Madras High Court
M/S.Vedanta Limited vs Commissioner Of Income Tax on 19 February, 2025
Author: S.S.Sundar
Bench: S.S.Sundar, C.Saravanan
T.C.A.No.910 of 2010
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 19.02.2025
CORAM :
THE HONOURABLE MR.JUSTICE S.S.SUNDAR
and
THE HONOURABLE MR.JUSTICE C.SARAVANAN
T.C.A.No.910 of 2010
M/s.Vedanta Limited,
SIPCOT Industrial Complex,
Madurai Byepass Road,
T.V.Puram Post,
Tuticorin – 628 002. ... Appellant
(Cause Title accepted vide order of
Court dated 01.12.2022, made in
CMP.No.20640/2022 in TCA.No.910/2010)
Vs.
Commissioner of Income Tax,
Salem. ... Respondent
Prayer: Appeal under Section 260A of the Income Tax Act, 1961, against the
order of the Income Tax Appellate Tribunal, “D” Bench, Chennai dated
28.04.2006 in I.T.A.No.1801/Mds/2004 for the Assessment Year 1996-1997.
For Appellant : Mr.G.Baskar
For Respondent : Mr.T.Ravikumar
Senior Standing Counsel
1/20
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T.C.A.No.910 of 2010
JUDGMENT
(Judgment of this Court was delivered by C.SARAVANAN, J.)
This Tax Case Appeal has been filed by the Assessee. It is directed
against the impugned order dated 28.04.2006 passed by the Income Tax
Appellate Tribunal (hereinafter referred to as the 'Tribunal') in ITA No.
1801/MDS/2004 for the Assessment Year 1996-97.
2. By the impugned order dated 28.04.2006, the Tribunal allowed the
aforesaid appeal filed by the Income Tax Department against the Order dated
07.04.2004 passed by the Commissioner of Income Tax (Appeals) (hereinafter
referred to as the ‘Appellate Commissioner’) reversing the decision of the
Assessing Officer vide Assessment Order dated 12.05.1999 passed under
Section 154 of the Income Tax Act, 1961 (hereinafter referred to as the 'Act').
3. This Tax Case Appeal was admitted by this Court on 07.12.2010 and
the following substantial questions of law were framed: -
“(i) Whether, on the facts and in the circumstances of the
case and in the light of the provisions of Section 32(2) which do
not provide for any limitation with regard to the carried forward
entitlement, the Tribunal was right in upholding the stand of the
revenue that the error committed by the Assessing Officer in the
order for the assessment year 1990-91 would deny the benefit of
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such carried forward conferred on the appellant under the
Income Tax Act?
(ii) Whether the Tribunal was right in law in ignoring the
principles of natural justice which warrants that the rightful
entitlement of benefit of depreciation be granted to the
appellant?”
4. The operative portion of the impugned order dated 28.04.2006 passed
by the Tribunal in ITA No. 1801/MDS/2004 reads as under: -
“3. We have heard both the parties. The issue to be
decided is whether Assessing Officer was justified in rejecting
the claim of carry forward of depreciation from assessment year
1990-91 to assessment year 1996-97 and adjusted against the
profits of the year under consideration. In the instant case in
assessment year 1990-91 the Assessing Officer in depreciation
chart has mentioned that unabsorbed depreciation for
assessment year 1982-83 has expired. This order was passed by
Assessing Officer on dated ...has become final. The assessee has
moved rectification petition after expiry of four years to allow
the carry forward and set off of unabsorbed depreciation
quantified in 1982-83. Obviously, the Assessing Officer cannot
rectify the order after expiry of four years. Unless such
rectification is done in assessment year 1990-91, the effect of
carry forward of unabsorbed depreciation cannot be given in
assessment year 1996-97. The law helps the vigilant not the
dormant. The assessee should have been careful in getting the
defects rectified when order dated 24.02.1993 for assessment
year 1990-91 was received. It is also important that assessment
year 1990-91 is not before us and therefore we are unable to
decide the issue in respect of carry forward of depreciation in
assessment year 1990-91 and set off of the same against the
income of assessment year 1996-97. In view of above discussion
we are of the considered view that unless rectification of mistake
is done in respect of assessment year 1990-91, the effect of
unabsorbed depreciation for assessment year 1982-83 cannot be
allowed in assessment year 1996-97. Accordingly, we set aside
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the order of ID CIT(A) and restore the order of Assessing
Officer.”
5. The facts of the case is that the Appellant/Assessee, a loss making
company had both unabsorbed depreciation and unabsorbed loss during the
Assessment Year 1982-1983. The present dispute pertains to unabsorbed
depreciation of Rs.1,05,49,851/- accumulated from the Assessment Year
1982-1983. The Assessment Order for the Assessment Year 1982-1983 was
passed on 14.03.1986 under Section 143(3) of the Act. The Appellant had no
occasion to utilize the same earlier as it was incurring loss.
6. As per Section 32(2) of the Act, there was no time limit prescribed for
setting off the “unabsorbed depreciation” unlike the “unabsorbed business loss”
of an Assessee under Section 24(2) of the Act. The aforesaid “unabsorbed
depreciation” of Rs.1,05,49,851/- had thus remained unutilised during the
succeeding Assessment Years, as the Appellant/Assessee was making loss. The
loss was carried forward under the column meant for 'business loss'. Similarly,
“unabsorbed depreciation” was carried forward under the column meant for
'unabsorbed depreciation'.
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7. However, in Assessment Order dated 24.02.1993 passed under Section
143(3) of the Act for the Assessment Year 1990-1991, the “unabsorbed
depreciation” was not shown in the column meant for the “unabsorbed
depreciation”.
8. It is the specific case of the Appellant / Assessee that until the
Assessment Year 1996-97 relevant to the Previous Year 1995-96, the
Appellant / Assessee was still making loss and therefore there was no occasion
to utilize the unabsorbed depreciation. Since, the Appellant / Assessee had
generated taxation income during the aforesaid Assessment Year 1996-1997,
the Appellant / Assessee wanted to set-off the accumulated unabsorbed
depreciation of Rs.1,05,49,851/- from the Assessment Year 1982-1983 against
the business income for the Assessment Year 1996-1997.
9. The Appellant / Assessee thus filed a NIL Return of Income for the
Assessment Year 1996-1997 after adjusting the carried forward losses and
accumulated during the Assessment Year 1996-1997 in the return filed on
30.12.1996.
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10. The assessment was completed under Section 143(3) of the Act vide
Order dated 12.02.1999 for the Assessment Year 1996-1997. The Assessing
Officer while quantifying the carried forward losses against the total income,
disallowed the deduction of the unabsorbed depreciation of Rs. 66,91,068/- out
of unabsorbed depreciation Rs.1,05,49,851/- accumulated as carried forward
from the Assessment Year 1982-1983.
11. Aggrieved by the aforesaid Order dated 12.02.1999, an appeal was
filed by the Appellant / Assessee before the Appellate Commissioner. The
Appellate Commissioner vide Order dated 04.06.1999 remanded the matter
back to the Assessing Officer for a fresh consideration. The Assessing Officer
vide Order dated 07.07.1999, once again disallowed the unabsorbed
depreciation accumulated from the Assessment Year 1982-1983.
12. Meanwhile, the Appellant / Assessee also moved an applications
dated 06.04.1999 and 08.05.1999 under Section 154 of the Act against the
Assessment Order dated 12.02.1999 for the Assessment Year 1996-97.
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13. As far as the claim for unabsorbed depreciation was concerned, the
Assessing Officer vide Order dated 18.05.1999 passed under Section 154 of the
Act stated that setting-off the unabsorbed depreciation of Rs.66,91,068/- out of
aforesaid unabsorbed depreciation Rs.1,05,49,851/- accumulated as carried
forward in the Assessment Year 1996-1997 was not permissible in view of
limitation under Section 154 of the Act.
14. The Assessing Officer further held that the period of limitation for
carry forward losses expired on 31.03.1997, i.e., four years from Assessment
Order dated 24.02.1993 passed under Section 143(3) of the Act for the
Assessment Year 1990-1991 relevant to the previous year 1989-1990.
15. As the aforesaid amount of unabsorbed depreciation was shown as
‘business loss’ in the Assessment Year 1990-1991, it was held that the
aforesaid unabsorbed depreciation lapsed in the Assessment Year 1990-91.
16. Aggrieved by the aforesaid Order dated 18.05.1999 passed under
Section 154 of the Act for the Assessment Year 1996-1997, the Appellant /
Assessee filed an appeal before the Appellate Commissioner.
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17. By Order dated 07.04.2004, the Appellate Commissioner once
allowed the appeal filed by the Appellant / Assessee and remanded back the
case to the Assessing Officer and directed the Assessing Officer to look into the
past records and re-consider the loss in the year after taking into account the
correct account of unabsorbed depreciation in the hands of the Appellant /
Assessee.
18. It is pertinent to note that in the proceeding before the authorities
under Section 154 of the Act and in the subsequent orders of the Assessing
Officer and the Appellate Commissioner, the unabsorbed depreciation from the
Assessment Year 1982-1983 had remained unutilized in the hands of the
Appellant / Assessee. The set off was confined only to Rs.66,91,068/- and not
to the entire amount of accumulated unabsorbed depreciation of
Rs.1,05,49,851/-.
19. Meanwhile, aggrieved by the Order dated 07.04.2004 of the
Appellate Commissioner against order dated 18.05.1999 passed under Section
154 of the Act, the Income Tax Department also filed appeal in
ITA.No.180/Mds/2004 before the Tribunal which culminated in the impugned
order dated 28.04.2006 of the Tribunal.
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20. It is the case of the Appellant / Assessee that despite two orders of the
Appellate Commissioner dated 04.06.1999 and 07.04.2004, the benefit of
unabsorbed depreciation was not given to the Appellant / Assessee.
21. Instead, the Tribunal has reversed the Order of the Appellate
Commissioner stating that rectification of the Assessment Order dated
24.02.1993 for the Assessment Year 1990-91 cannot be done after a lapse of
four years when the Appellant/Assessee filed the rectification petition to allow
the unabsorbed depreciation and since the Appellant / Assessee had remained
inert and was not vigilant, the Appellant / Assessee was not entitled to the
benefit of the unabsorbed depreciation which was lapsed in the Assessment
Order dated 24.02.1993 for the past assessment year 1990-91 under Section
143(3) of the Income Tax Act.
22. In this connection, the learned counsel for the Appellant / Assessee
has placed reliance on the following decisions:-
(i) CIT vs Manmohan Das [1996] 59 ITR 699 (SC);
(ii) CIT vs Dalmia Cements (Bharat) Ltd [1995] 82
Taxman 229 (SC) and
(iii) Kanaka films (P) Ltd vs ITO [1989] 43 Taxmann
113 (Madras)
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23. On the other hand, the learned counsel for the Respondent would
submit that the impugned order dated 28.04.2006 of the Tribunal does not
mandate any interference. It is submitted that unabsorbed depreciation was
given up by the Appellant / Assessee after the Assessment Order dated
24.02.1993 was passed under Section 143(3) of the Act for the Assessment Year
1990-91 by not filing either an appeal or a rectification application of the
Assessment Order within the time stipulated under Section 154 of the Income
Tax Act. Therefore, it is stated that the Appellant / Assessee is deemed to have
given up the claim for the unabsorbed depreciation from the Assessment Year
1982-1983.
24. Further, learned counsel for the Respondent submitted that under
Section 154(7) of the Act time limit prescribed for rectifying any mistake
apparent on the face of the record is of four years from the date of passing of
the Assessment Order for the relevant Assessment Year. Therefore, it is stated
since the same had lapsed in the present case, the Assessee's Petitions dated
06.04.1999 and 08.05.1999 under Section 154 of the Act which is beyond the
time prescribed under the Act i.e., four years could not be entertained.
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25. Learned counsel for the Respondent further submitted that in
Peerless General Finance and Investment Co. Ltd., reported in 380 ITR page
165 (SC) it was held that, in view of the amendment by Sub-section (2) of
Section 32 by Finance Act (No 2) Act, 1996, with effect from 01.04.1997,
unabsorbed depreciation as on 01.04.1997 could be set off against income from
any heads from the immediate assessment year following 01.04.1997.
Thereafter, if there still was any unabsorbed depreciation, the same could be set
off against business income for a period of 8 assessment years from the relevant
Assessment Year.
26. Learned counsel for the Respondent further submitted that the Apex
Court in Hind Wire Industries Ltd Vs. CIT reported in 212 ITR page 639 SC
held that the word ‘Order’ in the expression ‘from the date of order sought to be
amended’ in Section 154(7) of the Act as it stood at the relevant assessment
year includes amended or rectified order and it did not necessarily mean the
original order. The Hon’ble Supreme Court in the aforesaid case held that
where the original order was subsequently rectified, a second application for
rectification can be made within four years from the date of rectificatory order.
Therefore, it is stated that the Tribunal was correct in holding that the second
rectification application was well within limitation.
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27. It is further submitted by the learned counsel for the Respondent that
in Sri New Durga Bansal Cold Storage and Ice Factory Vs CIT – reported in
397 ITR page 626 (All) it was held that if no appeal was filed against the
original Assessment Order on issue of set off of capital loss while issue of
quantum of capital gain was challenged, period of limitation for rectification of
order on the first issue would not get extended by virtue of subsequent order.
28. It is further submitted that the judgment of the Karnataka High Court
Single Judge in Em Chockalingam Chettiar Vs Agrl.ITO reported in 161 ITR
page 216 had clearly held that Assessment Order of the particular Assessment
Year could be rectified within four years from the date of the Assessment Order
which is the maximum period of limitation as prescribed under Sub-Section (7)
to Section 154 of the Act. It is therefore submitted that no relief could be
granted beyond the prescribed time.
29. We have considered the arguments advanced by the learned counsel
for the Appellant / Assessee and the learned counsel for the Respondent.
30. The dispute in the present case pertains to the Assessment Year
1996-1997 i.e., for the relevant previous Year 1995-1996. The Return of
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Income for the aforesaid Assessment Year 1996-1997 was filed on 30.12.1996
by the Appellant/Assessee as is evident from a reading of the Assessment
Order dated 12.12.1999 passed under Section 143(3) of the Act wherein, the
claim for the aforesaid unabsorbed depreciation was disallowed as same was
not reflected in the Assessment Order dated 24.02.1993 passed for the
Assessment Year 1990-1991.
31. There is no dispute that the accumulated unabsorbed depreciation
from the Assessment Year 1982-1983 had remained un-utilized, owing to the
fact that the Appellant / Assessee was a loss making company. The Appellant /
Assessee had no occasion to utilize the same in the earlier Assessment Years.
The unabsorbed depreciation was however not reflected in the Assessment
Order dated 24.02.1993 passed under Section 143(3) of the Act for Assessment
Year 1990-1991 and was shown as having lapsed in the said Assessment Order,
even though, there is no provision prescribing for such lapsing of unabsorbed
depreciation under the the Act.
32. There is no dispute that the unabsorbed depreciation could be
perennially carried forward by an assessee from the relevant Assessment Year
only by amendment to Section 32(2)(iii)(b) of the Act with effect from
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01.04.1997 vide Finance Act (2), 1996, the unabsorbed depreciation as on
01.04.1997 would lapse, 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 years immediately succeeding the assessment year for
which the aforesaid allowance was first computed. This position of law was
also observed by the Hon'ble Supreme Court in Peerless General Finance and
Investment Co. Ltd., reported in 380 ITR page 165 (SC), dated 08.12.2015,
held as follows: -
“it was held that in view of amendment to sub Section (2) of
Section 32 by Finance Act (No 2) Act, 1996, with effect from
01.04.1997, unabsorbed depreciation as on 01.04.1997 could be
set off against income from any head from immediate assessment
year following 01.04.1997 and thereafter, if there still was any
unabsorbed depreciation, same could be set off against business
income for a period of 8 assessment years in Special Leave to
Appeal (C) No. 34124 of 2014”.
33. The position which stood prior to 01.04.1997 was restored back with
effect from 01.04.2002 whereby, the above 8 year cap to set on the unabsorbed
depreciation against the business income was removed.
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34. As per Section 32(1) of the Income Tax Act, 1961 as amended by
Finance Act, 1997 with effect from 01.04.1997 in respect of depreciation of
buildings, machinery, plant or furniture owned [wholly or partly], by the
assessee and used for the purposes of the business or profession, deductions
shall be allowed subject to the provisions of Section 34 of the Act.
35. As far as the present case is concerned, we are concerned with the
unabsorbed depreciation which was accumulated from the Assessment Year
1982-1983. As per Section 32(2) of the Act as it stood amended with effect
from 01.04.1997, where in the assessment of the assessee full effect cannot be
given to any allowance under Clause (ii) of sub-section (1) to Section 32 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 the 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 the profits and gains, if any, of
any business or profession carried on by him and assessable for
that assessment year;
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(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;
(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.
36. As per amended Section 32(2)(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 it shall be set off by the following methods namely:-
(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 years immediately succeeding the assessment year
for which the aforesaid allowance was first computed:
37. Section 32(2)(iii) of the Act reads as under:-
“32(2)(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.
(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;
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(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 years immediately succeeding the assessment year
for which the aforesaid allowance was first computed:”
38. However, the amendment to Section 32 of the Income Tax Act, 1961
with effect from 01.04.1997 vide Finance Act (No 2) Act, 1996 can have no
implications on the Appellant / Assessee or the Income Tax Department for
computation of the taxable income of the Appellant / Assessee for the
Financial Year 1995-1996 assessable during 1996-1997, because the
amendment to Section 32 of the Income Tax Act, 1961 vide Finance Act (No 2)
Act, 1996 came into force only with effect from 01.04.1997.
39. The restrictions/cap that was put in place with effect from 01.04.1997
under Section 32(2)(iii)(b) of the Act vide Finance Act (No 2) Act, 1996,
cannot apply for the assessment of tax for the period prior to 01.04.1997. The
aforesaid amendment to Section 32 of the Income Tax Act, 1961 vide Finance
Act (No 2) Act, 1996 cannot be retrospective effect.
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40. If the claim for the aforesaid unabsorbed depreciation was made in
the return that was filed for the subsequent Assessment Year 1997-1998, the
sting under the amended provision vide Finance Act (No 2) Act, 1996 which
came into force only on 01.04.1997 will apply on the Appellant/Assessee.
41. As the amendment to Section 32 with effect from 01.04.1997 can
have only a prospective effect on the assessments to be made from the
Assessment Year 1997-1998 alone. Since the claim was made for the
determination of the taxable income for the Assessment Year 1996-1997 i.e.,
before 01.04.1997, the accumulated unabsorbed depreciation which had
remained unutilized cannot be said to have lapsed during 1995-1996.
42. As far as rejection of application filed under Section 154 of the
Income Tax Act, 1961 which has been interfered vide impugned order by the
Tribunal is concerned, the impugned order is only based on the amendment to
Section 32 of the Income Tax Act, 1961 vide Finance Act, 1997 and not on the
limitations under Section 154 of the Act. Therefore, we are not required to
answer on the issue relating to limitation for rectifying the order under Section
154 of the Income Tax Act, 1961.
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43. Therefore, the substantial question of law raised by the Appellant /
Assessee has to be answered in favour of the Appellant / Assessee and against
the Income Tax Department.
44. This Tax Case Appeal is allowed. No costs.
[S.S.S.R., J.] [C.S.N., J.]
19.02.2025
Neutral Citation : Yes / No
AT/jas
To:
Commissioner of Income Tax,
Salem.
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S.S.SUNDAR, J.
and
C.SARAVANAN, J.
AT/jas
19.02.2025
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