ASST CIT CIR 6(1), MUMBAI vs. ANIL PRINERS LTD, MUMBAI

आदेश / O R D E R The Revenue is aggrieved by the impugned order dated 23/07/2013 of the ld. First Appellate Authority, Mumbai, on the ground whether the ld. Commissioner of Income Tax (Appeals) erred in directing the Assessing Officer to allow carry forward and set off of depreciation relating to A.Y. 2009-10 without appreciating that the assessee filed the return after expiry of time prescribed u/s 139(1), hence not eligible to carry forward and set off of such unabsorbed depreciation as per section 139(3) and section 80 of the Act.

2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is engaged in the business of manufacturing of computers stationary, ATM Cards, ITC

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Cards, PIN Mailers, Scratch Cards, Smart Cards, RFID Tags and labels, etc, declared loss of Rs.4,45,13,818/- in its return filed on 01/10/2009. However, the assessee paid the tax on book profit u/s 114JB amounting to Rs.5,72,44,278/-. The return was processed u/s 143(1) of the Act. The case of the assessee was selected for scrutiny under CASS, therefore, notice u/s 143(2) and 142(1) were served upon the assessee. The assessee complied with the notices and duly attended the assessment proceedings. The assessee filed the return on 01/10/2009 i.e. after the due date of filing of return of income. The assessee sought carried forward of entire loss, which was on account of unabsorbed depreciation u/s 32(2) of the Act. Such claim of the assessee of carry forward of such unabsorbed depreciation was denied by the Assessing Officer on the plea that sections 80 of the Act restrict the same. On appeal, before the ld. Commissioner of Income Tax (Appeals), the issue was decided in favour of the assessee against which. the Revenue is aggrieved and is in appeal before this Tribunal.

2.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, under the facts discussed hereinabove, first of all, we are reproducing hereunder the

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relevant provision of section 32of the Act for ready reference and analysis:-

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previous year, and the deduction under this sub-section in respect of such asset is restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (iia) for that previous year, then, the deduction for the balance fifty per cent of the amount calculated at the percentage prescribed for such asset under clause (iia) shall be allowed under this sub-section in the immediately succeeding previous year in respect of such asset: Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998 but before the 1st day of April, 1999 and is put to use before the 1st day of April, 1999 for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed. Explanation.—For the purposes of this proviso,— (a) the expression "commercial vehicle" means "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle" and "medium passenger motor vehicle" but does not include "maxi-cab", "motor-cab", "tractor" and "road- roller"; (b) the expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", "maxi-cab", "motor-cab", "tractor" and "road roller" shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988): Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991: Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken

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place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them. Explanation 1.—Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. Explanation 2.—For the purposes of this sub-section "written down value of the block of assets" shall have the same meaning as in clause* (c) of sub-section† (6) of section 43. Explanation 3.—For the purposes of this sub-section, the expression "assets" shall mean— (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. Explanation 4.—For the purposes of this sub-section, the expression "know-how" means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto). Explanation 5.—For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income; (iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation or generation and distribution of power, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) :

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Following proviso shall be inserted before the existing proviso to clause (iia) of sub-section (1) of section 32 by the Finance Act, 2015, w.e.f. 1-4-2016 : Provided that where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new machinery or plant (other than ships and aircraft) for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, the provisions of clause (iia) shall have effect, as if for the words "twenty per cent", the words "thirty-five per cent" had been substituted : Provided 13[further] that no deduction shall be allowed in respect of— (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year; (iii) in the case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof : Provided that such deficiency is actually written off in the books of the assessee. Explanation.—For the purposes of this clause,— (1) "moneys payable" in respect of any building, machinery, plant or furniture includes— (a) any insurance, salvage or compensation moneys payable in respect thereof;

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(b) where the building, machinery, plant or furniture is sold, the price for which it is sold, so, however, that where the actual cost of a motor car is, in accordance with the proviso to clause (1) of section 43, taken to be twenty-five thousand rupees, the moneys payable in respect of such motor car shall be taken to be a sum which bears to the amount for which the motor car is sold or, as the case may be, the amount of any insurance, salvage or compensation moneys payable in respect thereof (including the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso; (2) "sold" includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company or in a scheme of amalgamation of a banking company, as referred to in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) with a banking institution as referred to in sub-section (15) of section 45 of the said Act, sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of that Act, of any asset by the banking company to the banking institution. xxxxxxxxxxxxxx (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 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.”

2.3. If the aforesaid sub-section (2) to section 32 is analyzed speaks about not giving full effect to any allowance under sub-section (1), in any previous year,

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owing to there being no profits or gains chargeable for that previous year, or owing to the profit or gains chargeable being less than the allowance. Whereas, section 80 of the Act requires that return be filed as per section 139(3) of the Act to carry forward losses within due date, as envisaged u/s 139(1) of the Act, however, within the ambit of section 80 for carry forward losses, section 32(2) is not included. In the present case, the assessee has claimed set of and carry forward of unabsorbed depreciation against the profit & gains of business of the succeeding year. The business loss determined in the hands of the assessee under the head “profit & gains of business” stands of different footing then unabsorbed depreciation determined in the hands of the assessee, thus, the assessee having claimed the set of and carry forward of allowance of depreciation, unadjusted against the profit of current previous year cannot be denied such set of or carry forward of unabsorbed depreciation allowance as the provisions of section 139(3) of the act is not applicable, more specifically, when the assessee filed its return of income, though belatedly, but within the extended period allowed under the statute, thus, the assessee is entitled to the benefit of carry forward and set off of unabsorbed depreciation allowance as part of depreciation. So far as, the contention of the Revenue that section 80 of the Act restrict the same, is concerned, it is noted that section 32 of the Act deals with different types of depreciation, whereas, section 80 deals with carry forward

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of unabsorbed losses other than losses on account of depreciation.

2.4. The Hon’ble Apex Court in CIT vs Shri Shubh Laxmi Mills Ltd. (2001) 249 ITR 795(SC), while deliberating upon sections 32, 33, 79 (prior to amendment in 1988) with respect to carry forward of losses held that in order to invoke section 79 to deny carry forward and set off of losses in the case of a company, in which public is not substantially interested, the Department has to prove not only that is change in 50% of the voting power has taken palace but also such change has taken place with an intent to reduce or to avoid tax liability. In CIT vs Goving Nagar Sugar Ltd. (334 ITR 13) (Del.), Hon’ble High Court while dealing with section 32 r.w.s 80 and 139 of the Act, on the issue whether section 80 and 139(3) apply to business losses and not unabsorbed depreciation, which is exclusively govern by provisions of section 32(2) and therefore, period of limitation for filing loss return as provided u/s 139(1), held that it shall not be applicable for carry forward of unabsorbed depreciation. While coming to this conclusion, the Hon’ble Court considered following judicial pronouncements:-

a) Sri Hari Mills Ltd. v. First ITO [1967J 65 ITR 348 (Mad)

b) Sathappa Textiles (P.) Ltd. v. Second ITO [1969] 71 ITR 260 (Mad.)

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c) Brahmaver Chemicals ( P.) Ltd. v. Second ITO [1999] 239 ITR 807 (Kar.)

d) CIT v. Haryana Hotels Ltd. [2005] 276 ITR 521/148 Taxman 373 (Punj. & Har.)

e) CIT v. Virmani Industries (P.) Ltd. [1995] 216 ITR 607/83 Taxman 343 (SC)

f) CIT v. J. Patel & CO. [1984] 149 ITR 682/18 Taxman 204 (Delhi),

g) CIT v. Nagapatinam Import & Export Corpn. [1975]119 ITR 444/[1980)3 Taxman 150 (Mad.)

h) CIT v. Singh Transport Co. [1980)123 ITR 698/4 Taxman 86 (Gauhati) and

i) Garden Silk Wvg. Factory v CIT [1991] 189 itr 512/56 Taxman 4K (SC)

2.5. According the newly substituted (w.e.f 01/04/2002) section 32 (2) by the Finance Act, 2001 (14 of 2001) , which is operative for and from A.Y. 2002-03, certain conditions, inter-alia, the restriction of eight years for carry forward and set off of unabsorbed depreciation was dispensed with, reverting to pre-1997 position. It may be noted that the legal fixation of treating unabsorbed depreciation as the depreciation of the subsequent years has been specifically made subject to the provisions of section 72(2) and 73(3) (Mysore Paper Mills Ltd. vs CIT)

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(1979) 117 ITR 132, 135 (Karnatka) and CIT vs Gujarat State warehousing corporation (1976) 104 ITR 1(Guj.). Thus, if an assessee has unabsorbed depreciation u/s 32(2) of the Act as well as unabsorbed business loss carried forward u/s 72(1), section 72(2) provided the unabsorbed losses shall have precedence, and be set off first, so far as the sufficiency of income to be set off against permits. It is only after the carried forward business loss is set off, and there yet remains positive income, that the unabsorbed depreciation would come in for a set off. This is beneficial to the assessee in as much as the unabsorbed business losses have a time bar of eight years while the unabsorbed depreciation has no time bar, it integrates with, and is treated as depreciation allowable for the subsequent year itself (CIT vs Jaipuria China Clay Mines Pvt. Ltd. (1966) 59 ITR 555)(SC), CIT vs Gujarat State Warehousing Corporation 104 ITR 1 (Guj.). What section 72(2) contemplates is that if there is some unabsorbed losses carried forward to be set off, and there is also some unabsorbed depreciation allowance carried forwarded to be set off, the former shall get priority (Alluminium Corporation of India ltd.) (1958) 33 ITR 367 (Cal.) and CIT vs Ahmedabad Electricity Company Ltd. (1973) 89 ITR 77 (Bom.). This is so because unabsorbed depreciation retains its own character even in succeeding year(s) as distinguished from current depreciation (CIT vs Ravi Industries Ltd. ) (1963) 49 ITR 145, 155 (Bom.). The

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Hon’ble Madras High Court in Seshasayee Paper & bonds Ltd. vs DCIT(2005) 272 ITR 165 (Mad.) held that under section 32(2) a legal fiction has been created that unabsorbed depreciation of the earlier year shall form part of current year’s disallowance and therefore it shall have to dealt with accordingly subject to the provision of section 72(2) and 72(3) of the Act. Thus, the carried forward unabsorbed depreciation of the earlier year has to be taken as a part of the current year’s depreciation allowance and to be set off, to the extent possible, against income of the current year. The unabsorbed depreciation should be allowed before the unabsorbed investment allowance and that would be the order of priority in claiming the unabsorbed depreciation and unabsorbed investment allowance. Hon’ble Punjab & Haryana High Court in CIT vs Haryana Hotels Ltd. (2005) 276 ITR 521 even went to the extent that the assessee was entitled to get unabsorbed depreciation of earlier years 1984-85 and 1995-96 set off in 1987-88 even if no valid return for A.Y.1986-87 was filed by the assessee. In CIT vs Brigadier Permanand (2006) 287 ITR 142 (All.), the Hon’ble High Court held that the assessee was entitled to carry forward of unabsorbed depreciation u/s 32(2) notwithstanding the fact that the losses has been determined. The ratio laid down in CIT vs R.S. Bajwa & company (2008) 301 ITR 333 (Jhar.), CIT vs Pioneer Asia Packing Pvt. Ltd. (2009) 310 ITR 198 (Mad.), CIT vs S & S Power Switch Gears Ltd. (2009) 318 ITR 187

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(Mad.), CIT vs RPIL Signalling Systems Ltd. (2010) 328 ITR 283 (Mad.), CIT vs Bancomar Hotels (Goa) Pvt. Ltd. (2011) 332 ITR 441 (Bom.), CIT vs Govind Nagar Sugar Ltd. (2011) 334 ITR 13 (Del.) and CIT vs Yokogawa India Ltd. (2012) 341 ITR 385 (Karn.) supports the case of the assessee. In view of the foregoing discussion, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals).

Finally, the appeal of the Revenue is dismissed.

This order was pronounced in the open in the presence of ld. representatives from both sides at the conclusion of the hearing on 14/03/2016.

Sd/- Sd/- (Rajendra) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER

मुंबई Mumbai; �दनांक Dated : 14/03/2016

f{x~{tÜ? P.S/.�न.स.

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai

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उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai