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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI RAJESH KUMAR
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 1 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 आयकर अपीलीय अिधकरण “सी” �यायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI �ी अिमत शु�ला, �याियक सद�य एवं �ी राजेश कुमार, लेखा सद�य के सम� । BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA No. : 4875/Mum/2008 (Assessment year: 2004-05) ITA No. : 5677/Mum/2008 (Assessment year: 2005-06) स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड Vs ACIT-Rg. 6(2), Aayakar Bhavan, M K Road, Century Textiles and Industries Ltd, Mumbai -400 020 Century Bhavan, Dr. A B Road, Worli, Mumbai -400 030 �थयी लेखा सं.:PAN: AAACC 2659 Q अपीलाथ� (Appellant) ��यथ� (Respondent) Appellant by �ी एस ई द�तूर Shri S E Dastur : �ी मधुकर अगरवाल Shri Madhukar Agarwal �ी पी आर टोपरानी Shri P R Toprani Respondent by : �ी एम दयासागर Shri M Dayasagar
सुनवाई क� तार�ख /Date of Hearing : 11-01-2016 घोषणा क� तार�ख /Date of Pronouncement : 07-04-2016 आदेश ORDER अिमत शु�ला : �या. स.: PER AMIT SHUKLA, JM: The aforesaid appeals have been filed by the assessee against separate impugned orders dated 13.06.2008 and 4.07.2008, passed by Commissioner of Income Tax -VI Mumbai, under section 263 for the assessment year 2004-05 and 2005-06 respectively. Since issues involved in both the appeals are common arising out of identical set of facts, therefore, they were heard together and are being disposed off by way of this consolidated order.
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 2 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 2. To understand the facts and the issues involved, we are first taking up the appeal for the assessment year 2004-05 being ITA No.4875/Mum/2012, vide which following grounds have been raised:- GROUND I: 1. On the facts and circumstances of the case and in law, the Learned Commissioner of Income tax - VI, Mumbai [the CIT”] erred in invoking provisions of section 263 of the Income Tax Act, 1961 ("the Act") and directing revision of the assessment order passed u/s. 143 (3) of the Act by the Asst. Commissioner of Income Tax, Circle - 6(2), Mumbai ("the AO") on the alleged ground that the assessment order was erroneous and prejudicial to the interest of the revenue. 2. The Appellant prays that since the assessment order passed by the AO was after making full enquiry, it cannot be regarded as erroneous and accordingly the action of the CIT in invoking provisions of section 263 and revising assessment order be held ab-initio and 1 or otherwise void and bad-in-law. 3. The Appellant further prays that order passed u/s. 263 of the Act pursuant to an audit query ought to be, in the facts and circumstances, struck down as null and void ab-initio. GROUND II Without prejudice to Ground I On the facts and circumstances of the case and in law, the CIT erred in directing the AO make fresh assessment after examining the applicability of Section 105 (6) (i) read with section 14A of the Act with reference to depreciation pertaining to units claiming deduction u/s. 106 of the Act. The Appellant prays that the order passed u/s. 263 of the Act be struck down as null and void and assessment order of the AO be restored and it be held that on the facts and circumstances, no disallowance of unabsorbed depreciation is called for at all”. 3. Exactly similar grounds have been raised in the appeal for the assessment year 2005-06 also.
The relevant facts qua the issue raised in the impugned order under section 263 are that, the assessee company is a Public Limited Company, which is engaged in manufacturing of diverse products. It has 18 units, out of which 2 units, namely, ‘Century Yarn’ and ‘Century Denim’ are 100% export oriented unit eligible for deduction under section 10B on the profits and gains derived from such undertakings. The Century Yarn division was set-up in the previous year 1993-94 relevant to the assessment year 1994- 95 and the 10 years for claim of exemption/deduction was up to assessment year 2003-04. The Century Denim Division was set-up
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 3 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 in the previous year 1996-97 relevant to assessment year 1997-98 and the period of 10 years for making claim of exemption/ deduction is available up to assessment year 2006-07. For the year under consideration, the assessee had filed its return of income on 28.10.2004 declaring “Nil” income under the normal provisions of the Act and Book profit under section 115JB was shown at Rs.105,85,61,614/-. The said return of income was subjected to scrutiny by the AO and order under section 143(3) was passed vide order dated 28.11.2006, whereby the income was finally assessed on book profit of Rs.121,70,08,929/- computed under section 115JB. Before completing the assessment, the AO scrutinized each and every item of income shown, expenditure debited and claim of deduction/exemption made by the assessee and also examined the brought forward unabsorbed depreciation and losses. All such issues have been dealt in detail in the assessment order. The summary of computation of total income as computed by him contains from pages 45 to 49 of the assessment order. In the said assessment, Ld. AO examined the income of the unit of Century Denim in detail and the claim of loss of Rs.18,92,10,744/- in the said unit was converted into positive income of Rs.37,13,013/-, as per detailed discussion appearing from pages 2 to 6 of the assessment order. As regards the allowbility of the brought forward of unabsorbed depreciation for all the 18 units was determined in the following manner: Less: Brought forward unabsorbed depreciation As per earlier Assessment order for Assessment year 2003-04 u/s 250 Assessment year Unabsorbed Depreciation(Rs.) 1997-98 94,71,48,726 1998-99 1,95,99,79,200 1999-2000 1,63,45,57,220 2000-2001 1,07,19,26,287 2001-2002 97,57,411 ------------------------- 5,62,34,68,844 Less: Unabsorbed depreciation set Off to the extent of profit 1,69,40,30,280 Total unabsorbed Deprecation carried over 3,92,94,38,564 =============
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 4 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 5. Subsequently, the Ld. CIT exercising his revisionary jurisdiction issued a notice dated 02.06.2008 under section 263. The relevant content of notice reads as under:-
“As per the above assessment order dated 28 1 it 2006, while computing the taxable income, the Assessing Office has allowed unabsorbed depreciation for AYs 97-98, 98-99, 99-2000 and 2000-01 as per the details given hereunder:- Assessment year Unabsorbed Depreciation (Rs.)
1997-98 94,71,48,726 1998-99 1,95,99,79,200 1999-2000 1,63,45,57,220 2000-2001 1,07,19,26,287 2001-2002 97,57,411 While allowing benefit of unabsorbed depreciation for A Ys 1997-98 to 2000-01 as per details given above, the Assessing Officer has not examined whether amount of above mentioned unabsorbed depreciation included any depreciation pertaining to Century Yarn unit and Century Denim unit. It is further seen from records that the above mentioned company has claimed deduction u/s 10B in respect of Century Denim and Century Yarn units Therefore., as per provisions of section 10B(6)(1) of' the Act. the benefit of carry forward of depreciation u/s. 32(2) relating to any Assessment year upto 2000-01 cannot be allowed in respect of these two units in respect previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year. The words "relevant assessment years ' have been defined in clause (v) of explanation 2 of Section 10B of the I.T. Act The Assessing Officer while completing the assessment has, thus, not examined the app1icablity of the provisions of section 10B(6)(i) of the I.T. Act while completing the assessment for A Y 2004.05 I am therefore of the opinion that the assessment so completed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue”.
In response to the said notice, the assessee raised various objections not only on the validity of acquiring the jurisdiction under section 263, but also on merits. In sum and substance, the assessee’s objections before Ld. CIT in response to the said notice are as under:-
(i) The revision under section 263 has been sought at the instance of the Audit Party, whereas under section 263, the power is given to the Commissioner to call for and
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 5 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 examine the records only on application of his own minds and discretion rather than note put-up by the Audit party. In support of this contention, reliance was placed on the following decisions; i) Jeevanlal (1929) Ltd. vs ACIT, 108 ITR 407(Cal.)(HC) ii) CIT vs. Sohann Woolen Mills, 296 ITR 238(P&H)(HC) iii) B&A Plantation and Industries Ltd vs CIT, 290 ITR 395 (Gauhati)(HC).
(ii) The AO has applied his mind in detail with regard to computation of income, claim of deduction regarding 10B Units, including losses and depreciation right from assessment year 1997-98 onwards. Further all the assessments for these years were completed under section 143(3). Not only that the modification in the quantum of deprecation on the claim made in the return of income has been duly scrutinized vis-à-vis the computation of deduction under section 10B from year to year. Thus, once AO has adopted one course permissible in law or where two views are possible then CIT cannot treat the said assessment as erroneous or pre-judicial to the interest of the revenue. In support, reliance was placed on the decision of Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs CIT, reported in 243 ITR 83;
(iii) The losses of eligible unit are in accordance with the various decisions of the Tribunal and in support reliance was placed on the following two decisions: i) Navin Bharati Industries Ltd. v DCIT (90 ITD 1)(Mum)(TM); ii) Mindtree Consulting Pvt Ltd. v ACIT (102 TTJ 691)(Bang).
(iv) If the relevant records and material has been placed by the assessee, which has been considered by the AO and a particular view has been taken then different view cannot
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 6 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 be taken under guise of revisionary jurisdiction under section 263. In support, reliance was placed on the decision of Gujarat High Court in the case of CIT vs. Arvind Jewellers, 259 ITR 502; and Gauhati High Court in the case of Bongaigaon Refinery and Petrochemicals vs. Union of India, reported in 287 ITR 120;
(v) After the concept of block of assets, the group of asset is entitled for same rate of depreciation and is clubbed together under the same block for calculating the depreciation. The concept of use of asset is relevant for first year when the asset is brought to use and it enters the block. However, in the subsequent year, the identity of any asset in the block is lost and the depreciation is admissible for the entire block. Accordingly, the deprecation on the entire undertaking will have to be calculated and not on the depreciation on the individual asset, therefore, the depreciation relating to the units to which 10B is applicable deduction cannot be calculated separately; and
(vi) Lastly, it was submitted that section 10B(6)(i) applies only after the tax holiday period as contemplated under section 10B(6). The prohibition for allowing of set off of unabsorbed depreciation applies in respect of 11th year and thereafter.
The Ld. CIT rejected all the assessee’s objections/contentions in the following manner: (i) As regard 1st objection, he held that, if the Audit party has pointed out certain mistake, the same is bound to be considered on merits by the Income-tax authorities. If after due application of mind it is found that Audit objection is correct then necessary remedial measure has to be taken. He noted that, during the course of the assessment proceedings,
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 7 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 AO has nowhere raised any query as to whether the claim of unabsorbed depreciation includes any depreciation in respect of Century Yarn and Century Denim units for which the assessee has claimed deduction under section 10B in the earlier years. The AO has failed to examine the applicability of provisions of section 10B(6)(i). He also distinguished the decisions relied upon by the assessee on the ground that, they were entirely different on facts;
(ii) As regard to second objection, he observed that, nowhere during the course of the assessment proceedings, AO has raised any query, whether the claim of unabsorbed depreciation in respect of assessment years 1997-98 to 2000-2001 includes any depreciation pertaining to Century Yarn Unit and Century Denim unit in respect of which the assessee had claimed deduction under section 10B in the earlier years. There is neither any discussion in the assessment order nor any explanation by the assessee; (iii) Regarding third objection of the assessee based on ITAT decisions (supra), he distinguished the said decisions on facts and the issues involved and held that these decisions are based on entirely different issue and facts, whereas in the case of the assessee carried forward of the depreciation has to be seen in accordance with section 10B(6)(i);
(iv) Regarding 4th objection, he again reiterated that, AO has not examined the applicability of provision of 10B(6)(i) while allowing carried forward of unabsorbed depreciation carried forward from the assessment years 1997-98 to 2000-2001 and also distinguished judgments relied upon by the assessee;
(v) Regarding 5th objection, he held that, assessee is preparing separate Profit and Loss Account in respect of 10B
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 8 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 units by ascertaining depreciation in respect of block of assets pertaining to such units. The assessee itself has done segregation of depreciation relating to 10B units. Moreover, section 10B(6) is a non-obstante clause and, therefore, the same will prevail over any other provisions of the Act;
(vi) Regarding last objection, he agreed with the submissions of the assessee that 10B(6) would be applicable only after the tax holiday period, however, he held that the AO while computing the assessment has not examined, whether AY 2004-05 is 11th year for both the units or not.
Thus, he cancelled the assessment order for passing it afresh after observing and holding as under:
“3. As observed earlier, during the course of assessment proceedings for A.Y. 2004-05 neither the A.0 has examined the issue regarding applicability of provisions of Sec.10B(6)(i) in respect of Century Yarn unit and or Century Denim unit, nor any such relevant details have also been filed by the assessee during the course of assessment proceedings for A.Y. 2004-05, I therefore, hold that while completing the assessment for A.Y. 2004-05 the A0 has failed to make necessary and adequate enquiries with regard to the applicability of provisions of Sec.10B(6)(i) in respect of Century Yarn unit and or Century Denim unit and without making such enquiries has allowed the carried forward of Unabsorbed depreciation pertaining to A.Y.s 1997-98 to 2000-01. I therefore, hold that the assessment order passed by the AO u/s t43 (3) of the I. T. Act, 1961, on 28.11.2006 is erroneous in so far as it is prejudicial to the interest of revenue. In this connection reliance is placed upon the following decisions. i) Rampyari Dev Saraogi v. CIT, [1968] 67 ITR 84(SC); ii) Tara Devi Aggarwal v. CIT, [1973] 88 ITR 323 (SC); iii) Duggal & Co. v. CIT, 220 ITR 456, 459 (Del.); iv) CIT v. Pushpandevi, 164 ITR 639 (Pat.); and v) K A Ramaswamy Chettiar v. CIT, 220 ITR 657, 665 (Mad).
I, therefore, set-aside the assessment order passed by the AO. He is directed to make fresh assessment after examining the applicability of provisions of section 10B(6)(i) of the I.T. Act read with provisions of Sec.14A of the I.T. Act with reference to the directions pertaining to Century Yarn unit and/or Century Denim unit. Before passing the fresh assessment order, the assessee shall be allowed period of 10 years was not getting over adequate opportunity of being heard in the matter”.
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 9 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 8. Before us, the Ld. Senior Counsel Mr. Soli Dastur, after explaining the entire facts as above, submitted that, first of all, so far as Century Denim unit is concerned, the tax holiday period of 10 years as envisaged in section 10B(6) had not yet ended in the assessment year 2004-05, as the starting assessment year is 1997- 98 and 10 years period will expiring after AY 2006-07. Failure to take note of such a vital fact by the Ld. CIT itself goes to show that, there has been complete non-application of mind by him while roping in the Century Denim unit in his order qua the applicability of section 10B(6)(i) which is one of the subject matter of revision under section 263. He submitted that, here in this case, assessment order u/s 143(3) has been passed after detail scrutiny and examination of each and every aspect of Financial accounts and claim of deductions including allowability of carried forward of depreciation and losses. This is evident from the fact that, a detail assessment order running into 50 pages discussing various issues has been passed. Thus, such an assessment order cannot be held to be erroneous or prejudicial to the interest of the revenue. In the entire order, the Ld. CIT has not pointed out as to what prejudice has caused to the revenue. Clarifying the aspect of deprecation relatable to Century Yarn Unit, Mr. Dastur submitted that, full depreciation was allowed during the period of 10 years and no depreciation was carried forward so far as Century Yarn Unit is concerned in this year. The Ld. CIT has set aside the matter to the file of the AO without even examining this aspect and pointing out how the order passed by the AO is erroneous and prejudicial to the interest of the revenue so far as this issue is concerned. He has also not specified as to what is the quantum or portion of the unabsorbed depreciation which ought not to have been allowed or carried forward in this year. It was incumbent and mandatory upon the Ld. CIT to give a specific finding that the depreciation for the period up to 01.04.2001 relating to Century Yarn Unit was allowed as “deductible” in the assessment year 2004-05. More so
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 10 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 in this case, when it is an admitted fact that full depreciation stood allowed up to the period 2003-04. Even otherwise also the taxable profit for the unit was far more sufficient to subsume the entire depreciation of the Century Yarn Unit. In support, a statement showing unabsorbed depreciation for the Century Yarn unit; depreciation of other 10B unit; and total deprecation for the entity as a whole has been given along with the income before the set off of the current depreciation. From the statement it has been pointed out that, no prejudice is caused to the revenue in any manner. He submitted that, it is a trite law that, while exercising the revisionary jurisdiction under section 263, the Ld. CIT has to give a specific finding based on material on record that the assessment order is not only erroneous but also prejudicial to the interest of the revenue. Both the conditions should fulfill simultaneously and if any one condition is lacking then the entire exercise of revision under section 263 fails.
Mr. Dastur also brought to our notice that, in the present cases, the AO wanted to reopen the assessment under section 148 on same very issue and also wrote a letter to the assessee, seeking clarification vide letter dated 16.08.2007 (the copy of which has been placed in the paper-book page 104). In response, the assessee has filed a detailed note on depreciation as allowed in respect of 10B Units (the copy of said reply is appearing at page 105 and 106 of the paper-book). In the said reply itself, it was duly clarified by the assessee that unabsorbed depreciation for the assessment year 1999-2000 which has been carried forward to the subsequent years, does not include depreciation for two 10B units. Thus, from the said reply itself, it was abundantly made clear to the AO that the amount of unabsorbed depreciation does not include any depreciation claim relating to the 10B Units and hence question of any excess deprecation carried forward in this year does not arise at all. Post this reply, no further proceedings were initiated, rather strong presumption can be drawn that the assessee’s contention
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 11 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 was accepted and proceedings were dropped. The AO’s letter as well as the assessee’s reply in this regard was part of the assessment record and therefore, the Ld. CIT while examining such records should have noted this important fact and whence done so, he could not have come to conclusion that, there is any prejudice caused to the revenue. The Ld. CIT has not demonstrated in any manner as to how the view taken by the AO and the subsequent events leading to filing of reply by the assessee clarifying the position of claim of depreciation in respect of 10B units is erroneous or wrong. Even otherwise also, if the AO has taken a possible view based on record, then Ld. CIT without holding that such a view is erroneous and also prejudicial to the interest of the revenue cannot cancel the assessment within the ambit and scope of section 263. In support, he strongly relied upon the decision of Hon’ble Apex Court in the case of CIT vs Max India, reported in [2007] 295 ITR 282. Further in support of his contention that it is incumbent for the Ld. CIT to point out and record a finding that the order is prejudicial to the interest of the revenue, he relied upon the decision of Hon’ble jurisdictional High Court in the case of Jewel of India vs. ACIT, reported in [2010] 325 ITR 92 and Delhi High Court decision in the case of CIT vs Leisure Wear Exports Ltd., reported in [2012] 341 ITR 166. He further reiterated the contention raised by the assessee before the Ld. CIT that, revision under section 263 cannot be done at the instance of the Audit Party, especially when on the basis of the said Audit objection itself the AO has written a letter to the assessee and in response, the assessee has clarified the same issue in detail, against which no further proceedings were initiated or conducted. Thus, there was no occasion again by Ld. CIT to revisit or invoke the provision of section 263 based on the same Audit objection. This clearly shows that, the Ld. CIT has not applied his mind on the material placed on record. Thus rejection of assessee’s objection by the CIT on this score cannot be upheld and the decision relied upon by the
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 12 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 assessee in the case of Geevanlal Ltd. vs ACIT (supra) and CIT vs. Sohana Woolen Materials (supra) will apply.
On the other hand, Ld. CIT DR strongly relied upon the order of the CIT and submitted that, the AO has not specifically examined the applicability of section 10B(6)(i) which is evident from the fact that, no such query was raised by the AO nor any explanation was sought. Further AO has not bifurcated unit-wise claim of deprecation especially those which are eligible under section 10B. Once that is so, it is difficult to come to a conclusion, whether there was any violation of section 10B(6)(i) or not especially in relation to Century Yarn Unit, whose ‘tax holiday’ has ended in assessment year 2003-04. In any case, all the objections raised by the assessee have been dealt in detail by Ld. CIT in the impugned order. Regarding Ld. Counsel’s submission that already full depreciation stood allowed up to the assessment year 2003-04 in the case of Century Yarn Unit, he submitted that, this is the precise reason which needs verification from the end of the AO because in the original assessment order this aspect has not been examined or looked upon at all.
We have heard the rival submissions, perused the relevant finding given in the impugned orders as well as the material placed before us. As stated above, the assessee had 18 units through which it was carrying out various manufacturing activities, power generation and other activities. Out of the said 18 Units, 2 units namely, Century Yarn division and Century Denim division were 100% export oriented Unit, eligible for claim of exemption/deduction under section 10B. The Century Yarn Division was set-up in the previous year relevant to assessment year 1994-95, whereas the Century Denim Division was set-up in the previous year relevant to assessment year 1997-98. Accordingly, Tax Holiday period for 10 years in the case of Century Yarn was until AY 2003-04 and for Century Denim Division was up
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 13 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 to AY 2006-07. The entire premise and the basis of exercising revisionary jurisdiction under section 263 by the ld. CIT is that, the AO while allowing the benefit of unabsorbed depreciation for the assessment year 1997-98 to 2000-2001 has not examined, whether the amount of aforementioned unabsorbed depreciation included the depreciation pertaining to Century Yarn Unit and Century Denim Unit or not. According to Ld. CIT, as per the provisions of section 10B(6)(i), the benefit of carried forward of depreciation under section 32(2) relating to any assessment year up to AY 2000-01 cannot be allowed in respect of these 2 units. The AO while completing the assessment has not examined the applicability of section 10B(6)(i) while completing the assessment for the impugned assessment year, i.e. AY 2004-05. From the perusal of the assessment order it is seen that the AO, so far as computation of income and claim of deduction under section 10B of Century Denim Unit is concerned, has passed a detailed order from pages 2 to 6 of the assessment order. While doing so, he has examined each and every aspect of the computation of income as well as deduction of claim under section 10B. Further, it is also an admitted fact that qua the Century Denim Unit, the tax holiday period had not ended, thus, the provision of 10B(6) will not apply for this unit, because the prohibition of set off of unabsorbed depreciation applies only from 11th year and thereafter. Accordingly, finding of the Ld. CIT in the impugned order for the Century Denim Unit is definitely erroneous and also goes to show that matter has not been examined properly. With regard to the overall position of brought forward unabsorbed depreciation for the earlier years, the AO has computed the same in the assessment order at page 48 of the order, which has already been reproduced above in the foregoing paragraphs. After having completed the assessment under section 143(3) in this manner (as discussed in the earlier part of the order), now the issue is, whether such an order can be held to be erroneous in so far as prejudicial to the
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 14 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 interest of the revenue within the ambit and scope of section 263 on the points raised by the Ld. CIT. It is trite law that in so far as the power of revisionary jurisdiction under section 263 on a order which is sought to be revised or cancelled, must not only be erroneous but also should be prejudicial to the interest of the revenue. Both the conditions should satisfy simultaneously and if any one of them is lacking then the revision order passed under section 263 does not hold ground under the law. This concept has been explained by the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra). It is equally well settled law that, if AO on the basis of material filed before him has come to conclusion or has taken one of the course permissible in law, then Ld. CIT under revisionary power of section 263 cannot set aside the assessment order on the ground that, he does not agree with the view taken by the AO and there is possibility of another view. Even if the view taken by the AO has resulted into loss of revenue then also such an order cannot be treated as erroneous order or prejudicial to the interest of the revenue, unless, the view taken by the AO is unsustainable in law. This proposition has been again laid down by the apex Court in the Malabar Industrial Co. Ltd., which has been followed and reiterated by the Supreme Court in CIT vs Max India Ltd., 295 ITR 282. Now in wake of this settled proposition of law, we have to examine whether the impugned order passed by CIT can be said to be erroneous and also prejudicial to the interest of the revenue.
As already held above, so far as observation and finding of Ld. CIT regarding one of the units, i.e. Century Denim Unit, is completely erroneous as the provisions of section 10B(6) was not applicable at all in this year. Hence this issue is far from being erroneous and prejudicial to the interest of revenue. Now coming to the issue whether the allegations as made by the Ld. CIT in his notice under section 263 and also in the impugned order regarding Century Yarn Unit is correct or not. First of all, from the records it
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 15 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 has been pointed out by Mr. Dastur that, this precise issue was subject matter of Audit Objection based on which the AO has issued a letter dated 16.08.2007 to the assessee, the content of which is reproduced hereunder: “To, The Principal Officer, M/s Century Textiles & Industries Ltd, Century Bhavan, Dr. A B Road, Mumbai -400 030 PAN :AAACC 2659 Q Sub : Assessment proceedings in your case for A.Y. 2004-05- Reg.
Please refer to the above.
On perusal of the case records it is noticed that, the income for A.Y. 2004-05 in your case has been assessed at book profit of Rs.1,21,70,08,929/- under section 115JB and nil income under the normal provisions of the I. T. Act, 1961 i.e. u/s.143(3) of the I. T. Act, 1961. It is seen that unabsorbed depreciation allowance of Rs.1,63,46,87,22O/- for A.Y. 1999-2000 allowed to be carried forward, includes depreciation allowance of 10B units also. The depreciation allowance claimed and allowed in A.Y. 1999-2000 in respect of 10B units was Rs.22,85,17,041/- (Century Denim Rs. 6,80,15,395/- and Century Yarn Rs.6,05,0l.646/-). There seems to be a mistake in granting depreciation u/s.32 of the I. T. act, 1961, in view of the provision of sub sec.6 of Sec. 10B which prohibits granting of depreciation u/s.32 sub sec (2) of the I. T. Act, 1961 with respect of units where the benefits u/s.10B are availed.
The assessment for A.Y. 2004-05 is proposed to be reopened and hence you are hereby required to show cause why the excess depreciation claim u/s.32 allowed and carried forward should not be disallowed. The potential short levy of tax on this accounts amounts to Rs.8.20 crores.
You- reply should reach this office within 7 days of receipt of this letter. (Sd/=) Asstt. Commissioner of Income Tax, Circle 6(2), Mumbai”
In response, the assessee has clarified this precise issue in the following manner:-
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 16 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 17 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008
Post this reply, no action was taken, which inter alia, means that the contention raised by the assessee was duly accepted by the Department. At least nothing has been brought on record that such a reply has been rejected. Now, precisely on the same issue, the Ld. CIT sought to cancel the said assessment under the garb of “revision” under section 263. It appears that, the Ld. CIT on perusal and examination of record has missed this vital piece of material while issuing a notice under section 263. Once it has been brought on record that, figure of brought forward unabsorbed depreciation does not include depreciation for the 10B units then there is no question of AO allowing any benefit of carried forward of depreciation under section 32(2) in AY 2004-05.
Before us also, the Ld. Senior Counsel has clarified that, full depreciation relatable to Century Yarn Unit was allowed during the ten year period, that is, up to 2003-04. Not only that, it has also been brought on record before us that, assessee had sufficient income against which depreciation of Century Yarn Unit can be set off which is evident from the following statement of depreciation on Century Yarn and income before set off of current depreciation for 18 units which for the sake of ready reference is reproduced hereunder:
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 18 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 19 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008
The aforesaid statement itself shows that the issue raked up by the Ld. CIT is far from being erroneous and prejudicial to the revenue. 12. From the careful perusal of the entire impugned order of the Ld. CIT, we find that, there is no whisper as to how on the facts of the case any loss is caused to the revenue, that is, it is prejudicial to the interest of revenue. Nowhere, the Ld. CIT has stated or mentioned the quantum of unabsorbed depreciation which ought not to have been carried forward. His entire allegation has been that, AO has not examined 10B(6)(i) without pointing out as to how this has led to any loss of revenue or any prejudice is caused to the revenue. If the assessee’s claim that amount of unabsorbed depreciation does not include depreciation claim of 10B unit/s has been accepted by the AO and in the computation of income of the AO, the figure of disallowance does not include unabsorbed depreciation of 10B Units, then Ld. CIT without any contrary material on record or any specific finding that such an order of the AO is contrary to law and on facts, could not cancel such an assessment holding it to be erroneous in so far as prejudicial to the interest of the revenue. There has to be clear cut finding by the authority exercising revisionary jurisdiction that the order is prejudicial to the interest of the revenue and such a finding has to be demonstrated based on material facts on record and not by mere using the term in a casual manner. The Hon’ble Bombay High Court in the case of Jewel India vs ACIT, reported in [2013] 325 ITR 92, reiterated the said proposition in the following manner: “Bearing in mind the interpretation of the apex court as per the provisions of section 263 of the Income-tax Act, if
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 20 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 one turns to the order of the Commissioner of the Income-tax- 18, Mumbai revisional order passed under section 263 of the Income-tax Act, 1961, it would be clear that no finding is recorded by the revisional authority that the order is prejudicial to the interests of the Revenue. The tenor of the aforesaid paragraph only lead to the conclusion that the order was found to be erroneous by the revisional authority, however, nowhere the finding is recorded that the impugned order passed by the Assessing Officer is prejudicial to the interests of the revenue. In the absence of a positive finding that the order was not in the interests of the Revenue, it was not open for the revisional authority to assume jurisdiction”.
The Hon’ble Delhi High Court in the case of Leisure Wears Exports Ltd. (supra) reiterating the same principle, held that section 263 cannot be invoked merely to correct the mistake or error committed by the AO unless it has caused prejudice to the interest of the revenue. The Commissioner has to record an express finding in the order passed by the AO that it is erroneous and has caused loss to the revenue. Under section 263 Commissioner has to specifically point out that the order passed by AO is not only erroneous for non-consideration of issues raised or pointed out by him but also would amount to prejudicial to the interest of the revenue. Thus, we are of the considered opinion that, the impugned order of the Ld. CIT cancelling the assessment order passed by the AO under revisionary jurisdiction of section 263 cannot be sustained and accordingly, the same is quashed. Thus ground raised by the assessee is treated as allowed.
It has been admitted by both the parties that the facts and issues involved in the appeal for the assessment year 2005-06 in ITA No. 5677/Mum/2008 are identical and the facts and law discussed above would apply in this year also, therefore, we hold that, the aforesaid finding will apply mutatis mutandis for this
स�चुर� टे�सटाइ�स अँड इंड���ज़ �ल�मटेड 21 Century Textiles and Industries Ltd ITA No. 4875/Mum/2008 ITA No. 5677/Mum/2008 appeal also. Accordingly, appeal for the assessment year 2005-06 is also treated as allowed. To sum-up: Both the appeal of the assessee stands allowed. Order pronounced in the open court on 7th April, 2016.
Sd/- Sd/- (राजेश कुमार ) (अिमत शु�ला) लेखा सद�य �याईक सद�य (RAJESH KUMAR) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 7th April, 2016 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT(A) -19, Mumbai. 4) The Commissioner of Income Tax –17, Mumbai. 5) िवभागीय �ितिनिध “सी”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “C” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, मुंबई Dy./Asstt. Registrar I.T.A.T., Mumbai *च�हान व.िन.स *Chavan, Sr.PS