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TMI Blog2002 (9) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant company in terms of order of the BIFR. (b) That, on the facts and in the circumstances of the case, the learned Commissioner of Income-tax(A) has erred in not allowing the appellants' claim towards depreciation on the value of assets of the amalgamating company not actually allowed under section 32, 43(6) and 72A of the Income-tax Act since such value remained as unabsorbed depreciation in accordance with the order of the BIFR. 3. That without prejudice to the contentions in 2(a) and 2(b) above, the learned CIT(A) has erred in not allowing the benefit of unabsorbed depreciation despite the facts that the provisions of section 72A of the Income-tax Act read with sections 18 and 32(2) of the Sick Industrial Companies (Special Provisions) Act, 1985 have been complied with." 38. Modern Stramit (I) Ltd. was a sick company which had closed down its operation at the end of 1986 and its case was referred to BIFR on 30-9-1989. The BIFR declared the said company to be a sick industrial company and under the scheme of rehabilitation, the same was amalgamated with the assessee-company. As per the BIFR order dated 6-5-1992, the assessee-company was allowed to carry forward the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------- -------- 39. As shown in the above statement, the benefit in respect of the entire accumulated business loss of Rs. 1,41,40,464 was availed by the assessee in accordance with the provisions of section 72A read with BIFR order dated 6-5-1992. However, the benefit in respect of unabsorbed depreciation could be availed only to the extent of Rs. 3,52,290 due to the restriction imposed by the BIFR for a maximum tax relief of Rs. 75 lakhs and the balance amount of Rs. 1,20,03,557 remained inadmissible due to the said restriction. During the course of assessment proceedings, the assessee-company filed a letter dated 14-2-1995 claiming that the unabsorbed depreciation of amalgamating company to the extent of Rs. 1,20,03,557 having not been actually allowed to the amalgamated company i.e. Assessee Company, the same cannot be deducted from the WDV of assets of the amalgamated company for depreciation allowances and as such the Assessee-company is entitled for depreciation allowance of Rs. 27,09,294 on the unabsorbed depreciation of the amalgamating company to the extent it remained inadmissible because of the limitation specified in the BIFR order. The asset-wise break up o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not go beyond the purview of the said order to claim additional depreciation. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the learned CIT(A). During the appellate proceedings before him, the submission made before the Assessing Officer was reiterated on behalf of the assessee-company and it was further contended that the balance unabsorbed depreciation of Rs. 1,20,03,557 which was not actually allowed partakes the character of the cost of Assets in the hands of amalgamated company in terms of the provisions of section 43(6) read with section 32(2). Reference was again made to the decision of the Hon'ble jurisdictional High Court in the case of Hindustan Petroleum Corpn. Ltd. and it was submitted that the introduction of section 72A does not in any way affect the principles laid down in the said decision. After considering the submission made by the assessee-company, the learned CIT(A) found no merits in the claim of the assessee for additional depreciation and he upheld the order of the Assessing Officer rejecting the said claim observing as under:-- "I have considered the arguments of appellant's counsel. The decision of the Bombay High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e because of the limitation specified in the BIFR order. He contended that the said benefit was available to the assessee even prior to the insertion of section 72A and the introduction of the said provisions, which are beneficial in nature and the BIFR order issued under the said section, cannot take away the said benefit which was other-wise available to the assessee-company as per the principles laid down by the Hon'ble Jurisdictional High Court in the case of Hindustan Petroleum Corpn. Ltd. Referring to the order of this Bench dated 29-3-1996 passed in assessee's own case for the assessment year 1989-90 in ITA No. 397/Nag/94, he submitted that a similar issue has already been considered by the Tribunal liberally in the said order and the findings given therein by the Tribunal, although in the context of the order passed by the CIT under section 263, support the assessee's case on this issue. He also relied upon the decision of Hon'ble Supreme Court in the case of Indian Shaving Products Ltd. v. BIFR [1996] 218 ITR 140 in support of his contention that the benefits admissible to the assessee-company under section 72A could not have been declined/restricted by BIFR. 42. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material available on record and precedent cited at the bar. At the outset, we may observe that the decision of the Tribunal in assessee's own case for the assessment year 1989-90 in ITA No. 397/Nag/94, dated 29-3-1996 is not. applicable to the facts of the present case since no order was passed by BIFR in the said case involving assessment year 1989-90 in accordance with the provisions of section 72A. Moreover, the order passed by the CIT under section 263 setting aside the assessment completed by the Assessing Officer on this issue was challenged by the assessee in that case and accordingly the decision was rendered by the Tribunal in that limited context, which cannot be taken as a precedent for deciding the issue under consideration on merits. 44. It is observed that in the return of income filed by the assessee-company for the year under consideration, the benefit in respect of unabsorbed depreciation and accumulated loss having a tax effect to the extent of Rs. 75 lakhs was claimed by the assessee and it was only in the assessment proceedings before the Assessing Officer, the assessee filed a letter claiming further benefit on account of depreciation allowance in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the IT Act, the accumulated loss and unabsorbed depreciation of the amalgamating company shall be deemed to be a loss or as the case may be allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected. It is thus clear that the provisions of section 72A are special provisions dealing with the issue of carry forward and set off of accumulated loss and unabsorbed depreciation allowance in certain cases of amalgamation and as per the phraseology used in the said section, these provisions have overriding effect on any other provisions of the Act. As already observed, prior to insertion of the section 72A, there was certain anomaly in the other relevant provisions of section 43(6) and section 32(2) and on the basis of this anomaly, the Hon'ble Bombay High Court in the case of Hindustan Petroleum Corporation Ltd. proceeded to allow the claim of the Assessee in the absence of any specific provisions relating to the said issue. However, after the insertion of specific provisions relating to the carry forward and set off of accumulated loss and unabsorbed depreciation allowance in the case of amalgamation by section 72A, the issue no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(6) by the Finance (No. 2) Act, 1967, whereas Explanations 1, 2 and 3 are therefrom the inception of the Income-tax Act, 1961. The main purpose of Explanation 3 appears to us to be to avoid any anomaly which would have otherwise resulted. Depreciation computed but not given effect to for paucity of funds is under section 32(2) allowable as deduction in the case of the same assessee as the depreciation of the following year or years as the case may be. But for Explanation 3, written down value would have been the actual cost of the assets to the assessee less depreciation actually allowed. This would have resulted in certain anomalies. For instance, when depreciation is allowed not on the straight line method but on the basis of the written down value, depreciation of necessity becomes less and less in each successive year. But, if unabsorbed depreciation carried forward under section 32(2) is not taken into account for the purpose of computing the written down value, depreciation in the years in which carried forward depreciation remains unabsorbed for paucity of profits is likely to be the same. Secondly, when a depreciable asset is sold, discarded or destroyed, etc., in a previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by Explanation 2A, But for this Explanation, the written down value of the assets taken over by the Assessee during the previous year from Lube India Ltd., would have been their actual cost to the Assessee. In view of Explanation 2A, however, it will be the same as it would have been if Lube India Ltd. had continued to hold the assets for its business. Thus, Explanation 2A creates a fiction where though in fact at the end of the previous year the assets are not held to Lube India Ltd., the company having been amalgamated and, thus, ceased to exist, the said company will be deemed to hold the assets for its business. However, there is no further fiction created by Explanation 2A, that unabsorbed depreciation determined to the extent of Rs. 21,42,815, though actually not carried forward under section 32(2), will be treated to be so for the purpose of Explanation 3. Under the circumstances, application of Explanation 2Adoes not automatically mean application of Explanation 3, the applicability of which depends upon the existence of a particular situation in which alone unabsorbed depreciation becomes depreciation "actually allowed". 47. From the perusal of the aforesaid observa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the amalgamated company for the previous year in which the amalgamation was effected and the other provisions of the Act relating to carry forward and set off loss and allowances for depreciation shall apply accordingly. As a result of introduction of the said provisions, the unabsorbed depreciation allowance of the amalgamating company is now allowed to be carried forward and added to the depreciation of the current year under section 32(2) in the hands of the amalgamated company and once the benefit of section 72A is availed by the amalgamated company on the recommendation of the specified authority subject to certain conditions specified in this behalf, it cannot be said that unabsorbed depreciation allowance of the amalgamating company is not available to be carried forward under section 32(2) in the hands of the amalgamated company. It, therefore, follows that the situation necessary for the application of fiction created in Explanation 3 to section 43(6) is very much obtained as a result of insertion of section 72A in the statute and the anomaly mentioned by the Hon'ble Bombay High Court in the case of Hindustan Petroleum Corpn. Ltd. stands removed. As a matter of fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er as per the decision of Hon'ble Bombay High Court in Hindustan Petroleum Corporation Ltd.'s case or under any other provisions of the Act were available to the assessee. 51. Before us, the learned counsel for the Assessee has contended that the Provisions of section 72A are beneficial provisions and therefore, the benefits which were available to the assessee-company as per the ratio laid down by Hon'ble Bombay High Court in the case of Hindustan Petroleum Corpn. Ltd. cannot be taken away by such beneficial provisions. Keeping in view the specific basis adopted by the Hon'ble Bombay High Court in the case of Hindustan Petroleum Corpn. Ltd. in the peculiar facts and circumstances of the said case as discussed in the foregoing portion of this order and the change in the legal position after the introduction of the special provisions of section 72A subsequently with non obstante clause contained therein overriding the other general provisions referred to and relied upon by the decision by the Hon'ble Bombay High Court, we find the said contention raised by the learned counsel for the assessee to be devoid of any merits and hence unacceptable. Nevertheless, even with the limitation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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