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2014 (7) TMI 468 - AT - Income TaxClaim of set off and brought forward of unabsorbed depreciation Held that - Following GENERAL MOTORS INDIA PVT. LTD Versus DEPUTY COMMISSIONER OF INCOME-TAX 2012 (8) TMI 714 - GUJARAT HIGH COURT - current depreciation is deductible in the first place from the income of the business to which it relates - If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee - If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year - In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year - Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part - If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. Any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 - once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever - unabsorbed depreciation relating to AY 1997-98 and upto AY 2001-02 would be eligible for carry forward and set off for an unlimited period. Provision for leave encashment u/s 43B(f) of the Act Held that - Deduction on account of any amount paid by an employer to its employee in lieu of any leave at the credit of the employee will be allowed only on actual payment basis - the assessee has made only a provision and amount claimed as deduction has not been actually paid during the previous year Relying upon Exide Industries Limited And Another Versus Union Of India And Others 2007 (6) TMI 175 - CALCUTTA High Court there was no infirmity in the order of the CIT(A) on this issue Decided against Assessee. Valuation of sale of land Addition under the head other sources Held that - The assessee delivered the vacant physical possession of the scheduled property to the purchaser only on the execution of sale deed on 20.11.2007 - transfer as per S.2(47) of the Act did take place only upon delivery of the possession to the purchaser i.e. on 20.11.2007, on the date of execution of sale deed - assessee cannot object to the valuation of the property as applicable on 20.11.2007 as per the guidelines of the registering authority. It is also a fact that during the assessment proceedings, the assessee has not raised any objection to the application of S.50C of the Act, by seeking a reference to the valuation officer for determining the market value of the property there was no infirmity in the order of the CIT(A) in holding that capital gain has to be computed by applying the provisions of S.50C of the Act - assessee has not explained what prevented the assessee from producing the said additional evidence before the AO and the CIT(A). Computation of book profit u/s 115JB of the Act Leave encashment Held that - CIT(A) simply following the reasoning given by him, while dealing with the disallowance made in respect of provision for leave encashment, in the computation of income under the normal provisions, upheld the adding back of the same done by the AO while computing the book profit under S.115JB of the Act - he did not independently examine the issue of justification of add-back of the provision, while computing the income in terms of S.115JB of the Act Following Highland Produce Co. Ltd. V/s., DCIT 2014 (7) TMI 122 - ITAT COCHIN - meeting the liability incurred by the company under the leave encashment scheme proportionate with entitlement earned by employees of the company inclusive of officers and the staff subject to ceiling of accumulation as applicable on the relevant date is entitled to deduction out of the gross receipt for the accounting year during which the provision is made for the liability Decided partly in favour of Assessee.
Issues Involved:
1. Disallowance of claim for set off of unabsorbed depreciation. 2. Disallowance of provision for leave encashment under Section 43B(f). 3. Addition on account of suppression of receipts from the sale of land. 4. Addition of provision for leave encashment while computing book profit under Section 115JB. Issue-wise Detailed Analysis: 1. Disallowance of Claim for Set Off of Unabsorbed Depreciation: The primary issue pertains to whether unabsorbed depreciation from assessment years 1997-98 to 2001-02 can be carried forward for an unlimited period or is restricted to eight years. The assessee argued that the amendment to Section 32(2) by the Finance Act, 2001, which removed the eight-year restriction, should apply retrospectively. The Gujarat High Court in General Motors India Pvt. Ltd. v. DCIT held that unabsorbed depreciation from assessment years up to 1999-2000 can be carried forward indefinitely. The Tribunal, relying on this judgment, directed that unabsorbed depreciation should be carried forward for set off in subsequent years, thus allowing the assessee's grounds and rejecting the Revenue's grounds on this issue. 2. Disallowance of Provision for Leave Encashment under Section 43B(f): The CIT(A) confirmed the disallowance of Rs. 7,22,394 for leave encashment under Section 43B(f), noting that the provision allows deduction only on an actual payment basis. Despite the Calcutta High Court's decision in Exide Industries Ltd. v. Union of India striking down Section 43B(f), the Supreme Court's stay on this decision means the provision remains in force. Thus, the Tribunal upheld the CIT(A)'s decision, rejecting the assessee's grounds on this issue. 3. Addition on Account of Suppression of Receipts from the Sale of Land: The CIT(A) upheld the addition made by the Assessing Officer under Section 50C, treating the differential amount between the sale consideration and the stamp duty value as capital gains. The Tribunal noted that the assessee had sold the land at a value lower than the stamp duty value due to an agreement, but the final sale deed was registered later when the stamp duty value had increased. The Tribunal found no infirmity in the CIT(A)'s order to apply Section 50C, thus upholding the treatment of the differential amount as capital gains and rejecting the Revenue's grounds on this issue. 4. Addition of Provision for Leave Encashment While Computing Book Profit under Section 115JB: The CIT(A) upheld the addition of Rs. 7,22,394 for leave encashment while computing book profit under Section 115JB, following the same reasoning as for the normal computation of income. The Tribunal, however, noted that the provision for leave encashment is an ascertained liability based on the Supreme Court's decision in Bharat Earth Movers Ltd. v. CIT and the Cochin Bench's decision in Highland Produce Co. Ltd. v. DCIT. The Tribunal set aside the CIT(A)'s order on this issue and remanded it to the Assessing Officer to reconsider in light of these decisions. Conclusion: The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal, providing a detailed analysis and directions on each issue based on relevant legal precedents and statutory provisions.
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