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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Ms. Annapurna Gupta & Ms. Suchitra Kamble
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH (Conducted Through Virtual Court) Before: Ms. Annapurna Gupta, Accountant Member And Ms. Suchitra Kamble, Judicial Member ITA No. 2406/Ahd/2014 Assessment Year 2005-06
Atul Limited 3rd Floor, The DCIT (OSD), Ashoka Chambers, Rasala Range-1, Ahmedabad Marg, Ellisbridge, Vs (Respondent) Ahmedabad-390009 PAN No: AABCA2390M (Appellant)
Appellant by : Shri Bandish Soparkar, A.R. Respondent by : Shri B. P. Srivastava, Sr. D.R. Date of hearing : 15-02-2022 Date of pronouncement : 04-04-2022 आदेश/ORDER PER : ANNAPURNA GUPTA, ACCOUNTANT MEMBER:-
The present appeal has been filed by the Assessee against the order passed by the Commissioner of Income Tax (Appeals)-6, Ahmedabad, (in short referred to as CIT(A)), dated 30-06-2014, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2005-06 in appeal against order passed in rectification proceedings u/s. 154 of the Act.
During the course of hearing before us, Ld. Counsel for the assessee took us through the chronology of events leading to the rectification order passed u/s. 154 of the Act ,which was carried in appeal before the ld. CIT(A) who dismissed the same and against which the assessee has come up in appeal before us. Ld. Counsel for the
I.T.A No. 2406/Ahd/2014 A.Y. 2005-06 Page No 2 Atul Ltd. vs. DCIT assessee stated that the original assessment order u/s. 143(3) of the Act in the present case was passed on 26.12.2008 assessing the income of the assessee at Nil after assessing the business income of the assessee at Rs. 1,94,97,014/-, adding thereto other incomes by way of short term capital gain, income from house property and income from other sources, resulting in gross total income of Rs. 3,83,37,613/- and after allowing deduction against the same on account of deduction u/s. 80G of Rs. 9,92,000/- and deduction u/s. 80IA of Rs. 6,26,51,076/-, the total eligible deduction thus amounting to Rs. 6,36,43,076/- which was restricted to the extent of gross total income, resulting in Nil income assessed. Computation of the assessed income at Para 10 of the order was pointed out to us as under: 10. Subject to the above, the total income of the assessee is computed as under: Business as per return of income (-) Rs. 3,80,56,248/- Add: Additions/Disallowances 1) Transfer pricing addition 2) u/s.92CA(3) of the Act as per para 4 2,70,80,409/- 2) Depreciation disallowed,,,...para 5 2,66,83,892/- 3)6xpenditure disallowed U/S.14A as per para 6 14,00,410/- 4) Irrecoverable balance written off as per para 7 16,26,668/- 5) Bad as per para 8 7,61,883/- Rs. 5,75,53,262/- Revised business income: Rs. 1,94,97,014/-
Short term capital gain Rs. 1,78,55,920/- Income from House Property Rs. 9,67,386/- Income from other sources Rs. 17,293/- Gross total income: Rs. 3,83,37,613/- Less: Donation u/s. 80IA Rs. 9,92,000/- Deduction u/s. 80IA reduced to Rs. 6,26,51,076/- Rs. 6,36,43,076/-
Restricted up Rs. 3,83,37,613/- Total assessed income: NIL
I.T.A No. 2406/Ahd/2014 A.Y. 2005-06 Page No 3 Atul Ltd. vs. DCIT 3. Thereafter, ld. Counsel for the assessee stated that the A.O. passed an order rectifying the aforesaid computation of income u/s. 154 of the Act by adjusting brought forward assessed unabsorbed depreciation of assessment year 2004-05 against gross total income of the assessee, resulting in the revised total income coming to Nil and consequently denying any deduction under Chapter VIA of the Act. Our attention was drawn to the computation in the order so passed u/s. 154 of the Act dated 10/12/2009, copy of which was placed before us,at para 3 of the order as under: 3 In view of the above, total income of the assessee company is recomputed as under: Total income as per order u/s. 143(3) dtd.26.12.2008 before allowing deduction under chapter VIA. Rs. 3,83,37,613/-
Less: Unabsorbed depreciation set off as discussed Above, restricted to assessed income. Rs. 3,83,37,613
Revised Total income NIL Since the assessed income is Nil, no deduction under chapter-VIA is allowable.
Thereafter the Assesing Officer passed another rectification order u/s. 154 of the Act adjusting the unabsorbed depreciation for assessment year 2004-05 to the extent of 2,61,39,016/- as against Rs.3,83,37,613/- adjusted earlier as above, against the gross total income of the assessee and denying deduction u/s. 80IA of the Act to the business income holding that the eligible profits were to be determined after adjustment of unabsorbed depreciation and since none remained thereafter the assessee was not eligible to deduction u/s. 80IA of the Act. He thereafter held that the balance income remaining, pertaining to other sources of income not being in the nature of profits derived from business, were not eligible for deduction u/s. 80IA of the Act. Accordingly balance income of Rs. 1,21,98,597/- was assessed as taxable income of the assessee. The relevant portion of the order of the A.O. at Para 1 to 4 was pointed out as under:
I.T.A No. 2406/Ahd/2014 A.Y. 2005-06 Page No 4 Atul Ltd. vs. DCIT 1. The unabsorbed depreciation of Rs. 26139016/- (A.Y. 2004-05) was not adjusted before allowing deduction u/s. 80IA as required u/s. 32(2). This has been corrected in order u/s. 154 dated 10.12.2009. 2. After adjusting the unabsorbed depreciation, the resultant income shall comprise of Capital Gain, Income from House Property and Income from other sources which are not "Profit derived from the business of power and hence not to be considered for deduction Under Section 80 IA. 3 On setting off the unabsorbed depreciation, the income chargeable to tax be Rs. 12198597/- (Rs. 38338616 –Rs. 26139016) as against “NIL” income assessed. Incorrect computation of income has thus resulted in under assessment of income of Rs.12198597/- 4. Consequent to setting off the unabsorbed depreciation of Rs. 26139016/- pertaining to Assessment Year 2004-05, there would be no amount to be carried forward to years. However, as per Assessment Order Date 26-12-2008 read with rectification passed on 10-12-2009, Rs 60,98,597/- has been allowed to be carried forward to subsequent years, which is a mistake apparent from record. To rectify the above mistake, notice u/s, 154 was issued on 04/03/2011. In to this notice, the was required to furnish reply by 11/03/2011, However, no reply has received till date. Therefore, the total income is as under- Total income as per order u/s. 143(3) dated 28/12/2008 before allowing deduction under chapter Vi A. Rs. 38,337613/- less: unabsorbed depreciation Rs. 26139016/- Assessed income Rs. 12198597 As discussed above, after adjusting the unabsorbed depreciation, the resultant income shall comprise Of Capita! Gain, income from House property and income from other sources which are not "Profit derived from the business of power" and hence not to be considered for deduction Under Section 80 IA. The assessee is not eligible for carry forward any loss as entire carry forwarded loss has been set off against current year's income. Assessed accordingly. Give the credit of prepaid taxes, if any. Recalculate the interest under relevant section is charged. Issue revised demand notice/chalan /RQ accordingly.
The matter was carried in appeal before the ld. CIT(A) wherein the assessee contended that the issue of set off of unabsorbed depreciation before allowing deduction u/s. 80IA was a debatable issue and the rectification to this effect could not have been resorted to u/s. 154 of the Act where only patent errors could be corrected. He was also contended that the balance income comprising primarily of short term capital gain being earned on sale of business assets was also eligible for
I.T.A No. 2406/Ahd/2014 A.Y. 2005-06 Page No 5 Atul Ltd. vs. DCIT deduction U/s. 80IA of the Act. Ld. CIT(A) rejected all the contentions of the assessee holding that the rectification relating to adjustment of unabsorbed depreciation against business profits of the assessee prior to allowing deduction u/s. 80IA was carried out by the A.O. in the rectification order passed earlier on 10th December 2009 which had remained unchallenged by the assessee and therefore the same could not be challenged before him. As for the deduction u/s. 80IA on short term capital gain he held that only profits derived from business were eligible for deduction u/s. 80IA and income from sale of business assets being not of the said nature, the claim of the assessee was incorrect in law. It is against this order of the ld. CIT(A) that the assesse has come up in appeal before us raising the following grounds: 1. Ld. CIT (A) erred in law and on facts in confirming action of AO in invoking provisions of sec. 154 of the Act in respect of mistakes pointed out by AO not apparent from the record. Ld. CIT (A) ought to have quashed the rectification order passed by AO on highly debatable issues that required investigation of facts. It be so held now. 2. Ld. CIT (A) erred in law and on facts in confirming action of AO denying deduction u/s 80IA on short term capital gain arising on sale of depreciable business assets under deeming provisions of sec. 50 of the Act treating as profits not derived from business of the appellant. Ld. CIT (A) ought to have quashed the order of AO appreciating that the issue being debatable is not amenable to rectification u/s 154 of the Act. It be so held now. 3. Alternatively and without prejudice to above, Id. CIT (A) erred in law and on facts in confirming action of AO in not allowing deduction u/s 80IA of the Act. Ld. CIT (A) ought to have allowed deduction claimed on profit arising out of sale of depreciable asset. It be so held now. 4. Alternatively and without prejudice to above, Id. CIT (A) erred in law and on facts in confirming action of AO not allowing unabsorbed depreciation of Rs.2,61,39,016/- carried forward from A Y 2004/05. Ld. CIT (A) ought to have quashed action of AO in adjusting unabsorbed depreciation before allowing deduction u/s 80IA of the Act. It be so held now. 5. Levy of Interest u/s 234A/234B/234C & 234D is not justified.
We have heard both the parties. The issue relates to rectification of the original assessment framed u/s 143(3) of the Act, u/s 154 of the Act. And to adjudicate the same it is pertinent to first clearly bring out the rectification so effected.
I.T.A No. 2406/Ahd/2014 A.Y. 2005-06 Page No 6 Atul Ltd. vs. DCIT
6.1 The originally assessed gross total income of the assessee U/s 143(3) of the Act comprised of various sources of income including business income, and against the entire such income deduction under chapter VIA more particularly u/s 80IA of the Act was granted as under:
Revised Business Income Rs.1,94,97,014/- Short term capital gain Rs. 1,78,55,920/- Income from House Property Rs. 9,67,386/- Income from other sources Rs. 17,293/- Gross total income: Rs. 3,83,37,613/- Less: Donation u/s. 80IA Rs. 9,92,000/- Deduction u/s. 80IA reduced to Rs. 6,26,51,076/- Rs. 6,36,43,076/-
Restricted up Rs. 3,83,37,613/- Total assessed income: NIL
6.2 In the rectification order, passed u/s 154 of the Act, the unabsorbed depreciation of earlier years was adjusted against the aforesaid incomes and thereafter noting that the business income was reduced to NIL as a consequence no deduction u/s 80IA of the Act ,as originally granted, was given and balance of other sources of income assessed to tax as under:
Total Inocme as per order u/s 143(3) dated 26/12/2008 Before allowing deduction under chapter VIA Rs.38337613/- Less:unabsorbed depreciation Rs.26139016/- Assessed Income Rs.12198597/-
I.T.A No. 2406/Ahd/2014 A.Y. 2005-06 Page No 7 Atul Ltd. vs. DCIT 1. The unabsorbed depreciation of Rs. 26139016/- (A.Y. 2004-05) was not adjusted before allowing deduction u/s. 80IA as required u/s. 32(2). This has been corrected in order u/s. 154 dated 10.12.2009. 2. After adjusting the unabsorbed depreciation, the resultant income shall comprise of Capital Gain, Income from House Property and Income from other sources which are not "Profit derived from the business of power and hence not to be considered for deduction Under Section 80 IA. 3 On setting off the unabsorbed depreciation, the income chargeable to tax be Rs. 12198597/- (Rs. 38338616 –Rs. 26139016) as against “NIL” income assessed. Incorrect computation of income has thus resulted in under assessment of income of Rs.12198597/- 4. Consequent to setting off the unabsorbed depreciation of Rs. 26139016/- pertaining to Assessment Year 2004-05, there would be no amount to be carried forward to years. However, as per Assessment Order Date 26-12-2008 read with rectification passed on 10-12-2009, Rs 60,98,597/- has been allowed to be carried forward to subsequent years, which is a mistake apparent from record.
6.3 To put it briefly the rectification effected was : 1. The adjustment of brought forward unabsorbed depreciation Rs. 26139016/-; first against assessed business income of Rs.19497014/- reducing it thus to Nil and thereby denying deduction u/s 80IA of the Act to it. 2. The balance unabsorbed depreciation of Rs.6642002/-(26139016 – 19497014) being adjusted against other sources of income totaling in all to Rs. 18840599 (17855920+967386+17293),resulting in balance income of Rs. 12198597/- (18840599 – 6642002) and deduction u/s 80IA of the Act being denied since incomes not relating to business.
Having said so we have noted from the grounds raised before us that the assessee has challenged the rectification effected on all fronts, in Ground No.1 the assessee has challenged the aforestated rectification confirmed by the CIT(A) on the ground
I.T.A No. 2406/Ahd/2014 A.Y. 2005-06 Page No 8 Atul Ltd. vs. DCIT that the mistake sought to be rectified was not apparent from record ,the issues being debatable. In ground No 2 & 3 he has raised the issue of deduction u/s 80IA not being allowed against income from sale of depreciable assets shown as short term capital gains. And in Ground No.4 he has sought quashing of the AO’s order to the limited extent of adjustment made of unabsorbed depreciation against business income, before allowing deduction u/s 80IA of the Act.
But the only contention and argument made by the ld. Counsel for the assessee before us was that adjustment of unabsorbed depreciation against the business profits prior to granting deduction u/s. 80IA was a debatable issue and could not be dealt with in rectification proceedings u/s. 154 of the Act. Effectively only the first ground to the limited extent of business profits adjusted, and fourth ground have been argued before us. Vis- a -Vis Ground No. 2 &3 no arguments were made. Ground No 2 &3 are therefore dismissed.
Since the argument of the Ld.Counsel, as noted above, was confined to only one limb of the rectification made, i.e the adjustment of unabsorbed depreciation against the business profits prior to granting deduction u/s. 80IA of the Act , we shall be dealing with the said aspect only. The argument of the Ld.Counsel was that the said adjustment was a debatable issue and could not be dealt with in rectification proceedings u/s. 154 of the Act. Various case laws in support of the said contention was relied upon as under: (i) Royal Cushion Vinyal vs. CIT [2009] 180 Taxman.com208 (Bombay) (ii) Dinosaur Steels Ltd. vs. JCIT [2012] 25 taxmann.com 554 (SC) (iii) Volkart Borthers vs. T.S.Balaram, Income-tax Officer [1971] 82 ITR 50 (SC) (iv) Hirsh Bracelet India (P.) Ltd. vs. ACIT [2019] 109 taxmann.com 50 (Banalore – Trib.) (v) CIT vs. SRA Systems Ltd. [2021] 129 taxmann.com 118 (Madras)
I.T.A No. 2406/Ahd/2014 A.Y. 2005-06 Page No 9 Atul Ltd. vs. DCIT 10. Ld.DR however relied on the order of the Ld.CIT(A).
We have heard both the parties, gone through the order of the authorities below and also the case laws relied upon before us.
11.1 As noted above the controversy before us boils down to whether non adjustment of unabsorbed depreciation against business income prior to deduction u/s 80IA of the Act was a patent error rectifiable u/s 154 of the Act.
The contention of the Ld.Counsel for the assessee was that it was a debatable issue and therefore could not be rectified in proceedings u/s 154 of the Act where only patent errors could be rectified.
There is no dispute vis -a-vis the aforesaid proposition of law relating to section 154 of the Act which has been clearly laid down by the Hon’ble apex court in the case of Volkart Brothers(supra) cited by the Ld.Counsel for the assessee before us.
13.1 But having said so, the Ld.Counsel for the assessee did not elaborate /explain as how and why the issue of adjustment of unabsorbed depreciation from profits of business prior to deduction u/s 80IA of the Act was debatable. He only referred to certain case laws, noted above by us ,on going through which we find that they relate to issues different from that before us and which were held /noted to be debatable and hence outside the purview of being rectified u/s 154 of the Act. We shall be dealing with each case law separately, but in the light of the above, that the Ld.Counsel for the assessee has not brought out the debate in the issue we consider it necessary to go through the relevant provisions of law for determining the same. Since the issue relates primarily to the point at which deduction u/s 80IA can be claimed, prior to set off of unabsorbed depreciation or otherwise, it is relevant to first consider the provisions of section 80IA of the Act. On going through the same we
I.T.A No. 2406/Ahd/2014 A.Y. 2005-06 Page No 10 Atul Ltd. vs. DCIT find that the said section provides for deduction of profits and gains of eligible business included in the gross total income of the assessee. Sub section (5) thereof provides the quantum of deduction of profits of the eligible business to be computed on a stand alone basis as if such business were the only source of income of the assessee right from the first year to which it was eligible for deduction upto the year of computing deduction. The relevant section is reproduced hereunder:
SECTION 80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 2966[2967[(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub- section (4)(such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of profits and gains derived from such business for ten consecutive assessment years.] . . . . (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub- section for the assessment year immediately succeeding the initial assessment year3008 or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.
The section herefore in very clear terms provides for determination of the profits eligible for deduction u/s 80IA of the Act to be calculated as provided under the Act and considering as if the eligible business is the only business of the assessee .
I.T.A No. 2406/Ahd/2014 A.Y. 2005-06 Page No 11 Atul Ltd. vs. DCIT 14.1 The determination/calculation of business profits under the Act is governed by Chapter IV of the Act which provides for manner of computation of income under different heads,part D of which deals with Income under the head Profits and Gains of Business and Profession.As per the provisions contained therein ,from section 28 to section 43B ,Depreciation is to be set off/adjusted for determining the profits as per 32 of the Act and further the unabsorbed depreciation of earlier years is to be treated as current years depreciation as per 32(2) of the Act as under:
SECTION 32. Depreciation. 1133[(1) 1134[In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998 [1135][not being goodwill of a business or profession], owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed-] 1136[(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed1137;] 1138[(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed1139]: . . . . [(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to
I.T.A No. 2406/Ahd/2014 A.Y. 2005-06 Page No 12 Atul Ltd. vs. DCIT the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.]
As per law therefore, clearly profits eligible for deduction u/s 80IA of the Act have to be calculated after adjusting brought forward depreciation therefrom. Meaning thereby that law clearly provides for deduction u/s 80IA to be granted after set off of unabsorbed depreciation. There is no scope for any other interpretation, we find, nor has any been pointed out by the Ld.Counsel for the assessee before us.
We therefore hold that the non adjustment of brought forward depreciation from profits and gains of business and profession, for determining the quantum of deduction u/s 80IA of the Act is a patent mistake amenable to rectification u/s 154 of the Act. The rectification so effected in the present case by adjusting brought forward depreciation against profits of the business before granting deduction u/s 80IA of the Act is therefore upheld.
The case laws relied upon by the Ld.Counsel for the assessee, as we have pointed out above are all rendered in different set of facts and are distinguishable and therefore of no assistance to the assessee.
In the case of Dinosaur Steels(supra) the rectification under challenge related to adjustment of brought forward business losses against profits of the year prior to deduction u/s 80IA of the Act. Set off of business losses being dealt with under section 72 of the Act is not dealt with under chapter IV D of the Act which, as
I.T.A No. 2406/Ahd/2014 A.Y. 2005-06 Page No 13 Atul Ltd. vs. DCIT mentioned above deals with computation of Profits and Gains from Business and Profession wherein depreciation and unabsorbed depreciation is dealt with ,requiring to be adjusted for determining the business profits. The ratio laid down therein cannot therefore be applied to the facts of the present case.
In the case of Hero Cycles (supra) the rectification related to Grant of weighted deduction in respect of Export Sales Commission, ECGC Charges and foreign dealers visiting expenses, u/s 35B of the Act, which was held to be debatable.
In the case of Royal Cushion the rectification carried out by denying deduction u/s 80HHC of the Act for the purposes of computing Book Profits u/s 115JB of the Act, was held to relate to the debatable issue of computation of deduction u/s 80HHC of the Act.
The decision in the case of Hirsh Bracelet (supra) goes against the assessee and supports our findings since it holds that Unabsorbed depreciation is deemed to be current years depreciation to be set off against all incomes as per section 32(2) r.w.s 71 of the Act.
In the case of SRA systems(supra) the Hon’ble Madras high court was seized with the issue of set off of unabsorbed depreciation prior to deduction u/s 10A of the Act, which it was held was not tenable in law since deduction u/s section 10A of the Act was to be made while computing the gross total income under chapter IV of the Act and not at the stage of computation of total income under chapter VI of the Act, being exemption provisions. In the present case the issue relates to deduction u/s 80IA of the Act which is to be made at the stage of computation of total income under chapter VI of the Act. Hence the ratio laid down in the said decision cannot apply to the present case.
I.T.A No. 2406/Ahd/2014 A.Y. 2005-06 Page No 14 Atul Ltd. vs. DCIT 23. In view of the above Ground No 1 &4 of the appeal are dismissed.
In effect appeal of the assessee is dismissed.
Order pronounced in the open court on 04 -04-2022
Sd/- Sd/- (SUCHIITRA KAMBLE) (ANNAPURNA GUPTA) JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER Ahmedabad : Dated 04/04/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद