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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI S RIFAUR RAHMAN & SHRI PAVAN KUMAR GADALE
O R D E R PER PAVAN KUMAR GADALE, JM: These are the cross appeals filed by the assessee and the revenue against the order of the CIT(A)-6, Mumbai passed u/s 143(3) and 250 of the Act. & 6366 /Mum/2017 M/s. Ganesh Benzoplast Ltd., Mumbai For the sake of convenience, we shall take up the assessee appeal ITA.no.6351/Mum/2017 for the A.Y 2010-11 and the facts narrated therein.
The assessee has raised the following grounds of appeal .
Ground No.1
On the facts and circumstances of the case, and in law, The CIT(A) erred in confirming the addition of Rs. 1,02,12,123/- u/s145A of the Act on account of increase in MODVAT credit in the year ignoring his predecessors view without giving any valid reasons.
2. The ld. CIT(A) failed to appreciate the fact that (a) The AO added the difference between the closing debit balance and opening balance and added to the value of closing stock.
(b) The assessee has consistently followed provisions of Sec. 145A and valued closing stock on net cost methods.
(c) Debit balance cannot be considered as income.
(d) Debit balance in MODVAT account is at par with balance in PLA account.
(e) The assessee may not necessarily utilized and no refund is granted. 3. The appellant therefore prays that the addition of Rs. 1,02,12,123/- made may be deleted Ground 2: & 6366 /Mum/2017 M/s. Ganesh Benzoplast Ltd., Mumbai 1. On the facts and circumstances of the case, and in law, CIT(A) erred in confirming the addition of 39,83,500/- u/s 50C on account of sale of property below stamp duty valuation.
The Ld. CIT(A) failed to appreciate the fact that a. The impugned assets was depreciated assets b. The property sold during the year was not in usable condition and hence sold at whatever rate it could fetch.
The appellant therefore prays that the addition made be deleted.
2. The Brief facts of the case are that, the assessee company is engaged in the business of manufacture of chemicals and LST. The assessee has filed the return of income on 14.10.2010 declaring a total loss of Rs. 11,41,76,879/-. Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act along with questionnaire are issued. In compliance, the Ld.AR of the assessee appeared from time to time and submitted the details. The assessee has filed the information before the income tax authorities that the company has become Sick Industrial Company and registered with BIFR for rehabilitation as per SICA 1985 under reference 42/2009. The A.O on perusal of the financial statements observed that the assessee has claimed excess deprecation which was carry forward from earlier years of Rs. 70,663/-.Further, the A.O. has made disallowance U/s 14A of the Act of Rs. & 6366 /Mum/2017 M/s. Ganesh Benzoplast Ltd., Mumbai 24,15,000/-. On the other disputed issue, the A.O found that as per Annexure – L to Tax Audit report in Form No. 3CD, the assessee has shown the increase in the closing balance of MODVAT credit over its opening balance to the extent of Rs.1,02,16,123/- in the books of accounts. Therefore the A.O. is of the opinion that the said amount has to be added to the closing stock as per the provisions Sec. 145A of the Act and called for the explanations. The Ld.AR explained that the assessee company consistently and regularly following same valuation method from the last 15 years and there no deviation in the valuation formula and therefore their is no need to add closing Modvat balance in the valuation of the finished inventories but the A.O. has not accepted the assessee contentions and made an addition of Rs.1,02,16,123/- 3.The A.O found that the assessee has claimed Bad debts and dealt on the disputed issue at para 7 of the assessment order and is of the opinion that the loan or advance cannot be allowed as Bad Debt and disallowed the claim of Rs.5,40,23,385/-.Further, assessee during the year has sold certain depreciable assets and offered short term capital gains of Rs. 79,68,000/.- However, the A.O. found that the value of the assets including the building mentioned in the sale deeds are & 6366 /Mum/2017 M/s. Ganesh Benzoplast Ltd., Mumbai at lower value than the market value and issued show cause notice and called for explanation for the difference and applicability of provisions of Sec. 50 C of the Act. The Ld.AR explained that the assessee is a BIFR company and wanted to liquidate unused assets at as it is condition. But the A.O. was not satisfied with the submissions and made an addition of Rs. 39,83,350/. Further the A.O. found that the assessee company is not entitled to carry forward unabsorbed depreciation of Rs. 43,70,38,442/- for the period 1996- 97 to 2001-12 to be set off against income. Finally the A.O. has assessed the total loss of Rs.4,56,41,858/- and passed the order u/s 143(3) of the Act dated 21.01.2013.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A). The Ld. CIT(A) considered the grounds of appeal, findings of the A.O, and the assesses submissions. Whereas on the disputed issue of addition on account of increase in Modvat credit u/s145A of the Act. The CIT(A) has dealt on the provisions and facts at page 4 to 9 of the order and confirmed the addition. On the second issue in respect of addition on account of difference in market value and sale value of depreciable capital asset, the CIT(A) has confirmed the addition. Whereas, in respect of carry forward of unabsorbed ITA No. 6351 & 6366 /Mum/2017 M/s. Ganesh Benzoplast Ltd., Mumbai depreciation for the period AY 1996-97 to 2001-02,the CIT(A) has dealt on the provisions and relied on the Honble High Court and Honble Tribunal decisions and directed to allow the carry forward of unabsorbed depreciation and partly allowed the assesses appeal. Aggrieved by the CIT(A)order, the assessee has filed an appeal before the Honble Tribunal.
5. At the time of hearing the Ld.AR submitted that the CIT(A) has erred in confirming the addition of Rs. 1,0,212,123/- u/s 145A of the Act on account of increase in the Modvat credit. The Ld. AR relied on the assessee’s own case for the A.Y 2011-12 and the decision of Hon’ble Supreme Court. Whereas, in respect of addition u/s 50C of the Act the Ld.AR submitted that the company has to sell the used assets as the company has become a Sick industrial Company under BIFR and referred to the observations of the BIFR. Contra, the Ld.DR relied on the order of the CIT(A).
6. We heard the rival submissions and perused the material on record. The Ld.AR contentions on the first disputed issue of addition of increase in Modvat credit u/s 145A of the Act that the assessee has been consistently and regularly following the same valuation method for the last 15 years and there is no deviation in & 6366 /Mum/2017 M/s. Ganesh Benzoplast Ltd., Mumbai valuation formula. The Ld.AR relied on the assessee’s own case for the subsequent Assessment year, where the CIT(A) has relied on the ratio of the Hon’ble Supreme Court decision and granted the relief. We considered it appropriate to refer to the observations of the CIT(A) for the A.Y 2011-12, at page 3 Para 5 of the order as under; “5. Disallowance of on account of increase in Modvat credit.
The A.O has added sum of Rs. 72,57,620/- under Modvat Credit as per para 6 of the assessment order by invoking provisions of Sec. 145A of the Act. On the other hand, the AR of the appellant argues that this modvat has never been debited to Profit and loss account. It is only reflected in the balance sheet in the assets side. Therefore, cannot be treated as income at all. Further, he is also relying on the Hon’ble Supreme Court decision in the case of CIT Vs. Indo Nippon Chemicals 261 ITR 275 wherein it is held as under Modvat credit available to manufacturers upon purchase of duty paid raw material though irreversible does not amount o chargeable income. ”
We find that the LdCIT(A) has followed the Hon’ble Supreme Court decision and has dealt on the provisions, facts and Modvat issues and granted the relief. The Ld.DR also accepts the decision of the CIT(A) and the Honble Supreme court decision. Accordingly, we Considering the decision of the CIT(A) for the A.Y 2011-12, direct the Assessing officer to delete the addition. & 6366 /Mum/2017 M/s. Ganesh Benzoplast Ltd., Mumbai 7. On the second disputed with respect to addition u/s 50C of the Act the contention of the Ld.AR that the assessee company has become a sick industrial company and the assets were being sold to cut down the costing and repayment of the loans. We find that in the assessment proceedings the assessee has filed the explanations on sale of depreciable Assets units is Chennai, which was unused for years and was in an unusable condition Further on verification of agreements filed in the course of hearing,we find that the assessee has sold depreciable assets being building and the same was mentioned before the lower authorities.
Whereas the Ld.AR has relied on the BIFR order and the assessee company financials with negative net worth. We find that there is no bifurcation of value of building which is depreciated over the period of time.The A.O. has pointed out only difference aspect but the fact remains the assessee company has become sick company and burdened with financial difficulties and the net worth has become negative. The assessee company has made a distress sale at realizable price, which is justified considering the financial constrains and the circumstances of selling the depreciable asset and was in an unusable condition. Accordingly, we set-aside the order of the CIT(A) on this ground of appeal and direct & 6366 /Mum/2017 M/s. Ganesh Benzoplast Ltd., Mumbai assessing officer to delete the addition. In the result, the appeal filed by the assessee is allowed. 9.The revenue has raised the following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the carry forward and set off of unabsorbed depreciation pertaining to the Assessment Year 1996-97 to 2001-02 without appreciating the fact that the Hon’ble Apex Court has kept this issue open while dismissing the SLP filed in the case of General Motors India Ltd.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has justified in erred in allowing the carry forward and set off of unabsorbed depreciation pertaining to A.Y 1996-97 to 2001-02 by ignoring the amendment brought into Sec. 32(2) on the Act as no longer applicable.”
On this disputed issue, we find the CIT(A) dealt on the provisions, judicial decisions and observed at page 11 to 14 Para 9 which is read as under:
Ground No.4: 9.1 This ground pertains to AO's action in wrongly applying the decision of DOlT Vs. T imes Gu aran te e Limite d 40 SOT 14 (Mu m) (S b) to ward s d is allowan ce of Rs.43,70,38,4421- on account of carry forward of unabsorbed depreciation. 9.2 The AO observed that the assessee had unabsorbed depreciation to the tune of Rs.43,70,38,442/- pertaining to A.Y.1996- 97 to A.Y.2001-02. He relied on the decision of Hon'ble ITAT in the case of DOlT Vs. Times Guaranty Ltd. 90 SOT 14 (Mum)(Sb) wherein it has been held as under:- & 6366 /Mum/2017 M/s. Ganesh Benzoplast Ltd., Mumbai "(A) In the first period (i.e., up to the assessment year 1996-97) (1) Current depreciation, that is, the amount of allowance for the year under section 32(1) can be set off against income under any head within the same year. (ii) Amount of such current depreciation which cannot be so set off within the same year as per (i) above shall be deemed as depreciation under section 32(1), that is, depreciation for the current year in the following year(s) to be set off against income under any head, like current depreciation. B. In the second period (i.e., the assessment years 1997-98 to 2001-02) (i) Brought forward unadjusted depreciation allowance for and up to the assessment year 1996-97 (hereinafter called the 'First unadjusted depreciation allowance'), which could not be set off up to the assessment year 1996-97, shall be carried forward for set off against income under any head for a maximum period of the eight assessment years, starting from the assessment year 1997-98. (ii) Current depreciation for the year under section 32(1) each year separately starting from the assessment year 1997-98 up to 2001-02) can be set off firstly against business income and then against income under any other head. (iii ) Amount of current depreciation for the assessment years 1997- 98 to 200102 which cannot be so set off as per (ii) above, hereinafter called the 'Second unabsorbed depreciation allowance' shall be carried forward for a maximum period of eight assessment years from the assessment year immediately succeeding the assessment year for which it was first computed, to be set off only against the income under the head Profits and gains of business or profession'. C. In the third period (i.e., the assessment years 2002-03 onwards) (i) First unadjusted depreciation allowance' can be set off up to the assessment year 2004-05, that is, the remaining period out of maximum period of eight assessment years (as per B (i) above) against income under any head. (ii) Second unabsorbed depreciation allowance' can be set off only against the income under the head 'Profits and gains of business or profession' within a period of eight assessment years, succeeding the assessment year ITA No. 6351 & 6366 /Mum/2017 M/s. Ganesh Benzoplast Ltd., Mumbai for which it was first computed. (iii)Current depreciation for the year under section 32(1), for each year separately, starting from the assessment year 2002-03 can be set off against income under any head. Amount of depreciation allowance not so set off (Third unadjusted depreciation allowance) shall be carried forward to the following year. (iv) The 'Third unadjusted depreciation allowance' shall be deemed as depreciation under section 32(1), that is, depreciation for the current year in the following year(s) to be set off against income under any head, like current depreciation, in perpetuity. [Para 38]" Thus, based on the position of law and as per the decision of Hon'ble ITAT, the AO concluded that the assessee cannot be allowed to carry forward unabsorbed depreciation pertaining to A.Y.1996-97 to A.Y.2001-02. Accordingly, he worked out the Accordingly, he made an addition of Rs.43,70,38,4421- to the total income of the assessee 9.3 The appellants, in their submission, have stated that they are a BIFR company with negative cash loss, huge carried forward unabsorbed depreciation and losses. They continue to incur losses and did not claim any set off of brought forward losses. They have further quoted the concluding part of the judgment in the case of DCIT Vs. Times Guarantee Limited 40 SOT 14 (Mum)(Sb) wherein it has been held that:- "Unabsorbed depreciation relating to asst. yrs. 1997-98 to 1999-2000 is to be dealt with in accordance with the provisions of s. 32(2) as applicable for asst. yrs. 1997-98 to 1999-2000 and, therefore, assessee cannot claim set off of unabsorbed depreciation relating to asst. yrs. 1997-98 to 1999-2000 against income under any head other than "Profits and gains of business or profession" in asst. yrs. 2003-04 and 2004-05." In view of the above, it was contended that the question of allowance of brought forward depreciation or not will be relevant only when the assessee sets it off against any other income. It was further argued that applying the aforesaid judgment and disallowing carry forward of depreciation is not in agreement with the judgment. Further, there is no & 6366 /Mum/2017 M/s. Ganesh Benzoplast Ltd., Mumbai justification in invoking the judgment in the current assessment when there is neither any other income adjusted nor any set off claimed. It was further contended that Hon'ble Gujarat High Court in the case of General Motors India (P) Ltd. vs. CIT (354 ITR 0244) has negated the above Tribunal judgment and the application of Gujarat High Court decision over the Special bench decision has also been clarified by Hon'ble Mumbai ITAT in the case of DCIT Vs. Bajaj Hindustan Ltd. [149 ITR 079 (Mum)]. In view of the above, it was contended that the said noting of disallowance of carry forward of depreciation may be deleted. 9.4 I have considered the facts of the case, have perused the assessment order, material available on record and taken into account the oral contentions and written submissions made by the appellant in this regard. The Hon'ble Gujarat High Court has in the case of General Motors India Pvt. Limited (354 ITR 244) clearly held that the unabsorbed depreciation pertaining to A.Y.1997-98 to A.Y.2001-02 will be carried forward to A.Y.2002-03 and as a result become part thereof in terms of the provisions of section 32(2) as amended by Finance Act, 2001. Accordingly, it will be available for carry forward and set-off against the profits and gains of subsequent years, without any limits. Subsequently the Hon'ble jurisdictional Tribunal, ITAT Mumbai in the case of Smith & Nephew Healthcare (P) Ltd. Vs. DCIT (2014) 32 ITR(T) 208, Mumbai ; DCIT vs. Bajaj Hindustan Ltd. (2014) 149 ITD 709 (Mumbai) and Hindustan Unilever Ltd. Vs. ACIT (2013) 22 ITR(T) 737(Mumbai) have followed the decision of Hon'ble Gujarat High Court after considering the decision of special bench in the case of Times Guaranty also. In view of the above and respectfully following the above judgments, it is direct to allow the carry forward of unabsorbed depreciation Rs. 43,70,38,442/-. This ground of appeal is accordingly allowed.
The Ld. DR accepted the facts in respect of carry forward of unabsorbed depreciation and the Honble High Court decision allowing the carry forward of unabsorbed depreciations of the earlier period. The Ld. AR & 6366 /Mum/2017 M/s. Ganesh Benzoplast Ltd., Mumbai substantiates his arguments relying on the decision of the Jurisdictional High Court and Honble Tribunal decisions.
12.We heard the rival submissions and perused the material on record. The revenue has challenged the set off and carry forward of unabsorbed deprecation pertaining to A.Y1996-97 to 2001-02 beyond the stipulated period. We found that the Ld.CIT(A) has relied on the decision of the Hon’ble Gujarat High Court in the case of General Motors Ind Pvt Ltd., Vs. DCIT (354 ITR 244). We find on the similar disputed issue the Honble Supreme court of India in CIT VS Associated Cables (P) Ltd (2019) 105 taxmann.com 114 has dismissed the SLP filed by the Revenue against the Jurisdictional Bombay High Court order.
Further, the Ld.DR could not controvert the observations of the CIT(A) with any new cogent evidence or information. Whereas, the Ld.CIT(A) relied on the Honble High Court and Honble Tribunal decisions and passed a reasoned order. Accordingly, we do not find any infirmity in the order of the Ld.CIT(A) and uphold the same and dismiss the grounds of appeal of the revenue. & 6366 /Mum/2017 M/s. Ganesh Benzoplast Ltd., Mumbai In the result, the appeal filed by the revenue is dismissed and the assessee appeal is allowed.