RS. 2 LAKHS. REFERENCE HAS BEEN MADE TO PEERLESS DEVELOPERS (SUPRA). 6. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, CONTENDING THAT THE ADDITIONS MADE ARE OF RS. 14 LA CS, HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE DELH I HIGH COURT IN THE CASE OF CIT VS. CONTINENTAL CONSTRUCT ION LIMITED, RENDERED IN ITA NOS. 60 & 61/2008 ON 30.0 3.2011 (COPY PLACED ON RECORD). ITA NO. 815/D/2008 M/S SPECIALITY COATINGS & LAMINATIONS LTD. 5 7. HAVING CONSIDERED THE RIVAL CONTENTIONS ON THIS ISSUE, WE FIND THAT IN CONTINENTAL CONSTRUCTIONS (SUPRA), I T HAS BEEN HELD, INTER-ALIA, THAT VIDE CBDT INSTRUCTION NO. 5/ 2008 DATED 15.05.2008 (SUPRA), IT WAS STIPULATED THAT IN ALL L OSS CASES, NOTIONAL TAX EFFECT IS TO BE TAKEN INTO ACCOUNT, ME ANING THAT EVEN IN THOSE CASES WHERE THERE ARE LOSSES, DEPENDI NG UPON THE QUANTUM OF RELIEF GIVEN BY THE TRIBUNAL WHICH T HE DEPARTMENT WANTED TO CHALLENGE, THE DEPARTMENT COUL D CONSIDER THE TAX EFFECT THERE UPON EVEN IF THE NET EFFECT WAS THAT THERE WAS NO POSITIVE INCOME IN THE CONCERNED YEAR EXIGIBLE TO TAX AND IT WAS A CASE OF LOSS; THAT IT IS THIS INSTRUCTION OF CALCULATING THE TAX EFFECT BY TAKING INTO CONSIDERATION EVEN NOTIONAL TAX EFFECT, WHICH IS AP PLICABLE IN RESPECT OF APPEALS FILED ON OR BEFORE 15.05.2008; T HAT HOWEVER, WHEN IT COMES TO THE MEANING TO BE ASSIGNE D TO THE TAX EFFECT AND THE MODIFIED MANNER/FORMULA IS PRESC RIBED IN THE INSTRUCTION DATED 15.05.2008, SUCH A CIRCULAR, ON T HIS ASPECT, HAS TO BE TREATED AS HAVING PROSPECTIVE APPLICATION , MORE SO, WHEN PARA 11 THEREOF SPECIFICALLY SO PROVIDES. THE REFORE, THERE IS NO DOUBT ANY LONGER AS TO THE DATE FROM WH ICH THE ITA NO. 815/D/2008 M/S SPECIALITY COATINGS & LAMINATIONS LTD. 6 INSTRUCTION DATED 15.05.2008 IS APPLICABLE WHEN CON SIDERING THE MEANING OF TAX EFFECT. 8. IN THE INSTRUCTION DATED 15.05.2008, NOTIONAL TA X EFFECT IS ALSO TO BE CONSIDERED WHILE CALCULATING THE TAX EFF ECT. TO THIS EXTENT, HOWEVER, AS PER CONTINENTAL CONSTRUCTION (SUPRA), THE INSTRUCTION OF 15.05.2008 IS APPLICABLE ONLY PROSPE CTIVELY, I.E. ON OR AFTER 15.05.2008, AS SPECIFICALLY STATED IN P ARA 11 OF THE SAID INSTRUCTION. MEANING THEREBY, THAT FOR THE AP PEALS FILED BEFORE 15.05.2008, NOTIONAL TAX EFFECT IS NOT TO BE TAKEN INTO CONSIDERATION. THE PRESENT APPEAL WAS FILED IN MAR CH, 2008, I.E. BEFORE 15.05.2008. THEREFORE, FOR CONSIDERING THE MEANING TO BE ASSIGNED TO THE TAX EFFECT INVOLVED, NOTIONAL TAX EFFECT IS NOT TO BE TAKEN INTO CONSIDERATION. 9. NOW, AS PER THE WORKING OF TAX EFFECT FILED BY T HE ASSESSEE, ACCORDING TO THE ASSESSMENT ORDER DATED 30.03.2002, WHEREAS THE RETURNED INCOME WAS NIL, TH E TOTAL INCOME ASSESSED WAS ALSO NIL. THE INCOME FOR THE Y EAR WAS OF RS. 13,97,940/-. THE AO MADE ADDITION OF RS. 3, 76,998/- ON ACCOUNT OF VALUATION OF CLOSING STOCK. THE AO M ADE DISALLOWANCE OF RS. 99,604/- U/S 43B OF THE INCOME TAX ACT. ITA NO. 815/D/2008 M/S SPECIALITY COATINGS & LAMINATIONS LTD. 7 THE AO FURTHER DISALLOWED EXCESS CLAIM OF DEPRECIAT ION AMOUNTING TO RS. 4,09,769/- AND ALSO DISALLOWED INT EREST AMOUNTING TO RS. 14,57,534/-. THE TOTAL ADDITION/D ISALLOWANCE THUS, AMOUNTED TO RS. 37,41,845/-. AS AGAINST THIS , BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION OF RS. 37, 41,845/- WAS SET OFF. THE TOTAL INCOME, THEREFORE, CAME TO NIL. VIDE ORDER DATED 03.12.2007, THE CIT(A) DELETED ALL THE ADDITIONS MADE BY THE AO. AS SUCH, EVEN AFTER THE CIT(A)S O RDER, THE TOTAL INCOME REMAINED NIL. IN ITS APPEAL BEFORE TH E TRIBUNAL, THE DEPARTMENT HAS CHALLENGED THE CANCELLATION OF DISALLOWANCE OF EXCESS CLAIM OF DEPRECIATION AT RS. 4,09,769/- AND OF DISALLOWANCE OF INTEREST OF RS. 14,57,534/-. NO OTHER ACTION OF THE LD. CIT(A) IS UNDER CHALLENGE BEFORE US. 10. THE REAL TAX EFFECT, THEREFORE, IS NIL, THE RET URNED AND ASSESSED INCOME BEING BOTH NIL AND THE ASSESSMENT B EING A LOSS ASSESSMENT. INSTRUCTION NO. 2 DATED 24.10.200 5 IS THE APPLICABLE INSTRUCTION SO FAR AS REGARDS THE TAX EF FECT. AS PER THE SAID INSTRUCTION, THE TAX EFFECT SHOULD BE OF A MINIMUM OF RS. 2 LACS SO AS TO ENABLE THE DEPARTMENTS APPEAL TO BE ENTERTAINED, WHICH IS NOT SO IN THE PRESENT CASE. ITA NO. 815/D/2008 M/S SPECIALITY COATINGS & LAMINATIONS LTD. 8 11. IN VIEW OF THE ABOVE, THE DEPARTMENTS APPEAL I S DISMISSED FOR LESS TAX EFFECT. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 02.12.201 1 SD/- SD/- (G.E. VEERABHADRAPPA) (A.D. JAIN ) PRESIDENT JUDICIAL MEM BER DATED: 02.12.2011 *KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR