TMI Blog2017 (2) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... 014 of the Ld. First Appellate Authority, Mumbai. 2. During hearing, of both these appeals, the ld. counsel for the assessee, Shri Nishit Khatri, contended that the Tribunal deleted the quantum addition for the impugned Assessment Year, therefore, the penalty imposed u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter the Act) will not survive. The ld. counsel furnished the copy of the order dated 26/06/2015 (ITA No.7492/Mum/2011) for Assessment Year 2005-06 and ITA No.3947/Mum/2012 for Assessment Year 2008-09 (consolidated order). This factual assertion was not controverted by Miss Anupama Singla, ld. DR. 2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion of the order on quantum addition dated 26/06/2015 for ready reference and analysis:- Out of these two appeals, one appeal filed by the assessee is against the order of CIT(A)-40, Mumbai, dated 24.08.2011 relating to assessment year 2005-06 against the order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961. The assessee also filed another appeal against the order of CIT(A)-40, Mumbai, date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the appellant in the assessment year under appeal. (b) The appellant submits that pursuant to amalgamation and in accordance with the provisions of section 72A, it is eligible to set off brought forward unabsorbed depreciation and business losses of the amalgamating company and the Assessing officer ought to have allowed the set off of brought forward unabsorbed depreciation while computing the income. (c) Without prejudice to what has been stated above, the appellant submits that as per provisions of section 72A, where there is an amalgamation between two companies, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall deemed to be loss or unabsorbed depreciation of the amalgamated company for the previous year in which amalgamation was affected. The appellant submits that the amalgamation was affected in the assessment year under appeal and hence the set off of brought forward unabsorbed depreciation ought to be allowed by the Assessing Officer. 2. The learned Commissioner of Income-tax (Appeals) erred in not directing the Assessing Officer to exclude interest on loan (taken for the purpose of business) while calculating dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L Polymers Ltd. aggregating to ₹ 7,23,04,034/- could be set off in assessment year 2008-09, in the light of provisions of section 32(2) of the Act, which were applicable at the relevant time. In reply, the assessee submitted that the said set off is allowable to the assessee in view of the provisions of section 72A of the Act, where the assessee was engaged in the same line of business and it also continues to hold 3/4th of the book value of fixed assets held by it, two years prior to the date of amalgamation. The Assessing Officer observed that the amalgamation order provided the terms and conditions of amalgamation, but the carry forward and set off of brought forward losses and unabsorbed depreciation would be governed by respective provisions of the Act. The Assessing Officer was of the view that the unabsorbed depreciation of the amalgamating company pertaining to assessment years 1994-95 to 1998-99 shall not be deemed to be the unabsorbed depreciation of the amalgamated company, since the unabsorbed depreciation losses of the above mentioned assessment years could not be carried forward and set off beyond 8 years as per the provisions of section 32(2) of the Act, applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed depreciation available to the assessee on first day of April, 2002 i.e. assessment year 2002-03, would be dealt with in accordance with the provisions of section 32(2) of the Act as amended by the Finance Act, 2001 and once the Circular No.14 of 2001 clarified that the restriction of 8 years of carry forward and set off of unabsorbed depreciation has been dispenses with, the unabsorbed depreciation from assessment year 1997-98 up to 2001-02 would be carried forward to assessment year 2002-03 and become part thereof. The learned Authorized Representative for the assessee further pointed out that the SLP against the said decision of Hon ble Gujarat High Court has been dismissed by the Hon ble Supreme Court vide judgment dated 11.03.2013 reported in 354 ITR (Statute) 104. 10. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below. 11. We have heard the rival contentions and perused the record. The assessee during the year under consideration, pursuant to the scheme of amalgamation between the assessee and its subsidiary company SPL Polymers Ltd., the business and all assets liabilities of the erstwhile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pvt. Ltd. Vs. DCIT (2013) 354 ITR 244 (Guj) vide judgment dated 23.08.2012 had elaborated upon the issue of claim of unabsorbed depreciation and the law applicable and also the effect of amendment to section 32(2) of the Act 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. 14. The Hon ble Gujarat High Court had considered the issue at length and had observed as under:- 30. The las ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment 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 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 car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Board of Direct Taxes in Circular No. 14 of 2001 (see [2001] 252 ITR (St.) 65, 90). The relevant portion of the said Circular reads as under : Modification of provisions relating to depreciation 30.1 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 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 years. 38. Therefore, it can be said that, current depreciation is deductible in the 40 first place from the income of the business to which it relates. If such depreciation amount is larger than the 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 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 succeeding year. We are of the considered opinion that any un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference 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). Consequently, we allow the ground of appeal No.1 raised by the assessee and direct the Assessing Officer to verify the claim of unabsorbed depreciation relating to assessment years 1994-95 to 1998-99 to be set off against the profits of amalgamated company. The ground of appeal No.1 raised by the assessee is thus, allowed. 2.2. We find that the Tribunal, in the aforesaid order, on quantum addition, vide dated 26/06/2015 deleted the addition on the basis of which penalty was initiated/confirmed. In view of this factual matrix, we are of the view that penalty imposed u/s 271(1)(c) will not survive. Our view find support from the decision in K.C. Builders vs ACIT (2004) 265 ITR 562 (SC) and the ratio laid down in CIT vs S.P. Viz, 176 ITR 76 (Patna). Even otherwise, when the quantum addition is deleted, there remains no basis at all for levying the penalty for concealment or furnishing inaccurate particulars. The penalty cannot stand on its legs when addition on the basis of which the penalty was imp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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