Income Tax Appellate Tribunal - Delhi
Lakshmi Precision Screws Ltd. vs Deputy Commissioner Of Income Tax on 31 May, 1996
Equivalent citations: [1996]59ITD295(DELHI)
ORDER
B.S. Saluja, J.M.
1. The assessee is in appeal against the order of CIT, Rohtak, dt. 27th March, 1991, made under s. 263 of the IT Act, 1961, mainly on the ground of setting aside the assessment order whereby the Assessing Officer (AO) has set off an amount of Rs. 1,21,59,314 on account of depreciation against the profits and also allowed the balance amount of Rs. 11,60,225 to be carried forward in the subsequent years.
2. The brief facts in this case are that on perusal of the assessment records for asst. yr. 1988-89 the CIT found that the assessee-company had worked out book profits at Rs. 19,09,097. He also observed that the AO had adjusted brought forward unabsorbed depreciation against the current income and allowed carry forward of the remaining unabsorbed depreciation for being set off against the income of the subsequent assessment years. The learned CIT referred to the provisions of s. 115J and observed that unabsorbed loss or unabsorbed depreciation, whichever is less, was to be deducted from the book profits of Rs. 19,09,097. He also referred to the Board's Circular No. 495, dt. 22nd Sept., 1987. He also observed that in the case of the assessee there was only brought forward unabsorbed depreciation with no brought forward unabsorbed loss. He, therefore, held that as there was no brought forward loss no deduction could be allowed as least of the two amounts was to be deducted from the book profits of the current year. He, therefore, held that the assessment order was erroneous in so far as it was prejudicial to the interest of the Revenue.
2.1. The learned CIT gave an opportunity to the assessee on 26th March, 1991, vide notice dt. 19th March, 1991. The assessee filed written submissions. The learned CIT considered the written submissions and observed that according to the audited accounts submitted along with the return of income, the income as per P&L a/c was Rs. 19,09,097. He further observed from the audited report that the company had only unabsorbed depreciation and that there was no brought forward loss. He also observed that according to the Board's Circular No. 495, dt. 22nd Sept., 1987, the claim of the assessee was not acceptable. The learned CIT further analysed the provisions of s. 115J and observed that working of loss and depreciation for the asst. yrs. 1985-86 to 1987-88 showed that the assessee had not suffered any actual loss in those years except the notional loss after deduction of depreciation. He also observed that the brought forward loss was, in fact, nil against substantial brought forward depreciation both as per straight line method and WDV method. He, therefore, held that as there was no business loss or the loss was less than brought forward unabsorbed depreciation, the brought forward depreciation was not to be taken into account while working out the book profit for the purpose of s. 115J of the IT Act, 1961. In the process he also referred to the provisions of s. 205(b) of the Companies Act, 1956, and observed that the Companies Act differentiated between the actual loss and loss after depreciation and that the assessee's contention that the loss in its case should be taken into consideration after providing for depreciation was not tenable. In the ultimate analysis the learned CIT held that the order passed by the AO under s. 143(3) on 24th Jan., 1989, was erroneous in so far as it was prejudicial to the interest of Revenue. He, therefore, cancelled the said order and asked the AO to make fresh assessment according to law.
3. The learned counsel for the assessee Shri C. S. Aggarwal invited our attention to the reply dt. 25th March, 1991, filed before the CIT (pages 6-9 of the paper book) and the order of the Tribunal dt. 31st Jan., 1992, in ITA No. 2170/Del/91 in the case of the assessee for asst. yr. 1989-90 and submitted that the Tribunal has considered similar issue as is involved in the present appeal in the case of the assessee and observed that there were no losses in the asst. yrs. 1985-86, 1986-87 and 1987-88 as a result of unabsorbed depreciation. It further observed that in that sense there were no business loss, but only unabsorbed depreciation and since the lower of the two had to be allowed as a deduction, one view might be that no deduction should be allowed, because there was no business loss at all. It also observed that the other view which was equally plausible was that there were net losses in the said years of Rs. 4,66,509, Rs. 8,78,333 and Rs. 62,04,642 and that the said net amounts, which in common parlance were called losses were less than the depreciation figures of Rs. 45,00,334, Rs. 69,98,196 and Rs. 94,81,334, respectively. It also observed that the lower of the two were obviously the figures of net losses and since two views were possible, the one favouring the assessee had to be preferred. It also observed that the case of the assessee was supported by the judgment of the Tribunal reported in 39 ITD 432. The Tribunal, therefore, directed the AO to deduct the amount of depreciation and on the resultant figure compute 30% of the profits under s. 115J of the IT Act for the asst. yr. 1989-90. The learned counsel submitted that the Tribunal has accepted the claim of the assessee in relation to asst. yr. 1989-90. He further submitted that though a reference has been made to the Hon'ble High Court of Punjab and Haryana, the Tribunal should take a consistent view for the sake of judicial discipline. The learned counsel further invited our attention to the decision of the Hon'ble Supreme Court in the case of Garden Silk Weaving Factory vs. CIT (1991) 189 ITR 512 (SC) wherein it held that "loss" includes "depreciation" and that unabsorbed depreciation is part of loss for the purpose of IT Act. On being pointed out that there was a decision of the Hon'ble Andhra Pradesh High Court in the case of V. V. Trans-Investments (P) Ltd. vs. CIT, Dy. CIT vs. Surana Steels Pvt. Ltd. & Anr., etc (1994) 207 ITR 508 (AP), wherein it has been held that "loss" for the purpose of s. 115J does not include "unabsorbed depreciation", the learned counsel submitted that the decision of the Hon'ble Andhra Pradesh High Court was not binding on the Tribunal and that the said decision had only a persuasive value. He also submitted that there was no direct judgment of the Hon'ble Punjab and Haryana High Court and that for the sake of consistency in judicial discipline the Tribunal should follow its earlier decision in the case of the assessee as also the Special Bench decision in the case of Surana Steels Pvt. Ltd. vs. Dy. CIT (1993) 46 TTJ (Hyd) (SB) 458 : (1993) 201 ITR 1 (AT), wherein it was held that the word "loss" in the phrase "loss or depreciation whichever is less" in Expln. (iv) to s. 115J referred only to the net loss after deduction of depreciation so that the assessee-company whose income is computed under s. 115J is entitled to deduct unabsorbed depreciation of the earlier years even if there was a profit before deduction of such depreciation in the earlier years. He hastened to add that thereafter the Tribunal may allow a reference to the High Court.
4. The learned Departmental Representative Shri Suraj Bhan relied on the decision of the Hon'ble Andhra Pradesh High Court in the case of V. V. Trans-Investments (P) Ltd. vs. CIT, etc. (supra) and submitted that the Tribunal was bound to follow the said decision as there was no contrary decision of any other High Court including the Hon'ble Punjab and Haryana High Court. In this connection the learned Departmental Representative relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Smt. Godavaridevi Saraf (1978) 113 ITR 589 (Bom), wherein it was observed that the law declared by a High Court in a State was binding on the Tribunal in another State.
5. The learned counsel in his rejoinder invited our attention to the decision of the Hon'ble Bombay High Court in the case of CIT vs. Thana Electricity Supply Ltd. (1993) 206 ITR 727 (Bom), wherein the Hon'ble High Court has held at page 738 of ITR that "the decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunals outside its own territorial jurisdiction. It is well settled that the decision of a High Court will have the force of binding precedent only in the State or territories on which the Court has jurisdiction. In other States or outside the territorial jurisdiction of that High Court it may, at best, have only persuasive effect. By no amount of stretching of the doctrine of stare decisis, can judgments of one High Court be given the status of a binding precedent so far as other High Courts or Courts or Tribunals within their territorial jurisdiction are concerned. Any such attempt will go counter to the very doctrine of stare decisis and also the various decisions of the Supreme Court which have interpreted the scope and ambit thereof". In view of the said decision the learned counsel reiterated that the decision of the Hon'ble Andhra Pradesh High Court reported in 207 ITR 508 (supra) has only persuasive value and that there was no direct decision of the Hon'ble Punjab and Haryana High Court and that the Tribunal ought to follow its earlier decision and the Special Bench decision which has also taken into consideration various decisions of the Hon'ble Supreme Court that if two views are possible a view which is favourable to the assessee ought to be followed. In this connection the learned counsel also relied on the decision of the Hon'ble Supreme Court in the case of Union of India vs. Kamalakshi Finance Corpn. Ltd. 1991 (55) ELT 433 (SC), a copy whereof has been placed on the file. In the said case the Hon'ble Supreme Court considered and upheld strictures passed by the Hon'ble Bombay High Court against two Asstt. Collectors for flouting Collector Appeals' order on classification based on a Tribunal judgment against which Department had gone in appeal to Supreme Court. The Hon'ble Supreme Court directed the Department to pay utmost regard to judicial discipline and give effect to orders of higher appellate authorities which are binding on them.
6. We have carefully considered the rival submissions and have also perused the order of the learned CIT and other relevant record to which our attention was invited during the course of hearing. It is observed that the issue involved in this appeal stands covered by the decision of the Hon'ble Andhra Pradesh High Court in the case of V. V. Trans-Investments (P) Ltd., etc. (supra), which also happens to be a direct decision on the interpretation of the provisions of s. 115J of the IT Act, 1961. The Hon'ble Andhra Pradesh High Court has examined the provisions of s. 205(1), first proviso (b), of the Companies Act as also the provisions of s. 115J and the concept of "loss" and "depreciation" under the provisions of the IT Act. It has observed that "under the IT Act, depreciation and loss were treated as distinct concepts. Unabsorbed carry forward business loss could be set off only against business income of the following year or years while unabsorbed depreciation could be set off against income under any other head. Further, while the former could be carried forward for a limited number of years, there is no time-limit for carrying forward the unabsorbed depreciation. Further, while carrying forward the depreciation allowance, effect shall first be given to s. 72 which provides for carry forward of loss. The assessee is entitled to deduct depreciation or loss, whichever is less, only when in a given year there is loss as well as depreciation. In such a case, the lesser of the amounts will be allowed to be deducted as per the provisions of the IT Act. In case there is profit in a year, but after adjustment of depreciation, it results in loss, no adjustment in book profit under s. 115J can be allowed. The fundamental difference between 'unabsorbed depreciation' and 'unabsorbed loss' has to be kept in mind before interpreting s. 115J of the Act and the procedure adopted under the Companies Act for the purpose of declaring the net profits. The computation to be made for the purpose of declaring dividend under the Companies Act cannot be adopted for the purpose of computing taxable income under the provisions of IT Act. For the purpose of s. 115J of the Act, 'loss' does not include 'unabsorbed depreciation'". It is also not in dispute that so far there is no other contrary judgment of any other High Court on this issue. There is also no decision of the Hon'ble Punjab and Haryana High Court relating to the interpretation of the provisions of s. 115J. The learned counsel for the assessee has argued vehemently for the proposition that the Tribunal should follow its decision in the case of the assessee, though for a later assessment year, i.e., 1989-90. He has further relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Thana Electricity Supply Ltd. (supra) for the proposition that the decision of the Hon'ble Andhra Pradesh High Court is not binding on the Tribunal and has only persuasive value for the Tribunal outside the territorial jurisdiction of the said High Court. He has also made a reference to the decision of the Special Bench of the Tribunal reported in (1993) 46 TTJ (Hyd) (SB) 458 : 201 ITR 1 (AT) (supra). As against this the learned Departmental Representative has relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Smt. Godavaridevi Saraf (supra) for the proposition that where there is a decision of a single High Court, the same is binding on the Tribunal. We have carefully seen the decision of the Hon'ble Bombay High Court in the case of CIT vs. Thana Electricity Supply Ltd. (supra) and it is seen that the Hon'ble High Court has referred to its earlier decision in the case of CIT vs. Smt. Godavaridevi Saraf apart from certain other decisions, and observed at page 741 that : "On a careful reading of the observations in the light of the questions which were before the Court for determination in those cases, we find it difficult to accept these observations as the ratio decidendi of those decisions. These are observations by way of obiter dicta which, at best, may have persuasive efficacy but not the binding character of a precedent." We have also considered the decision of the Hon'ble Supreme Court in the case of Union of India vs. Kamlakshi Finance Corpn. Ltd., relied upon by the learned counsel. Though on the face of it the arguments of the learned counsel for following the earlier decision of the Tribunal in the case of the assessee as also the Special Bench decision reported in 46 TTJ (Hyd) (SB) 458 : 201 ITR 1 (AT) (supra) for the sake of consistency and judicial discipline appear to be plausible, yet it is a fact that there is a direct decision of the Hon'ble Andhra Pradesh High Court reported in 207 ITR 508 (supra) in which the Hon'ble High Court has also examined the decision of the Tribunal, Hyderabad Special Bench, dt. 4th Feb., 1993, in the case of Surana Steels Pvt. Ltd. vs. Dy. CIT (supra). Thus the decision of the Special Bench reported in 46 TTJ (Hyd) (SB) 458 : 201 ITR 1 (AT) (supra) has been overruled by the decision of the Hon'ble Andhra Pradesh High Court reported in 207 ITR 508 (supra). It is further observed that the order of the Tribunal in the case of the assessee for asst. yr. 1989-90 was made on 31st July, 1992, which was before the aforesaid decision of the Special Bench. Moreover, the decision of the Hon'ble Bombay High Court reported in CIT vs. Thana Electricity Supply Ltd. (supra) has laid down certain propositions in the context of "whose decision is binding on whom" while examining the provisions of Art. 141 of the Constitution and the principle of stare decisis vis-a-vis the decisions of Supreme Court and the binding effect of decision of one High Court over the other High Courts or Tribunals. In the process the Hon'ble Bombay High Court also examined its observations in its decision reported in 113 ITR 589 (supra) and held that the said observations were by way of obiter dicta. When we consider the aforesaid propositions laid down by the Hon'ble Bombay High Court and its abovementioned observations as also the decision of the Hon'ble Supreme Court in the case of Union of India vs. Kamlakshi Finance Corpn., one thing is quite clear to us that the decision of higher authority in the appellate hierarchy cannot be ignored, especially when there is no contrary decision. In view of the foregoing we feel that we are bound to follow the aforesaid decision of the Hon'ble Andhra Pradesh High Court reported in 207 ITR 508 (supra). We, therefore, see no reason to interfere with the order of the learned CIT.
7. In the result, the appeal is dismissed.