Case Law Details

Case Name : Phoenix Lamps Ltd. Vs Addl. CIT (ITAT Delhi)
Appeal Number : ITA No. 2845/Del/2007
Date of Judgement/Order : 30/01/2009
Related Assessment Year : 2003- 2004
Courts : All ITAT (4412) ITAT Delhi (978)

RELEVANT PARAGRAPHS:

14. It is relevant to state the provision of section 10A(4) as applicable to the assessment year, in which the assessee began production with effect from 01.02.1993 and became entitled to get deduction. The relevant section 10A(4) reads as under :-

“Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year, –

(i) section 32, section 32A, section 33, section 35 and clause (ix) of sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years, in relation to any building, machinery, plant or furniture used for the purposes of the business of the industrial undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of subsection (3) of section 32A, clause (ii) of sub-section &of section 33, sub-section 4) of section 35 or the second, proviso 10 clause (ix) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction;

(ii) no loss referred to in sub-section (I) of section 72 or subsection (1) [or sub-section (3) of section 74 and no deficiency referred to in sub-section (3) of section 80J, in so far as such loss or deficiency relates to the business of the industrial undertaking shall be carried forward or set off where such loss, or as the case may be, deficiency relates to any of the relevant assessment years;

(iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-1 [or section 80-IA] or section 80J in relation to the profits and gains of the industrial undertaking; and

(iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the industrial undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment years “.

It is also relevant to state the Explanation (ii) to section 10A, which defines relevant year. It reads as under :-

“(ii) relevant assessment years means the five consecutive assessment years specified by the assessee at his option under subsection (3)”.

As mentioned herein above that the assessee exercised its option to claim deduction in the assessment years 1996-97 to 2000-01 i.e. in the five consecutive assessment years falling within the period of eight years beginning with the assessment year relevant to previous year in which the assessee’s industrial undertaking began to manufacture or produce articles or things. Therefore, the assessee carried forward depreciation relating to assessment years 1993-94 to 1995-96. However, there was an amendment by the Finance Act, 1999 with effect from 1st April, 2000 and the assessee became entitled to get deduction under section 10A in respect of any ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things. Accordingly, Explanation (ii) to section 10A was also amended and the relevant assessment year was defined as under :-

“relevant assessment year means ten consecutive assessment years referred to in sub-section (3)”.

Pursuant thereto, the assessee claimed the benefit of section 10A for a further period of two years, i.e. up to the assessment year 2002-03. Sub-section (4) of section 10A was replaced by sub-section (6) of section 10A of the Act. Again there was an amendment in sub-section (6) of section 10A by the Finance Act, 2003 with retrospective effect from 1st April, 2001 and the same reads as under :-

“Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year, –

(i) section 32, section 32A, section 33, section 35 and clause (ix) of sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years ending before the 1st day of April, 2001, in related to any building, machinery, plant or furniture used for the purposes of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of sub-section (3) of section 32A, clause (ii) of subsection (2) of section 33, sub-section (4) of section 35 or the second proviso to clause (ix) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction;

(ii) no loss referred to in sub-section (1) of section 72 or subsection (1) [or sub-section (3) of section 74 in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment year;

(iii) no deduction shall be allowed under section 8QHU or. section 80HHA or section 80-1 [or section 80-IA] or section 80IB in relation to the profits and gains of the undertaking; and

(iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment year “.

15. It is evident from the above that the ten consecutive assessment years are to be 10 years in which the undertaking begins to manufacture or produce articles or things. In the case of the assessee, there is no dispute to the feet that the assessee started its production in the financial year 1992-93 relevant to assessment year 1993-94 and as per the amended provisions, the assessee has availed the benefit of section 10A upto the assessment year 2002-03. Therefore, the ten consecutive assessment years are tan assessment year 1993-94 to assessment year 2002-03. It is relevant to state that prior to the amendment, the deduction was allowed only for five consecutive assessment years out of eight assessment years from commencement of production. It is also observed from the provisions of section 10A(6) as applicable to the assessee, it would be presumed that full allowance, inter alia, of the depreciation had been given effect to for any of the relevant assessment years ending before 1st April, 2001 even though not actually shown in the computation. It is also observed that the provision of section 10A(6) overrides all other provisions of the Income Tax Act. As it is a non-obstante clause starting with “notwithstanding anything contained in any other provision of this Act”. Therefore, we are of the considered view that brought forward depreciation falling within the relevant assessment years could not be set off for computing the total income of the assessee of the assessment year succeeding the last of the relevant assessment year. Since the assessment year under consideration i.e. assessment year 2003-04 is immediately the assessment year succeeding the last of the relevant assessment year, we are of the considered view that brought forward depreciation could not be allowed to be set off against the income of the Unit set up in NEPZ or any other Unit of any subsequent year. The CB .D.T. Circular No. 7 of 2003 dated 5th September, 2003 has also clarified vide paras 202 & 20.3 and it reads asunder:-

“Para 20.2. With a view to rationalize the existing tax incentives in respect of such Units subsection 6 in sections JOA & JOB has been amended to do away with the restrictions on carry forward of business losses and unabsorbed depreciation.

Para 20.3. The amendments have been brought into effect retrospectively from 1.4.2001 and have been made applicable to business losses or unabsorbed depreciation arising in assessment years 2001-02 and subsequent years”.

Therefore, we hold that the unabsorbed depreciation for the assessment years 1993-94 to 1995-96 pertains to the period ended before 1st April, 2001 and the same could not be set off against the income of the assessment year under consideration.

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0 responses to “Setting off of unabsorbed depreciation of earlier years against income of subsequent year under section 10A of IT Act is not admissable”

  1. meghna says:

    The unabsorbed depriciation we can can carried should be based on whether on income tax act or on compnies act

    and which depriciation we should take in calculation of MAT