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«IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 3955 of 2014 ================================================================ ...»

-- [ Page 1 ] --

C/SCA/3955/2014 ORDER

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

SPECIAL CIVIL APPLICATION NO. 3955 of 2014

================================================================

SAHKARI KHAND UDYOG MANDAL LTD.....Petitioner(s)

Versus

ASSTT. COMMISSIONER OF INCOME TAX....Respondent(s)

================================================================

Appearance:

MR MANISH J SHAH, ADVOCATE for the Petitioner(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for the Respondent(s) No. 1 ================================================================

CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI

and

HONOURABLE MS JUSTICE SONIA GOKANI

Date : 31/03/2014

ORAL ORDER

(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

Heard learned counsel for the parties for final disposal of the petition.

The petitioner is a co-operative society. Petitioner has challenged the notice dated 25.3.2013 seeking to reopen the assessment of the petitioner for the year 2008-09 which was framed after scrutiny. Such notice was thus issued within a period of four years from the end of the relevant assessment year. The department supplied to the petitioner the reasons recorded by the Assessing

Officer for issuing such notice. The reasons read as under:

“The Assessee is a co-operative society registered under the Gujarat http://www.itatonline.org Page 1 of 14 C/SCA/3955/2014 ORDER Cooperative Society Act, engaged in business of manufacturing and sales of sugar and its byeproducts viz. Bagasse, Press, mud and molasses. The assessee filed its return of income for A.Y.2008-09 on 29.9.2008 declaring total income of Rs.Nil. The assessment was completed in scrutiny manner u/s. 143(3) of the I.T.Act, 1961 on 27.12.2010 determining total income at Rs.Nil.

On verification of record, it is observed that the assessee was allowed to carry forward brought forward unabsorbed depreciation pertaining to different preceding A.Ys. (i.e. A.Y. 2001-01, A.Y. 2006-07 and A.Y.

2007-09). Out of these losses, unabsorbed depreciation losses of Rs.1,19,78,728/- pertaining to A.Y. 2001-01 was not eligible to be carried forward, as eight succeeding A.Y. Completed in A.Y.2008-09.

As per sub-section 3 of section 72 of I Tax Act, 1961, no loss shall be carried forward and set off for more than eight assessment year for which the loss was first computed. As per sub section 2(iii)(b) of section 32 as amended by the Finance (No.2) Act, 1996 with effect from 1st April 1997, if the unabsorbed depreciation allowance cannot be wholly set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment year immediately succeeding the assessment year for which the aforesaid allowance was first computed.

In view of the I.T. Provisions and decision mentioned above, the assessee was entitled to carry forward the unabsorbed losses up to the prescribe time limit i.e. 8 years only i.e. upto A.Y.2008-09. Thus, the brought forward unabsorbed depreciation of Rs.1,19,78,728/- allowed to be carried forward to next year was contrary to the provisions as stated above.

Therefore, I have reason to believe that excess carry forward loss to the above extent is escaped assessment within the meaning of section 147 of the I.T. Act, 1961.” On 7.2.2014, the petitioner filed its objections to the notice for reopening. Such objections were dismissed by the Assessing Officer by an order dated 6.3.2014. Hence this petition.

Learned counsel for the petitioner contended that from the record it emerges that the sole ground on which the Assessing

–  –  –

Officer desires to reopen the assessment is that unabsorbed depreciation could not be carried forward beyond the period of eight years. Assessment year 2008-09 not being the year within such time limit, the assessee could not have claimed unabsorbed depreciation for the said assessment year.

Counsel further submitted that question of allowing the depreciation pertaining to earlier years which had remained unabsorbed was examined by the Assessing Officer during the course of original scrutiny assessment. Any attempt on his part to revisit the issue would be based on mere change of opinion.

Counsel alternatively contended that the question of attaching time limit for carrying forward such unabsorbed depreciation has been gone into by this Court in the case of General Motors India P.

Ltd. v. Deputy CIT, (2013) 354 ITR 244 (Guj.) in which it is held that such carry forward of unabsorbed depreciation and set off would be permissible without reference to any time limit.

On the other hand, learned counsel Shri Sudhir Mehta for the department opposed the petition contending that in the original assessment this question was not examined. Notice has been issued within a period of four years from the end of relevant assessment year. Question of sufficiency of reasons cannot be examined by the court in writ jurisdiction.

From the record, we do not find that the question of permitting set off of unabsorbed depreciation of earlier years beyond eight

–  –  –





years was ever examined by the Assessing Officer in the original scrutiny assessment. Counsel for the petitioner pointed out that against the petitioner’s claim of unabsorbed depreciation of Rs.2.29 crores (rounded off) for the assessment year 2000-01, the Assessing Officer in the order of assessment has allowed carry forward of only Rs.1.19 crores (rounded off). Admittedly, there were no queries by the Assessing Officer with respect to carry forward of unabsorbed depreciation beyond eight years and no corresponding representation from the petitioner on this aspect. The element of amount to be carried forward of unabsorbed depreciation for the year 2000-01 had no relevance to this aspect. In our opinion, therefore, this issue on the basis of which the impugned notice is founded was not scrutinized by the Assessing Officer in the original assessment.

However, we find much force in the alternative contention of the petitioner, namely, that the issue itself has been decided by this Court in favour of the assessee. In similar circumstances in the case of General Motors India P. Ltd. (surpa), this Court held and

observed as under:

“30. The last question which arises for consideration is that whether the unabsorbed depreciation pertaining to A.Y. 1997could be allowed to be carried forward and set off after a period of eight years or it would be governed by Section 32 as amended by Finance Act 2001? The reason given by the Assessing Officer under section 147 is that Section 32(2) of the Act was amended by Finance Act No.2 of 1996 w.e.f. A.Y. 1997and the unabsorbed depreciation for the A.Y. 1997-98 could be carried forward up to the maximum period of 8 years from the year in which it was first computed. According to the Assessing Officer, 8 years expired in the A.Y. 2005-06 and only http://www.itatonline.org Page 4 of 14 C/SCA/3955/2014 ORDER till then, the assessee was eligible to claim unabsorbed depreciation of A.Y. 1997-98 for being carried forward and set off against the income for the A.Y. 2005-06. But the assessee was not entitled for unabsorbed depreciation of Rs.43,60,22,158/- for A.Y. 1997-98, which was not eligible for being carried forward and set off against the income for the A.Y. 2006-07.

31. 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 depreciation and set-off to a limit of 8 years, from the A.Y.1997-98. Circular No.762 dated 18.2.1998 issued by the Central Board of Direct Taxes (CBDT) 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 be deemed to be part thereof.

32. So, the unabsorbed depreciation allowance of A.Y. 1996would be added to the allowance of A.Y. 1997-98 and the limitation of 8 years for the carry-forward and set-off of such unabsorbed depreciation would start from A.Y. 1997-98.

33. We may now examine the provisions of section 32(2) of the Act before its amendment by Finance Act 2001. The section prior to its amendment by Finance Act, 2001, read as under:Where in the assessment of the assessee full effect cannot be given to any allowance under clause (ii) of sub-section (1) in any previous year owning to there being no profits or gains chargeable for that previous year or owing to the profits or gains being less than the allowance, then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as unabsorbed depreciation allowance), as the case may be,i) shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year;

(ii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year;

(iii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i) and Clause (ii), the amount of allowance not so set off shall be carried forward to the

–  –  –

(b) if the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the

aforesaid allowance was first computed:

Provided that the time limit of eight assessment years specified in sub-clause (b) shall not apply in case of a company for the assessment year beginning with the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Company (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year relevant to the previous year in which the entire net worth of such company becomes equal to or exceeds the accumulated losses.

Explanation.- For the purposes of this clause, “net worth” shall have the meaning assigned to it in clause (ga) of subsection (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985.”

34. The aforesaid provision was introduced by Finance (No.2) Act, 1996 and further amended by the Finance Act, 2000. The provision introduced by Finance (No.2) Act was clarified by the Finance Minister to be applicable with prospective effect.

35. Section 32 (2) of the Act was amended by Finance Act, 2001 and the provision so amended reads as under :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 for that previous year, 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 subsection (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 allowance of that previous year, and so on for the succeeding previous years.”

36. The purpose of this amendment has been clarified by

–  –  –

Central Board of Direct Taxes in the Circular No.14 of 2001. The relevant portion of the said Circular reads as under :Modification of provisions relating to depreciation

30.1 Under the existing provisions of section 32 of the Incometax Act, carry forward and set off of unabsorbed depreciation is allowed for 8 assessment years.

30.2 With a view to enable the industry to conserve sufficient funds to replace plant and machinery, specially in an era where obsolescence takes place so often, the Act has dispensed with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The Act has also clarified that in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory.

30.3 Under the existing provisions, no deduction for depreciation is allowed on any motor car manufactured outside India unless it is used (i) in the business of running it on hire for tourists, or (ii) outside in the assessee’s business or profession in another country.

30.4 The Act has allowed depreciation allowance on all imported motor cars acquired on or after 1st April, 2001.

–  –  –

2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years.”

37. The 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. The amendment is applicable from assessment year 2002-03 and subsequent years. This means 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 not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in A.Y.



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