TaxTMI 
TaxTMI 
TaxTMI 
2016 (8) TMI 421
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....e Tax Return filed by the assessee firm for the year under appeal, it was revealed that firm had declared loss of Rs. 38,56,371/- including the surrendered income of Rs. 50 lacs. The assessee had shown less income therefore, explanation of the assessee was called for with reference to the decision of Hon'ble Punjab & Haryana High Court rendered in the case of Kim Pharma Pvt. Ltd. and assessee was required to show cause as to why the income voluntarily disclosed during survey should not be separately assessed as deemed income under section 69, 69A, 69B and 69C. The assessee filed detailed reply before Assessing Officer to explain the above surrendered amount. The Assessing Officer after considering reply of the assessee and following decision in the case of Kim Pharma Pvt. Ltd.(supra) held that income disclosed during the course of survey was to be taxed as deemed income. It was also held that against the deemed income, set off of business loss/depreciation loss cannot be allowed. 5. The assessee challenged the addition before ld. CIT(Appeals) and detailed written submission of the assessee is noted in which assessee also made a claim that request was made at assessment stage t....
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....f against business loss/depreciation loss by relying on the judgment of the Hon'ble ITAT Chandigarh Bench in the case of M/s Liberty Plywood Pvt. Ltd., ITA No.727/Chd/2012 vide order dated 17/12/2012. However, on a perusal of the said decision it is seen that it has been directed in the said order to allow set-off of unabsorbed depreciation of current year from deemed income surrendered during the survey. In the said case it has been observed that the decision of Hon'ble Punjab and Haryana High court in the case of M/s Kim Pharma (P) Ltd. vs. CIT. it was held that surrendered income during the survey has to be assessed separately as deemed income and set-off of losses under section 70 and 70(1) was not possible against such income. However, the said decision does not deal with the issue of setting off of depreciation under section 32(2) and that unabsorbed depreciation which is carried forward as current depreciation u/s 32(2) is clearly available for setting-off. The Hon'ble 1TAT referred to the case of the special Bench of the Hon'ble Tribunal in the case of DC1T vs. Guaranty Ltd. (2010) 4 ITR (Trib) 210 (Mum) SB for the same and held as under:- "From the above ....
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....l gain' but since there was no cost of acquisition and therefore, following the decision of Hon'ble Supreme Court in case of CIT V. B.C. Srinivasa Setty, 128 ITR 294 it was held that since the capital gain cannot be computed, the same was not taxable. On revenue's appeal to the High the issue was decided against the Department. When this matter traveled to the Hon'ble Supreme Court after detailed discussion, it was held that tenancy rights constituted capital assets. While dealing with the alternative argument of the Revenue that sale tenancy rights should be taxable under the head of income from other sources the Hon'ble Apex Court observed at placitum 14 to 16 as under:- "Section 14 of the Income-tax Act, 1961 as it stood at eh relevant time similarly provided that "all income shall for the purpose of charge of income-tax and computation of total income be classified under six heads of income", namely:- (A) Salaries; (B) Interest on Securities; (C) Income from house property; (D) Profits and gains of business or profession; (E) Capital gains; (F) Income from other sources unless otherwise, provided in the Act has not to be excluded from the total i....
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....u/s 70 & 71 was not possible against such income. However, it is clear that t h i s decision does not deal with the issue of setting off of depreciation u/s 32(2). Section 32(2) reads as under : 32(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable to that previous year, or owing to the profits or gains chargeable being less than the allowance, then subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 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 amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.] The plain reading of the above clearly shows that if the depreciation cannot be fully adjusted against profits and gains chargeable in the relevant year because of inefficiency of the profits then the same would be addled ....
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....allowance under section 32(1) pertaining to such year. Under sub-section (2) of section 32 as substituted by the Finance (No. 2) Act, 1996, with effect from April 1,1997, the scope of set-off of the brought forward unabsorbed depreciation allowance was restricted to the income under the head "Profits and gains of business or profession". Under clause (i) of substituted sub-section (2), the unabsorbed depreciation allowance could be set off against "profits and gains" of any business or profession carried on by the assesses for that assessment year. Under clause (ii) of sub-section (2) if the unabsorbed depreciation allowance could not be wholly set off under clause (i), the amount not so set off could be set off from the "income under any other head", if any, assessable for that assessment year. The provision for carry forward and set-off of unabsorbed depreciation for any number of years against income under any head, was further diluted by way of clause (iii)(b) to section 32(2) restricting the right to set-off of unabsorbed depreciation for a period of not more than eight assessment years succeeding the assessment year in which the allowance was first computed. This part of ....
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....s). A deeming provision cannot be extended beyond the purpose for which it is intended. Section 32(1) deals with depreciation allowance for the current year. It is only when the assessment of the assesses from assessment year 2002-03 onwards is made in which depreciation allowance for the current year under section 32(1) cannot be given full effect, owing to the inadequacy of profits, that the directive of the deeming provision under section 32(2) shall apply. Wherever there is mention of loss under a particular head for the current year which is sought to be set off against the income under the same head or other heads of the income for that very year, the words "cannot be" and "has not been" have been brought into play. The words, "cannot be" and "has not been" used in the present tense in section 32(2) suggest that the reference to depreciation allowance under section 32(1), which could not be adjusted due to inadequacy of profits, is for the current year alone starting from assessment year 2002-03 onwards. The brought forward unabsorbed depreciation of earlier years cannot be included within the scope of section 32(2). In section 32(2) the depreciation allowance for the cur....
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....ed "substitution". But for the relaxation given by the Finance Minister in Parliament, the brought forward unadjusted depreciation of the period prior to the amendment made by the Finance (No. 2) Act, 1996 with effect from April 1,1997 would have elapsed. There is no such concession given by the Finance Minister while substituting the provisions of section 32(2) with effect from April 1, 2002. Therefore, the brought forward unabsorbed depreciation allowance of the period after substitution by the Finance (No. 2) Act, 1996 cannot be treated as the current depreciation in the assessment years under consideration. The position can be summed up as follows : For the assessment years 1997-98 to 2001-02 brought forward unadjusted depreciation allowance for and up to assessment year 1996- 97 (the "first unadjusted depreciation allowance"), which could not be set off up to assessment year 1996-97, shall be carried forward for set off against income under any head for a maximum period of eight assessment years starting from assessment year 1997-98. Current depreciation for the year under section 32(1) (for each year separately starting from assessment years 1997-98 up to 2001-02) can be se....
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....of Times Guaranty Ltd. (supra) and decided the issue in favour of the assessee. The issue is, therefore, covered in favour of the assessee by the order of the ITAT Chandigarh Bench in the case of M/s Liberty Plywood (supra). Following reasons for decision in this case, we dismiss the departmental appeal. 8. On ground No.3, revenue challenged the deletion of addition of Rs. 3,79158/- under section 36(1)(iii) of the Act. During the course of assessment proceedings, it was noted that assessee had shown building under construction for Rs. 31,59,651/-. Accordingly, the assessee was asked to explain why the same may not be capitalized as the building had not been put to use during the year under consideration. The assessee submitted that the assessee firm is in construction of building at Doraha and construction was started in financial year 2005-06. The place is being used for storage. Similarly, land at Doraha was also purchased on which the building is being constructed. The assessee had purchased the land at Doraha during 2004-05 and paid interest of Rs. 29 lacs during the same year. There were interest free unsecured loans of Rs. 817.00 lacs and capital of Rs. 690.81 lacs on which ....
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...., considering explanation of the assessee, deleted the addition and allowed appeal of the assessee. His findings in para 5.2 of the order are reproduced as under : 5.2 I have considered the facts of the case, the basis of addition and the submissions made during the course of the assessment as well as appellate proceedings. The appellant has shown building under construction for Rs. 31,59,651/-. For attracting the proviso to sec 36(i)(iii) two conditions are .required to be fulfilled i.e. capital should be borrowed for acquisition of the asset and the asset should be acquired for expansion of existing business. However, there is no finding of the Assessing Officer on the fulfillment of these two conditions. The term loans raised are old and against the machinery installed in earlier years. The Assessing Officer has not disputed this fact. Further, there is no finding of the Assessing Officer to the effect that the asset is for the expansion of the existing business. It is nowhere held that the production capacity has increased as a result of the same. The appellant had explained that the firm is constructing a building at Doraha and the place is used for storage. The Assessing Of....