Madras High Court
Appellant vs The Assistant Commissioner Of Income ... on 29 April, 2025
Author: C.Saravanan
Bench: S.S.Sundar, C.Saravanan
Tax Case Appeal No.643 of 2008
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on 19.03.2025
Pronounced on 29.04.2025
CORAM :
THE HONOURABLE MR.JUSTICE S.S.SUNDAR
and
THE HONOURABLE MR.JUSTICE C.SARAVANAN
Tax Case Appeal No.643 of 2008
M/s.Prime Urban Development India Ltd,
83, 3rd Floor, Plot No.4, Avinashi Road,
Near Petrol Bunk,
Asher Nagar, Tirupur – 641 003.
(Accepted the cause title vide order of Court dated 28.11.2022 made in
CMP.No.19917 of 2022 in T.C.No.643 of 2008)
... Appellant
Vs.
The Assistant Commissioner of Income Tax,
Circle – I,
Tirupur.
... Respondent
Prayer:
Appeal filed under Section 260A of the Income Tax Act, 1961 against
the order of the Income Tax Appellate Tribunal, Chennai Bench “D” dated
18th May 2007 in I.T.A.No.2475/MDS/2006 for the Assessment Year 2002-
2003.
1/45
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Tax Case Appeal No.643 of 2008
For Appellant : Mr.G.Baskar
For Respondent : Mr.Karthik Ranganathan
Senior Standing Counsel
JUDGMENT
(Judgment of the Court was delivered by C.SARAVANAN, J.)
This Tax Case Appeal is directed against the Order dated 18.05.2007
passed by the Income Tax Appellate Tribunal (hereinafter referred to as the
‘Tribunal') in ITA.No.2475/MDS/2006.
2. At the time of admission of this Tax Case Appeal, the following
Substantial Questions of Law were framed by this Court:-
1. Whether the Income Tax appellate Tribunal is right in not
admiring a fresh ground raised for the first time before the
Tribunal, when it involves a pre-question of law and involves no
additional investigation into facts?
2. Whether the unabsorbed depreciation can be set off against the
long term capital gain for the assessment year in question?
3. Whether the Income Tax Appellate Tribunal is right in holding
that the provision for deferred tax liability as per AS 22 issued by
the Institute of Chartered Accountants of India is an
unascertained liability under Explanation (c) to sub-section (2)
of Section 115JB for the purpose of computing minimum
alternate tax, despite the standard being mandated by Section
211(3C) of the Companies Act, 1956?
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3. In view of the submissions made by the learned counsel for the
Appellant/Assessee and the learned counsel for the Respondent/Income Tax
Department, we proceed to frame the following supplementary question of
law as Substantial Question of Law No.4:-
4. Whether the Appellant/Assessee was precluded from pursuing the
remedy under Section 154 of the Act, merely because an Appeal under
Section 246A of the Act was filed subsequently before the Appellate
Commissioner against the same assessment order against which the
Appellant/Assessee had earlier filed application under Section 154 of the
Act?
4. When the case was taken up for further hearing, the learned counsel
for the Appellant/Assessee submitted that the Appellant/Assessee is not
pressing the Substantial Question of Law No.3.
5. It is therefore submitted that the Substantial Question of law No.3
framed by this Court on 09.07.2008 can be answered against the
Appellant/Assessee in the light of the amendment to Section 115JB of the
Income Tax Act, 1961 (hereinafter referred to as the 'Act') by the Finance
Act, 2000 with effect from 01.04.2001.
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6. The above statement of the learned counsel for the
Appellant/Assessee stands recorded. Therefore, the 3rd Substantial Question
of Law is accordingly answered against the Appellant/Assessee.
7. Since, no arguments were advanced either by the learned counsel
for the Appellant/Assessee or by the learned Standing Counsel for the
Respondent/Income Tax Department in so far as the 1st Substantial Question
of Law is concerned, we therefore refrain from answering the same.
8. Therefore, we proceed to answer the Substantial Question of Law
No.2 and Supplementary Question of Law viz Substantial Question of Law
No.4 in respect of which arguments were advanced both by the
Appellant/Assessee at the time of initiation of arguments and by the learned
Standing Counsel for the Respondent/Income Tax Department.
9. Brief facts of the case which are necessary for answering the above
Substantial Questions of Law are as under:-
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(i) The Appellant/Assessee is a company engaged in the business of
spinning of yarn and manufacture of knitted hosiery garments etc. exported
both yarn and knitted hosiery garments etc.
(ii) The Appellant/Assessee filed its Return of Income on 31.10.2002
for the Assessment Year 2002-2003 relevant to the Previous Year 2001-
2002.
(iii) In the aforesaid Return of Income filed by the
Appellant/Assessee on 31.10.2002, the Appellant/Assessee declared ‘Nil’
income under the normal method of computation of income and offered
Rs.47,71,532/- as taxable income under Minimum Alternate Taxation
Scheme under Section 115JB of the Act.
(iv) During the Financial Year 2001-2002, the Appellant/Assessee had
sold a parcel of land to its subsidiary company and claimed the benefit of
Section 47A of the Act.
(v) However, the said subsidiary company converted the same into
stock-in-trade. Therefore, the exemption claimed by the Appellant/Assessee
under Section 47A of the Act had to be withdrawn and was not available.
(vi) Therefore, the Appellant/Assessee filed a revised Return of
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Income on 29.10.2004 for the Assessment Year 2002-2003.
(vii) However, the revised Return of Income that was filed on
29.10.2004 for the Assessment Year 2002-2003 was filed beyond the
statutory period of limitation under Section 139(5) of the Act.
(viii) The revised Return of Income was actually filed pursuant to a
Notice dated 16.04.2003 issued to the Appellant/Assessee under Section
143(2) of the Act before the regular Return of Income filed by the
Appellant/Assessee on 31.10.2002 for the Assessment Year 2002-2003 was
scrutinized.
(ix) The Appellant/Assessee thus offered income from the sale of land
as taxable income, since the land sold to its subsidiary company was
converted into stock-in-trade and since the exemption claimed under Section
47A of the Act was withdrawn by the Appellant/Assessee.
(x) While offering the aforesaid capital gains from the sale of land to
its subsidiary company as taxable income, the Appellant/Assessee claimed to
set off the unabsorbed depreciation that had remained unutilized from the
Assessment Year 1999-2000 against the tax liability from the aforesaid
capital gains under Section 32 read with Section 72 of the Act.
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(xi) Meanwhile, an Assessment Order dated 28.03.2005 was passed
under Section 143(3) of the Act by the Appellant/Assessee for the
Assessment Year 2002-2003.
(xii) Under these circumstances, the Appellant/Assessee filed an
application under Section 154 of the Act for rectification of the aforesaid
Assessment Order dated 28.03.2005 for setting-off the unabsorbed
depreciation from the Assessment Year 1999-2000 against the tax liability
arising out of the long term capital gains from the sale of land to its
subsidiary company under Section 32 read with Section 72 of the Act.
(xiii) Meanwhile, an appeal was also filed by the Appellant/Assessee
on 12.05.2005 against the said Assessment Order dated 28.03.2005 passed
under Section 143(3) of the Act before the Commissioner of Income Tax
(Appeals) (hereinafter referred to as the 'Appellate Commissioner') under
Section 246A of the Act.
(xiv) Exercising the power under Section 154 of the Act, the Assessing
Officer accepted the claim of the Appellant/Assessee vide Order dated
25.08.2005 in so far as setting off the unabsorbed depreciation that was
available from the Assessment Year 1999-2000 against the capital gains
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from the sale of land by the Appellant/Assessee to its subsidiary company.
(xv) The Appellate Commissioner vide Order dated 15.11.2006
affirmed the decision of the Assessing Officer in the Assessment Order
dated 28.03.2005 and the disallowed claim for set off the unabsorbed
depreciation from the Assessment Year 1999-2000 against the capital gains
in the Assessment Year 2002-2003 even though it stood already allowed by
the Assessing Officer vide Order dated 25.08.2005 passed under the
Section 154 of the Act.
(xvi) Aggrieved by aforesaid Order dated 15.11.2006 of the Appellate
Commissioner, the Appellant/Assessee filed appeal before the Tribunal.
(xvii) The Tribunal vide Impugned Order dated 18.05.2007 dismissed
the appeal filed by the Appellant/Assessee and thus affirmed the Order dated
15.11.2006 of the Appellate Commissioner.
(xviii) While dismissing the appeal filed by the Appellant/Assessee,
the Tribunal also upheld the Order dated 15.11.2006 of the Appellate
Commissioner including the issue regarding the disallowance of claim to set-
off of the unabsorbed depreciation from the Assessment Year 1999-2000
against the capital gains in the Assessment Year 2002-2003.
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10. During the course of hearing, the learned counsel for the
Appellant/Assessee stated that once an order on a particular issue had been
passed by the Assessing Officer under Section 154 of the Act, it was not
open for the Appellate Commissioner to re-look into the same and that the
Appellate Commissioner should have treated the appeal in so far as that issue
is concerned as not pressed for.
10.1. It is further submitted that the Appellate Commissioner ought
not to have passed an order adverse to Order dated 25.08.2005 of the
Assessing Officer passed under Section 154 of the Act.
10.2. The learned counsel for the Appellant/Assessee would submit
that even on merits, the Tribunal has committed an error in disallowing the
claim for setting-off the tax liability arising out of long term capital gains
against the unabsorbed depreciation which had remained unutilized.
10.3. It is submitted that the only remedy that was available to the
Department was under Section 263 of the Act before the jurisdictional
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Commissioner of Income Tax in the exercise of the revisional power given to
the Judicial Commissioner under the Act.
10.4. It is submitted that in the light of the Order dated 25.08.2005 of
the Assessing Officer passed under Section 154 of the Act, the Order of the
Appellate Commissioner dated 15.11.2006 disallowing the claim to set off
unabsorbed depreciation from the Assessment Year 1999-2000 for being set-
off against the capital gains in the Assessment Year 2002-2003 from the sale
of land to the subsidiary company was unjustified and unwarranted.
10.5. It is therefore submitted that the Impugned Order dated
18.05.2007 of the Tribunal rejecting the appeal of the Appellant/Assessee
against the Order of the Appellate Commissioner is liable to be interfered
with.
10.6. The learned counsel for the Appellant/Assessee has placed the
reliance on the following decisions:
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(i) NTPC Vs. CIT [1998] 97 Taxman 358 (SC);
(ii) CIT Vs. Virmani Industries (P) Ltd [1995] 83 Taxman 343
(SC);
(iii) CIT Vs. Sanmar Speciality Chemicals Ltd [2020] 122
taxmann.com 212 (Madras);
(iv) CIT Vs. Venkateshwara Leather (P) Ltd [2022] 137
taxmann.com 145 (Madras);
(v) CIT Vs. ACC Ltd [2020] 113 Taxmann.com 168(SC).
11. The learned Senior Standing Counsel for the Respondent/Income
Tax Department on the other hand would submit that the Appellant/Assessee
was not entitled to resort to forum shopping i.e., one before the Assessing
Officer under Section 154 of the Act and the other before the Appellate
Commissioner under Section 246A of the Act.
11.1. That apart, it is submitted by the counsel for the
Respondent/Income Tax Department that in terms of Section 154(1A) of the
Act, the Appellant/Assessee was precluded from pressing for the relief under
the guise of rectification of mistake.
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11.2. That apart, it is submitted by the counsel for the
Respondent/Income Tax Department that there was no scope for setting off
the unabsorbed depreciation against the income arising from the long term
capital gains under Section 32(2) of the Act.
11.3. Specifically, it was submitted by the learned counsel for the
Respondent/Income Tax Department that the law with regard to the claim of
setting off the unabsorbed depreciation had undergone a change with effect
from 01.04.2001 vide Finance Act, 2000. Therefore, the claim for
unabsorbed depreciation by the Appellant/Assessee was rightly denied by the
Department.
11.4. It is submitted that till 31.03.2002, unabsorbed depreciation
could be set off against the income from any other head, if the unabsorbed
depreciation could not be wholly set-off under sub-clause 1 to Section 32(2)
of the Act. However, this was not available with effect from 01.04.2002 i.e.,
from Assessment Year 2002-2003.
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11.5. Therefore, it is submitted that during the period in dispute, there
was no scope for allowing the unabsorbed depreciation to be set off against
the income arising from capital gains and therefore the impugned order of the
Tribunal does not merit any interference.
11.6. The learned counsel for the Respondent/Income Tax Department
summarized his submissions as follows:-
(i) The Appellant/Assessee cannot file an appeal against Order of an
Assessing Officer when the issue is already before the Assessing Officer
under Section 154 of the Act, notwithstanding the fact that
Appellant/Assessee may or may not secure an Order under Section 154 of the
Act.
(ii) There is no scope for pursuing a petition under Section 154 Act
once an appeal is filed against the same Assessment Order.
(iii) There is no scope for allowing the unabsorbed depreciation for
being set-off against the income arising from capital gains in view of the
amendment to Section 32(2) vide Finance Act, 2001 with effect from
01.04.2002. Hence, prays for dismissal of this Appeal.
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11.7. The learned counsel for the Respondent/Income Tax Department
further submitted that the power under Section 251(1)(a) of the Act makes it
clear that vast and wide powers are vested with the Appellate Commissioner
to enhance the Assessment.
12. By way of rejoinder, the learned counsel for the
Appellant/Assessee would submit that the law on the subject is clear. It is
submitted that Section 32(2) of the Act as it stood during the period in
dispute is similar to the period in which an order was passed by the Hon'ble
Supreme Court in CIT Vs. Virmani Industries Private Limited [1995] 83
Taxman case 343(SC).
DISPOSITION:-
13. We have considered the arguments advanced by the learned
counsel for the Appellant/Assessee and the learned Senior Standing Counsel
for the Respondent/Income Tax Department.
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14. The Appeal under Section 260A of the Act can be entertained only
if the Court is satisfied that the case involves Substantial Questions of Law as
held in Sir Chunilal V.Mehta and Sons, ltd Vs. The Century Spinning
and Manufacturing co., ltd., 1962 AIR 1314.
15. Before answering the 2nd Substantial Question of Law, we shall
first deal with the 4th Substantial Question of Law which was argued during
the course of hearing of this appeal.
DECISION ON THE SUBSTANTIAL QUESTION OF LAW NO.4:-
16. The Appellant/Assessee had filed a composite appeal under
Section 246A of the Act and after filing a Petition under Section 154 of the
Act, two separate orders have culminated as detailed below:-
(1) (2) (3)
Nature of Proceedings Date of initiation of the Date of Order in response
Proceeding in the Column to Application / Appeal in
No.1 (1) & (2)
Application under Section 06.05.2005 25.08.2005
154 of the Act
Date of Appeal under 12.05.2005 15.11.2006
Section 246A of the Act
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17. Thus, Order under Section 154 of the Act passed by the Assessing
Officer preceded the Order of the Appellate Commissioner in response to the
appeal filed by the Appellant/Assessee under Section 246A of the Act.
18. To answer the above Substantial Question of Law, it will be useful
to refer to the text of Section 154 of the Act. Section 154 of the Act is
extracted hereunder:-
“154. Rectification of mistake.—
(1) With a view to rectifying any mistake apparent from the record an
income-tax authority referred to in section 116 may,—
(a) amend any order passed by it under the provisions of this Act;
(b) amend any intimation or deemed intimation under sub-section (1) of
section 143;]]
(c) amend any intimation under sub-section (1) of section 200A;]
(d) amend any intimation under sub-section (1) of section 206CB.]
(1A) Where any matter has been considered and decided in any
proceeding by way of appeal or revision relating to an order referred to
in sub-section (1), the authority passing such order may,
notwithstanding anything contained in any law for the time being in
force, amend the order under that sub-section in relation to any matter
other than the matter which has been so considered and decided.]
(2) Subject to the other provisions of this section, the authority concerned
—
(a) may make an amendment under sub-section (1) of its own motion, and
(b) shall make such amendment for rectifying any such mistake which has
been brought to its notice [by the assessee or by the deductor,] [or by the
collector], and where the authority concerned is the Commissioner
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(Appeals)], by the [Assessing Officer] also.
(3) An amendment, which has the effect of enhancing an assessment or
reducing a refund or otherwise increasing the liability of the assessee [or
the deductor] [or the collector], shall not be made under this section
unless the authority concerned has given notice to [the assessee or the
deductor] [or the collector] of its intention so to do and has allowed [the
assessee or the deductor] [or the collector] a reasonable opportunity of
being heard.
(4) Where an amendment is made under this section, an order shall be
passed in writing by the income-tax authority concerned.
[(5) Where any such amendment has the effect of reducing the assessment
or otherwise reducing the liability of the assessee or the deductor [or the
collector], the Assessing Officer shall make any refund which may be due
to such assessee or the deductor [or the collector].]
(6) Where any such amendment has the effect of enhancing the assessment
or reducing a refund [already made or otherwise increasing the liability
of the assessee or the deductor [or the collector], the Assessing Officer
shall serve on the assessee or the deductor [or the collector], as the case
may be] a notice of demand in the prescribed form specifying the sum
payable, and such notice of demand shall be deemed to be issued under
section 156 and the provisions of this Act shall apply accordingly.
(7) Save as otherwise provided in section 155 or sub-section (4) of section
186 no amendment under this section shall be made after the expiry of
four years [from the end of the financial year in which the order sought to
be amended was passed]
[(8) Without prejudice to the provisions of sub-section (7), where an
application for amendment under this section is made [by the assessee or
by the deductor] [or by the collector] on or after the 1st day of June, 2001
to an income-tax authority referred to in sub-section (1), the authority
shall pass an order, within a period of six months from the end of the
month in which the application is received by it,—
(a) making the amendment; or
(b) refusing to allow the claim.]”
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19. The power to pass an order under Section 154(1) of the Act can be
exercised by the Income Tax Department who had earlier passed Order only
under the following four circumstances namely:-
1. amend any order passed by it under the provisions of this
Act;
2. amend any intimation or deemed intimation under sub-
section (1) of section 143;
3. amend any intimation under sub-section (1) of section
200A;
4. amend any intimation under sub-section (1) of section
206CB
20. An Order can be made under the Section 154 of the Act by the
Income Tax Authority referred to in Section 116 of the Act only with a view
to rectify the mistake apparent from the face of record in the Order that was
earlier passed. It has to be borne in mind that an application under Section
154 of the Act is confined only to rectify an error apparent on the face of
record. The machinery under Section 154 of the Act is not intended to be
used as a substitute for an appeal.
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21. Under no circumstances, an application under Section 154 of the
Act can be allowed to be transformed into an appeal in dis-guise. This
position stands clarified by several decisions of the Court. Reference can be
made to the following decision of the Courts:-
(i) CIT Vs. Hero Cycles (P) Ltd [1997] 94 Taxman 271 (SC);
(ii) CIT Vs. Shri Eklingji Trust [2001] 119 Taxman 527 (Rajasthan);
(iii) Yogendra Prasad Santhosh Kumar Vs. CIT(A) [2014] 44
Taxmann.com 299 (AII) and
(iv) CIT Vs. Hero Cycles (P) Ltd [1997] 94 Taxman 271 (SC)
22. The learned counsel for the Appellant/Assessee heavily relied on
sub-section (1A) to Section 154 of the Act to persuade us to come to a
conclusion that the Appellant/Assessee was not precluded from pursuing the
twin remedy both before the Assessing Officer under Section 154 of the Act
and before the Appellate Commissioner under Section 246A of the Act
respectively.
23. While the counsel for the Respondent/Income Tax Department
stated that once an appeal or revision was filed/ initiated against an
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Assessment Order, the Income Tax Authority was precluded from venturing
into the same issue in respect of which an Assessee or the Department was
either before the Appellate or Revisional Authority.
24. A reading of Section 154(1A) of the Act indicates that an
Assessment Officer is not precluded for passing an Order in relation to any
matter which was not considered and decided by way of an appeal or revision
relating to an Order referred to in sub-section (1) of Section 154 of the Act.
25. Therefore, Order dated 25.08.2005 passed under Section 154 for
the Assessment Year 2002-2003 pursuant to the application filed on
06.05.2005 by the Appellant/Assessee cannot be said to be without
jurisdiction, if indeed there was an error apparent on the face of record in the
Assessment Order dated 25.03.2005.
26. However, if in respect of an issue, the Appellate Authority or the
Revisional Authority as the case maybe has passed an order, the authority
who originally passed the order which is subject matter of an order of the
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Appellate Authority or the Revisional Authority, as the case may be is
precluded from passing an order under Section 154 of the Act.
27. The reason for such restriction is plain and simple. The Original
Authority against whose order, the Appellate Authority or the Revisional
Authority as the case may be, has passed an order, cannot resort to
prevarication and dilute the order of such Original Authority in the first
instance or that of the Appellate Authority or the Revisional Authority as the
case may be, as the order of the Original Authority would have stood merged
with the Order of the Appellate Authority or the Revisional Authority, as the
case may be.
28. Therefore, the Original Authority cannot rectify an order after the
appellate authority or the revisional authority has passed an order. However,
that restriction in sub-section (1A) to Section 154 of the Act cannot be
interpreted to mean that if an application is filed under 154 of the Act, the
authority who has passed the order sought to be rectified is not empowered to
rectify the error apparent on the face of the record merely because an appeal
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or revision is pending, before the Appellate or the Revisional Authority as the
case may be. The Original Authority can exercise the power vested with them
under Section 154 of the Act, before the Appellate or the Revisional
Authority as the case may be passes an Order within their domain.
29. The Original Authority before whom such an application is filed
has to merely see whether the application is indeed filed for rectification of
error apparent on the face of record and is not appeal in disguise.
30. It is not open for the Respondent/Income Tax Department to
contend that if an appeal is pending before the Appellate Commissioner
under Section 246A of the Act or any other proceedings are pending before
any Revisional Authority under the Act, no order can be passed in view of
Section 154(1A) of the Act.
31. All that Section 154(1A) of the Act contemplates is that an
authority who has passed an Order against which an Appellate/Revisional
Authority has passed an Order, the Original Authority who had earlier passed
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the Order which is sought to be rectified cannot pass an Order revising such
order in respect of which such Appellate/Revisional Authority has passed an
Order.
32. Merely because an appeal was filed before the Appellate Authority
or revision pending before the Revisional Authority would not preclude the
Original Authority to rectify any mistake or error apparent from the record
under Section 154 of the Act in respect of which either no order has been
passed by the Appellate/Revisional Authority or yet an Order was to be
passed.
33. We are therefore unable to accept the arguments of the learned
counsel for the Respondent/Income Tax Department in the light of the last
sentence in Paragraph No.14 of the decision of the Rajasthan High Court in
CIT Vs. Shri Eklingji Trust [2001] 119 Taxman 527.
34. Further, the decision of the Court in the above case cannot be
considered as laying down proposition as canvassed by the learned counsel
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for the Respondent/Income Tax Department. There the Court has merely
observed as under:-
“14. ........ May be the power of Sec 154 is not confined to correct
arithmetical or clerical mistake only but it does not extent either to raise
some other contentions but by the very same authority which were not
raised in original order.”
35. Further, if an Order is passed under Section 154 of the Act which
was both without jurisdiction or erroneous and prejudicial to the interest of
the Respondent/Income Tax Department, the Respondent/Income Tax
Department was not without remedy. The remedy for the Respondent/Income
Tax Department in such cases is under Section 263 of the Act.
36. Therefore, the negative restriction in Section 154(1A) of the Act
cannot be construed to mean that once an appeal or revisional proceedings
have been initiated against an Assessment Order, the rectification proceeding
initiated earlier under Section 54 of the Act will lapse.
37. However, it would not preclude the Appellate Commissioner to
exercise powers under Section 251(1)(a) of the Act, as power is wide enough
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to confirm, refuse, enhance or annul the assessment.
38. It is clear that the Appellate Commissioner Order while disposing
an appeal under Section 251(1)(a) of the Act may confirm, refuse, enhance or
annul the assessment.
39. The only caveat under Section 251(1)(a) of the Act is such
enhancement has to be in respect of an issue which was the subject matter of
the Assessment order notwithstanding the fact that it was not raised before
the Appellate Commissioner by the Assessee. All that is required is a
reasonable opportunity of being heard by way of a Show Cause Notice. This
is evident from a reading of sub-bvsection (2) to Section 251 of the Act.
Section 251(2) of the Act reads as under:-
“251. Powers of the Commissioner (Appeals).—
(1) In disposing of an appeal, the Commissioner (Appeals) shall have the
following powers—
(a) in an appeal against an order of assessment, he may confirm, reduce,
enhance or annul the assessment;
(b) in an appeal against an order imposing a penalty, he may confirm or
cancel such order or vary it so as either to enchance or to reduce the
penalty;
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(c) in any other case, he may pass such orders in the appeal as he thinks
fit.
(2) The Commissioner (Appeals) shall not enhance an assessment or a
penalty or reduce the amount of refund unless the appellant has had a
reasonable opportunity of showing cause against such enhancement or
reduction
Explanation.—In disposing of an appeal, the [Commissioner (Appeals)]
may consider and decide any matter arising out of the proceedings in
which the order appealed against was passed, notwithstanding that such
matter was not raised before the [Commissioner (Appeals)] by the
appellant.”
40. Explanation to Section 251 of the Act makes it clear that the
Appellate Commissioner may consider and decide any matter arising out of
the proceedings in which the Order appealed against was passed. Thus, the
Appellate Commissioner can look into the matter afresh. However, the
Appellate Commissioner has to give notice to the Assessee if the Appellate
Commissioner proposes to enhance the assessment.
41. This position also stands clarified by the Hon'ble Supreme Court
in Commissioner of Income Tax Vs. Rai Bahadur Hardutroy Motilal
Chamaria [1967] 66 ITR 443, wherein, the Hon'ble Supreme Court while
dealing with Section 31(1) of the Indian Income Tax Act, 1922 which is pari
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materia with Section 251 of the Act, observed as under:-
“It is necessary also to emphasise that the statute provides that, once an
assessment comes before the Appellate Assistant Commissioner, his
competence is not restricted to examining those aspects of the
assessment which are complained of by the assessee; his competence
ranges over the whole assessment and it is open to him to correct the
Income-tax Officer not only with regard to a matter raised by the
assessee but also with regard to a matter which has been considered by
the Income-tax Officer and determined in the course of the assessment.
It is also well-established that an assessee having once filed an appeal
cannot withdraw it. In other words, the Assessee having filed an appeal
and brought the machinery of the Act into working, cannot prevent the
Appellate Assistant Commissioner from ascertaining and settling the, real
sum to be assessed, by intimation of his withdrawal of the appeal. Even if
the assessee refuses to appear at the hearing, the Appellate Assistant
Commissioner can proceed with the enquiry and if he finds that there, has
be-en an under-assessment, he can enhance the assessment
(Commissioner of Income-tax, Punjab v. Nawab Shah Nawaz Khan (1938)
6 ITR 370. In this context reference may be made to the decision of the
Court of Appeal in The King Vs. Income Tax Special Commissioners
[1936] 1 KB 487 in which the taxpayer sought to withdraw a notice, of
appeal which had been given on his behalf against an additional
assessment under Sch. D. The Commissioners of Inland Revenue were
not satisfied that the assessment was adequate. The Special
Commissioners then proposed to proceed with the hearing of the appeal in
the ordinary way. At that stage the taxpayer sought a writ of prohibition
to prohibit the Special Commissioners from hearing the appeal. It was
held by the Court of Appeal that notice of appeal having once been
given, the Commissioners were bound to proceed in accordance with the
Income-Tax Acts and determine the true amount of the assessment. At
page 493 of the Report Lord Wright observed as follows :
" -in making the assessment and in dealing with the appeals, the
Commissioners are exercising statutory authority and a statutory duty
which they are bound to carry out. They are not in the position of judges
deciding an issue between two particular parties. Their obligation is
wider than that. It is to exercise their judgment on such material as comes
before them and to obtain any material which they think- is necessary and
which they ought to have, and on that material to make the assessment or
the estimate which the law requires them to make. They are not deciding a
case interparties; they are assessing or estimating the amount on which,
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in the interests of the country at large, the tax- payer ought to be taxed."
The principle that emerges as a result of the authorities of this Court is
that the Appellate Assistant Commissioner has no jurisdiction, under
Section 31(3) of the Act, to assess a source of income which has not been
processed by the Income- tax Officer and which is not disclosed either in
the returns filed by the assessee or in the assessment order, and therefore
the Appellate Assistant Commissioner cannot travel beyond the subject
matter of the assessment.
42. Therefore, we are of the view that while powers are vested with
the Assessing Officer to pass the Order rectifying the Assessment Order
under Section 154 of the Act even if appellate or revisional proceedings are
pending, it would also not preclude the Appellate Commissioner to enhance
the tax liability in respect of the issue which was the subject matter of the
Assessment. Thus, it can be concluded as follows:-
(i) In case, no appeal is pending before the Appellate Commissioner
under Section 246A of the Act and if an order of rectification is passed under
Section 154 of the Act, the remedy that is available to the
Respondent/Income Tax Department is to invoke the power of revision under
Section 263 of the Act if such an Order is erroneous and prejudicial to the
interests of the Revenue.
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(ii) However, if an appeal is pending before the Appellate
Commissioner, the Appellate Commissioner has wide powers to enhance the
tax liability in respect of those aspects which was the subject matter of the
Assessment Order although it was not raised before the Appellate
Commissioner in view of the language in Section 251(1)(a) of the Act.
43. Admittedly, in the Assessment Order the claim for adjusting the
unabsorbed depreciation against the income arising from capital gains was
the subject matter of assessment. Therefore, it has to be held that the
Appellate Commissioner was justified in re-looking the same irrespective of
the Order passed under Section 154 of the Act.
44. The Income Tax Department is not required to involve the
machinery under Section 263 of the Act by the Jurisdictional Commissioner
for holding that the consequential Assessment Order passed was erroneous
and prejudicial to the interest of the Respondent/Income Tax Department.
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45. Therefore, we answer the 4th Substantial Question of Law as
above by holding that the powers of the Appellate Commissioner under
Section 251 of the Act are wide enough to include and to look into issues
which was the subject matter of the Assessment Orders and Orders passed
under Section 154 of the Act.
DECISION ON THE SUBSTANTIAL QUESTION OF LAW NO.2:-
46. We now proceed to answer the Substantial Question of Law No. 2
i.e., Whether the Tribunal was justified in upholding the Order of the
Appellate Commissioner in so far as the order fails to recognize the claim of
the Appellant/Assessee to set off the unabsorbed depreciation from the
Assessment Year 1999-2000 against the profits arising from the long term
capital gains in the Assessment Year 2002-2003.
47. The Impugned Order dated 18.05.2007 of the Tribunal deals with
several aspects including the issue relating to unabsorbed depreciation. The
present Tax Case Appeal relates to the Assessment Year 2002-2003 i.e.,
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Previous Year 2001-2002. In other words, the dispute relates to the income
earned by the Appellant/Assessee between 01.04.2001 and 31.03.2002.
48. The Appellant/Assessee had filed a Return of Income under
Section 139(1) of the Act for the Assessment Year 2002-2003 on 31.10.2002
for the aforesaid period. A copy of the calculation in the book profit filed
along with the aforesaid Return of Income for the purpose of Section 115JB
of the Act is not available.
49. In the statement enclosed along with the Return of Income filed by
the Appellant/Assessee, the Appellant/Assessee had not included a sum of
Rs.5,13,37,500/- for the sale of immovable properties in view of Section
47(iv) of the Act as per which income from Capital Gains under Section 45
will not apply for transfers of any transfer of a capital asset by a company to
its subsidiary company.
50. However, the land which was sold to its subsidiary was converted
as stock-in-trade by its subsidiary. Therefore, the Appellant/Assessee filed a
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revised return of income subsequently on 20.10.2004, after the time for filing
a revised return had expired under Section 139(5)/(v) of Act.
51. It is in this background, an Assessment Order dated 28.03.2005
was passed, wherein, the benefit of unabsorbed depreciation claimed for a
sum of Rs.1,28,39,356/- was disallowed by the Assessing Officer which
accrued for the Assessment Year 1999-2000.
52. There is no dispute that the Appellant/Assessee had unabsorbed
depreciation which was allowed to be set off by the Assessing Officer in the
Rectification Order dated 28.05.2005. The unabsorbed depreciation which
has accumulated from the Assessment Year 1999-2000 is for a sum of
Rs.4,26,88,856/- (actually, Rs.4,24,88,948/-).
53. In the Impugned Order, it has been held that under Section 72 of
the Act, only the loss arising from business can be carried forward and set off
only against profit and gains from business and cannot be set off against
income from the capital gains. The Appellant/Assessee wanted to set off the
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unabsorbed depreciation partly towards the business income and partly
towards the income from long term capital gains under Section 72 of the Act.
54. In this connection, the learned Counsel for the Appellant/Assessee
relied on the followings decisions of the Courts:-
(i) CIT Vs. Hickson and Dadajee (P) Ltd, 2020 122 Taxmann 94 (SC)
(ii) CIT Vs. Pioneer Asia Packing (P) Ltd, (2008) 170 Taxman 127
(Madras)
(iii) CIT Vs. S & S Power Switchgear Ltd, (2009) 318 ITR (Madras)
(iv) CIT Vs. S & S Power Switchgear Ltd., (2019) 111 Taxmann 95
(Madras)
(v) Bond Safety Beits (Dissolved) Vs. DCIT (2023) 156 Taxmann 222
(Bombay)
55. As per Section 32(1) of the Act inserted by the Income Tax
(Amendment) Act, 1998 as in force with effect from 01.04.1998, an assessee
is entitled for deduction of depreciation in respect of the following:-
(i) in the case of assets of an undertaking engaged in generation or
generation and distribution of power, such percentage on the actual
cost thereof to the assessee as may be prescribed;
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(ii) in the case of any block of assets, such percentage on the written
down value thereof as may be prescribed.
56. As per Section 32(2) of the Act as amended by Finance Act, 2000
with effect from 01.04.2001, where in the assessment of the assessee, full
effect cannot be given to any allowance under clause (ii) of sub section (1) of
Section 32 of the Act in any previous year owing to there being no profits or
gains chargeable for that previous year or owing to the profits or gains being
less than the allowance, then, the allowance or that part of allowance to
which effect has not been given (hereinafter referred to as unabsorbed
depreciation allowance), as the case may be:-
(i) shall be set off against te profits and gains, if any, of any
business or profession carried on him and assessable for
that assessment year;
(i) shall be set off against te profits and gains, if any, of any
business or profession carried on him and assessable for
that assessment year;
(ii) if the unabsorbed depreciation allowance cannot be
wholly set off under clause (i), the amount not so set off shall
be set off from the income under any other head, if any,
assessable for that assessment year;
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(iii) if the unabsorbed depreciation allowance cannot be
wholly set off under clause (i) and clause (ii), the amount of
allowance not so set off shall be carried forward to the
following assessment year and–
(a) It shall be set off against the profits and gains if any
of any business or profession carried on by him and
assessable for that assessment year;
(b) If the unabsorbed depreciation allowance cannot be
wholly so set off, the amount of unabsorbed depreciation
allowance not so set off shall be carried forward to the
following assessment year not being more than eight
assessment year immediately succeeding assessment year
for which the aforesaid allowance was first computed:
57. However, Section 32(2) of the Act was amended by the Finance
Act, 2001 with effect from 01.04.2002. After the amendment to Section
32(2) of the Act with effect from 01.04.2002, if an Assessee is unable to give
full effect cannot be given to any allowance under sub-section (1) of Section
32 of the Act, in any previous year, owing to there being no profits or gains
chargeable for that 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 of the Act, the allowance or the
part of the allowance to which effect has not been given, as the case may be,
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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.
58. Both amended and unamended Section 32(2) of the Act are
reproduced below:-
Section 32(2) of the Income Tax Act, 1961
Section 32(2) of the Act amended by Section 32(2) of the Act substituted by the
Finance Act, 2000 with effect from Finance Act, 2001 with effect from
01.04.2001 01.04.2002
(2) Where in the assessment of the assessee (2) Where, in the assessment of the
full effect cannot be given to any allowance assessee, full effect cannot be given to any
under clause (ii) of sub section (1) in any allowance under sub-section (1) in any
previous year owing to there being no previous year, owing to there being no
profits or gains chargeable for that profits or gains chargeable for that year, or
previous year or owing to the profits or owing to the profits or gains chargeable
gains being less than the allowance, then, being less than the allowance, then, subject
the allowance or the part of allowance to to the provisions of sub-section (2) of
which effect has not been given (hereinafter section 72 and sub-section (3) of section 73,
referred to as unabsorbed depreciation the allowance or the part of the allowance
allowance), as the case may be:- to which effect has not been given, as the
(i) shall be set off against the profits and case may be, shall be added to the amount
gains, if any, of any business or profession of the allowance for depreciation for the
carried on him and assessable for that following previous year and deemed to be
assessment year; part of that allowance, or if there is no such
(i) if the unabsorbed depreciation allowance for that previous year, be
allowance cannot be wholly set off under deemed to be the allowance for that
clause (i), the amount not so set off shall previous year, and so on for the succeeding
be set off from the income under any other previous years.
head, if any, assessable for that assessment
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Section 32(2) of the Income Tax Act, 1961
year;
(iii) if the unabsorbed depreciation
allowance cannot be wholly set off under
clause (i) and clause (ii), the amount of
allowance not so set off shall be carried
forward to the following assessment year
and -
(a) It shall be set off against the profits
and gains if any of any business or
profession carried on by him and
assessable for that assessment year;
(b) If the unabsorbed depreciation
allowance cannot be wholly so set off, the
amount of unabsorbed depreciation
allowance not so set off shall be carried
forward to the following assessment year
not being more than eight assessment year
immediately succeeding assessment year for
which the aforesaid allowance was first
computed:
Provided that the time limit of eight
assessment years specified in sub-clause (b)
shall not apply in the case of a company for
the assessment year beginning with the
assessment year relevant to the previous
year in which the said company has become
a sick industrial company under sub-section
(1) of section 17 of Sick Industrial
Companies (Special Provisions Act) 1985
(1 of 1986) and ending with the assessment
year relevant to the previous year in which
the entire net worth of such company
becomes equal or exceeds the accumulated
losses.
Explanation:- for the purposes of the
clause, “net worth” shall have the meaning
assigned to it in clause (ga) of sub-section
(1) of section 3 of the Sick Industrial
Companies (Special Provisions Act) 1985
(1 of 1986).
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59. Amendments to the provision of the Income Tax Act are not
retrospective unless expressly provided in the amendment itself. If the
provision as it stood between 01.04.2001 to 31.03.2002 is applied to the facts
of the case there is no doubt that the Appellant/Assessee was entitled to set of
the unabsorbed depreciation against any other income in view of Section
32(2)(ii) as it stood between 01.04.2001 to 31.03.2002.
60. What is relevant is the provision as it stood between 01.04.2001
and 31.03.2002 for Assessment Year 2002-2003. The amendment to Section
32(2) of the Act with effect from 01.04.2002 will be relevant only for
Assessment Year 2003-2004 for the relevant Previous Year 2002-2003.
61. In the revised Return of Income filed on 29.10.2004 for the
Assessment Year 2002-2003, the Appellant/Assessee had declared the
business income as Rs.4,24,86,856/-. However, the Assessing Officer had
also questioned the computation of the long term capital gains arising from
the sale of land and building to its subsidiary.
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62. The following table discloses the method adopted by the
Appellant/Assessee and by the Department to arrive at the aforesaid long
term capital gain of Rs. 2,96,47,500/- and Rs. 3,57,81,900/- respectively.
As per Appellant/Assessee As per Department
(Rs.9,600 x 400 cents) =
Fair market value Rs.38,40,400/- (Rs.6,000x400 cents) =
of the land in 1981 Rs.24,00,000/-
Sale consideration
Rs.4,60,05,900/- Rs.4,60,05,900/-
of the land
_______ X 38,40,400 _______ X 24,00,000
Index cost of fair
= Rs.1,63,58,400/- = Rs.1,02,24,000/-
Long term capital
Rs.2,96,47,500/- Rs.3,57,81,900/-
gain
63. As per sub-clause (i) to subsection (2) to Section 32 of the Act, as
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it stood between 01.04.2001 to 31.03.2002, the unabsorbed depreciation
could be set of against the profit and gains from business or any profession
carried on by an Assessee which is assessable for that Assessment Year.
64. If the unabsorbed depreciation cannot be set off against profit and
gains of the business or any profession of an Assessee assessable for that
Assessment Year, then such amount can be set off from the income under any
other head, if any, assessable for that Assessment Year. This is clear from a
reading of Section 32(2)(ii) of the Act.
65. Thus, it is clear that Section 32(2) of the Act as it stood between
01.04.2001 and 31.03.2002 contemplated setting off the unabsorbed
depreciation against profits and gains if any, not only from any business or
profession carried on by an Assessee for that Assessment Year but also from
any other head, if any, assessable for that assessment year.
66. In other words, the unabsorbed depreciation was available for
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being set off against income from profit and gains from business or any
profession of that Assessment Year and if the same is not feasible against any
other income from that Assessment Year.
67. Therefore, while we answer the Substantial Question of Law also
in so far as Question No.2 in favour of the Appellant/Assessee, we are of the
view, the matter has to be remitted back to the original authority to re-do the
assessment by clearly examining the computation by comparing the income
tax payable in both circumstances, viz., under the normal method of
computation and under Section 115JB of the Act in terms of the book profit.
68. However, we note that the computation of the profit and loss
account of the Appellant/Assessee which has been filed along with the Typed
Set of Documents indicates that the Appellant/Assessee had a net income of
Rs.115,29,30,526.54. However, the net profit before tax arrived at
Rs.111,73,63,748.04. The income that was declared in the Return of Income
that was filed under Section 139(1) of the Act on 31.10.2002 by the
Appellant/Assessee, was confined to a fraction of the same for a tune of
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Rs.1,28,39,356/-. It is evident that the computation given by the
Appellant/Assessee made under Section 115JB of the Act is erroneous. The
Appellant/Assessee has not disclosed the correct book profit for the purpose
of Section 115JB of the Act.
69. Since the dispute pertains to the Assessment Year 2002-2003, it is
expected that the Assessing Officer will complete the assessment within a
period of six months from the date of receipt of a copy of this order.
Needless to state, the appellant shall be heard, before final orders are passed.
70. In the result, this Tax Case Appeal stands disposed of and the
Substantial Questions of Law are answered as follows:-
Question No.1: Whether the Income Tax appellate Tribunal is right in not
admiring a fresh ground raised for the first time before the Tribunal, when it
involves a pre-question of law and involves no additional investigation into
facts?
Decision: Not Answered.
Question No.2: Whether the unabsorbed depreciation can be set off against
the long term capital gain for the assessment year in question?
Decision: Answered in favour of the Appellant/Assessee and against the
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Respondent/Income Tax Department.
Question No.3: Whether the Income Tax Appellate Tribunal is right in
holding that the provision for deferred tax liability as per AS 22 issued by the
Institute of Chartered Accountants of India is an unascertained liability under
Explanation (c) to sub-section (2) of Section 115JB for the purpose of
computing minimum alternate tax, despite the standard being mandated by
Section 211(3C) of the Companies Act, 1956?
Decision: Answered against the Appellant/Assessee.
Question No.4: Whether the Appellant/Assessee precluded from pursuing
the remedy under Section 154 of the Act, if an Appeal under Section 246A of
the Act is filed before the Appellate Commissioner?
Decision: Answered in favour of the Appellant/Assessee and against the
Respondent/Income Tax Department
No costs.
(S.S.S.R., J.) (C.S.N., J.)
29.04.2025
mrr/jas
Index : Yes/No
Neutral Citation: Yes/No
Speaking Order (or) Non-Speaking Order
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To
1.Income Tax Appellate Tribunal, “D” Bench,
Chennai.
2.The Assistant Commissioner of Income Tax,
Circle – I,
Tirupur.
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S.S.SUNDAR, J.
and
C.SARAVANAN, J.
mrr
29.04.2025
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