Delhi High Court

Commissioner Of Income Tax vs Eli Lilly & Co. India Pvt. Ltd. on 25 March, 2011

Author: A.K.Sikri

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

                              ITA 97 OF 2009
                                     &
                               ITA 657/2010

+                              Judgment Reserved on: 25.02.2011
                               Decision Delivered On: 25.03.2011

(1)   ITA 97 OF 2009

COMMISSIONER OF INCOME TAX                      ... APPELLANT
                  Through: Mr. N.P. Sahni, Sr. Standing Counsel


                               VERSUS

ELI LILLY & CO. INDIA PVT. LTD.                 ... RESPONDENT
                     Through: Mr. Ajay Vohra, Advocate with Ms.
                                Kavita Jha and Mr. Somnath
                                Shukla, Advocates

 (2) 657/2010
COMMISSIONER OF INCOME TAX                      ... APPELLANT
                  Through: Mr. N.P. Sahni, Sr. Standing Counsel


                               VERSUS

ELI LILLY & CO. INDIA PVT. LTD.                 ... RESPONDENT
                     Through: Mr. Ajay Vohra, Advocate with Ms.
                                Kavita Jha and Mr. Somnath
                                Shukla, Advocates

CORAM :-

      HON'BLE MR. JUSTICE A.K. SIKRI
      HON'BLE MR. JUSTICE M.L. MEHTA

      1.     Whether Reporters of Local newspapers may be allowed
             to see the Judgment?
      2.     To be referred to the Reporter or not?
      3.     Whether the Judgment should be reported in the Digest?


A.K. SIKRI, J.

1. In both these appeals issue involved is identical. These appeals

pertain to the same assessee and the issue which has cropped up relate

to assessment years 2000-01 and 2001-02. For the sake of

convenience, we may take note of the facts which appear in ITA

97/2009 as that appeal relates to the prior assessment year namely

assessment year 2000-01.

2. The assessee had filed Income Tax Return showing losses. Since

losses under the normal provisions were much higher than the loss

computed as per the book profit under Section 115 JA of the Income-Tax

Act (hereinafter referred to as the „Act‟), this return was processed

under Section 143(1) of the Act and was completed on 7 th March, 2002

after accepting the return as filed. The Assessing Officer, however,

issued notice under Section 154/143 (1) of the Act as according to him a

mistake apparent on the face of record had occurred while accepting

the return vide assessment orders dated 7th March, 2002. We may point

out here that the assessee had incurred losses in earlier years which

remained unabsorbed and were being carried forward to successive

assessment years. Likewise, there was unabsorbed depreciation as

well. In the year in question, there were profits and as per the

Assessing Officer the unabsorbed depreciation available for set off

against the profits in this assessment year was just ` 80,38,600/-

instead the figure of ` 1,39,36,000/- which was earlier taken as

unabsorbed depreciation. Thus, the Assessing Officer passed orders

dated 16th May, 2005 thereby allowing brought forward unabsorbed

depreciation at ` 80,38,6000/- instead of ` 1,39,36,000/-. The assessee

challenged this order by filing appeal before the CIT (A). In the first

instance it was submitted by the assessee that it was not a mistake

apparent on the face of record and, therefore, could not be corrected in

exercise of jurisdiction under Section 154 of the Act. It was also

submitted that in any case the aforesaid figures taken by the Assessing

Officer, were incorrect. According to the assessee, the unabsorbed

depreciation of ` 1,39,36,000/- was rightly brought forward and adjusted

in this year. The CIT (A), however, dismissed the appeal of the

assessee. Aggrieved by this order, the assessee preferred second

appeal before the ITAT. The Tribunal has accepted the contention of the

assessee and held that the adjustment made by the AO for the

intimation issued under Section 143 (1) of the Act by way of a

rectification order in respect of unabsorbed depreciation was beyond

the scope of Section 154 of the Act. Thus, the Assessing officer had no

power to take recourse to the provisions of Section 154 of the Act.

3. Mr. Vohra, learned counsel for the respondent assessee has

pointed out the circumstances under which the adjustment of `

1,39,36,000 was made against the profits in the assessment year 2000-

01. He has pointed out that in the immediate previous year i.e. in the

assessment year 1999-2000, there were profits and the return was

filed under the normal provisions and not under Section 115 JA of the

Act. At the same time, there were unabsorbed losses and unabsorbed

depreciation of previous year which were carried forward to this year.

He has clarified that in so far as unabsorbed depreciation is concerned,

it was ` 1,39,36,000/-. The profits of the assessment year 1999-2000

were set off against the carried forward losses of the previous year

which were more than 15 crores. Even after absorbing the entire profits

of the year 1999-2000, against the carried forward losses, losses still

remained unabsorbed and the unabsorbed depreciation was not even

touched. This figure of unabsorbed depreciation i.e. ` 1,39,36,000/-

remained as it is and it is under these circumstance, this figure was

carried forward to the assessment year in question and this is how in

the returns filed, the amount of unabsorbed depreciation of `

1,39,36,000/- was set off being the lower of the two namely unabsorbed

losses and unabsorbed depreciation, having regard to Clause (iii) to the

Explanation of Section 115 JA of the Act. According to him, in these

circumstances, the exercise carried out by the Assessing Officer while

rectifying the order was not permissible. In the process of doing so, the

Assessing Officer has treated ` 1,39,36,000/- as unabsorbed

depreciation to be set off against the profits earned in the year 1999-

2000 and after setting off those profits, he has assumed that the

carried forward depreciation would be ` 80,38,600/-. It is on this basis,

it is argued that it is not an error apparent on the face of record and

rather it depends on the interpretation that has to be given to Clause

(iii) of the Explanation to Section 115 JA of the Act and such an exercise

was not permissible under Section 154 of the Act. Furthermore, it is

argued, it amounts to even disturbing the assessment in respect of

assessment year 1999-2000 which could not be done even while making

regular assessment of assessment year 2000-01.

4. The aforesaid contention of Mr. Vohra carries sufficient strength.

However, in an attempt to mollify the same, Mr. Sahni had produced

the copies of the assessment in respect of assessment year 1999-2000

and submitted that the MAT computation done by the assessee itself in

that year and assured that the carried forward depreciation was `

80,38,600/- only. For this purpose, he referred to the following

computation and given by the assessee in the assessment years 1999-

2000:-

"Assessment year 1999-2000

As on 01.04.1998 (as per books)

(i) Unabsorbed Depreciation ` 1,39,36,000

(ii) Brought Forward Business Loss

(excluding depreciation) ` 14,21,44,000

MAT COMPUTATION DONE BY ASSESSEE

Profit as per Profit and Loss Account ` 58,98,000

Less: lower of Unabsorbed Depreciation And brought forward business loss (` 1,39,36,000)

[As per explanation (ii) of the second proviso to section 115JA (2)] ........................

Book Profit ` (80,38,000)"

5. On this basis it was claimed that in the next assessment year, the

Assessing Officer has rightly corrected the error under Section 154 of

the Act by setting off ` 80,38,600 instead of ` 1,39,36,000/-. This plea

of Mr. Sahni is not correct. Mr. Sahni has only picked up the MAT

computation done by the assessee in that year but knowing the fact

that in that year the assessee had earned profits and actually it was

only brought forward business loss of the previous year which was

adjusted and unabsorbed depreciation of ` 1,39,36,000/- remained as it

is without any adjustment. The manner in which the computation was

done in the assessment years 1999-2000, 2000-01 and 2001-2002 is

reproduced below which would clearly demonstrate that unabsorbed

depreciation was in fact ` 1,39,36,000/- which was allowed to be set off

in the assessment year 2000-01 while passing the original assessment

order:-

"Assessment year 1999-2000 as on 01.04.1998 (as per books)

(i) Unabsorbed Depreciation ` 1,39,36,000

(ii) Brought Forward Business Loss

(excluding depreciation) ` 14,21,44,000

MAT COMPUTATION DONE BY ASSESSEE

Profit as per Profit and Loss Account ` 58,98,000

Less: lower of Unabsorbed Depreciation

And brought forward business loss (` 1,39,36,000)

[As per explanation (ii) of the second proviso to section 115JA (2)] ........................

             Book Profit                          ` (80,38,000)"


             As on 31.03.199 (as per books)

             (iii) Unabsorbed Depreciation            ` 1,39,36,000

(iv)Business Loss (excluding depreciation) to be carried forward ` 13,62,46,000*

*[` 14,21,44,000-` 58,98,000] .......................

             Aggregate Loss                           ` 15,01,82,000

             Assessment Year 2000-01
             MAT COMPUTATION DONE BY ASSESSEE

             Profit as per Profit and Loss Account    ` 1,23,00,504
             Add: Provision for Doubtful Debts        `    3,49,292
             Add: Provision for Doubtful Advances     `    3,21,696
             Less: lower of Unabsorbed Depreciation
             And brought forward business loss        (` 1,39,36,000)

             [As per explanation (ii) of the second
              proviso to section 115 JA (2)]          .....................
                                Balance Profit        ` (9,64,508)

             As on 31.03.2000 (as per books)

             (v)    Unabsorbed Depreciation            ` 139,36,000

(vi) Business Losses (excluding depreciation) to be carried forward ` 12,39,45,496*

*[` 13,62,46,000-` 1,23,00,504] ......................

             Aggregate Loss                           ` 13,78,81,496


             Assessment Year 2001-02
             MAT COMPUTATION DONE BY ASSESSEE

Profit as per Profit and Loss Account ` 1,19,99, 177

Less: lower of Unabsorbed Depreciation and brought forward business loss (` 1,39,36,000)

[As per explanation (ii) of the second proviso to section 115 JA (2)] ......................

                          Book Profit                 ` (19,36,823)





              As on 31.03.2001

             (vii) Unabsorbed Depreciation             ` 1,39,36,000