TMI Blog2017 (6) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... - Shri J. Sudhakar Reddy, Accountant Member And Shri S.S. Viswanethra Ravi, Judicial Member For the Appellant : Shri Sallong Yaden, Addl. CIT, ld. DR For the Respondent : Shri R.N. Bajoria, Sr. Advocate, ld. AR ORDER Shri S.S.Viswanethra Ravi, JM These two appeals by Revenue are against the separate orders dt. 18-07-2014 passed by the CIT(A), VI, Kolkata for the assessment years 2006-07 2007-08. 2. First we shall take up the appeal in ITA No. 1936/Kol/14 for the A.Y 2006-07 by the revenue. 3. In this appeal the only issue that is to be decided as to whether the CIT-A justified in holding that the purchase of sales tax exemption certificates is a revenue expenditure in the facts and circumstances of the case. 4. The brief facts of the case are that the assessee is a company and engaged in manufacturing of papers, cement, fans and other engineering products. Initially, the assessment was completed u/s. 143(3) of the Act on 23-12-2011. Thereafter, the CIT II Kolkata having exercising his jurisdiction u/s. 263 of the Act declared that the said assessment was erroneous and prejudicial to the interest of revenue and directed the AO to examine the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,74,997). The assessee contended that the Hon ble Special Bench in the case of Reliance Industries Ltd (supra) decided the issue whether the subsidy receipt is a revenue receipt or capital receipt. Therefore, the ratio of decision therein does not apply to the present case. The CIT-A considering the submissions of the assessee deleted the impugned addition by observing as under:- 3.2. I have considered the facts of the case. The appellant purchased sales tax entitlement certificates, which entitled it to claim sales tax exemption to the extent of ₹ 2,16,99,999/-. The assessing officer has disallowed the cost of purchase of the said certificates by treating the same as of capital nature. He has also stated that the benefit of sales tax was not included in sales tax collection/payment. In this regard, it is noted, that the appellant was following a system of accounting where sale was normally shown exclusive of sales tax. However, since sales tax collected from the customer to the extent of exemption available was not required to be paid to the sales tax department, the appellant has, as explained by it, shown such sales at a gross value i.e. inclusive of sales tax. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, which is simply commercial in nature, can, in my opinion, be called capital in nature. In fact, if the view of the assessing officer, that the purchase price of sales tax exemption was capital in nature, is accepted, by the same token even the receipt of ₹ 2,16,99,999/- will also have to be held as capital in nature. The appellant has rightly treated both items as revenue in nature and has offered the difference as income. Action of the assessing officer in accepting receipt as revenue and expenditure part as capital is not sustainable. The disallowance of ₹ 1,62,74,997/- is accordingly deleted. 7. The ld.DR submits that the assessee purchased sales tax exemption certificates from other entities which expenditure is capital expenditure. He relied on the order of the AO. 8. On the other hand, the ld.AR of the assessee has relied on the order of the CIT-A. 9. Heard rival submissions and perused the material available on record. We find that the AO decided the issue by relying on the decision of the Special Bench, ITAT Mumbai in the case of Reliance Industries Ltd (supra). The CIT-A distinguished the order. We find from the impugned order of the CIT-A t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by stating as under:- 2.11 Mumbai ITAT in case of M/s. Arch Fine Chemicals P Ltd Vs. ACIT [dated 9th October 2013 in ITA No.2414 and 24151MUMI2012 ( Assessment years: 2005-06 2006-07)] following the judgment of the Gujarat High Court held as under:- We have also gone through the decision of the Hon'ble Gujarat High Court in the case of General Motors India Pvt.(supra) wherein their Lordships have stated that the amendment made by Finance (No.1) Act was clarified by CBDT vide circular No.14 of 2001. The said amendment is applicable from assessment year 2002-03 and subsequent years. That unabsorbed depreciation available to an assessee on first day of April 2002 (assessment year 2002-03) will be dealt with in accordance with the provisions of section 32(2) of the Act as amended by Finance (No.1) Act, 2001 and not by provisions of section 32(2) as it stood before the said amendment. Their Lordships have stated had the intention of the legislature being to allow 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n could not set off and it would be carried forward till the time of set off against profit and gains of subsequent years without any limit whatsoever. We find that the decision as relied on by the ld.AR of the Co-ordinate Bench of this Tribunal in the case of supra also followed the said decision of the Hon ble High Court of Gujarat and allowed the carried forward of unabsorbed depreciation. Relevant portions of which are reproduced herein below for better understanding:- 12. The provisions of Sec.32(2) as substituted by the Finance Act, 2001 w.e.f. 1st April, 2002, applicable for AY 2004-05 2005-06 ) Assessment years under consideration (hereinafter called the third period ) reads as under : (2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-s. (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-s. (2) of s. 72and sub-s. (3) of s. 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 am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus the law as existing in the second period w.e.f. 1st April, 1997 was completely taken back and as a result of that the provision as prevailing in the first period was restored. From the language of the sub-s. (2) of s. 32 it is manifest that it is a substantive provision and not a procedural one. It is settled legal position that the amendment to substantive provision is normally prospective unless expressly stated otherwise or it appears so by necessary implication. The special Bench summarised its conclusions thus: The legal position of current and brought forward unadjusted/unabsorbed depreciation allowance in the three periods, is summarized as under : A. In the first period (i.e. upto asst. yr. 1996-97) (i) current depreciation, that is the amount of allowance for the year under s. 32(1), can be set off against income under any head within the same year. (ii) amount of such current depreciation which cannot be so set off within the same year as per (i) above shall be deemed as depreciation under s. 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. B. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on the decision of the Gujarat High Court in the case of.General Motors India Pvt. Ltd. -vs.- DCIT (Guj.) (2013) 354 ITR 244 (Guj.) wherein, the Hon'ble Gujarat High Court has held that unabsorbed depreciation from AY. 1997-98 up to AY. 2001-02 got carried forward to AY. 2002-03 and became part thereof and it came to be governed by the provisions of sec. 32(2) as amended by the Finance Act, 2001 and were available for carry forward and set off against income of subsequent years without any limit. The relevant extracts of the judgment is as under: We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A. Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No. 14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A. Y.1997-98 upto the A. Y. 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 Finance Act, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying forward of unabsorbed depreciation for every year has to be calculated indivi ally based on audit report and to arrive at the exact amount to be carried forward. 19. The CIT(A) allowed the claim of the Assessee. The following were the relevant observations of the CIT(A): 8. Appeal on ground no. 4 and 5 are against the disallowance of carry forward of unabsorbed depreciation of ₹ 8,77,48,743/-. The A.O. in his assessment order has clearly mentioned that unabsorbed depreciation of assessment year 1994-95 to 1996-97 was to be claimed / set off upto assessment year 2004-05 only it could not be carried ITA Nos.815 816/Kol/2013 C.O.Nos.57 58/Kol/2013 M/s.Epcos India Private Limited. A.Yrs.2004-05 2005-06 forward and set off beyond that. During the appellate proceeding the A.R. has submitted a copy of the order of the jurisdictional Hon'ble Kolkata Tribunal in the case of Bengal Tea Fabrics Ltd. Vs. DClT Cir-4, Kolkata (ITA No. 467/Kol/2012 dt. 26-07-2012) wherein the Tribunal has categorically given its finding that the assessee company would be entitled to set off unabsorbed depreciation .or the A.Ys. 1997-98, 1998-99 against the income of A.Y. 2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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