COMMISSIONER OF INCOME-TAX vs. DAMODAR POLYFAB PVT LTD

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ITR/104/1995HC GujaratGJHC24022429199516 February 2006Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI6 pages
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What did the High Court hold?

The High Court held that the Tribunal was justified in directing the Assessing Officer not to deduct the amount of subsidy from the cost of assets for the purpose of calculating depreciation, answering question No. 1 in the affirmative. This was based on the Supreme Court's decision in Commissioner of Income-tax Vs. P.J. Chemicals Ltd. Regarding the second question, the Court held that the Tribunal was justified in directing the Assessing Officer to allow the carry forward of business loss. The Court noted that the assessee had applied for an extension, which was not decided by the AO, and the return was filed shortly thereafter. Relying on its own previous decisions in Commissioner of Income-tax Vs. Gordhanbhai Jethabhai and Commissioner of Income-tax Vs. R.B. Masturlal and Sons Pvt. Ltd., the Court affirmed that the return should be treated as filed within time, and the assessee was entitled to carry forward the loss. The reference was disposed of accordingly.

What were the facts?

The Income Tax Appellate Tribunal (ITAT) referred two questions of law to the Gujarat High Court concerning the assessment year 1985-86. The first question pertained to whether the ITAT was correct in directing the Assessing Officer (AO) not to deduct subsidy from the cost of assets for depreciation calculation. The second question concerned the ITAT's direction to allow carry forward of business loss determined on a belated return. The revenue was the applicant, and the assessee was Damodar Polyfab Pvt Ltd. The revenue's counsel conceded the first issue based on a Supreme Court decision. For the second issue, the assessee filed its return on September 30, 1985, showing a loss, after having sought an extension until August 31, 1985, which the AO had not decided. The CIT(A) and ITAT allowed the carry forward of loss, presuming the extension was granted.

What were the issues?

The Tribunal had to decide two questions of law: 1. Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer not to deduct the amount of subsidy from the cost of assets for the purpose of calculating depreciation, under Section 32 of the Income-tax Act, 1961. 2. Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to allow carry forward of business loss determined on a belated return of income, under Section 72 of the Income-tax Act, 1961. Contentions: Assessee: The assessee argued that the subsidy should not be deducted from the cost of assets for depreciation. For the belated return, the assessee contended that the return was filed within the extended period, as the AO had not decided the extension application, and relied on the Gujarat High Court's decision in CIT v. Gordhanbhai Jethabhai. Revenue: The revenue argued that the subsidy should be deducted from the cost of assets for depreciation. For the belated return, the revenue contended that the return was filed after the extended period. The revenue relied on the Gujarat High Court's decision in CIT v. R.B. Masturlal and Sons Pvt. Ltd. and Mehsana Ice & Cold Storage Pvt. Ltd. v. CIT.

Which sections of the Income-tax Act were involved?

Section 32,Section 72

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
ITR/104/1995 1/6 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No.104 of 1995 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA Sd/- HONOURABLE MS.JUSTICE H.N.DEVANI Sd/- ===================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ===================================================== COMMISSIONER OF INCOME-TAX - Applicant(s) Versus DAMODAR POLYFAB PVT LTD - Respondent(s) ===================================================== Appearance : MRS MM BHATT for Applicant(s) : 1, NOTICE SERVED for Respondent(s) : 1, ===================================================== CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 16/02/2006

ORAL JUDGMENT (Per : HONOURABLE MS.JUSTICE H.N.DEVANI)

1.

The Income Tax Appellate Tribunal, Ahmedabad Bench 'C', has referred the following two questions under Section 256(1) of the Income-tax Act, 1961 (the Act) at the instance of the Commissioner of Income-tax :

ITR/104/1995 2/6

1.

“Whether, the Appellate Tribunal is right in law and on facts in directing the Assessing Officer not to deduct the amount of subsidy from the cost of assets for the purpose of calculating depreciation? 2. “Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to allow carry forward of business loss determined on a belated return of income ?

2.

The Assessment Year is 1985-86 and the corresponding accounting period is the year ended on 31st March, 1985. 3. Heard Mrs.M.M. Bhatt, learned Standing Counsel for the applicant revenue. Though served there is no appearance on behalf of the respondent-assessee.

4.

In so far as question No.1 is concerned, Mrs.Bhatt has very fairly pointed out that the issue involved stands concluded in favour of the assessee and against the revenue by a decision of the Hon'ble Supreme Court in the case of Commissioner of Income-tax Vs. P.J. Chemicals Ltd., [1994] 210 ITR 830 (S.C.). In the circumstances, it is not necessary to set out the facts and contentions in detail. Applying the ratio of the decision in the case of Commissioner of Income-tax Vs. P.J.

ITR/104/1995 3/6 Chemicals (supra), it is held that the Tribunal was justified in directing the Assessing Officer not to deduct the amount of subsidy received from the cost of the assets for the purpose of calculating depreciation. Question No.1 is, accordingly, answered in the affirmative i.e. in favour of the assessee and against the revenue .

5.

In relation to question No.2, the facts stated briefly are that the assessee had filed return of income showing a loss of Rs.2,34,470/-. The Assessing Officer refused the claim of carry forward of loss on the ground that the return was filed on 30th September, 1985 whereas the appellant had filed Form No.6 on 31st July, 1985 seeking extension upto 31st August, 1985 only.

6.

The assessee carried the matter in appeal before the CIT (A). The Commissioner (Appeals) vide order dated 10th March, 1989 found that the assessee had made an application seeking extension for filing return upto 31st August, 1985, and that the Assessing Officer had not decided the same. In the circumstances, applying the ratio of the decision of this Court in case of Commissioner of Income-tax Vs. Gordhanbhai Jethabhai, [1983] 142 ITR 84 (Guj.) the CIT (Appeals) held that it should be presumed that time had been ITR/104/1995 4/6 granted as sought for. He, accordingly, held that the return filed in the next month was within time and that the appellant was entitled to carry forward of loss.

7.

In revenue's appeal, the Tribunal vide order dated 8th September, 1993 found that the assessee had submitted Form No.6 on 31st July, 1985; that the assessee had made an application seeking extension of time upto 31st August, 1985, which had not been decided by the Assessing Officer. That the return was filed on 30th September, 1985, hence, the delay in submitting return was less than one completed month. The Tribunal held that in the light of the principles enunciated by this Court in the case of Commissioner of Income-tax Vs. Gordhanbhai Jethabhai (supra), the Commissioner (Appeals) was justified in concluding that the return filed in the next month should be treated as having been filed within time and that, therefore, the appellant was entitled to carry forward of loss. The Tribunal also found that by a Circular No.422 dated 19th June, 1985 of the Central Board of Direct Taxes (the Board), the Board, after considering various representations, was convinced that tax payers were facing difficulties in getting their accounts audited by the specified date in the first year of the provision, i.e. Section 44AB of the Act. The Board, therefore,

ITR/104/1995 5/6 clarified that Assessment Year 1985-86 being the first year of such a requirement, no penalty should be levied for failure to comply with Section 44AB for Assessment Year 1985-86, in case the audit report had been obtained by 30th September, 1985. The Tribunal was, therefore, of the opinion that in case where tax audit report was obtained by 30th September, 1985, in cases where the provisions of compulsory tax audit under Section 44B are applicable, the same should be treated as return filed within the time allowed by the aforesaid general instructions issued by the Board. The Tribunal, accordingly, dismissed the appeal.

8.

Mrs. Bhatt has very fairly invited attention to a decision dated 12th August, 2005 of this Court rendered in the case of Commissioner of Income-tax Vs. R.B. Masturlal and Sons Pvt. Ltd., Income Tax Reference No.26 of 1994, wherein this Court had followed its earlier decision in case of Mehsana Ice & Cold Storage Pvt. Ltd. Vs. Commissioner of Income-tax, Income Tax Reference No.107 of 1993 dated 15th March, 2005 and decided the issue in favour of the assessee.

9.

In light of the aforesaid fact situation, and the ratio laid down in the decisions of this Court in case of Commissioner of Income-tax Vs. Gordhanbhai Jethabhai (supra) and Mehsana

ITR/104/1995 6/6 Ice & Cold Storage Pvt. Ltd. Vs. Commissioner of Income-tax (supra), question No.2 is answered in the affirmative i.e. in favour of the assessee and against the revenue. The Tribunal is justified in directing the Assessing Officer to allow carry forward of business loss determined.

10.

The reference stands disposed of accordingly, with no order as to costs. [ D.A. MEHTA, J ] [ H.N. DEVANI, J ] *** Bhavesh*

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