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Income Tax Appellate Tribunal, ‘I’ BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-5, Mumbai, dated 09.03.2015, which in itself arises from the order passed by the A.O u/s 154 of the Income Tax Act, 1961 (in short „the Act‟), dated 17.10.2013. The revenue Khatau Makanji Spinning & Weaving Co. Ltd. CIT(A) had raised before us the following ground of appeal:- “1. On the fact and in circumstances of the case and in law, the Ld. CIT(A) erred in holding that the set off carried forward unabsorbed depreciation relating to A.Y. 1996-97 & 1997-98 is to be dealt with in accordance with the provisions of section 32(2) as applicable for A.Y. 1996-97 & 1997-98 or the same has to be dealt with in accordance with the said provisions as applicable to A.Y. 2003-04 and 2004-05.”
2. Briefly stated, the facts of the case are that assessment in the case of the assessee was framed u/s 143(3) on 30.11.2009, determining its income at Rs. Nil after allowing „set off‟ of current years business loss of Rs. 33,92,53,226/- and the Unabsorbed depreciation of Rs. 9,27,76,972/- pertaining to A.Y(s). 1996-97 and 1997-98, against the „Long term Capital Gains‟ („LTCG‟) of Rs. 42,97,90,814/-. The A.O after the framing of the assessment observed that upto A.Y. 2001-02 no unabsorbed depreciation could be carried forward and set off against the income of the assessee under the head business or profession, for a period exceeding eight assessment years immediately succeeding the assessment year for which the „loss‟ was first computed. The A.O in the backdrop of his aforesaid observation ,thus concluded that the unabsorbed depreciation pertaining to A.Y. 1996-97 and A.Y. 1997-98 though were eligible for „set off‟ against the business income of the assessee only upto A.Y. 2005-06 and A.Y. 2006-07, respectively, but the same had however erroneously been allowed to be „set off‟ against the LTCG of Rs. 9,27,76,972/- of the assessee for A.Y. 2007-08. The A.O thus being of the view that a mistake which was glaring, patent, obvious and apparent from record had crept in while framing of the assessment for A.Y. 2007-08 unde Sec. 143(3), therefore, called upon the assessee to show cause as to why the unabsorbed depreciation relating to A.Y. 1996-97 and A.Y. 1997-98 that had wrongly been „set off‟ against the LTCG to the extent Khatau Makanji Spinning & Weaving Co. Ltd. Rs. 9,27,76,972/- of the assessee for the year under consideration, while framing the assessment under Sec. 143(3), may not be rectified.
3. The assessee in response to the show cause notice received from the A.O under Sec. 154, therein submitted that as per the relevant provisions of the „Act‟, the Unabsorbed depreciation relating to A.Y. 1996-97 and A.Y. 1997-98 could be „set off‟ against the LTCG of A.Y. 2007-08. The assessee supporting his aforesaid contention therein submitted before the A.O that prior to the „Finance Act No. 2 of 1996‟, the unabsorbed depreciation could be carried forward indefinitely. However, the „Finance Act. No. 2 of 1996‟ restricted the period of Carry forward and „set off‟ of Unabsorbed deprecation to a period of 8 years from A.Y. 1997-98. That the CBDT Circular No. 762, dated. 18.02.1998, clarified that the brought forward depreciation for the earlier years would be added to the depreciation for A.Y. 1997-98, and the period of 8 years would begin from A.Y. 1997-98 onwards. It was submitted by the assessee that subsequent thereto Sec. 32(2) was amended by the Finance Act, 2001, w.e.f A.Y. 2002-03 and the position as regards indefinite carry forward of unabsorbed depreciation, as was prevailing prior to the „Finance Act No. 2 of 1996‟, was restored, and the restriction of C/forward of the Unabsorbed depreciation for a limited period of 8 years was done away with. The assessee submitted before the A.O that the CBDT vide its Circular No. 14 of 2001 had clarified that the removal of 8 years time period was “with a view to enable the industry to conserved sufficient funds to replace plant & machinery”. The assessee thus in the backdrop of the aforesaid factual matrix, therein submitted that the effect of the amendment made available on the statute vide the Finance Act, 2001, w.e.f A.Y. 2002-03 was that the Unabsorbed depreciation available to an assessee on 01.04.2002 (A.Y. 2002-03) had to be dealt with in terms of the post amended Sec. 32(2) (amended by the Finance Act, Khatau Makanji Spinning & Weaving Co. Ltd. 2001), and not by the pre-amended Sec. 32(2)( as it stood prior to amendment made vide Finance Act, 2001). The assessee in order to drive home its contention that the Unabsorbed depreciation for A.Y. 1996-97 and A.Y. 1997-98 had validly been adjusted against the LTCG to the extent of Rs. 9,27,76,972/- of the assessee for the year under consideration, viz. A.Y. 2007-08, therein submitted that had it been the intention of the legislature to allow the carry forward of the Unabsorbed depreciation of A.Y. 1997-98 only for eight subsequent years, despite the amendment of Sec. 32(2) by the Finance Act, 2001, then it would had clearly incorporated a provision to the said effect. It was thus submitted by the assessee that as no such excluding provision was found available on the statute, therefore, going by the rule of strict literal interpretation, a purposive and harmonious interpretation had to be resorted while construing the scope and gamut of the aforesaid statutory provision. The submissions of the assessee however did not find favour with the A.O, who proceeded with and vide his order passed under Sec. 154 rectified the order passed under Sec. 143(3). The A.O vide his order passed u/s 154 disallowed the „Set off‟ of Unabsorbed depreciation of Rs. 9,27,76,972/- (supra) pertaining to A.Y. 1996-97 and A.Y. 1997-98, against the income of the assessee for the year under consideration, viz. A.Y. 2007-08.
4. The assessee being aggrieved with the order passed by the A.O under Sec. 154, therein carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions of the assessee in the backdrop of the facts of the case, therein observed that the issue under consideration was squarely covered in the favour of the assessee by the judgment of the Hon’ble High Court of Gujarat in the case of General Motors India Pvt. Ltd. Vs. Dy. CIT (2013) 354 ITR 244 (Guj), wherein the Hon‟ble High Court had held that the Khatau Makanji Spinning & Weaving Co. Ltd. 01.04.2001 could be carried forward indefinitely from A.Y. 2002-03 and onwards, and thus could be „set off‟ against the income of the assessee for A.Y. 2006-07. Alternatively, it was further observed by the CIT(A) that as the issue involved was even otherwise debatable, therefore, the same could not have been rectified under Sec.
154. The CIT(A) thus on the basis of his aforesaid observations allowed the appeal of the assessee.
5. The revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. That as during the course of the hearing of the appeal the assessee respondent despite having been put to notice as regards the fixation of the hearing of the present appeal had failed to put up an appearance before us, therefore, as per Rule 25 of the Appellate Tribunal rules, 1963, we are proceeding with and disposing of the present appeal on merits, after hearing the appellant revenue. The ld. Departmental Representative (for short „D.R‟) submitted that the CIT(A) had failed to appreciate the facts of the case in the right perspective and had thus erred in allowing „set off‟ of the unabsorbed losses of the assessee for A.Y. 1996-97 & A.Y. 1997-98 against the LTCG of Rs. 9,27,76,972/- for the year under consideration, viz. A.Y. 2007-08. It was submitted by the ld. D.R that as the amendment made available on the statute vide the Finance Act, 2001 w.e.f A.Y. 2002-03 to Sec. 32(2) was prospective in nature, therefore, the same did only regulate the Unabsorbed depreciation for A.Y. 2002-03 and onwards, and in the absence of any enabling proviso, the same could not be stretched and made applicable in respect of the unabsorbed losses for the preceding years. The ld. D.R thus submitted that the unabsorbed depreciation of the assessee for A.Y. 1996-97 and A.Y. 1997-98 continued to be regulated by the pre- amended Sec. 32(2)(as it stood prior to amendment made vide Finance Act, 2001). The ld. D.R had thus tried to impress upon us that as w.e.f Khatau Makanji Spinning & Weaving Co. Ltd. Unabsorbed deprecation was restricted to a period of 8 years from A.Y. 1997-98, and it was only vide the amendment made available to Sec. 32(2) on the statute by the Finance Act, 2001, w.e.f A.Y. 2002-03 that the indefinite carry forward of unabsorbed depreciation, as was prevailing prior to the Finance Act No. 2 of 1996, was restored, therefore, the restriction for C/forward of the losses for a period of 8 years continued to apply to the unabsorbed depreciation of the assessee for A.Y. 1996-97 and A.Y. 1997-98. The ld. D.R thus submitted that the unabsorbed depreciation in the case of the assessee for A.Y. 1996-97 and A.Y. 1997-98was thus could not be „set off‟ as against the LTCG of Rs. 9,27,76,972/- of the assessee in A.Y. 2007-08. The ld. D.R in support of his aforesaid contention placed reliance on the following orders of the coordinate benches of the Tribunal:- (i). DCIT, Circle 1(3), Mumbai Vs. Times Guarranty Ltd. (2010) 40 SOT 14 (Mum) (SB). (ii). Dharti Dredging & Infrastructure Ltd. Vs. Addl. CIT (2013) 144 ITD 120 (Hyd- Trib).
It was averred by the ld. D.R that the order passed by the CIT(A) not being in conformity with the settled position of law, was thus liable to be vacated.
We have heard the ld. Departmental representative, perused the orders of the lower authorities and the material available on record. That our indulgence in the present appeal has been sought for adjudicating as to whether the amendment made to Sec. 32(2) vide the Finance Act, 2001 w.e.f A.Y. 2002-03, therein lifting the restriction of carrying forward of the Unabsorbed depreciation for a period of 8 years, would be applicable in respect of the unabsorbed depreciation Khatau Makanji Spinning & Weaving Co. Ltd. A.Y. 1996-97 and A.Y. 1997-98, for the reason that the same were available for C/forward and „set off‟ on 01.04.2002 (i.e A.Y. 2002-03), or the same would continue to be governed by the pre-amended Sec. 32(2) (as it stood prior to amendment made vide Finance Act, 2001) and would not be available to the assessee for C/forward and „set off‟ after the period of 8 years [as provided in the pre-amended Sec. 32(2)]. We have given a thoughtful consideration to the facts of the case and are of the considered view that the issue before us is squarely covered in favour of the assessee by the judgment of the Hon’ble High Court of Gujarat in the case of General Motors India Pvt. Ltd. Vs. Dy. CIT (2013) 354 ITR 244 (Guj), wherein the Hon‟ble High Court has held that the unabsorbed depreciation available to the assessee as on 01.04.2001 could be carried forward indefinitely from A.Y. 2002-03 and onwards, and thus could be „set off‟ against the income of the assessee for A.Y. 2006-07. We find that the Hon‟ble High Court in its aforesaid judgment after referring to the CBDT Circular No. 14 of 2001, had observed as under:-
The last question which arises for consideration is that whether the unabsorbed depreciation pertaining to A.Y. 1997-98 could be allowed to be carried forward and set off after a period of eight years or it would be governed by Section 32 as amended by Finance Act 2001? The reason given by the Assessing Officer under section 147 is that Section 32(2) of the Act was amended by Finance Act No.2 of 1996 w.e.f. A.Y. 1997-98 and the unabsorbed depreciation for the A.Y. 1997-98 could be carried forward up to the maximum period of 8 years from the year in which it was first computed. According to the Assessing Officer, 8 years expired in the A.Y. 2005-06 and only till then, the assessee was eligible to claim unabsorbed depreciation of A.Y. 1997-98 for being carried forward and set off against the income for the A.Y. 2005-06. But the assessee was not entitled for unabsorbed depreciation of Rs.43,60,22,158/- for A.Y. 1997-98, which was not eligible for being carried forward and set off against the income for the A.Y. 2006-07.
Prior to the Finance Act No.2 of 1996 the unabsorbed depreciation for any year was allowed to be carry forward indefinitely and by a deeming fiction became allowance of the immediately succeeding year.
Khatau Makanji Spinning & Weaving Co. Ltd. The Finance Act No.2 of 1996 restricted the carry forward of unabsorbed depreciation and set-off to a limit of 8 years, from the A.Y.1997-98. Circular No.762 dated 18.2.1998 issued by the Central Board of Direct Taxes (CBDT) in the form of Explanatory Notes categorically provided, that the unabsorbed depreciation allowance for any previous year to which full effect cannot be given in that previous year shall be carried forward and added to the depreciation allowance of the next year and be deemed to be part thereof.
So, the unabsorbed depreciation allowance of A.Y. 1996-97 would be added to the allowance of A.Y. 1997-98 and the limitation of 8 years for the carry-forward and set-off of such unabsorbed depreciation would start from A.Y. 1997-98.
We may now examine the provisions of section 32(2) of the Act before its amendment by Finance Act 2001. The section prior to its amendment by Finance Act, 2001, read as under:- "Where in the assessment of the assessee full effect cannot be given to any allowance under clause (ii) of sub-section (1) in any previous year owning to there being no profits or gains chargeable for that previous year or owing to the profits or gains being less than the allowance, then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as unabsorbed depreciation allowance), as the case may be,- (i) shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (ii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year; (iii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i) and Clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year and— (a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (b) if the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately Khatau Makanji Spinning & Weaving Co. Ltd. Provided that the time limit of eight assessment years specified in sub-clause (b) shall not apply in case of a company for the assessment year beginning with the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Company (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year relevant to the previous year in which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.- For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985."
The aforesaid provision was introduced by Finance (No.2) Act, 1996 and further amended by the Finance Act, 2000. The provision introduced by Finance (No.2) Act was clarified by the Finance Minister to be applicable with prospective effect.
Section 32 (2) of the Act was amended by Finance Act, 2001 and the provision so amended reads as under :- "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 for that previous year, owing to the profits or gains chargeable being less than the allowance, then, subject to 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 allowance of that previous year, and so on for the succeeding previous years."
The purpose of this amendment has been clarified by Central Board of Direct Taxes in the Circular No.14 of 2001. The relevant portion of the said Circular reads as under :- "Modification of provisions relating to depreciation Khatau Makanji Spinning & Weaving Co. Ltd. 30.1 Under the existing provisions of section 32 of the Income-tax Act, carry forward and set off of unabsorbed depreciation is allowed for 8 assessment years. 30.2 With a view to enable the industry to conserve sufficient funds to replace plant and machinery, specially in an era where obsolescence takes place so often, the Act has dispensed with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The Act has also clarified that in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. 30.3 Under the existing provisions, no deduction for depreciation is allowed on any motor car manufactured outside India unless it is used (i) in the business of running it on hire for tourists, or (ii) outside in the assessee’s business or profession in another country. 30.4 The Act has allowed depreciation allowance on all imported motor cars acquired on or after 1st April, 2001. 30.5 These amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years."
The CBDT Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from assessment year 2002- 03 and subsequent years. This means that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in A.Y. 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken. While construing taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable construction to the language of the section without leaning to the side of assessee or the revenue. But if the legislature fails to express clearly and the assessee becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assessee cannot be denied. However, Circular No.14 of 2001 had clarified that under Section 32(2), in computing the profits and gains of Khatau Makanji Spinning & Weaving Co. Ltd. Section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the A.Y. 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the A.Y. 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years.
Therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever”.
We have perused the aforesaid judgment of the Hon‟ble High Court of Gujarat and find that the issue involved in the present appeal is squarely covered by the same. We have further deliberated on the order of the „Special bench‟ of the Tribunal passed in the case of DCIT, Circle 1(3), Mumbai Vs. Times Guarranty Ltd (2010) 40 SOT 14 (Mum) (SB). We find that not only the said order of the Tribunal passed on 30.06.2010 is prior to the aforesaid judgment of the Hon‟ble High Khatau Makanji Spinning & Weaving Co. Ltd. Court of Gujarat in the case of General Motors India Pvt. Ltd. (supra), however, even otherwise as per the rule of judicial discipline, a judgment of a non-jurisdictional High court will have precedence over an order passed by the „Special bench‟ of the Tribunal, therefore, no departure from the view arrived at by the High Court would be permissible. That as regards the reliance placed by the ld. D.R on the order of the coordinate bench of the ITAT, Hyderabad, in the case of : Dharti Dredging & Infrastructure Ltd. Vs. Addl. CIT (2013) 144 ITD 120 (Hyd- Trib), wherein the Tribunal had relied on the order passed by the „Special bench‟ of the Tribunal in the case of Times Guarranty Ltd (supra), we are of the considered view that in the backdrop of our aforesaid observations as regards the principle of judicial discipline, the said order of the Tribunal will have to give way to the judgment of the Hon‟ble High Court of Gujarat in the case of General Motors India Pvt. Ltd. (supra). We thus finding ourselves to be in agreement with the view arrived at by the CIT(A), therefore, uphold his order and dismiss the appeal of the revenue.
7. The appeal filed by the revenue is dismissed. Order pronounced on the open court on 30.08.2017 Sd/- Sd/- (RAJENDRA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER भ ंफई Mumbai; ददनांक 30.08.2017 Ps. Rohit Kumar Khatau Makanji Spinning & Weaving Co. Ltd.