1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 17TH DAY OF NOVEMBER, 2015 PRESENT HON'BLE MR. JUSTICE VINEET SARAN AND HON BLE MRS. JUSTICE S.SUJATHA ITA NO.801/2009 & ITAs.840-841/2009 BETWEEN: M/S.RAJESHWARI COTTON GINNING AND PRESSING INDUSTRIES, REP. BY ITS PARTNER T.VIJAYKUMAR MATADA HATTI VILLAGE P.B.ROAD, CHITRADURGA-577 501. ...APPELLANT (BY SRI A.SHANKAR AND SRI M.LAVA, ADVs.) AND: ASST. COMMISSIONER OF INCOME-TAX CIRCLE-I, DAVANGERE. RESPONDENT (BY SRI K.V.ARAVIND, ADV.,) THESE APPEALS ARE FILED UNDER SECTION 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 31.7.2009 PASSED IN ITA NOS.880-882/BNG/2007, FOR ASSESSMENT YEARS 1987-88 & 1988-99 & 1989-90, PRAYING I) TO FORMUALTE SUBTANTIAL QUESTIONS OF LAW II) ALLOW APPEAL AND SET ASIDE ORDER PASSED BY ITAT, BANGALORE, DATED 31.7.2009. THESE APPEALS COMING ON FOR HEARING THIS DAY, S.SUJATHA J., DELIVERED FOLLOWING: 2 JUDGMENT These appeals are preferred by assessee under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act ) challenging order passed by Income Tax Appellate Tribunal (ITAT), Bengaluru Bench, in ITA Nos.880, 881 and 882 (Bang)/2007 dated 31.07.2009. 2. brief facts of case are that appellant is registered firm engaged in business of purchase and sale of Lint, Ginning of cotton and sale of cotton seeds oil and cake. It transpires that appellant filed its return of income for assessment year 1987-88 declaring total income at Rs.NIL after setting off of net profit of Rs.23,072/- towards total loss. After setting off of Rs.23,072/-, appellant carried forward losses to subsequent year. return of income filed by appellant on 16.03.1990 was selected for scrutiny and notices under Section 142(1) and 143(2) of Act were issued. In response to said notice, representative of appellant appeared 3 and furnished details called for. Assessing Officer processed return of appellant and passed order of assessment disallowing claim of carry forward of depreciation and set off of business losses vide order dated 26.03.1991. Being aggrieved by said order, appellant filed appeal before Commissioner of Income Tax (Appeals)(for short CIT(A) ), Belgaum, contending several grounds. CIT(A), Belgaum, heard appellant and passed order allowing certain issues and set aside other issues to file of Assessing Officer. However, ground of assessee regarding denial of set off of carry forward of unabsorbed depreciation and investment allowance was untouched by CIT(A), Belgaum. Pursuant to order of CIT(A), Assessing officer passed order giving effect to appellate order of CIT(A) on 24.08.1992 in respect of issues allowed by CIT(A). Assessing Officer passed order giving effect to appellate order of CIT(A) on 02.02.2005 in respect of issues set aside by CIT(A). Thus, appellate order was given effect by two separate orders. 4 order dated 02.02.2005 was passed taking into account income determined in first order dated 24.08.1992. Being aggrieved by order dated 02.02.2005, appellant filed rectification application under Section 154 of Act. After considering said application, Assessing Officer held that appellant-assessee cannot claim issue which was not in order of CIT(A), that Assessing Officer ought to have considered while giving effect to appellate order. Being aggrieved by said order, assessee had filed appeal before CIT(A), Hubli. CIT(A), Hubli, after hearing appellant on 28.03.2007, has held that appellant cannot seek for carrying forward unabsorbed depreciation upto assessment year 1986-87 to next year because it is mandatory on his part to file loss return before due date stipulated under Section 139(1) of Act and it was also held that claim of assessee was contrary to provisions of Section 139(4) of Act. 5 3. Being aggrieved by said order dated 28.03.2007, assessee filed appeals before Income Tax Appellate Tribunal (for short ITAT), Bangalore Bench for Assessment Years-1987-88, 1988-89 and 1989-90. ITAT dismissed appeals of appellant. Being aggrieved by order passed by ITAT, these appeals are filed by assessee. 4. Learned counsel appearing for appellant contended that appellant-assessee had filed return of income for assessment year 1986-87 on 25.09.1986 though he was required to file returns on or before 31.07.1986 as per provisions of Section 139(3) of Act. order being passed under Section 143(1) of Act, total loss was determined at Rs.1,43,334/- and depreciation at Rs.3,06,892.44 was carried forward to assessment year 1987-88 under Section 32(2) of Act, investment allowance reserve at Rs.3,26,730/- and 80J exemption at Rs.1,16,601.28 was also carried forward to assessment year 1987-88. authorities having rejected claim of assessee to carry forward and 6 set off of unabsorbed depreciation as claimed above, matter was adjudicated before Tribunal. Tribunal, primarily considering belated returns filed by assessee for assessment year 1986-87 and further rectification application being filed by assessee against order of CIT(A) before Assessing Officer, held that assessee is not entitled to carry forward unabsorbed depreciation, investment allowance and 80J exemption as claimed by assessee. Tribunal has proceeded with hypertechnicalities without looking into merits of case. Filing of returns belatedly would not disqualify assessee to claim benefit of unabsorbed depreciation, investment allowance and 80J exemption. 5. Learned counsel placed reliance on judgment of this Court in case of Brahmavar Chemicals Pvt. Ltd. vs- Commissioner of Income Tax and another reported in (1999) 239 ITR 867 to contend that no time limit is provided for carry forward of depreciation of earlier years which has now been 7 restricted to eight years as that of loss, but Legislature has considered unabsorbed depreciation and investment allowances differently than that of business loss. In circumstances, period of limitation prescribed under Section 139(1) of Act is not applicable to carry forward of unabsorbed depreciation and investment allowance. Learned counsel further placed reliance on Division Bench judgment of Delhi High Court in case Commissioner of Income-Tax vs- Govind Nagar Sugar Ltd. reported in (2011) 334 ITR 13 (Delhi) to contend that effect of Section 32(2) of Act is that unabsorbed depreciation of year becomes part of depreciation of subsequent year and in case of unabsorbed depreciation there is no time limit for filing of returns and further that under statute there is separate identity with respect to unabsorbed depreciation though at time of computation, it becomes part of loss. 6. Learned counsel also relied on judgment of Punjab and Haryana High Court in case of 8 Commissioner of Income-Tax vs- Haryana Hotels Ltd., reported in (2005) 276 ITR 521 wherein it has held thus: Similarly, there is no provision under Act which makes it mandatory for assessee to file return for carry forward and set off of unabsorbed depreciation which is to be notified by Assessing Officer as in case of unabsorbed business loss. Thus, from reading of provisions of Act, distinction between unabsorbed deprecition and unabsorbed business loss for purposes of set off and carry forward is clear. 7. Further, learned counsel placed reliance on judgment of Kerala High Court in case of Parekh Brothers vs-Commissioner of Income-Tax, Kerala-II, Ernakulam and others reported in (1984) 150 ITR 105, wherein it has held thus: It may not be out of place to refer to Circular issued by Central Board of Direct Taxes No. 14 (XL-35) of 1955, dated April 11, 1955 (referred to as item 491 in Taxman's Direct Taxes Circulars, Volume I, 1977, 4th Edition). title is " Administrative instructions". In regard to attitude of Department in matters affecting assessee's interest. Para. 3 of the. said circular is as follows; " Officers of Department must not take advantage of ignorance of assessee as to his rights. It is one of their duties to assist taxpayer in every reasonable way, particularly in matter of claiming and securing reliefs and in 9 this regard officers should take initiative in guiding taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in long run, benefit Department for it would inspire confidence in him that he may be sure of getting square deal from Department. Although, therefore, responsibility for claiming refunds and reliefs rests with assessees on whom it is imposed by law, officers should : (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other ; (b) freely advise them when approached by them as to their rights and liabilities and as to procedure to be adopted for claiming refunds and reliefs. " 8. Per contra, Sri K.V.Aravind, learned counsel appearing for respondent-Revenue contended that at first instance assessee having filed return belatedly for assessment year 1986-87 is not entitled to carry forward unabsorbed depreciation, investment allowance and 80J exemption for assessment year 1987-88. In appeal preferred by assessee before CIT(A), Appellate Authority having considered grounds urged by appellant on certain issues remanded matter back to Assessing Authority. After order passed by 10 Assessing Authority, assessee filed application under Section 154 of Act for rectification of order of CIT(A). Tribunal has observed same that no rectification application can be entertainable before Assessing Officer to rectify order of CIT(A). If assessee was aggrieved by any order passed by CIT in appeal, it was appropriate for assessee to file rectification application before CIT(A) or otherwise to carry matter in appeal, without having done so filing application before Assessing Officer to rectify orders passed by ITAT is unknown to law and such action of assessee in claiming unabsorbed depreciation would not be entertained at belated stage more particularly, when returns are filed for assessment year 1986-87 belatedly. It is also contended that unless unabsorbed depreciation, investment allowance and 80J exemption claimed by assessee is not carried forward in subsequent years and more particularly, when provision only provides to carry forward of unabsorbed 11 depreciation from previous year. If no such depreciation is carried forward from previous year and if there is any break in carry forward of depreciation, assessee is not entitled to carry forward depreciation for subsequent years. Accordingly, learned counsel justifies order passed by Tribunal and seeks for dismissal of appeal. 9. Having heard rival submissions of parties and perusing records, substantial questions of law which are required to be answered by this Court are as follows: (i) Whether Tribunal was justified in law in holding that Appellant is not entitled to claim set off of unabsorbed depreciation and investment allowance of A.Y. 1986-87 in subsequent years of 1987-88, 1988-89 & 1989- 90 when set off of unabsorbed depreciation and investment allowance is as per scheme of Act? (ii) Whether Tribunal was justified in law in not appreciating difference between business loss and unabsorbed depreciation and investment allowance on facts and circumstances of case? (iii) Whether Tribunal ought to have granted relief of carry forward of depreciation, investment allowance and 80J exemption on facts and circumstances of case? 12 10. It is undisputed fact that return of income for assessment year 1986-87 was filed by assessee on 25.09.1986 belatedly. However, filing of belated returns itself would not restrain assessee from claiming set off of unabsorbed depreciation, investment allowance and 80J exemption. This aspect of matter is extensively considered by learned Single Judge of this Court in case of Brahmavar (supra) and has held that there is no time limit provided for carry forward of depreciation of earlier years and unabsorbed depreciation and investment allowance, stands differently than that of business loss. In respect of other assesses other than in case of amalgamation unabsorbed depreciation or investment allowance, if claimed in return filed after time prescribed under Section 139(1) is not restricted. Division Bench of Delhi High Court, Punjab and Haryana High Court in Judgments cited supra have held that assessee is entitled to get unabsorbed depreciation and set off in 13 subsequent years even if no valid return for assessment year relating to which depreciation and set off arises, had been filed by assessee or if it is even belatedly filed, assessee is entitled to benefits of unabsorbed depreciation and investment allowance. We have no reasons to deviate from these Judgments. Thus, belated filing of returns would not curtail right of assessee to claim unabsorbed depreciation, investment allowance and 80J exemption under Act. We are of considered opinion that Tribunal has proceeded hypertechnially in rejecting claim of assessee on ground that rectification application was filed by assessee before Assessing Officer after giving effect to order of CIT(A). It is significant to note that in Circular issued by Central Board of Direct Taxes No. 14 (XL- 35) of 1955, dated April 11, 1955 (referred to as item 491 in Taxman's Direct Taxes Circulars, Volume I, 1977, 4th Edition), it has dealt with Administrative instructions" in regard to attitude of Department in matters affecting assessee's interest. It has 14 categorically held that Officers of Department must not take advantage of ignorance of assessee as to his rights. It is one of their duties to assist taxpayer (assessee) in every reasonable way, particularly in matter of claiming and securing reliefs and in this regard officers should take initiative in guiding taxpayer where proceedings or other particulars before them indicate whether some refund or relief is due to assessee, which would benefit Department and it would inspire confidence in assessee. In such view of mater Tribunal ought to have taken wider look in allowing claim of assessee even if return for assessment year 1986-87 is belatedly filed, which would not restrict rights of assessee to claim benefit of unabsorbed depreciation, investment allowance and 80J exemption. 11. It is also pertinent to note that learned counsel appearing for assessee has submitted that he is not disputing carry forward of business loss and has restricted his claim only to issue of carry forward of unabsorbed depreciation, investment 15 allowance and 80J exemption. In wake of judgments referred to above and for reasons aforesaid, we are of view that appeals require to be allowed. substantial question of law Nos.(i) and (iii) are answered in favour of assesee and against Revenue. Having answered these questions, we need not answer question No.2. Accordingly, appeals filed by assessee are allowed and remanded back to Assessing Officer to give effect to observations made in order and to pass appropriate orders accordingly. Sd/- JUDGE Sd/- JUDGE TL M/s. Rajeshwari Cotton Ginning and Pressing Industries v. Asst. Commissioner of Income-tax, Circle-I, Davangere