TMI Blog2016 (8) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... used for storage. The Assessing Officer has nowhere held that building being constructed is for expansion of the existing business. Therefore, provisions of Section 36(1)(iii) and 43(1) would not be attracted in this case. Further, the assessee explained that it has sufficient funds available for raising the construction on which no interest has been paid. The ld. CIT(Appeals) has given a specific finding that in the absence of any finding by the Assessing Officer regarding any term loan having been raised for building construction, the ld. CIT(Appeals) was justified in deleting the addition. There is no merit in this ground of appeal of the revenue - Decided against revenue - ITA No. 892/CHD/2015 - - - Dated:- 1-8-2016 - Shri Bhavnesh Saini, Judicial Member For the Appellant : Shri Sushil Kumar For the Respondent : Shri Sudhir Sehgal ORDER This appeal by revenue has been directed against the order of ld. CIT(Appeals)-1 Ludhiana dated 30.09.2015 for assessment year 2011-2012. 2. I have heard ld. Representatives of both the parties, perused the findings of authorities below. 3. On ground Nos. 1 and 2, revenue challenged the order of ld. CIT(Appeals) in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of depreciation of current year against deemed income is permissible. The Assessing Officer held that income of the assessee surrendered during survey under section 133A to be treated as deemed income under section 69, 69A, 69B and 69C and the same cannot be set off against business loss/depreciation loss. The assessee reiterated the same submissions before ld. CIT(Appeals) and submitted that there was no issue of set off of depreciation including unabsorbed depreciation under section 32 against the amount surrendered in survey and treated as deemed income. On the same facts, ITAT Chandigarh Bench in the case of Liberty Plywood Pvt. Ltd. (supra), after considering decision of the Hon'ble Punjab Haryana High Court in the case of Kim Pharma Pvt. Ltd. (supra) has held that depreciation under section 32 can be adjusted against the so called deemed income, the amount surrendered in survey without having any nexus of nature and source. It was submitted that facts of the case of the assessee are similar to that of in the case of M/s Liberty Plywood Pvt. Ltd. (supra). The assessee, therefore, claimed that unabsorbed depreciation may be allowed set off against deemed income. The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R relied upon order of the Assessing Officer and submitted that in the case of M/s Kim Pharma Pvt. Ltd. (supra), the decision of Gujrat High Court in the case of Fakir Mohmed Haji Hasan V CIT 247 ITR 290 have been followed and Hon'ble High Court held that the said decision fully apply to the facts of the case. Therefore, unabsorbed depreciation cannot be set off. 7 (i) On the other hand, ld. counsel for the assessee reiterated the submissions made before authorities below and submitted that the identical issue was considered by ITAT Chandigarh Bench in the case of M/s Liberty Plywood Pvt. Ltd. (supra) in which the Tribunal considered the decision in the case of M/s Kim Pharma Pvt. Ltd. and held as under : 10 We have heard the rival submissions carefully. The main controversy involved is whether the surrender income amounting to ₹ 70.00 lakhs should be treated as business income so as to set off brought forward losses u/s 70 of the Act as well as the depreciation u/s 32(2). As far as the decision of Hon'ble Supreme Court in case of CIT V. D.P. Sandhu Bros. Chembur, P. Ltd. (supra) is concerned, we find that facts in that case are totally different. In that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be subjected to tax u/s 56. The argument of the appellant that even if the income cannot be chargeable u / s 45. because of the inapplicability of the computation provided u/s 48, it could still imposed tax under the residuary head as fhus unacceptable. If the income cannot be taxed u/s 45, it cannot be taxed at all. (See S.G. Mercantile Corporation P. Ltd. V CIT (1972) 83 ITR 700 (S.C). 11 Thus it is clear from the above that once the item of receipt is held to be falling under a particular head then the same cannot be charged alternatively under another head particularly under the head income from other sources . This observation can not lead to the conclusion if income does not belong to a particular head same cannot be charged at all. As far as the decision of Ahmedabad Bench of the Tribunal in case of Fashion Word V ACIT, ITA No. 1634/Ahd/2006 (supra) is concerned interpreting the decision of Hon'ble High Court in case of Fashion Word V ACIT, ITA No. 1 634/Ahd/2006 (supra) has to give a way to interpretation put on the same decision by the Hon'ble Punjab Haryana High Court in case of M/s Kim Pharma (P) Ltd. V. CIT, ITA No. 106 of 2011 (O M), Hon'ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that during the year under consideration the assessee had income of ₹ 2,34,10,540/- assessed under the head income from other sources in view of provisions of section 69 of the Act. Further it is also not in dispute that the assessee had brought forward unabsorbed depreciation of ₹ 1 0 . 1 3 crores in Assessment year 1993-94 , ₹ 1.59 crores in Assessment year 1994-95 and ₹ 68.14 lakhs in Assessment year 1995-96 which is available for set off against income of the current year. As per provisions of section 32(2) unabsorbed depreciation are deemed as part of current year's depreciation to the extent of available income. Further there is no provisions under the Income Tax Act to prohibit set off of current year's business loss against income of the assessee which is assessable under the head income from other sources. Section 70 does not prohibit such set off. 13 However, this provision has been amended twice w.e.f. 1.41997 by Finance Act (No. 2 of 1996) and against on 1.4.2002 by Finance Act, 2001. Certain restrictions were introduced again set off of by such unabsorbed depreciation. Controversy also arose in this respect. Ultimately the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from assessment year 1997-98 irrespective of the fact that the unadjusted brought forward depreciation arose in an earlier assessment year. Thus, on the strength of the clarification given by the Finance Minister, the unadjusted depreciation brought forward up to April 1,1997 became eligible for set off not only against the business income but also against income under other heads in eight assessment years. Two like expressions are used in sub-section (2), viz, firstly, profits or gains in the main part of sub-section (2) and then profits and gain' in clause (i). The expression profits and gains as used in clause (i) or (iii)(a) refers only to income under the head Profits and gains of business or profession . Section 32(2) was again substituted by the Finance Act, 2001 with effect from April 1, 2002 restoring the provision as prevailing prior to the amendment made by the Finance (No. 2) Act, 1996 with effect from April 1,1997. Sub-section (2) of section 32 is a substantive prov ision and not a procedural one. It is settled legal position that the amendment to a substantive provision is normally prospective unless expressly stated otherwise or it appears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame part of section 32(2), there is no question of expanding the scope of the legal fiction. The purpose of a legal fiction in section 32(2) is to make the unabsorbed carried forward depreciation partake of the same character as the current depreciation in the following year. In other words the object of the provision is to treat the whole or part of the depreciation allowance under section 32(1), which could not be adjusted in the first year, as the current depreciation under section 32(1) in the second year. In the second year, such depreciation of first year becomes part and parcel of depreciation under section 32(1) of the second year. If again in the second year, the total of depreciation under section 32(1) (including the amount of allowance which came from first year and became depreciation under section 32(1) in the second year) cannot be absorbed, it shall become current depreciation for the third year to be dealt with in the same manner as the amount of depreciation in the third year and so on. Once the unabsorbed depreciation lor the first year is given the character of current depreciation in the second year, the purpose of section 32(2) is fulfilled. The unabsorb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession . For the assessment year 2002-03 onwards the first unadjusted depreciation allowance can be set off up to assessment year 2004-05, that is, the remaining period out of maximum period of eight assessment years against income under any head. The second unabsorbed depreciation allowance can be set off only against the income under the head Profits and gains of business or profession within a period of eight assessment years succeeding the assessment year for which it was first computed. Current depreciation for the year under section 32(1), for each year separately, starting from assessment year 2002-03 can be set off against income under any head. The amount of depreciation allowance not so set off (the third unadjusted depreciation allowance ) shall be carried forward to the following year. The third unadjusted depreciation allowance shall be deemed depreciation under section 32(1), that is depreciation for the current year in the following year(s) to be set off against income under any head, like current depreciation, in perpetuity, 14 From the above it is clear that unabsorbed depreciation for the block of Assessment year 1997-98 to 2001-02 which could not ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Hon'ble Punjab Haryana High Court in the case of Abhishek Industries Ltd. 286 ITR 1. The Assessing Officer also noted that no interest had been capitalized and added to the cost of building which have not been put to use till the end of the financial year concerned. The Assessing Officer contended that Explanation-8 to Section 43(1) is clear that if any interest is paid by the assessee for acquisition of an asset before the period when such asset is first put to use shall be capitalized and added to the cost of asset. The Assessing Officer, accordingly, disallowed above interest. 9. The assessee challenged the addition before ld. CIT(Appeals) and written submissions were reproduced in the impugned order in which assessee explained that it has interest free amounts available in the books of account which is capital of the partners etc. in a sum of ₹ 7.59 Cr. The Assessing Officer merely presumed that total amount used for construction of building is out of borrowed funds, though no nexus has been established or mentioned in the assessment order except that Assessing Officer followed decision in the case of Abhishek Industries Ltd. (supra). The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer was not justified in making the said disallowance under section 36(1)(iii). Hence this ground of appeal is allowed. 10. After considering rival submissions, I do not find any merit in this ground of appeal of the revenue. The ld. DR contended that no details are filed before the Assessing Officer regarding availability of the funds. On the other hand, ld. counsel for the assessee reiterated the submissions made before authorities below and submitted that availability of more funds with the assessee were specifically pleaded before authorities below supported by the balance sheet. Therefore, no addition could be made as assessee has shown building under construction. The ld. CIT(Appeals) recorded specifically that there is no finding of the Assessing Officer on fulfillment of the conditions of proviso to Section 36(1)(iii) of the Act. Term loans raised were found old and against machinery installed in earlier years which fact was not disputed by the Assessing Officer. There was no finding of the Assessing Officer to the effect that asset is for the expansion of the existing business. The assessee explained that it is constructing a building at Doraha and the place is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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