Income Tax Appellate Tribunal - Ahmedabad
The Acit, Panchmahal Circle,, Godhra vs The Panchmahal Steel Ltd.,, Panchmahal on 1 February, 2018
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ ।
IN THE INCOME TAX APPELLATE TRIBUNAL,
"A" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA.No.3018/Ahd/2014
नधा रण वष / Asstt. Year: 2006-2007
ACIT, Panch Mahal Circle The Panchmahal Steel Ltd.
Godhra. Vs. GIDC, Kalol, Panch Mahals
PAN : AABCP 2643 Q
(Applicant) (Responent)
Revenue by : Aprana M. \agrawal, CIT-DR
Assessee by : Shri M.J. Shah
सन
ु वाई क तार ख/ Dateof Hearing : 11/01/2018
घोषणा क तार ख / Date of Pronouncement: 01/02/2018
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
Revenue is in appeal before the Tribunal against order of the ld.CIT(A)-VI, Baroda dated 1.8.2014 passed for the Asstt.Year 2006-07.
2. The Revenue has taken three grounds of appeal, which contained sub- grounds. However, in brief, its grievance are of two folds viz. (i) the ld.CIT(A) has erred in quashing reopening of assessment, and (b) the ld.CIT(A) has erred in granting set off of unabsorbed depreciation brought forward from the Asstt.Year 1997-98 in the present assessment year. First we take second fold of grievance.
ITA No.3018/Ahd/2014 23. Brief facts of the case are that the assessee has filed return of income on 26.12.2006 declaring total income at NIL. The assessment order was passed under section 143(3) of the Income Tax Act on 31.12.008. Thereafter, order under section 154 was passed on 23.3.2010. Thereafter, the ld.AO has issued a notice under section 148 on 13.02.2012 and reopened the assessment. Only basis for which the assessment order was reopened by the AO was that the assessee has unabsorbed depreciation of Rs.6,18,58,111/- for the Asstt.Year 1997-98 and this brought forward unabsorbed depreciation was eligible to be brought forward for eight assessment years starting from Asstt.Yar 1998-9 i.e. upto the Asstt.Year 2005-06. The AO was of the view that this unabsorbed depreciation of asstt.Year 1997-98 was wrongly brought forward to and set off against the income of Assessment year n2006-07. According to the AO, there was an amendment by Finance Act, 2001. Prior to that, the assessee could claim allowance of unabsorbed depreciation upto 8 years. Thus, the time limit of 8 years for the carry forward and set off of such unabsorbed depreciation started from Asstt.Year 1997-98, would expire in the Asstt.Year 2004-05. The assessee cannot claim set off of such unabsorbed depreciation pertained to the Asstt.Year 1997-98 the Asstt.Year 2006-07. On account of this interpretation of law, he reopened the assessment and issued notice under section 148 of the Act. The assessee pleaded before the AO that this issue has been resolved by the Hon'ble jurisdictional High Court in the case of General Motors India Ltd. 354 ITR 244. Copy of this decision was brought to the notice of the AO, but the ld.AO just observed that facts are distinguishable and did not follow this decision. He disallowed the claim of the assessee and thereafter computed total income at NIL. In other words, he had reduced the carry forward of unabsorbed depreciation and loss for the subsequent year. On appeal, the ld.CIT(A) has allowed the claim of assessee ITA No.3018/Ahd/2014 3 after relying on various judgements including decision in the case of General Motors India Ltd. (supra).
4. With the assistance of the ld.representatives, we have gone through the record carefully. We deem it appropriate to take note of the finings recorded by the AO in para 8.
"8. I have gone through the submission of the assessee. However, the same is not tenable in law. The point wise explanation of the same is given hereunder:
8.01 It is assessee's interpretation that amendment in section 32(2) by the Finance (No. 2) Act, 1996 could not affect the unabsorbed depreciation as it stood at the end of the assessment year 1997-98. However, it was not the case. The amendment was brought to restrict the set off of unabsorbed depreciation on par with other losses. Hence, following the amendment, in the present case the limitation of 8 years for the carry-forward and set-off of such unabsorbed depreciation would start from A.Y. 1998-99 and expire in A.Y. 2005-06.
8.02 Secondly, the assessee has relied upon proviso to sub-clause (b) to section 32 (2) and tried to exclude years during which the net worth of the Company became negative. However, this argument of the assessee is not tenable in view of the amendment in section 32(2) of the Act by the Finance Act, 2001 since the said proviso is deleted and no more applicable for the current assessment year.
8.03 Thirdly, the assessee relied upon the decision of jurisdiction high court in case of General Motors (GM) India Ltd. v. DCIT. However, the same is not applicable in the case of assessee since the facts are different.
9. In view of the above, I am satisfied that the assessee has wrongly brought forward and set off unabsorbed depreciation of A.Y. 1997-98 amounting to Rs. 6,18,58,111/-. Accordingly, b/f unabsorbed depreciation given set off in A.Y. 2006-07 is hereby withdrawn and total income of the assessee is recomputed as under:
Total income as per order u/s 250 of the I.T. Act dated 30.10.2009 before adjustment of brought forward business losses and unabsorbed depreciation 22,87,69,135 ITA No.3018/Ahd/2014 4 Less: 1) Brought forward unabsorbed 5,78,12,779 depreciation of A.Y. 98-99
2) Brought forward unabsorbed 4,65,23,357 depreciation for A.Y. 99-00
3) Brought forward unabsorbed 3,78,88,662 depreciation for A.Y. 00-01
4) Brought forward unabsorbed 3.40,89,996 17,63.14.794 depreciation for A.Y. 01-02 5,24,54,341 Less: Unabsorbed depreciation for A.Y. 2002-03. 3,50,41,868 3,50,41,868 Revised Total Income 1,74,12,473"
Recalculate tax. Give credit of pre-paid taxes, after verification. Charge interest u/s 234B, 234C and 234D of the IT Act, if applicable. Issued demand notice and challan accordingly."
5. Thus, the construction of provision viz. section 32(2) at the end of the ld.AO is against interpretation made by the Hon'ble jurisdictional High Court in the judgment of General Motors India P.Ltd. (supra). Before averting to the reasoning given by the AO, we deem it appropriate to take note of finding of the Hon'ble Gujarat High Court on this issue. It reads as under:
"30. The last question 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 2001? 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 period 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 and 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.ITA No.3018/Ahd/2014 5
31. 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 forward 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 depreciation 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.
32. 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.
33. 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 unabsorbed 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 cannot 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 not so set off shall be carried forward to the following assessment year and--ITA No.3018/Ahd/2014 6
(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 years immediately succeeding the assessment year for which the aforesaid allowance was first computed:
Provided that the time limit of eight assessment years specified in subclause (b) shall not apply in case of a company for the assessment year beginning with 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 assessment 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."
34. 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. 35.
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 given 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 less than the allowance, then, subject to the provisions of 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 ITA No.3018/Ahd/2014 7 added to the amount of the 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."
36. 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 provisions 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 previous 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 hire 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 the 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years."
37. The CBDT Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry ITA No.3018/Ahd/2014 8 forward and set off of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means 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 not by the provisions of section 32(2) as it stood before the said amendment. 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 provision 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 strict 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 benefit 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 profession 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, 1999-2000, 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.
38. 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 such 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 heads of income during that year. In case there is a still balance left over, it is to be treated ITA No.3018/Ahd/2014 9 as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is 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.
39. For the aforesaid reasons, this writ petition succeeds and is allowed. The notice issued under Section 148 of the Income-tax Act, 1961, dated 29.3.2011 Annexure A and the assessment order dated 27.12.2011 passed by the Assessing Officer Annexure F respectively to the writ petition are quashed. Rule is made absolute. The parties shall bear their own costs."
6. A bare perusal of the above finding would indicate that the Hon'ble High Court has propounded that any unabsorbed depreciation available to an assessee on first day of April, 2002 i.e. Asstt.Year 2002-03 will be dealt with in accordance with provision of Section 32(2) as amended by Finance Act, 2001. The Hon'ble High Court has observed that unabsorbed depreciation for earlier years upto Asstt.Year 2001-02 got carried forward to the Asstt.Year 2002-03 and would become part thereof. It will become depreciation of current year i.e. The Asstt.Year 2002-03 and it will be available for carry forward and set off against profit or gain of subsequent years without any ITA No.3018/Ahd/2014 10 time limit whatsoever. In other words, if this interpretation is applied on the facts of the present case, then, unabsorbed depreciation of the Asstt.Year 1995-96 and 1996-97 would become deprecation of the asstt.Year 2002-03 after amendment, because 8 years have not expired upto the Asstt.Year 2002-
03. This amount will become deprecation of Asstt.Year 2002-03, and thereafter it would be carried forward for subsequent years and will be set off against profit and gains of subsequent years without any limitation of alleged 8 years. We have extracted the finding of the ld.AO where the ld.AO has applied this limitation of 8 years from the Asstt.Year 1997-98 and held that it will expire in Asstt.Year 2004-05. The AO has committed an error by taking the limit in this manner. He has to compute 8 years utpo the Asstt.Year 02- 03, and thereafter it would become current unabsorbed depreciation in the Asstt.Year 2002-03 which will be available for set off in subsequent year without any restriction of limitation of years. Thus, the issue is squarely covered in favour of the assessee. We do not find any error in the order of the ld.CIT(A) as far as second fold of contention is concerned.
7. As far as first fold of contention is concerned, we find that notice under section 148 was issued on 13.2.2012 i.e. after expiry of 4 years from the end of the assessment year. There was a scrutiny assessment under section 143(3) of the Act. Proviso appended to section 147 puts a restriction on the powers of AO to reopen the assessment by issuance of notice under section 148 in the cases where 4 years have expired and scrutiny assessment under section 143(3) was made. In such cases, unless, the income of the assessee has escaped from the assessment on account of failure of the assessee to disclose all material facts fully and truly, no notice under section 148 could be issued. In the present case, all these facts were also in the knowledge of the AO when he passed the assessment under section 143(3). There is no failure at the end ITA No.3018/Ahd/2014 11 of the assessee. Therefore, the ld.CIT(A) has rightly held that reopening of the assessment is bad in law. Taking into consideration all these facts, we do not find any error in the order of the ld.CIT(A). Appeal of the Revenue is dismissed.
8. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 1st February, 2018 at Ahmedabad.
Sd/- Sd/- (PRADIP KUMAR KEDIA) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER