2021 (7) TMI 1119 - AT - Income Tax

Addition of increase in Modvat credit u/s 145A - Assessee argued assessee has been consistently and regularly following the same valuation method for the last 15 years and there is no deviation in valuation formula - HELD THAT - Appellant was correct to argue that this modvat has never been debited to Prof it and loss account. It is only reflected in the balance sheet in the assets side. Therefore, cannot be treated as income at all. Further, also relying on the Hon ble Supreme Court decision in the case of CIT Vs. Indo Nippon Chemicals 2003 (1) TMI 8 - SUPREME COURT wherein it is held as under Modvat credit available to manufacturers upon purchase of duty paid raw material though irreversible does not amount o chargeable income. We Considering the decision of the CIT(A) for the A.Y 2011-12, direct the Assessing officer to delete the addition. Addition u/s 50C - contention of the AR that the assessee company has become a sick industrial company and the assets were being sold to cut down the costing and repayment of the loans - HELD THAT - We find that in the assessment proceedings the assessee has filed the explanations on sale of depreciable Assets units is Chennai, which was unused for years and was in an unusable condition Further on verification of agreements filed in the course of hearing,we find that the assessee has sold depreciable assets being building and the same was mentioned before the lower authorities. Whereas the Ld.AR has relied on the BIFR order and the assessee company financials with negative net worth. We find that there is no bifurcation of value of building which is depreciated over the period of time. A.O. has pointed out only difference aspect but the fact remains the assessee company has become sick company and burdened with financial difficulties and the net worth has become negative. The assessee company has made a distress sale at realizable price, which is justified considering the financial constrains and the circumstances of selling the depreciable asset and was in an unusable condition. Accordingly, we set-aside the order of the CIT(A) on this ground of appeal and direct assessing officer to delete the addition. In the result, the appeal filed by the assessee is allowed. Set off and carry forward of unabsorbed deprecation pertaining to A.Y1996-97 to 2001-02 beyond the stipulated period - HELD THAT - We found that the Ld.CIT(A) has relied on the decision of the Hon ble Gujarat High Court in the case of General Motors Ind Pvt Ltd., Vs. DCIT 2012 (8) TMI 714 - GUJARAT HIGH COURT . We find on the similar disputed issue the Hon ble Supreme court of India in CIT VS Associated Cables (P) Ltd 2019 (5) TMI 1083 - SUPREME COURT OF INDIA has dismissed the SLP filed by the Revenue against the Jurisdictional Bombay High Court order. DR could not controvert the observations of the CIT(A) with any new cogent evidence or information. Whereas, the Ld.CIT(A) relied on the Hon ble High Court and Hon ble Tribunal decisions and passed a reasoned order. Accordingly, we do not find any infirmity in the order of the Ld.CIT(A) and uphold the same and dismiss the grounds of appeal of the revenue.

Summary

Issues Involved:
1. Addition of ?1,02,12,123 under Section 145A of the Income Tax Act on account of increase in MODVAT credit.
2. Addition of ?39,83,500 under Section 50C on account of sale of property below stamp duty valuation.
3. Carry forward and set-off of unabsorbed depreciation pertaining to Assessment Years 1996-97 to 2001-02.

Issue-Wise Detailed Analysis:

1. Addition of ?1,02,12,123 under Section 145A on account of increase in MODVAT credit:
The assessee challenged the addition of ?1,02,12,123 made by the Assessing Officer (A.O.) under Section 145A of the Income Tax Act, arguing that the MODVAT credit was consistently valued using the same method for the last 15 years. The A.O. had added the difference between the closing debit balance and the opening balance to the value of closing stock, which was confirmed by the CIT(A). However, the Tribunal referred to the assessee's case for A.Y. 2011-12, where the CIT(A) had relied on the Hon’ble Supreme Court decision in CIT Vs. Indo Nippon Chemicals 261 ITR 275, which stated that MODVAT credit does not amount to chargeable income. The Tribunal directed the A.O. to delete the addition, considering the consistent valuation method and the Supreme Court's ruling.

2. Addition of ?39,83,500 under Section 50C on account of sale of property below stamp duty valuation:
The assessee contended that the addition under Section 50C was unjustified as the property sold was a depreciated asset in an unusable condition, and the company was a Sick Industrial Company under BIFR, necessitating the sale at a lower value to cut down costs and repay loans. The A.O. had made the addition, which was upheld by the CIT(A). However, the Tribunal found that the assessee had made a distress sale due to financial constraints and the unusable condition of the asset. The Tribunal set aside the CIT(A)'s order and directed the A.O. to delete the addition, recognizing the financial difficulties and the condition of the asset.

3. Carry forward and set-off of unabsorbed depreciation pertaining to Assessment Years 1996-97 to 2001-02:
The revenue appealed against the CIT(A)'s decision to allow the carry forward and set-off of unabsorbed depreciation for A.Y. 1996-97 to 2001-02. The CIT(A) had relied on the Hon’ble Gujarat High Court decision in General Motors India Pvt. Ltd. vs. CIT (354 ITR 244), which allowed the carry forward of unabsorbed depreciation without any limits. The Tribunal upheld the CIT(A)'s decision, noting that the Hon’ble Supreme Court in CIT Vs. Associated Cables (P) Ltd (2019) 105 taxmann.com 114 had dismissed the SLP filed by the Revenue against the Bombay High Court's order on a similar issue. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's appeal.

Conclusion:
The Tribunal allowed the assessee's appeal, directing the deletion of additions under Sections 145A and 50C, and dismissed the revenue's appeal, upholding the CIT(A)'s decision to allow the carry forward and set-off of unabsorbed depreciation for the specified assessment years. The order was pronounced in the open court on 09.06.2021.