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Mercedes-Benz India Private Limited Versus Commissioner of Income Tax – V, Pune

Revision proceedings u/s. 263 - Assessing Officer has not examined the issue as Whether the claim made by the assessee was factually correct and also whether relevant conditions are fulfilled as per the provisions of section 72 and section 32 of the Act or not? - AO in his order has categorically mentioned that due to limitation of time the assessee’s version of brought forward losses is relied upon and allowed the claim of the assessee, thus findings of the Assessing Officer are erroneous and p .....

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the interest of Revenue. Consequently, the revisionary powers exercised by the Commissioner against the order of assessment which is not prejudicial to the interest of Revenue, even where the order passed by the Assessing Officer was erroneous, cannot be exercised, since the twin conditions have not been fulfilled in the case. In view thereof, we reverse the directions of the Commissioner in this regard and uphold the order of Assessing Officer in allowing the set off of unabsorbed depreciation .....

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ry forward unabsorbed depreciation for the assessment years 1996-97 and 1997-98 to be set off against the profit of the assessee from business or profession from assessment year 2006-07. - Decided in favour of assessee. - ITA No. 1203/PN/2013 - Dated:- 31-7-2015 - SHRI R.K. PANDA AND SHRI VIKAS AWASTHY, JJ. For The Appellant : Shri Pramod Achuthan For The Department : Ms. M.S. Verma ORDER PER VIKAS AWASTHY, JM: The appeal has been filed by the assessee against the order of Commissioner of Income .....

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ssessee filed its return of income for the assessment year 2006-07 on 27-11-2006 declaring total income of ₹ 25,14,19,400/- under regular provisions and ₹ 66,65,50,598/- u/s. 115JB of the Act. In the income returned, the assessee had claimed set off of brought forward losses/depreciation. The Assessing Officer vide assessment order passed u/s. 143(3) r.w.s. 144C dated 28-10-2010 accepted the claim of assessee with respect to brought forward losses and depreciation. The Commissioner o .....

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under 115JB of the Income Tax Act were filed The Scrutiny assessment has been completed u/s. 143(3) r.w.s. 144C(13) determining the taxable income at ₹ 88,21,27,827/- after adjustment made by Transfer Pricing Authority under various heads. Against this income set off of b/f business losses of ₹ 27,48,19,358/- and unabsorbed depreciation of ₹ 32,44,92,804/- aggregating to ₹ 59,93,12,162/- pertaining to AY 1996-97 to 2000-01 were allowed and finally the total income was co .....

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except income wider the head business or profession for more than eight Assessment Years immediately succeeding the AY for which the loss was first computed. Similarly b/f unabsorbed depreciation allowance for and upto AY 1996-97, which could not be set off upto AY 1996-97 shall be carried forward for set off against income under any head for a maximum period of eight assessment years starting from AY 1997-98 to AY 2004-05. In the instant case, depreciation loss brought forwarded at ₹ 2,6 .....

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prejudicial to the interest of revenue. In response to notice the assessee filed reply on 22-03-2013 citing various judgments and submitted that the assessee can carry forward unabsorbed depreciation of previous years and can set off the same in the impugned assessment year. However, the Commissioner of Income Tax vide impugned order rejected the contentions of the assessee and held that the Assessing Officer has not examined the issue; Whether the claim made by the assessee was factually correc .....

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ssioner of Income Tax has erred in exercising the jurisdiction u/s. 263 of the Act and directing the Assessing Officer to redo the assessment. In the show cause notice the Commissioner of Income Tax has held that the assessee has wrongly carried forward unabsorbed depreciation relevant to assessment years 1996-97 and 1997-98 up till assessment year 2006-07. The ld. AR submitted that the case of the assessee is squarely covered by the decision of Co-ordinate Bench of the Tribunal rendered in the .....

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Tribunal further held that the Commissioner of Income Tax has erred in exercising revisionary powers u/s. 263 of the Act. 4. On the other hand, Ms. M.S. Verma representing the Department vehemently supported the order of Commissioner of Income Tax. The ld. DR submitted that the Commissioner of Income Tax rightly assumed the jurisdiction u/s. 263 of the Act. In the present case, the Assessing Officer had not made any verifications before accepting the claim of the assessee of carry forward of dep .....

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iation of assessment years 1996-97 and 1997-98. According to the Commissioner of Income Tax unabsorbed depreciation relevant to assessment years 1996- 97 to 1997-98 cannot be carried forward and set off against any other heads of income except income under the head business or profession for more than 8 assessment years immediately succeeding the assessment years for which the depreciation was computed. 6. We do not concur with the above observations of the Commissioner of Income Tax. The Hon .....

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nst the profits and gains of subsequent years, without any limit whatsoever. 7. Before the Co-ordinate Bench of the Tribunal in the case of M/s. SAB Miller Breweries Pvt. Ltd. Vs. ACIT (supra) an identical issue, wherein proceedings u/s. 263 were initiated to deny the carry forward and set off of unabsorbed depreciation pertaining to assessment year 1999-2000 was raised. The Co-ordinate Bench after considering the judgment of Hon'ble Gujarat High Court in the case of General Motors India Pvt .....

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f unabsorbed depreciation carried forward from assessment year 1999-2000 could be set off against the business income for assessment year 2008-09. Reliance in this regard was placed on the ratio laid down by the Delhi Bench of Tribunal in Jai Ushin Ltd. vs DCIT (2008) 117 TTJ (Del) 330, wherein it was held that the issue relating to setting off the unabsorbed depreciation of assessment year 1999-2000 against the income for assessment year 2003-04 is required to be considered and decided in accor .....

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ion relied upon by the assessee in Jai Ushin Ltd. vs DCIT (supra) had been considered by the Special Bench of Mumbai Tribunal in DCIT Vs. Times Guaranty Limited (supra), vide order dated 30.06.2010, wherein it was held that the unabsorbed depreciation relating to assessment year 1997-98 to 1999-00 is to be dealt with the provisions of sec.32(2) as applicable for A.Y. 1997-98 to 1999-00. In view thereof, the Commissioner held that the case law relied upon by the assessee was not relevant and the .....

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ce Act, 2001 was applicable from assessment year 2002-03 and subsequent years. It was further held that any unabsorbed depreciation available to the assessee on the first day of April, 2002 would be dealt in accordance with the provisions of section 32(2) of the Act as amended by the Finance Act, 2001 and not by the provisions of section 32(2) of the Act as it stood before the said amendment. It was further held by the Hon ble Gujarat High Court that had the intention of the Legislature been to .....

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lowed to be carried forward and set off after a period of eight years or it would be governed by section 32 as amended by the Finance Act, 2001 ? The reason given by the Assessing Officer under section 147 is that section 32(2) of the Act was amended by the Finance (No. 2) Act of 1996, with effect from the assessment year 1997-98 and the unabsorbed depreciation for the assessment year 1997-98 could be carried forward up to the maximum period of eight years from the year in which it was first com .....

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assessment year 2006-07. 31. Prior to the Finance (No. 2) Act of 1996 the unabsorbed depreciation for any year was allowed to be carry forward indefinitely and by a deeming fiction became allowance of the immediately succeeding year. The Finance (No. 2) Act of 1996 restricted the carry forward of unabsorbed depreciation and setoff to a limit of eight years, from the assessment year 1997-98. Circular No. 762, dated February 18, 1998 (see [1998] 230 ITR (St.) 12), issued by the Central Board of D .....

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rry forward and set off of such unabsorbed depreciation would start from the assessment year 1997-98. 33. We may now examine the provisions of section 32(2) of the Act before its amendment by the Finance Act, 2001. The section, prior to its amendment by the Finance Act, 2001, read as under : "Where in the assessment of the assessee full effect cannot be given to any allowance under clause (ii) of sub-section (1) in any previous year owning to there being no profits or gains chargeable for t .....

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so set off shall be set off from the income under any other head, if any, assessable for that assessment year; (iii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i) and clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year, and- (a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year ; (b) if the unabsorbed depr .....

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he previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Company (Special Provisions) Act, 1985 (1 of 1986), and ending with the assessment year relevant to the previous year in which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.-For the purposes of this clause, 'net worth' shall have the meaning assigned to it in clause (ga) of sub-section (1) of sect .....

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ect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and subsection (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the .....

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Cinder the existing provisions of section 32 of the Income-tax Act, carry forward and set off of unabsorbed depreciation is allowed for eight assessment years. 30.2 With a view to enable the industry to conserve sufficient funds to replace plant and machinery, specially in an era where obsolescence takes place so often, the Act has dispensed with the restriction of eight years for carry forward and set off of unabsorbed depreciation. The Act has also clarified that in computing the profits and .....

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2001. 30.5 These amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years." 37. The Central Board of Direct Taxes Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of eight years for carry forward and set off of unabsorbed depreciation. The amendment .....

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ssment year 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by the Finance Act, 2001, it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence, keeping in view the purpose of the amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken. While construing the taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable constructio .....

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nder section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by the Finance Act, 2001, would allow the unabsorbed depreciation allowance available in the assessment years 1997- 98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the assessment year 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent ye .....

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s of income during that year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeedi .....

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assessment year 2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by the Finance Act, 2001, and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. For the aforesaid reasons, this writ petition succeeds and is allowed. The 41 notice issued under section 148 of the Income-tax Act, 1961, dated March 29, 2011, annexure A and .....

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year 2007-08, vide order dated 05.03.2014 applying the ratio laid down by the Hon ble Gujarat High Court in General Motors India Pvt. Ltd. Vs. DCIT (supra), held that the benefit of set off of unabsorbed depreciation of assessment years 1997-98 and 1998-99 could be allowed against the income relating to assessment year 2007-08. In applying the ratio laid down by the Hon ble Gujarat High Court, the Tribunal held that the reliance placed by the learned Departmental Representative for the Revenue o .....

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) 30 taxmann.com 57 (Hyd.) and also Hon ble Madras High Court in CIT Vs. Pioneer Asia Packing (P.) Ltd., (supra) and CIT Vs. S&S Power Switchgear Ltd. (supra). In view of the same being contrary to the only decision of Hon ble Gujarat High Court on the issue for allowance of set off of brought forward unabsorbed depreciation relating to assessment year 1999- 2000 against the income arising in the year under appeal i.e. assessment year 2008-09 is over ruled by the only decision brought to our .....

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in 126 TTJ 158 (Ahm) (TM). 31. Applying the ratio laid down by the Hon ble Gujarat High Court in General Motors India Pvt. Ltd. Vs. DCIT (supra) to the facts of the present case, the issue of allowability of unabsorbed depreciation relating assessment year 1999-2000 against the income arising in assessment year 2008-09 is to be set off and consequently, the order passed by the Assessing Officer in this regard cannot be said to be prejudicial to the interest of Revenue. Consequently, the revisio .....

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