It Is Not In Dispute That The Substantial Questions Of Lawframed For Consideration Have Been Answered Against The Revenuein The Case Of Cit v. Sanmar Speciality Chemicals Ltd.[T.c.a

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 18.08.2021 CORAM The Honourable Mr.Justice T.S.SIVAGNANAMandThe Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP T.C.A.No.804 of 2016 Commissioner of Income Tax,Company Circle – III,Chennai....Appellant/Respondent -vs- M/s.Venkateshwara Leather Private Limited,147, Vepery High Road,Periamet, Chennai-600 003.PAN: ...Respondent/ AppellantAppeal under Section 260A of the Income Tax Act, 1961againsttheorderdated23.03.2016madeinI.T.A.No.2161/Mds/2015 on the file of the Income Tax AppellateTribunal 'C' Bench, Chennai for the assessment year 2006-07.and against order of Commissioner of Income Tax(Appeals)-IIChennai, in ITA.No.12(CIT(A))-11/2014-15 dated 28.09.2015 andagainst the order of Assistant Commissioner of Income TaxCompany Circle-III(4), Chennai in GIR.PAN.AAACV118G/2006-07dated 26.02.2014. For Appellant:Mr.M.Swaminathan,Senior Standing Counselassisted by Ms.V.Pushpa,Junior Standing Counsel This appeal, by the Revenue, filed under Section 260A of theIncome Tax Act, 1961, is directed against the order dated23.03.2016 made in I.T.A.No.2161/Mds/2015 on the file of theIncome Tax Appellate Tribunal 'C' Bench, Chennai for theassessment year 2006-07. https://hcservices.ecourts.gov.in/hcservices/ 2.The appeal was admitted on 09.11.2016, on the followingsubstantial questions of law:- “(i) Whether on the facts and circumstancesof the case and in law, Tribunal was right andjustifiedinholdingthatunabsorbeddepreciation loss pertaining to assessment year1997-98 could be set off against income ofassessment year 2006-07? (ii) Is not the finding of the Tribunaldirecting the Assessing Officer to set off theunabsorbed depreciation pertaining to assessmentyear 1997-98 based, especially when theintention of the legislature was not to carryforward the unabsorbed depreciation beyond eightyears from the year of computation?” 3.Heard Mr.M.Swaminathan, learned Senior Standing Counselassisted by Ms.V.Pushpa, learned Junior Standing Counsel for theappellant and Mr.A.S.Sriraman, learned counsel for therespondent. 4.It is not in dispute that the substantial questions of lawframed for consideration have been answered against the Revenuein the case of CIT vs. Sanmar Speciality Chemicals Ltd.[T.C.A.No.358 of 2018, dated 14.09.2020]. The relevantparagraphs of the judgment read as follows:- “4. The short issue, which falls forconsideration, is as to whether, in the facts andcircumstances of the case, the Tribunal was right inpermitting the assessee to carry forward thedepreciation loss pertaining to the assessment year1997-98 to the present assessment year namely 2006-07,which is beyond the eight year period mandated underthe provisions of Section 32 of the Act. 5. The Revenue is before us by referring to thedecision of the High Court of Calcutta in the case ofPeerless General Finance & Investment Co. Ltd. Vs. CIT[(2016) 73 Taxmann.com 257) and submitting that anidentical issue was considered by the Calcutta HighCourt wherein the assessee was not granted relief. Itis further submitted that the said decision of theCalcutta High Court was tested for its correctness bythe Hon'ble Supreme Court and the special leavepetition filed against the judgment of the CalcuttaHigh Court was dismissed in the decision reported in(2016) 73 Taxmann.com 258. 5. The Revenue is before us by referring to thedecision of the High Court of Calcutta in the case ofPeerless General Finance & Investment Co. Ltd. Vs. CIT[(2016) 73 Taxmann.com 257) and submitting that anidentical issue was considered by the Calcutta HighCourt wherein the assessee was not granted relief. Itis further submitted that the said decision of theCalcutta High Court was tested for its correctness bythe Hon'ble Supreme Court and the special leavepetition filed against the judgment of the CalcuttaHigh Court was dismissed in the decision reported in(2016) 73 Taxmann.com 258. 6. After elaborately hearing the learned SeniorStanding Counsel appearing for the appellant –Revenue, we are of the considered opinion that thereliance placed on the decision in the case ofPeerless General Finance & Investment Co. Ltd., would,in no manner, assist the case of the Revenue. We sayso after referring to Circular No.14/2001 dated22.11.2002 issued by the Central Board of DirectTaxes, which are Explanatory Notes on Provisionsrelating to Direct Taxes. Paragraph 30 of the saidcircular deals with modification of provisionsrelating to depreciation. 7. For better appreciation, we quote paragraphs30.1 to 30.5 of the said circular as hereunder : “30.1 Under the existing provisions ofsection 32 of the Income-tax Act, carry forwardand set off of unabsorbed depreciation isallowed for 8 assessment years. 30.2 With a view to enable the industry toconserve sufficient funds to replace plant andmachinery, specially in an era whereobsolescence takes place so often, the Act hasdispensed with the restriction of 8 years forcarry forward and set off of unabsorbeddepreciation. The Act has also clarified that incomputing the profits and gains of business orprofession for any previous year, deduction ofdepreciation under section 32 shall bemandatory. 30.3 Under the existing provisions, nodeduction for depreciation is allowed on anymotor car manufactured outside India unless itis used (i) in the business of running it onhire for tourists, or (ii) outside India in theassessee’s business or profession in anothercountry. 30.4 The Act has allowed depreciationallowance on all imported motor cars acquired onor after 1st April, 2001. 30.5 These amendments will take effect fromthe 1st April, 2002, and will, accordingly applyin relation to the assessment year 2002- 2003and subsequent years.” 8. From paragraph 30.2 of the above circular, itis clear that the restriction of 8 years for carryforward and set off of unabsorbed depreciation wasdispensed with, with a view to enable the industriesto conserve sufficient funds to replace plant andmachinery. 9. The learned Senior Standing Counsel appearingfor the Revenue would point out that those amendmentstook place with effect from 01.4.2002 and wouldaccordingly apply in relation to the assessment year2002-03 and the subsequent years whereas in theassessee's case, the depreciation loss, which theysought to carry forward is for the assessment year1997-98. 10. The proper manner, in which, the modificationhas to be understood, is to the effect that from theassessment year 2002-03, if the eight years' periodwas not lapsed, then the assessee would be entitled tocarry forward the loss without any restriction on thetime limit. This aspect has been dealt withelaborately in the decision of the Division Bench ofthe Gujarat High Court in the case of General MotorsIndia (P) Ltd. Vs. DCIT [reported in (2013) 354 ITR0244] wherein the relevant portions are as follows : 10. The proper manner, in which, the modificationhas to be understood, is to the effect that from theassessment year 2002-03, if the eight years' periodwas not lapsed, then the assessee would be entitled tocarry forward the loss without any restriction on thetime limit. This aspect has been dealt withelaborately in the decision of the Division Bench ofthe Gujarat High Court in the case of General MotorsIndia (P) Ltd. Vs. DCIT [reported in (2013) 354 ITR0244] wherein the relevant portions are as follows : “37. The CBDT Circular clarifies the intentof the amendment that it is for enabling theindustry to conserve sufficient funds to replaceplant and machinery and accordingly theamendment dispenses with the restriction of 8years for carry forward and set off ofunabsorbed depreciation. The amendment isapplicable from assessment year 2002-03 andsubsequent years. This means that any unabsorbeddepreciation available to an assessee on 1st dayof April, 2002 (A.Y. 2002- 03) will be dealtwith in accordance with the provisions ofsection 32(2) as amended by Finance Act, 2001and not by the provisions of section 32(2) as itstood before the said amendment. Had theintention of the Legislature been to allow theunabsorbed depreciation allowance worked out inA.Y. 1997-98 only for eight subsequentassessment years even after the amendment ofsection 32(2) by Finance Act, 2001 it would haveincorporated a provision to that effect.However, it does not contain any such provision.Hence keeping in view the purpose of amendment of section 32(2) of the Act, a purposive andharmonious interpretation has to be taken. Whileconstruing taxing statutes, rule of strictinterpretation has to be applied, giving fairand reasonable construction to the language ofthe section without leaning to the side ofassessee or the revenue. But if the legislaturefails to express clearly and the assesseebecomes entitled for a benefit within the ambitof the section by the clear words used in thesection, the benefit accruing to the assesseecannot be denied. However, Circular No.14 of2001 had clarified that under Section 32(2), incomputing the profits and gains of business orprofession for any previous year, deduction ofdepreciation under Section 32 shall bemandatory. Therefore, the provisions of section32(2) as amended by Finance Act, 2001 wouldallow the unabsorbed depreciation allowanceavailable in the A.Y. 1997-98, 1999- 2000, 2000-01 and 2001-02 to be carried forward to thesucceeding years, and if any unabsorbeddepreciation or part thereof could not be setoff till the A.Y. 2002-03 then it would becarried forward till the time it is set offagainst the profits and gains of subsequentyears. 38. Therefore, it can be said that, currentdepreciation is deductible in the first placefrom the income of the business to which itrelates. If such depreciation amount is largerthan the amount of the profits of that business,then such excess comes for absorption from theprofits and gains from any other business orbusiness, if any, carried on by the assessee. Ifa balance is left even thereafter, that becomesdeductible from out of income from any sourceunder any of the other heads of income duringthat year. In case there is a still balance leftover, it is to be treated as unabsorbeddepreciation and it is taken to the nextsucceeding year. Where there is currentdepreciation for such succeeding year theunabsorbed depreciation is added to the currentdepreciation for such succeeding year and isdeemed as part thereof. If, however, there is nocurrent depreciation for such succeeding year,the unabsorbed depreciation becomes thedepreciation allowance for such succeeding year. We are of the considered opinion that anyunabsorbed depreciation available to an assesseeon 1st day of April 2002 (A.Y. 2002- 03) will bedealt with in accordance with the provisions ofsection 32(2) as amended by Finance Act, 2001.And once the Circular No.14 of 2001 clarifiedthat the restriction of 8 years for carryforward and set off of unabsorbed depreciationhad been dispensed with, the unabsorbeddepreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year2002-03 and became part thereof, it came to begoverned by the provisions of section 32(2) asamended by Finance Act, 2001 and were availablefor carry forward and set off against theprofits and gains of subsequent years, withoutany limit whatsoever.” 11. A similar issue was considered by a DivisionBench of the Bombay High Court in the case of CIT-3Vs. M/s.Bajaj Hindustan Ltd. [reported in 2018-TIOL-2730-HC-MUM-IT] following the decision in the case ofCIT Vs. Hindustan Unilever Ltd. [reported in (2017)394 ITR 73]. The special leave petition filed by theRevenue against the above decision was dismissed bythe Hon'ble Supreme Court in the decision reported in2019-TIOL-36-SC-IT [PCIT-3 Vs. M/s.Bajaj HindustanLtd]. 12. In the decision of the Punjab & Haryana HighCourt in the case of CIT Vs. GTM Synthetics Ltd.[reported in (2012) 347 ITR 0458], an identical issuewas considered in the following terms: “8. The effect of omission of the aforesaidproviso was enumerated by the Central Board ofDirect Taxes, vide circular No. 794 dated9.8.2000 [(2000) 245 ITR (Statute)] 21 that theunabsorbed depreciation allowance could be setoff against the income under any other head evenwhere the business was not carried on. Clause 22 of the said circular which isrelevant is as under: "22. Requirement of continuance of samebusiness for set-off of unabsorbed depreciationdispensed with: 22.1 Under the existing provisions of sub-section (2) of section 32 of the Income tax Act,carried forward unabsorbed depreciation isallowed to be set off against profits and gainsof business or profession of the subsequentyear, subject to the condition that the businessor profession for which depreciation allowancewas originally computed continued to be carriedon in that year. A similar condition in section72 for the purpose of carry forward and set offof unabsorbed business loss was removed lastyear. 22.2 With a view to harmonise the provisionsrelating carry forward and set off of unabsorbeddepreciation and unabsorbed loss, the Act hasdispensed with the condition of continuance ofsame business for the purpose of carry forwardand set off of unabsorbed depreciation. 22.3 This amendment will take effect from1st April, 2001, and will, accordingly, apply inrelation to the assessment year 2001- 2002 andsubsequent years." 9. The CIT(A) and the Tribunal, thus,rightly allowed unabsorbed depreciation relevantto the assessment year 1996-97 to be set offagainst the income from long term capital gainsand income from other sources for the assessmentyear 2001-2002.” 13. Recently, in the decision of a Division Benchof the Bombay High Court in the case of PCIT Vs.Gunnebo India Pvt. Ltd. [reported in (2019) 104 CCH0227], the issue was considered in favour of theassessee after referring to the decision of theDivision Bench of the Gujarat High Court in the caseof General Motors India (P) Ltd., wherein the relevantportions read thus : “3. The Revenue carried the matter inappeal. The Appellate Tribunal dismissed theappeal of the Revenue making the followingobservations- "16. We have observed that thecurrent year's depreciation is allowed to be setoff against the income from business as well asagainst the other heads of income and unabsorbeddepreciation in carry forward and become part ofthe depreciation of the subsequent year and the https://hcservices.ecourts.gov.in/hcservices/ “3. The Revenue carried the matter inappeal. The Appellate Tribunal dismissed theappeal of the Revenue making the followingobservations- "16. We have observed that thecurrent year's depreciation is allowed to be setoff against the income from business as well asagainst the other heads of income and unabsorbeddepreciation in carry forward and become part ofthe depreciation of the subsequent year and the https://hcservices.ecourts.gov.in/hcservices/ total depreciation becomes current year'sdepreciation as per section 32(1) of the Act,which is allowed to be set off against theincome under any head of income. As per theprovisions of section 32(2) of the Act r.w.s.70, 71 and 72 of the Act, it becomes very clearthat the total depreciation comprising of thedepreciation of the relevant assessment yearalong with the unabsorbed depreciation of theearlier years becomes the total current year'sdepreciation which is allowed to be set offagainst income under any head of incomeincluding Long Term Capital Gain. Accordingly,we find no reason to interfere with the order ofCIT(A) qua this issue and the same is herebyupheld. We also hold that as per provisions ofsection 72 of the Act, the unabsorbed businessloss (other than speculative loss) of earlieryears shall be allowed to be set off onlyagainst the profits and gains from businesscarried on by the assessee of the current yearand so on. We order accordingly. However, ourabove decision with respect to ground no. (i)and (ii) raised in memo of appeal filed byRevenue should be read in conjunction with andsubject to our findings with respect to groundno. (iii) and (iv) which are decided by us inthe preceding para's of this order and thecomputation shall be made accordingly." 4. Having heard the learned counsel forparties and having perused the documents onrecord, we do not find any error in the order ofthe Appellate Tribunal. Gujarat High Court inthe case of General Motors India (P) Ltd.(supra) had considered somewhat similar issue,of course in the backdrop of the assessee'schallenge to a notice of reopening of theassessment. The Gujarat High Court had held andobserved as under - "38 Therefore, it can besaid that, current depreciation is deductible inthe first place from the income of the businessto which it relates. If such depreciation amountis larger than the amount of the profits of thatbusiness, then such excess comes for absorptionfrom the profits and gains from any otherbusiness or business, if any, carried on by theassessee. If a balance is left even thereafter,that becomes deductible from out of income fromany source under any of the other heads of income during that year. In case there is astill balance left over, it is to be treated asunabsorbed depreciation and it is taken to thenext succeeding year. Where there is currentdepreciation for such succeeding year theunabsorbed depreciation is added to the currentdepreciation for such succeeding year and isdeemed as part thereof. If, however, there is nocurrent depreciation for such succeeding year,the unabsorbed depreciation becomes thedepreciation allowance for such succeeding year.We are of the considered opinion that anyunabsorbed depreciation available to an assesseeon 1st April, 2002 (asst. yr. 2002-03) will bedealt with in accordance with the provisions ofs. 32(2) as amended by Finance Act, 2001. Andonce the Circular No. 14 of 2001 clarified thatthe restriction of 8 years for carry forward andset off of unabsorbed depreciation had beendispensed with, the unabsorbed depreciation fromasst. yr. 1997-98 up to the asst. yr. 2001- 02got carried forward to the asst. yr. 2002-03 andbecame part thereof, it came to be governed bythe provisions of s. 32(2) as amended by FinanceAct, 2001 and were available for carry forwardand set off against the profits and gains ofsubsequent years, without any limit whatsoever." 14. In our considered view, the above decisionswill clearly enure to the benefit of the respondent –assessee. 15. Accordingly, the above tax case appeal isdismissed and the substantial question of law isanswered against the Revenue.” 5.Thus, by following the above decision, this tax caseappeal is dismissed and the substantial questions of law areanswered against the Revenue. No costs. Sd/- Assistant Registrar(CS VII) //True Copy// Sub Assistant Registrar abr https://hcservices.ecourts.gov.in/hcservices/ To 1. The Income Tax Appellate Tribunal 'C' Bench, Chennai. Chennai. 2. The Commissioner of Income Tax(Appeals)-II, No.121, Mahatma Gandhi Road, Chennai. No.121, Mahatma Gandhi Road, Chennai. 3. The Assistant Commissioner of Income Tax Company Circle-III(4), Chennai. Company Circle-III(4), Chennai. +1cc to M/s.S.Sridhar, Advocate, S.R.No.41570 +1cc to M/s.M.Swaminathan, Advocate, S.R.No.41544 T.C.A.No.804 of 2016 SJ[co] NSK 13/09/2021