TMI Blog2008 (11) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... riation which is prejudicial to the assessee”. - 238 of 2004 - - - Dated:- 21-11-2008 - MRS PRABHA SRIDEVAN and K. K. SASIDHARAN JJ. C. V. Rajan for M/s. Subbaraya Aiyar, Padmanabhan for the appellant. Mrs. Pushya Sitaraman for the respondent. JUDGMENT The judgment of the court was delivered by MRS. PRABHA SRIDEVAN J. - The substantial questions of law raised in this appeal are: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of section 144B of the Income-tax Act, 1961, are attracted and the reference to the Inspecting Assistant Commissioner was in accordance with the provisions of section 144B ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessment was not time barred ?" 2. The assessee is engaged in the manufacture and marketing of fertilizers, etc. The return of income for the assessment year 1980-81 was filed on June 27, 1980, showing an income of Rs. 10,91,22,540 subject to disallowances and the claim under section 80J of the Income-tax Act, and after adjusting the carry forward business loss to the extent of Rs. 10,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation Ltd. v. ITO [1983] 143 ITR 909 (Cal); (2) CIT v. Aich Kay Farm [1983] 141 ITR 928 (MP) and (3) CIT v. Gwalior Commercial Co. Ltd. [1983] 141 ITR 930 (Cal). 5. Mrs. Pushya Sitaraman, learned senior standing counsel appearing for the Revenue, while conceding that depreciation cannot be thrust on any assessee, would submit that at the time when the assessment order was passed and the proposal was made which is dated August 29, 1982, the law had not been settled and, therefore, there is nothing wrong in the reference made under section 144B and it was always subject to the Inspecting Assistant Commissioner accepting the explanation given by the assessee. Therefore, at this stage, it was not necessary to quash the proceedings. She would also submit that by the draft assessment order proposed, the assessee would not be able to set off certain business losses which would have become time barred and, therefore, it was a variation that was prejudicial to the assessee. According to the learned senior standing counsel, this issue has been dealt with in detail by the Commissioner of Income-tax (Appeals) and it did not deserve interference. 6. Section 144B of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 11,10,55,189 18,14,32,179 Balance business income: Nil Income from HP and OS: 12,14,321 Less : Unabsorbed depreciation for 1976-77 adjusted 12,14,321 Balance income: Nil Total income admitted: Nil Though the appellant had claimed depreciation in the original return, in the revised return filed, it had withdrawn the claim for depreciation in order to enjoy the benefit of set off of carry forward business losses of the earlier years, development rebate, etc. The Income-tax Officer thrust the depreciation and besides making admission, finally computed the income "for the year at nil as given below" : Rs. Business Income (after allowing depreciation) 11,11,05,812 Less : Set off losses relating to 1974-75 1,30,748 1975-76 4,63,891 1976-77 1,52,82,822 1977-78 9,52,28,351 11,11,05,812 Balance business income: Nil Income from HP and OS: 9,02,339 Less : Unabsorbed depreciation 1976-77 9,02,33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng deduction of depreciation that was withdrawn by the revised return. But, however, it upheld the action on the ground that the allowing of depreciation that was withdrawn was sufficient to prejudice the assessee and, therefore, the provisions of section 144B were justified. This is how the Special Bench answered the reference. The Tribunal, on receiving the order of the Special Bench, on the questions (a) whether the revised return was valid, and (b) whether the Income-tax Officer was justified in allowing the depreciation, though not claimed, decided these questions in conformity with the decisions of the Special Bench. With regard to the other points on which there was no difference of opinion, the original order was upheld. Therefore, in this case, the finding that the revised return was a valid return and allowing of depreciation which was not claimed was not justified cannot be agitated. Those findings have become final. The only question is with regard to the justifiability of invocation of section 144B. 10. In Mahendra Mills' case [2000] 243 ITR 56, the Supreme Court has considered the views of various High Courts on this issue of allowance of depreciation. We will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 34 which required necessary particulars to be furnished in the prescribed form. Therefore, until a claim is made for allowing deductions of the nature covered under section 32 along with necessary particulars, there would hardly be any occasion for the Income-tax Officer to 'allow' any claim. In the context in which the word 'allowed' is used in section 32(1), it is dear to us that the meaning intended is 'to admit something claimed'. The word 'allowed' means 'to accept as true or valid, to acknowledge, admit, grant', 'to admit something claimed, to acknowledge, grant, concede' (See the Oxford English Dictionary, Vol. I, 1970 Reprint, page 2392). There is nothing in the provisions of section 32(1) read with section 29 of the Act to indicate that even when no claim is made for allowing deduction in respect of the depreciation under section 32(1), the Income-tax Officer is bound to allow a deduction. In our view, it is implicit in the said provisions that the assessee should have made a claim for deduction under the said provisions to enable the Income-tax Officer to consider the same." "It is difficult to accept this argument for, under the scheme of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee for the past years. 'Actually allowed' does not mean 'notionally allowed'. If the assessee has not claimed deduction of depreciation in any past year it cannot be said that it was notionally allowed to him. A thing is 'allowed' when it is claimed. A subtle distinction is there when we examine the language used in section 16 and that in sections 34 and 37 of the Act. It is rightly said that a privilege cannot be to a disadvantage and an option cannot become an obligation.' 12. From the above, it is clear that when depredation is not claimed, it cannot be "allowed". When the original return is withdrawn and revised return is filed, there is no basis on which depreciation can be taken note of. So, the taxation is the consequence of imposition of depredation, which is not permissible. So, he cannot take advantage of something that he cannot do and then say that since this is prejudicial to the assessee, he will take advantage of the extended period of limitation. Any variation which is illegal or impermissible will cause prejudice per se. No one can take advantage of one's own illegal act or an act which is not legally sustainable. For this, we do not think we need au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be invoked if, in the calculation, a variation over the prescribed limit occurs." 17. In CIT v. Aich Kay Farm [1983] 141 ITR 928 (MP), it was held as follows (headnote): "In the return of income filed by the assessee, the total income was declared at Rs. 1,23,830. The assessment was made on total income of Rs. 1,36,829 inclusive of the agricultural income of Rs. 25,000. With regard to the particulars of the agricultural income there might be a variation exceeding Rs. 1,00,000. But, in order to attract the provisions of section 144B, it was necessary that the variation in the income or loss returned should exceed the amount fixed by the Board, namely, Rs. 1 lakh. The Tribunal was, therefore, justified in holding that the provisions of section 144B were not attracted and hence the extended period of limitation provided by clause (iv) of Explanation Ito section 153 was not applicable. As the assessment was not completed before the expiry of one year from the date of filing of the return, the Tribunal was right in holding that the order of assessment passed on August 23, 1978, was barred by limitation in view of the provisions if, clause (c) of sub-section (1) of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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