Ita/855/2008 Of The Commissioner Of Income Tax v. M/S Brindavan Alloys Ltd

IN THB HIGH COURT OF KARNATAKA AT BANGALORE DATEBD THIS THE [th]DAY OF OCTOBER 2014| PRESENT THE HON’BLE MR. JUSTICE N.KUMAR|ANDTHE HON’BLE MR. JUSTICE B. MANOHAR I.T.A. No.855/2008 BETWEEN : 1.|The Commissioner of Income-tax,C.R.Building, C.R.Building, Queens Road, Bangalore. 2.|The Deputy Commissionerof Income-Tax, Circle-2(2),of Income-Tax, Circle-2(2), C.R.Building, Queens Road, Bangalore. ... APPELLANTS. (By Sri. Jeevan J. Neeralgi, Adv.) AND :. M/s. Brindvan Alloys Ltd., |a[th]Phase, Peenya IndustrialArea, Off: Tumkur Road,Peenya, Bangalore. _ RESPONDENT (By Sriyuths. A.Shankar, Adv. and M. Lava, Adv..,) . . . . 2 This I.T.A. is filed under Section ZJ6O0OA oft Income Tax Act, 1961, arising out of the order dated30.04.2008 passed by the Income Tax AppellateTribunal, Bangalore Bench, in ITA No.582/Bang/2006—for the assessment year 2000-01 praying that thisHon ble Court may be pleased to (i). formulate thesubstantial questions of law stated above and (11). allowthe appeal and set aside the orders passed by theIncome Tax Appellate Tribunal, Bangalore, in ITANo.982/Bang/2006 dated 30.04.2008 confirming theorder of the Appellate Commissioner and confirm theorder passed by the Deputy Commissioner of IncomeTax, Central Circle -2(2), Bangalore, in the interest ofjustice and equity. This I.T.A. coming on_ forhearing,this day,N.Kumar J., delivered the following: JUDGMENT The Revenue has preferred this appeal against theorder passed by the Tribunal holding that the assesseeis entitled to set off of unabsorbed depreciation of earlieryears in order to arrive at the total income. oD The assessee has sold part of plant andmachinery, factory shed and building and debited anamount of Rs.68,09,458/- in the profit and loss account on account of the loss in sale of fixed assets. Assessing.Officer|determinedthesaleconsiderationaT|Rs.3,04,97,900/-. The Assessing Officer did not acceptthe case oft the assessee that he is entitled to set off of unabsorbeddepreciationagainstother.income.Agegrieved by the said order, assessee preferred anappeal. The appellate authority held that the assesseeis entitled to set off of unabsorbed depreciation andbusiness loss against the income from_ short-termcapital gains of sale of assets. Aggrieved by the saidorder, Revenue preferred an appeal to the Tribunal,which appeal came to be dismissed upholding theorders of the Appellate Commissioner. Aggrieved by thesaid order, the Revenue is in appeal. 3.This appeal was admitted on 01.09.2009 to/consider the following substantial questions of law: oanWhether the Appellate Authorities werecorrect in holding that earlier years business 4 loss and unabsorbed depreciation should beset off against the profits on sale of capitalassets and consequently the short termscapital gains worked out should be reduced? 2.|Whether the Tribunal was correct inholding that as a result of amendment madebyFinanceActoT|1996,unabsorbed|depreciation which cannot be set off in theyear in which it arises is to be carriedforward to the following assessment year andcould be set off against the business incomeof the succeeding year, which would bepermissible for 8 such years ? 3.|Whether the appellate authorities wereright in holding that the provisions of sub.section (2) of Section 32 of the Act cannotprevail over the provisions of Section 71 and|72 of the Act, particularly, in the wake ofamendment to the provisions of Section 32 of the Finance Act, 1996, w.e.f. 1.4.1997 andas applicable to the facts of the assesseescase? ” ? 2.|Whether the Tribunal was correct inholding that as a result of amendment madebyFinanceActoT|1996,unabsorbed|depreciation which cannot be set off in theyear in which it arises is to be carriedforward to the following assessment year andcould be set off against the business incomeof the succeeding year, which would bepermissible for 8 such years ? 3.|Whether the appellate authorities wereright in holding that the provisions of sub.section (2) of Section 32 of the Act cannotprevail over the provisions of Section 71 and|72 of the Act, particularly, in the wake ofamendment to the provisions of Section 32 of the Finance Act, 1996, w.e.f. 1.4.1997 andas applicable to the facts of the assesseescase? ” ? 4Thiscontroversyarosebecause|oT|amendment to Section 32(2) of the Income Tax Act,1961, (for short, hereinafter referred to as‘the Act’),which came into etfect on O1.04.1997. It is not in/§dispute that prior to the amendment, assessee wasentitled to set off of unabsorbed depreciation. It is onlyby way of this amendment, it was denied the saidbenetit. This amendment gave rise to an agitation evenat the time of moving the said amendment before theParliament. The Finance Minster on the floor oft theParliament gave an assurance that this amendment willcome into effect only 8 years alter it became the law.The relevant extract reads as under: “AClause 11 ot the Bill seeks to'amend Section 32 of the Income-tax Act,1961, relating to depreciation. During thecourse of discussion on the General Budget,anumberoT Hon blemembershaveexpressed|theirapprehension|that.theproposed amendment limiting carry forward : of unabsorbed depreciation to 8 years willadversely affect the growth of industry. —similar apprehensions have been raised in a|large number of post-budget memoranda. I[would like to allay these fears. The proposedamendment is only prospective in as muchas the cumulative unabsorbed depreciationbrought torward as on 1[St]April, 1997, canstill be set off against taxable businessprofits or income under any other head forthe assessment year 1997&QO8 and sevensubsequent assessment years. Therefore,the proposed change will have eftect onlyaiter 8 years and there is no cause forimmediate concern about its likely impact onindustry.Fight years iS a period longenough for industry to adjust itself to thehe Wdispensationandprovidefordepreciation accordingly. A number of)Hon ble members have brought to my noticethat the proposed amendment may adverselyaftectsickcompanies. iaacceptthe|Suggestions made by them. 1, therefore,propose to provide that the time lmit of 8 |years shall not apply to sick companies, T during the period the company is treated asa “sick company under the Sick IndustrialCompanies (Special Provisions) Act, 1985. ” (emphasis supplied)| 5.|It is also not in dispute that even before theexpiry of 8 years period, the amended provision wasdeleted and the original provision was restored. Inother words, this amended provision never came intoforce at all. When that being the case, the question ofdenying the said benefit to the assessee did not arise. —The Assessing Authority, without properly appreciatingthe speech of the Finance Minister, which foundexpression in the form of Circular issued by the Board,failed to follow the same on the pretext that the Tribunalin the case of.Kampli Co-operative Sugar FactoryLimited Vs. Joint CIT(70 TTJ 874) has taken acontrary view. It is submitted that the said order wasalso set aside by this Court in I.T.A. No.22/2001 andthe matter was remanded back to the Tribunal. I[n/ these circumstances, we do not find any merit in thisappeal. The substantial questions of law as framed areanswered in favour of the assessee and against theRevenue. No merits. The appeal isdismissed Sd/- JUDGE Sd/-. JUDGE| SItl