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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri N.V.Vasusdevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the Revenue and Cross Objection (CO) by assessee are arising out of order of Commissioner of Income Tax (Appeals)-II, Kolkata in appeal No.103/CC-XXVII/CIT(A)C-II/KOL/09-10 dated 19.03.2010. Assessment was framed by DCIT, Central Circle-XXVII, Kolkata u/s 153A/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.07.2009 for assessment year 2001-02.
ITA No.1389/Kol/2010 & CO 98/Kol/2010 A.Y. 2001-02 DCIT CC-XXVII Kol. V. M?s Budge Budge Refineries Ltd. Page 2 2. At the time of hearing both appeal and CO of assessee are heard together and are being disposed by way of consolidate order for the sake of brevity. First we take up Revenue’s appeal ITA No. 1389/Kol/2010. 3. Revenue has raised the following grounds of appeal : “1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the business loss of Rs.45,53,906/- to set off against the income of assessment year 2001-02 i.e. beyond eight years without appreciating the provisions of section 72(3) of the Act.”
“2. That in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the correct position of carry forward of depreciation and loss from A.Y 2000-01 can be decided in appeal for A.Y 2001-02 which is not conformity of the provisions of Section 31(12) of the Act and also the appeal before him was for A.Y 2001-02.”
The effective issue raised by Revenue in ground number 1 & 2 is that Ld CIT(A) erred in deciding the issue of carried forward depreciation and loss pertaining to the assessment year 2000-01 in the appeal for the assessment year 2001-02. Before coming to the specific issue let us understand the brief history of the case. The assessee was having brought forward losses and unabsorbed depreciation for the earlier years as depicted in the tax audit report of the assessment 2000-01 which is reproduced below:- Details of unabsorbed business losses & Depreciation Year Asst. Business Adj Business Depr b/f Adjust Depr c/f Total ending Year Loss b/f loss c/f ust 31.03.98 98-99 1846932 1846932 212475 212475 2059407 31.03.99 99-00 221678 221678 193374 193374 415052 31.03 97 1997-98 2121308 2121308 __ __ 2121308 31.03.96 1996-97 363988 363988 246369 246369 610357 31.03.91 1992-93 9602352 9602352 594253 594253 10196605 31.03.92 1991-92 1645342 1645342 -- -- 1645342 31.03.90 1990-91 6704433 6704433 780223 780223 7484656 31.03.89 1989-90 5041893 5041893 2625627 2625627 7667520 Earlier 8665509 8217845 447664 447664 Year in AY 00- --- 01
ITA No.1389/Kol/2010 & CO 98/Kol/2010 A.Y. 2001-02 DCIT CC-XXVII Kol. V. M?s Budge Budge Refineries Ltd. Page 3 From the above that it was observed that the assessee was having a taxable profit for the assessment year 2000-01 for an amount of Rs. 82,17,845.00. In the tax audit report the above profit was set off against the unabsorbed depreciation of earlier years of Rs.86,65,509.00 and the balance amount of unabsorbed depreciation of Rs. 4,47,664.00 was allowed to be carried forward to the subsequent years. From the above facts, it is clear that the assessee has made a mistake in the tax audit report by adjusting the taxable profit for the AY 2000-01 of Rs. 82,17,845.00 against the unabsorbed depreciation of earlier years and the same was allowed by the then AO. As per law, the assessee was to claim the set off of brought forward business loss and unabsorbed depreciation in the following sequence : 1. Depreciation for the Current Year 2. Unabsorbed business loss of the earlier years 3. Unabsorbed depreciation of the earlier years
It is important to note that for the assessment year 2000-01 there was a taxable profit of Rs. 82,17,845/- which should have been adjusted from the business loss of Rs. 9602352/- for the assessment year 1992-93 as it was the last year for the set off against the aforesaid income of the assessment year 2000-01 as per the provision of section 72(3) of the Act. However the assessee chose to adjust the taxable profit of Rs. 82,17,845/- against the unabsorbed depreciation of earlier years amounting to Rs. 86,65,509/-.
Now coming to the specific issue of the case before us pertaining to the AY 2001-02, the AO during the assessment proceedings has observed that for the relevant AY assessee had taxable profit of Rs.1,34,40,624/- which was adjusted against the brought forward losses and unabsorbed depreciation of Rs.3,26,47,911/-. As a result of aforesaid adjustment the assessee filed its return of income by declaring a loss of Rs. 1,92,07,287/-. However, the AO during assessment proceedings disregarded the amount of brought forward
ITA No.1389/Kol/2010 & CO 98/Kol/2010 A.Y. 2001-02 DCIT CC-XXVII Kol. V. M?s Budge Budge Refineries Ltd. Page 4 loss of Rs. 2,29,94,020/- pertaining to the Assessment years 1989-90 to 1992- 93 for set off by holding that set off under section 72(3) of the Act is not allowed beyond the eight assessment years immediately succeeding the assessment year for which the loss was computed.
Aggrieved, assessee preferred an appeal to Ld. CIT(A) who has deleted the addition made by the AO by observing as under:- “4.1 I have gone through the assessment order and submissions of the appellant. I find that the dispute has arisen on account of set off of the income of Assessment Year 2000-01 against the brought forward losses and brought forward depreciation of earlier years. In Assessment Year 2000-01, appellant has returned a business income of Rs.82,17,845/- and in the tax audit report filed in form 3CD with this return of income, at para 25 of this report, the auditor has set off the income of Rs.82,17,845 with the depreciation of Assessment Years prior to Assessment Year 1989-90 clubbed together at Rs.86,65,509. This set off left the depreciation of Assessment Years prior to Assessment Year 1989-90 at Rs.86,65,509 – Rs.82,17,845 = Rs.447664/- for the next Assessment year, i.e. Assessment year 2001-02, which is the Assessment Year under appeal. The appellant has argued before the undersigned that the set off of income of Rs.82,17,845/- of Assessment Year 2000-01 should have been made against the business loss of Rs.9602352/- of Assessment Year 1992-93 instead of the depreciations of Assessment years prior to Assessment Year 1989-90 and if auditor has made a mistake in this regard then Assessing Officer should have applied the correct sequence of set off as per law and calculated the business loss and depreciation available for set off in Assessment Year 2001-02 after correctly setting off the same against the business loss and depreciation for Assessment Year 2000-01. Appellant has relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Manmohan Das reported in 59 ITR 699. In this case the assessee had not preferred any appeal against the order of Assessing Officer in respect of Assessment year 1950-51 where Assessing Officer had not allowed the carry forward of certain losses claimed by the assessee. However, Hon'ble Supreme Court held that for the purpose of set off of income of Assessment Year 1951-52 the allowability of carry forward of losses of Assessment Year 1950-51 has to be decided in the assessment of Assessment Year 1951-52 and the decision of Assessing Officer in respect of non carry forward of losses in the assessment of Assessment Year 1950-51 is not binding. In present case, it is not the Assessing Officer but the auditor who made a mistake in the audit report of Assessment Year 29000-01 by stating that depreciation of Assessment Years prior to 1989-90 of Rs. 447664/- are available for carry forward and business loss of Rs.9602352/- of Assessment Year 1992-93 is available for carry forward. The priority of carry forward and set off of business loss over depreciation is mentioned in section 72(2) of the IT Act and therefore the correct position of carry forward of depreciation and business loss after Assessment Year 2000-01 is that the depreciation of Assessment Years prior to 1989-90 of Rs.8665509/- are available for carry forward and
ITA No.1389/Kol/2010 & CO 98/Kol/2010 A.Y. 2001-02 DCIT CC-XXVII Kol. V. M?s Budge Budge Refineries Ltd. Page 5 business loss of Rs.13,84,507/- (after setting off the income of Rs.82,17,845 from loss of Rs.96,02,352) of Assessment Year 1992-93 could be available for carry forward to Assessment Year 2001-02 but as the carry forward will be for 9th year, NIL business loss of Assessment Year 1992-93 can be carried forward to Assessment year 2001-02. In view of the above mentioned judgement of Hon'ble Supreme Court the correct position of such carry forward of depreciation and loss from Assessment Year 2000-01 can be decided in the appeal of Assessment Year 2001-02. The carry forward of depreciation and business loss from earlier Assessment Years for the Assessment Year 2001-02 as mentioned by Assessing Officer in the assessment order therefore stands corrected as under:-
Assessment Year Business loss Depreciation 1999-00 221678 193374 1998-99 1846932 212475 1997-98 2121308 --- 1996-97 363988 246369 1992-93 594253 1991-92 ---- 1990-91 780223 1989-90 2625627 Earlier years 8665509 Total 4553906 13317830
Being aggrieved by this order of Ld CIT(A) Revenue is in appeal before us.
We have heard rival contentions of both the parties and perused the materials available on record. Before us Ld. AR submitted a paper book which is running from pages 1 to 97 and stated that the AO has relied on the tax audit report for working out the business loss and unabsorbed depreciation without considering the year-wise detail of such losses and unabsorbed depreciation available with Revenue authorities. The AO was to allow the brought forward business loss and unabsorbed depreciation in the following sequence. 1. Depreciation for the Current Year 2. Unabsorbed business loss of the earlier years 3. Unabsorbed depreciation of the earlier years
Ld AR relied on the order of learned CIT(A) and stated that the issue may be decided on merit. On the other hand, Ld DR submitted that in many cases the proof for filing the return of income has not been furnished by the assessee
ITA No.1389/Kol/2010 & CO 98/Kol/2010 A.Y. 2001-02 DCIT CC-XXVII Kol. V. M?s Budge Budge Refineries Ltd. Page 6 which is the precondition for setting off the loss. As per law the return of income must have been filed within the due date as specified under section 139(1) of the Act for claiming the set off of the loss of that year and he simply relied on the order of AO. From the facts of the case we find that the auditor of the assessee has adjusted the profit for the assessment year 2000 -01 against the unabsorbed depreciation of earlier years prior to the assessment years 1989-90. For the same assessment year there was brought forward business loss for the assessment year 1992-93 which was available for set off against the income for the assessment year 2000-01 and for this loss the profit for the assessment year 2000-01 was the last year for set off. But the auditor of the assessee did not do so. As a result the loss for the assessment year 1992-93 got lapsed and was not allowed to be carried forward in the subsequent year in terms of the provision of section 72(3) of the Act. However in the subsequent year i.e. AY 2001-02 there was profit and the assessee claimed the set off of the loss of earlier years including the loss of the assessment year of 1992-93 but the AO denied the same. However the CIT(A) allowed the relief to the assessee. Now, the following questions arise before us for adjudication whether the mistake committed by the auditor in the assessment year 2000-01 can be rectified in the assessment year 2001-02.
In our considered view the AO while framing the assessment on the assessee should apply the provisions of the income tax act correctly. The assessee should not be deprived from the benefit of the provisions of the income tax act on account on the mistake committed by the auditor of the company. In this connection we are also putting our reliance in the decision of Hon’ble Supreme Court in the case of CIT v. Manmohan Das (1966) 59 ITR 699 (SC) wherein has held whether the loss in any year may be carried forward to the following year and set off against the profits and gains of the subsequent year under section 24(2) has to be determined by the Income-tax Officer who deals with the assessment of the subsequent year. A decision recorded b the Income-tax Officer who computes the loss in the previous year
ITA No.1389/Kol/2010 & CO 98/Kol/2010 A.Y. 2001-02 DCIT CC-XXVII Kol. V. M?s Budge Budge Refineries Ltd. Page 7 that the loss cannot be set off against the income of the subsequent year is not binding on the assessee. Relying on the aforesaid judgments, we have no hesitation in upholding the order of learned CIT(A). Hence this ground of appeal of Revenue is dismissed. Coming to assessee’s CO No. 98/Kol/2010. 7. During the course of hearing before us, Ld. AR did not press for ground No.1 & 2 same stand dismissed as not pressed.
Coming to ground No.3 of assessee’s CO is that Ld. CIT(A) erred in holding that the unabsorbed depreciation upto the AY 1996-97, for this, assessee has raised following ground:- “3) That the learned Commissioner of Income Tax (Appeals) erred in holding that the unabsorbed depreciation up to the Assessment Year 1996-97 will be added to the depreciation allowance of 1997-98 and that such unabsorbed depreciation could be carried forward for set off for a maximum period of eight years from the Assessment year 1997- 98.”
Regarding the dispute of unabsorbed depreciation and its carry forward to the subsequent years, we rely in the decision of Hon’ble High Court of Gujrat in the case of General Motors India Pvt. Ltd. Vs DCIT 25 taxmann.com 364 where it was held as under:- 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. The finance Act No 2 of 1996 restricted the carry forward of unabsorbed de and set-off to a limit of 8 years, from the assessment year 1997-98. CBDT Circular No. 762 dated 18- 2-1998 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 e deemed to be part thereof. [Para 31] So, the unabsorbed depreciation allowance of assessment year 1996-97 would be added to the allowance of assessment year 1997-98 and the limitation of 8 years for the carry-forward and set-off of such unabsorbed depreciation would start from assessment year 1997-98. [Para 32] The provision of section 32(2) was introduced by Finance (No. 2) Act, 1996 and further amended by the Finance Act, 2000. The provision introduced by
ITA No.1389/Kol/2010 & CO 98/Kol/2010 A.Y. 2001-02 DCIT CC-XXVII Kol. V. M?s Budge Budge Refineries Ltd. Page 8 Finance (No. 2) Act was clarified by the Finance Minister to be applicable with prospective effect. [Para 34]
The said 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. This amendment has become applicable from assessment year 2002-03 and subsequent years meaning that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (assessment year 2002-03) will be dealt within 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. It the intention of the Legislature has been to allow the unabsorbed depreciation allowance worked out in assessment year 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, a purposive and harmonious interpretation has to be taken keeping in view the purpose of amendment of section 32(2). 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 section by the clear words used in 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 business or profession for any previous year, deduction of depreciation under 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 assessment years 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 assessment year 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. [Para 37]
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 in excess than the amount of the profits of that business, then such excess should be adjusted against the profits and gains from any other 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 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. It is held 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
ITA No.1389/Kol/2010 & CO 98/Kol/2010 A.Y. 2001-02 DCIT CC-XXVII Kol. V. M?s Budge Budge Refineries Ltd. Page 9 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 assessment year 1997-98 up to the assessment year 2001- 02 got carried forward to the assessment year2002-03 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 yeas, without any limit whatsoever. [Para 38] For the aforesaid reasons, this writ petition succeeds and is allowed. [Para 39] Taking a consistent view of Hon’ble Gujarat High Court in the case of General Motors India Pvt. Ltd. (supra) we allow ground No.3 of assessee’s CO.
In the result, assessee’s CO is partly allowed.
In the result, Revenue’s appeal stands dismissed and that of assessee’s CO is partly allowed. Order pronounced in the open court 19/04/2016
Sd/- Sd/- (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata,
*Dkp �दनांकः- 19/04/2016 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-M/s Budge Budge Refineries Ltd. 23B, A.M. Ghosh Road, Budge Budge, Kolkata-700 137 2. राज�व/Revenue-DCIT, CC-XXVII, 5th fl, 18, Rabindra Sarani, Kolkata-01 3. संबं�धत आयकर आयु�त / Concerned CIT Kolkata 4. आयकर आयु�त- अपील / CIT (A) Kolkata 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता ।