M/s. Himatsingka Seide Ltd. v. The Deputy Commissioner of Income-tax, Circle 11(1), Bangalore
[Citation -2014-LL-1114-5]

Citation 2014-LL-1114-5
Appellant Name M/s. Himatsingka Seide Ltd.
Respondent Name The Deputy Commissioner of Income-tax, Circle 11(1), Bangalore
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 14/11/2014
Judgment View Judgment
Keyword Tags profits and gains of business or profession • deduction under section 80hhc • computation of income • quantum of deduction • computing deduction • gross total income • managing director • export turnover • total turnover
Bot Summary: Whether on the facts and circumstances of the case the Tribunal was right in holding that entire loss of Filati unit Should be set off against the profits of Seide unit before computing deduction under Section 80HHC and not only the loss which does not fall within the ambit of exclusion under Section 10B 2. Whether on the facts and circumstances of the case the Tribunal was right in not appreciating that exemption under Section 10B falls under Chapter III which specifically states that income which does not form part of total income and as 10 such the entire income/(loss) of Section 10B unit should be excluded/ignored from the computation of total income ITA No.51/2009: 1. Though Section 34 of the Income Tax Act is referred to and the said Section is deleted, the Supreme Court was considering not only Section 34 but also Sections 32 and 37. Section 32 allows depreciation as deduction subject to the provisions of section 34. Section 34 provides that deduction under Section 32 shall be allowed only if prescribed particulars have been furnished. Income under the head Profits and gains of business or profession is chargeable to income-tax under Section 28 and that income under Section 29 is to be computed in accordance with the provisions contained in section 30 to 43A. The argument that since section 32 provides for depreciation it has to be allowed in computing the income of the assessee cannot in all circumstances be accepted in view of the bar contained in section34. If section 34 is not satisfied and the particulars are not furnished by the assessee, his claim for depreciation under Section 32 cannot be allowed.


IN HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS 14TH DAY OF NOVEMBER 2014 PRESENT HON'BLE MR. JUSTICE N. KUMAR AND HON BLE MR. JUSTICE B. MANOHAR ITA NO.50 OF 2009 C/W ITA NO.51/2009, ITA NO.59/2009, ITA NO.60/2009 IN ITA NOS.50/2009 & 51/2009: BETWEEN: M/s.Himatsingka Seide Ltd., 10/24, Kumarakrupa Road High Grounds, Bangalore - 560 001 Rep by its Managing Director Sri.D.K.Himatsingka Aged about 60 years S/o Sri.Nathmal Himatsingka. APPELLANT (By Shri.K.P.Kumar, Senior Advocate for Smt.Vani.H. Advocate) AND: Deputy Commissioner of Income Tax Circle 11(1), Bangalore. RESPONDENT (By Shri.K.V.Aravind, Advocate) 2 ITA No.50/2009 is filed under Section 260-A of I.T.Act, 1961 arising out of order dated 30.09.2008 passed in ITA No.269/BNG/2008 for assessment year 2001-02, praying to formulate substantial questions of law stated therein and allow appeal and set aside order passed by ITAT Bangalore in ITA No.269/BNG/2008, dated 30.09.2008. ITA No.51/2009 is filed under Section 260-A of I.T.Act, 1961 arising out of order dated 30.09.2008 passed in ITA No.250/BNG/2008 for assessment year 2001-02, praying to formulate substantial questions of law stated therein and allow appeal and set aside order passed by ITAT Bangalore in ITA No.250/BNG/2008, dated 30.09.2008. IN ITA NO.59/2009: BETWEEN; 1. Commissioner of Income Tax C.R.Building, Queens Road Bangalore. 2. Asst. Commissioner of Income-Tax Circle-11(5), C.R.Building Queens Road Bangalore. ...APPELLANTS (By Shri.K.V.Aravind, Advocate) AND: M/s.Himatsingka Seide & Co. Ltd., No.10/24, Kumara Krupa Road Bangalore. ...RESPONDENT (By Shri.K.P.Kumar, Senior Advocate for Smt.Vani.H, Advocate) 3 ITA No.59/2009 is filed under Section 260-A of IT Act, 1961 arising out of order dated 30-09-2008 passed in ITA No.230/BNG/2008, for Assessment Year 2003-04, praying to formulate substantial questions of law stated therein and allow appeal and set aside order passed by ITAT Bangalore in ITA No.230/BNG/2008, dated 30-09-2008 and confirm orders of Appellate Commissioner and confirm order passed by Assistant Commissioner of Income Tax, Circle-11(5), Bangalore in interest of justice and equity. IN ITA NO.60/2009: BETWEEN; 1. Commissioner of Income Tax C.R.Building, Queens Road Bangalore. 2. Dy. Commissioner of Income-Tax Circle-11(1), C.R.Building Queens Road Bangalore. ...APPELLANTS (By Shri.K.V.Aravind, Advocate) AND: M/s.Himatsingka Seide & Co. Ltd., No.10/24, Kumara Krupa Road Bangalore. ...RESPONDENT (By Shri.K.P.Kumar, Senior Advocate for Smt.Vani.H, Advocate) ITA No.60/2009 is filed under Section 260-A of IT Act, 1961 arising out of order dated 30-09-2008 passed in ITA No.250/BNG/2008, for Assessment Year 2001-02, praying to formulate substantial questions of law stated therein and allow appeal and set aside 4 order passed by ITAT Bangalore in ITA No.250/BNG/2008, dated 30-09-2008 confirming order of Appellate Commissioner and confirm order passed by Deputy Commissioner of Income Tax, Circle-11(1), Bangalore in interest of justice and equity. These ITAs coming on for Hearing, this day, N. KUMAR, J. delivered following:- COMMON JUDGMENT ITA Nos. 50 and 51/2009 are preferred by assessee whereas ITA Nos. 59 and 60 are preferred by Revenue against common order passed by Tribunal where common questions which arise for consideration. 2. assessee is engaged in business of manufacture and export of natural silk blended fabrics and spun silk/blended yarn. For Assessment Year 2001-02 corresponding to financial year ended on 31st March, 2001, assessee filed return of income declaring total income of Rs.1,09,638,220/-. assessee had two units which are Sedie and Filati. assessee has exported from both units. Filati Unit was eligible for claiming exemption under Section 10B of Act, while Seide Unit is 100% EOU, 5 which has exhausted its benefits under Section 10B. In computation of income filed along with return of income, assessee claimed deduction under Section 80HHC for exports made by Seide Unit. While computing deductions under Section 80HHC, assessee did not claim depreciation in respect of assets pertaining to Seide Unit. For purpose of computation of deduction under Section 80HHC, asessee adopted total turnover pertaining to Sedie Unit alone whose income was exempt (i.e., it did not consider turnover of Filati Unit at Rs.52,88,43,929/-. assessee computed loss from Filati Unit at Rs.3,11,26,485/- amount to be deducted under Section 10B on basis of export turnover of total turnover worked out to Rs.2,88,77,640/- which is loss that is exempted under Section 10B. assessee computed balance amount of Rs.22,48,845/-, loss of Filati Unit and has set off against profits of Seide Unit. Assessing Officer restricted claim of set off under Section 80HHC by setting off entire loss from Filati Unit even 6 before arriving at quantum of deduction under Section 80HHC. Aggrieved by said order of assessing officer, appeals are preferred 3. profit to Seide Unit was arrived at after deduction of Loss of Filate Unit computed under Section 10B of Income Tax Act. assessee computed profits from Seide Unit at Rs.52,88,43,929/-. While arriving at this amount assessee did not claim depreciation for Seide Unit. assessee had filed note along with return that assessee did not claim depreciation for Seide Unit and same cannot be thrust in light of decision of Supreme Court in case of Mahindra Mills reported in 243 ITR 56. 4. assessing officer observed that assessee has given full particulars of opening of WDV so far as additions during year. assessee had not given rate of depreciation and actual amount of depreciation and deducted same from profits. Assessing Officer also observed 7 that Explanation 5 to Section 32 of Act is clarificatory in nature and also apply to current year i.e., 2001-02. 5. Aggrieved by said order, assessee has preferred appeal to Commissioner of Income Tax (Appeals). appellate authority held that Explanation 5 to Section 32 of Act was introduced w.e.f. 1.04.2002 and as such assessing officer s action in trying to apply Explanation for assessment year 2002 is not valid. reason being Explanation comes into effect from assessment year 2002-03 and it is not retrospective in nature nor clarificatory. 6. Aggrieved by said order, Revenue preferred appeal to Tribunal. Tribunal held that judgment of Apex Court in Mahindra s case has no application as it was rendered in context of Section 34 of Act which is now being deleted w.e.f. 01.04.1988. Explanation 5 was introduced which clearly shows that irrespective of assessee furnishing 8 details of depreciation claim, assessing officer is duty bound to grant depreciation and accordingly it allowed appeal of revenue and restored order of assessing authority. 7. On other question, CIT(A) held loss of Fileti Unit has to be reduced from profits of Seide Unit. asessee has challenged said finding by preferring appeal before Tribunal. Tribunal held deduction under Section 10B is available only in respect of profits and same cannot be ignored when entity incurs loss. Further Filate Unit is separate unit for limit of seeking exemption under Section 10B and therefore held that entire loss has to be reduced from profit of Seide Unit before computing deduction under Section 80HHC. Aggrieved by said finding, assessee is before this court. 8. Both appellate authorities held once assessee has determined loss in 10B Unit there was no requirement for assessee to reduce 9 turnover of 10B Unit from total turnover for purposes of computing deduction under Section 88HHC. two units claiming separate deductions and exemptions belong to same assesseee and when one unit has incurred loss in calculating total turnover, gross total income under Section 80AB has to be considered and therefore gave benefit to assessee. Challenging these two findings, these appeals are filed. 9. following substantial questions of law are framed for consideration: ITA No.50/2009: 1. Whether on facts and circumstances of case Tribunal was right in holding that entire loss of Filati unit Should be set off against profits of Seide unit before computing deduction under Section 80HHC and not only loss which does not fall within ambit of exclusion under Section 10B? 2. Whether on facts and circumstances of case Tribunal was right in not appreciating that exemption under Section 10B falls under Chapter III which specifically states that income which does not form part of total income and as 10 such entire income/(loss) of Section 10B unit should be excluded/ignored from computation of total income? ITA No.51/2009: 1. Whether on facts and circumstances of case Tribunal was right in holding that depreciation has to be allowed irrespective of fact that Assessee has not claimed depreciation in Return of Income? 2. Whether on facts and circumstances of case Tribunal was right in holding that depreciation is to be allowed in respect of ASSESSMENT YEARS 2001-02 i.e., prior to insertion of/coming into force of Explanation 5 to 32? ITA Nos.59/2009 & 60/2009: 1. Whether Appellate Authorities were correct in holding that when computing deduction under Section 80HHC of Act total turnover of entire business of assessee should not be taken into account and only confined to Seide Unit where claim had been made? 2. Whether Appellate Authorities were correct in not taking into consideration definition of total turnover prescribed under Section 80HHC of Act Explanation (ba) which clearly identifies those 11 items which should be excluded from total turnover and consequently recorded perverse finding? 10. Identical questions as contained in substantial questions of law arose for consideration before this Court in ITA No.521/2007 decided on 19th December 2013. However, Court was considering Section 80HHE which is in paramateria to Section 80HHC. After considering arguments and relevant provisions, said question was answered in favour of assessee and against revenue. Therefore, order passed by Tribunal is unsustainable and said questions are answered in favour of assessee and against revenue. 11. In so far as allowing depreciation is concerned, it was held, Explanation 5 which was inserted by Finance Act, 2001 with effect from 01.04.2001 is clarificatory in nature and therefore, order of Assessing Authority was proper. Therefore, question for consideration is even in absence of clarificatory for deduction under Section 32 of 12 Income Tax Act in order to arrive at profits and gains from business, Assessing Authority was justified in allowing deductions. In view of conflicting view by various High Courts, Supreme Court in Mahindra Mill s case referred to above had occasion to consider said question. On day, Supreme Court was considering said question, Section 34 was on statute book which provided for all particulars to be furnished in returns to be filed by assessee. In absence of particulars being furnished, it was held that Assessing authority cannot, under Section 32 of Act, allow deduction to assessee. It was contended before us that said judgment has no application as it was rendered in relation to Section 34, which was subsequently deleted. However, we do not see any substance in said contention. Though Section 34 of Income Tax Act is referred to and said Section is deleted, Supreme Court was considering not only Section 34 but also Sections 32 and 37. relevant para reads as under:- language of provisions of Sections 32 and 34 is specific and admits of no 13 ambiguity. Section 32 allows depreciation as deduction subject to provisions of section 34. Section 34 provides that deduction under Section 32 shall be allowed only if prescribed particulars have been furnished. We have seen rule 5AA of Rules which though since deleted provided for particulars required for purpose of deduction under Section 32. Even in absence of rule 5AA, return of income in form prescribed itself requires particulars to be furnished if assessee claims depreciation. These particulars are required to be furnished in great detail. There is circular of Board dated August 31, 1965, which provides that depreciation could not be allowed where required particulars have not been furnished by assessee and no claim for depreciation has been made in return. Income-tax Officer in such case is required to compute income without allowing depreciation allowance. circular of Board dated April 11, 1955, is of no help to Revenue. It imposes merely duty on officers of Department to assist tax payers in every reasonable way, particularly, in matter of claiming and securing relief. officer is required to do no more than to advise assessee. It does not 14 place any mandatory duty on officer to allow depreciation if assessee does not want to claim that. provisions for claim of depreciation is certainly for benefit of assessee. If it does not wish to avail that benefit for some reason, benefit cannot be forced upon him. It is for assessee to see if claim of depreciation is to his advantage. Rather Income-tax Officer should advise him not to claim depreciation if that course is beneficial to assessee. That would be in our view spirit of circular dated April 11, 1955. Income under head Profits and gains of business or profession is chargeable to income-tax under Section 28 and that income under Section 29 is to be computed in accordance with provisions contained in section 30 to 43A. argument that since section 32 provides for depreciation it has to be allowed in computing income of assessee cannot in all circumstances be accepted in view of bar contained in section34. if section 34 is not satisfied and particulars are not furnished by assessee, his claim for depreciation under Section 32 cannot be allowed. Section 29 is thus to be read with reference to other provisions of Act. It is not in itself complete code. 15 12. Therefore, Apex Court was not merely interpreting Section 34. It was interpreting Sections 28 to 43A and scheme of Act and has made it very clear that assessee is not bound to claim depreciation nor revenue can grant depreciation even without his asking. If claiming depreciation is not in interest of assessee, Income Tax Officer has obligation to advise him suitably. At any rate, this was law as on that date in view of judgment of Apex Court. That probably reason why it became necessary to introduce explanation 5. Explanation 5 makes it clear that for removal of doubts, it is hereby declared that provisions of this sub-section shall apply whether or not assessee has claimed deduction in respect of depreciation in computing his total income. Though words for removal of doubts has been interpreted, said provision is clarificatory in nature. In instant case, clarification becomes necessary because of law laid down by Apex Court and therefore from day explanation is introduced, area is covered by 16 legislation, Supreme Court judgment would have no application. Therefore Explanation 5 is necessarily to be read as prospective in nature. Admittedly, in instant case, explanation has no application to Assessment year 2001-02 as explanation was inserted with effect from 01.04.2002. Therefore, view taken by Tribunal is incorrect and requires to be interfered with. Therefore, said substantial questions of law are answered in favour of assessee and against revenue. 13. In view of findings recorded above, appeals filed by assessee are allowed. Appeals preferred by revenue are dismissed. Parties to bear their own costs. Sd/- JUDGE Sd/- JUDGE Bsv/Prs M/s. Himatsingka Seide Ltd. v. Deputy Commissioner of Income-tax, Circle 11(1), Bangalore
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