VITP PRIVATE LIMITED,HYDERABAD vs. DCIT., CIRCLE8(1), HYDERABAD

We have considered the rival submissions, perused the material available on record and gone through the case laws relied upon by both the parties. With regard to the issue of excess claim of depreciation, the Ld. AR has submitted that during the relevant year, Flex Developers Pvt. Ltd. was merged into the assessee company on 03.02.2017. Flex Developers (P) Ltd had total unabsorbed depreciation of Rs.56,78,75,869/- as on the appointed and 5754 of 2024 VIP Private Limited date. The assessee added this amount of unabsorbed depreciation to the WDV of the respective blocks and claimed depreciation on the increased WDV, which resulted in increase in depreciation by Rs.3,37,71,787/-. He further submitted that, the Ld. PCIT alleged that the assessee has increased the WDV of the fixed assets and thereby claimed an excess depreciation of Rs.3,37,71,787/-. In this regard, we have gone through the provisions of Explanation 2 to section 43(6) of the Act, which is to the following effect:

On perusal of the above, it is evident that the assessee can add to its block of assets the value of assets received from subsidiary after reducing the depreciation “actually allowed” in the hands of the subsidiary. Therefore, as per the clear understanding of Explanation 2 to section 43(6) of the Act, it is only the amount of depreciation which is actually allowed to the subsidiary can only be reduced from the value of the assets. In this regard, we have also gone through the decision of the Hon’ble Madras High Court in the and 5754 of 2024 VIP Private Limited case of CIT v. Silical Metallurgic Ltd. (324 ITR 29), which was affirmed by the Hon’ble Supreme Court by dismissal of Revenue’s SLP on 28.07.2008, wherein at para nos. 4 to 11 of its order, the Hon’ble High Court has held as under:

In respect of the claim of depreciation, the assessee had added the unabsorbed depreciation of the amalgamating company to the written down value and claimed depreciation on the resultant amount. The Assessing Officer allowed depreciation only on the written down value and not on the value enhanced, by the amount of unabsorbed depreciation of the amalgamating company.

Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income-tax (Appeals). In respect of the depreciation, the Commissioner of Income-tax (Appeals) held that depreciation could be allowed only on the written down value as appearing in the balance-sheet and there was no provision for enhancing the same by adding unabsorbed depreciation carried forward in the case of the amalgamating company. Regarding deductions under sections 80HH and 80-I, the Commissioner of Income-tax (Appeals) by referring to the circular issued by the Central Board of Direct Taxes No. F. 15/5/63-IT(A-I) dated December 13, 1963, wherein it was clarified that the successor would be entitled to the benefit of deduction under the old section 84, in respect of the unexpired period, and observing that though the circular was issued with reference to section 84, the same principle would apply to sections 80HH and 80-I and that too with greater force in a case of amalgamation held that the amalgamated company would be eligible for the relief claimed in respect of the amalgamating companies prior to their amalgamation. Holding so, he directed the Assessing Officer to examine whether those units were eligible for deduction in the initial year and if so, to allow the admissible claim to the assessee for the assessment year under appeal.

Aggrieved by that portions of the order decided against them by the Commissioner of Income-tax (Appeals), the assessee as well as the Revenue filed appeals before the Income-tax Appellate Tribunal. Regarding depreciation, the Tribunal held that the unabsorbed depreciation of the amalgamating company should not be deducted in computing the written down value of the assets in the hands of the amalgamated company and thus allowed the appeal filed at the instance of the assessee and directed the Assessing Officer to adopt the written down value. In respect of the appeal filed by the Revenue questioning the correctness of the deductions under sections 80HH and 80-I, the Tribunal rejected the appeal filed by the Revenue following the decision of the Bombay High Court in the case of CIT v. and 5754 of 2024 VIP Private Limited Dandeli Ferro Alloys (P.) Ltd. [1995] 212 ITR 1 . The correctness of the said order is now canvassed before this court.

The appeal was admitted on the following questions of law: "1. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the amalgamated company was entitled to depreciation on the written down value of assets as increased by the unabsorbed depreciation carried forward in the hands of the amalgamating company ? 2. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the assessee- company being the amalgamated company was entitled to deductions under sections 80HH and 80-I in respect of the units set up by the amalgamating company ?"

We heard the argument of learned counsel on either side with reference to the questions of law framed and taken up for decision on the materials on record.

In order to answer the first question of law, it would be proper to extract the relevant portion of section 43(6) of the Income-tax Act, 1961. "43. In sections 28 to 41 and in this section, unless the context otherwise requires— ... (6)'written down value' means— (a) in the case of assets acquired in the previous year, the actual cost to the assessee ; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922) or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force : . . .

On perusal of the above, we found that the Hon’ble High Court has held the amount of unabsorbed depreciation which was not set off for carry forward could not be taken into account for the meaning of depreciation actually allowed. Therefore, the unabsorbed depreciation can never be deemed as actually allowed to the subsidiary. Accordingly, in our considered view, there is no infirmity in the action of the assessee company which has increased the WDV of the fixed assets received from the subsidiary and correspondingly included the same in the assessee’s WDV of the fixed assets. Therefore, there is no excess claim of depreciation in the hand of the assessee. We have also gone through the submissions made by the assessee before the Ld. PCIT, placed at page nos. 332 and 333 of the paper book, which is to the following effect: and 5754 of 2024 VIP Private Limited 13. On perusal of the above, we find that all details and reliance on case law were explained by the assessee before the Ld. PCIT. Despite this, the Ld. PCIT did not examine the merits of the issue and simply remanded the issue to the Ld. AO, which in our considered view is not sustainable under the Act.

With regard to the issue of Excess Claim of Deduction u/s 80IA of the Act, the Ld. AR has submitted that Form 10CCB of the eligible units demonstrated eligibility for deduction of Rs.22,80,95,375/- from eligible units. However, the gross total income of the assessee was Rs.15,96,77,696/-, which is less than the eligible deduction of Rs.22,80,95,375/-. There is no dispute about the facts qua the quantum of total eligible deductions u/s 80IA of the Act and gross total income of the assessee. We have gone through the provisions of Section 80A of the Act, which is to the following effect:

On perusal of the above, we find that as per the provisions of section 80A(2) of the Act, the only restriction is that the deduction cannot exceed gross total income of the assessee. There is no restriction provided under the Act, that the gross total income and 5754 of 2024 VIP Private Limited should only consist of business income. Our said observation got fortified by the decision of the Hon’ble Supreme Court in the case of CIT v. Reliance Energy Ltd. (Supra), wherein the Hon’ble Apex Court at para no 12 of its order has held as under:

On perusal of the above, we find that the Hon’ble Apex Court has categorically held that there is no limitation on deduction admissible u/s 80IA of the Act to income under the head “business” only. Therefore, respectfully following the decision of the Hon’ble Apex Court, we hold that as per the provisions of section 80IA of the Act, the only restriction is that the deduction cannot exceed gross total income of the assessee. There is no restriction provided under the Act, that the gross total income should only consist of business income. Accordingly, the assessee is eligible for deduction upto the gross total income of Rs.15,96,77,696/-. and 5754 of 2024 VIP Private Limited 17. We have also gone through the submissions made by the assessee before the Ld. PCIT placed at page nos.331 & 332 of the paper book, which is to the following effect:

On perusal of the above, we find that the assessee had explained all facts and arguments before the Ld. PCIT. Yet, without giving any findings on merits, the Ld. PCIT simply directed the AO for de novo adjudication, which in our considered view is not sustainable under the Act.

In view of the present facts and circumstances of the case, we are of the considered view that, once all submissions and documents were there before the Ld. PCIT, it was incumbent on him to decide the issues on merits. Without doing so, directing the Ld. AO for de novo adjudication amounts to abdication of jurisdiction. Therefore, in our view, when merits are clear and claims are legally allowable, such remand is unwarranted. Accordingly, we hold that on merits, the claim of depreciation on amalgamation and the claim of deduction u/s 80IA of the Act are both allowable. The order of the Ld. PCIT under section 263 of the Act, directing de novo assessment without adjudication on merits, is unsustainable. and 5754 of 2024 VIP Private Limited Accordingly, the order of the Ld. PCIT is set aside and the assessment order of the Ld. AO is restored.

The assessee has also raised a legal ground challenging the validity of assumption of jurisdiction under section 263 of the Act by the Ld. PCIT. The Ld. AR invited our attention to the provisions of section 263 of the Act and submitted that the Ld. PCIT may call for and examine the record of any proceeding under the Act and if he considers that any order passed therein by the Ld. AO is erroneous in so far as it is prejudicial to the interests of the Revenue, then only the Ld. PCIT can assume jurisdiction under section 263 of the Act. It was submitted that such satisfaction has to be arrived at independently by the Ld. PCIT, and he cannot merely rely on a proposal of the Ld. AO. In this regard, the Ld. AR invited our attention to para no.3 of the impugned order, which has already been reproduced at Para No.4 above.

The Ld. AR further submitted that as per the findings recorded by the Ld. PCIT at para no.3 of his order, it is evident that the Ld. AO submitted a proposal under section 263 of the Act on 04.03.2024. The Ld. AR submitted that this makes it clear that the jurisdiction under section 263 of the Act has been assumed by the Ld. PCIT on the proposal of the Ld. AO, which is not permissible under law, since the Ld. PCIT has to form an independent satisfaction before invoking section 263 of the Act. Accordingly, the Ld. AR submitted that the invocation of jurisdiction by the Ld. PCIT u/s 263 of the Act is void ab initio and is liable to be quashed.

Since we have already set aside the impugned order of the Ld. PCIT on merits, therefore, adjudication of the legal ground challenging the very assumption of jurisdiction under section 263 and 5754 of 2024 VIP Private Limited of the Act is rendered academic. Accordingly, we do not propose to decide this legal issue, and the same is kept open.

In the result, the appeal of the assessee in is allowed. ITA No.574/Hyd/2024 24. On perusal of page nos.17 and 18 of the order of the Ld. PCIT, we find that the Ld. PCIT has stated as under:

On perusal of the above, we found that, the Ld. PCIT has stated that in the ITBA, two separate worklist items were generated by the system for the same assessment year in respect of two different issues. Accordingly, the Ld. PCIT has passed one consolidated common order under section 263 of the Act. However, since two worklist items were created, the system generated two different DINs for the same consolidated order of the Ld. PCIT. Consequently, the assessee has filed two separate appeals before us against the very same consolidated order of the Ld. PCIT. We have already adjudicated the appeal of the assessee in arising out of the same consolidated order of the Ld. PCIT, wherein we have decided the issue in favour of the assessee and set aside the order of the Ld. PCIT. Once the consolidated order itself has been set aside, the present appeal