M/s Karnataka Instrade Corporation Ltd., Bangalore V. ACIT, Bangalore

ITA 966/BANG/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57526 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-03-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 05-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Assessee Lawyers: V CHANDRASHEKAR
• Keywords: Business income; Depreciation; Revised return; Unabsorbed depreciation
• Section: 234B; 148

Judgement Text

PAGE 1 OF 14 ITA NO. 966/BANG/2010 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BEFORE SHRI N K SAINI, ACCOUNANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.966/BANG/2010 (ASST. YEAR 2001-02) M/S KARNATAKA INSTRADE CORLPORATION LTD., (FORMERLY KNOWN AS KARNATAKA MINERALS AND MANUFACTURING COMPANY LTD.), NO.1/GEF ADMINISTRATIVE BLOCK, MSRIT POST, NEW BEL ROAD, BANGALORE-86. PA NO. AACCK 0428 P VS THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE- 11(5), BANGALORE (APPELLANT) (RESPONDENT) DATE OF HEARING : 01.03.20 12 DATE OF PRONOUNCEMENT : 09.03.2012 APPELLANT BY : SHRI V CHANDRASHEKAR, ADVOCAT E RESPONDENT BY : SMT. SUSAN THOMAS JOSE, JCIT O R D E R PER GEORGE GEORGE K : THIS APPEAL OF THE ASSESSEE COMPANY IS DIRECTED AG AINST THE ORDER OF THE LD. CIT (A)-I, BANGALORE, DATED 20.5.2 010. THE RELEVANT ASSESSMENT YEAR IS 2001-02. 2. THE ASSESSEE COMPANY HAS RAISED EIGHT GROUNDS IN HIS GROUNDS OF APPEAL, IN WHICH, GROUND NOS.1, 2, 7 & 8 BEING GENERAL IN NATURE AND NO SPECIFIC ISSUES INVOLVED, THEY HAVE BECOME INCONSEQU ENTIAL. CHARGING OF INTEREST U/S 234A, 234B AND 234C OF THE ACT [ GROUND NO.6 ] IS MANDATORY PAGE 2 OF 14 ITA NO. 966/BANG/2010 2 AND CONSEQUENTIAL IN NATURE AND, THEREFORE, THIS GR OUND IS NOT MAINTAINABLE AND, ACCORDINGLY, DISMISSED. IN THE REMAINING GROUND S [ GROUND NOS.3,4 & 5] , THE CRUX OF THE ISSUE IS CONFINED TO A SOLITARY GROU ND, NAMELY; THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN LAW IN DENYING AND DISALLOWING THE CLAIM OF SET OFF OF UNABSORBED DEPRECIATION LOSS TO THE EXTENT OF RS.13,09,596/-. THE FACTS OF THE ISSUE, IN BRIEF, ARE AS UNDER: 3. THE ASSESSEE COMPANY [THE ASSESSEE IN SHORT], BEING THE MANUFACTURERS OF CEMENT, HAD FURNISHED ITS RETURN O F INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ADMITTING A TOT AL INCOME OF RS.35,575/- AFTER SETTING OFF OF BROUGHT FORWARD DE PRECIATION LOSS AGAINST THE INCOME FROM CAPITAL GAINS TO THE EXTE NT OF RS.50.60 LAKHS WHICH WAS, INITIALLY, PROCESSED U/S 143(1) OF THE AC T AND, SUBSEQUENTLY, THE ASSESEE CAME UP WITH A REVISED RETURN, DECLARING N IL INCOME. THE REVISION WAS DUE TO INCLUDING ADDITIONAL CAPITAL GAINS RELAT ING TO THE TRANSFER OF MINING RIGHTS AND SETTING OFF OF THE INTEREST INCOM E AGAINST THE BUSINESS LOSS FOR THE YEAR. THE ASSESSEE HAD ADJUSTED ALL TH E INCOME AGAINST THE UNABSORBED DEPRECIATION. A NOTICE U/S 148 OF THE A CT WAS ISSUED ON 8.12.2004 TO REJECT THE SETTING OFF OF BROUGHT FORW ARD UNABSORBED DEPRECIATION AGAINST THE CURRENT YEARS INCOME ON A CCOUNT OF CAPITAL GAINS WHICH WAS SUBSEQUENTLY DROPPED, FOR THE REASONS RECO RDED THEREIN, THROUGH A DETAILED ORDER 23.3.2006. 3.1. THE ISSUE INVOLVED IN THE ASSESSMENT WAS THE TAXABILITY OF CAPITAL GAINS ARISING ON ACCOUNT OF TRANSFER OF ASS ETS TO M/S. MADRAS CEMENTS LTD; THAT THE ASSESSEE TRANSFERRED THE PLAN T AND MACHINERY, PAGE 3 OF 14 ITA NO. 966/BANG/2010 3 BUILDING, MINE LEASES AND LARGE EXTENT OF LAND ALON G WITH GOODWILL ETC., FOR RS.19 CRORES, THE TRANSFER OF WHICH, WAS HELD TO BE TAXABLE AS A SLUMP SALE FOR THE ASSESSMENT YEAR 2000-01 . HOWEVER, ON APPEAL, THE THEN CIT (A) HELD THAT IT WAS NOT A SLUMP SALE AS NO LIABILITIES WERE TRANSFERRED AND THAT THE RESULTANT GAINS FROM THE SALE CANNOT BE TAXED I N THE AY 2000-01 AS THE SALE WAS DEPENDING UPON THE APPROVAL/EXEMPTION FROM SICA ACT BY THE BIFR BOARD WHICH WAS RECEIVED ONLY IN JUNE, 2000 - R ELEVANT FOR THE ASSESSMENT YEAR 2001-02 . 3.2. IN CONSONANCE WITH THE FINDING THE THEN CIT ( A) FOR THE AY 2000-01, SUBSEQUENT INFORMATION RECEIVED FROM M/S. MADRAS CEMENTS LTD., AND FOR THE DETAILED REASONS RECORDED WHICH HAVE BE EN INCORPORATED AS PART OF THE IMPUGNED ASSESSMENT ORDER, NOTICE U/S 148 O F THE ACT WAS ISSUED ON THE ASSESSEE ON 9.11.2006. AFTER DUE CONSIDERATION OF THE ASSESSEES CONTENTIONS, THE AO HAD OBSERVED THUS: 26. IT IS VERY CLEAR FROM THE ABOVE THAT THE UNABS ORBED DEPRECATION OF EARLIER YEARS PRIOR TO AY 1997-98 WER E DEEMED TO BE PART OF THE DEPRECIATION ALLOWANCE OF AY 1997-98 AND THIS BEING THE CASE, SUCH DEPRECIATION ALLOWANCE WAS ALLOWED TO BE SET OFF AGAINST ANY OTHE R HEAD OF INCOME ONLY FOR AY 1997-98. 27. IN THE ASSESSEES CASE, THE AY UNDER CONSIDER ATION IS AY 2001-02. ALL THE UNABSORBED DEPRECIATION OF EARLIER YEARS PRIOR TO AY 1997-98 IS DEEMED TO BE PA RT OF THE DEPRECIATION ALLOWANCE OF AY 1997-98. THE S AME BECOMES THE UNABSORBED DEPRECIATION ALLOWANCE FOR A LL YEARS SUBSEQUENT TO THAT I.E., FROM AY 1998-99 ONWAR DS. SO, FOR THE AY 01-02, THE ENTIRE AMOUNT OF RS.3,39,62,012/- IS PART OF UNABSORBED DEPRECIATION PAGE 4 OF 14 ITA NO. 966/BANG/2010 4 ALLOWANCE BROUGHT FORWARD AND, HENCE, THE SAME IS ALLOWED TO BE SET OFF ONLY AGAINST THE BUSINESS INCO ME AS PER PROVISIONS OF S.32(2)(III). 4. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE WITH THE CIT (A) FOR RELIEF. THE CIT (A) HAD, AFTER CONSIDERING THE ASS ESSEES CONTENTIONS, EXTENSIVELY ANALYZING THE PROVISIONS OF S.32 (2) OF T HE ACT, EXHAUSTIVELY QUOTING VARIOUS JUDICIAL PRONOUNCEMENTS, CHIEFLY, TH E RULING OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. VIRMANI INDUSTR IES PVT. LTD. & OTHERS REPORTED IN (1995) 216 ITR 607 (SC), OBSERVED THUS: 4.6. THE GIST OF THE ABOVE ARGUMENT IS THAT UP-TO AY 1997- 98 AND AFTER AY 2002-03, THE BROUGHT FORWARD UNABS ORBED DEPRECIATION CAN BE SET OFF AGAINST INCOME FROM ANY HEAD OF INCOME EVEN IF THE DEPRECIATION RELATES TO A BUSINE SS NOW DEAD AND THE RELATED ASSET IS NON-EXISTENT. BUT FO R THE AYS 1998-99 TO 2001-02, SUCH UNABSORBED DEPRECIATION CA N ONLY BE SET OFF AGAINST THE INCOME UNDER THE HEAD BUSIN ESS AND NO OTHER HEAD OF INCOME. THUS, ON AN ANALYSIS OF HI STORY OF THE UNABSORBED DEPRECIATION DIVIDED INTO THREE PHAS ES, I.E., (I) PRE-AY 1997-98; (II) AY 1998-99 TO 2001-02; & (III) POST-AY 2002-03 I COME TO THE CONCLUSION AKIN TO THE AOS REASONING AND, THEREFORE, DISMISS THE GROUNDS OF APPEAL. 5. AGGRIEVED, THE ASSESSEE HAS COME UP WITH THE PR ESENT APPEAL. DURING THE COURSE OF HEARING, THE LD. A R HAD DWELT WITH THE ISSUE ELABORATELY, THE SUBSTANCES OF WHICH, ARE AS UNDER: (I) THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE CAN CLAIM SET OFF OF UNABSORBED DEPREC IATION LOSS PAGE 5 OF 14 ITA NO. 966/BANG/2010 5 AGAINST ANY OTHER HEADS OF INCOME INCLUDING CAPITAL GAINS; THAT THEY HAVE FURTHER HELD THAT SINCE THE BUSINESS OF TH E ASSESSEE HAD COME TO A STAND STILL; THAT THERE WAS NO BUSINE SS ACTIVITY, THE CLAIM OF SET OFF OF UNABSORBED DEPRECIATION CAN NOT BE SET OFF AGAINST ANY HEADS OF INCOME OF THE ASSESSEE; AND THAT IF AT ALL THE SAME CAN BE SET OFF AGAINST THE INCOME DERI VED OUT OF THE BUSINESS; (II) THAT THE SET OFF OF UNABSORBED DEPRECIATION EV EN THOUGH THE PROVISIONS OF S. 32(2) HAS BEEN AMENDED BY THE F INANCE ACT, 1996; THAT THE LEGISLATURE HAD NOT INTENDED TO DENY THE BENEFIT OF SET OFF OF UNABSORBED DEPRECIATION AND IT ONLY IN TENDED TO MAKE THE AMENDMENT FOR THE DEPRECIATION THAT WAS LI KELY TO ARISE PROSPECTIVELY; - THAT THE HONBLE FINANCE MINISTER HAD, DURING THE C OURSE OF BUDGET DISCUSSION, CLARIFIED THAT THE PROPOSED AMENDMENT IS PROSPECTIVE IN AS MUCH AS THE CUMULATIVE UNABSOR BED DEPRECIATION BROUGHT FORWARD AS ON 1 ST APRIL, 1997 CAN STILL BE SET OFF AGAINST THE TAXABLE BUSINESS PROFI TS OR INCOME UNDER ANY OTHER HEAD FOR THE ASSESSMENT YEAR 1997-98 AND SEVEN SUBSEQUENT YEARS. THAT THIS POSITION WAS ALSO CONFIRMED BY THE BOARDS CIRCULAR NO.762 DA TED 18..2.1998, EXPLAINING THE AMENDMENTS MADE BY THE FI NANCE ACT, 1996 AND HAD ALSO CONFIRMED THE ASSURANCE POIN TED OUT THAT THE UNABSORBED ALLOWANCE UP-TO THE AY 1996-97 WILL BE ADDED TO THE ALLOWANCE OF 1997-98. - RELIES ON CASE LAWS: ACIT V. PODDAR PROJECTS LTD (2005) 92 ITD 468 (KOL) ; ITO V. SELCHEM ENGINEERS (P) LTD. 272 ITR (AT) 10(D EL); & CIT V. VIRMANI INDUSTRIES PVT. LTD. 216 ITR 607 (SC ) (III) THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN LAW IN NOT APPRECIATING THE BOARDS CIRCULAR NO.762 WHICH WAS BINDING ON THE AUTHORITIES BELOW AND, THUS, THE IMPUGNED OR DERS PASSED WERE CONTRARY TO THE RULINGS OF APEX COURT. PAGE 6 OF 14 ITA NO. 966/BANG/2010 6 5.1. IN CONCLUSION, IT WAS PLEADED THAT SINCE THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW WERE CONTRARY TO THE BOARD S CIRCULAR, THE LEGITIMATE CLAIM OF THE ASSESSEE REQUIRES TO BE ALL OWED. 5.2. ON THE OTHER HAND, THE LD. D R WAS OF THE FIR M VIEW THAT THE AO HAD, IN FACT, BROUGHT ON RECORD THE REASONS FOR DISALLOWING A SUM OF RS.13,09,596/- AS SET OFF OF UNABSORBED DEPRECIATIO N LOSS WHICH HAS BEEN SUSTAINED IN A JUDICIOUS MANNER BY THE CIT (A). TH E LD. D R HAD, FURTHER, STRESSED THAT THE UNABSORBED DEPRECIATION LOSS OF YE STER ASSESSMENT YEARS COULD VERY WELL BE SET OFF AGAINST THE BUSINESS INCOME OF THE AY UNDER CONSIDERATION, BUT, NOT AGAINST CAPITAL GAIN S. IT WAS, THEREFORE, PLEADED THAT THE FINDINGS OF THE CIT (A) REQUIRES N O INTERVENTION. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS, AND PERUSED THE RELEVANT RECORDS AND ALSO WITH DUE RESP ECT, THE CASE LAWS ON WHICH THE ASSESSEE HAD PLACED STRONG RELIANCE. 6.1. IT WAS THE CASE OF THE ASSESSEE THAT DURING T HE AY 2000-01, IT HAD ENTERED INTO AN AGREEMENT FOR THE TRANSFER O F CERTAIN MOVABLE AND IMMOVABLE ASSETS WITH M/S. MADRAS CEMENT LTD. THE PURCHASER, ACCORDING TO THE ASSESSEE, HAD AGREED TO TAKE OVER THE ASSETS FOR A TOTAL CONSIDERATION OF RS.19 CRORES, SUBJECT TO FULFILLME NTS OF CERTAIN TERMS WHICH THE ASSESSEE COULD NOT FULFILL THEM BY OVERNIG HT, HOWEVER, AGREED TO DO SO IN A PHASED MANNER. AS AND WHEN, THE ASSES SEE HAD FULFILLED THE SAID OBLIGATIONS; IT OFFERED THE INCOME PROPORTIONA TELY TOWARDS CAPITAL GAINS IN VARIOUS YEARS. LIKEWISE, FOR THE AY UNDER CONSIDERATION, THE ASSESSEE HAD OFFERED AN INCOME OF RS.35,575/- AFTER SETTING OFF OF PAGE 7 OF 14 ITA NO. 966/BANG/2010 7 BROUGHT FORWARD DEPRECIATION LOSS AGAINST THE INCOM E DERIVED FROM CAPITAL GAINS TO THE EXTENT OF RS.50.60 LAKHS. H OWEVER, DURING THE RE- ASSESSMENT PROCEEDINGS U/S 143 (3) R.W.S. 148 OF TH E ACT, FOR THE REASONS RECORDED IN HER IMPUGNED ORDER UNDER CHALLENGE, THE AO HAD DISALLOWED THE CARRY FORWARD AND SET OFF OF THE UNABSORBED DEPR ECIATION OF RS.13,09,596/- ON THE GROUND THAT THE SET OFF OF TH E UNABSORBED DEPRECIATION AS PER THE PROVISIONS OF SECTION 72(2) OF THE ACT, THE AMENDED PROVISIONS OF SECTION 32(2) WAS EFFECTIVE O NLY FROM 1.4.2002 AND AS SUCH, THE PROVISIONS, PRIOR TO AMENDMENT, AS IT STOOD FOR THE ASSESSMENT YEAR 2001-02 IS APPLICABLE FOR THE ASSESS MENT YEAR 2001-02. ACCORDING TO THE AO, SINCE SECTION 72(2) OF THE ACT HAS NOT BEEN AMENDED AND, THUS, IT HAS NO RELEVANCE IN VIEW OF T HE AMENDED SECTION 32(2) AS SECTION 72(2) ONLY PROVIDES FOR PRIORITIZAT ION. 6.2. THIS HAS, HOWEVER, BEEN REFUTED BY THE ASSESSE E. THE ASSESSEE HAD ALSO DISPUTED THE STAND OF THE AUTHORI TIES BELOW THAT SINCE THE BUSINESS OF THE ASSESEE HAD CEASED AND THERE WA S NO BUSINESS ACTIVITY, THE CLAIM OF SET OFF OF UNABSORBED DEPRECI ATION CANNOT BE SET OFF AGAINST ANY HEADS OF INCOME OF THE ASSESSEE. 6.3. AT THIS JUNCTURE, OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE HONBLE SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF DCIT V. TIMES GUARANTY LTD REPORTED IN (2010) 2010 TPI 173 ( TRIBUNAL MUMBAI) ON A SIMILAR ISSUE. PAGE 8 OF 14 ITA NO. 966/BANG/2010 8 THE ISSUE, IN BRIEF, IN THAT CASE WA S THAT THE ASSESSEE CONTINUED TO DERIVE INCOME FROM THE BUSINESS OF MERCHANT BANK ING ACTIVITY HAD FILED ITS RETURN OF INCOME FOR THE AY 2003-04, ADMITTING A LOSS OF RS.82.86 LAKHS. WHILE CONCLUDING THE ASSESSMENT, THE AO COM PUTED THE TOTAL INCOME AS UNDER: (I) PROFITS AND GAINS OF BUSINESS (AS SHOWN IN THE COMPUTATION OF TOTAL INCOME) (-) RS.1,1 0,27,156 ADD: DISALLOWANCE (+) RS.1,14,16,014 LESS: CARRIED FORWARD BUSINESS LOSS OF AY 2002-03 OF RS.8,80,46,221 LIMITED TO RS.3,88,858 (-) RS. 3, 88,858 PROFITS AND GAINS OF BUSINESS NIL (II)INCOME FROM OTHER SOURCES (AS SHOWN) RS. 27,40,658 GROSS INCOME RS. 27,40,653 LESS: DEDUCTION UNDER CH.VIA NIL TOTAL INCOME RS. 27 ,40,653 RETURN FOR THE AY 2004-05 WAS FILED DECLARING TOTAL INCOME OF RS. NIL, HOWEVER, THE AO MADE THE FOLLOWING COMPUTATION: (I) BUSINESS INCOME RS. 2,93,625 (SET OFF) (II)INCOME FROM OTHER SOURCES (BANK INTEREST) RS. 28,20,000 LESS: CURRENT YEAR DEPRECIATION RS. 16,87,228 TOTAL INCOME RS.11,92,772 THE ASSESSEE TOOK UP THE ISSUES WITH THE CIT (A) UR GING THAT UNABSORBED DEPRECIATION DETERMINED IN AY 1997-98 TO 1999-2000 BE ALLOWED SET OFF AGAINST INCOME UNDER THE HEAD INCOME FROM OTHER SO URCES. HOWEVER, THE CIT(A) TOOK A VIEW THAT THE AO HAD NEITHER DISCUSSE D THE PLEA OF THE ASSESSEE ABOUT SUCH SET OFF NOR HAD GIVEN ANY REASON TO WHY SUCH SET OFF WAS NOT ALLOWED. IT WAS EXPLAINED BY THE ASSESSEE T HAT IT HAD DECLARED PAGE 9 OF 14 ITA NO. 966/BANG/2010 9 INCOME OF RS.31,13,625/- INCLUDING BANK INTEREST OF RS.28.8 LAKHS WHICH WAS SOUGHT TO BE SET OFF AGAINST BROUGHT FORWARD LOSSES INCLUDING UNABSORBED DEPRECIATION. IT WAS PUT FORTH THAT ON THE AOS QU ESTIONING AS TO WHY THE INTEREST INCOME BE NOT TREATED AS INCOME FROM OTHE R SOURCES, THE ASSESSEE DID NOT RAISE ANY OBJECTION TO THE CONSIDERATION OF SUCH INCOME UNDER THE RESIDUAL HEAD, BUT, CLAIMED THAT UNABSORBED DEPRECI ATION BE ALLOWED SET OFF AGAINST THE INCOME UNDER THE HEAD INCOME FROM OTHE R SOURCES. IN THE FIRST APPEAL, THE ASSESSEE ALSO RELIED ON THE RULING OF T HE HONBLE SUPREME COURT IN THE CASE OF CIT V. VIRMANI INDUSTRIES PVT. LTD ( SUPRA) AND JAIPURIA CHINA CLAY MINES (P) LTD [59 ITR 555 (SC)] IN SUPPORT OF I TS CONTENTIONS. THE CIT HELD THAT UNABSORBED DEPRECIATION WAS AVAILABLE TO AN ASSESSEE PERPETUALLY FOR SET OFF AGAINST THE GROSS TOTAL INCOME. TAKING REFUGE IN THE RULING OF THE SUPREME COURT IN THE CASE OF CIT V. VIRMANI INDUSTR IES PVT. LTD (SUPRA), THE CIT(A) FAVOURED THE ASSESSEE. AGAINST THIS, REVENU E TOOK THE ISSUE BEFORE THE SPECIAL BENCH. AFTER CONSIDERING THE RIVAL SUBMISSIONS , TAKING INTO ACCOUNT THE PROVISIONS OF SECTION 32(2) AS SUBSTITUTED BY THE FI NANCE (NO.2) ACT 1996 W.E.F. 1.4.1997 AND ALSO ANALYZING THE SAME AT A GRE ATER LENGTH, EXTENSIVELY QUOTING VARIOUS JUDICIAL PRONOUNCEMENTS AS RECORDED IN ITS FINDINGS, THE HONBLE SPECIAL BENCH HAS OBSERVED THUS: 38. THE LEGAL POSITION OF CURRENT AND BROUGHT FOR WARD UNADJUSTED/UNABSORBED DEPRECIATION ALLOWANCE IN THE THREE PERIODS, IS SUMMARIZED AS UNDER: PAGE 10 OF 14 ITA NO .966/BANG/2010 10 A. IN THE FIRST PERIOD (I.E., UP-TO AY 1996-97): I. CURRENT DEPRECIATION, THAT IS THE AMOUNT OF ALLO WANCE FOR THE YEAR U/S 32(1), CAN BE SET OFF AGAINST INCOM E UNDER ANY HEAD WITHIN THE SAME YEAR. II. AMOUNT OF SUCH CURRENT DEPRECIATION WHICH CAN N OT BE SO SET OFF WITHIN THE SAME YEAR AS PER I. ABOVE SHAL L BE DEEMED AS DEPRECIATION U/S 32(1), THAT IS DEPRECIAT ION FOR THE CURRENT YEAR IN THE FOLLOWING YEARS (S) TO B E SET OFF AGAINST INCOME UNDER ANY HEAD, THE CURRENT DEPRECIATION. B. IN THE SECOND PERIOD (I.E., AY 1997-98 TO 2001-0 2): I. BROUGHT FORWARD UNADJUSTED DEPRECIATION ALLOWANC E FOR AND UP-TO AY 1996-97 (HEREINAFTER CALLED THE FIRST UNADJUSTED DEPRECIATION ALLOWANCE), WHICH COULD NOT BE SET OFF UP-TO AY 1996-97, SHALL BE CARRIED FORWARD FOR SET OFF AGAINST INCOME UNDER ANY HEAD FOR A MAXIMUM PERIOD OF EIGHT AYS STARTING FROM AY 1997-98. II. CURRENT DEPRECIATION FOR THE YEAR U/S 32(1) (FOR EACH YEAR SEPARATELY STARTING FROM AY 1997-98 UP-TO 2001- 02) CAN BE SET OFF FIRSTLY AGAINST BUSINESS INCOME A ND THEN AGAINST INCOME UNDER ANY OTHER HEAD. III. AMOUNT OF CURRENT DEPRECIATION FOR AYS 1997-98 TO 2001-02 WHICH CANNOT BE SO SET OFF AS PER II. ABOVE , HEREINAFTER CALLED THE SECOND UNABSORBED DEPRECIAT ION ALLOWANCE SHALL BE CARRIED FORWARD FOR A MAXIMUM P ERIOD OF EIGHT ASSESSMENT YEARS FROM THE AY IMMEDIATELY SUCCEEDING THE AY FOR WHICH IT WAS FIT COMPUTED, TO BE SET OFF ONLY AGAINST THE INCOME UNDER THE HEAD PROF ITS AND GAINS OF BUSINESS OR PROFESSION. PAGE 11 OF 14 ITA NO .966/BANG/2010 11 C. IN THE THIRD PERIOD (I.E. AY 2002-03 ONWARDS): I. FIRST UNADJUSTED DEPRECIATION ALLOWANCE CAN BE SET FF UP-TO AY 2004-05, THAT IS, THE REMAINING PERIOD OUT OF MAXIMUM PERIOD OF EIGHT AYS (AS PER BI. ABOVE) AGAI NST INCOME UNDER ANY HEAD. II. SECOND UNABSORBED DEPRECIATION ALLOWANCE CAN BE SET OFF ONLY AGAINST THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION WITHIN A PERIOD OF EIGHT AYS SUCCEEDING THE AY FOR WHICH IT WAS FIRST COMPUT ED. III. CURRENT DEPRECIATION FOR THE YEAR U/S 32(1), FO R EACH YEAR SEPARATELY, STARTING FROM AY 2002-03 CAN BE SET OFF AGAINST INCOME UNDER ANY HEAD. AMOUNT OF DEPRECIATION ALLOWANCE NOT SO SET OFF (HEREINAFTER CALLED THE THIRD UNADJUSTED DEPRECIATION ALLOWANCE) SHAL L BE CARRIED FORWARD TO THE FOLLOWING YEAR. IV. THE THIRD UNADJUSTED DEPRECIATION ALLOWANCE SHALL BE DEEMED AS DEPRECIATION U/S 32(1), THAT IS DEPRECIAT ION FOR THE CURRENT YEAR IN THE FOLLOWING YEAR(S) TO BE S ET OFF AGAINST INCOME UNDER ANY HEAD, LIKE CURRENT DEPRECIA TION, IN PERPETUITY. 39. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE UNABSORBED DEPRECIATION ALLOWANCE ARISE IN THE SECOND PERIOD I.E., ASSESSMENT YEARS 1997-98 TO 1999 - 2000 WHICH COULD NOT BE ADJUSTED AGAINST THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION UPTO ASSESSMENT YEAR 2002-2003. NOW, TH E ASSESSEE CANNOT CLAIM SET OFF OF SUCH UNABSORBED DEPRECIATION ALLOWANCE AGAINST INCOME UNDER ANY HEAD OTHER THAN PROFITS AND GAINS OF BUSINESS OR PROFES SION IN THE YEAR UNDER CONSIDERATION. PAGE 12 OF 14 ITA NO .966/BANG/2010 12 6.3.1. IRONICALLY, THE HONBLE EARLIER BENCH, IN THE ASSESSEES OWN CASE FOR THE AY 2002-03 IN ITA NO.855/BANG/2008 DAT ED 6.2.2009 ON A SIMILAR ISSUE, HAD RECORDED ITS FINDINGS THUS: 15. THAT LEAVES US WITH THE QUESTION AS TO WHETHE R THE BALANCES WRITTEN BACK, ASSESSED U/S 41(1) UNDER THE HEAD BUSINESS CAN BE USED TO ADJUST THE BROUGHT FORWAR D BUSINESS LOSS OR DEPRECIATION. SO FAR AS BOUGHT FO RWARD DEPRECIATION IS CONCERNED, IT IS DEEMED TO BE PART OF THE CURRENT YEARS DEPRECIATION. BUT DEPRECIATION AS ALLOWABLE ONLY IN RESPECT OF ASSETS OWNED BY THE ASSE SSEE AND USED BY HIM IN HIS BUSINESS. IN THE RETURN FILE D FOR THE YEAR UNDER APPEAL, THE ASSESSEE HAS NOT CLAIMED ANY DEPRECIATION. THE PROFIT AND LOSS ACCOUNT DOES NOT CONTAIN ANY DEBIT FOR DEPRECIATION AND AS ALREADY NOT ED THE ASSESSEE HAS STATED IN SCHEDULE 13 TO THE ACCOU NTS THAT DEPRECIATION IS NOT PROVIDED DURING THE YEAR SI NCE THE UNIT IS DORMANT AND THERE IS NO PRODUCTION. WE HAVE ALREADY FOUND THAT THERE WAS NO BUSINESS CARRIED ON DURING THE YEAR AND IT IS NOT A CASE OF A SIMPLE AND TEMPORARY LULL IN THE BUSINESS, BUT IS A CASE OF DISCONTINUANCE OF THE BUSINESS ON ACCOUNT OF TRANSF ER OF THE BUSINESS UNDERTAKING TO MADRAS CEMENTS LTD. IN THE ABSENCE OF ANY BUSINESS, NO DEPRECIATION IS ALLOWABL E, WHETHER CURRENT DEPRECIATION OR BROUGHT FORWARD DEPRECIATION. PERHAPS EVEN THE ASSESSEE WAS QUITE AWARE OF THIS POSITION AND, THEREFORE, DID NOT CLAIM DEPR ECIATION IN THE RETURN. EVEN BEFORE THE COMMISSIONER OF INC OME- TAX (APPEALS) THERE IS NO SPECIFIC REFERENCE TO DEPRECIATION FOR THE CURRENT YEAR. SECTION 32(2) SA YS THAT IF THERE IS NO DEPRECIATION ALLOWANCE FOR THE CURRENT YEAR, THE BROUGHT FORWARD DEPRECIATION WILL BE DEEME D TO BE THE DEPRECIATION ALLOWANCE FOR THE CURRENT YEAR. BUT THIS RULE IS SUBJECT TO THE MAIN CONDITION THAT THE RE SHOULD BE SOME BUSINESS IN WHICH THE ASSETS TO WHIC H THE DEPRECIATION RELATES, ARE USED. IN THE ABSENCE OF ANY BUSINESS CARRIED ON BY THE ASSESSEE IN THE YEAR UNDER PAGE 13 OF 14 ITA NO .966/BANG/2010 13 APPEAL, THERE IS NO QUESTION OF TREATING THE BROUGH T FORWARD DEPRECIATION AS CURRENT YEARS DEPRECIATION FOR THE PURPOSE OF GRANTING THE ALLOWANCE. THEREFORE, THE ASSESSEE IS NOT ENTITLED TO SET OFF THE BROUGHT FOR WARD DEPRECIATION AGAINST THE PROFITS ASSESSED U/S 41(1) . 6.3.2. AT THE OUTSET, WE WOULD LIKE TO REITERATE THAT THE LEGAL POSITION OF CURRENT AND BROUGHT FORWARD UNADJUSTED/UNABSORBE D DEPRECATION ALLOWANCE IN THREE PERIODS, NAMELY, (I) UP-TO AY 199 6-97; (II) AYS FROM 1997- 98 TO 2001-02; AND (III) AY 2002-03 ONWARDS) HAS BE EN CARVED OUT BY THE HONBLE MUMBAI SPECIAL BENCH CITED SUPRA. ON A PE RUSAL OF THE ASSESSMENT ORDER OF THE PRESENT ASSESSEE UNDER CHALLENGE, IT C OULD NOT BE ASCERTAINED AS TO WHETHER THE UNABSORBED DEPRECIATION LOSS OF T HE ASSESSEE HAS BEEN WORKED OUT IN CONSONANCE WITH THE PROVISIONS OF S.3 2(2) PRIOR AND POST AMENDMENT AS HAS BEEN SPELT OUT IN THE FINDINGS OF THE HONBLE SPECIAL BENCH (SUPRA). TO FACILITATE THE AO TO LOOK INTO T HE ENTIRE ISSUE AFRESH IN CONFORMITY WITH THE FINDINGS OF THE SPECIAL BENCH (S UPRA), THE MATTER IS RESTORED TO THE FILE OF THE AO WITH A SPECIFIC DIRE CTION TO ANALYZE THE ISSUE WITH THE CONCURRENCE OF THE GUIDELINES SPECIFIED IN THE FINDINGS OF THE HONBLE SPECIAL BENCH. WHILE DOING SO, THE AO SHAL L AFFORD A REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. IT IS O RDERED ACCORDINGLY. 6.4. BEFORE PARTING WITH, WE WOULD LIKE T O REITERATE THAT THE CASE LAWS RELIED ON BY THE EITHER PARTY HAVE BEEN DULY TAKEN COG NIZANCE OF WHILE DECIDING THIS APPEAL. PAGE 14 OF 14 ITA NO .966/BANG/2010 14 7. IN THE RESULT , THE ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH DAY OF MARCH, 2012. SD/- SD/- (N K SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO:- 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONC ERNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.