Commissioner Of Income Tax v. Shree Sulphurics Ltd.....opponent(S

O/TAXAP/931/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 931 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI Sd/- andHONOURABLE MR.JUSTICE K.J.THAKERSd/- ====================================== 1 Whether Reporters of Local Papers may be allowed to see Nothe judgment ?the judgment ? 2 To be referred to the Reporter or not ?No 3 Whether their Lordships wish to see the fair copy of the Nojudgment ?judgment ? 4 Whether this case involves a substantial question of law as to Nothe interpretation of the Constitution of India, 1950 or any order made thereunder ?the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? No ====================================== COMMISSIONER OF INCOME TAX....Appellant(s) Versus SHREE SULPHURICS LTD.....Opponent(s) ====================================== Appearance: MR NITIN K MEHTA, ADVOCATE for the Appellant(s) No. 1RULE SERVED for the Opponent(s) No. 1 ====================================== CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 09/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.By way of this appeal, the appellant has challenged the judgment and order of Income Tax Appellate Tribunal dated 31.1.2006 in ITA No.2281/Ahd/1998, whereby the tribunal has allowed the appeal of the assessee reversing the order of the Commissioner of Income Tax (Appeals). 2.The brief facts leading to the filing of the present appeal can be summarized thus: 2.1The assessee is engaged in the business of manufacturing sulphuric acid and selling the same. During the assessment year 1992-93, the assessee did not claim depreciation and by not claiming the depreciation, the assessee has shown income and the same was set-off from investment allowance of A.Y. 1984-85 which was otherwise getting lapsed. The assessee was confronted as to why depreciation should not be allowed and in response to that the assessee relied on the decision of this Court in the case of CIT v. Arun Textiles (192 ITR 700) and submitted that the depreciation cannot be enforced upon the assessee if the same has not been claimed. However, the Assessing Officer hold that the claim of depreciation of the assessee has to be allowed and that the judgment relied upon by the assessee is not applicable in the facts of the present case. The Commissioner of Income Tax (Appeals) has also confirmed the said observation of the Assessing Officer. However, in appeal the Income Tax Appellate Tribunal found that the depreciation cannot be refused to the assessee and accordingly allowed the appeal of the assessee. Being aggrieved by the said order, present appeal is preferred by the department. 3.At the time of admitting the appeal, following substantial question of law was framed for consideration of this Court. “Whether the Appellate Tribunal was justified in law in holding that the claim of depreciation cannot be thrust upon the assessee ignoring the fact that this decision pertains to the position of law existing prior to 01.04.1988?” 4.Learned counsel for the appellant submitted that the tribunal has committed error in allowing the claim of the assessee and holding that the depreciation cannot be enforced on the assessee. It is submitted that provision of Explanation 5 to Section 32 for the grant of depreciation even in cases where there is no claim made by the assessee is applicable in the case of assessee for the assessment year 1992-93. He submitted that in view of this the present appeal is required to be allowed. “Whether the Appellate Tribunal was justified in law in holding that the claim of depreciation cannot be thrust upon the assessee ignoring the fact that this decision pertains to the position of law existing prior to 01.04.1988?” 4.Learned counsel for the appellant submitted that the tribunal has committed error in allowing the claim of the assessee and holding that the depreciation cannot be enforced on the assessee. It is submitted that provision of Explanation 5 to Section 32 for the grant of depreciation even in cases where there is no claim made by the assessee is applicable in the case of assessee for the assessment year 1992-93. He submitted that in view of this the present appeal is required to be allowed. 5.We have gone through the materials on record and also considered the various decisions referred to and relied upon by the parties. In our view, the substantial question of law raised in this matter is already answered by this Court in its earlier decision in the case of Surat Textile Mills Limited v. Income Tax Officer reported in [2014] 224 Taxman 170 (Gujarat). The relevant observations made by this Honourable Court are reproduced hereunder: “7.We are conscious that the original assessment was not made after scrutiny. It was a case of acceptance of return under section 143(1) of the Act. Under the circumstances, as held by the Supreme Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd (supra), Revenue would have considerable latitude in reopening the assessment. In any case, there would be no case of change of opinion since the Assessing Officer could not have been stated to have formed any opinion previously. Nevertheless, reopening is resorted to under section 147 of the Act and the basic requirement of the Assessing Officer having reason to believe that income chargeable to tax had escaped assessment must be fulfilled. This Court in the case of Inductotherm (I) P. Ltd v. M.Gopalan, Deputy CIT, 356 ITR 481 (Guj.) held and observed as under: “13. Despite such difference in the scheme between a return which is accepted under section 143(1) of the Act as compared to a return of which scrutiny assessment under section 143(3) of the Act is framed, the basic requirement of section 147 of the Act that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 of the Act permits the Assessing Officer to assess, re-assess the income or re-compute the loss or depreciation if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. This power to reopen assessment is available in either case, namely, while a return has been either accepted under section 143(1) of the Act or a scrutiny assessment has been framed under section 143(3) of the Act. A common requirement in both of cases is that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment.” xxxxxxxxxx 16.It would, thus, emerge that even in case of reopening of an assessment which was previously accepted under section 143(1) of the Act without scrutiny, the Assessing Officer would have power to reopen the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. However, as held by the Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) and several other decisions, such reason to believe need not necessarily be a firm final decision of the Assessing Officer.” xxxxxxxxxx 16.It would, thus, emerge that even in case of reopening of an assessment which was previously accepted under section 143(1) of the Act without scrutiny, the Assessing Officer would have power to reopen the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. However, as held by the Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) and several other decisions, such reason to believe need not necessarily be a firm final decision of the Assessing Officer.” 8.As per the Assessing Officer, the petitioner was required to first claim the depreciation of the current year before claiming set off of the unabsorbed depreciation of business loss of the earlier period. The Supreme Court in the case of CIT v. Mahendra Mills, 243 ITR 56 held that language of section 32 and 34 of the Act is specific and admits of no ambiguity. It does not place any mandatory duty on the Assessing Officer to allow depreciation if the assessee does not want to claim that. The provision for claim of depreciation is certainly for the benefit of the assessee. If he does not wish to avail of that benefit for some reason, the benefit cannot be forced upon him. Explanation 5 to section 32(1) introduced with effect from 1.4.2002 now provides that for removal of doubts, it is declared that the provisions of the said subsection shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. Thus, the compulsion of claiming depreciation arose with introduction of the said explanation. 9.In the case of CIT v. Kerala Electric Lamp Works Ltd. 261 ITR 721, Kerala High Court held that explanation 5 would be applicable only from 1.4.2002. The Revenue’s contention that the explanation merely clarified the position and would therefore be applicable to all pending proceedings was not accepted on the premise that such explanation cannot take away the effect of declaration of law made by the Supreme Court in the case of Mahendra Mills (supra). It was observed that the memorandum explaining the said provisions also clarified that the same will take effect from 1.4.2002. Accordingly, when the assessee had not made claim for depreciation for the assessment year 1989-90, it was held that the Assessing Officer was not justified in allowing such deduction. 10.In the case of CIT v. Sree Senha Valli Textiles P. Ltd. 259 ITR 77, similar view was adopted by the Madras High Court. For the assessment year 1998-99, the assessee had filed a revised return withdrawing the claim for depreciation made earlier. Revenue had contested the same on the basis of explanation 5 to section 32(1). The High Court held that such explanation would take effect only from 1.4.2002 and will not be applicable to prior years. For the assessment year 1998-99, no deprecation was required to be allowed if the same had not been claimed. Similar view was taken by the Karnataka High Court in the case of CIT v. Mysore Cements Ltd., (2013) 34 taxmann.com 8 (Karnataka) holding that the said amount was only prospective and had no application to the cases relating to assessment year 1998-99. None of these judgments appeared to have been challenged by the Revenue. We are informed that no appeal is pending before the Supreme Court. It would thus appear that the view expressed by three different High Courts independently has been accepted by the Revenue. We would, therefore, proceed on such basis. Similar view was taken by the Karnataka High Court in the case of CIT v. Mysore Cements Ltd., (2013) 34 taxmann.com 8 (Karnataka) holding that the said amount was only prospective and had no application to the cases relating to assessment year 1998-99. None of these judgments appeared to have been challenged by the Revenue. We are informed that no appeal is pending before the Supreme Court. It would thus appear that the view expressed by three different High Courts independently has been accepted by the Revenue. We would, therefore, proceed on such basis. 11.Reverting back to the facts of the case, we may recall that the sole ground on which the Assessing Officer desires to reopen the assessment is that the assessee did not claim depreciation of the current year while seeking set off of the unabsorbed business loss of earlier years. This, according to the Assessing Officer, would enable the assessee to claim depreciation selectively and prolong the claim beyond eight years. In view of the legal position clarified by different High Courts, what the assessee had done was well within thin the legal framework. It was open for the assessee not to claim depreciation till the amendment was made by explanation 5 in section 32(1) of the Act which had the effect only from 1.4.2002. That being the position, the very belief of the Assessing Officer that income chargeable to tax had escaped assessment lacks validity.” 6.While allowing the appeal of the assessee, the tribunal has also observed as under in paragraph 3 of its order: “3............ On the facts and circumstances of the case, in our opinion, depreciation cannot be enforced on the assessee in view of the Supreme Court decision in the case of Mahendra Mills Ltd. (supra) and the Kerala High Court decision in the case of Kerala Electric Lamp Works Ltd. (supra). We accept the claim of the assessee and allow the appeal.” 7.In view of above observations, we are in agreement with the view taken by the tribunal. Therefore, the question of law raised in this appeal is answered in favour of the assessee and against the department. Accordingly, the appeal stands dismissed. Sd/-(K.S.JHAVERI, J.) *malek Sd/-(K.J.THAKER, J)