| SooperKanoon Citation | sooperkanoon.com/68926 |
| Court | Income Tax Appellate Tribunal ITAT Madras |
| Decided On | Mar-27-1997 |
| Reported in | (1997)63ITD119(Mad.) |
| Appellant | Deputy Commissioner of |
| Respondent | L.S. Mills (P.) Ltd. |
2. The first ground raised in this appeal is that the order of the CIT(Appeals) is contrary to law on the facts and in the circumstances of the case. This ground is general in nature and does not require any specific comment.
3. The second ground is to the effect that the CIT(Appeals) erred in directing the Assessing Officer to compute the unabsorbed depreciation and investment allowance relating to the assessment year 1986-87 and allow set off. The brief facts of the case are that the assessee is a company carrying on business in manufacture and sale of yarn. The appeal is for the assessment year 1987-88. The assessee claimed carry forward depreciation of 1986-87 assessment year but as the return for that year was treated as non est under section 139(10) having been filed late, the loss claimed (on account of depreciation claimed) was not considered by the Assessing Officer. On appeal, the CIT(Appeals) held that the assessee's belated submission of return for earlier year would not in any way affect the carry forward of unabsorbed depreciation and investment allowance. According to the CIT(Appeals), it may affect the carry forward of business losses in view of section 80 as amended w.e.f. 1-4-1985 and section 139(10) inducted w.e.f.
1-4-1986. The CIT(Appeals), therefore, directed the Assessing Officer to allow the assessee set off of unabsorbed depreciation and investment allowance of the assessment year 1986-87. The revenue felt aggrieved and preferred the present appeal before the Tribunal.
4. It is argued by the ld. Departmental Representative that under section 139(10) if the return is declared non est then the provisions of the Act will not apply. It is stated that the assessee filed the return of loss in December 1986 for the assessment year 1986-87. The Assessing Officer has intimated the assessee that the loss return filed on 26-12-1986 for the assessment year 1986-87 is lodged under section 139(10). The Departmental Representative contends that in order to carry forward unabsorbed depreciation and investment allowance the same should be quantified and if they are not so quantified then the law does not permit the Assessing Officer to carry forward such unabsorbed depreciation and investment allowance of assessment year 1986-87 for the purpose of allowing deduction out of the income for the assessment year 1987-88. The ld. D.R. referred to the decision of the Gauhati High Court in the case of Ampee Industries (P.) Ltd. v. CIT [1996] 222 ITR 328. It was pointed out that there was no distinction between positive income and negative income for the purpose of applying the provisions of section 139(10) of the Income-tax Act, 1961. It was argued that depreciation and investment allowance have not been quantified in the assessment year 1986-87 and, therefore, unabsorbed depreciation and investment allowance for that year cannot be carried forward.
5. The assessee's counsel, on the other hand, argued that depreciation and investment allowance pertain to various years and not only to assessment year 1986-87. According to the ld. counsel, there is a difference between loss and unabsorbed depreciation and investment allowance. The ld. counsel relied on the decisions of the Madras High Court in the cases of Sri Hari Mills Ltd. v. First ITO [1967] 65 ITR 348 and Sathappa Textiles (P.) Ltd. v. Second ITO [1969] 71 ITR 260.
According to the ld. counsel for the assessee, a Nil return does not come under section 139(10) and if the Department has not passed a valid order on the valid return filed by the assessee, the assessee is entitled to carry forward of depreciation and investment allowance. It is stated by the ld. counsel that the assessee has filed application under section 154 against the lodging of return under section 139(10).
The ld. counsel also referred to the decision of the Karnataka High Court in the case of Sirigeri Kanakappa Shetty & Sons v. Dy. CIT [1992] 198 ITR 711/62 Taxman 200 as also the Board Circular No. 469 dated 23-9-1996 reported in the said decision and argued that as per the said Circular of the Board, a return of loss filed for the assessment year 1986-87 or earlier years within the prescribed period as per existing provisions will not be denied the benefit of carry forward of loss. The ld. counsel for the assessee supported the order of the CIT (Appeals).
6. We have considered the rival submissions, facts of the case and the material on record including the paper book filed by the assessee's counsel. The assessee filed the return for the assessment year 1986-87 on 26-12-1986. The Assessing Officer sent communication dated 21-9-1987 intimating the assessee as under : "The loss return filed on 26-12-1986 for the assessment year 1986-87 is lodged under section 139(10) of the Income-tax Act." Section 139(10) provide that : Notwithstanding anything contained in any other provision of the Income-tax Act, 1961, a return of income which shows the total income below the maximum amount which is not chargeable to tax shall be deemed never to have been furnished. Proviso to section 139(10) also mentions exceptions in the case of return of income to which provisions of section 139(10) will not apply. The assessee's case is not covered by the said proviso because the return was filed on 26-12-1986. Therefore, Assessing Officer came to conclusion that for all practical purposes under section 139(10), the return of income filed by the assessee for the assessment year 1986-87 shall be deemed never to have been furnished.
7. In the case of CIT v. Dalmia Cement (Bharat) Ltd. [1995] 216 ITR 79/82 Taxman 229 (SC), the facts of the case were that the return for the assessment years 1952-53 to 1954-55 were filed in April 1956. The Assessing Officer refused to make assessments on the ground that the returns were filed beyond time and informed the assessee that no cognizance could be taken of said returns. The Hon'ble Supreme Court held as under : "Held, that the failure in this case related to the anterior stage, namely, failure to make an assessment and determine the loss. Hence, the principle in Khushal Chand Daga's case [1961] 42 ITR 177 (SC) was not applicable. The assessee having failed to appeal against the intimation of the Income-tax Officer refusing to take cognizance of loss returns filed by the assessee for the assessment years 1952-53 to 1954-55, could not claim in the assessment proceedings relating to subsequent years that the loss in the said earlier assessment years (1952-53 to 1954-55) be determined, carried forward and set off against the profits of the subsequent year or years, as the case may be." 8. In the case of Ampee Industries (P.) Ltd. (supra), the facts of the case were that the assessee-company filed its return for the assessment year 1988-89 on 10-1-1989 showing a loss of Rs. 18,280. The Assessing Officer completed the assessment on a taxable income at Rs. 9,93,720.
On appeal, the CIT(Appeals) held that the order of the Assessing Officer was illegal and, accordingly, annulled the assessment on technical ground without entering into the merits of the appeal on other points. On the Revenue's appeal, the Tribunal set aside the order of the CIT(Appeals) by holding that section 139(10) dealt with the return which showed a total income below taxable limit and not a loss and, therefore, the assessee was not entitled to the benefit of section 139(10). On a reference before the High Court, it was argued by the assessee that since the return was filed after 31st July of the relevant assessment year, the provisions of section 139(10) were applicable and as such, whatever return had been filed it would be treated as non est and in the absence of return that Assessing Officer had no jurisdiction to initiate any assessment proceeding. Their Lordships of the Gauhati High Court held as under : "Sub-section (10) of section 139 does not make any distinction between positive and negative income. If an assessee wants his loss to be carried forward, then he may take recourse to section 139(3) as it is completely independent of the provisions of section 139(10). This position of law would be very clear from proviso (d) to section 139(10), which speaks that provisions of sub-section (10) shall not apply to a return of loss which has been furnished before 31st day of July of the assessment year relevant to the previous year during which the loss sustained. If the income is below the maximum limit of chargeable income, whether there is loss or not, it will come within the ambit of section 139(10). If this is so, the return showing the loss being filed in the instant case after 31st day of July of the assessment year, could not be deemed to be a return filed by the assessee and on that basis no assessment proceeding would proceed. Therefore, the Tribunal was not justified in holding that the Assessing Officer was justified in initiating the assessment proceedings on the basis of the loss return filed on 10-1-1989 without any claim for carry forward of loss." Therefore, in view of the aforesaid decision of the Gauhati High Court, it is clear that since the return of income has been lodged under section 139(10) for the assessment year 1986-87, no assessment has been made by the Assessing Officer for that year. Since no assessment for assessment year 1986-87 has been made by the Assessing Officer, there is no question of quantifying investment allowance and depreciation in the assessment year 1986-87. There is no order of the Assessing Officer either for quantifying or carrying forward of unabsorbed depreciation/investment allowance. As held by the Hon'ble Supreme Court in the case of Dalmia Cement (Bharat) Ltd. (supra), the assessee could not claim in the assessment proceedings relating to the assessment year 1987-88 that the unabsorbed depreciation or investment allowance for assessment year 1986-87 could be carried forward. In the absence of assessment for the assessment year 1986-87, it cannot be stated that there was any unabsorbed depreciation/investment allowance for that year. Therefore, the CIT(Appeals) was not justified in directing the Assessing Officer to set off the unabsorbed depreciation and investment allowance for the assessment year 1986-87 against the assessee's income for the assessment year under appeal, i.e., 1987-88, because as already held, such depreciation allowance and investment allowance for assessment year 1986-87 were neither determined by the Assessing Officer nor there was any order for carry forward of unabsorbed depreciation/investment allowance.
9. We will mention another reason for our conclusion that the assessee is not entitled to carry forward of unabsorbed investment allowance and depreciation of assessment year 1986-87. For the purpose of computing the yearly profits and gains, each year is a separate self-contained period of time in regard to which profit earned or loss sustained before its commencement are relevant. For income-tax purposes each year is a self-contained accounting period and can only take into consideration income, profits and gains made in that year. The provisions of the Income-tax Act relating to the charge on income apply in relation to a specific assessment year and the provisions of the Act providing for computation of the chargeable income apply in relation to the previous year. The appeal before the CIT(Appeals) was against the assessment of income for the assessment year 1987-88. He has no business to give a specific finding about carry forward of investment allowance/depreciation for the assessment year 1986-87 because, the appeal for assessment year 1986-87 was not pending before him and there was no order of assessment for that assessment year, against which appeal could have been filed before the CIT(Appeals). Therefore, in directing the Assessing Officer to set off unabsorbed depreciation and investment allowance for the assessment year 1986-87, the CIT(Appeals) totally went beyond his jurisdiction to decide the issue relating to the assessment year 1986-87, because the appeal for that year was not pending. Since the appeal for the assessment year 1987-88 is pending before the Tribunal we could only decide the issue relating to this particular assessment year 1987-88 and the issue relating to the assessment year 1986-87 cannot be decided because there in no appeal before us relating to that year against any assessment for the assessment year 1986-87. We, therefore, reverse the order of the CIT(Appeals) on this issue and restore the order of the Assessing Officer.
10. Since the appeal for the assessment year 1986-87 is not before us, the Board Circular No. 469 of 23-9-1996 relied on by the assessee's counsel as also other reported cases, cannot be considered in the assessment year 1987-88 as we are not concerned with the assessee's claim for the assessment year 1986-87. In this view of the matter also we restore the assessment order passed by the Assessing Officer.
11. The third ground raised in this appeal by the Revenue is that while deleting the addition of Rs. 29,89,450 made under section 40A(3) by the Assessing Officer, the CIT(Appeals) erred in holding that the decision in the case of CIT v. Ahmad Hussain [1984] 150 ITR 373/[1985] 22 Taxman 559 (All.) should be considered by the Assessing Officer. It is stated by the assessee's counsel that this issue is covered by the order of the Tribunal in the assessee's own case in Income-tax Appeal Nos.
3408/Mds/89 and 3127/Mds/92 (assessment year 1987-88) vide order dated 18-8-1993. Since this issue is covered by the earlier order of the Tribunal mentioned above, this ground of appeal raised by the Revenue is dismissed.
12. The next ground is to the effect that the CIT(Appeals) erred in deleting the disallowance of Rs. 2,49,407 made under section 40A(2)(b) of the Act. The Assessing Officer found that the assessee has purchased cotton from M/s. Prabhakar Ginning Factory (PGF for short), during the year amounting to Rs. 66,87,813. It was observed by the Assessing Officer that the assessee has paid highest amounts to PGF than the rates prevailing in the market which were taken out from the purchases made from the third parties on the same date or one day earlier or later, as the case may be. The Assessing Officer considered that the provisions of section 40A(2)(b) are attracted in the case of purchases made from PGF and, accordingly, disallowed Rs. 2,49,401 under section 40A(2)(b). In first appeal, it was contended before the CIT(Appeals) that the Assessing Officer ignored the quality and quantity of cotton supplied, the rates prevailing in the market and other relevant circumstances. It was further contended that in fact the purchase rate from-PGF was lesser and not excessive as pointed out by the Assessing Officer. The assessee filed market quotations for the period July, August, December, January, May, June, etc., before the CIT(Appeals) to substantiate its claim that the purchase price paid to PGF was not at all excessive for the variety of cotton purchased by the assessee. The CIT(Appeals) was satisfied with the contentions of the assessee and care to the conclusion that the Assessing Officer has failed to prove that the payment made to PGF is excessive or unreasonable as compared to the market value of goods. The CIT(Appeals) also stated that the bills of sister concerns to Madurai Coats and Super Spinning Mills proved the assessee's case which showed that the market rate was higher than the rate of purchase from PGF. He, therefore, allowed the assessee's claim.
13. The ld. Departmental Representative argued that the CIT(Appeals) should have seen that the Assessing Officer had clearly established his case for disallowance under section 40A(2)(b) and that the CIT(Appeals) erred in comparing the sale bills issued by PGF to third parties for the purpose of proving that the rate of purchase by the assessee from the said factory was lower. The ld. D.R. argued that the details furnished by the assessee clearly show that it has paid highest amount to PGF than the rates prevailing in the market and as the purchases from PGF are covered under section 40A(2)(b), the excess amount other than the market price paid as disallowed by the Assessing Officer is just and proper and no interference is called for. The ld. counsel for the assessee, on the other hand, reiterated the contentions raised before the CIT(Appeals).
14. We have gone through the orders of the authorities below. In view of the specific finding given by the CIT(Appeals) that the assessee has not paid excess price to PGF as compared to market value of the goods, we decline to interfere in the order passed by the CIT(Appeals). We, therefore, reject this ground raised by the Revenue.