Income Tax Appellate Tribunal - Chennai
Bojaraj Textile Mills Ltd., Madurai vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'B', CHENNAI
Before Shri U.B.S. Bedi, J.M. & Shri Abraham P. George, A.M.
I.TA. No.1503/Mds/2007
Assessment Year: 2001-02
The Assistant Commissioner of M/s. Bojaraj Textile Mills Ltd.,
Income Tax, Company Circle II, Sitalakshmi Mills Premises,
Madurai. Vs. Tirunagar, Madurai 625006
[PAN:AABCB1529P]
(Appellant) (Respondent)
Revenue by : Shri P.B. Sekaran
Assessee by : S/Shri T.N. Seetharaman & R. Kumar
O R DE R
PER U.B.S. Bedi, J.M.
This appeal of the Department is directed against the order passed by the ld. CIT(A) II, Madurai dated 21.03.2007 relevant to the assessment year 2001-02 whereby the action of the ld. CIT(A) in holding that carry forward of business loss can be set off against the short term capital gains has been challenged.
2. Facts indicate that the assessee is a public limited company engaged in the business of manufacture and sale of cotton and blended yarn. For the relevant assessment year, the original assessment was completed under section 143(3) of the Income Tax Act, 1961 on 30.01.2004 accepting the income returned at NIL after set off of brought forward unabsorbed depreciation and business loss as shown below:
2 ITA No. 1503/Mds/07
i) Income computed under the head business `. 1,70,89,750/-
including profit u/s.41(1) representing short term capital gains Less: Carry forward loss adjusted `. 1,70,89,750/-
Total income `.. Nil Subsequently, the Assessing Officer issued notice under section 148 on 11.07.2005 after recording his reasons as under:
"The assessee company has set off the carry forward business loss against the short term capital gains at `.2,40,83,931/-. I have reason to believe that this amount has escaped from assessment. The case is reopened u/s. 147 to assess the short term capital gains separately. Issue notice u/s. 148.
Sd/- ACIT (dt. 11.07.2005) In response to the notice used under section 148, the assessee company filed return on 27.09.2006 admitting total income at 'nil'. The Assessing Officer selected the case for scrutiny and completed the assessment under section 143(3) read with section 147 on 27.12.2006.
3. The assessee took up the matter in appeal raising issues in relation to time limitation, validity of reopening and claim of set off unabsorbed depreciation as well as disallowance under section 43B and at the time of argument before the first appellate authority, the assessee did not press the issue in relation to time limitation which came to be rejected as not pressed. The issue in relation to disallowance under 3 ITA No. 1503/Mds/07 section 43B was also held to be against the assessee, but so far as reopening and carry forward of business loss to be set off against short term capital gains are concerned, the ld. CIT(A) decided the same in favour of the assessee by discussing relevant provisions of law, different case law cited and relevant facts. Aggrieved by this order of the ld. CIT(A), the Department has came up in appeal and raised following grounds:
"The order of the CIT(A) is contrary to law on the facts and circumstances of the case.
2. The CIT(A) has erred in holding that the carry forward of business loss can be set-off against the short-term capital gains.
3. It is submitted that the short term capital gains on depreciable assets are computed as per the provisions of section 50 of the Income-Tax Act, 1961. The income computed as per the provisions of section 50 could not be taken as profits and gains of business, if any, conducted by the assessee-company.
4. The case law relied on by the CIT(A) is not squarely applicable with the facts and circumstances of this case.
5. The CIT(A) failed to note that as per the provisions of section 72(1), carry forward of business loss can be set-off against profits and gains of any business income only.
6. The CIT(A) has erred in canceling the reassessment proceedings.
7. The CIT(A) has failed to note that the assessment is re-opened after recording the reasons as required under the provisions of section 148(2) of the Income-tax Act, 1961.
8. For these and other reasons that may be adduced at the time of hearing, the order of the CIT(A) may be cancelled and that of the Assessing Officer may be restored."4 ITA No. 1503/Mds/07
4. The ld. DR while relying upon the provisions of section 72(1) has pleaded that carry forward of business loss cannot be set off against short term capital gains. It was further submitted that short term capital gains on depreciable assets are computed as per the provisions of section 50 of the Income Tax Act and the income computed as per provisions of section 50 could not be taken as profits and gains of business if not conducted by the assessee company and so the ld. CIT(A) has concluded to cancel the reassessment proceedings while considering and deciding about the case on merits. Therefore, it was strongly pleaded for reversal of the order of the ld. CIT(A) and restoring that of the Assessing Officer's order in this regard.
5. The ld. Counsel for the assessee while relying upon the basis and reasons given by the ld. CIT(A) has pleaded for confirmation of the impugned order. The ld. Counsel for the assessee has further relied upon the case of Sri Padmavathi Srinivasa Cotton Ginning Pressing Factory vs. DCIT 125 TTJ (Vizag) 411, CIT vs. S & S Power Switch Gear Ltd. (2008) 318 ITR 187 (Mad), CIT vs. Ramnath Goenka (2003) 259 ITR 261 (Mad), Western States Trading Co (P) Ltd. vs. CIT (1971) 80 ITR 21 (SC) and Orient Hospital Ltd. vs. DCIT (2009) 315 ITR 422 (Mad) and Hon'ble Madras High Court in the cases of CIT v. RPIL Signalling Systems Ltd. 328 ITR 283, so far as reopening is concerned, reliance was placed on the decisions of CIT v. Chakiat Agencies Pvt. Ltd. 314 ITR 200 (Mad) and Cartini India Ltd. vs. Addl. CIT (2009) 314 ITR 275 (Bom) to support the order of the ld. CIT(A) in this regard. It was further submitted that since sufficient reasons were not recorded and the original assessment has been framed under section 143(3), otherwise, the assessee has 5 ITA No. 1503/Mds/07 claimed correct set off against short term capital gains determined under section 50, therefore, there was no occasion for the Assessing Officer to have initiated reassessment proceedings. Further reliance has been placed on ITAT Chennai "D" Bench decision in the case of M/s. Magnetic Meter Systems Ltd. v. ACIT in ITA No. 693/Mds/2008 dated 26.02.2010 It was, thus prayed for upholding the order of the ld. CIT(A).
6. The ld. DR, in order to counter the submissions of ld. Counsel for the assessee submitted that so far as reliance in the case of CIT v. RPIL Signalling Systems Ltd. (supra) is concerned, the same is on depreciation and other citation CIT v. Chakiat Agencies Pvt. Ltd. (supra), which relates to reopening in the context of provisions of section 80O in which conditions are entirely different and if provisions of section 72(1) are carefully looked into in the light of section 32(2) of the Income Tax Act, it becomes amply clear that claim of the assessee was not correct and order of the Assessing Officer in reassessment proceedings is legally and factually correct. It was further submitted that so far as reliance placed on other decisions with respect to setting off depreciation relating to assessment year 1996-97 against short term capital gains is concerned, the facts in those cases and in the case in hand are different and cannot be applied blindly without discussing or considering factual matrix viz-a-viz issue in hand and since the ld. CIT(A) has not considered the issue appropriately, therefore, it requires interference to restore the action of the Assessing Officer, which is fully justified. Since the order of the ld. CIT(A) is not in accordance with law, therefore, it 6 ITA No. 1503/Mds/07 was urged for reversal of the order of the ld. CIT(A) and restoring that of the Assessing Officer.
7. Having heard both the sides, considering the material on record as well as relevant provisions of law and case law cited by ld. CIT(A) in his order and other decisions relied upon by the ld. Counsel for the assessee, we find that the assessee- company had filed the return of income for the assessment year 2001-02 on 31.10.2001 admitting loss of `.2,32,53,949/-. The return of income was processed under section 143(1) of the Income Tax Act on 06.03.2002. The original assessment was completed under section 143(3) of the Income Tax Act on 30.01.2004, determining the total income at `. NIL. Notice under section 148 of the Income Tax Act was issued to the assessee on 11.07.2005 and served on 14.07.2005. In response to the notice issued under section 148, the assessee-company filed a return on 27.09.2006 admitting income of `. NIL. After giving notice to the assessee and considering the objection raised by the AR of the assessee, the Assessing Officer considered this issue relating to the setting off of carry forward of unabsorbed depreciation to the short term capital gain for the assessment year 2001-02 by observing that the assessee had sold plant and machinery of its 'B' unit to the tune of `.3,43,39,948/-, which resulted in the short term capital gain of `.2,40,83,931/- under section 50 of the Income Tax Act, 1961. Out of this short term capital gain, the company adjusted its current loss and carried forward unabsorbed depreciation in the 7 ITA No. 1503/Mds/07 return of income filed in response to notice under section 148 dated 27.09.2006 as follows: `.
Short term capital gain in assessment year 2001-02 2,40,83,931
Less: Business loss of current year relevant to assessment year 2001-02 84,98,054
Less: Carry forward unabsorbed depreciation of earlier years 1,55,85,877
Total Income NIL
7.1 The Assessing Officer while considering the objection of the ld. AR of the
assessee, discussing this issue at length and referring to the relevant provisions of law has concluded to disallow the claim of the assessee as per para 3.8 of his order as under:
"3.8 It is abundantly clear that when an assessment for the assessment year 2001-02 is to be made and s. 32(2) is invoked, it is s.32(2) as in force in that assessment year which has to be applied. That is the provision as amended by the Finance (No.2) Act, 1996. There is no question of the assessee possessing any vested right under the law as it stood before the amendment. The assessment for one assessment year cannot, in the absence of a contrary provision, be affected by the law in force in another assessment year. A right claimed by an assessee under the law in force in a particular assessment year is ordinarily available only in relation to a proceeding pertaining to that year. Therefore, inasmuch as the provisions of s.32(2), as amended in 1996, govern the assessment for the assessment year 2001-02, there is no hesitation to disallow the assessee's claim of set off of short term capital gain with the carry forward unabsorbed depreciation, and the short term capital gain so adjusted is hereby brought to taxation."
And the income came to be computed at `.1,70,89,750/- after adjusting loss from business to the extent of `. 69,94,181/- by making disallowances under section 43B and other adjustments on receipt of the order of rejection of petition filed by the 8 ITA No. 1503/Mds/07 assessee under section 144A of Income Tax Act by the Joint Commissioner of Income Tax.
7.2 The assessee took up the matter in appeal and while challenging the validity of reopening of assessment, the assessee has also challenged the action of the Assessing Officer in not allowing set off of short term capital gain on depreciable assets, which was computed as per provision of section 50, against carry forward of business losses besides disallowance under section 43B during re-assessment proceedings. The ld. CIT(A), while rejecting the plea regarding disallowance made under section 43B has not only allowed set off of carry forward of business losses including unabsorbed depreciation against short term capital gains, he has also cancelled the reassessment framed by the Assessing Officer. The Department has filed appeal before the Tribunal against both the issues in which relief has been given by the ld. CIT(A).
7.3 Firstly, we shall take up the issue with regard to reopening of the assessment. It is found that the Assessing Officer reopened the assessment while issuing notice under section 148. After having completed the reassessment under section 143(3) by recording the reasons as reproduced in para 2 of this order and the ld. CIT(A), in appeal, has cancelled such assessment mainly on the ground that reasons recorded are not sufficient to reopen the assessment as assessment has been framed under section 143(3) and on merits, the Assessing Officer disallowed the claim of the assessee to set off of carry forward business loss including unabsorbed depreciation 9 ITA No. 1503/Mds/07 against short term capital gains to the extent of `.2,40,83,931/- and the ld. CIT(A) reversed the order of the Assessing Officer by holding that the assessee's claim is entitled to set off of brought forward business loss against short term capital gains so the Assessing Officer was directed accordingly and without prejudice to the above, while considering the alternative contention of the assessee also, the ld. CIT(A) has further held while accepting that the assessee is entitled to set off of unabsorbed depreciation relating to the assessment year 1996-97 in case the set off of business loss is denied for any reason.
8. We, after having considered the submissions of the rival sides, in the light of the case law cited in relation to reopening, find that the assessment under section 143(3) was completed in this case on 30.04.2004 determining the total income at `. Nil and notice under section 148, after recording reasons, when nothing was placed on record to show that there was any discussion, query or deliberation in the original order u/s143(3) on such claim of the assessee , was issued on 11.07.2005, which came to be served on 14.07.2005. In response to the notice under section 148, the assessee-company filed return of income on 27.09.2006 admitting income at `. Nil So, from these facts, it becomes clear that claim as made in original return was just accepted and notice under section 148 has been issued/served, also not disputed, within four years from end of the assessment year under consideration. The Hon'ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. 291 ITR 500, while interpreting the section 147 after 01.04.1989, has opined as under: 10 ITA No. 1503/Mds/07
"The scope and effect of section 147 as substituted with effect from April1, 1989 as also sections 148 and 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clause (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case fails within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso.
So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 ....".
8.1 The Division Bench of the Hon'ble Madras High Court in the case of ACIT v. Apollo Hospitals Enterprises Ltd. (300 ITR 167), while upholding the validity of notice under section 148 when benefit of carry forward and set off of unabsorbed depreciation wrongly allowed came for consideration against Single Judge's order, has opined as under:
"REASSESSMENT-NOTICE- VALIDITY OF NOTICE-AMALGAMATION OF HOSPITALS IN 2000-- BENEFIT OF CARRY FORWARD AND SET OFF OF 11 ITA No. 1503/Mds/07 UNABSORBED DEPRECIATION WRONGLY ALLOWED -- NOTICE WITHIN FOUR YEARS--VALID--INCOME-TAX ACT, 1961, ss. 72A, 147, 148.
DEPRECIATION -- UNABSORBED DEPRECIATION -- CARRY FORWARD AND SET OFF--LAW APPLICABLE--EFFECT OF AMENDMENT OF SECTION 72A W. E. F. 1-4 1961, s. 72A.
Section 72A of the Income-tax Act, 1961, deals with the carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc. The prime condition for claiming set off under this section is that the company amalgamating must be owning an industrial undertaking or a ship or a hotel. Clause (aa) was added to sub- section (7) of section 72A with retrospective effect from April 1, 2000, to the Income-tax Act, whereunder the "industrial undertaking" means any undertaking which is engaged in--(i) the manufacture or processing of goods ; or (ii) the manufacture of computer software; or (iii) the business of generation or distribution of electricity or any other form of power; or (iiia) the business of providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband net work and internet services ; or (iv) mining; or (v) the construction of ships, aircrafts or rail systems.
The assessee was running hospitals in different parts of the country and by an order of amalgamation dated April 18, 2000, a scheme was approved to amalgamate DHCL running a hospital in Hyderabad. As on March 31, 1999, the said DHCL had an unabsorbed depreciation of `.11,60,29,077, which vested in the assessee under the scheme of amalgamation. For the assessment year 2000-01, the assessee submitted returns and claimed the benefit of section 72A of the Act to have the said unabsorbed depreciation of DHCL as the depreciation of the assessee. This was allowed. Subsequently, the Department issued a notice under section 148 dated March 30, 2005, on the ground that the set off was claimed and availed of a wrong notion by the assessee, since the hospital was not an "industrial undertaking". A writ petition against the notice was allowed by the single judge. On appeal:
Held, that there was no dispute that the amalgamation was approved on April 18, 2000, and the amalgamation took place in the assessment year 2000-01 and that the set off was claimed by the assessee in the assessment year 2000-01. Hence, the amendment to section 72A(7)(aa) was applicable.12 ITA No. 1503/Mds/07
Since admittedly, both the DHCL and the assessee were only "hospitals", and when hospitals were not brought into the folder of "industrial undertakings"
by section 72A(7)(aa), neither the DHCL nor the assessee, which were only hospitals could be termed as "industrial undertakings", so as to make them eligible to claim the benefits under section 72A. The set off availed of by the assessee for the assessment year 2000-01 was illegal. The action initiated by the Department was very well within the stipulated time of limitation prescribed under section 147 of the Act and the Assistant Commissioner being the Assessing Officer had got jurisdiction to reassess such set off illegally availed of by the assessee.
CIT v. RAO THAKIJR NARAYAN SINGH [56 ITR 234 (SC) and PHO0L CHAND BAJRANG LAL v. ITO [ 203 ITR 456 (SC) distinguished.
[The court directed the Department to initiate necessary disciplinary proceedings against the officers who are responsible for availing of such illegal set-off] Decision of the single judge of the Madras High Court in APOLLO HOSPITALS ENTERPRISES LTD. v. ASST. CIT [ 287 ITR 25 set aside."
8.2 Similarly, the Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. v. ITO( 236 ITR 34 ) has taken the view which is also clear to the effect that there should be prima facie case for the assessment and sufficiency of material not to be considered, the head-notes are reproduced hereunder:
REASSESSMENT - NOTICE - REASONABLE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT - QUESTION WHETHER COMMENCEMENT OF ASSESSMENT PROCEEDINGS WAS VALID - COURT CAN ONLY CONSIDER WHETHER THERE WAS A PRIMA FACIE CASE FOR REASSESSMENT - SUFFICIENCY OF MATERIAL CANNOT BE CONSIDERED - INCOME-TAX ACT, 1961, s. 147.
REASSESSMENT - NOTICE - INFORMATION OBTAINED IN ASSESSMENT PROCEEDINGS FOR A SUBSEQUENT YEAR - COMMENCEMENT OF REASSESSMENT PROCEEDINGS WAS VALID - INCOME TAX ACT, 1961, s. 147.13 ITA No. 1503/Mds/07
8.3 Since the Assessing Officer during the original assessment proceedings has not appropriately considered the issue and accepted the claim of the assessee about set off of carry forward of loss including unabsorbed depreciation against short term capital gains determined in relation to depreciable assets under section 50 of the Income Tax Act , reasons are recorded and notice u/s 148 has been issued/served within four years, therefore, in view of the facts, circumstances and ratio of the decision as reproduced above and discussion made, we hold that initiation of reassessment proceedings in this case by the Assessing Officer were justified. Our view is further fortified by the Hon'ble Bombay High Court's decision in the case of IPCA Laboratories Ltd. v. Gajanand Meena, DCIT and Others 251 ITR 420.
Therefore, the order of the ld. CIT(A) in this regard is set aside and initiation of reassessment by the Assessing Officer is held to be justified and proper.
9. So far as case on merits is concerned, we find that the Assessing Officer disallowed the claim of the assessee to set off of short term capital gain with the carry forward unabsorbed depreciation and the short term capital gain so adjusted was brought to tax whereas the ld. CIT(A) has reversed the order of the Assessing Officer after recording carry forward loss and depreciation loss in a chart in his order, has given relief by holding that the capital gain is entitled to be set off against brought forward business loss and without prejudice to this, he further accepted that the assessee is entitled to set off unabsorbed depreciation relating to the assessment year 1996-97 in case the set off of business loss is denied for any reason. Now before 14 ITA No. 1503/Mds/07 adverting to the facts of the case on this point, it will be apt to discuss the relevant provisions and section 72(1), reads as under:
72. Carry forward and set off of business losses.
(1) Where for any assessment year, the net result of the computation under the head "Profits and gains of business or profession" is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and-
(i) 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:
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on:
Provided that where the whole or any part of such loss is sustained in any such business as is referred to in section 33B which is discontinued in the circumstances specified in that section, and, thereafter, at any time before the expiry of the period of three years referred to in that section, such business is re-established, reconstructed or revived by the assessee, so much of the loss as is attributable to such business shall be carried forward to the assessment year relevant to the previous year in which the business is so re-established, reconstructed or revived, and-
(a) it shall be set off against the profits and gains, if any, of that business or any other business carried on by him and assessable for that assessment year; and
(b) if the loss cannot be wholly so set off, the amount of loss not so set off shall, in case the business so re-established, reconstructed or 15 ITA No. 1503/Mds/07 revived continues to be carried on by the assessee, be carried forward to the following assessment year and so on for seven assessment years immediately succeeding.
9.1 Similarly, the depreciation provision as contained in the amended provisions of section 32(2) of the Act, with effect from April 1, 1997, provides that if the income from business for the assessment year is insufficient to absorb the depreciation allowance of that assessment year, the amended provision permits absorption of depreciation allowance of a business against profits and gains of any other business of the same assessment year. When the depreciation allowance of a business of the assessment year is not absorbed by any other business of the same assessment year, then the remaining unabsorbed depreciation allowance could be set off against the income under any other head, that is assessable for the: same assessment year. In the event of depreciation allowance of the year is unable to be absorbed by any other business income or from income under any other head in the same assessment year, the remaining unabsorbed depreciation allowance shall be carried forward to the following year and (a) unabsorbed allowance shall be set off against the profits and gains of any business carried by a person, (b) if the unabsorbed depreciation allowance cannot be wholly set off so, it shall be allowed to be carried forward for the following eight assessment years immediately succeeding the assessment year in which it was first computed. The proviso provides that the business to which depreciation allowance is related to must be carried on in the succeeding year so as to allow such set off. Thus, by the amendment, the deeming fiction of treating the earlier years' unabsorbed depre- 16 ITA No. 1503/Mds/07 ciation as the current year depreciation was removed. The period available for absorbing the unabsorbed depreciation against the profit of the succeeding years was limited to eight years. The clarification of the Finance Minister in Parliament is also to the effect that inasmuch as the cumulated unabsorbed depreciation brought forward as on April 1, 1997, could still be set off against the taxable business profit or income under any other head for the assessment year 1997-98 and seven subsequent years vide [1996] 222 ITR (St.) 36. Circular of the Central Board of Direct Taxes No. 764 dated February 18, 1998 ([1998] 230 ITR (St.) 12) also clarifies the issue to the following effect (page 27):
"Sub-section (2) of section 32, as it existed up to the assessment year 1996-97, provided that the unabsorbed depreciation of a year shall be added to the amount of the allowance for depreciation of the following previous year and deemed to be part of that allowance. Therefore, the unabsorbed depredation allowance, if any, of the assessment year 1996-97 shall be added to the amount of the allowance for depreciation of the assessment year 1997-98 and deemed to be part of the allowance for this year. In other words, the unabsorbed depredation allowance of the assessment year 1996-97 shall be added to the allowance of 1997-98 arid will be deemed to be the allowance of that year. The limitation of eight years shall start from the assessment year 1997-98."
9.2 In view of various case law as relied upon and in the light of position of law as prevailing during the period under appeal, we find that under section 32(2) of the Income-tax Act, 1961, prior to its substitution by the Finance (No.2) Act, 1996 with effect from April 1, 1997 the current depreciation under section 32(1) could be adjusted against income under any head including "Capital Gains" and "Income from house property" in the same year. If there remained some unadjusted depreciation allowance, that was carried forward in the following year(s) for set off 17 ITA No. 1503/Mds/07 against income under any other heads just like current depreciation allowance under section 32(1) pertaining to such year.
9.3 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 restricted to the income under the head "Profits and gains of business or profession". Under clause (i) of substituted sub- section (2), the unabsorbed depreciation allowance could be set off against "profits and gains" of any business or profession carried on by the assessee for that assessment year. Under clause (ii) of sub-section (2) if the unabsorbed 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.
9.4 The provision for carry forward and set-off of unabsorbed depreciation for any number of years against income under any head, was further diluted by way of clause (iii)(b) to section 32(2) restricting the right to set-off of unabsorbed depreciation for a period 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 depreciation allowance for and up to the assessment year 1996-97. The Finance Minister clarified the amendment as prospective inasmuch as the cumulative unabsorbed depreciation brought forward as on April 1, 1997, could be set off 18 ITA No. 1503/Mds/07 against taxable profits or income under any other head for the assessment year 1997-98 and seven subsequent assessment 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 irrespective of the fact that the unadjusted brought forward depreciation arose in an earlier assessment year. Thus, on the strength of the clarification given by the Finance Minister, the unadjusted depreciation brought forward up to April 1, 1997 became eligible for set off not only against the business income but also against income under other heads in eight assessment years. 9.5 Two like expressions are used in sub-section (2), viz, 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 income under the head "Profits and gains of business or profession". 9.6 On careful consideration of relevant provisions from the above, it becomes amply clear that firstly, brought forward unadjusted depreciation allowance for and up to the assessment year 1996-97 (hereinafter called the "first unadjusted depreciation allowance"), which could not be set off upto the assessment year 1996-97, shall be carried forward for set off against income under any head for a maximum period of eight assessment years starting from the assessment year 1997-98; secondly, current depreciation for the year under section 32(1) (for each year separately starting from the assessment years 1997-98 up to 2001-02) can be set off firstly against business income and then against income under any other 19 ITA No. 1503/Mds/07 head; and thirdly, amount of current depreciation for the assessment years 1997- 98 to 2001-02 which cannot be so set off as per second situation as above, hereinafter called the "second unabsorbed depreciation allowance" shall be carried forward for a maximum period of eight assessment 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 business or profession".
9.7 Now considering the entirety of facts, circumstances and material on record in the light of relevant provisions of law as applicable for the year under consideration and discussion made in earlier part of the order, we hold that neither the order of the Assessing Officer can be said to be valid and proper nor the order of the ld. CIT(A) can be said to be wholly complete, proper and justified in the absence of required details and in the light of provisions of law applicable for the year under consideration as well as discussion made and finding/conclusion as recorded in the earlier paragraphs/preceding sub paragraph above. Therefore, in the interest of justice and to have a fair play in the matter, we find it just and appropriate to set aside the orders of both the authorities on this point and restore the matter back on the file of the Assessing Officer to re-decide the issue afresh in the light of discussion made by us in preceding paragraphs including in paragraph 9.6, after obtaining necessary details from the assessee and verifying them by giving the assessee adequate opportunity of hearing before deciding the issue. We hold and direct accordingly.
20 ITA No. 1503/Mds/07
10. As a result, appeal of the Department gets partly accepted/for statistical purpose.
Order pronounced on 08.04.2011.
Sd/- Sd/- (ABRAHAM P. GEORGE) (U.B.S. BEDI) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, the 08.04.2011. Vm/- Copy to : Appellant/Respondent/CIT(A)- /CIT, /DR