Income Tax Appellate Tribunal - Mumbai
Amline Extile P.Ltd, Mumbai vs Assessee on 12 September, 2014
आयकर अपीलीय अिधकरण, अिधकरण "ए ए" खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - 'A' BENCH.
सव[ौी जोिगनदर िसंह, Ûयाियक सदःय एवं राजेÛि, लेखा सदःय Before S/Sh. Joginder Singh, Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.1872/Mum/2012,िनधा[िनधा[रण वष[/Assessment Year2008-09 Amline Textile Pvt.Ltd. DCIT 3(1) 1105,Tulsiani Chambers, Aaykar Bhavan,M K Road 212 Nariman point,Mumbai-21 Vs. Mumbai-20 PAN: AABCA1090Q (अपीलाथȸ/ Appellant) (ू×यथȸ / Respondent) िनधा[ǐरती ओर से / Assessee by : Shri Nitesh Joshi राजःव कȧ ओर से/ Revenue by : Shri Sachihidanand Dube सुनवाई कȧ तारȣख/ Date of Hearing : 09-09-2014 घोषणा कȧ तारȣख / Date of Pronouncement : 12-09-2014 आयकर अिधिनयम, अिधिनयम 1961 कȧ धारा 254 (1) के अ Ûतग[ त आ दे श Order u/s.254(1)of the Income-tax Act,1961(Act) Per Rajendra,AM ले खा सदःय राजे Ûि के अनु सार: ार Challenging the order dt.09.01.2012of the CIT(A)-5,Mumbai,Assessee has raised following Grounds of Appeal:
"The Commissioner Of Income Tax (Appeals)-5, Mumbai erred in not treating unabsorbed depreciation of A Y 1999-00, 2000-01 and 2001-02 as a part of current years depreciation u/s 32(2) and thus erred in not allowing an adjustment for the same.
2.In not allowing the appellant a deduction for the loss incurred on write off of advances given for purchase of machinery to be utilized in business.
The appellant reserves the right to add, alter or amend the grounds as may be advised from time to time."
Assessee-company engaged in the business of manufacturing of yarn,filed its return of income on 27.09.2008 declaring loss of Rs.1,00,29,110/-.Assessing officer(AO)finalised the assessment u/s.143(3) of the Act,on 28.12.2010,determining the total income at Rs2.81 Crores.
2.During the assessment proceedings,the AO found that the assessee had brought forward unabsorbed depreciation(UD),pertaining to A.Y.s.1999-2000 to 2001-02 as per the break up given below:
AY. UD (Rupees)
1999-00 92,01,228/-
2000-01 1,05,68,677/-
2001-02 72,54,657/-
Total 2,70,24,562/-
He further found that the assessee had set off the UD against the Short Term Capital Gains (STCG) arisen during the year.He issued a show cause notice asking the assessee as to why the UD pertaining to earlier years should not be disallowed to be set off against the STCG of the year under appeal,in light of the decision of the Tribunal delivered in the case of Times Guaranty Ltd.(40 SOT14).Vide its letter dated 21.10.2010 the assessee filed its explanation in this regard.After considering the same,he held that UD pertaining to AY.s.1999-00 to 2001-02 could be set off only against business income only,that same could be set off for a maximum period of eight assessment year from the assessment year immediately succeeding the AY.for which it was first computed.Relying upon the decisions of Times Guaranty Ltd. (supra),he held that UD for the above mentioned AY.s.could not be set off against the STCG of relevant previous year.
ITA/1872/ATPL 2.1.Against the order of the AO assessee preferred an appeal before the First Appeal Authority(FAA).After considering the submissions of the assessee and the assessment order he held that the AO had rightly disallowed the set off of the UD against the STCG and the assessee could not carry forward the UD of earlier years to the year under appeal. 2.2.Before us,Authorised Representative(AR) stated that UD can be carried forward for the subsequent years as per the amended provisiosn,that UD would become the part of the current year's depreciation,that it could be set off against any head of income.He relied upon the cases of General Motor India P.Ltd.(354ITR244)and Reliance Jute and Industries Ltd. (120ITR
921)delivered by the Hon'ble Gujarat High Court and the Hon'ble Apex Court respecttively.He also referred to the orders of the Chennai and Visakhapatnam benches of the Tribunal delivered in the matters of Best and Crompton Engineering Ltd.(30ITR-Trib, 688) Alufluoride Limited(39CCH99).Departmental Representative (DR)supported the order of the FAA. 2.3.We have heard the rival submissions and perused the material before us.Perusal of provisions of section 32 show that prior to 01-04-1997,UD of the previous year used to be claimed as current depreciation and would be allowed to be set-off against income from any other head.By an amendment to the provisions of Section 32(2) of the Act,w.e.f.01-04-97 ,treatment of UD underwent a sea-change-because as per the amended provisions UD was no longer deemed to be part of current depreciation and the period available for set-off of such UD from profits of subsequent years was restricted to eight years. It is noteworthy that during earlier period(up to 31.03.1997) no such time limit was prescribed.Vide finance Act,2001 the provisions of Section 32(2)were once again amended and a result the position as it existed prior to 01-04-1997 was restored back.From the amendments to Finance Act,2001 it is clear that legislative intent was to allow un-absorbed depreciation to be carried forward beyond period of eight years.For the AY under consideration,correct law applicable was the law that prevailed as on the first day of April of that AY.In our opinion during the assessment year under appeal, amended provisions were applicable and AO was supposed to calculate the UD as required by the Act. We find that issue of UD has been discussed and decided by the Hon'ble High Court of Gujarat,in the case of General Motors India Pvt. Ltd(supra) at length.Respectfully,following the same,we hold that UD can be carried forward beyond a period of eight years and the UD of AY.s. 1999-00 to 2001-02 and has to be allowed in the year under appeal.
With regard to setting off of UD against the STCG,we find that issue has to be decided in light of the provisions of section 71(2)of the Act.In the case of Deepak Textiles Industries Ltd.,the Hon'ble Gujarat High Court(210ITR1029)has,while deciding the issue in question , held as under
:
"A bare reading of section 71(2)(i) of the Act at the relevant time makes it clear that in respect of any assessment year, when the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee's income is assessable under the head "Capital gains", the assessee would be entitled to set off of such loss against his income, assessable for that assessment year under any other head including income assessable under the head "Capital gains".
Following the same we hold that claim made by the assessee for setting off of UD against the LTCG has to be allowed.
Ground no.1 is decided in favour of the assessee.
3.Second ground of appeal is about loss incurred on write off of advance given for purchase of machinery.During the assessment proceedings the AO found that the assessee had written off Rs.10.56 lakhs in respect of an advance paid to M/s.Lohia Machinery (LM) against the purchase of machinery.The AO directed the assessee to file explanation in this regard.Vide its letter dated 04.10.2010 the assessee stated that during the year under consideration it had written of total sum of Rs.12.31 lakhs,that the said amount was not recoverable from the party,that it decided to write off,that the amounts in question represented sales which were credited to the accounts,that as per 2 ITA/1872/ATPL the provisions of the section the assessee had to judge whether the debt is bad or not,that the assessee had actually written off the in the books of accounts.After considering the submissions of the assessee,the AO held that the assessee had given an advance of Rs.10.56 lakhs to LM for purchase of machinery,that said fact was admitted by the AR of the assessee during the course of hearing,that the assessee had tried to hide the fact in its letter dated 04.01.2010,that it claimed that the disputed amount represented sales,that it did not furnish the copy of bills for verification,that in response to specific notice it did not controvert the finding that the disputed amount represented an advance for machine -ry,that the amount written could not be allowed as deduction,that it was in the nature of capital loss.
3.1.In the appellate proceedings,before the FAA,the assessee argued that it had given an advance for purchase of machinery to be used in the course of business,that the order had to be cancelled and the sum paid was forfeited,that sum was written off and was claimed as a deduction,that the loss was not a capital loss.After considering the submissions of the assessee and the assessment order,the FAA held that amount was an advance for purchase of machinery,that it was on account of capital of the assessee,that loss suffered by it was a capital loss,that the AO was justified in disallowing the same as it was not revenue loss.
3.2.Before us,the AR stated that there was fire in the factory premises,that the assessee decided not to install the machinery,that loss was not capital loss,that it had to be allowed as revenue loss. DR argued that expenditure was incurred for purchasing an asset that was capital in nature, that loss was on account of a capital asset and therefore was rightly treated as capital loss by the AO. 3.3.We have heard the rival submission and perused the material available on record.Before proceeding further,we would like to discuss some cases that deal with capital /revenue loss. One of the early cases dealing with the subject is case of Hiranand Jairam Singh decided by the Hon'ble Lahore High Court(3 ITR 309).In that matter the assessee who was a general produce dealer began to trade in salt in 1926. At that time salt purchase from the Government could be paid for at once or payment could be postponed for six months if securities were deposited with the Commissioner of Salt. The assessee deposited certain Government securities. Later, the system of deferring payment up to six months on security was abolished and the assessee had to sell the securities at a loss.He claimed the loss as business loss,but the AO was of the view that it was a capital loss.Matter travelled up to the Hon'ble High Court. Dismissing the appeal filed by the assessee the court held that the loss incurred by the sale of the Government securities under these circumstances was a capital loss and was not allowable as a business expenditure incurred in the salt business.Similarly,in the case of Madan Gopal Bagla(21ITR142) Hon'ble Calcutta High Court has also dealt with the issue of capital loss.In that matter the assessee, a timber merchant, obtained a loan of rupees one lakh on 05.02.1930 from a bank on the joint security of himself and M. On the same day M obtained a loan of rupees one lakh from another bank on the joint security of himself and the assessee.He paid off his debt but M failed to pay his. On 24.03.1930, the bank realised from the assessee the sum of Rs. 1,06,026/- being the debt due by M.He thereupon opened a ledger account in his own books in the name of M and debited against him the sum of Rs. 1,06,026/- which he had paid to the bank. On 24.04. 1930, M failed in his business and his estate went into the hands of receivers. The assessee received a total sum of Rs.45,596/-as dividends from the receivers. No payment was received by him after 17.05.1938. The assessee wrote off the balance of Rs. 55,030/- in the year of account relevant to the assessment year 1941- 42 and claimed it as an allowable deduction.The income-tax authorities disallowed the deduction on the ground that the loss was a capital loss but the Tribunal allowed the deduction.Deciding the appeal filed by the Department,the Hon'ble Court held that the amount in question was not allowable as a bad debt under Section 10(2)(xi),that even if the amount had been claimed as expenses of the business it could not have been allowed as a deduction,that even if it was established that in order to carry on his business it was necessary for the assessee to stand surety for other persons, the loss incurred would be a capital loss and it could not also be regarded as business expenditure.Hon'ble Apex Court upheld the order of the Hon'ble High Court.In the case 3 ITA/1872/ATPL of Ramnarain Sons Ltd. (31ITR17)the Hon'ble Bombay High Court has discussed the theory of capital loss as under, where the assessee had purchased shares for acquiring agency:
"Where shares in a company are purchased as a part of the transaction of acquiring the managing agency of the company, loss incurred by the resale of such shares cannot be treated as a revenue loss merely because the shares were acquired in the course of the business of the assessee as managing agents. As a managing agency is an asset of an enduring nature, shares purchased for the purpose of acquiring that capital asset would also be a capital asset and loss incurred on re- sale of the shares would be capital loss in the absence of evidence to show that the managing agency itself or the shares have been treated by the company as mere stock-in-trade of the business of the company..... though the shares were acquired in the course of the business of the company as managing agents, yet, as the company were not dealers in managing agencies, and managing agency of a company was an asset of an enduring nature and as the shares were not made the stock-in-trade of the assessee's business as share dealers, the shares acquired were capital assets and the loss incurred by their sale at a lower price was a capital loss and not a revenue loss.
In the case of Khan Bahadur Ahmed Allauddin and Co.the Hon'ble AP High Court found that the assessee had purchased purchased some shares as an investment and for acquisition of a capital asset,that it suffered loss owing to reduction of the value of shares.Court was of the view that the loss suffered by the assessee was not as a person carrying on business,but as owner of the shares.Considering the above facts,the court held that loss suffered by the assessee was capital loss (62ITR490).
From the above one thing is clear that whether a particular loss is a trading loss or a loss on the capital side,depends on the facts of each case and the issue has to be approached in such cases in the light of the intention of the assessee having regard to the legal requirements which are associated with the concept of trade or business.The second principle governing such transaction is that the loss must be one incurred in the course of carrying on the operations of the same business.If an expenditure is incurred as a capital investment loss arising out of it has to be treated as capital loss and not as revenue loss.
3.4.Undisputed facts of the case are that the assessee had written off an amount of Rs.12.31 lakhs and had claimed that the amount in question represented sales,that it did not produce bills for verification of his claims,that the AR of the assessee admitted that it was an advance to LM for purchase of machinery,that before the FAA it claimed that order placed to LM was cancelled and the sum paid by it was forfeited,that before us it was argued that there was fire in the factory premises and the assessee decided not to undertake manufacturing activities.It is clear that the assessee is taking different stand from the very beginning about the amount in question.We fail to understand as to why it claimed before the AO that bad debts arising out of sale-transaction were written off during the year under consideration.In our opinion,the assessee has not come before us with clean hands-it was aware that payment was made for purchase of machinery even then it claimed that it related to sales bad debts.Before the FAA it was claimed that the sum paid by it was forfeited by LM.If the disputed sum was forfeited then it must be as per the agreement or the terms and conditions of the transaction.The assessee had explained the circumstances in which the forfeiture took place.The argument of fire in the factory was never advanced before any of the lower authorities,so that the genuineness of the argument could be verified.The fact remains that the assessee had paid Rs.10.56 lakhs for purchasing machinery for carrying out manufacturing activities.Had the machinery been installed it would have formed part of block and depreciation would have been allowed on it.Thus,the asset in question was a capital asset.Therefore,loss arising on account of forfeiture of sum paid to the supplier of the machinery had to be considered as capital loss.It was not a loss to the stock in trade that could be allowed as revenue loss.Considering the facts and circumstances of the case,we are of the opinion that the order of the FAA does not suffer from any legal infirmity.So,confirming the same,we decide ground no.2 against the assessee.4
ITA/1872/ATPL As a result,appeal filed by the assessee stands partly allowed. फलतः िनधा[ǐरती Ʈारा दाǔखल कȧ गई अपील अंशतः ःवीकृ त कȧ जाती है .
Order pronounced in the open court on 12th,September,2014.
आदे श कȧ घोषणा खुले Ûयायालय मɅ Ǒदनांक 12 िसतàबर,2014
िसतàबर को कȧ गई ।
Sd/- Sd/-
(जोिगनदरिसंह / Joginder Singh) राजेÛि/Rajendra)
(राजे ि
Ûयाियक सदःय/ JUDICIAL MEMBER लेखा सदःय /ACCOUNTANT MEMBER
मुंबई/Mumbai,Ǒदनांक/Date: 12.09.2014.
SK
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. Assessee /अपीलाथȸ 2. Respondent /ू×यथȸ
3. The concerned CIT(A)/संबƨ अपीलीय आयकर आयुƠ,4.The concerned CIT /संबƨ आयकर आयुƠ
5. DR "A " Bench, ITAT, Mumbai /ǒवभागीय ूितिनिध ,ए ए खंडपीठ,आ.अ.Ûयाया.मुंबई
6. Guard File/गाड[ फाईल स×याǒपत ूित //True Copy// आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.5