Sab Miller Breweries Pvt. Ltd, ... vs Assessee

PAN: AAACR3140F .... Appellant

Vs.

The Asst. Commissioner of Income Tax, Circle - 1, Aurangabad .... Respondent

Appellant by : Shri R.R. Vora Respondent by : Smt. M.S. Verma, CIT

Date of hearing : 04-12-2014 Date of pronouncement : 27-02-2015

ORDER

PER SUSHMA CHOWLA, JM:

This appeal filed by the assessee is against the order of CIT, Aurangabad,

dated 26.03.2013 relating to assessment year 2008-09 against order passed under

section 263 of the Income-tax Act, 1961.

2. The assessee has raised the following grounds of appeal:-

1. That on the facts and circumstances of the case and in law, order passed by the Ld.Commissioner of Income Tax ["Ld.CIT"] is bad in law and void ab initio.

2. That on the facts and circumstances of the case and in law, Ld. CIT grossly erred in exercising his jurisdiction for initiating proceedings under section 263 of the Act, since the requisite assumptions of jurisdiction were lacking in the present order.

DENIAL OF CARRY FORWARD OF UNABSORBED DEPRECIATION PERTAINING TO ASSESSMENT YEAR 1999-00

3. That the Ld. CIT grossly erred on facts and in law in observing that order passed by the Ld. AO in allowing depreciation claimed for assessment year 1999-2000 is erroneous and prejudicial to interests of revenue.

3.1 That the Ld. CIT grossly erred on facts and in law in not appreciating that the Ld. AO passed the original assessment order after making due enquiries and in accordance with his quasi judicial powers conferred upon him 2 ITA No.1176/PN/2013 SAB Miller Breweries Pvt. Ltd.

under the statute and thus initiation of proceedings under section 263 of the Act is without jurisdiction.

3.2 That the Ld. CIT grossly erred on facts and in law by not appreciating the settled principle that proceedings initiated under section 263 of the Act were not valid since Ld. AO had duly examined all the records placed on record at the time of assessment proceedings.

3.3 That the Ld. CIT erred in law in not appreciating that if the Ld. AO adopts one of the views permissible in law and it has resulted in loss to revenue, or where two views are possible and the AO has taken one view with which CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of revenue.

3.4 That the Ld. CIT grossly erred on facts and in law in initiating proceedings under section 263 of the Act without appreciating that the issue involved under dispute is debatable and the Ld. AO has taken one of the two plausible views on the issue involved.

3.5 That the Ld. CIT grossly erred on facts and in law in invoking proceedings under section 263 of the Act against order passed by the Ld. AO without appreciating that there is a mere difference of opinion on the issue under dispute between the Ld. AO and Ld. CIT, which is clearly not permissible to initiate proceedings under section 263 of the Act.

DEDUCTION OF MANAGEMENT LICENSE FEES

4. That the Ld. CIT erred in setting aside the order of assessment on the issue assessment on the issue of management license fees which is neither erroneous nor prejudicial to the interests of revenue.

4.1 That the Ld. CIT grossly erred on facts and in law in remanding back the matter to Ld. AO for re-verification without arriving at any conclusion/finding that the order passed by Ld. AO is erroneous and prejudicial to interest of the revenue.

4.2 That the Ld. CIT grossly erred on facts and in law, in delegating the powers granted to him under section 263 of the Act to the Ld. AO.

4.3 That the Ld. CIT grossly erred on facts and in law in not appreciating that the proceedings under section 263 of the Act without bringing material to substantiate that the order passed by the Ld. AO is prejudicial and erroneous to interest of the revenue.

The above grounds of appeal are without prejudice to each other.

That the Appellant reserves its right to add, alter, amend, delete or withdraw any ground of appeal either before or at the time of hearing of this appeal.

3. The issue raised in the present appeal is against the exercise of jurisdiction by

the CIT under section 263 of the Act.

4. The brief facts of the case are that, the assessee company was engaged in

the business of Brewing, Packaging, Distribution and sale of Beer in the Indian

market. The unit of the assessee was established at MIDC Industrial Area, Waluj,

Aurangabad. In the year under consideration, the assessee had furnished return of 3 ITA No.1176/PN/2013 SAB Miller Breweries Pvt. Ltd.

income declaring Nil income. The Assessing Officer had completed the assessment

under section 143(3) of the Act on 30.11.2010 at assessed income of

Rs.8,31,91,895/-. The said income was set off against the brought forward losses

and un-absorbed depreciation.

5. The Commissioner on verification of the assessment record was of the view

that, the assessment order passed by the Assessing Officer under section 143(3) of

the Act was both erroneous and prejudicial to the interests of Revenue. Show cause

notice under section 263 of the Act was issued to the assessee in which, it was

alleged that the assessee had claimed set off of carried forward un-absorbed

depreciation of Rs.5,41,84,430/- relating to assessment year 1999-2000 against the

income in the financial year 2007-08, which was not allowable as the same had to be

dealt with in line with the provisions of section 32(2) of the Act, applicable to the said

year.

6. Another show cause notice was issued to the assessee dated 25.07.2012 in

respect of management / license fees paid by the assessee to SABMiller

Management (IN) BV Netherlands, at Rs.2,69,57,660/-. As per the Commissioner,

the said expenses were not in accordance with the business exigency and hence

were not allowable under section 37(1) of the Act for the reasons mentioned in the

show cause notice. The assessee in reply, raised preliminary objection against the

issue of notice under section 263 of the Act on the basis of assumption of jurisdiction.

Reliance was placed on series of decisions, in this regard. The Commissioner was of

the view that, the facts of the present case were totally different from those of the

cases relied upon by the assessee. It was further held by the Commissioner that the

Assessing Officer had passed the order on the basis of hypothetical ground without

verifying the facts, thus, incorrect conclusion had been drawn by the Assessing

Officer without application of mind. The Commissioner further placed reliance on the

ratio laid down by the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. Vs. CIT

(2000) 243 ITR 83 (SC) and held that the order passed by the Assessing Officer was

both erroneous and prejudicial to the interests of Revenue. 4 ITA No.1176/PN/2013

SAB Miller Breweries Pvt. Ltd.

7. With regard to the issues raised in the show cause notice issued under

section 263 of the Act vis-à-vis the set off of un-absorbed depreciation relating to

assessment year 1999-2000 against the total income for the year under

consideration, reference was made to the ratio laid down by the Mumbai Bench of the

Tribunal in DCIT Vs. Times Guaranty Limited, 131 TTJ 257 (SB) (Mum). The

contention of the assessee was that it had un-absorbed depreciation of Rs.5.30

crores relating to assessment year 1999-2000 which is to be carried forward and set

off against the total income of the year under consideration. The second plea raised

by the assessee was that, the decision in DCIT Vs. Times Guaranty Limited (supra)

was sub-judice before the Hon'ble Bombay High Court and when a question of law

had been admitted by the Hon'ble High Court on the subject matter, then the matter

was debatable and was not subject to rectification.

8. The Commissioner held that where the issue is debatable, then the said order

can be revised under section 263 of the Act as held in CIT Vs. M.M. Khambhatwala

(1992) 198 ITR 144 (Guj). The CIT further observed that the provisions of section

32(2) of the Act were amended twice i.e. first time it was amended by the Finance

(No.2) Act, 1996 with effect from 1.4.1997 and second amendment took place by the

Finance Act, 2001 with effect from 1.4.2002. The second amendment is nothing but it

is reinforcement of the provision as existing before first amendment or before

1.4.1997. It was further held by the Commissioner that in the light of the decision of

Special Bench of the Tribunal, Mumbai in the case of Times Guaranty, I am of the

considered opinion that the unabsorbed depreciation for A.Y. 1999-00 amounting to

Rs.5,41,84,430/- claimed and set off against the business income for A.Y. 2008-09 in

the computation of income and accordingly allowed by the AO while finalizing the

assessment is not admissible one as per the provisions of sec.32(2) applicable for

A.Y. 1999-00 and therefore, the unabsorbed depreciation for A.Y. 1999-00 amounting

to Rs.5,41,84,430/- needs to be disallowed. Accordingly, the AO is directed to

disallow the claim of unabsorbed depreciation to the extent of Rs.5,41,84,430/- while

giving effect to this order.

9. The second issue raised by the Commissioner in show cause notice was with

regard to the management / license fees paid by the assessee to SABMiller 5 ITA No.1176/PN/2013 SAB Miller Breweries Pvt. Ltd.

Management (In) BV Netherlands. The submissions of the assessee in this regard,

were reproduced by the Commissioner, which are being referred but not reproduced

here for the sake of brevity. The Commissioner after considering the submissions

made by the assessee observed as under:-

"The submissions of the assessee have been duly considered. On perusal, it is noticed that the license fee paid by the assessee is governed by the agreement dated 21st January, 2008 executed between SKOL Breweries Limited (SOK) and SABMiller Management (IN) BV, which needs verification. Further, the clarification letter dated January, 6, 2012 of SABMiller Management (IN) BV also requires verification. Accordingly, the AO is directed to verify the issue raised in the show cause notice in the light of decisions relied upon and submissions made by the assessee, after due verification of books of accounts and other details such as agreements executed by the assessee."

10. The assessee is in appeal against the said invoking of jurisdiction by the

Commissioner under section 263 of the Act.

11. The learned Authorized Representative for the assessee pointed out that the

assessee was engaged in the manufacture of Foster Beer and had claimed the set off

of un-absorbed losses and depreciation of earlier years. It was pointed out by the

learned Authorized Representative for the assessee that there were two issues raised

in the present appeal i.e. set off of un-absorbed depreciation for assessment year

1999-2000 against the profits of assessment year 2008-09 and further, the payment

of management fees to parent company. Our attention was drawn to the facts sheet

placed at page 371 of the Paper Book in which, the sequence of events were

furnished. The learned Authorized Representative for the assessee pointed out that

the issues arising in the present appeal are as under:-

a. whether the Assessing Officer had passed the order under section 143(3) of the Act without application of mind?

b. whether the Assessing Officer had considered the issue in the proceedings under section 154 of the Act?

c. whether the decision of DCIT Vs. Times Guaranty Ltd., was considered by the Assessing Officer before passing the assessment order under section 143(3) of the Act?

d. whether the CIT has erred in not considering the decision of Gujarat High Court in General Motors India Pvt. Ltd. Vs. DCIT (2013) 354 ITR 244 (Guj).

12. The learned Authorized Representative for the assessee drew our attention to

the reply filed during the course of assessment proceedings placed at pages 33 to 36 6 ITA No.1176/PN/2013 SAB Miller Breweries Pvt. Ltd.

of the Paper Book in which at serial No.8, the assessee had furnished the details of

brought forward business losses and unabsorbed depreciation along with the copies

of documentary evidence substantiating the details of said business loss and

unabsorbed depreciation carried forward. The details of the said brought forward

business losses and unabsorbed depreciation expenses are placed at pages 37 and

38 of the Paper Book.

13. The learned Authorized Representative for the assessee further pointed out

that the Assessing Officer had issued a notice under section 154 of the Act which is

placed at page 135 of the Paper Book along with reply of the assessee at pages 136

to 143 of the Paper Book in which, it was pointed out that the ratio laid down by the

Mumbai Bench of the Tribunal in DCIT Vs. Times Guaranty Ltd. (supra), was not

applicable. The learned Authorized Representative for the assessee further pointed

out that at page 144 of the Paper Book, is enclosed the copy of order under section

154 of the Act dropping the said proceedings.

14. In respect of second issue i.e. license / management fees, the learned

Authorized Representative for the assessee pointed out that the issue was set aside

to the Assessing Officer despite enquiry was made by the Assessing Officer in the

first round of assessment proceedings. It was further pointed out by him that the

Assessing Officer in the set-aside proceedings, had not made any addition. The

learned Authorized Representative for the assessee pointed out that in the present

case, the Assessing Officer had called for details and applied his mind whereas, the

Commissioner has not applied his mind before issue of show cause notice under

section 263 of the Act. Another contention raised by the learned Authorized

Representative for the assessee was that where the details were called for and

examined by the Assessing Officer, whether the Commissioner could exercise the

jurisdiction under section 263 of the Act.

15. The next contention of the learned Authorized Representative for the

assessee that the record i.e. assessment record shows that the issue had been

elaborately considered in the proceedings under section 154 of the Act, then whether

the Commissioner could on perusal of such record, exercise the jurisdiction under 7 ITA No.1176/PN/2013 SAB Miller Breweries Pvt. Ltd.

section 263 of the Act. Reliance in this regard, was placed on the ratio laid down by

Chandigarh Bench of the Tribunal in ITO Vs. R.S. Warehousing in ITA

No.310/Chd/2011) and it was pointed out that the facts of the present case were

identical to the facts of the case before Chandigarh Bench of the Tribunal.

16. The next contention raised by the learned Authorized Representative for the

assessee was that merely because there was Special Bench Tribunal's decision

against the issue, can the Commissioner exercises the jurisdiction and hold the

assessment order to be erroneous. It was further pointed out by the learned

Authorized Representative for the assessee that where reply had been given by the

assessee which was admittedly against the decision of Special Bench of the Tribunal,

could the Assessing Officer's order said to be erroneous, especially where the

Special Bench of the Tribunal's order was reversed or differed by the Hon'ble Gujarat

High Court in General Motors India Pvt. Ltd. Vs. DCIT (2013) 354 ITR 244 (Guj).

17. The learned Authorized Representative for the assessee stated that the

Commissioner had followed the Special Bench of the Tribunal's decision after a

period of two years and can the order of Commissioner in such circumstances, could

be said to be correct. Thereafter, the learned Authorized Representative for the

assessee pointed out the amendments made to section 32(2) of the Act over period

of years and our attention was drawn to the decision of Special Bench of the Tribunal

in Times Guarantee Ltd. (supra) and special reference to page 338 of the Paper

Book. Further, reliance was placed in General Motors India Pvt. Ltd. Vs. DCIT (2013)

354 ITR 244 (Guj) and pointed out that there was no contrary decision of any High

Court. It was further pointed out by the learned Authorized Representative for the

assessee that the Vizag Bench of the Tribunal in JCIT Vs. M/s. Alufluoride Ltd., in ITA

No.134/Vizag/2013 (Vizag Trib) had considered the reliance placed upon by the

learned Departmental Representative for the Revenue on DCIT Vs. Times Guarantee

Ltd. (supra) and also the ratios laid down by Hon'ble Madras High Court in CIT Vs.

Pioneer Asia Packing (P.) Ltd., (2008) 170 TAXMAN 127 (Mad.) and CIT Vs. S&S

Power Switchgear Ltd. (2009) 318 ITR 187 (Mad) and also the claim of assessee.

Further, the reliance was placed on the ratio laid down by the Mumbai Bench of the

Tribunal in ACIT Vs. Associated Cables Pvt. Ltd., in ITA No.5556/Mum/2012. 8 ITA No.1176/PN/2013

SAB Miller Breweries Pvt. Ltd.

18. The learned Authorized Representative for the assessee concluded by stating

that queries were raised in the original assessment proceedings which were replied to

by the assessee and further, issue was raised in the proceedings under section 154

of the Act which were also replied to, whether in such circumstances, the order of

Commissioner was sustainable in law, also because the issue being settled by the

High Courts and various Benches of the Tribunal, even on merits, the issue was in

favour of the assessee. Further, the issue of management fees has been accepted

by the Assessing Officer in the set-aside proceedings. In the said circumstances, it

was stated by the learned Authorized Representative for the assessee that the

Commissioner thus, had not applied his mind before issue of notice or the order as to

why he was setting aside the issue.

19. The learned Departmental Representative for the Revenue pointed out that

there were two issues before the Commissioner i.e. there was complete lack of

enquiry by the Assessing Officer and complete lack of application of mind by the

Assessing Officer. In such circumstances, the provisions of section 263 of the Act

were clearly attracted. The learned Departmental Representative for the Revenue

placed reliance on the following decisions:-

i. Dharti Dredging & Infrastructure Ltd. Vs. Addl.CIT, (2013) 144 ITD 120 (Hyd.)

ii. Ninestar Enterprises (P.) Ltd. Vs. ACIT (2013) 30 taxmann.com 57 (Hyd.)

iii. CIT Vs. S&S Power Switchgear Ltd. (2009) 318 ITR 187 (Mad)

iv. DCIT Vs. Times Guaranty Ltd. (2010) 40 SOT 14 (Mum.) (SB)

v. CIT Vs. Pioneer Asia Packing (P.) Ltd., (2008) 170 TAXMAN 127 (Mad.)

20. In rejoinder, the learned Authorized Representative for the assessee pointed

out that the Vizag Bench of the Tribunal in JCIT Vs. M/s. Alufluoride Ltd. (supra) had

considered all the above said decisions and allowed the claim of the assessee.

21. We have heard the rival contentions and perused the record. Under the

provisions of section 263 of the Act, the Commissioner is empowered to exercise his

jurisdiction where the assessment order passed by the Assessing Officer is erroneous 9 ITA No.1176/PN/2013 SAB Miller Breweries Pvt. Ltd.

and is also prejudicial to the interest of Revenue. Before exercising the revisionary

power under section 263 of the Act, the Commissioner has to come to a finding that

the erroneous order passed by the Assessing Officer is also prejudicial to the interest

of Revenue. In other words, both the conditions of the order being erroneous and

prejudicial to the interest of Revenue are to be fulfilled in case the Commissioner

wishes to exercise the jurisdiction under section 263 of the Act. The Courts have time

and again deliberated upon the issue of when and where the assessment order can

said to be erroneous and such erroneous order if it has resulted in escapement of

income from being brought to tax, then such order is prejudicial to the interest of

Revenue. The Hon'ble Supreme Court in Malabar Industries Company Ltd v CIT

243 ITR 83 (SC) has held as under:-

"There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.

The phrase "prejudicial to the interests of the, Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy and Co. v. S. P. Jain [1957] 31 ITR 872. the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 108 and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81 treated loss of tax as prejudicial to the interests of the Revenue.

Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company v. CIT [1987] 163 ITR 129 interpreting "prejudicial to the interests of the Revenue. "The High Court held (page 138) : "In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue administration." In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue".

The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue ; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of 10 ITA No.1176/PN/2013 SAB Miller Breweries Pvt. Ltd.

the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law."

22. In the facts of the present case, the Commissioner was of the view that the

conclusion drawn by the Assessing Officer on the basis of written submissions filed

by the assessee was without application of mind. In view thereof, the order was held

to be both erroneous and prejudicial to the interest of Revenue. The Commissioner

thereafter, referred to the ratio laid down by the Special Bench of Mumbai Tribunal in

DCIT Vs. Times Guarantee Ltd. (supra) on the interpretation of provisions of section

32(2) of the Act and observed that un-absorbed depreciation relating to assessment

year 1999-2000 cannot be set off against the business income of assessment year

2008-09. The Commissioner held that in view of the provisions of section 32(2) of the

Act applicable for assessment year 1999-2000, the unabsorbed depreciation for

assessment year 1999-2000 amounting to Rs.5,41,84,430/- needs to be disallowed.

The Assessing Officer was thus, directed to disallow the claim of unabsorbed

depreciation to the extent of Rs.5.41 crores while giving effect to the order of

Commissioner.

23. In respect of the second issue raised vis-à-vis the management / license fees

paid to SAB Miller Management (In) BV Netherlands, the issue was set-aside to the

file of Assessing Officer to verify the issue and decide the same.

24. In the appeal filed by the assessee, the objection has been raised against

such invoking of jurisdiction by the Commissioner in holding that the order passed by

the Assessing Officer was erroneous and prejudicial to the interest of Revenue on

both the accounts. As the various Courts have held the twin conditions of the order

being erroneous and prejudicial to the interest of Revenue are to be fulfilled and in

case any one of the conditions are not so fulfilled, then even if the other condition is

fulfilled, the revisionary powers cannot be exercised by the Commissioner.

25. We shall first take up the first issue of setting off of brought forward

unabsorbed depreciation relating to A.Y. 1999-2000 against the business income for

assessment year 2008-09.

11 ITA No.1176/PN/2013

SAB Miller Breweries Pvt. Ltd.

26. The case of the assessee before Commissioner was that the said set off of

unabsorbed depreciation carried forward from assessment year 1999-2000 could be

set off against the business income for assessment year 2008-09. Reliance in this

regard was placed on the ratio laid down by the Delhi Bench of Tribunal in Jai Ushin

Ltd. vs DCIT (2008) 117 TTJ (Del) 330, wherein it was held that the issue relating to

setting off the unabsorbed depreciation of assessment year 1999-2000 against the

income for assessment year 2003-04 is required to be considered and decided in

accordance with the provisions of se.32(2) as amended w.e.f. 32(2) by the Finance

Act 2001 which are applicable to that year. Another aspect raised by the assessee

before the Commissioner was that the decision in DCIT Vs. Times Guaranty Limited

(supra) was heard before the Hon'ble Bombay High Court and a question of law had

been admitted by the Hon'ble High Court and where the matter was debatable, it was

not subject to rectification. The Commissioner on the other hand, was of the view

that the decision relied upon by the assessee in Jai Ushin Ltd. vs DCIT (supra) had

been considered by the Special Bench of Mumbai Tribunal in DCIT Vs. Times

Guaranty Limited (supra), vide order dated 30.06.2010, wherein it was held that the

unabsorbed depreciation relating to assessment year 1997-98 to 1990-00 is to be

dealt with the provisions of sec.32(2) as applicable for A.Y. 1997-98 to 1999-00. In

view thereof, the Commissioner held that the case law relied upon by the assessee

was not relevant and the decision of the Special Bench of Mumbai Tribunal in DCIT

Vs. Times Guaranty Limited (supra) had to be applied.

27. The Hon'ble Gujarat High Court in General Motors India Pvt. Ltd. Vs. DCIT

(2013) 354 ITR 244 (Guj) vide judgment dated 23.08.2012 had elaborated upon the

issue of claim of unabsorbed depreciation and the law applicable and also the effect

of amendment to section 32(2) of the Act by the Finance Act, 2001 and it was held

that the amendment made to section 32(2) of the Act by the Finance Act, 2001 was

applicable from assessment year 2002-03 and subsequent years. It was further held

that any unabsorbed depreciation available to the assessee on the first day of April,

2002 would be dealt in accordance with the provisions of section 32(2) of the Act as

amended by the Finance Act, 2001 and not by the provisions of section 32(2) of the

Act as it stood before the said amendment. It was further held by the Hon'ble Gujarat 12 ITA No.1176/PN/2013 SAB Miller Breweries Pvt. Ltd.

High Court that had the intention of the Legislature been to allow the unabsorbed

depredation allowance worked out in the assessment year 1997-98 only for eight

subsequent assessment years even after the amendment of section 32(2) by the

Finance Act, 2001, it would have incorporated a provision to that effect.

28. The Hon'ble Gujarat High Court had considered the issue at length and had

observed as under:-

"30. The last question which arises for consideration is that whether the unabsorbed depreciation pertaining to the assessment year 1997-98 could be allowed to be carried forward and set off after a period of eight years or it would be governed by section 32 as amended by the Finance Act, 2001 ? The reason given by the Assessing Officer under section 147 is that section 32(2) of the Act was amended by the Finance (No. 2) Act of 1996, with effect from the assessment year 1997-98 and the unabsorbed depreciation for the assessment year 1997-98 could be carried forward up to the maximum period of eight years from the year in which it was first computed. According to the Assessing Officer, eight years expired in the assessment year 2005-06 and only till then, the assessee was eligible to claim unabsorbed depreciation of the assessment year 1997-98 for being carried forward and set off against the income for the assessment year 2005-06. But the assessee was not entitled for unabsorbed depreciation of Rs.43,60,22,158 for the assessment year 1997-98, which was not eligible for being carried forward and set off against the income for the assessment year 2006-07.

31. Prior to the Finance (No. 2) Act of 1996 the unabsorbed depreciation for any year was allowed to be carry forward indefinitely and by a deeming fiction became allowance of the immediately succeeding year. The Finance (No. 2) Act of 1996 restricted the carry forward of unabsorbed depreciation and set-off to a limit of eight years, from the assessment year 1997-98. Circular No. 762, dated February 18, 1998 (see [1998] 230 ITR (St.) 12), issued by the Central Board of Direct Taxes (CBDT) in the form of Explanatory Notes categorically provided, that the unabsorbed depreciation allowance for any previous year to which full effect cannot be given in that previous year shall be carried forward and added to the depreciation allowance of the next year and be deemed to be part thereof.

32. So, the unabsorbed depreciation allowance of the assessment year 1996-97 would be added to the allowance of the assessment year 1997-98 and the limitation of eight years for the carry forward and set off of such unabsorbed depreciation would start from the assessment year 1997-98.

33. We may now examine the provisions of section 32(2) of the Act before its amendment by the Finance Act, 2001. The section, prior to its amendment by the Finance Act, 2001, read as under :

"Where in the assessment of the assessee full effect cannot be given to any allowance under clause (ii) of sub-section (1) in any previous year owning to there being no profits or gains chargeable for that previous year or owing to the profits or gains being less than the allowance, then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as unabsorbed depreciation allowance), as the case may be,--

(i) shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year ;

13 ITA No.1176/PN/2013 SAB Miller Breweries Pvt. Ltd.

(ii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year;

(iii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i) and clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year, and--

(a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year ;

(b) if the unabsorbed depreciation allowance cannot be wholly so setoff, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed:

Provided that the time limit of eight assessment years specified in sub-clause (b) shall not apply in case of a company for the assessment year beginning with the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Company (Special Provisions) Act, 1985 (1 of 1986), and ending with the assessment year relevant to the previous year in which the entire net worth of such company becomes equal to or exceeds the accumulated losses.

Explanation.--For the purposes of this clause, 'net worth' shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985."

34. The aforesaid provision was introduced by the Finance (No.2) Act, 1996, and further amended by the Finance Act, 2000. The provision introduced by the Finance (No. 2) Act was clarified by the Finance Minister to be applicable with prospective effect.

35. Section 32(2) of the Act was amended by the Finance Act, 2001, and the provision so amended reads as under :

"Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub- section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance of that previous year, and so on for the succeeding previous years."

36. The purpose of this amendment has been clarified by the Central Board of Direct Taxes in Circular No. 14 of 2001 (see [2001] 252 ITR (St.) 65,

90). The relevant portion of the said Circular reads as under :

"Modification of provisions relating to depreciation 14 ITA No.1176/PN/2013 SAB Miller Breweries Pvt. Ltd.

30.1 Cinder the existing provisions of section 32 of the Income- tax Act, carry forward and set off of unabsorbed depreciation is allowed for eight assessment years.

30.2 With a view to enable the industry to conserve sufficient funds to replace plant and machinery, specially in an era where obsolescence takes place so often, the Act has dispensed with the restriction of eight years for carry forward and set off of unabsorbed depreciation. The Act has also clarified that in computing the profits and gains of business or profession for any previous year, deduction of depredation under section 32 shall be mandatory.

30.3 Under the existing provisions, no deduction for depreciation is allowed on any motor car manufactured outside India unless it is used (i) in the business of running it on hire for tourists, or (ii) outside in the assessee's business or profession in another country.

30.4 The Act has allowed depreciation allowance on all imported motor cars acquired on or after 1st April, 2001.

30.5 These amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years."

37. The Central Board of Direct Taxes Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of eight years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from the assessment year 2002- 03 and subsequent years. This means that any unabsorbed depreciation available to an assessee on the 1st day of April, 2002 (the assessment year 2002-03), will be dealt with in accordance with the provisions of section 32(2) as amended by the Finance Act, 2001, and not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depredation; allowance worked out in the assessment year 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by the Finance Act, 2001, it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence, keeping in view the purpose of the amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken. While construing the taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable construction to the language of the section without leaning to the side of the assessee or the Revenue. But if the Legislature fails to express clearly and the assessee becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assessee cannot be denied. However, Circular No. 14 of 2001 had clarified that under section 32(2), in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by the Finance Act, 2001, would allow the unabsorbed depreciation allowance available in the assessment years 1997- 98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the assessment year 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years.

38. Therefore, it can be said that, current depreciation is deductible in the 40 first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is 15 ITA No.1176/PN/2013 SAB Miller Breweries Pvt. Ltd.

left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assessee on the 1st day of April, 2002 (the assessment year 2002-03), will be dealt with in accordance with the provisions of section 32(2) as amended by the Finance Act, 2001. And once Circular No. 14 of 2001 clarified that the restriction of eight years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from the assessment year 1997-98 up to the assessment year 2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by the Finance Act, 2001, and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever.

For the aforesaid reasons, this writ petition succeeds and is allowed. The 41 notice issued under section 148 of the Income-tax Act, 1961, dated March 29, 2011, annexure A and the assessment order dated December 27, 2011, passed by the Assessing Officer annexure F respectively to the writ petition are quashed. Rule is made absolute. The parties shall bear their own costs."

29. Similar proposition has been laid down by the Hon'ble Gujarat High Court in

CIT Vs. Gujarat Themis Biosyn Ltd. (2014) 44 taxmann.com 204 (Guj) vide judgment

dated 24.02.2014. The Visakhapatnam Bench of the Tribunal in JCIT Vs. M/s.

Alufluoride Ltd in ITA No.134/Vizag/2013 relating to assessment year 2007-08, vide

order dated 05.03.2014 applying the ratio laid down by the Hon'ble Gujarat High

Court in General Motors India Pvt. Ltd. Vs. DCIT (supra), held that the benefit of set

off of unabsorbed depreciation of assessment years 1997-98 and 1998-99 could be

allowed against the income relating to assessment year 2007-08. In applying the

ratio laid down by the Hon'ble Gujarat High Court, the Tribunal held that the reliance

placed by the learned Departmental Representative for the Revenue on the decision

of Hyderabad Bench of the Tribunal in Dharti Dredging & Infrastructure Ltd. Vs.

Addl.CIT (supra) & Hon'ble Madras High Court in CIT Vs. Pioneer Asia Packing (P.) Ltd., (supra) and CIT Vs. S&S Power Switchgear Ltd. (supra) was not correct. The

learned Departmental Representative for the Revenue before us had also placed

reliance on the decisions of Dharti Dredging & Infrastructure Ltd. Vs. Addl.CIT (supra)

and further in Ninestar Enterprises (P.) Ltd. Vs. ACIT (2013) 30 taxmann.com 57

(Hyd.) and also Hon'ble Madras High Court in CIT Vs. Pioneer Asia Packing (P.) Ltd., 16 ITA No.1176/PN/2013 SAB Miller Breweries Pvt. Ltd.

(supra) and CIT Vs. S&S Power Switchgear Ltd. (supra). In view of the same being

contrary to the only decision of Hon'ble Gujarat High Court on the issue for allowance

of set off of brought forward unabsorbed depreciation relating to assessment year

1999-2000 against the income arising in the year under appeal i.e. assessment year

2008-09 is over ruled by the only decision brought to our notice of the Hon'ble Gujarat

High Court in General Motors India Pvt. Ltd. Vs. DCIT (supra).

30. Another aspect of the issue is that where there is only judgment of High Court

though not jurisdictional High Court and when no contrary High Court's decision was

available on the issue, then the High Court's decision had to be followed in

preference to the decision of Special Bench of the Tribunal. This was the decision of

Third Member in the case of Kanel Oil & Exports Industries Ltd. reported in 126 TTJ

158 (Ahm) (TM).

31. Applying the ratio laid down by the Hon'ble Gujarat High Court in General

Motors India Pvt. Ltd. Vs. DCIT (supra) to the facts of the present case, the issue of

allowability of unabsorbed depreciation relating assessment year 1999-2000 against

the income arising in assessment year 2008-09 is to be set off and consequently, the

order passed by the Assessing Officer in this regard cannot be said to be prejudicial

to the interest of Revenue. Consequently, the revisionary powers exercised by the

Commissioner against the order of assessment which is not prejudicial to the interest

of Revenue, even where the order passed by the Assessing Officer was erroneous,

cannot be exercised, since the twin conditions have not been fulfilled in the case. In

view thereof, we reverse the directions of the Commissioner in this regard and uphold

the order of Assessing Officer in allowing the set off of unabsorbed depreciation

relating to assessment year 1999-2000 amounting to Rs.5,41,84,430/- claimed

against the business income for assessment year 2008-09 in computation of income.

The directions of the Commissioner in this regard are thus, reversed and the order of

Assessing Officer is restored.

32. Another issue raised by the learned Authorized Representative for the

assessee was that where the issue raised by the Commissioner in show cause notice

has been considered by the Assessing Officer even in the proceedings under section 17 ITA No.1176/PN/2013 SAB Miller Breweries Pvt. Ltd.

154 of the Act, where the Assessing Officer had expressed his opinion in this regard,

no proceedings under section 263 of the Act can be initiated in such case. Reliance

in this regard was placed upon the ratio laid down by laid by the Chandigarh Bench of

the Tribunal in R.S. Warehousing Vs. ITO (supra).

33. We find that similar issue before the Chandigarh Bench of the Tribunal in R.S.

Warehousing Vs. ITO (supra) wherein, it was held as under:-

"23. In the facts of the present case before us the assessee had received a notice u/s 154 of the Act in view of the audit objection on the issue of assessability of the income under the head ''income from property/income from business". The reply of the assessee was filed before issue of show cause notice u/s 263 of the Act. In the above said reply the assessee had explained the factual aspects of its case and also the aspect of having received subsidy from NABARD in the warehousing activities carried out. Admittedly, no subsidy is receivable where the assessee has rented out its premises and the income is assessable as income from property. Only in case as the assessee is engaged in the business activities, there is a question, of liability of subsidy of carrying out such prescribed business activities. Further we find that warehousing charges received by the assessee were not constant but were variable depending upon the quantity of stock stored in its premises. Even the lease agreement referred to the rate of rent being linked to the quantity of stock and not fixed monthly rent. Further the assessee is to keep the godown in its perfect condition as the said premises are being used for storing perishable items, which require an extra care.

24. The Hon'ble Supreme Court in CIT VS. Ralson Industries Ltd. [(288 ITR 322 (SC)}(supra) have laid down the proposition that the initiation by the CIT of proceedings for revision u/s 263 of the Act cannot be held to have become bad only because an order for rectification was passed by the Assessing Officer u/s 154 of the Act. The learned D.R. for the Revenue had placed reliance on the above said proposition laid down by the Apex Court. However, we find that the learned A.R. for the assessee had referred to the proceedings of rectification u/s 154 of the Act under which reply was given by the assessee which in turn becomes record for the purpose of explanation to section 263 of the Act.

25. In view of the totality of facts and circumstances and the explanation filed by the assessee in reply to the notice, we find merit in the alternate plea raised by the assessee that in view of the information being available on record, the CIT could not exercise the jurisdiction u/s 263 of the Act. We set aside the order of the CIT and allow the grounds of appeal raised by the assessee."

34. Following the above said ratio, we find merit in the alternate plea raised by the

assessee that in view of the information being available on record though in the

proceedings under section 154 of the Act, the Commissioner could not exercise the

jurisdiction under section 263 of the Act. We set-aside the order of Commissioner on

this ground also.

18 ITA No.1176/PN/2013

SAB Miller Breweries Pvt. Ltd.

35. Now, coming to the second issue raised by the Commissioner in the

proceedings under section 263 of the Act in relation to the management / license fees

paid to SABMiller Management (In) BV Netherlands. The said issue was restored

back to the file of Assessing Officer to decide the same after verifying the

submissions of the assessee and due verification of the books of account and other

details.

36. The learned Authorized Representative for the assessee pointed out that in

the set-aside proceedings, the Assessing Officer had allowed the claim of the

assessee in the order passed under section 143(3) r.w.s. 263 of the Act and no

addition has been made on this account. In view of the order of Assessing Officer in

allowing the claim of assessee in set-aside proceedings and passing the order under

section 143(3) r.w.s. 263 of the Act, the issue raised in the present appeal against the

exercise of jurisdiction of Commissioner under section 263 of the Act has become

infructuous and the same is dismissed.

37. In the result, the appeal of the assessee is allowed.

Order pronounced on this 27th day of February, 2015.

Sd/- Sd/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 27 t h February, 2015. GCVSR

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT, Aurangabad; 4) The DR "A" Bench, I.T.A.T., Pune; 5) Guard File. By Order //True Copy//

Assistant Registrar I.T.A.T., Pune