Bombay High Court

Veritas Chemicals (P) Ltd. vs Ito on 27 November, 2002

Equivalent citations: (2004) 88 TTJ Mumbai 289

ORDER

I.P. Bansal, J.M.

This is an appeal filed by the assessee and is directed against the order of Commissioner (Appeals), dated 8-10-1995 for the assessment year 1992-93.

2. In ground No. 1, the grievance of the assessee is regarding set off of unabsorbed carried forward depreciation. According to the assessee there was unabsorbed carried forward depreciation amounting to Rs. 8,75,143. As per the provisions of section 34A the assessee claimed set-off of unabsorbed depreciation for the year under consideration at the rate of 6-2/3 per cent amounting to Rs. 5,83,370. According to the assessing officer the amount of depreciation is amounting to Rs. 5,64,033 and by application of section 34A, the assessing officer allowed the sum of Rs. 3,76,022. The assessing officer calculated the unabsorbed carried forward depreciation at Rs. 5,64,033 on the basis of capitalised incidental expenses which were not considered for depreciation for the assessment year 1986-87. Therefore, the assessing officer recalculated the carried forward unabsorbed depreciation. According to the assessee the assessing officer had no power to recalculate unabsorbed carried forward depreciation. According to the assessment framed for earlier years there was unabsorbed depreciation amounting to Rs. 8,19,840. For this proposition heavy reliance has been placed on the decision of Hon'ble Madras High Court in the case of CIT v. Century Flour Mills Ltd. (1999) 239 ITR 23 (Mad), though the said decision is in respect of section 32A relating to investment allowance. It is the contention of the learned authorised representative that the provisions of section 32A are in pari materia with the provisions of section 32(2). Therefore, the learned authorised representative contended this decision is equally applicable to the provisions of section 32(2) of the Income Tax Act, 1961. According to the learned authorised representative, as long as the assessment order of earlier years operates, the assessee is entitled to have the benefit thereunder and is entitled to carry forward of the depreciation to the following assessment years and in the subsequent years. It is not permissible or open to the assessing officer to sit in judgment over the order passed by preceding assessing officer and once again determine the question that whether the depreciation granted by the preceding assessing officer was correct or not. As the unabsorbed depreciation was quantified by earlier order, the assessee is entitled to carry forward the depreciation and the assessee thus has acquired an indefeasible right to carry forward the same.

3. The learned Departmental Representative, however, relied on the orders of assessing officer and Commissioner (Appeals).

4. We have carefully considered the rival submissions in the light of material placed before us. It is not disputed that the unabsorbed depreciation brought forward from earlier years is quantified at Rs. 8,19,840. During the year under consideration, the assessing officer had substituted the figure for Rs. 5,64,033 on the basis of some disallowance made by assessing officer for assessment year 1986-87. In other words, no such exercise was done in assessment orders for subsequent years. In these circumstances, it was not permissible for the assessing officer to disturb the figure of unabsorbed brought forward depreciation without interfering with the earlier assessment orders. The decision relied upon by the learned authorised representative in the case of CIT v. Century Flour Mills Ltd. (supra) supports the viewpoint forwarded by him. The learned Departmental Representative could not cite any contrary decision. In this view of situation, we do not see any justification in reducing the quantified unabsorbed depreciation brought forward from earlier years. We also do not agree with the conclusion of Commissioner (Appeals) that it was only a case of irregularity on behalf of the assessing officer. Unless earlier orders are rectified, the unabsorbed depreciation will stand at a figure determined in the respective assessment orders. As no such rectification is made, the action of assessing officer is not justified in taking figures of unabsorbed depreciation less than figures as per records. Therefore, we direct the assessing officer to adopt the figure of unabsorbed brought forward depreciation as it stood on record. This ground of appeal is allowed.

5. Ground No. 2 of assessee's appeal is regarding investment allowance pertaining to assessment years 1986-87 and 1990-91. The assessee had claimed unabsorbed investment allowance of Rs. 5,86,775 pertaining to assessment year 198687. The cost of plant and machinery on which such investment allowance was claimed comprises of the following:

Asst. yr. 1986-87

Rs.

(1) Plant and machinery

14,33,204

(2) Incidental expenses

1,90,090

(3) Utilities

4,80,226

(4) Electric equipments

2,07,901

23,47,101

Asst. yr. 1990-91

(1) Plant and machinery- Tumbling drier

1,42,350

(2) SS Reactor

1,02,501

(3) Erection expenses

17,731

(4) Electric equipment

(i) Transformer

1,91,659

(ii) Erection expenses

15,050

4,69,291

The assessing officer allowed the investment allowance to the assessee only in respect of cost of tumbling drier and SS Reactor. The assessing officer computed the claim of assessee only with respect to cost of plant and machinery, and ignored all other items. The Commissioner (Appeals) upheld the order of assessing officer. The learned authorised representative of the assessee contended that there was no justification in ignoring the cost of the assessee towards incidental expenditure, utilities and electric equipment. According to the learned authorised representative these were part and parcel of plant and machinery and investment allowance should have been allowed on these items also. For incidental expenses he placed reliance on the following decisions :

(i) Challapa-M Sugar Ltd. v. CIT (1975) 98 ITR 167 (SC).

(ii) CIT v. Alcock Ashdown & Co. Ltd. (1979) 119 ITR 164 (Bom).

(iii) CIT v. Hindusthan Polymers Ltd. (1985) 156 ITR 860 (Bom).

(iv) CIT v. Flexicons Ltd. (1991) 192 ITR 73 (Bom).

For electric equipment he has placed reliance on the following decisions:

(i) CIT v. Indian Turpentine & Rosin Co. Ltd. (1970) 75 ITR 533 (All).

(ii) CIT v. TaJ Mahal Hotel (1971) 82 ITR 44 (SC).

(iii) CIT v. Triveni Tissues Ltd. (1994) 206 ITR 92 (Cal).

For electrical erection expenses he relied on the following decisions :

(i) CIT v. Pure Ice Cream Co. (1981) 129 ITR 394 (Del).

(ii) CIT v. Flexicons Ltd. (supra).

6. The learned Departmental Representative, however, relied on the-orders--of assessing officer and Commissioner (Appeals).

7. We have carefully considered the rival submissions in the light of material placed before us. In view of decisions relied upon by the learned authorised representative, the capitalised incidental expenses, utility expenses, electricity expenses and erection expenditure are eligible for claim of investment allowance. The assessing officer is directed to recompute the investment allowance accordingly. This ground is therefore allowed.

8. Ground No. 3 of the assessee's appeal is regarding income shown to have earned by assessee amounting to Rs. 43,647 in respect of sale of assets standing in block of assets eligible for depreciation at the rate of 25 per cent. During the year under consideration, the asset was sold for a sum of Rs. 1,45,000. According to books of account the cost of this asset was shown at Rs. 1,60,081.50. The depreciation allowed thereon was amounting to Rs. 58,728. Thus, the assessee calculated the cost as per its books of accounts as at the beginning of the year at Rs. 1,01,253. After taking into consideration the sale amount of Rs. 1,45,000 a profit of Rs. 43,646 was worked out and included in the P&L a/c. It is the claim of the assessee that no such profit was assessable in view of concept of block of assts, only sale price had to be reduced from the block of assets. Therefore, the assessee is eligible to reduce its income shown in excess of Rs. 43,646.

9. The learned departmental Representative objected to this claim of the assessee.

10. We have carefully considered the rival submissions in the light of material placed before us. The contention of assessee appears to be justified that in view of concept of block of assets, no profit on sale of asset was assessable as income, as the WDV of block of assets will be reduced by the excess obtained by the assessee. As the assessee did not raise this issue before the assessing officer, it is considered necessary to restore this issue to the file of assessing officer to re-examine the claim of the assessee and then to allow the same as per the provisions of law.

11. For statistical purposes this ground shall be treated to be allowed.

12. In the result, the appeal filed by the assessee shall be treated to be allowed.