ITXA1029_17.doc IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL (IT) NO.1029 OF 2017 Principal Commissioner of Income Tax-9 Appellant Vs. Destimoney India Services Pvt. Ltd. Respondent Mr. Arvind Pinto for Appellant. Mr. R. Murlidhar a/w. Mr. Upendra Lokegaonkar i/b. Mint and Confreres for Respondent. CORAM : UJJAL BHUYAN, MILIND N. JADHAV, JJ. DATE : FEBRUARY 03, 2020 P.C. : Heard Mr. Pinto, learned standing counsel Revenue for appellant and Mr. Murlidhar, learned counsel for respondent - assessee. 2. This appeal under Section 260-A of Income Tax Act, 1961 (briefly 'the Act' hereinafter) has been preferred by Revenue assailing order dated 28.10.2015 passed by Income Tax Appellate Tribunal, 'I' Bench, Mumbai ('Tribunal' for short) in I.T.A. No.3055/ Mumbai/2015 for assessment year 2011-12. 3. Following order of this Court dated 04.11.2019, appellant has projected following revised question as substantial question of law: 'Whether on facts and in circumstances of case was Tribunal right in law in setting aside order of CIT passed under Section 263 of Act holding that when claim of assessee made for rectification has been justifiably allowed by assessing officer then same cannot be treated as ground to invoke provisions of Section 263 of Act; overlooking fact that mistake rectified by assessing officer was not apparent from record but was that of debatable issue?" 4. Assessment proceeding for assessment year 2011-12 was 1/8 Uploaded on - 13/02/2020 Downloaded on - 14/02/2020 09:16:22 ITXA1029_17.doc concluded by assessing officer under Section 143(3) of Act on 29.03.2014 determining total taxable income of respondent at Rs.18,16,28,888.00. 5. Respondent thereafter filed application on 28.04.2014 for rectification of assessment order under Section 154 of Act. It was mentioned that respondent had carried forward business loss as well as unabsorbed depreciation to be set-off against income for assessment year 2011-12 as well as for future years. While computing total taxable income during assessment proceedings, set-off of said brought forward business loss and unabsorbed depreciation aggregating to Rs.34,25,68,953.00 was not granted. In such circumstances, respondent sought for rectification of assessment order by setting-off brought forward business loss and unabsorbed depreciation against assessed income. Assessing officer in his order dated 06.06.2014 accepted above contention of respondent by taking view that it was mistake apparent from record. Accordingly, assessment order was rectified by setting-off unabsorbed depreciation of earlier years aggregating to Rs.18,16,28,888.00 to extent of assessed income and thereafter remaining unabsorbed amount to be carried forward to next year for set-off. 6. jurisdictional commissioner i.e., Commissioner of Income Tax-6, Mumbai took view that subsequent claim made by respondent was debatable issue which required hearing. It was not mistake which could be construed to be apparent from record. In such circumstances, Commissioner invoked jurisdiction under Section 263 of Act by taking view that rectification order was erroneous in as much as it was prejudicial to interest of Revenue and by order dated 26.08.2014, set aside rectification order passed by assessing officer with direction that rectification application of respondent be disposed of by passing fresh order in accordance with law after giving reasonable opportunity to 2/8 Uploaded on - 13/02/2020 Downloaded on - 14/02/2020 09:16:22 ITXA1029_17.doc respondent. 7. This order was assailed by respondent by filing appeal before Tribunal. In appellate proceedings, Tribunal noted that issue regarding set-off of unabsorbed depreciation against income of respondent for assessment year under consideration was covered by decision of Supreme Court in CIT Vs. Virmani Industries Pvt. Ltd., (1995) 216 ITR 607 which view has been followed by several High Courts as well as by Tribunal. Therefore, by appellate order dated 28.10.2015, Tribunal held that when claim of respondent was justifiably allowed by assessing officer then same could not have been interfered with by Commissioner by invoking provisions of Section 263 of Act because rectification order could not be construed to be erroneous and prejudicial to interest of Revenue. Accordingly, Tribunal set aside order passed by Commissioner. 8. Hence, Revenue is in appeal before us. 9. Mr. Pinto has exclusively referred to orders passed by lower authorities particularly to order passed by Commissioner. He submits that Commissioner had rightly held issue to be debatable. His further contention is that Commissioner had done right thing to remand matter back to assessing officer to re-hear rectification application after giving reasonable opportunity to respondent. Therefore, no prejudice was caused to respondent by order passed by Commissioner. He also submits that carried forward depreciation cannot be set-off against deemed income. 10. On other hand, learned counsel for respondent refers to order passed by Supreme Court in Virmani Industries Pvt. Ltd. (supra) and submits that issue in rectification application is squarely covered by aforesaid decision. Therefore, when assessing officer had followed decision of Supreme Court and 3/8 Uploaded on - 13/02/2020 Downloaded on - 14/02/2020 09:16:22 ITXA1029_17.doc allowed prayer for rectification by setting-off carried forward unabsorbed depreciation with income of respondent, same could not have been construed by Commissioner to be order which is erroneous and prejudicial to interest of Revenue. In such circumstances, question of remanding matter back to assessing officer for re-hearing of matter does not arise. 11. Submissions made by learned counsel for parties have been considered. Also perused materials on record. 12. After hearing learned counsel for parties and on going through materials on record, issue involved in rectification proceedings is quite evident. By order passed by assessing officer under Section 154 of Act, he had allowed unabsorbed depreciation of earlier years to be set-off against income of respondent for assessment year under consideration, further allowing unabsorbed depreciation and unabsorbed business loss to be carried forward to next year for set- off. 13. In Virmani Industries Pvt. Ltd. (supra), Supreme Court was considering meaning and interpretation of sub-section (2) of Section 32 of Act which deals with carry forward of depreciation of following previous year and deemed to be part of that allowance and so on for succeeding previous years. In said case it was found that for relevant assessment year, depreciation under Section 32(1)(ii) was more than profits or gains of assessee. Assessee claimed that unabsorbed depreciation should be brought forward and set-off against profits of new business. This claim of assessee was rejected by income tax officer as well as by commissioner on ground that such set-off was permissible only where business carried on in subsequent assessment year was same business which was carried on in earlier assessment year. However, Tribunal disagreed with said view and upheld claim of assessee. 4/8 Uploaded on - 13/02/2020 Downloaded on - 14/02/2020 09:16:22 ITXA1029_17.doc Thereafter, at request of revenue, Tribunal made reference to High Court on question as to whether unabsorbed depreciation should be allowed to be set-off against profits of new business by assessee in succeeding assessment year. In reference, High Court answered question in affirmative i.e., in favour of assessee and against revenue; whereafter matter came up before Supreme Court. 14. Supreme Court considered meaning of expression profits or gains chargeable and held as under: We may first consider meaning of expression "profits or gains chargeable". On first impression, said expression appears to refer only to profits or gains of business or profession chargeable under Section 28. But this court has repeatedly held that said expression is not so confined and that it refers to income under all heads of income specified in Section 14. In Jaipuria China Clay Mines (P) Limited, facts were these: total income of respondent - assessee for Assessment Year 1952-53 before charging depreciation was Rs.14,041/-. After deducting depreciation of Rs.5,360/-, Income Tax Officer computed profit at Rs.8,681/-. Against this profit, he set off losses of earlier year. Having done this, Income Tax Officer computed income of assessee from dividends at Rs.2,01,130/- and levied tax on it. assessee claimed that unabsorbed depreciation aggregating to Rs.76,857/- should be deducted from dividend and if it is so done, total income would get reduced to Rs.1,32,955/-. Income Tax Officer rejected claim. When matter was ultimately carried to this Court, it took note of opening words of sub-section, viz., "where, in assessment of assessee or if assessee is registered firm, in assessment of its partners, full effect cannot be given to any such allowance" and held on that basis that expression "profits or gains chargeable" in said sub-section is not confined to profits and gains from business or profession but takes within its ambit all heads of income. This Court was of opinion that while amending Section 10(2) (vi) of Indian Income Tax Act, 1922 by Amendment Act 25 of 1953, Parliament has accepted interpretation placed upon said expression by several High Courts to above effect. It referred to decisions of Lahore High Court in Karam Ilahi Mohammad Shafi v. CIT, (1929) 3 ITC 456, Madras High Court in A. Suppan Chettiar & Co. v. CIT, (1929) 4 ITC 211, East Punjab High Court in Laxmichand Jaipuria Spg. & Wvg. Mills, In re, (1950) 18 ITR 919 and Bombay High Court in Ambika Silk Mills Co. Ltd. v. CIT, (1952) 22 5/8 Uploaded on - 13/02/2020 Downloaded on - 14/02/2020 09:16:22 ITXA1029_17.doc ITR 58 besides judgment of Judicial Commissioner, Nagpur in Ballarpur Collieries v. CIT, (1929) 4 ITC 255 interpreting said expression as covering all heads of income. Court further pointed out that even after said amendment, Bombay and Gujarat High Courts have taken same view in CIT v. Ravi Industries Ltd., (1963) 49 ITR 145 and CIT v. Girdharlal Harivallabhadas Mills Company Limited, (1064) 51 ITR 693 respectively. contrary view taken by Madras High Court in CIT v. B. Nagi Reddy, (1964) 51 ITR 178 was disapproved. court then observed (at page 559 of 59 ITR): "Bearing these two considerations in mind, if one looks at language of proviso (b) to section 10(2)(vi), first question that arises is: What is meaning of expression "in assessment of assessee or if assessee is registered firm, in assessment of partners, full effect cannot be given to any such allowance in any year? Taking case of partners of registered firm, assessment must be their individual assessment, i.e, assessments in which profits from firm and other sources are pooled together. legislature is clearly assuming that effect can be given to depreciation allowance in assessment of partner; only way effect can be given in assessment of partner is by setting it of against income, profits and gains under other heads. learned counsel for revenue tried to meet this inference by suggesting that what legislature contemplated was assessment of those partners who were carrying on other business. But in our opinion this suggestion is unsound. What would happen if partnership consists of four partners, two carrying on other business, Mr. Sastri was unable to explain. Now, if this is inference to be drawn from these words, it is quite clear that words "no profits or gains chargeable for that year" are not confined to profits and gains derived from business whose income is being computed under section 10." To same effect is decision in Rajapalayam Mills Ltd. v. CIT, (1978) 115 I.T.R. 777. court observed that when profits or gains of business for particular assessment year are to be computed under Section 10 (of 1922 Act), current depreciation allowance for assessment year in question is deductible under clause (vi) of Section 10(2), but depreciation allowance of preceding years would be liable to be taken into account only if, and to extent to which, it is not absorbed by total income of assessee computed under different heads and chargeable to tax for those assessment years. Court observed (at page 785): 6/8 Uploaded on - 13/02/2020 Downloaded on - 14/02/2020 09:16:22 ITXA1029_17.doc "Now, it is well settled, as result of decision of this court in CIT v. Jaipuria China Clay Mines (P) Ltd., [1966] 59 ITR 555 (SC), that words no profits or gains chargeable for that year are not confined to profits and gains derived from business whose income is being computed under section 10, but they refer to totality of profits or gains computed under various heads and chargeable to tax." and added (at page 785): "It is, therefore, clear that effect must be given to depreciation allowance first against profits or gains of particular business whose income is being computed under section 10 and if profits of that business are not sufficient to absorb depreciation allowance, allowance to extent to which it is not absorbed would be set off against profits of any other business and if part of depreciation allowance still remains unabsorbed, it would be liable to be set off against profits or gains chargeable under any other head and it is only if some part of depreciation allowance still remains unabsorbed that it can be carried forward to next assessment year. But where any part of depreciation allowance remains unabsorbed after being set off against total income chargeable to tax, it can be carried forward under proviso (b) to clause (vi) to following year and set off against year's income and so on for succeeding years. method adopted by statute for achieving this result is that carried forward depreciation allowance is deemed to be part of and stands on exactly same footing as current depreciation for assessment year and is thus allowable as deduction under clause (vi)." Both these decisions are rendered by Bench of three learned Judges and are binding upon us. 15. From above, it is evident that Supreme Court held that expression profits or gains chargeable could not be confined to profits and gains from business whose income was being computed under Section 10 of Act. Proceeding further, Supreme Court held that effect must be given to depreciation allowance first against profits or gains of particular business whose income was being computed under Section 10 and if profits of that business are not sufficient to absorb 7/8 Uploaded on - 13/02/2020 Downloaded on - 14/02/2020 09:16:22 ITXA1029_17.doc depreciation allowance, allowance to extent to which it was not absorbed would be set-off against profits of any other business and if part of depreciation allowance still remained unabsorbed, it would be liable to be set-off against profits or gains chargeable under any other head and it is only if some part of depreciation allowance still remained unabsorbed then only it can be carried forward to next assessment year. Supreme Court explained that carried forward depreciation allowance is deemed to be part of and stands on exactly same footing as current depreciation for assessment year under consideration and thus allowable as deduction. 16. Following decision of Supreme Court in Virmani Industries Pvt. Ltd. (supra), Tribunal took view that this issue was conclusively decided and therefore, not allowing setting off carried forward depreciation with income of assessment year under consideration was mistake made by assessing officer which was apparent from record. When this mistake was pointed out to assessing officer, he had rightly rectified same under Section 154. 17. In so far contention of Mr. Pinto that carried forward depreciation cannot be set-off against deemed income is concerned, we are of view that such situation does not arise in present case. 18. On thorough consideration of matter, we are in agreement with view expressed by Tribunal and find no error or infirmity therein. Therefore, proposed question of law does not arise out of said order of Tribunal. 19. Consequently, appeal is dismissed. However, there shall be no order as to costs. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.) Minal Parab 8/8 Uploaded on - 13/02/2020 Downloaded on - 14/02/2020 09:16:22 Principal Commissioner of Income-tax-9 v. Destimoney India Services Pvt. Ltd