Ita/50/2009 Of M/S. Himatsingka Seide Ltd v. The Deputy Commissioner Of Income Tax

IN THE HIGH COURT OF KARNATAKA AT BANGALORE.DATED THIS THE 14 DAY OF NOVEMBER 27014| PRESENT THE HON BLE MR. JUSTICE N. KUMAR AND| THE HON’BLE MR. JUSTICE B. MANOHAR| ITA NO.50 OF 2009 C/WITA NO.51/2009, ITA NO.59/2009, ITA NO.60/2009 IN ITA NOS.50/2009 & 51/2009: BETWEEN: M/s.Himatsingka Seide Ltd., 10/24, Kumarakrupa RoadHigh Grounds, Bangalore - 560 O01Rep by its Managing DirectorSri.D.K.HimatsingKaAged about 60 years.S/o Sri.Nathma!l Himatsingka. APPELLANT| (By Shri.K.P.Kumar, Senior Advocate for Smt.Vani.H.|Advocate) AND: Tne Deputy Commissioner of Income TaxCircle 11(1),Bangalore. RESPONDENT| (By Shri.K.V.Aravind, Advocate) ITA No.50/2009 is filed under Section 260-A of.I.T.Act, 1961 arising out of order dated 30.09.2008|passed in ITA No.269/BNG/2008 for the assessment.year 2001-02, praying to formulate the substantial|questions of law stated therein and allow the appeal andset aside the order passed by the ITAT Bangalore in ITA|No.269/BNG/2008, dated 30.09.2008. ITA No.51/2009 is filed under Section 260-A of.I.T.Act, 1961 arising out of order dated 30.09.2008|passed in ITA No.250/BNG/2008 for the assessment.year 2001-02, praying to formulate the substantial|questions of law stated therein and allow the appeal andset aside the order passed by the ITAT Bangalore in ITA|No.250/BNG/2008, dated 30.09.2008. IN ITA NO.59/2009: BETWEEN; 1.|The Commissioner of Income Tax | C.R.Building, Queens Road Bangalore. 2.|The Asst. Commissioner of Income-Tax. Circle-11(5), C.R.Building| Queens Road Bangalore. .,APPELLANTS. (By Snri.K.V.Aravind, Advocate) AND: M/s.Himatsingka Seide & Co. Ltd., No.10/24, Kumara Krupa Road Bangalore. . RESPONDENT| (By Shri.K.P.Kumar, Senior Advocate for Smt.Vani.H,|Advocate) ITA No.59/2009 is filed under Section 260-A of IT.Act, 1961 arising out of order dated 30-09-2008 passedin ITA No.230/BNG/2008, for the Assessment Year|2003-04, praying to formulate the substantial questions|of law stated therein and allow the appeal and set aside|tne order passed by the ITAT Bangalore in ITA|No.230/BNG/2008, dated 30-09-2008 and confirm the.orders of the Appellate Commissioner and confirm tne|order passed by the Assistant Commissioner of Income|Tax, Circle-11(5), Bangalore in the interest of justice|and equity. IN ITA NO.60/ 2009 1.|The Commissioner of Income Tax | C.R.Building, Queens Road Bangalore. 2 |The Dy. Commissioner of Income-Tax< Circie-11(1), C.R.Building Queens Road Bangalore. .. APPELLANTS (By Snri.K.V.Aravind, Advocate) AND: M/s.Himatsingka Seide & Co. Ltd.,No.10/24, Kumara Krupa Road Bangalore. ~.,.RESPONDENT| (By Shri.K.P.Kumar, Senior Advocate for Smt.Vani.H,|Advocate) ITA No.60/2009 is filed under Section 260-A of IT.Act, 1961 arising out of order dated 30-09-2008 passedin ITA No.250/BNG/2008, for the Assessment Year|2001-02, praying to formulate the substantial questions|of law stated therein and allow the appeal and set aside| tne order passed by the ITAT Bangalore in ITA|No.250/BNG/2008, dated 30-09-2008 confirming the|order of the Appellate Commissioner and confirm tne|order passed by the Deputy Commissioner of Income|Tax, Circle-11(1), Bangalore in the interest of justice|and equity. These ITAS coming on for Hearing, this day,N. KUMAR, J.delivered the following:- COMMON JUDGMENT ITA Nos. 50 and 51/2009 are preferred by theassessee whereas ITA Nos. 59 and 60 are preferred by the Revenue against the common order passed by the]Tribunal where common questions whicn arise for|consideration. tne order passed by the ITAT Bangalore in ITA|No.250/BNG/2008, dated 30-09-2008 confirming the|order of the Appellate Commissioner and confirm tne|order passed by the Deputy Commissioner of Income|Tax, Circle-11(1), Bangalore in the interest of justice|and equity. These ITAS coming on for Hearing, this day,N. KUMAR, J.delivered the following:- COMMON JUDGMENT ITA Nos. 50 and 51/2009 are preferred by theassessee whereas ITA Nos. 59 and 60 are preferred by the Revenue against the common order passed by the]Tribunal where common questions whicn arise for|consideration. 2D.The assessee is engaged in the business of.manufacture and export of natural silk blended fabrics|and spun silk/blended yarn. For the Assessment Year|2001-02 corresponding to the financial year ended on|3ist March, 2001, the assessee filed the return of)income declaring total income of Rs.1,09,638,220/-. |Tne assessee had two units which are Sedie and Filati.The assessee has exported from both the units. Filati|Unit was eligible for claiming exemption under Section|10B of the Act, while the Seide Unit is a 100% EOU,| which has exhausted its benefits under Section 10B. In|tne computation of income filed along with the return ot income, the assessee claimed deduction under Section|SOHHC for the exports made by the Seide Unit. While|COMPUTING|deductions|Under|SectionSOHHC,|tneassessee did not claim depreciation in respect of the|assets pertaining to the Seide Unit. For the purpose otf computation of deduction under Section 8OQHHC, theasessee adopted the total turnover pertaining to Sedie|Unit alone whose income was exempt (i.e., it did not.consider.theturnover.of|Filati|Unit|at|Rs.52,88,43,929/-. The assessee computed the loss.from Filati Unit at Rs.3,11,26,485/- the amount to be|deducted under Section 10B on the basis of exportturnoverOF tnetotalturnoverWOrkKedOUTtoRs.2,88,77,640/- which is a loss that is exempted under.Section 10B. The assessee computed the balance|amount of Rs.22,48,845/-, the loss of Filati Unit and Nasset off against the profits of Seide Unit. The AssessingOfficer restricted the claim of set off under Section|SOQHHC by setting off the entire loss from Filati Unit even before arriving at the quantum of deduction under|Section 8OHHC. Aggrieved by the said order of the|assessing officer, appeals are preferred 3.The profit to the Seide Unit was arrived atafter deduction of Loss of the Filate Unit computed|Under Section 10B of the Income Tax Act. The assessee|computedtneprofitsfrom|tneSeideUnit|atRs.52,88,43,929/-. While arriving at this amount the.assessee did not claim depreciation for the Seide Unit.|Tne assessee had filed a note along with the return that|tne assessee did not claim depreciation for the Seide|Unit and the same cannot be thrust in the light of the|decision of the Supreme Court in the case of Maninara|Mills reported in 243 ITR 56. | 4The assessing officer observed that tneassessee has given full particulars of the opening of|WDV so far as the additions during the year. The|assessee nad not given the rate of depreciation and the|actual amount of depreciation and deducted the same|from the profits. The Assessing Officer also observed| that Explanation 5 to Section 32 of the Act is|clarificatory in nature and also apply to the current year|i.e., 2001-02. | 5.Aggrieved by the said order, the assesseeNas preferred the appeal to the Commissioner of Income.Tax (Appeals). The appellate authority held that the|Explanation 5 to Section 32 of the Act was introduced.w.e.f. 11.04.2002 and as sucn the assessing officer'saction in trying to apply the Explanation for the|assessment year 2002 is not valid. The reason being|the Explanation comes into effect from the assessment|year 2002-03 and it is not retrospective in nature nor|Clarificatory. that Explanation 5 to Section 32 of the Act is|clarificatory in nature and also apply to the current year|i.e., 2001-02. | 5.Aggrieved by the said order, the assesseeNas preferred the appeal to the Commissioner of Income.Tax (Appeals). The appellate authority held that the|Explanation 5 to Section 32 of the Act was introduced.w.e.f. 11.04.2002 and as sucn the assessing officer'saction in trying to apply the Explanation for the|assessment year 2002 is not valid. The reason being|the Explanation comes into effect from the assessment|year 2002-03 and it is not retrospective in nature nor|Clarificatory. 6.Aggrieved by the said order, the Revenue.preferred an appeal to the Tribunal. The Tribunal held)that the judgment of the Apex Court in Mahindra’s case|has no application as it was rendered in the context of.Section 34 of the Act which is now being deleted w.e.f.01.04.1988. Explanation 5 was introduced wnicnh clearly|shows that irrespective of the assessee furnishing the| details of depreciation claim, the assessing officer is duty bound to grant depreciation and accordingly it|allowed the appeal of the revenue and restored the|order of the assessing authority. | /].On the other question, the CIT(A) held the.loss of Fileti Unit has to be reduced from the profits of|the Seide Unit. The asessee has challenged the said|finding by preferring an appeal before the Tribunal. The|Tribunal nelad the deduction under Section 10B Isavailable only in respect of the profits and the same|cannot be ignored when the entity incurs loss. Further|Filate Unit is a separate unit for the limit of seeking|exemption under Section 10B and therefore held that|entire loss nas to be reduced from the profit of thneSeide Unit before computing deduction under Section|SOHHC. Aggrieved by the said finding, the assessee is |before tnis court. 8.Both the appellate authorities neld once theassessee has determined the Joss in the 10B Unit there|was no requirement for the assessee to reduce tne| turnover of the 10B Unit from the total turnover for the|purposes of computing deduction under Section 88HHC.The two units claiming separate deductions and|exemptions belong to the same assesseee and when|one unit has incurred loss in calculating the _ totaturnover, the gross total income under Section 80AB|nas to be considered and therefore gave the benefit to tne assessee. Challenging these two findings, these|appeals are filed. QO.The following substantial questions of law.are framed for consideration: ITA No.50/2009: J.Whether on the facts and circumstances of thecase the Tribunal was right in holding that entireloss of Filati unit Should be set off against theprofits of Seide unit before computing deductionunder Section 8OHHC and not only the loss whicn.does not fall within the ambit of exclusion underSection JOB?case the Tribunal was right in holding that entireloss of Filati unit Should be set off against theprofits of Seide unit before computing deductionunder Section 8OHHC and not only the loss whicn.does not fall within the ambit of exclusion underSection JOB? D>Whether on the facts and circumstances of thecase the Tribunal was right in not appreciatingthat exemption under Section 10B falis underChapter III which specifically states that income.which does not form part of total income and ascase the Tribunal was right in not appreciatingthat exemption under Section 10B falis underChapter III which specifically states that income.which does not form part of total income and as such the entire income/(loss) of Section 10B unitsnould be excluded/ignored from the computationof total income?| ITA No.51/2009: J.Whether on the facts and circumstances of the!case the Tribunal was _ right in holding thadepreciation has to be aliowed irrespective of the.factthettheAssesseehasnot|claimeddepreciation tn the Return of Income?|case the Tribunal was _ right in holding thadepreciation has to be aliowed irrespective of the.factthettheAssesseehasnot|claimeddepreciation tn the Return of Income?| such the entire income/(loss) of Section 10B unitsnould be excluded/ignored from the computationof total income?| ITA No.51/2009: J.Whether on the facts and circumstances of the!case the Tribunal was _ right in holding thadepreciation has to be aliowed irrespective of the.factthettheAssesseehasnot|claimeddepreciation tn the Return of Income?|case the Tribunal was _ right in holding thadepreciation has to be aliowed irrespective of the.factthettheAssesseehasnot|claimeddepreciation tn the Return of Income?| D>Whether on the facts and circumstances of the!case the Tribunal was _ right in holding thadepreciation is to be allowed in respect of the.ASSESSMENTYEARS|2001-0271,@., Driortoinsertion of/coming into force of Explanation 5 to37?case the Tribunal was _ right in holding thadepreciation is to be allowed in respect of the.ASSESSMENTYEARS|2001-0271,@., Driortoinsertion of/coming into force of Explanation 5 to37? ITA Nos.59/2009 & 60/2009; J.Whether the Appellate Authorities were correct inholaing that when computing deduction underSection SOHHC of the Act the total turnover of theentire business of the assessee should not betaken into account and only confined to Seide Unitwhere claim had Deen made?holaing that when computing deduction underSection SOHHC of the Act the total turnover of theentire business of the assessee should not betaken into account and only confined to Seide Unitwhere claim had Deen made? ?.Whetner tne Appellate Autnorities were correct innot taking into consideration the definition of totalturnover prescribed under Section 80HHC of theAct Explanation (ba) which clearly identifies thosenot taking into consideration the definition of totalturnover prescribed under Section 80HHC of theAct Explanation (ba) which clearly identifies those Items which should be excluded from the totalturnover and consequently recorded a perversefinding? 10.|Identical|questionsas|containedinsubstantial questions of law arose for consideration|before this Court in ITA No.521/2007 decided on 19[)3]December 2013. However, the Court was considering.Section 8QHHE which is in paramateria to Section|SOHHC. After considering the arguments and relevant|provisions, the said question was answered in favour of.the assessee and against the revenue. Therefore, the|order passed by the Tribunal is unsustainable and tne|said questions are answered in favour of the assessee|and against the revenue. 11.)In so faras allowing depreciation|IS concerned, it was held, Explanation 5S which wasinserted by Finance Act, 2001 with effect from|01.04.2001 is clarificatory in nature and therefore, tne|order of the Assessing Authority was proper. Therefore,the question for consideration is even in the absence ot clarificatory for deduction under Section 32 of the| Income Tax Act in order to arrive at profits and gains|from business, the Assessing Authority was justified in allowing deductions. In view of the conflicting view by|various High Courts, the Supreme Court in Maninara|Mills case referred to above Nad an occasion to consider|the said question. On the day, the Supreme Court was|considering the said question, Section 34 was on the|statute book wnich provided for all the particulars to be|furnisned in the returns to be filed by the assessee. In|the absence of particulars being furnished, it was held|that the Assessing authority cannot, under Section 32 of the Act, allow the deduction to the assessee. It was.contended before us that the said judgment has no|application as it was rendered in relation to Section 34,|whicn was subsequently deleted. However, we do not!see any substance in the said contention. Though|Section 34 of the Income Tax Act Is referred to and the|said Section is deleted, the Supreme Court was|considering not only Section 34 but also Sections 32|and 37. The relevant para reads as under:- "The language of the provisions of|Sections 32 and 34 Is specific and aamits of no- "The language of the provisions of|Sections 32 and 34 Is specific and aamits of no- ambiguity. Section 32 allows depreciation asdeduction subject to tne provisions of section34. Section 34 provides that deduction underSection 32 shall be allowed only if prescribedparticulars Nave been furnisned. We naveseen rule 5AA of the Rules whicn thougn sincedeleted provided for the particulars requiredfor the purpose of deduction under Section 32.Even in the absence of rule 5AA, the return ofincome in the form prescribed itself requiresparticulars to be furnished if the assesseeclaims depreciation. These particulars arerequired to be furnished in great detail. Thereis a circular of the Board dated August 31,1965, whicn provides that depreciation couldnot be allowed where the required particularsnave not been furnished by the assessee andno claim for the depreciation has been made inthe return. The [ncome-tax Officer in such acase is required to compute the incomewithout allowing depreciation aliowance. Thecircular of the Board dated April 11, 1955, is ofno nelp to the Revenue. It imposes merely aauty on tne officers of the Department to assistthe tax payers in every reasonable way,particularly, in the matter of claiming andsecuring relief. The officer is required to do nomore than to advise the assessee. It does not place any mandatory duty on the officer to|allow aepreciation if the assessee does notwant to claim that. The provisions for claim ofdepreciation is certainly for the benefit of theassessee. I[f it Goes not wisn to avail thetbenefit for some reason, benefit cannot De!forced upon him. It is for the assessee to see|if the claim of depreciation its to his advantage.Rather the [Income-tax Officer should advisenim not to claim depreciation if that course is_beneficial to the assessee. That would be In.our view the spirit of the circular dated April11, 1955. Income under the head "Profits andgains of business or profession” is chargeable|to income-tax Under Section 28 and thetincome under Section 29 is to be computed in.accordance with tne provisions contained in.section 30 to 453A. Tne argument that since’section 32 provides for depreciation it nas to.be allowed in computing the income of the|assessee cannot In all circumstances|be|accepteq in view of the bar contained insection34. if section 34 Is not satisfied and theparticulars are not furnished by the assessee, his claim for depreciation under Section 32.cannot be allowed. Section 79 is thus to beread with reference to other provisions of the.Act. It is not in itself a complete code.” | 12.|Therefore, the Apex Court was not merelyinterpreting Section 34. It was interpreting Sections 28|to 43A and the scneme of the Act and nas made it very|clear that the assessee Is not bound to claim|depreciation nor the revenue can grant depreciation|even without his asking. If claiming depreciation is not|in the interest of the assessee, Income Tax Officer Nas|an obligation to advise nim suitably. At any rate, this|was the law as on that date in view of the judgment ot the Apex Court. That probably the reason why it|became necessary to introduce the explanation 5. —Explanation 5 makes it clear that for the removal ofdoubts, it is hereby declared that the provisions of this|sub-section shall apply whether or not the assessee Nas|claimed the deduction in respect of depreciation in|computing his total income. Though the words for|removal of doubts has been interpreted, the Said.provision is clarificatory in nature. In the instant case,|clarification becomes necessary because of the law laid|down by the Apex Court and therefore from the day|explanation is introduced, the area is covered bDy legislation, the Supreme Court judgment would nave no.application. Tnerefore Explanation 5 is necessarily to be|read as prospective in nature. Admittedly, in the.instant case, the explanation Nas no application to the|Assessment year 2001-02 as the explanation was|inserted with effect from 01.04.2002. Therefore, the|view taken by the Tribunal is incorrect and requires to be interfered with. Therefore, the said substantial|questions of law are answered in favour of the assessee|and against the revenue. 13.|In view of the findings recorded above, theappeals filed by the assessee are allowed. Appeals|preferred by the revenue are dismissed. Parties to bear|their own costs. Bsv/Prs* Sd/-.JUDGE|Sd/-JUDGE