Gujarat Narmada Vally Fertilisers Ltd. v. Deputy Commissioner of Income-tax
[Citation -2014-LL-1223-49]

Citation 2014-LL-1223-49
Appellant Name Gujarat Narmada Vally Fertilisers Ltd.
Respondent Name Deputy Commissioner of Income-tax
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 23/12/2014
Assessment Year 1993-94
Judgment View Judgment
Keyword Tags investment allowance • question of law • cessation of liability • depreciation claim
Bot Summary: Against the order of the Assessing Officer, the assessee had filed an appeal before the Commissioner of Income Tax. The question to be asked is whether the assessee has proved the transaction dated 15.3.1991. As rightly questioned by the AO as to how M/s Aravali Leasing could have entered into a sub- lease in favour of M/s Unikol bottlers on 8.3.1991 when it had not acquired leasehold rights till 15.3.1991 from the assessee as the lessor. There is nothing in the so- called lease dated 15.3.1991 indicating Page 11 of 13 O/TAXAP/1113/2006 JUDGMENT any prior practice as submitted on behalf of assessee. We may mention that an alternative submission was advanced on behalf of the assessee in the context of the second transaction that, if the said transaction was a financial arrangement, as held by the Department, even then the assessee could be taxed only on Interest embedded in the amount of lease rentals received from the lessee, M/s Aravali Leasing. The finding shows that the transaction had not been proved Page 12 of 13 O/TAXAP/1113/2006 JUDGMENT by the assessee. Accordingly, the questions of law raised in this appeal are answered in favour of the assessee and against the revenue.


O/TAXAP/1113/2006 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1113 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to civil judge? GUJARAT NARMADA VALLY FERTILISERS LTD. Appellant(s) Versus DEPUTY COMMISSIONER OF INCOME TAX Opponent(s) Appearance: MRS SWATI SOPARKAR, ADVOCATE for Appellant(s) No. 1 MR KM PARIKH, ADVOCATE for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 23/12/2014 Page 1 of 13 O/TAXAP/1113/2006 JUDGMENT ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of this appeal, appellant- assessee has challenged judgment and order passed by Income Tax Appellate Tribunal, Ahmadabad [ for short Tribunal ] in ITA No. 1130/Ahd/1998, whereby appeal preferred by revenue was partly allowed for statistical purposes. 2. facts of this case are that assessee had filed its return of income on 31.12.1993 for Assessment Year 1993-94, declared total loss of Rs.5,09,96,806/-. return was processed and thereafter Assessing Officer passed order under Section 143(3) of Income Tax Act. Against order of Assessing Officer, assessee had filed appeal before Commissioner of Income Tax (Appeals). CIT(A) partly allowed said appeal for statistical purposes. 2.1. Being Aggrieved and dissatisfied with order of CIT(A), revenue has filed appeal before Income Tax Appellate Tribunal, Ahmedabad. Tribunal vide impugned order partly allowed said appeal for statistical purposes. Hence, this appeal is filed at Page 2 of 13 O/TAXAP/1113/2006 JUDGMENT instance of assessee. 3. While admitting this appeal on 27.02.2007, Court had formulated following substantial questions of law:- (1) Whether in facts and circumstances of case Income Tax Appellant Tribunal was right in law in holding that investment allowance granted in A.Y. 1983-84 and adjusted in A.Y. 1990-91 can be withdrawn in year under consideration merely on cessation of some liabilities which is said to be taxable u/S 41(1) of Act ? (2) Whether, in facts and circumstances of case Income Tax Appellant Tribunal was right in law in holding that depreciation granted earlier can be withdrawn and taxed as income u/s 41(1) of Act ? (3) Whether, in facts and circumstances of case Income Tax Appellant Tribunal was right in law in enhancing income of appellant ? Page 3 of 13 O/TAXAP/1113/2006 JUDGMENT 4. Learned senior advocate Mr. Soparkar appearing for appellant-assessee has drawn our attention to Section 155(4A) of Income Tax Act and contended that none of conditions as enumerated in aforesaid section have been fulfilled by revenue. Therefore, he urged that withdrawal of benefits under Section 41(A) of Act is required to be reversed. 4.1. Insofar as question No.2 is concerned, he submitted that same is concluded by Apex Court in case of Nectar Beverages P. Ltd. v. Deputy Commissioner of Income Tax (Assessment), reported in [2009] 314 ITR 314 in favour of assessee and against revenue. 4.2. Insofar as third and last question is concerned, he submitted that if question Nos. 1 and 2 are concluded in favour of assessee, third question of law will become academic. However, for question No.3 he has relied on decision of Apex Court in case of Micorp Global P. Ltd. v. Commissioner of Income Tax reported in [2009] 309 ITR 434. 5. On other hand, learned advocate for respondent-revenue has supported impugned order of Tribunal and submitted that Page 4 of 13 O/TAXAP/1113/2006 JUDGMENT Tribunal after appreciating material on record has passed impugned order, therefore, there is no germane reason to interfere with impugned order of Tribunal. He, therefore, urged to dismiss this appeal. 6. We have heard learned advocates appearing for parties and perused material on record. Before dealing with contentions, it would be relevant to reproduce Section 155(4A) of Income Tax Act, which reads as under:- 155(4A) Where allowance by way of investment allowance has been made wholly or partly to assessee in respect of ship or aircraft or any machinery or plant in any assessment year under section 32A and subsequently - (a) at any time before expiry of eight years from ends of previous year in which ship or aircraft was acquired or machinery or plant was installed, ship, aircraft, machinery or plant is sold or otherwise transferred by assessee to any person other than Government, local authority, corporation established by Central, State or Provincial Act or Government company as defined in section 617 of Companies Act, 1956 (1 of 1956), or in connection with any amalgamation or succession referred to in sub-section (6) or sub-section (7) of section 32A ; or Page 5 of 13 O/TAXAP/1113/2006 JUDGMENT (b) at any time before expiry of ten years from end of previous year in which ship or aircraft was acquired or machinery or plant was installed, assessee does not utilize amount credited to reserve account under sub-Section (4) of section 32A for purpose of acquiring new ship or new aircraft or new machinery or plant (othter than machinery or plant of nature referred to in clauses (a), (b) and (d) of provision to sub-section (1) of section 32A for purpose of business of undertaking; or (c) at any time before expiry of ten years referred to in clause (b) assessee utilises amount credited to reserve account under sub-section (4) of section 32A (I) for distribution by way of dividends or profits; or for remittance outside India as profits or for creation of any asset outside India; or (iii)for any other purpose which is not purpose of business of undertaking investment allowance originally allowed shall be deemed to have been wrongly allowed, and Assessing Officer may notwithstanding any contained in this Act, recompute total income of assessee for relevant previous year and make necessary amendment,; and provisions of section 154 shall, so far as may be apply thereto, period of four years specified in sub-section (7) of that section being Page 6 of 13 O/TAXAP/1113/2006 JUDGMENT reckoned;- (i) in case referred to in caluse (a), from end of previous year in which sale or other transfer took place (ii) in case referred to in clause (b), from ends of ten years referred to in that clause; (iii) in case referred to in clause (c ), from ends of previous year in which amount was utilised. Explanation:- For purposes of clause (b), new ship or new aircraft or new machinery or plant shall have same meaning as in (explanation below sub section (2) of section 32A. 7. On plain reading of section 155(4A) of Income Tax Act, we find substance in contention of learned senior advocate for appellant-assessee that conditions which have been enumerated in clause 4A of Section 155 of Income Tax Act are not fulfilled by revenue. Therefore, in our considered opinion question No.1 raised in this appeal is required to be answered in favour of assessee and against revenue. Accordingly, we hold that tribunal was not right in law in holding that investment allowance granted in A.Y. 1983-84 and adjusted in A.Y. 1990-91 can be withdrawn in year under consideration. Page 7 of 13 O/TAXAP/1113/2006 JUDGMENT 8. Insofar as question No.2 is concerned, it appears from record that Tribunal has decided appeal solely on basis of decision of Bombay High Court in case of Nectar Beverages (P) Ltd. v. Deputy Commissioner of Income Tax, 267 ITR 385. However, said decision of Bombay High Court has been reversed by Apex Court in case of Nectar Beverages (P) Ltd. v. Deputy Commissioner of Income Tax, reported in [2009] 314 ITR 314. In Paragraph Nos. 10 to 14 of said decision, Apex Court has held as under:- 10. At outset, it may be noted that, by above Finance Act, first proviso to Section 32(1)(ii) stood deleted w.e.f. 1.4.1996. Consequently, bottles, crates and cylinders whose individual cost did not exceed Rs. 5,000/-also came to be included in block of assets. 11. Before us, in this batch of civil appeals, we have four Civil Appeals (Civil Appeals arising out of S.L.P. (C) Nos. 8002/09 and 3064/09, Civil Appeal Nos. 356-357/06 and 5858/06) which fall in period after 1.4.1996. Lead Matter in this category is M/s Goa Bottling Company Pvt. Ltd. v. Asstt. Commissioner of Income Tax (Civil Appeal Nos. 356-357/06 ). That lead matter is for assessment year 1998-99. M/s Goa Bottling Company Pvt. Ltd. is company registered under Companies Act, 1956 and is in business of manufacture and sale of soft drinks. For Page 8 of 13 O/TAXAP/1113/2006 JUDGMENT purposes of its business, it bought bottles and crates whose cost per unit did not exceed Rs. 5,000/-. During year ending 31.3.1998, company received sum of Rs. 6,89,91,901 on sale of scrap bottles and crates. sale proceeds were segregated in two parts: (a) in respect of bottles and crates purchased prior to 31.03.1995; and (b) those purchased after 1.4.1995. 12. In Return of income filed, sale proceeds relating to bottles and crates purchased after 1.4.1995 were taken into consideration for purpose of computation of short term capital gains under Section 50 whereas sale proceeds relating to bottles and crates purchased prior to 31.3.1995 was not offered for short term capital gains on ground that assets stood depreciated at 100% under proviso to Section 32(1)(ii) and hence did not form part of block of assets. 13. For reasons given hereinabove, we are of view that bottles and crates purchased prior to 31.3.1995 did not form part of block of assets, hence, profits on sale of such assets were not taxable as balancing charge, neither under Section 41(1) nor under Section 50. In respect of bottles and crates purchased after 1.4.1995, on account of deletion of proviso to Section 31(1)(ii) (vide Finance Act, 1995) such bottles and crates formed part of block of assets and consequently such assets purchased after 1.4.1995, in this case, became exigible to capital gains tax under Section 50. Page 9 of 13 O/TAXAP/1113/2006 JUDGMENT 14. Before concluding, it may be pointed out that, in case of Nector Beverages Pvt. Ltd., assessee has earmarked sale proceeds from bottles and crates as "miscellaneous income" and not as "profit on sale of assets" whereas, in case of other assessees, including Industrial Oxygen Co. Ltd. (now known as Inox Air Products Ltd.), said sale proceeds have been earmarked specifically under Heading "Profits from sale of assets". To this limited extent only, we remit case(s) of Nectar Beverages Pvt. Ltd. [Civil Appeal Nos. 5291/04, 5293/04 and 359-360/06] to A.O. to go through computation submitted by Nectar Beverages Pvt. Ltd. and find out whether earmarking "profits from sale of assets" as "miscellaneous income" has resulted in understatement of net profits at pre-Section 28 stage and taxable profits at post-Section 28 stage. In all other cases, sale proceeds have been earmarked as "profits on sale of assets" and in those cases, therefore, there is no question of verification by Assessing Officer. 9. In view of above, we are of considered opinion that question No.2 raised in this appeal is required to be answered in favour of assessee and against revenue. Accordingly, we hold that Tribunal was not right in law in holding that depreciation granted earlier can be withdrawn and taxed as income u/s 41(1) of Act. Page 10 of 13 O/TAXAP/1113/2006 JUDGMENT 10. Insofar as question No.3 is concerned, in view of decision of Apex Court in case of Micorp Global P. Ltd. v. Commissioner of Income Tax (supra), same is also required to be answered in favour of assessee. Apex Court in paragraph Nos. 11 and 12 of said decision has held as under:- 11. We do not find any merit in above arguments. In this case, we are concerned with nature of transaction dated 15.3.1991. question to be asked is whether assessee has proved transaction dated 15.3.1991. question of "appropriation" of bottles to particular contract is different from concept relating to nature of transaction. In this case, tell-tale circumstance against assessee was that sub-lease is dated 8.3.1991. It is between M/s Aravali Leasing (lessee) and M/s Unikol Bottlers (sub-lessee). This sub-lease precedes lease dated 15.3.1991 between assessee (lessor) and M/s Aravali Leasing (lessee). As rightly questioned by AO as to how M/s Aravali Leasing (lessee) could have entered into sub- lease in favour of M/s Unikol bottlers on 8.3.1991 when it had not acquired leasehold rights till 15.3.1991 from assessee as lessor. Moreover, there is nothing in alleged lease deed dated 15.3.1991 indicating commencement of lease from prior date. There is nothing in so-called lease dated 15.3.1991 as to arrangement between parties prior to 15.3.1991. There is nothing in so- called lease dated 15.3.1991 indicating Page 11 of 13 O/TAXAP/1113/2006 JUDGMENT any prior practice as submitted on behalf of assessee. On contrary, so-called lease dated 15.3.1991 recites that it shall commence only from 15.3.1991. Moreover, under sub-lease between M/s Aravali Leasing and M/s Unikol Bottlers it is stated that M/s Aravali Leasing is absolute owner of bottles. Lastly, so-called lease dated 15.3.1991 stipulated that lessee, M/s Aravali Leasing, shall have no right, title or interest to create sub-lease without permission of lessor. No such permission has been produced. For aforestated reasons, we find no infirmity in concurrent findings of fact recorded by authorities below. We accordingly hold that transaction dated 15.3.1991 is not proved. Therefore, AO was right in disallowing depreciation amounting to Rs. 30,17,122/-. 12. Before concluding, we may mention that alternative submission was advanced on behalf of assessee in context of second transaction that, if said transaction was financial arrangement, as held by Department, even then assessee could be taxed only on Interest embedded in amount of lease rentals received from lessee, M/s Aravali Leasing. In this connection, it was submitted that assessee had earned total income of Rs. 6,33,596/- over period of 36 months commencing from 15.3.1991 to 14.3.1994. Therefore, matter should be remitted for recalculation. We do not find any merit in this argument for simple reason that concurrent finding shows that transaction dated 15.3.1991 is sham. finding shows that transaction had not been proved Page 12 of 13 O/TAXAP/1113/2006 JUDGMENT by assessee. In circumstances, there is no question of matter being remitted, as prayed for. Consequently, AO was right in coming to conclusion that transaction dated 15.3.1991 was not proved and that assessee was not entitled to claim depreciation of Rs. 30,17,122/- in respect of second transaction. 11. In view of above, we are of considered opinion that question No.3 raised in this appeal is also required to be answered in favour of assessee and against revenue. Therefore, we hold that Tribunal was not right in law in enhancing income of appellant. 12. For foregoing reasons, present appeal is allowed. order of Tribunal is quashed and set aside. Accordingly, questions of law raised in this appeal are answered in favour of assessee and against revenue. (K.S.JHAVERI, J.) (K.J.THAKER, J) pawan Page 13 of 13 Gujarat Narmada Vally Fertilisers Ltd. v. Deputy Commissioner of Income-tax
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