2006 (1) TMI 213 - AT - Income Tax

Carry Forward Loss Disallowed, Assessee Wins on Advance Tax Payment Date for 1996-97: ITAT's Mixed Ruling.

The ITAT ruled on two issues. For AY 1987-88, it upheld the disallowance of the carry forward of unabsorbed depreciation, loss, and investment allowance ... Depreciation - Carry forward and set off of depreciation and business loss - Return was treated as non est - levy of interest u/s 234C - Date of payment of advance tax consider 'date of deposit of cheque or date of realisation of cheque' - AO by taking the actual date of realization of cheques levied interest - HELD THAT:- Since, admittedly, the return was treated as non est and unabsorbed depreciation and business loss were not determined during the assessment year 1987-88, in our opinion, it cannot be carried forward and set off against the income for the assessment year 1995-96 in view of the judgment of the Madras High Court in the case of Sri Rajarathinam Transports (P.) Ltd. [1991 (1) TMI 11 - MADRAS HIGH COURT]. Moreover, it is not known whether the depreciation remains to be unabsorbed during the period 1987-88 to 1994-95. The assessee or the Department could not clarify whether the depreciation remains to be unabsorbed. Thus, we do not find any merit in the appeals of the assessee. Accordingly, we confirm the order of the lower authorities on this issue. Levy of interest - Admittedly, the cheques were presented and deposited before the authorized banker within the due date for payment of advance tax. The cheques were admittedly encashed and the amounts were realised subsequently. It is not the case of the Revenue that the cheques were returned unpaid at any point of time. In those circumstances, as held by the Authority for Advance Rulings, the date of payment should be taken as date of presentation of the cheques. The Apex Court as well as Madras High Court have also taken similar view after interpreting sections 10 and 82 of the Negotiable Instruments Act, 1881. Therefore, in our opinion, the date of presentation should be taken as date of payment since admittedly, the cheques were honoured. By respectfully following the judgment of the Apex Court in the case of K. Saraswathy [1989 (5) TMI 318 - SUPREME COURT] and the judgment of the Madras High Court in the case of Kumudam Publications (P.) Ltd [1980 (9) TMI 77 - MADRAS HIGH COURT] and the decision rendered by the Authority for Advance Rulings, we set aside the order of the lower authorities and direct the Assessing Officer to take the date of presentation of the cheques before the authorized banker for payment of advance tax as date of payment. In the result, I.T.A. No. 1035 is partly allowed and I.T.A. No. 1034 is dismissed. Issues Involved:1. Set-off of unabsorbed depreciation, unabsorbed loss, and unabsorbed investment allowance for the assessment year 1987-88.2. Levy of interest under section 234C of the Income-tax Act for the assessment year 1996-97.Issue-wise Detailed Analysis:1. Set-off of Unabsorbed Depreciation, Loss, and Investment Allowance for AY 1987-88:The primary issue was whether the assessee could carry forward and set off unabsorbed depreciation, business loss, and investment allowance from the assessment year 1987-88. The assessee's return for that year was filed late and treated as non est by the Assessing Officer, thus rejecting the claims for carry forward.The assessee argued that despite the return being non est, they should be entitled to carry forward unabsorbed depreciation, citing decisions from the Mumbai Bench (Bombay Gas Co. Ltd. v. Dy. CIT) and the Punjab & Haryana High Court (CIT v. Haryana Hotels Ltd.), which supported carry forward even without a valid return.Conversely, the Departmental Representative contended that unabsorbed depreciation and losses must be quantified in the year they arose to be carried forward. The non-est return meant these amounts were not determined, thus disqualifying them from being carried forward.The Tribunal, bound by the jurisdictional Madras High Court's ruling in Sri Rajarathinam Transports (P.) Ltd. v. CIT, held that without quantification in the relevant year, unabsorbed depreciation and losses could not be carried forward. This stance was reinforced by the Supreme Court's decision in CIT v. Virmani Industries (P.) Ltd., which did not address non-filing or non-determination issues. Consequently, the Tribunal dismissed the assessee's appeal on this issue.2. Levy of Interest Under Section 234C for AY 1996-97:The second issue concerned the levy of interest under section 234C due to late realization of cheques for advance tax payments. The assessee argued that the date of payment should be the date the cheque was presented to the authorized bank, not the date of realization. They cited the Tribunal's decisions in Pentamedia Graphics Ltd. v. Deputy CIT and Asstt. CIT v. Molex (India) Ltd., and a CBDT circular supporting their stance.The Departmental Representative countered that under the Central Government Account (Receipts and Payments) Rules, 1983, the payment date is when the cheque is cleared, not when presented.The Tribunal examined the conflict between the Central Government Account (Receipts and Payments) Rules, 1983, and the Negotiable Instruments Act, 1881. It concluded that the law enacted by Parliament (Negotiable Instruments Act) prevails over executive rules. The Tribunal referred to the Supreme Court's interpretation in K. Saraswathy v. P.S.S. Somasundaram Chettiar, which supports that payment dates back to the cheque presentation date if honored.Additionally, the Tribunal noted that the CBDT circular, which binds revenue authorities, was still in effect. Therefore, the Tribunal directed the Assessing Officer to consider the cheque presentation date as the payment date for advance tax, setting aside the lower authorities' orders.Conclusion:- Set-off of unabsorbed depreciation, loss, and investment allowance for AY 1987-88: The Tribunal upheld the lower authorities' decision, disallowing the carry forward due to non-est return and non-quantification in the relevant year.- Levy of interest under section 234C for AY 1996-97: The Tribunal ruled in favor of the assessee, directing the date of cheque presentation to be considered the payment date, thus setting aside the interest levied under section 234C.Outcome: I.T.A. No. 1035(Mds.)/99 was partly allowed, and I.T.A. No. 1034 (Mds.)/99 was dismissed, with no order as to costs.