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TMI Blog2015 (8) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... d on facts and in law in observing that order passed by the Ld. AO in allowing depreciation claimed for assessment year 1999-2000 is erroneous and prejudicial to interests of revenue. 3.1 That the Ld. CIT grossly erred on facts and in law in not appreciating that the Ld. AO passed the original assessment order after making due enquiries and in accordance with his quasi judicial powers conferred upon him under the statute and thus initiation of proceedings under section 263 of the Act is without jurisdiction. 3.2 That the Ld. CIT grossly erred on facts and in law by not appreciating the settled principle that proceedings initiated under section 263 of the Act were not valid since Ld. AO had duly examined all the records placed on record at the time of assessment proceedings. 3.3 That the Ld. CIT erred in law in not appreciating that if the Ld. AO adopts one of the views permissible in law and it has resulted in loss to revenue, or where two views are possible and the AO has taken one view with which CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of revenue. 3.4 That the Ld. CIT grossly erred on facts and in law in initiating proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment record was of the view that, the assessment order passed by the Assessing Officer under section 143(3) of the Act was both erroneous and prejudicial to the interests of Revenue. Show cause notice under section 263 of the Act was issued to the assessee in which, it was alleged that the assessee had claimed set off of carried forward un-absorbed depreciation of Rs. 5,41,84,430/- relating to assessment year 1999-2000 against the income in the financial year 2007-08, which was not allowable as the same had to be dealt with in line with the provisions of section 32(2) of the Act, applicable to the said year. 6. Another show cause notice was issued to the assessee dated 25.07.2012 in respect of management / license fees paid by the assessee to SABMiller Management (IN) BV Netherlands, at Rs. 2,69,57,660/-. As per the Commissioner, the said expenses were not in accordance with the business exigency and hence were not allowable under section 37(1) of the Act for the reasons mentioned in the show cause notice. The assessee in reply, raised preliminary objection against the issue of notice under section 263 of the Act on the basis of assumption of jurisdiction. Reliance was placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion that the unabsorbed depreciation for A.Y. 1999-00 amounting to Rs. 5,41,84,430/- claimed and set off against the business income for A.Y. 2008-09 in the computation of income and accordingly allowed by the AO while finalizing the assessment is not admissible one as per the provisions of sec.32(2) applicable for A.Y. 1999-00 and therefore, the unabsorbed depreciation for A.Y. 1999-00 amounting to Rs. 5,41,84,430/- needs to be disallowed. Accordingly, the AO is directed to disallow the claim of unabsorbed depreciation to the extent of Rs. 5,41,84,430/- while giving effect to this order. 9. The second issue raised by the Commissioner in show cause notice was with regard to the management / license fees paid by the assessee to SABMiller Management (In) BV Netherlands. The submissions of the assessee in this regard, were reproduced by the Commissioner, which are being referred but not reproduced here for the sake of brevity. The Commissioner after considering the submissions made by the assessee observed as under:- "The submissions of the assessee have been duly considered. On perusal, it is noticed that the license fee paid by the assessee is governed by the agreement dated 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n carried forward. The details of the said brought forward business losses and unabsorbed depreciation expenses are placed at pages 37 and 38 of the Paper Book. 13. The learned Authorized Representative for the assessee further pointed out that the Assessing Officer had issued a notice under section 154 of the Act which is placed at page 135 of the Paper Book along with reply of the assessee at pages 136 to 143 of the Paper Book in which, it was pointed out that the ratio laid down by the Mumbai Bench of the Tribunal in DCIT Vs. Times Guaranty Ltd. (supra), was not applicable. The learned Authorized Representative for the assessee further pointed out that at page 144 of the Paper Book, is enclosed the copy of order under section 154 of the Act dropping the said proceedings. 14. In respect of second issue i.e. license / management fees, the learned Authorized Representative for the assessee pointed out that the issue was set aside to the Assessing Officer despite enquiry was made by the Assessing Officer in the first round of assessment proceedings. It was further pointed out by him that the Assessing Officer in the set-aside proceedings, had not made any addition. The learned Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence to page 338 of the Paper Book. Further, reliance was placed in General Motors India Pvt. Ltd. Vs. DCIT (2013) 354 ITR 244 (Guj) and pointed out that there was no contrary decision of any High Court. It was further pointed out by the learned Authorized Representative for the assessee that the Vizag Bench of the Tribunal in JCIT Vs. M/s. Alufluoride Ltd., in ITA No.134/Vizag/2013 (Vizag Trib) had considered the reliance placed upon by the learned Departmental Representative for the Revenue on DCIT Vs. Times Guarantee Ltd. (supra) and also the ratios laid down by Hon'ble Madras High Court in CIT Vs. Pioneer Asia Packing (P.) Ltd., (2008) 170 TAXMAN 127 (Mad.) and CIT Vs. S&S Power Switchgear Ltd. (2009) 318 ITR 187 (Mad) and also the claim of assessee. Further, the reliance was placed on the ratio laid down by the Mumbai Bench of the Tribunal in ACIT Vs. Associated Cables Pvt. Ltd., in ITA No.5556/Mum/2012. 18. The learned Authorized Representative for the assessee concluded by stating that queries were raised in the original assessment proceedings which were replied to by the assessee and further, issue was raised in the proceedings under section 154 of the Act which were als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n deliberated upon the issue of when and where the assessment order can said to be erroneous and such erroneous order if it has resulted in escapement of income from being brought to tax, then such order is prejudicial to the interest of Revenue. The Hon'ble Supreme Court in Malabar Industries Company Ltd v CIT 243 ITR 83 (SC) has held as under:- "There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the, Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy and Co. v. S. P. Jain [1957] 31 ITR 872. the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422, the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation of provisions of section 32(2) of the Act and observed that un-absorbed depreciation relating to assessment year 1999-2000 cannot be set off against the business income of assessment year 2008-09. The Commissioner held that in view of the provisions of section 32(2) of the Act applicable for assessment year 1999-2000, the unabsorbed depreciation for assessment year 1999-2000 amounting to Rs. 5,41,84,430/- needs to be disallowed. The Assessing Officer was thus, directed to disallow the claim of unabsorbed depreciation to the extent of Rs. 5.41 crores while giving effect to the order of Commissioner. 23. In respect of the second issue raised vis-à-vis the management / license fees paid to SAB Miller Management (In) BV Netherlands, the issue was set-aside to the file of Assessing Officer to verify the issue and decide the same. 24. In the appeal filed by the assessee, the objection has been raised against such invoking of jurisdiction by the Commissioner in holding that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of Revenue on both the accounts. As the various Courts have held the twin conditions of the order being err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Finance Act, 2001 and it was held that the amendment made to section 32(2) of the Act by the Finance 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 allow the unabsorbed depredation allowance worked out in the assessment 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. 28. The Hon'ble Gujarat High Court had considered the issue at length and had observed as under:- "30. The last question which arises for consideration is that whether the unabsorbed depreciation pertaining to the assessment year 1997-98 could be allowed to be carried forward and set off after a period of eight years or it would be go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for that previous year or owing to the profits or gains being less than the allowance, then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as unabsorbed depreciation allowance), as the case may be,- (i) 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 ; (ii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i), the amount not 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 depreciation allowance cannot be wholly so setoff, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absorbed 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 gains of business or profession for any previous year, deduction of depredation under section 32 shall be mandatory. 30.3 Under the existing provisions, no deduction for depreciation is allowed on any motor car manufactured outside India unless it is used (i) in the business of running it on hire for tourists, or (ii) outside in the assessee's business or profession in another country. 30.4 The Act has allowed depreciation allowance on all imported motor 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 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 cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there 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 succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assessee on the 1st day of April, 2002 (the assessment year 2002-03), will be dealt with in accordance with the provisions of section 32(2) as amended by the Finance Act, 2001. And once Circular No. 14 of 2001 clarified that the restriction of eight years for carry forward and set off of unabsorbed depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbed 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 notice of the Hon'ble Gujarat High Court in General Motors India Pvt. Ltd. Vs. DCIT (supra). 30. Another aspect of the issue is that where there is only judgment of High Court though not jurisdictional High Court and when no contrary High Court's decision was available on the issue, then the High Court's decision had to be followed in preference to the decision of Special Bench of the Tribunal. This was the decision of Third Member in the case of Kanel Oil & Exports Industries Ltd. reported 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 revisionary powers exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase agreement referred to the rate of rent being linked to the quantity of stock and not fixed monthly rent. Further the assessee is to keep the godown in its perfect condition as the said premises are being used for storing perishable items, which require an extra care. 24. The Hon'ble Supreme Court in CIT VS. Ralson Industries Ltd. [(288 ITR 322 (SC)}(supra) have laid down the proposition that the initiation by the CIT of proceedings for revision u/s 263 of the Act cannot be held to have become bad only because an order for rectification was passed by the Assessing Officer u/s 154 of the Act. The learned D.R. for the Revenue had placed reliance on the above said proposition laid down by the Apex Court. However, we find that the learned A.R. for the assessee had referred to the proceedings of rectification u/s 154 of the Act under which reply was given by the assessee which in turn becomes record for the purpose of explanation to section 263 of the Act. 25. In view of the totality of facts and circumstances and the explanation filed by the assessee in reply to the notice, we find merit in the alternate plea raised by the assessee that in view of the information being availab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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