ACIT, CHENNAI v. Lotte India Corporation Ltd., CHENNAI

ITA 524/CHNY/2016 | 2006-2007
Pronouncement Date: 28-09-2016

Appeal Details

RSA Number 52421714 RSA 2016
Assessee PAN AAACP1916F
Bench Chennai
Appeal Number ITA 524/CHNY/2016
Duration Of Justice 6 month(s) 22 day(s)
Appellant ACIT, CHENNAI
Respondent Lotte India Corporation Ltd., CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-09-2016
Appeal Filed By Department
Bench Allotted A
Assessment Year 2006-2007
Appeal Filed On 07-03-2016
Judgment Text
IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH CHENNAI . . BEFORE SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY JUDICIAL MEMBER I . T.A. NO S . 524 AND 525/MDS/2016 ASSESSMENT YEAR S :200 6 - 0 7 AND 20 1 0 - 11 THE ASSISTANT COMMISSIONER OF INCOME TAX CO RPORATE CIRCLE 4 (1 ) CHENNAI . VS. M/S. LOTTE INDIA CORPORATION LTD. 4/169 RAJIV GANDHI SALAI (OMR) KANDANCHA VADI BUS STOP PERUNGUDI TALUK CHENNAI 600 0 96 . [PAN: AA A C P1916F ] ( / APPELLANT ) ( / RESPONDENT ) DEPARTMENT BY : SHRI S HIVA SRINIVAS J CIT ASSESSEE BY : SHRI B. RAMANA KUMAR ADVOCATE / DATE OF HEARING : 2 1 . 0 7 .201 6 / DATE OF P RONOUNCEMENT : 28 .09 .201 6 / O R D E R PER DUVVURU RL REDDY JUDICIAL MEMBER : TH E S E TWO APPEAL S FILED BY THE REVENUE ARE DIRECTED AGAINST DIFFERENT ORDER S OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 8 CHENNAI DATED 2 1 . 12 .201 5 AND 28.12.2015 FOR THE ASSESSMENT YEAR S 20 0 6 - 0 7 AND 20 1 0 - 11 RESPECTIVELY . I.T.A. NO. 524/MDS/2016 [A.Y. 2006 - 07] 2. THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF CLAIM ON SETTING OFF OF I.T.A. NOS. 524 & 525/M/16 2 BROUGHT FORWARD BUSINESS LOSSES A ND UNABSORBED DEPRECIATION UNDER SECTION 72A(2)(B)(III) R.W. RULE 9C(A). 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN CONFECTIONARY MACHINERY CONFECTIONARY & ITS RAW MATERIALS AND FILED ITS RETURN OF INC OME ON 01.11.2006 ADMITTING NIL INCOME AFTER SETTING OFF OF BROUGHT FORWARD LOSSES. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 [ ACT IN SHORT] ON19.12.2008 ACCEPTING THE RETURNED INCOME OF THE ASSESSEE. HOWEVER THE LD. CIT - 1 CHENNAI HAS INITIATED PROCEEDINGS UNDER SECTION 263(3) OF THE ACT STATING THAT THE ASSESSEE DID NOT COMPLY WITH PROVISIONS OF SECTION 72A(1) OF THE ACT AND PASSED ORDER UNDER SECTION 263 OF THE ACT ON 15.02.2011 SETTING ASIDE THE ASSESSMENT MADE AND DIRECTED THE ASSESSING OFFICER TO CONSIDER THE ISSUE AFRESH. CONSEQUENTLY THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) R.W.S. 263 OF THE ACT BY ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT .5 55 72 223/ - AFTER ADDING THE BROUGHT FORWARD LOSSES OF THE AMALGAMATING COMPANY ADJUSTED IN THE BUSINESS INCOME OF THE ASSESSEE. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND FILED A DETAILED WRITTEN SUBMISSIONS. AFTER CONSI DERING THE WRITTEN SUBMISSIONS OF THE ASSESSEE AND ALSO CONSIDERING THE FACTS OF THE CASE THE LD. CIT(A) HAS OBSERVED AS UNDER: I.T.A. NOS. 524 & 525/M/16 3 I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSESSI.NG OFFICER AND THE SUBMISSIONS OF THE APPELLANT. IT IS AN UNDISPUTED FACT TH AT THE COMPANY CONFECTIONARY SPECIALTIES LIMITED MERGED WITH THE APPELLANT - COMPANY WITH EFFECT FROM 01.04.2003 AND THE APPELLANT TOOK OVER THE BUSINESS LOSSES FOR THE AMALGAMATING COMPANY. IN THIS BACK GROUND IT IS RELEVANT TO REFER TO THE PROVISIONS O F SECTION 72A. SECTION 72A OF THE INCOME TAX ACT READS AS UNDER: PROVISIONS RELATING TO CARRY FORWARD AND SET OFF OF ACCUMULATED LOSS AND UNABSORBED DEPRECIATION ALLOWANCE IN AMALGAMATION OR DEMERGER ETC. 72A. [(1) WHERE THERE HAS BEEN AN AMALGAMATION OF - (C) A COMPANY OWNING AN INDUSTRIAL UNDERTAKING OR A SHIP OR A HOTEL WITH ANOTHER COMPANY; OR (B) A BANKING COMPANY REFERRED TO IN CLAUSE (C) OF SECTION 5 OF THE BANKING REGULATION ACT 1949 (10 OF 1949) WITH A SPECIFIED BANK; OR (C) ONE OR MO RE PUBLIC SECTOR COMPANY OR COMPANIES ENGAGED IN THE BUSINESS OF OPERATION OF AIRCRAFT WITH ONE OR MORE PUBLIC SECTOR COMPANY OR COMPANIES ENGAGED IN SIMILAR BUSINESS THEN NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT THE ACCUM ULATED LOSS AND THE UNABSORBED DEPRECIATION OF THE AMALGAMATING COMPANY SHALL BE DEEMED TO BE THE LOSS OR AS THE CASE MAY BE ALLOWANCE FOR UNABSORBED DEPRECIATION OF THE AMALGAMATED COMPANY FOR THE PREVIOUS YEAR IN WHICH THE AMALGAMATION WAS EFFECTED AN D OTHER PROVISIONS OF THIS ACT RELATING TO SET OFF AND CARRY FORWARD OF LOSS AND ALLOWANCE FOR DEPRECIATION SHALL APPLY ACCORDINGLY.] (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB - SECTION (L) THE ACCUMULATED LOSS SHALL NOT BE SET OFF OR CARRIED FORWARD AND THE UNABSORBED DEPRECIATION SHALL NOT BE ALLOWED ILL THE ASSESSMENT OF THE AMALGAMATED COMPANY UNLESS - (A) THE AMALGAMATING COMPANY - (I) HAS BEEN ENGAGED IN THE BUSINESS IN WHICH THE ACCUMULATED LOSS OCCURRED OR DEPRECIATION REMAINS UNABSORBED F OR THREE OR MORE YEARS; I.T.A. NOS. 524 & 525/M/16 4 (II) HAS HELD CONTINUOUSLY AS ON THE DATE OF THE AMALGAMATION AT LEAST THREE - FOURTHS OF THE BOOK VALUE OF FIXED ASSETS HELD BY IT TWO YEARS PRIOR TO THE DATE OF AMALGAMATION; (B) THE AMALGAMATED COMPANY - (I) HOLDS CONTINUOUSLY FOR A MINIMUM PERIOD OF FIVE YEARS FROM THE DATE OF AMALGAMATION AT LEAST THREE - FOURTHS OF THE BOOK VALUE OF FIXED ASSETS OF THE AMALGAMATING COMPANY ACQUIRED IN A SCHEME OF AMALGAMATION; (II) CONTINUES THE BUSINESS OF THE AMALGAMATING COMPANY FOR A MINI MUM PERIOD OF FIVE YEARS FROM THE DATE OF AMALGAMATION; (III) FULFILS SUCH OTHER CONDITIONS AS MAY BE PRESCRIBED TO ENSURE THE REVIVAL OF THE BUSINESS OF THE AMALGAMATING COMPANY OR TO ENSURE THAT THE AMALGAMATION IS FOR GENUINE BUSINESS PURPOSE.] (3) IN A CASE WHERE ANY OF THE CONDITIONS LAID DOWN IN SUB - SECTION (2) ARE NOT COMPLIED WITH THE SET OFF OF LOSS OR ALLOWANCE OF DEPRECIATION MADE IN ANY PREVIOUS YEAR IN THE HANDS OF THE AMALGAMATED COMPANY SHALL BE DEEMED TO BE THE INCOME OF THE AMALGAMATED COMPANY CHARGEABLE TO TAX FOR THE YEAR IN WHICH SUCH CONDITIONS ARE NOT COMPLIED WITH .. THE OTHER CONDITIONS THAT NEED TO BE FULFILLED AS PER THE SECTION 72A(2)(B)(III) ARE ENUMERATED IN RULE 9C OF THE INCOME TAX RULES WHICH ARE AS UNDER: CONDITIONS FOR CARRYING FORWARD OR SET - OFF OF ACCUMULATED LOSS AND UNABSORBED DEPRECIATION ALLOWANCE IN CASE OF AMALGAMATION. 9C. THE CONDITIONS REFERRED TO IN CLAUSE (UI) OF SUB - SECTION (2) OF SECTION 72A SHALL BE THE FOLLOWING NAMELY : - (A) THE AMALGAMATED CO MPANY OWNING AN INDUSTRIAL UNDERTAKING OF THE AMALGAMATING COMPANY BY WAY OF AMALGAMATION SHALL ACHIEVE THE LEVEL OF PRODUCTION OF AT LEAST FIFTY PER CENT OF THE INSTALLED CAPACITY OF THE SAID UNDERTAKING BEFORE THE END OF FOUR YEARS FROM THE DATE OF AMA LGAMATION AND CONTINUE TO MAINTAIN THE SAID MINIMUM LEVEL OF PRODUCTION TILL THE END OF FIVE YEARS FROM THE DATE OF AMALGAMATION: PROVIDED THAT THE CENTRAL GOVERNMENT ON AN APPLICATION MADE BY THE AMALGAMATED COMPANY. MAY RELAX THE CONDITION OF I.T.A. NOS. 524 & 525/M/16 5 ACHIEVIN G THE LEVEL OF PRODUCTION OR THE PERIOD DURING WHICH THE SAME IS TO BE ACHIEVED OR BOTH IN SUITABLE CASES HAVING REGARD TO THE GENUINE EFFORTS MADE BY THE AMALGAMATED COMPANY TO ATTAIN THE PRESCRIBED LEVEL OF PRODUCTION AND THE CIRCUMSTANCES PREVENTING SUC H EFFORTS FROM ACHIEVING THE SAME; (B) THE AMALGAMATED COMPANY SHALL FURNISH TO THE ASSESSING OFFICER A CERTIFICATE IN FORM NO. 62. DULY VERIFIED BY AN ACCOUNTANT WITH REFERENCE TO THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS SHOWING PARTICULARS OF PRODUCT ION ALONG WITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR DURING WHICH THE PRESCRIBED LEVEL OF PRODUCTION IS ACHIEVED AND FOR SUBSEQUENT ASSESSMENT YEARS RELEVANT TO THE PREVIOUS YEARS FALLING WITHIN FIVE YEARS FROM THE DAT E OF AMALGAMATION. EXPLANATION. - FOR THE PURPOSES OF THIS RULE - (A) 'INSTALLED CAPACITY' MEANS THE CAPACITY OF PRODUCTION EXISTING ON THE DATE OF AMALGAMATION; AND (B) 'ACCOUNTANT' MEANS THE ACCOUNTANT AS DEFINED IN THE EXPLANATION BELOW SUB - SECTION (2) OF SECTION 288 OF THE INCOME - TAX ACT 1961.] (EMPHASIS SUPPLIED) THEREFORE AS PER CLAUSE (A) OF RULE 9C THE APPELLANT HAS TO ACHIEVE A LEVEL OF PRODUCTION OF AT LEAST FIFTY PER CENT OF THE INSTALLED CAPACITY OR THE SAID UNDERTAKING BEFORE THE END OF FOUR YEARS FROM THE DATE OF AMALGAMATION I.E. 31.03.2007 IN OTHER WORDS IN THE PREVIOUS YEAR RELEVANT TO A.Y. 2007 - 08. AS RIGHTLY POINTED OUT BY THE APPELLANT THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. A.Y. 2006 - 07 IS ONLY THE THIRD YEAR FROM THE DATE OF AMALGAMATION. THEREFORE THE PROVISIONS OF SECTION 72A R.W.R. 9C ARE NOT APPLICABLE IN THE CASE OF THE APPELLANT. ONCE IT IS HELD THAT THE PROVISIONS OF THE SECTION 72A ARE INAPPLICABLE FOR THE ASSESSMENT YEAR 2007 - 08 THE VERIFICATION OF DETAILS REGARDING THE INSTALLED CAPACITY AND COMPLIANCE WITH OTHER CONDITIONS ENUMERATED UNDER RULE 9C ARE NOT RELEVANT AS EACH ASSESSMENT YEAR IS SEPARATE AND DISTINCT AND WHAT HAPPENS IN THE SUCCEEDING ASSESSMENT YEARS HAS NO BEARING ON THE EVENTS OF THE CURRENT ASSESSMENT YEAR. THE DENIAL OF ADJUSTMENT OF BROUGHT FORWARDED LOSSES OF AMALGAMATING COMPANY TO APPELLANT IS NOT IN ACCORDANCE WITH LAW AND THEREFORE DELETED. THE APPELLANT SUCCEEDS ON THIS GROUND. I.T.A. NOS. 524 & 525/M/16 6 5. ON BEING AGGRIEVED TH E REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. BY RELYING ON THE GROUNDS OF APPEAL THE LD. DR HAS PLEADED THAT THE ORDER OF THE LD. CIT(A) BE REVERTED. 6. ON THE OTHER HAND BY RELYING ON THE PROVISIONS OF CLAUSE (A) TO RULE 9C OF THE INCOME TAX RULES TH E LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS TO ACHIEVE THE LEVEL OF PRODUCTION OF AT LEAST FIFTY PERCENT OF THE INSTALLED CAPACITY OF THE SAID UNDERTAKING BEFORE THE END OF FOUR YEARS FROM THE DATE OF AMALGAMATION I.E. 31.03.2007 AN D SINCE THE ASSESSMENT YEAR 2006 - 07 UNDER CONSIDERATION IS THE THIRD YEAR FROM THE DATE OF AMALGAMATION THE PROVISIONS OF SECTION 72A READ WITH RULE 9C HAS NO APPLICATION TO ASSESSEE S CASE. HE STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD BOTH SIDES PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO PERUSED RELEVANT PROVISIONS OF SECTION AS WELL RULE 9C OF THE INCOME TAX RULES. ADMITTEDLY THE AMALGAMATION WAS EFFECTED WITH EFFECT F ROM 01.04.2003 AND BY END OF 31.03.2007 THE AMALGAMATING COMPANY SHOULD HAVE ACHIEVED 50% PRODUCTION OF THE INSTALLED CAPACITY. BUT THE ASSESSING OFFICER HAS NOTICED FROM THE SCHEDULE FORMING PART OF THE ACCOUNTS IN SCHEDULE 18 NOTES ON ACCOUNTS IN POINT NO. 8 IT WAS SUBMITTED THAT THE PRODUCTS ARE MANUFACTURED IN AN INTEGRATED PLANT AND HENCE INSTALLED CAPACITY CANNOT BE ASCERTAINED. I.T.A. NOS. 524 & 525/M/16 7 AS ADMITTED BY THE ASSESSING OFFICER BY END OF 31.03.2007 RELEVANT TO THE ASSESSMENT YEAR 2007 - 08 THE AMALGAMATED COMPA NY SHOULD HAVE ACHIEVED 50% PRODUCTION OF THE INSTALLED CAPACITY. BUT THE INSTANT APPEAL PERTAINS TO THE ASSESSMENT YEAR 2006 - 07 RELEVANT TO THE FINANCIAL YEAR 2005 - 06 BEING THE THIRD YEAR FROM THE DATE OF AMALGAMATION . SINCE THE ASSESSEE HAS BEEN MANUFAC TURING ITS PRODUCTS IN AN INTEGRATED PLANT THE ASSESSEE WAS NOT IN A POSITION TO GIVE THE DETAILS ACHIEVEMENT OF PRODUCTION CAPACITY BEFORE THE ASSESSING OFFICER BEING THE THIRD YEAR FROM THE DATE OF AMALGAMATION . IN VIEW OF THE PROVISIONS OF SECTION 72A( 2)(B)(III) OF THE ACT THE CONDITIONS AS PRESCRIBED UNDER CLAUSE (A) TO RULE 9C IS THAT (A) THE AMALGAMATED COMPANY OWNING AN INDUSTRIAL UNDERTAKING OF THE AMALGAMATING COMPANY BY WAY OF AMALGAMATION SHALL ACHIEVE THE LEVEL OF PRODUCTION OF AT LEAST FI FTY PER CENT OF THE INSTALLED CAPACITY OF THE SAID UNDERTAKING BEFORE THE END OF FOUR YEARS FROM THE DATE OF AMALGAMATION AND CONTINUE TO MAINTAIN THE SAID MINIMUM LEVEL OF PRODUCTION TILL THE END OF FIVE YEARS FROM THE DATE OF AMALGAMATION: IN VIEW OF T HE ABOVE THE ASSESSING OFFICER IS REQUIRED TO RESTRICT HIMSELF ONLY TO THE YEAR BEFORE HIM FOR CONSIDERING AS TO WHETHER THERE IS ANY VIOLATION OF SECTION 72A(2) OF THE ACT. HOWEVER THE ASSESSMENT YEAR UNDER CONSIDERATION IS THE THIRD YEAR OF AMALGAMATIO N WE ARE OF THE OPINION THAT THE PROVISIONS OF SECTION 72A READ WITH RULE 9C ARE NOT APPLICABLE IN THE INSTANT CASE. ONCE IT IS HELD THAT THE PROVISIONS OF THE SECTION 72A OF THE ACT ARE NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE VERI FICATION OF DETAILS REGARDING THE INSTALLED CAPACITY AND COMPLIANCE WITH I.T.A. NOS. 524 & 525/M/16 8 OTHER CONDITIONS AS ENUMERATED UNDER RULE 9C ARE NOT RELEVANT AT THIS STAGE. THEREFORE THE DENIAL OF ADJUSTMENT OF BROUGHT FORWARDED LOSSES OF AMALGAMATING COMPANY TO THE ASSESSEE IS NOT IN ACCORDANCE WITH LAW AND THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THUS THE GROUND RAISED BY THE REVENUE IS DISMISSED. I.T.A. NO. 525/MDS/2016 [A.Y. 2010 - 11] 8. THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL O F THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE ON THE CLAIM OF SETTING OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION AMOUNTING TO .1 19 02 780/ - PERTAINING TO THE ASSESSMENT YEARS 1999 - 2000 AND 2000 - 01. 9. FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010 - 11 ON 15.10.2010 DECLARING NIL INCOME AFTER ADJUSTING BROUGHT FORWARD LOSSES. TH E ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT BY ASSESSING THE INCOME OF THE ASSESSEE AT .5 03 01 962/ - AFTER DISALLOWING THE BROUGHT FORWARDED LOSSES PERTAINING TO THE ASSESSMENT YEARS 1999 - 2000 AND 2000 - 01. 10. THE ASSESSEE CARRIED THE M ATTER IN APPEAL BEFORE THE LD. CIT(A) AND AGITATED THE DISALLOWANCE OF SETTING OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION PERTAINING TO THE ASSESSMENT YEARS 1999 - 2000 AND 2000 - 01 AMOUNTING TO .1 19 02 780/ - . AFTER CONSIDERING THE RELEVANT PROVISIONS O F I.T.A. NOS. 524 & 525/M/16 9 SECTION WRITTEN SUBMISSIONS OF THE ASSESSEE AND ALSO BY CONSIDERING VARIOUS JUDICIAL PRONOUNCEMENT S IN CLUDING THE DECISION OF THE TRIBUNAL IN THE CASE OF BEST & CROMPTON ENGINEERING LTD. [30 ITR (AT) 688) CHENNAI TRIB) THE LD. CIT(A) DIRECTED THE AS SESSING OFFICER TO ALLOW THE UNABSORBED DEPRECIATION OF THE ASSESSMENT YEARS 1999 - 2000 AND 2000 - 01 CLAIMED IN THE ASSESSMENT YEAR 2010 - 11. 11. ON BEING AGGRIEVED THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. DR HAS MAINLY ARGUED THAT THE DEP ARTMENT HAS NOT ACCEPTED THE DECISION OF THE TRIBUNAL IN THE CASE OF BEST & CROMPTON ENGINEERING LTD. [30 ITR (AT) 688) AND FILED ITS APPEAL BEFORE THE HON BLE JURISDICTIONAL HIGH COURT AND PLEADED THAT THE ORDER OF THE LD. CIT(A) BE REVERTED. HE FURTHER RELIED ON THE DECISION OF THE MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TIMES GUARANTY LTD. (40 SOT 14) AND SUBMITTED THAT THE ASSESSEE CANNOT CLAIM SET OFF OF UNABSORBED DEPRECIATION PERTAINING TO YEARS 1999 - 2000 AND 2000 - 01 UNDER ANY HE A D OF I NCOME OTHER THAN INCOME FROM BUSINESS OR PROFESSION IN THE ASSESSMENT YEARS 2003 - 04 AND 2004 - 05. 12. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY TH E ORDER OF THE TRIBUNAL IN THE CASE OF BINNY LTD. V. ACIT IN I.T.A. NO. 1042/MDS/2014 DATED 22.05.2015. HE ALSO STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). I.T.A. NOS. 524 & 525/M/16 10 13. WE HAVE HEARD BOTH SIDES PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDE RS OF AUTHORITIES BELOW. THE ASSESSEE HAS CLAIMED UNABSORBED DEPRECIATION OF THE ASSESSMENT YEARS 1999 - 2000 AND 2000 - 01 IN THE ASSESSMENT YEAR UNDER CONSIDERATION. IN VIEW OF THE MODIFICATION TO THE PROVISIONS OF SECTION 32(2) OF THE ACT WITH EFFECT FROM 0 1.04.2002 WHEREBY THE UNABSORBED DEPRECIATION LOSS GETS MERGED WITH SUBSEQUENT YEARS DEPRECIATION AND BECOMES CURRENT DEPRECIATION OF SUBSEQUENT YEAR THE ASSESSEE CAN CLAIM THE UNABSORBED DEPRECIATION LOSS ONLY FROM THE ASSESSMENT YEAR 2002 - 03. IN OTHE R WORDS THE UNABSORBED DEPRECIATION LOSSES STARTING FROM ASSESSMENT YEAR 2002 - 03 WILL BE CARRIED FORWARD TO SUBSEQUENT ASSESSMENT AND BECOMES PART OF SUBSEQUENT YEAR S DEPRECIATION. THEREFORE THE ASSESSING OFFICER DENIED CLAIMING THE UNABSORBED DEPRECIA TION LOSS PERTAINING TO THE ASSESSMENT YEARS 1999 - 2000 AND 2000 - 01 AGAINST THE TOTAL INCOME OF THE CURRENT ASSESSMENT YEAR. THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW THE UNABSORBED DEPRECIATION OF THE ASSESSMENT YEARS 1999 - 2000 AND 2000 - 01 CLA IMED IN THE ASSESSMENT YEAR 2010 - 11 BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF BEST & CROMPTON ENGINEERING LTD. (SUPRA) WHEREIN THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA (P.) LTD. V. DCIT 354 ITR 244 B Y FILING A COPY OF THE ORDER OF THE TRIBUNAL IN THE CASE OF BINNY LTD. V. ACIT (SUPRA) THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THE APPEAL I.T.A. NOS. 524 & 525/M/16 11 IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. WE HAVE ALSO PERUSED THE ABOVE DECISION OF THE TRIBUNAL WHEREIN IT WAS HELD AS UNDER: 7. THE NEXT GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT THE COMMISSIONER OF INCOME - TAX(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF . 8 25 66 340/ - RELATING TO UNABSORBED DEPRECIATION WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED SET OFF BROUGHT FORWARD DEPRECIATION BY OBSERVING THAT THE CLAIM OF LOSS U/S.32(2) INCLUDED THE UNABSO RBED DEPRECIATION RELATING TO ASSESSMENT YEARS PRIOR TO 1986 - 87 AND THAT IN THE CURRENT ASSESSMENT YEAR VIZ. 2008 - 09 UNABSORBED DEPRECIATION PRIOR TO THE ASSESSMENT YEAR 2000 - 01 CANNOT BE SET OFF. FOR THIS PURPOSE HE RELIED ON THE JUDGMENT OF THE TRIBUNAL SPECIAL BENCH MUMBAI IN THE CASE OF TIMES GUARANTY LTD. (40 SOT 14). THE COMMISSIONER OF INCOME - TAX(APPEALS) CONFIRMED THE SAME. AGAINST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD BOTH THE PARTIES. IT IS BROUGHT TO OUR NOTICE THAT THE SAME ISSUE WAS CONSIDERED BY THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. (44 TAXMANN.COM 204) WHEREIN THEY CONSIDERED THEIR EARLIER JUDGMENT IN THE CASE OF GENERAL MOTORS INDIA (P.) LTD. V. DCIT(354 ITR 244) WHEREIN IT WAS HELD AS UNDER: THE LAST QUE STION WHICH ARISES FOR CONSIDERATION IS THAT WHETHER THE UNABSORBED DEPRECIATION PERTAINING TO A.Y. 1997 - 98 COULD BE ALLOWED TO BE CARRIED FORWARD AND SET OFF AFTER A PERIOD OF EIGHT YEARS OR IT WOULD BE GOVERNED BY SECTION 32 AS AMENDED BY FINANCE ACT 20 01? THE REASON GIVEN BY THE ASSESSING OFFICER UNDER SECTION 147 IS THAT SECTION 32(2) OF THE ACT WAS AMENDED BY FINANCE ACT NO.2 OF 1996 W.E.F. A.Y. 1997 - 98 AND THE UNABSORBED DEPRECIATION FOR THE A.Y. 1997 - 98 COULD BE CARRIED FORWARD UP TO THE MAXIMUM PE RIOD OF 8 YEARS FROM THE YEAR IN WHICH IT WAS FIRST COMPUTED. ACCORDING TO THE ASSESSING OFFICER 8 YEARS EXPIRED IN THE A.Y. 2005 - 06 AND ONLY TILL THEN THE ASSESSEE WAS ELIGIBLE TO CLAIM UNABSORBED DEPRECIATION OF A.Y. 1997 - 98 FOR BEING CARRIED FORWARD A ND SET OFF AGAINST THE INCOME FOR THE A.Y. 2005 - 06. BUT THE ASSESSEE WAS NOT ENTITLED FOR UNABSORBED DEPRECIATION OF RS.43 60 22 158/ - FOR A.Y. 1997 - 98 WHICH WAS NOT ELIGIBLE FOR BEING CARRIED FORWARD AND SET OFF AGAINST THE INCOME FOR THE A.Y. 2006 - 07. I.T.A. NOS. 524 & 525/M/16 12 PRIOR TO THE FINANCE ACT NO.2 OF 1996 THE UNABSORBED DEPRECIATION FOR ANY YEAR WAS ALLOWED TO BE CARRY FORWARD INDEFINITELY AND BY A DEEMING FICTION BECAME ALLOWANCE OF THE IMMEDIATELY SUCCEEDING YEAR. THE FINANCE ACT NO.2 OF 1996 RESTRICTED THE CARRY FORW ARD OF UNABSORBED DEPRECIATION AND SET - OFF TO A LIMIT OF 8 YEARS FROM THE A.Y.1997 - 98. CIRCULAR NO.762 DATED 18.2.1998 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES (CBDT) IN THE FORM OF EXPLANATORY NOTES CATEGORICALLY PROVIDED THAT THE UNABSORBED DEPRECIA TION ALLOWANCE FOR ANY PREVIOUS YEAR TO WHICH FULL EFFECT CANNOT BE GIVEN IN THAT PREVIOUS YEAR SHALL BE CARRIED FORWARD AND ADDED TO THE DEPRECIATION ALLOWANCE OF THE NEXT YEAR AND BE DEEMED TO BE PART THEREOF. SO THE UNABSORBED DEPRECIATION ALLOWANCE OF A.Y. 1996 - 97 WOULD BE ADDED TO THE ALLOWANCE OF A.Y. 1997 - 98 AND THE LIMITATION OF 8 YEARS FOR THE CARRY - FORWARD AND SET - OFF OF SUCH UNABSORBED DEPRECIATION WOULD START FROM A.Y. 1997 - 98. WE MAY NOW EXAMINE THE PROVISIONS OF SECTION 32(2) OF THE ACT BEFORE ITS AMENDMENT BY FINANCE ACT 2001. THE SECTION PRIOR TO ITS AMENDMENT BY FINANCE ACT 2001 READ AS UNDER: - WHERE IN THE ASSESSMENT OF THE ASSESSEE FULL EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER CLAUSE (II) OF SUB - SECTION (1) IN ANY PREVIOUS YEAR OWNING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR OR OWING TO THE PROFITS OR GAINS BEING LESS THAN THE ALLOWANCE THEN THE ALLOWANCE OR THE PART OF ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN (HEREINAFTER REFERRED TO AS UNA BSORBED DEPRECIATION ALLOWANCE) AS THE CASE MAY BE - (I) SHALL BE SET OFF AGAINST THE PROFITS AND GAINS IF ANY OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR; (II) IF THE UNABSORBED DEPRECIATION ALLOWANCE CAN NOT BE WHOLLY SET OFF UNDER CLAUSE (I) THE AMOUNT NOT SO SET OFF SHALL BE SET OFF FROM THE INCOME UNDER ANY OTHER HEAD IF ANY ASSESSABLE FOR THAT ASSESSMENT YEAR; (III) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SET OFF UNDER CLAUSE (I) AND CLAUSE (II) THE AMOUNT OF ALLOWANCE I.T.A. NOS. 524 & 525/M/16 13 NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND (A) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAINS IF ANY OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR; (B) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SO SET OFF THE AMOUNT OF UNABSORBED DEPRECIATION ALLOWANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR NOT BEING MORE THAN EIGHT ASSESSMENT YEAR S IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH THE AFORESAID ALLOWANCE WAS FIRST COMPUTED: PROVIDED THAT THE TIME LIMIT OF EIGHT ASSESSMENT YEARS SPECIFIED IN SUB - CLAUSE (B) SHALL NOT APPLY IN CASE OF A COMPANY FOR THE ASSESSMENT YEAR BEGINNING W ITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SAID COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUB - SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANY (SPECIAL PROVISIONS) ACT 1985 (1 OF 1986) AND ENDING WITH THE ASSESSMEN T YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE ENTIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES. EXPLANATION. - FOR THE PURPOSES OF THIS CLAUSE 'NET WORTH' SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (GA) OF SUB - SECTION (1) OF SECTION 3 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1985. THE AFORESAID PROVISION WAS INTRODUCED BY FINANCE (NO.2) ACT 1996 AND FURTHER AMENDED BY THE FINANCE ACT 2000. THE PROVISION INTRODUCED BY FINANCE (NO.2) ACT WAS CLARIFIED BY THE FINANCE MINISTER TO BE APPLICABLE WITH PROSPECTIVE EFFECT. SECTION 32 (2) OF THE ACT WAS AMENDED BY FINANCE ACT 2001 AND THE PROVISION SO AMENDED READS AS UNDER : - WHERE IN THE ASSESSMENT OF THE ASSESSEE FULL EFFECT CANNOT BE GIVE N TO ANY ALLOWANCE UNDER SUB - SECTION (1) IN ANY PREVIOUS YEAR OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR OR OWING TO THE PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LE SS THAN THE ALLOWANCE THEN SUBJECT TO THE PROVISIONS OF I.T.A. NOS. 524 & 525/M/16 14 SUB - SECTION (2) OF SECTION 72 AND SUB - SECTION (3) OF SECTION 73 THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN AS THE CASE MAY BE SHALL BE ADDED TO THE AMOUNT OF TH E ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR BE DEEMED TO BE ALLOWANCE OF THAT PREVIOUS YEAR AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS. THE PURPOSE OF THIS AMENDMENT HAS BEEN CLARIFIED BY CENTRAL BOARD OF DIRECT TAXES IN THE CIRCULAR NO.14 OF 2001. THE RELEVANT PORTION OF THE SAID CIRCULAR READS AS UNDER : - MODIFICATION OF PROVISIONS RELATING TO DEPRECIATION: 30.1 UNDER THE EXISTING PRO VISIONS OF SECTION 32 OF THE INCOME - TAX ACT CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION IS ALLOWED FOR 8 ASSESSMENT YEARS. 30.2 WITH A VIEW TO ENABLE THE INDUSTRY TO CONSERVE SUFFICIENT FUNDS TO REPLACE PLANT AND MACHINERY SPECIALLY IN AN ERA WHERE OBSOLESCENCE TAKES PLACE SO OFTEN THE ACT HAS DISPENSED WITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THE ACT HAS ALSO CLARIFIED THAT IN COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION FOR ANY PR EVIOUS YEAR DEDUCTION OF DEPRECIATION UNDER SECTION 32 SHALL BE MANDATORY. 30.3 UNDER THE EXISTING PROVISIONS NO DEDUCTION FOR DEPRECIATION IS ALLOWED ON ANY MOTOR CAR MANUFACTURED OUTSIDE INDIA UNLESS IT IS USED (I) IN THE BUSINESS OF RUNNING IT ON HI RE FOR TOURISTS OR (II) OUTSIDE IN THE ASSESSEE'S BUSINESS OR PROFESSION IN ANOTHER COUNTRY. 30.4 THE ACT HAS ALLOWED DEPRECIATION ALLOWANCE ON ALL IMPORTED MOTOR CARS ACQUIRED ON OR AFTER 1ST APRIL 2001. 30.5 THESE AMENDMENTS WILL TAKE EFFECT FROM T HE 1 ST APRIL 2002 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASSESSMENT YEAR 2002 - 03 AND SUBSEQUENT YEARS. THE CBDT CIRCULAR CLARIFIES THE INTENT OF THE AMENDMENT THAT IT IS FOR ENABLING THE INDUSTRY TO CONSERVE SUFFICIENT FUNDS TO REPLACE PLANT A ND MACHINERY AND ACCORDINGLY THE AMENDMENT I.T.A. NOS. 524 & 525/M/16 15 DISPENSES WITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. THE AMENDMENT IS APPLICABLE FROM ASSESSMENT YEAR 2002 - 03 AND SUBSEQUENT YEARS. THIS MEANS THAT ANY UNABSORBED DEP RECIATION AVAILABLE TO AN ASSESSEE ON 1ST DAY OF APRIL 2002 (A.Y. 2002 - 03) WILL BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT 2001 AND NOT BY THE PROVISIONS OF SECTION 32(2) AS IT STOOD BEFORE THE SAID AMENDME NT. HAD THE INTENTION OF THE LEGISLATURE BEEN TO ALLOW THE UNABSORBED DEPRECIATION ALLOWANCE WORKED OUT IN A.Y. 1997 - 98 ONLY FOR EIGHT SUBSEQUENT ASSESSMENT YEARS EVEN AFTER THE AMENDMENT OF SECTION 32(2) BY FINANCE ACT 2001 IT WOULD HAVE INCORPORATED A P ROVISION TO THAT EFFECT. HOWEVER IT DOES NOT CONTAIN ANY SUCH PROVISION. HENCE KEEPING IN VIEW THE PURPOSE OF AMENDMENT OF SECTION 32(2) OF THE ACT A PURPOSIVE AND HARMONIOUS INTERPRETATION HAS TO BE TAKEN. WHILE CONSTRUING TAXING STATUTES RULE OF STRIC T INTERPRETATION HAS TO BE APPLIED GIVING FAIR AND REASONABLE CONSTRUCTION TO THE LANGUAGE OF THE SECTION WITHOUT LEANING TO THE SIDE OF ASSESSEE OR THE REVENUE. BUT IF THE LEGISLATURE FAILS TO EXPRESS CLEARLY AND THE ASSESSEE BECOMES ENTITLED FOR A BENEF IT WITHIN THE AMBIT OF THE SECTION BY THE CLEAR WORDS USED IN THE SECTION THE BENEFIT ACCRUING TO THE ASSESSEE CANNOT BE DENIED. HOWEVER CIRCULAR NO.14 OF 2001 HAD CLARIFIED THAT UNDER SECTION 32(2) IN COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROF ESSION FOR ANY PREVIOUS YEAR DEDUCTION OF DEPRECIATION UNDER SECTION 32 SHALL BE MANDATORY. THEREFORE THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT 2001 WOULD ALLOW THE UNABSORBED DEPRECIATION ALLOWANCE AVAILABLE IN THE A.Y. 1997 - 98 1999 - 2 000 2000 - 01 AND 2001 - 02 TO BE CARRIED FORWARD TO THE SUCCEEDING YEARS AND IF ANY UNABSORBED DEPRECIATION OR PART THEREOF COULD NOT BE SET OFF TILL THE A.Y. 2002 - 03 THEN IT WOULD BE CARRIED FORWARD TILL THE TIME IT IS SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS. THEREFORE IT CAN BE SAID THAT CURRENT DEPRECIATION IS DEDUCTIBLE IN THE FIRST PLACE FROM THE INCOME OF THE BUSINESS TO WHICH IT RELATES. IF SUCH DEPRECIATION AMOUNT IS LARGER THAN THE AMOUNT OF THE PROFITS OF THAT BUSINESS THEN S UCH EXCESS COMES FOR ABSORPTION FROM THE PROFITS AND GAINS FROM ANY OTHER BUSINESS OR BUSINESS IF ANY CARRIED ON BY THE ASSESSEE. IF A BALANCE IS LEFT EVEN THEREAFTER THAT BECOMES DEDUCTIBLE FROM OUT OF INCOME FROM ANY SOURCE UNDER ANY OF THE OTHER HEAD S OF INCOME DURING THAT YEAR. IN CASE THERE IS A STILL BALANCE LEFT OVER IT IS TO BE I.T.A. NOS. 524 & 525/M/16 16 TREATED AS UNABSORBED DEPRECIATION AND IT IS TAKEN TO THE NEXT SUCCEEDING YEAR. WHERE THERE IS CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR THE UNABSORBED DEPRECIATION I S ADDED TO THE CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR AND IS DEEMED AS PART THEREOF. IF HOWEVER THERE IS NO CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR THE UNABSORBED DEPRECIATION BECOMES THE DEPRECIATION ALLOWANCE FOR SUCH SUCCEEDING YEAR. WE ARE OF THE CONSIDERED OPINION THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1ST DAY OF APRIL 2002 (A.Y. 2002 - 03) WILL BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT 2001. AND ONCE THE CIRCULAR NO. 14 OF 2001 CLARIFIED THAT THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION HAD BEEN DISPENSED WITH THE UNABSORBED DEPRECIATION FROM A.Y.1997 - 98 UPTO THE A.Y.2001 - 02 GOT CARRIED FORWARD TO THE ASSESSMENT YEAR 2002 - 03 AND BECAME PART THEREOF IT CAME TO BE GOVERNED BY THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT 2001 AND WERE AVAILABLE FOR CARRY FORWARD AND SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS WITHOUT ANY LIMIT WHATSOEVER. IN VIEW OF THIS WE ARE OF THE OPINION THAT CARRY FORWARD OF UNABSORBED DEPRECIATION CONCERNING ASSESSMENT YEAR 2001 - 02 AND ASSESSMENT YEARS PRIOR THERETO CAN BE SET OFF IN SUBSEQUENT YEARS WITHOUT ANY SET TIME LIMIT. ACCORDINGLY THIS GROUND OF APPEAL IS ALLOWED. 13. AT THE TIME OF HEARING THE LD. DR COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE TRIBUNAL OR FILED ANY ORDER OF HIGHER COURT DECISION HAVING MODIFIED OR REVER S ED THE ABOVE ORDER OF THE TRIBUNAL. HENCE RESPECTFULLY FOLLOWING THE ABOVE DECISION WE AR E OF THE OPINION THAT THE LD. CIT(A) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO ALLOW THE UNABSORBED DEPRECIATION OF THE ASSESSMENT YEARS 1999 - 2000 AND 2000 - 01 IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THUS THE GROUND RAISED BY THE REVENUE IS DISMISS ED. I.T.A. NOS. 524 & 525/M/16 17 1 4 . IN THE RESULT BOTH THE APPEAL S FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THE 28 TH SEPTEMBER 201 6 AT CHENNAI. SD/ - SD/ - (A.MOHAN ALANKAMONY ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI DATED THE 28 .0 9 .201 6 VM/ - / COPY TO: 1. / APPELLANT 2. / RESPONDENT 3. ( ) / CIT(A) 4. / CIT 5. / DR & 6. / GF.