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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri P.M.Jagtap, AM & Sri N.V.Vasudevan, JM ]
Per N.V.Vasudevan, JM
This is an appeal by the Assessee against the order dated 28.03.2013 of CIT- Kolkata-IV, passed u/s 263 of the I.T.Act relating to AY 2008-09.
The Assessee is a company. It is engaged in the business of manufacturing and selling of textile yarns, nylon synthetic, polyester filament yarn, polyester chips etc. For AY 2008-09, the Assessee filed return of income declaring total loss at Rs.28,88,03,082. Assessment u/s.143(3) of the Income Tax Act, 1961 (Act) was completed determining the loss to be carried forward at Rs.29,23,84,684/-. The loss represented unabsorbed depreciation which was to be carried forward to the subsequent assessment year along with the earlier year’s unabsorbed depreciation.
The CIT in exercise of his powers u/s.263 of the Act was of the view that unabsorbed depreciation allowed to be carried forward for set off by the AO also included unabsorbed depreciation to the tune of Rs.125,47,07,925/- relating to AY 1996-97, 1997-98, 1998-99 & 2000-01 and as per the law applicable to those years, those
JCT Limited A.Yr.2008-09 unabsorbed depreciation cannot be carried forward without set off beyond a period of 8 years. According to the CIT, the AO ought to have held that unabsorbed depreciation which remained without set off ought to have been treated by the AO as not eligible for carry forward. Accordingly a show cause notice u/s.263 of the Act was issued by the CIT and an order u/s.263 of the Act dated 28.3.2013 was passed in which the CIT gave the following directions: “d) Accordingly, carry forward of unabsorbed depreciation to the tune of Rs.125,47,07,925/- which is an accumulated figure of unabsorbed depreciations relating to the assessment years 1996-97, 1997-98, 1998-99 and 2000-01 ought to be disallowed and the AO should look into this issue afresh and pass necessary order as per law.”
Aggrieved by the order of the CIT, the Assessee is in appeal before the Tribunal. We have heard the submissions of the learned DR, who relied on the order of the CIT. The learned counsel for the Assessee explained the law on the issue as will be discussed in the subsequent paragraphs of this order and submitted that the order of the CIT has to be quashed.
To appreciate the issue that arises for consideration in this appeal, the provisions of Sec.32(2) of the Income Tax Act, 1961 (Act) as it existed at three different point of time need to be set out. The provisions of s. 32(2) prior to the amendment made by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997 (hereinafter called the "first period") read as under :
"(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under cl. (ii) of sub-s. (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 the provisions of sub-s. (2) of s. 72 and sub-s. (3) of s. 73, the allowance or 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." 2
JCT Limited A.Yr.2008-09 6. A glance at this provision indicates that if there are sufficient profits or gains to adjust full depreciation allowance for the current year under s. 32(1) of the Act, then it will be adjusted accordingly. If however there are no profits or gains at all or they are insufficient to accommodate the depreciation allowance for the year in full, then subject to the provisions of ss. 72(2) and 73(3), the amount of such unadjusted allowance, to which effect has not been given, shall be added to the amount of depreciation allowance for the following previous year and deemed to be part of depreciation allowance for that previous year and so on for eternity.
The provisions of s. 32(2) as substituted by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997 (hereinafter called the "second period") read as under :
"(2) Where in the assessment of the assessee full effect cannot be given to any allowance under cl. (ii) of sub-s. (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 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 cl. (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 cl. (i) and cl. (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 JCT Limited A.Yr.2008-09 years immediately succeeding the assessment year for which the aforesaid allowance was first computed : Provided that the business or profession for which the allowance was originally computed continued to be carried on by him in the previous year relevant for that assessment year : Provided further that the time-limit of eight assessment years specified in sub-cl. (b) shall not apply in the 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-s. (1) of s. 17 of the Sick Industrial Companies (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 cl. (ga) of sub-s. (1) of s. 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)."
A bare perusal of this provision indicates that where the amount of depreciation allowance under s. 32(1) for the current year of a business cannot be absorbed fully or partly due to inadequacy of profits or gains from such business, then such allowance or part of it which remained unabsorbed, is to be referred to as "unabsorbed depreciation allowance". Such unabsorbed depreciation allowance is to be set off firstly against the income under the head "Profits and gains of business or profession" from any other business or profession carried on by the assessee for that assessment year. If such business profit is also insufficient to absorb the unabsorbed depreciation allowance, then the remaining amount shall be set off against income under other heads, as mentioned in s. 14 of the Act assessable for that assessment year. This exercise of setting off the unabsorbed depreciation allowance against any head of income is restricted to the year in which the claim for depreciation has arisen under s. 32(1). If however income of the assessee under all heads is insufficient to absorb the unabsorbed depreciation allowance, then such amount is to be carried forward to the following assessment year to be set off against the income arising under the head ‘Profits and gains of business or profession’. Not only that, the business or profession for which the allowance was computed should 4
JCT Limited A.Yr.2008-09 continue to be carried on by the assessee during the previous year relevant to assessment year in which the set off is claimed. The exercise of carrying forward such unabsorbed depreciation allowance is to be continued upto eight assessment years immediately succeeding assessment year for which the aforesaid depreciation allowance was first computed. From here it follows that the amount of unabsorbed depreciation allowance which could not be set off against income under any head in the year in which the allowance was first computed, shall be eligible to be carried forward for set off only against income under the head ‘Profits and gains of business or profession’ to the following assessment year(s) not more than eight assessment years immediately succeeding the assessment year for which it was first computed.
The provisions of Sec.32(2) as substituted by the Finance Act, 2001 w.e.f. 1st April, 2002, applicable for AY 2004-05 & 2005-06 ) Assessment years under consideration (hereinafter called the "third period") reads as under :
(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-s. (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 the provisions of sub-s. (2) of s. 72 and sub-s. (3) of s. 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
The above provision in fact, is reinforcement of the provision as existing in the first period. Thus the law as existing in the second period was completely taken back and as a result of that the provision as prevailing in the first period was restored.
The CIT was of the view that the claim of the Assessee for carry forward of unabsorbed depreciation for 96-97 to 98-99 & 2000-01 for set off after the period of 8
JCT Limited A.Yr.2008-09 years cannot be allowed because unabsorbed depreciation for the aforesaid AYs becomes current year depreciation of AY 2008-09 and as per the law applicable from AY 1996-97 (Second period) unabsorbed depreciation can be carried forward and set off only upto a period of 8 years. The view expressed by the CIT in the impugned order was also expressed by a special bench decision of ITAT Mumbai in the case of DCIT Vs. Times Guartee Ltd. (2010) 40 SOT 14 (SB)(Mum) wherein it was held the provisions of Sec.32(2) as substituted by the Finance Act, 2001 w.e.f. 1st April, 2002, which is reinforcement of the provision as existing in the first period i.e., prior to 1st April, 1997. Thus the law as existing in the second period w.e.f. 1st April, 1997 was completely taken back and as a result of that the provision as prevailing in the first period was restored. From the language of the sub-s. (2) of s. 32 it is manifest that it is a substantive provision and not a procedural one. It is settled legal position that the amendment to substantive provision is normally prospective unless expressly stated otherwise or it appears so by necessary implication. The special Bench summarised its conclusions thus:
“The legal position of current and brought forward unadjusted/unabsorbed depreciation allowance in the three periods, is summarized as under : A. In the first period (i.e. upto asst. yr. 1996-97) (i) current depreciation, that is the amount of allowance for the year under s. 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 s. 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. asst. yrs. 1997-98 to 2001-02). (i) brought forward unadjusted depreciation allowance for and upto asst. yr. 1996-97 (hereinafter called the ‘First unadjusted depreciation allowance’), which could not be set off upto asst. yr. 1996-97, shall be carried forward for set off against income under any head for a maximum period of eight assessment years starting from asst. yr. 1997-98. (ii) current depreciation for the year under s. 32(1) (for each year separately starting from asst. yr. 1997-98 upto 2001-02) can be set off firstly against business income and then against income under any other head. (iii) amount of current depreciation for asst. yrs. 1997-98 to 2001-02 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 6
JCT Limited A.Yr.2008-09 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. asst. yr. 2002-03 onwards). (i) ‘first unadjusted depreciation allowance’ can be set off upto asst. yr. 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 for which it was first computed. (iii) current depreciation for the year under s. 32(1), for each year separately, starting from asst. yr. 2002-03 can be set off against income under any head. Amount of depreciation allowance not so set off (hereinafter called the ‘Third unadjusted depreciation allowance’) shall be carried forward to the following year. (iv) the ‘Third unadjusted depreciation allowance’ shall be deemed as depreciation under s. 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.”
Before us, the learned counsel for the Assessee relied on the decision of the Gujarat High Court in the case of General Motors India Pvt. Ltd. -vs.- DCIT (Guj.) (2013) 354 ITR 244 (Guj.) wherein, the Hon'ble Gujarat High Court has held that unabsorbed depreciation from AY. 1997-98 up to AY. 2001-02 got carried forward to AY. 2002-03 and became part thereof and it came to be governed by the provisions of sec. 32(2) as amended by the Finance Act, 2001 and were available for carry forward and set off against income of subsequent years without any limit. The relevant observations of the Hon’ble Court was as under:
"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. "
It was pointed out that the above decision in the case of General Motors India Pvt. Ltd. (supra) has been followed by the Hon'ble Gujarat High Court in the case of CIT -
JCT Limited A.Yr.2008-09 vs.- Gujarat Themis Biosyn Ltd. (2014) 44 taxmann.com 204 (Guj.). In this case the Hon'ble High Court upheld the view taken by the ITAT wherein, following the decision of the Hon'ble Gujarat High Court in the case of General Motors Ltd. (supra), it was held that carry forward of unabsorbed depreciation concerning AY. 2001-02 and assessment years prior thereto can be set off in subsequent years without any set time limit.
Reference was further made to the decision of the Hon'ble Jurisdictional Tribunal in the case of Bengal Tea & Fabrics Limited (ITA No 467/koll2012) dated 26th July, 2012 for the AY 2008-09, wherein the question arose as to whether in view of the amended provisions of section 32(2) of the Act the assessee would be entitled to set off the unabsorbed depreciation for the AYs 1997-98 and 1998-99 against the income of the AY 2008-09 (i.e. beyond assessment years 2004-05/2005-06). The Hon'ble Kolkata Tribunal after analyzing and accepting the principles of the decisions of the Hon'ble Karnataka High Court in the case of Karnataka Cooperative Milk producers Federation Ltd. -vs.- DC IT (2011) 53 DTR 81 (Kar) and Hon'ble Amritsar Tribunal in the case of ITO –vs- Suraj Solvent Vanaspati Industries Ltd. (2008) 16 DTR 492 (Amritsar) and further accepting the fact that since there is no contrary decision of the Hon'ble Calcutta High Court on the aforesaid issue has held that the Assessing officer had taken a correct view of the amended provisions of the section 32(2) of the Act to allow the assessee to carry forward the depreciation allowance for the previous year 2004-05 and 2005-06. Reliance was also placed on the decision of the Hon'ble Karnataka High Court in the case of Cooperative Milk producers Federation Ltd. (supra) held as under:
" ..... the provision u/s 32(2) of the Act which came to be introduced limiting/extending the period from eight years for an unlimited period. Further, carrying forward of unabsorbed depreciation for every year has to be calculated 15. In the light of the judicial precedents on the issue especially that of the Hon’ble Gujarat High Court in the case of General Motors India Pvt.Ltd. (supra), which has the JCT Limited A.Yr.2008-09 effect of overruling the decision of the Special Bench in the case of Times Gurantee (supra) and also on the basis of other decisions referred by the Assessee before us, the order of the CIT cannot be sustained. Section 263 requires the satisfaction of two conditions viz. (i) the order sought to be revised is erroneous; and (ii) it is prejudicial to the interests of Revenue. If one of them is absent i.e. if the order sought to be revised is erroneous but not prejudicial to the interest of Revenue or if it is not erroneous but is prejudicial to the interests of Revenue, the provisions of section 263(1) of the Act are not attracted as the phrase ‘prejudicial to the interests of Revenue’ is to be read in conjunction with an ‘erroneous’ order passed by the Assessing Officer. When an Assessing Officer adopts one of the courses permissible in law and it has resulted in loss of Revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of Revenue. Every loss of Revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of Revenue. This was the view held by the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. 243 ITR 83 (SC). It cannot be said that on the facts and circumstances of the case, the view adopted by the AO was not a possible view. Therefore jurisdiction u/s.263 of the Act, ought not to have been exercised by the CIT in the facts and circumstances of the present case. We therefore quash the order u/s.263 of the Act and allow the appeal of the Assessee.
In the result, appeal by the Assessee is allowed.
Order pronounced in the Court on 01.06.2016.