In Itat/162/2017 Principal Commissioner Of Income Tax, Kolkata-4, Kolkata v. M/S. Jct Limited

OD – 36 IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE IA NO:GA/2/2017 (OLD NO. GA/1419/2017) INITAT/162/2017PRINCIPAL COMMISSIONER OF INCOME TAX, KOLKATA-4,KOLKATAVS.M/S. JCT LIMITED BEFORE :THE HON’BLE JUSTICE T.S. SIVAGNANAM A N DTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate: November 25, 2021. Appearance :Mr. P.K. Bhowmick, Adv.… for the appellant Mr. Asim Choudhury, Adv.… for the respondent The Court :This appeal filed by the revenue under Section260A of the Income Tax Act, 1961 (the Act, in brevity) is directedagainst the order dated 1[st] June, 2016 passed by the Income TaxAppellate Tribunal “D” Bench, Kolkata in ITA No.1983/Kol/2013 forthe Assessment Year 2008-09. The revenue has framed the followingsubstantial questions of law for our consideration: “(a) Whether on the facts and in the circumstances ofthe case the Learned Tribunal was erred in law in quashing the order of Commissioner of Income Taxpassed under Section 263 of Income Tax Act, 1961 bydisregarding that the assessment order of the assesseeofficer in allowing excess carry forwarded ofunabsorbed depreciation beyond a period of eightyears, was erroneous and prejudicial to the interest ofrevenue in view of amendment made in Sub-Section 2of Section 32 by the Finance (No.2) Act, 1996 witheffect from 1[st] April, 1997? (b) Whether on the facts and in the circumstances ofthe case the Learned Tribunal was erred in law inquashing the order of Commissioner of Income Taxpassed under Section 263 of Income Tax Act, 1961without considering the finding of the Apex Court inthe case of Peerless General Finance & InvestmentCompany Limited, reported in (2016) 73 Taxman.com258(SC)?” When the appeal was listed for admission, we found thatthere is no counsel nominated by the Ministry of Law to appear onbehalf of the appellant. Therefore, we request Mr. P.K. Bhowmick toappear for the appellant/revenue. The Ministry of Law is directed toregularise his appearance. We have heard Mr. Choudhury, learnedcounsel for the respondent/assessee. The short issue which arises for consideration in this case iswhether the exercise of power by the Commissioner of Income Taxunder Section 263 was valid and proper. The Tribunal considered thesaid issue and, in our opinion, rightly held that for invocation of thepower under Section 263 of the Act two conditions have to be specifiedsimultaneously, namely, the order sought to be revised should beshown to be erroneous and it should be prejudicial to the interest ofthe revenue. In this regard the Tribunal followed the decision of theHon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs.Commissioner of Income-tax [2000] 109 Taxman 66 (SC). We find thatthere is no error in the manner the Tribunal has decided this issueand we affirm the view taken by the Tribunal. On the merits of thematter it appears to us that as to whether in allowing excess carryforwarded of unabsorbed depreciation and set off after a period ofeight years in view of the amended Section 32 (2) of the Act isjustified, the said issue is no longer res integra. In fact, before us, therevenue sought to contend that the Tribunal ought to have taken noteof the decision of the Hon’ble High Court in Peerless General Finance& Investment Co. Ltd vs. Commissioner of Income-tax [2016] 73taxmann.com 258 (SC). This decision has been held to be inapplicablein the case of Commissioner of Income Tax, Chennai vs. SanmarSpeciality Chemicals Ltd. [2020] 122 taxmann.com 212 (Madras). In thesaid case the revenue took an identical stand by placing reliance on the decision in Peerless General Finance & Investment Co. Ltd (supra).The said contention was rejected by the Court by ascertaining thefollowing reasons : the decision in Peerless General Finance & Investment Co. Ltd (supra).The said contention was rejected by the Court by ascertaining thefollowing reasons : “4. The short issue, which falls for consideration, is as to whether, inthe facts and circumstances of the case, the Tribunal was right inpermitting the assessee to carry forward the depreciation losspertaining to the assessment year 1997-98 to the present assessmentyear namely 2006-07, which is beyond the eight year period mandatedunder the provisions of section 32 of the Act. 5. The revenue is before us by referring to the decision of the HighCourt of Calcutta in the case of Peerless General Finance & InvestmentCo. Ltd. v. CIT [2016] 73 taxmann.com 257/242 Taxman 209 andsubmitting that an identical issue was considered by the CalcuttaHigh Court wherein the assessee was not granted relief. It is furthersubmitted that the said decision of the Calcutta High Court was testedfor its correctness by the Hon'ble Supreme Court and the special leavepetition filed against the judgment of the Calcutta High Court wasdismissed in the decision in Peerless General Finance & InvestmentCo. Ltd. v. CIT [2016] 73 taxmann.com 258/242 Taxman 173/380 ITR165 (SC). 6. After elaborately hearing the learned Senior Standing Counselappearing for the appellant - Revenue, we are of the consideredopinion that the reliance placed on the decision in the case of PeerlessGeneral Finance & Investment Co. Ltd. (supra), would, in no manner,assist the case of the Revenue. We say so after referring to CircularNo. 14/2001 dated 22-11-2002 issued by the Central Board of DirectTaxes, which are Explanatory Notes on Provisions relating to DirectTaxes. Paragraph 30 of the said circular deals with modification ofprovisions relating to depreciation. 7. For better appreciation, we quote paragraphs 30.1 to 30.5 of thesaid circular as hereunder : "30.1 Under the existing provisions of section 32 of the Income-taxAct, carry forward and set-off of unabsorbed depreciation isallowed for 8 assessment years. 30.2 With a view to enable the industry to conserve sufficientfunds to replace plant and machinery, specially in an era whereobsolescence takes place so often, the Act has dispensed with therestriction of 8 years for carry forward and set-off of unabsorbeddepreciation. The Act has also clarified that in computing theprofits 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 depreciationis allowed on any motor car manufactured outside India unless itis used (i) in the business of running it on hire for tourists, or (ii)outside India in the assessee's business or profession in anothercountry. 30.4 The Act has allowed depreciation allowance on all importedmotor cars acquired on or after 1st April, 2001. 30.5 These amendments will take effect from the 1st April, 2002,and will, accordingly apply in relation to the assessment year2002-2003 and subsequent years." 8. From paragraph 30.2 of the above circular, it is clear that therestriction of 8 years for carry forward and set-off of unabsorbeddepreciation was dispensed with, with a view to enable the industriesto conserve sufficient funds to replace plant and machinery. 9. The learned Senior Standing Counsel appearing for the Revenuewould point out that those amendments took place with effect from 1-4-2002 and would accordingly apply in relation to the assessmentyear 2002-03 and the subsequent years whereas in the assessee'scase, the depreciation loss, which they sought to carry forward is forthe assessment year 1997-98. 30.5 These amendments will take effect from the 1st April, 2002,and will, accordingly apply in relation to the assessment year2002-2003 and subsequent years." 8. From paragraph 30.2 of the above circular, it is clear that therestriction of 8 years for carry forward and set-off of unabsorbeddepreciation was dispensed with, with a view to enable the industriesto conserve sufficient funds to replace plant and machinery. 9. The learned Senior Standing Counsel appearing for the Revenuewould point out that those amendments took place with effect from 1-4-2002 and would accordingly apply in relation to the assessmentyear 2002-03 and the subsequent years whereas in the assessee'scase, the depreciation loss, which they sought to carry forward is forthe assessment year 1997-98. 10. The proper manner, in which, the modification has to beunderstood, is to the effect that from the assessment year 2002-03, ifthe eight years' period was not lapsed, then the assessee would beentitled to carry forward the loss without any restriction on the timelimit. This aspect has been dealt with elaborately in the decision of theDivision Bench of the Gujarat High Court in the case of GeneralMotors India (P.) Ltd. v. Dy. CIT [2012] 25 taxmann.com 364/210Taxman 20/[2013] 354 ITR 244 wherein the relevant portions are asfollows : "37. The CBDT Circular clarifies the intent of the amendment thatit is for enabling the industry to conserve sufficient funds toreplace plant and machinery and accordingly the amendmentdispenses with the restriction of 8 years for carry forward and set-off of unabsorbed depreciation. The amendment is applicable fromassessment year 2002-03 and subsequent years. This means thatany unabsorbed depreciation available to an assessee on 1st dayof April, 2002 (A.Y. 2002-03) will be dealt with in accordance withthe provisions of section 32(2) as amended by Finance Act, 2001and not by the provisions of section 32(2) as it stood before thesaid amendment. Had the intention of the Legislature been toallow the unabsorbed depreciation allowance worked out in A.Y.1997-98 only for eight subsequent assessment years even afterthe amendment of section 32(2) by Finance Act, 2001 it wouldhave incorporated a provision to that effect. However, it does not contain any such provision. Hence keeping in view the purpose ofamendment of section 32(2) of the Act, a purposive andharmonious interpretation has to be taken. While construingtaxing statutes, rule of strict interpretation has to be applied,giving fair and reasonable construction to the language of thesection without leaning to the side of assessee or the revenue. Butif the legislature fails to express clearly and the assessee becomesentitled for a benefit within the ambit of the section by the clearwords used in the section, the benefit accruing to the assesseecannot be denied. However, Circular No. 14 of 2001 had clarifiedthat under section 32(2), in computing the profits and gains ofbusiness or profession for any previous year, deduction ofdepreciation under section 32 shall be mandatory. Therefore, theprovisions of section 32(2) as amended by Finance Act, 2001would allow the unabsorbed depreciation allowance available inthe A.Ys. 1997-98, 1999-2000, 2000-01 and 2001-02 to be carriedforward to the succeeding years, and if any unabsorbeddepreciation or part thereof could not be set off till the A.Ys. 2002-03 then it would be carried forward till the time it is set-off againstthe profits and gains of subsequent years. 38. Therefore, it can be said that, current depreciation isdeductible in the first place from the income of the business towhich it relates. If such depreciation amount is larger than theamount of the profits of that business, then such excess comes forabsorption from the profits and gains from any other business orbusiness, if any, carried on by the assessee. If a balance is lefteven thereafter, that becomes deductible from out of income fromany source under any of the other heads of income during thatyear. In case there is a still balance left over, it is to be treated asunabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding yearthe unabsorbed depreciation is added to the current depreciationfor such succeeding year and is deemed as part thereof. If,however, there is no current depreciation for such succeedingyear, the unabsorbed depreciation becomes the depreciationallowance for such succeeding year. We are of the consideredopinion that any unabsorbed depreciation available to an assesseeon 1st day of April 2002 (A.Y. 2002-03) will be dealt with inaccordance with the provisions of section 32(2) as amended byFinance Act, 2001. And once the Circular No. 14 of 2001 clarifiedthat the restriction of 8 years for carry forward and set-off ofunabsorbed depreciation had been dispensed with, theunabsorbed depreciation from A.Y.1997-98 upto the A.Y. 2001-02got carried forward to the assessment year 2002-03 and becamepart thereof, it came to be governed by the provisions of section32(2) as amended by Finance Act, 2001 and were available forcarry forward and set-off against the profits and gains ofsubsequent years, without any limit whatsoever." 11. A similar issue was considered by a Division Bench of the BombayHigh Court in the case of CIT v. Bajaj Hindustan Ltd. [IT Appeal Nos.134 to 136 and 140, 141 and 148 of 2018, dated 13-6-2018] followingthe decision in the case of CIT v. Hindustan Unilever Ltd. [2016] 72taxmann.com 325/[2017] 394 ITR 73 (Bom.). The special leavepetition filed by the Revenue against the above decision was dismissedby the Hon'ble Supreme Court in the decision in Pr. CIT v. BajajHindustan Ltd. [SLP (C) Diary No. 48020 of 2018, dated 25-1-2019]. 12. In the decision of the Punjab & Haryana High Court in the case ofCIT v. G.T.M. Synthetics Ltd. [2013] 30 taxmann.com 83/[2012] 347ITR 458], an identical issue was considered in the following terms : '8. The effect of omission of the aforesaid proviso was enumeratedby the Central Board of Direct Taxes, vide Circular No. 794 dated9-8-2000 [(2000) 245 ITR (Statute)] 21 that the unabsorbeddepreciation allowance could be set-off against the income underany other head even where the business was not carried on. Clause 22 of the said circular which is relevant is as under: "22. Requirement of continuance of same business for set-off ofunabsorbed depreciation dispensed with: 22.1 Under the existing provisions of sub-section (2) of section 32of the Income-tax Act, carried forward unabsorbed depreciation isallowed to be set-off against profits and gains of business orprofession of the subsequent year, subject to the condition thatthe business or profession for which depreciation allowance wasoriginally computed continued to be carried on in that year. Asimilar condition in section 72 for the purpose of carry forwardand set-off of unabsorbed business loss was removed last year. 22.2 With a view to harmonise the provisions relating carryforward and set-off of unabsorbed depreciation and unabsorbedloss, the Act has dispensed with the condition of continuance ofsame business for the purpose of carry forward and set-off ofunabsorbed depreciation. 22.3 This amendment will take effect from 1st April, 2001, andwill, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years." 22.2 With a view to harmonise the provisions relating carryforward and set-off of unabsorbed depreciation and unabsorbedloss, the Act has dispensed with the condition of continuance ofsame business for the purpose of carry forward and set-off ofunabsorbed depreciation. 22.3 This amendment will take effect from 1st April, 2001, andwill, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years." 9. The CIT(A) and the Tribunal, thus, rightly allowed unabsorbeddepreciation relevant to the assessment year 1996-97 to be set-offagainst the income from long term capital gains and income fromother sources for the assessment year 2001-2002.' 13. Recently, in the decision of a Division Bench of the Bombay HighCourt in the case of Pr. CIT v. Gunnebo India (P.) Ltd. [2019] 104 CCH227, the issue was considered in favour of the assessee after referringto the decision of the Division Bench of the Gujarat High Court in thecase of General Motors India (P.) Ltd., wherein the relevant portionsread thus : "3. The Revenue carried the matter in appeal. The AppellateTribunal dismissed the appeal of the Revenue making thefollowing observations- "16. We have observed that the currentyear's depreciation is allowed to be set-off against the income frombusiness as well as against the other heads of income andunabsorbed depreciation in carry forward and become part of thedepreciation of the subsequent year and the total depreciationbecomes current year's depreciation as per section 32(1) of theAct, which is allowed to be set-off against the income under anyhead of income. As per the provisions of section 32(2) of the Actr.w.s. 70, 71 and 72 of the Act, it becomes very clear that the totaldepreciation comprising of the depreciation of the relevantassessment year along with the unabsorbed depreciation of theearlier years becomes the total current year's depreciation whichis allowed to be set off against income under any head of incomeincluding long term capital gain. Accordingly, we find no reason tointerfere with the order of CIT(A) qua this issue and the same ishereby upheld. We also hold that as per provisions of section 72 ofthe Act, the unabsorbed business loss (other than speculativeloss) of earlier years shall be allowed to be set-off only against theprofits and gains from business carried on by the assessee of thecurrent year and so on. We order accordingly. However, our abovedecision with respect to ground nos. (i) and (ii) raised in memo ofappeal filed by Revenue should be read in conjunction with and subject to our findings with respect to ground nos. (iii) and (iv)which are decided by us in the preceding para's of this order andthe computation shall be made accordingly." 4. Having heard the learned counsel for parties and havingperused the documents on record, we do not find any error in theorder of the Appellate Tribunal. Gujarat High Court in the case ofGeneral Motors India (P.) Ltd. (supra) had considered somewhatsimilar issue, of course in the backdrop of the assessee's challengeto a notice of reopening of the assessment. The Gujarat HighCourt had held and observed as under - subject to our findings with respect to ground nos. (iii) and (iv)which are decided by us in the preceding para's of this order andthe computation shall be made accordingly." 4. Having heard the learned counsel for parties and havingperused the documents on record, we do not find any error in theorder of the Appellate Tribunal. Gujarat High Court in the case ofGeneral Motors India (P.) Ltd. (supra) had considered somewhatsimilar issue, of course in the backdrop of the assessee's challengeto a notice of reopening of the assessment. The Gujarat HighCourt had held and observed as under - "38 Therefore, it can be said that, current depreciation isdeductible in the first place from the income of the business to whichit relates. If such depreciation amount is larger than the amount ofthe profits of that business, then such excess comes for absorptionfrom the profits and gains from any other business or business, if any,carried on by the assessee. If a balance is left even thereafter, thatbecomes deductible from out of income from any source under any ofthe other heads of income during that year. In case there is a stillbalance left over, it is to be treated as unabsorbed depreciation and itis taken to the next succeeding year. Where there is currentdepreciation for such succeeding year the unabsorbed depreciation isadded to the current depreciation for such succeeding year and isdeemed as part thereof. If, however, there is no current depreciationfor such succeeding year, the unabsorbed depreciation becomes thedepreciation allowance for such succeeding year. We are of theconsidered opinion that any unabsorbed depreciation available to anassessee on 1st April, 2002 (asst. yr. 2002-03) will be dealt with inaccordance with the provisions of section 32(2) as amended byFinance Act, 2001. And once the Circular No. 14 of 2001 clarified thatthe restriction of 8 years for carry forward and set-off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciationfrom asst. yr. 1997-98 up to the asst. yr. 2001- 02 got carried forwardto the asst. yr. 2002-03 and became part thereof, it came to begoverned by the provisions of section 32(2) as amended by FinanceAct, 2001 and were available for carry forward and set-off against theprofits and gains of subsequent years, without any limit whatsoever." In the light of the above, we find that there is no error in theorder passed by the Tribunal. Accordingly, the appeal fails and thesame stands dismissed. The substantial questions of law areanswered against the revenue. With the dismissal of the appeal, the connected applicationstands dismissed. (T. S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)