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2014 (1) TMI 1908 - AT - Income TaxRevision u/s 263 - adjustment of unabsorbed depreciation against short term capital gains - interpretation of a taxing statute - whether AO had rightly allowed benefit of setting off of unabsorbed depreciation pertaining to assessment year 1996-97 in the impugned assessment year i.e 2007- 08 against short term capital gains - HELD THAT - We make it clear that we are dealing with a case of interpretation of a taxing statute. There is no quarrel between the parties about facts of the case. Rather the issue between them is about interpretation of section 32(2) as it stood before and after 1.4.1997 upto amendment introduced by the Finance Act, 2001. That being the case, the necessary interpretation of the relevant provision made by the tribunal , high court or for that matter, hon'ble apex court would govern the question raised hereinabove. Therefore, we accept the arguments of the assessee and hold that the Assessing Officer had rightly found it entitled for set off of the impugned unabsorbed depreciation. In view of contradictory views of the tribunal and high court(supra), since we have already held that the impugned brought forward unabsorbed depreciation pertaining to assessment year 1996-97 is entitled to be set off in the impugned assessment year as well, it emerges that there is only one interpretation possible which favours the assessee. So, the case law of Malabar Industrial Co. Ltd. (supra) goes against case of the Revenue. Jurisdiction u/s 263 cannot be stretched beyond reasons in show cause notice. We reiterate that there are only two reasons in the show cause notice i.e impugned depreciation of assessment year 1996-97 could not have been set off in assessment year 2007-08 and other one is that the depreciation had been wrongly allowed to be set off by the Assessing Officer against short term capital gains - In view of the case law of General Motors India (P) Ltd. (supra) 2012 (8) TMI 714 - GUJARAT HIGH COURT , both reasons are no more sustainable. Similarly, we also see n No reason to agree with the arguments of the Revenue that since the CIT has only directed the Assessing Officer to reframe the assessment after examining the issue afresh need not be disturbed in the instant appeal as the assessee would be at liberty to cite the aforesaid decisions. In our considered opinion, once the law settled by the hon'ble high court favours the assessee, there is no justification in reviving yet another innings before the Assessing Officer in consequential proceeding - we draw support from the case law of Max India Ltd 2007 (11) TMI 12 - SUPREME COURT wherein the hon'ble apex court observes that position of law in 263 proceedings has to be seen when the CIT passes order. - Decided in favour of assessee.
Issues Involved:
1. Legality of the Commissioner of Income-tax (CIT) directing the Assessing Officer (AO) to re-examine the issue of setting off brought forward unabsorbed depreciation. 2. Interpretation of Section 32(2) of the Income-tax Act, 1961, regarding the set-off of unabsorbed depreciation. 3. Applicability of the CIT's jurisdiction under Section 263 of the Act. Detailed Analysis: 1. Legality of CIT's Direction to AO: The assessee argued that the CIT erred in directing the AO to re-examine the issue of setting off brought forward unabsorbed depreciation under Section 263 of the Act. The AO, in the 'regular' assessment order dated 23.12.2009, had allowed the set-off of unabsorbed depreciation of Rs. 8,21,94,859 against short-term capital gains of the same amount. The Revenue justified the CIT's order, stating that the AO had wrongly allowed the set-off and failed to conduct necessary inquiries, thereby making the assessment erroneous and prejudicial to the interests of the Revenue. 2. Interpretation of Section 32(2): The CIT issued a notice under Section 263 on 9.3.2012, proposing to revise the assessment on the grounds that the unabsorbed depreciation of AY 1996-97 could not be set off against short-term capital gains for AY 2007-08 due to the eight-year limitation period. The assessee countered this by citing the amended Section 32(2) via the Finance Act, 1997, which removed the eight-year limitation and allowed set-off against any head of income indefinitely. The CIT, however, referred to the Special Bench decision in DCIT vs Times Guaranty Ltd., which upheld the eight-year limitation for unabsorbed depreciation from AY 1996-97. 3. Applicability of CIT's Jurisdiction under Section 263: The Tribunal examined whether the AO rightly allowed the set-off of unabsorbed depreciation from AY 1996-97 in AY 2007-08. The Tribunal noted the conflicting judicial precedents, including the Special Bench decision and the Gujarat High Court's contrary view in Devesh Metcast Ltd. and General Motors India (P) Ltd., which allowed the set-off of unabsorbed depreciation beyond the eight-year period. The Tribunal concluded that the AO's decision was in line with the Gujarat High Court's interpretation, which favored the assessee, thereby making the CIT's invocation of Section 263 unwarranted. Conclusion: The Tribunal held that the AO had correctly allowed the set-off of unabsorbed depreciation against short-term capital gains, as per the Gujarat High Court's interpretation of Section 32(2). The CIT's direction under Section 263 was deemed unsustainable, as the law favored the assessee. The appeal was allowed, and the CIT's order was set aside. Order Pronouncement: The assessee's appeal was allowed, and the order was pronounced on Monday, the 6th of January, 2014, at Chennai.
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