Income Tax Appellate Tribunal - Delhi
Uttam Air Products (P) Ltd. vs Deputy Commissioner Of Income Tax on 28 October, 2004
Equivalent citations: (2006)99TTJ(DELHI)718
ORDER
G.S. Pannu, A.M.
1. This appeal has been preferred by the assessee against the order of CIT(A) dt. 10th Jan., 2000. In the impugned appeal, the appellant has preferred three grounds of appeal which we shall take up seriatim.
2. Briefly stated the facts are that, the appellant is a company incorporated under the provisions of the Companies Act, 1956 and is, inter alia, engaged in the business of manufacture and sale of industrial and medical gases. It filed its return of income declaring a total income of Rs. 57,703 which was subjected to scrutiny assessment in terms of Section 143(3) of the Act.
3. The first grievance of the assessee in the impugned appeal is against the action of the CIT(A) in disallowing the appellant's claim for setting off of unabsorbed depreciation of Rs. 5,20,987 brought forward from earlier year against the short-term capital gain arising during the impugned assessment year. The brief facts relevant to the first ground are that the assessee had adjusted unabsorbed brought forward depreciation from asst. yr. 1995-96 against the short-term capital gains computed under Section 50 of the Act during the year under consideration. The reason weighing with the AO in rejecting the aforesaid claim of the assessee was on account of the provisions of Section 32(2) as substituted by the Finance (No. 2) Act of 1996, which was effective from 1st April, 1997. According to the AO, the scope of the amendment was to treat the unabsorbed depreciation allowance on the same footing as the business loss for the purpose of carry forward. Therefore, brought forward unabsorbed depreciation could not be set off against the other items of income starting from 1st April, 1997. Hence, the disallowance.
4. On appeal before the CIT(A), the stand of the assessee was that the amendment to Section 32(2) provided that the brought forward unabsorbed depreciation relating to asst. yr. 1996-97 could be set off against the profits and gains of business or income under any other head assessable for the said assessment year. The CIT(A) has since negated the stand of the assessee. Thus, the present proceedings before us.
5. The counsel for the appellant has reiterated the submissions as preferred before the lower authorities. It is argued by the counsel that having regard to the amendment under Section 32 of the Act w.e.f. 1st April, 1997, it cannot be held that the claim of the assessee for setting off of unabsorbed depreciation brought forward from earlier assessment years to asst. yr: 1997-98 can be set off only against the profits of business and not against any other head of business. Our attention has been drawn to the extract of the speech of the Hon'ble Finance Minister delivered in the Parliament on 11th Sept., 1996 while moving the Finance Bill to the effect that the "cumulative unabsorbed depreciation brought forward as on 1st April, 1997 can still be set off against the taxable business income under any other head for the asst. yr. 1997-98..." to justify the stand of the assessee. It was also submitted that the Delhi Bench of the Tribunal in the case of ITO vs. Selchem Engineers (P) Ltd. (2004) 84 TTJ (Del) 101, has considered identical issue and held in favour of the assessee. Similar is the decision of the Calcutta Bench of the Tribunal in the case of Jt. CIT vs. India Steamship Co. Ltd. (2003) 78 TTJ (Cal) 154.
6. On the other hand, learned Departmental Representative has strongly relied upon the orders of the lower authorities and referred to the amendment made in Section 32(2) to argue that the depreciation allowance for a particular assessment year is adjustable against the profits and gains of that assessment year; that in the absence of adequate profits and gains in a particular business, the unabsorbed depreciation could be set off during the assessment year against the profits and gains of any other business or income from any other head; that the depreciation allowance which could not be so adjusted in any assessment year including the brought forward unabsorbed depreciation upto the asst. yr. 1996-97 could only be set off against the profits and gains of business assessable for the following assessment year and not against any other income. .
7. We have heard the rival submissions and have considered the relevant provisions and also the precedents cited at Bar and proceed to dispose of the issue on the following lines. The controversy revolves around the 'amendment carried out in Section 32(2) by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997. Prior to the amendment, the allowance of depreciation which could not be fully set off was added to the amount of allowance of depreciation for the following assessment year and was deemed to be part of that allowance for the said following year. By way of the amendment carried out by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997, the aforesaid deeming fiction of treating the earlier years unabsorbed depreciation as current year's depreciation is sought to be done away with. Also, the period available for absorbing the unabsorbed depreciation against the profits of the succeeding years was limited to 8 years as against no such limit in the pre-amended provisions. In the aforesaid backdrop, the effect of the amendment has been referred to by the Finance Minister in his Budget speech whereby it was clarified that the depreciation remaining unabsorbed in the hands of the assessee upto the asst. yr. 1996-97 shall continue to be set off in accordance with the pre-amended provisions of Section 32(2) and that the changed depreciation regime shall be applicable to only depreciation allowance pertaining to the asst. yr. 1997-98 and subsequent assessment years. Circular No. 762 dt. 18th Feb., 1998 issued by the CBDT also explains the manner in which the new regime envisaged by Section 32(2) relating to the carry forward and set off of unabsorbed depreciation is required to be understood. It is clarified in the circular (supra) that the unabsorbed depreciation allowance pertaining to asst. yr. 1996-97 shall be added to the allowance of 1997-98 and shall be deemed to be the allowance of that year and the limitation of eight years shall start from asst. yr. 1997-98.
8. Considering the plea of the assessee in the aforesaid background, it is discernible that the unabsorbed depreciation of the assessee pertaining to the asst. yr. 1996-97 is liable to be considered as a part of the depreciation allowance for the impugned asst. yr. 1997-98 and, therefore, it shall be entitled to set off of the same either against the income from business or profession or against income under any other head resulting in the hands of the assessee for the impugned assessment year. The claim of the assessee is ostensibly in line with the clarification issued by the Board by way of its circular dt. 18th Feb., 1998. Thus, pleading by the Revenue to the contrary is liable to be dismissed. We hold so. In the precedents cited by the appellant on similar issue, the Tribunal has sustained the stand of the assessee. Respectfully concurring with the same, impugned claim of the assessee is treated as allowed.
9. In the result, on the first ground, the assessee succeeds.
10. The second ground is against the action of the CIT(A) in sustaining the addition of Rs. 5,49,398 made by the AO on account of unmoved creditor. Brief background to the impugned addition is that the AO noticed that the credit balances in the account of one M/s Sehgal Gases amounting to Rs. 5,49,398 was standing as unmoved for more than 3 years. The AO asked the assessee to justify the reasons for the unmoved balance and why the same could not be added back to the income of the assessee. In response, the assessee contended that the balance pertained to the liability payable with respect to the purchase of cryogenics tanks in the year ending March, 1990; that a dispute has arisen with the supplier with respect to the functioning of the said asset and that the same remained a liability which was to be discharged subject to settlement of the dispute. The assessee furnished the invoice of the party and other details called for in this regard. The AO, on the other hand, held that the assessee failed to produce any documentary evidence with respect to the dispute redressal with the impugned creditor and since the impugned credit was outstanding for more than three years and, therefore, the same was liable to be added back to the income of the assessee as unclaimed balance. Hence, the addition.
11. On appeal before the CIT(A), it was contended by the assessee that the dispute with the supplier related to the purchase of cryogenic tank purchased by it; that the liability in this regard had not ceased and it could not be said to be a case by way of which there was any cessation of liability. The CIT(A) has, however, sustained the order of the AO and noted that since the assessee has failed to demonstrate that the supplier had initiated any steps for the recovery of the impugned amounts from the assessee, he held that the liability was not intended to be paid off and thus, sustained the addition.
12. Against the aforesaid background, the counsel for the assessee has vehemently assailed the orders of the lower authorities. Our attention has been drawn to the paper book filed before us, which, inter alia, contains the documents and material furnished to the lower authorities. In this regard, the counsel at the outset submitted that the impugned credit has been continuously shown by the assessee as outstanding and it was only on account of dispute with the supplier of the machinery, which was yet to be settled, thus the payment was not made. However, it could not be said that the liability on this count had ceased to exist. Our attention was invited to the letter dt. 10th April, 1999 of the supplier (copy of which is placed in the paper book) to demonstrate that the supplier was insisting on payment and that it could not be said that the supplier had given up its claim for payment. .
13. On the other hand, learned Departmental Representative has supported the orders of the lower authorities.
14. We have considered the rival submissions carefully and have also perused the orders of the lower authorities in this regard. The facts of the impugned dispute lie in a very narrow compass. That the balance of the creditor was outstanding in the books of the assessee for a considerable period of time. The essential dispute is as to whether in the absence of any write off by the assessee and also in the absence of any tangible proof of the supplier having given up its claim, could the Revenue be justified in ignoring the liability and making out a case for cessation of liability and thus, treating the same as income of the assessee. In the instant case, insofar as the intention of the assessee is concerned, it is undisputed that the same has been shown by it in his balance sheet as creditor, indicating thereby that the amount stood payable. Insofar as the stand of the supplier is concerned, we do not find that the Revenue has any material or evidence to substantiate that the said supplier had given up its claim against the assessee. The onus to bring on record such material or evidence, is on the Revenue, specially after the appellant having relied on the communication of the supplier dt. 10th April, 1999. Therefore, in the absence of any such material brought on record by either of the lower authorities, it could not be concluded, on the facts and evidence as found, that the said supplier ceased to sustain the impugned claim against the assessee. Therefore, we are unable to sustarn the impugned addition as made by the lower authorities. Therefore, on the basis of the facts and material as found on record, we are unable to hold that the liability had ceased to exist in the hands of the assessee in the absence of any material to the contrary. Apart from the above, we also find that insofar as intention of the appellant is concerned, the depiction of the balance to the credit of the supplier in the balance sheet as on the year end clearly demonstrates that the liability does exist and it had not ceased.
15. In the result, the assessee succeeds in the second ground also.
16. The third ground is with regard to the charging of interest under Section 234B of the Act. The issue with regard to the levy of interest under Section 234B is mandatory and consequential in nature.
17. In the result, the appeal of the assessee is treated as allowed as above.