ITA No. 802/Kol/2013 A.Y 2007-08
D.C.I.T (Appellant) vs M/s. The India Jute& Industries Ltd (Respondent)
Date of Order: 04-12-2015

ORDER

SHRI M.BALAGANESH, AM :
This appeal of the revenue arises out of the order passed by the Learned CIT(A), XXIV, Kolkata in Appeal No. 1148//CIT(A)-XXIV/C-1/12-13 for the Asst Year 2007-08 dated 08-01-2013 against the order of assessment passed by the Learned AO u/s 154/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

2. The only issue to be decided in this appeal is as to whether the assessee is entitled to carry forward the unabsorbed depreciation of Rs. 2,61,32,164/- pertaining to Asst Year 1996-97 and earlier and whether such adjustment of non-granting of set off of such losses could be made in an order u/s 154 of the Act.

3. The brief facts of this issue is that the return of income for the Asst Year 2007-08 was filed by the assessee on 31.10.2007 declaring total income of Rs. 54,20,232/- under the head ‘profits and gains from business or profession’ and claimed the same to be set off against the brought forward business losses of Asst Year 1999-2000. The assessment was completed u/s 143(3) by the Learned AO on 23.11.2009. The total income was assessed at Rs. 2,61,32,164/- before allowing set off of the brought forward unabsorbed depreciation for earlier years. The Learned AO allowed set off of the unabsorbed depreciation of Rs. 2,61,32,164/- for the Asst Years 1983-84 to 1992-93. He also passed an order to the effect that balance unabsorbed brought forward depreciation and unabsorbed business losses as shown in Annexure 11 of Tax Audit Report are allowed to be carried forward. The assessee accepted the said order and no appeal was filed against such adjustment of unabsorbed depreciation with the income so assessed. However, the assessee filed an appeal against different additions and disallowances made in the assessment order dated 23.11.2009 u/s 143(3) of the Act. Later the assessee was served with a notice u/s 154 of the Act dated 1.3.2011 alleging that the assessment order u/s 143(3) of the act passed on 23.11.2009 for the Asst Year 2007-08 requires to be amended as there is a mistake apparent from records within the meaning of section 154 of the Act. The particulars of mistake sought to be rectified was stated to be “Mistake in set off of unabsorbed brought forward depreciation of earlier years” . According to Learned AO, the brought forward unadjusted depreciation allowance upto Asst Year 1996-97 which could not be set off upto Asst Year 1996-97, shall be carried forward for set off against income under any head for a maximum period of 8 assessment years commencing from Asst Year 1997-98 and therefore, such unadjusted depreciation allowance can only be set off upto Asst Year 2004-05 and not thereafter.

3.1. The assessee vide its letter dated 9.3.2011 explained that the Learned AO should have adjusted the brought forward business losses for the Asst Year 1997-98 and onwards in preference to set off of the unabsorbed depreciation. The Learned AO however, while passing the rectification order u/s 154 allowed the claim for setting off the unabsorbed business losses for the Asst Year 1999-2000 as against the assessee’s claim for set off the unabsorbed business losses brought forward from Asst Year 1997- 98 and onwards. The Learned AO in the order passed u/s 154 by placing reliance on the decision of the Mumbai Tribunal in the case of Times Guaranty Ltd in ITA No. 4917 & 4918 / Mum / 2008 held as follows:-

- the brought forward unabsorbed depreciation upto Asst Year 1996-97 shall not be allowed to be carried forward.
- the brought forward unabsorbed depreciation for the Asst Years 1997-98 to 1999-2000 is also not allowed to be carried forward
- the brought forward unabsorbed depreciation for the Asst Years 2000-01 & 2001-02 is allowed to be carried forward upto Asst Years 2008-09 & 2009-10 respectively and to be set off only against the business income.
- the balance unabsorbed brought forward business loss of Rs. 12,21,315/- (2,73,53,459 -2,61,32,164) is not allowed to be carried forward.

4. On first appeal, the Learned CITA allowed the appeal of the assessee by placing reliance on the decision of Hon’ble Gujarat High Court in the case of General Motros India Pvt Ltd vs DCIT reported in (2012) 25 taxmann.com 364 (Guj).

Aggrieved, the revenue is in appeal before us on the following ground:-

“That on the facts and circumstances of the case, the ld.CIT(A) has erred in deleting the disallowance of set-off of unabsorbed depreciation of Rs.2,61,32,164/-, which pertains to the period beyond the stipulated period of eight years limit.”

5. The Learned DR argued that Section 32(2) of the Act was amended by Finance Act 1996 with effect from 1.4.1997 curtailing the number of years of set off of unabsorbed depreciation to 8 years and bringing it at par with set off of unabsorbed business losses. Again Section 32(2) of the Act was amended by Finance Act 2001 with effect from 1.4.2002 reintroducing the old version of section 32(2). He argued that the Explanatory Memorandum to Finance Act 2001 clearly states that the amended section 32(2) of the Act is prospective in nature and is effective only from Asst Year 2002-03 and hence in this scenario, the assessee could get the benefit of set off of brought forward unabsorbed deprecation losses for an infinite period only in respect of losses arising from Asst Year 2002-03 onwards and not for earlier years. He placed reliance on the judgements of Hon’ble Madras High Court in the case of CIT vs Pioneer Asia Packing P Ltd reported in 310 ITR 198 (Mad) and CIT vs S&S Power Switchgear Ltd reported in 318 ITR 187 (Mad) in support of his contentions. He further argued that in the facts and circumstances of the case, the only possible action that could be taken by the Learned AO is to take recourse to section 154 of the Act, more so when the issue involved is only allowability of brought forward unabsorbed depreciation and business losses to be carried forward. He placed reliance on the decision of the Hon’ble Kerala High Court in the case of K.K.J.Foundations vs ADIT (Exemptions) reported in (2015) 62 taxmann.com 178 (Kerala) with regard to the purview of section 154 of the Act. Accordingly, he argued that there is no infirmity in the order passed by the Learned AO.

6. In response to this, the Learned AR argued that the impugned issue is squarely covered in favour of the assessee by the decision of the Hon’ble Gujarat High Court in the case of General Motors India P Ltd vs DCIT reported in (2012) 25 taxmann.com 364 (Guj). He further argued that in any case, the Learned AO ought not to have disturbed the brought forward unabsorbed depreciation losses in the proceedings u/s 154 of the Act pursuant to the amendments in section 32(2) of the Act by Finance Act 1996 and again by Finance Act 2001 as the impugned issue is highly debatable which even gave rise to a substantial question of law and a special bench was even created by the tribunal to adjudicate this issue. Hence given this fact, the same cannot be the subject matter of rectification proceedings u/s 154 of the Act.

7. We have heard the rival submissions and perused the case laws relied upon by both the counsels. We find that the section 32(2) of the Act pursuant to the amendment in Finance Act 1996 curtailed the benefit of carry forward of unabsorbed depreciation loss to a period of 8 years and brought the said provision at par with the unabsorbed business losses. This provision was in force till Asst Year 2001-02. Again the Finance Act 2001 with effect from Asst Year 2002-03 amended Section 32(2) of the Act and restored back to the original version of the section as it stood prior to amendment by Finance Act 1996, allowing the benefit of carry forward of losses to an infinite period and treating the same different from that of unabsorbed business losses. We find from the Explanatory memorandum to Finance Act 2001 clearly spells out the intention behind this amendment which is as below:-

With a view to enable the assesses to conserve sufficient funds to replace capital assets, especially in an era where obsolescence takes place so often, the Bill proposes to dispense with the restriction of 8 years for carry forward and set off of unabsorbed depreciation.

This clearly goes to prove the intention of the legislature to provide the benefit of brought forward unabsorbed depreciation to be allowed to be eternally carried forward for an infinite period irrespective of the years to which it pertains. Though it is stated that the proposed amendment will take effect from 1st April 2002, going by the intention behind the amendment to this section vide Finance Act 2001 restoring back to the same old provisions as it was then existing prior to 1.4.1997 , it could only be logical to conclude that the legislature in its wisdom thought it fit not to disturb any of the unabsorbed depreciation losses to be made available for set off for an infinite period. In other words, the same has to be understood as the legislature only intended that any unabsorbed depreciation available to an assessee as on 1st April 2002 will be dealt with in accordance with the provisions of section 32(2) of the Act as amended by Finance Act 2001 and not by the provisions of section 32(2) of the Act as it stood before the said amendment. We find that no specific provision has been incorporated by the Finance Act 2001 in section 32(2) of the Act restricting the allowability of carry forward of unabsorbed depreciation loss upto Asst Year 1996-97 as available to be set off only for a period of 8 years. Hence we hold that the purposive and harmonious interpretation has to be taken keeping in view the intention of the amendment of section 32(2) of the Act by Finance Act 2001. We hold that 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 the assessee or the revenue. But if the legislature fails to express clearly and the assessee becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assessee cannot be denied. We also gain support from our understanding of this amended provision of section 32(2) of the Act from the decision of Hon’ble Gujarat High Court in the case of General Motros India Pvt Ltd vs DCIT reported in (2012) 25 taxmann.com 364 (Guj), wherein it was held that :-

“….. ….. 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 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.”

This judgement of Hon’ble Gujarat High Court was further followed in the subsequent decision of the same court in the case of CIT vs Gujarat Themis Biosyn Ltd reported in (2014) 44 taxmann.com 204 (Gujarat).

7.1. We find that the Learned DR relied on the decisions of two court judgements

rendered by Hon’ble Madras High Court in the case of CIT vs Pioneer Asia Packing P Ltd reported in 310 ITR 198 (Mad) and CIT vs S&S Power Switchgear Ltd reported in 318 ITR 187 (Mad). We find that the issue before the Hon’ble Madras High Court and decision rendered thereon is as below:-

As a result of the amendment of section 32(2) of the Income Tax Act, 1961, with effect from April 1, 1997, the deeming fiction of treating the earlier years unabsorbed depreciation as the current year’s depreciation was removed. The period available for absorbing the unabsorbed depreciation against the profit of the succeeding years wsa limited to eight years.

Held accordingly, that the Tribunal was right in its conclusion that the unabsorbed depreciation brought forward as on April 1, 1997, could be set off against the business profits and in remitting the matter to the file of the Assessing officer for verification as to how much depreciation was available upto April 1, 1997, that could be included in the income of the assessee.

Similar was the decision rendered by the Hon’ble Madras High Court in 318 ITR 187 (Mad). We find that these judgements did not discuss about the amendment made in section 32(2) of the Act by the Finance Act 2001 effective from Asst Year 2002-03 and hence is squarely distinguishable from the facts of the instant case. We find that the decision rendered by Hon’ble Gujarat High Court (supra) had discussed the impugned issue in post amendment period and would be applicable to the facts of the instant case. In any event, it is very well settled that when there are two conflicting decisions on an issue of the same court or different courts, then the decision that is favourable to the assessee has to be applied. Reliance in this regard is placed on the decision of Hon’ble Apex Court in the case of Vegetable Products reported in 88 ITR 172 (SC). In view of the above, we find no infirmity in the order passed by the Learned CIT(A) on merits of the issue.

7.2. In any case, we find that this particular issue has been the subject matter of huge debate and dispute and also gave rise to the creation of special bench by the tribunal to adjudicate this issue which goes to prove that the issue is highly debatable and hence cannot be the subject matter of rectification proceedings u/s 154 of the Act. In our opinion, what could be rectified u/s 154 of the Act is a mistake which must be obvious and patent and not something which can be established by a long drawn process of reasoning as has been held by the Hon’ble Supreme Court in the case of T.S.Balaram, ITO vs Volkart Bros reported in 82 ITR 50 (SC).

In view of this, we find that the Learned AO clearly erred in adjudicating this highly debatable issue under rectification proceedings u/s 154 of the Act which is not permissible and accordingly we quash the said order.

8. In the result, the grounds raised by the revenue are dismissed.

Order pronounced in the open court on 4 -12-2015.