IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2370 OF 2007 WRIT PETITION NO.2370 OF 2007 WRIT PETITION NO.2370 OF 2007 Peninsula Land Limited ) ( Earlier known as Morarjee ) Realities Ltd.,) a Company ) incorporated under the Companies ) Act,1956 and having its registered) office at 106, Peninsula Centre, ) Dr.S.S.Rao Road, Parel, ) Mumbai-400 012 )..Petitioner Versus (1) The Commissioner of Income-tax) VI, 507. Aayakar Bhavan, ) M.K.Road, Mumbai-400 020 ) (2) The Assistant Commissioner of ) Income Tax, Range 6(3), Mumbai) Aayakar Bhavan, M.K.Road, ) Mumbai-400 020 ) (3) The Union of India, through ) the Secretary, Ministry of ) Finance, Government of India ) North Block, New Delhi-110 001)..Respondents ---- Mr.S.E.Dastoor, Sr.Counsel with Mr.Murlidharan with Mr.A.K.Jasani for the petitioner. Mr.A.D.Kango with Mr.P.S.Sahadevan for the respondents. ---- Coram : F.I.Rebello & Coram : F.I.Rebello & Coram : F.I.Rebello & R.S.Mohite,JJ R.S.Mohite,JJ R.S.Mohite,JJ Date : 20.2.2008. Judgment :- ( Per : R.S.Mohite,J) Judgment :- ( Per : R.S.Mohite,J) Judgment :- ( Per : R.S.Mohite,J) 1. Heard both sides. Rule. By consent rule made returnable forthwith and parties heard for final disposal. : 2 : 2. This is a Writ Petition filed by Peninsula Land Limited (hereinafter referred to as the "petitioner") seeking to quash and set aside the orders dated 22.2.2007 and 7.9.2007 passed by the respondents under Sections 154 and 264 of the Act respectively for the assessment year 1994-95 in so far as they deny the petitioner’s right to set-off unabsorbed depreciation. 3. The facts of the case as set out by the petitioner in his petition are as follows :- (a) In respect of the assessment year 1992-93, the petitioner filed a return of income on 20th January 1993 and a revised return on 31st December 1994 in which it claimed that it was entitled to a set off of the brought forward losses of Devangere Cotton Mills Limited which was merged with the petitioner w.e.f.1st July 1992. Respondent no.2 passed an assessment order dated 31st March 1995 under section 143(3) of the Act in which he determined the petitioner’s total income at Rs.54,25,840 after setting off the entirety of the losses (Rs.4,17,02,772) of the erstwhile Devangere Cotton Mills Limited and 2/3rd of the unabsorbed depreciation and investment allowance as per the then prevailing law Rs.3,59,97,750 of the said erstwhile Devangere Cotton Mills Limited. : 3 : Respondent No.2 recorded in the order that the balance of unabsorbed depreciation and investment allowance of Rs.1,79,98,975 was allowed to be carried forward to the next year. The amount comprised of unabsorbed depreciation of Rs.1,48,40,552 and unabsorbed investment allowance of Rs.31,58,423. Being aggrieved by the several disallowances and additions made by Respondent No.2, the petitioner filed an appeal before the Commissioner of Income-tax (Appeals) which was disposed of vide order dated 29th September 1995. Respondent No.2 passed an order dated 2nd August 1999 to give effect to the said order of the Commissioner (Appeals) and he determined the Petitioner’s total income at Rs.11,53,200. The figures of the losses, unabsorbed depreciation and investment allowance of the erstwhile Devangere Cotton Mills Limited remained unchanged. (b) In respect of the assessment year 1993-94, the petitioner field a return of income on 31st December 1993 and a revised return on 2nd February 1995 in which it declared a total loss of Rs.58,50,232 and Rs.68,05,671 respectively. Respondent No.2 passed an assessment order dated 27th December 1995 under section 143(3) of the Act by which he determined the total income of the petitioner at Nil, after setting off depreciation and investment allowance of Rs.76,52,499. Being aggrieved by the several : 4 : disallowances and additions made by Respondent No.2, the petitioner filed an appeal before the Commissioner of Income-tax (Appeals) which was disposed of vide order dated 14th August 2002. Respondent No.2 passed an order dated 16th September 2003 to give effect to the said order of the Commissioner (Appeals) and he determined the petitioner’s total income at a "loss" of Rs.1,77,46,293. (c) In respect of the assessment year 1994-95, the petitioner filed a Nil return of income on 30th November 1994. Respondent No.2 passed an assessment order dated 28th February 1997 under section 143(3) of the Act by which he determined the total income of the petitioner at Rs.5,23,32,724. In arriving at this income, Respondent No.2 allowed the petitioner a set off of the depreciation and investment allowance aggregating Rs.1,03,46,476 which was brought forward from the assessment year 1992-93. This amount represented the difference between the figure of Rs.1,79,98,975 which was determined in the assessment order dated 31st March 1995 passed for the assessment year 1992-93 and the figure of Rs.76,52,494 which was recorded as having been adjusted in the assessment order dated 27th December, 1995 passed for the assessment year 1993-94. Respondent No.2 thereafter passed an order dated 2nd December 1997 under section 154 of the Act : 5 : by which he reduced the total income to Rs.4,49,39,949. Being aggrieved by the order dated 28th February 1997 passed by Respondent No.2, the petitioner filed an appeal before the Commissioner of Income-tax (Appeals) which was disposed of vide order dated 17th March 1999. Respondent No.2 passed an order dated 29th July 1999 to give effect to the said order of the Commissioner (Appeals) and he determined the petitioner’s total income at Rs.2,67,71,123. (d) That on receipt of the order dated 16.9.2003 for the year 1993-94, the petitioner addressed an application dated 20th October 2003, addressed to the Deputy Commissioner of Income Tax. In this application, the petitioner referred to the order dated 16th September 2003 giving effect to the order of the Commissioner (Appeals) for the assessment year 1993-94 in which a loss of Rs.1,77,46,293 had been determined. The petitioner pointed out that the said loss was entitled to be carried forward and set off against the income for the assessment year 1994-95. It was also pointed out that the loss of Rs.76,52,499, being the unabsorbed depreciation of the assessment year 1992-93 would also be available for carry forward and set off against the income for the assessment year 1994-95. The petitioner annexed a detailed statement in which it was pointed out that if the aforesaid unabsorbed depreciation and : 6 : investment allowances for the assessment year 92-93 (Rs.76,52,499) and the assessment year 1993-94 (Rs.1,77,46,293) were set off, the income for the assessment year 1994-95 would be Rs.13,72,331 and the petitioner would be entitled to a refund of taxes and interest. The application prayed for an expeditious passing of an appropriate order for Assessment Year 1994-95 and for a grant of refund alongwith interest under section 244A. As there was no response from Respondent No.2 for the said application, the petitioner addressed reminder letters dated 11th August, 2005 and 15th March 2006 in which it reiterated its submissions with regard to the set off of the unabsorbed depreciation and investment allowance for the assessment years 1992-93 and 1993-94. (e) The petitioner addressed two other letters dated 6th June 2006 and 8th June 2006. In the letter dated 8th June 2006, the petitioner clarified that as per the effect order dated 16th September 2003 passed for the assessment year 1993-94, the total loss was determined at Rs.1,77,46,293 and this loss has been arrived at after set off of income under the head "income from house property" and "income from other sources". It was pointed out that the depreciation allowable as per the Act amounted to Rs.8,69,12,679 and therefore the loss determined as per the said effect order was an unabsorbed : 7 : depreciation and not business loss as stated in the earlier letter. The petitioner submitted that the correct unabsorbed depreciation available for set off was as under :- A.Y. Type of losses Amount (Rs.) 1992-93 Unabsorbed depreciation 76,52,499 (1,79,98,975 - 1,03,46,476) 1993-94 Unabsorbed depreciation 1,77,46,293 The petitioner further drew attention to section 32(2) of the Act, as applicable up to the assessment year 1996-97 and submitted that under this provision, the carried forward depreciation was deemed to be part of, and stands exactly on the same footing as current depreciation and was eligible to be set off against income chargeable under any head. The petitioner pointed out that as per the effect order passed for the assessment year 1994-95, the revised total income was determined at Rs.2,67,71,123 and the unabsorbed depreciation was eligible for set off against the said income. (f) In response to the aforesaid letters addressed by the Petitioner, Respondent No.2 passed an order dated 9th June 2006 under section 154 of the Act. With respect to the assessment year 1992-93, Respondent No.2 observed that in that year : 8 : depreciation/investment allowance of Rs.1,79,98,975 was allowed to be carried forward out of which Rs.76,52,499 was set off against the income for assessment year 1993-94 and balance of Rs.1,03,46,476 was set off against the income of the assessment year 1994-95. He recorded that the balance amount of Rs.76,52,499 was carried forward depreciation available for set off. In respect of the assessment year 1993-94, Respondent No.2 noted that as per the assessment order the total income was determined at Nil after setting off the brought forward depreciation/investment allowance aggregating Rs.76,52,499 of the preceding year. He also noted that pursuant to the order dated 16th September 2003 passed to give effect to the order of the Commissioner (Appeals), the unabsorbed depreciation was worked out at Rs.1,77,46,283. He held that the income for the assessment year 1994-95 had to be determined after allowing carried forward unabsorbed depreciation of Rs.76,52,499 for the assessment year 1992-93 and Rs.1,77,46,283 for the assessment year 1993-94. After such set off, he determined the revised total income for the assessment year 1994-95 at Rs.13,72,341. (g) Respondent No.2 thereafter issued a notice dated Nil under section 154 of the Act for the assessment year 1994-95 in which he alleged that the Petitioner has been wrongly allowed set off of unabsorbed : 9 : depreciation of the assessment years 1992-93 and 1993-94. He referred to certain observations from an unreported decision of the Tribunal in the case of E-Merck (India) Limited which he claimed were in his support. (h) In response to the said notice, the Petitioner addressed two letters dated 22nd June 2006 and 27th June 2006 in which it pointed out that the said unreported judgment of the Tribunal was in favour of the stand of the Petitioner. The Petitioner emphasized that the said judgment made it clear that prior to the amendment made to section 32(2) of the Act with effect from 1st April 1997, unabsorbed depreciation could be set off against income under any other head. In the second letter dated 27th June 2006, the Petitioner relied on several decisions including the decision of this Court in CIT Vs. Laxmi Surgical Private Limited 202 ITR 601 wherein it had been held that unabsorbed depreciation was deemed to be current depreciation of the year to which it had been brought forward and was eligible to be set off agaisnt the income of that year under any head. The Petitioner pointed out that the same view has been taken by the Hon’ble Supreme Court in Garden Silk Weaving Factory Vs. CIT 189 ITR 512. (i) Respondent No.2 accepted the submissions of the : 10 : Petitioner and passed an order dated 28th June 2006 under section 154 of the Act in which he held "the proceedings initiated vide notice u/s 154 dated 22-06-2006 are hereby dropped". (j) Respondent No.2 thereafter issued yet another notice dated 17th August 2006 under section 154 of the Act in which he directed the Petitioner to show cause why a rectification order should not be passed on the following three grounds :- (i) Order u/s.154 dated 09.06.2006 seeks to rectify assessment order u/s.143(3) dated 28.02.1992 which is beyond the statutory period of limitation. (ii) The amounts sought to be rectified u/s.154 includes both depreciation/investment allowance, the break up of which has not been given and investment allowance cannot be carried forward. (iii) In view of the debate in respect of allowability of unabsorbed depreciation against income from other sources, the said issue is debatable in nature and cannot be rectified u/s.154. (k) In response to the said notice, the Petitioner addressed a letter dated 24th August 2006 in which it made the following points :- : 11 : (i) It was pointed out that vide effect order dated 16th September 2003 passed for the assessment year 1993-94, a loss (actually unabsorbed depreciation) of Rs.1,77,46,293 had been determined and Respondent No.2 was duty bound to set off the same against the income for the assessment year 1994-95 which had been determined at Rs.2,67,71,123 vide effect order dated 29th July 1999. (ii) The Petitioner relied on the section 240 of the Act which states that a refund becoming due to an assessee as a result of the order passed in appeal is required to be given even without any claim having been made. It was emphasized that the Petitioner had vide letter dated 20th October 2003 made the said claim for refund. (iii) It was further submitted without prejudice that when the effect order dated 29th July 1999 was passed for the assessment year 1994-95 determining the income at Rs.2,67,71,123, the Petitioner did not have the benefit of the order determining the loss of Rs.1,77,46,293 for the assessment year 1993-94 because it was passed subsequently on 16th September 2003. The Petitioner submitted that in such a situation it was impractical to apply the statutory period of limitation of four years for rectification. The Petitioner set out all the relevant dates in the matter and emphasized that in : 12 : no case would it have been possible to give consequential effect to the order passed for the assessment year 1993-94 for the subsequent assessment year 1994-95 within the statutory limitation period of four years. The Petitioner argued that it could not be made to suffer for a delay which was attributable to the judicial proceedings. (iv) With regard to the merits, the Petitioner emphasized that the judgment of this Hon’ble Court in CIT vs.Laxmi Surgical Private Limited 202 ITR 601 covered the issue and was binding on Respondent No.2. (v) It was pointed out that Respondent No.2 had, after considering the Petitioner’s submissions had dropped the earlier notice dated 22nd June 2006. (vi) The Petitioner accepted that investment allowance of Rs.31,58,423 may be disallowed. (l) Respondent No.2 passed an order dated 22nd February 2007 under section 154 of the Act in which he made the following points :- (i) That the order dated 9th June 2006 passed under section 154 of the Act was beyond the statutory period of limitation and could not confer benefit on : 13 : the Petitioner. (ii) That there was a "debate" in respect of allowability of unabsorbed depreciation against the income from other sources and that the earlier order passed under section 154 suffered from a defect. (iii) That the investment allowance of Rs.31,58,423 (Rs.94,75,269 - 63, 16,846) had to be disallowed. (m) Being aggrieved by the said order dated 22nd February 2007 of Respondent No.2, the Petitioner filed an application dated 9th April 2007 under section 264 of the Act by which it requested Respondent No.1 to revise the said impugned order of Respondent No.2. The Petitioner made the following points in its application :- (i) The petitioner pointed out that the unabsorbed depreciation of Rs.1,77,46,293 for the assessment year 1993-94 was determined vide order dated 16th September 2003 and carry forward and set off of the same for the subsequent assessment year 1994-95 was possible only after this date. The Petitioner relied on the analogy of the section 155(4) of the Act and submitted that the period of limitation for the assessment year 1994-95 had to be calculated from the end of the financial year in which the order giving effect to the order of the Commissioner : 14 : (Appeals) for the assessment year 1993-94 was passed. (ii) On the merits, the Petitioner set out the provisions of section 32(2) of the Act as applicable for the assessment year 1994-95 and pointed out that carried forward unabsorbed depreciation was equivalent to current depreciation and could be set off against income chargeable under any head. It was emphasized that the unreported decision of the Tribunal in the case of E-Merck LImited relied upon by the Respondent No.2 was in favour of the Petitioner. (n) The petitioner further filed written submissions dated 31st August 2007 in which it made the following points :- (i) That an order passed to give effect to an appellate order was not an order of rectification under section 154, but was a mere recomputation of income which can be treated as having been passed under section 143 of the Act. The Petitioner relied on the sub-section (3) of section 153 of the Act which provides that the time limit for completion of assessment and reassessment are not applicable to the cases of assessments, reassessments or recomputations made in consequence of or to give effect to any finding or directions contained in an : 15 : order under section 250, 254 etc. (ii) On merits, the Petitioner reiterated that section 32(2) of the Act as it stood in the assessment year 1994-95 treated carried forward unabsorbed depreciation as being akin to current depreciation and as being eligible to be set off against income under any head. It was emphasized that section 32(2) was amended with effect from 1st April 1997 and by this amendment unabsorbed depreciation was permitted to be set off only against business income. (o) Respondent No.1 passed an order dated 7th September 2007 by which he dismissed the petition filed by the petitioner. Respondent No.1 took the view that the order dated 9th June 2006 was an order passed under Section 154 of the Act and not under section 143(3)/153(3) as claimed by the Petitioner and that the same was barred by limitation as it was passed beyond the period of four years from the date of the effect order dated 29th July 1997 passed for the assessment year 1994-95. On the merits of the issue, Respondent No.1 totally misread the provisions of section 32(2) of the Act and held that "whereas from AY 1997-98 onwards the unabsorbed depreciation could be set off from the income under any other head, this benefit was not available up to 1996-97 including AY 1994-95 which is under : 16 : consideration". He held that the order dated 9th June 2006 suffered from a legal mistake and that the impugned order dated 22nd February 2007 was valid in law. He accordingly, rejected the petitioner’s application for revision. 4. An affidavit in reply dated 17.12.2007 was filed on behalf of respondent nos.1 & 2. It was contended that the petition was not maintainable in view of the provisions of Section 119 (2)(b) of the Income Tax Act, 1961. Under Section 119 (2)(b) the petitioner had an option to make a petition to the Central Board of Direct Taxes to authorise a sub-ordinate Income Tax Authority (Assessing Officer) to admit its application for allowing its claim of unabsorbed depreciation and investment allowance, refund or any other relief under the Act after the period of limitation had lapsed. It was contended that the order dated 9.6.2006 passed by respondent no.1 rectifying the order dated 29.7.1999 and allowing unabsorbed depreciation of assessment year 1992-93 and 1993-94 to the tune of Rs.2,53,98,782/- was not valid and proper and therefore, this mistake has been rectified by respondent no.1 vide his order dated 7.9.2007. It was contended that the impugned order passed by respondent no.1 on 7.9.2007 was justified and in accordance with law. : 17 : 5. On behalf of the petitioner, affidavit-in-rejoinder dated 4.1.2008 was filed by Mr.Vinod Joshi and it was contended that the reference to section 119(2)(b) was misconceived. That in the facts of the present case the question of the petitioner’s application being "admitted" after the "expiry of the time limit" did not arise. The petitioenr’s application was well within the time limit and his claim has been wrongly rejected on merits on the basis of an erroneous interpretation of the provisions of the Act. It was contended that in the impugned order, section 32(2) of the Act as it stood in the asseessment year 1994-95, unabsorbed depreciation was akin to current depreciation and could be set off all categories of income. 6. On behalf of the revenue an additional reply came to be filed on 16.2.2008 and this contained a tabular form indicating the position year-wise. It was contended that in the instant case the order sought to be amended by A.O. was the order passed u/Sec.143(3) on 28.2.1997. The last date for amending the above order u/Sec.154 would be 31.3.2001. That the A.O had passed the first rectification order on 9.6.2006 i.e. more than 3 years after passing of the original orders. That since the limitation period had expired on 31.3.2001, this order was time barred under Section 154(7). In this background, the A.O had rightly : 18 : passed the second order u/Sec.154 reversing his earlier order as the same was invalid under the Income Tax Act. That consequently, the CIT-6 has also rightly rejected the assessee’s petition under Section 264. It was thus contended that the assessing officer had rightly reversed his earlier rectification order inadvertently passed u/Sec.154 by passing another order on 22.2.2007 and the CIT-6 was also right in rejecting the petition of the assessee u/Sec.264 in view of the aforesaid limitations of law provided u/Sec.154(7) of the Income Tax Act. 7. An additional affidavit-in-rejoinder sworn by Mr.Vinod Joshi was filed on behalf of the petitioner seeking to explain as to how the business loss of Rs.1,77,46,293 mentioned in the order dated 16.9.2003 was an error and that the same figure should have been described as "unabsorbed depreciation". Reference was made to certain judgments of the Madras High Court. It was contended that the Assessing Officer ought to have followed these to grant the assessee the benefit of unabsorbed depreciation. That even assuming for the sake of argument, section 154 was applicable, respondent no.2 could not take the shelter of limitation in view of Circular No.73 dated 7.1.1972. 8. We have heard both the parties and perused the : 19 : entire record. In our view, rule in the petition needs to be made absolute for the following reasons 9. The first question that has been raised and needs to be answered is whether the order dated 9.6.2006 which was purportedly passed under Section 154 of the Income Tax Act 1961 was indeed passed by virtue of power which could be traced to Section 154 of the Income Tax Act 1961. It was contended by the petitioner that in respect of the assessment year 1993-94 the order of the Assessing Officer had been challenged by them before the Commissioner of Income Tax (Appeals) and this appeal pertaining to the assessment year 1993-94 was disposed off vide an order dated 14.8.2002, granting certain benefits to the petitioner. Consequent to this appellate order, respondent no.2 had passed an order dated 16.9.2003 to give effect to the said appellate order. The net result was that it was determined that there was an unabsorbed depreciation of Rs.177,46,293 for the assessment year 1993-94 and than an amount of Rs.76,52,499 representing absorbed depreciation/investment allowance was "freed" thus being available for set off against future income. 10. For the assessment year 1994-95, the return was assessed and the matter was carried in appeal. In appeal, the Commissioner of Income Tax (Appeals) determined the petitioner’s total income as : 20 : Rs.2,67,71,123. This amount was fixed without accounting for unabsorbed depreciation of the assessment years 1992-93 and 1993-94. On the petitioners’ application dated 20.10.2003 and their subsequent representations dated 6.6.2006 and 8.6.2006 requesting that the unabsorbed depreciation for the years 1992-93 and 1993-94 should be set off against the income for the assessment year 1994-95 as a necessary consequence of the