ORDER
Sunil Kumar Yadav, Judicial Member
1. These cross appeals are preferred by the assessee as well as the revenue against the order of the Commissioner (Appeals) pertaining to the assessment year 1997-98. Since these appeals were heard together the same are being disposed off through this consolidated order. We, however, prefer to adjudicate these appeals one by one.
ITA No. 3615/Mum./2004
2. Through this appeal, the assessee has assailed the order of the Commissioner (Appeals) on various grounds:
3. The first ground relates to disallowance of carry forward of unabsorbed investment allowance of the erstwhile A.K Structural Foam Ltd. (AKSF) on the ground that it can only be carry forward and set off for a period of 8 years from the assessment year for which it is related i.e. Assessment Year 1988-89 and the investment allowance cannot be carried forward for set off for assessment year 1997-98, even though the amalgamation of AKSF with the assessee was effective from 1-4-1991 i.e. relevant to assessment year 1992-93.
4. The brief facts borne out from the record in this regard are that the assessee has claimed set off of unabsorbed investment allowance/ depreciation of Rs. 7,97,26,616. The assessing officer held that the unabsorbed investment allowance of Rs. 1,38,56,714 related to assessment year 1988-89 of A.K Structural Form Ltd. (hereinafter referred to as ‘AKSF’) which was amalgamated with the assessee in assessment year 1992-93 could be carried forward and. set off for a period of 8 years from the assessment year 1988-89 and, therefore, it lapsed in assessment year 1996-97. The assessing officer after setting off brought forward unabsorbed depreciation/investment allowance against the income for assessment year 1996-97 and out of balance unabsorbed depreciation/ investment allowance, deducted Rs. 1,38,56,714 to arrive at the unabsorbed depreciation/investment allowance for set off in assessment year 1997-98.
5. The assessee preferred an appeal before the Commissioner (Appeals) with the submissions that the period of 8 years for carry forward of investment allowanceshould be reckoned from the year in which the amalgamation had taken place. In support thereof, he placed reliance upon Sub-clause (i) of Clause B of the rehabilitation-cwm-amalgamation scheme sanctioned by the BIFR wherein it has been stated that the carry forward accumulated losses including investment allowance and unabsorbed depreciation of AKSF are estimated at Rs. 1,02,690 as on 31-3-1991. Further as per the declaration issued by the BIFR under Section 72 A(1) of the Income Tax Act dated 15-4-1994, the losses and allowances of AKSF shall be deemed to be the losses and allowances of the assessee for the previous year in which amalgamation was effected ie. Assessment Year 1992-93. Reliance of Section 32 of the Sick Industrial Companies Act, 1985 was also placed wherein it is stated that the provisions of SICA Act shall have effect notwithstanding anything inconsistent therewith contained in any other law. The Learned Counsel for the assessee further contended that in the light of these provisions, period of 8 years for the carry forward of the investment allowance should be reckoned from the year in which the amalgamation had taken place ie. Assessment Year 1992-93.
6. The Commissioner (Appeals) re-examined the issue but was not convinced with the contentions of the assessee. He however observed that it is abundantly clear in the provisions of Section 32A that a period of 8 years is to be computed with reference to the years in which investment allowance has been carried forward by both the amalgamating company and the amalgamated company. The reference to SICA Act by the assessee is wholly misplaced as in the scheme sanctioned by the BIFR for the amalgamation of AKSF with the assessee nowhere has any provisions which specifically overrides the provisions of Section 32A(6) of the Income Tax Act, 1961. The Commissioner (Appeals) further observed that the declaration under Section 72A(1) dated 15-4-1994 cannot be interpreted to imply that the scheme intended to nullify the express provisions of Section 32 A(6) of the Income Tax Act, 1961. Therefore, there is no merit in the contention of the assessee that the period of 8 years for the carry forward of investment allowance should be reckoned from the year in which the amalgamation has taken place.
7. Now the assessee has preferred an appeal before the Tribunal and reiterated its contention. During the course of hearing, the Learned Counsel for the assessee, Shri P.J. Pardiwala has invited our attention that Section 32of the Sick Industrial Companies Act, 1985 (SICA) has an overriding effect on any other law except the provisions of the Foreign Exchange Regulation Act, and the Urban Land Ceiling and Regulation Act. Section 32(2) also speaks about the effect of provisions of Section 72A of the Income Tax Act in the light of a scheme under the SICA for amalgamation of Sick Industrial companies with another company. The Learned Counsel further invited our attention to the declaration issued under Section 72A(1) of the Income Tax Act, the order of the BIFR and the sanctioned rehabilitation-cwm-amalgamation scheme. In the order of the BIFR and the sanctioned scheme carry forward accumulated losses including investment allowance and unabsorbed depreciation of AKSF are estimated at Rs. 1,026.90 lakhs on 31-3-1991. The estimated tax set off of on this count, at current rate under Section 72(A) worked out to Rs. 531.42 lakhs. The Learned Counsel for the assessee has further submitted that since it has been specifiedin the declaration by the BIFR, order and the sanctioned scheme that the carry forward accumulated loss including investment allowance and unabsorbed depreciation becomes the accumulated loss of the amalgam-ated company for the year 1992-93 in which amalgamation has taken place, the investment allowance has to carry forward up to 8 assessment years and the assessee is entitled for the set off of the carry forward investment allowance in the impugned assessment years a it falls within the period of 8 years.
8. The Learned departmental Representative repelling the contention of the assessee has invited our attention, besides placing a heavy reliance upon the order of Commissioner (Appeals) to the declaration by the BIFR issued under Section 72A of the Income Tax Act with the submission that Section 72A deals with the carry forward and set off of accumulated loss and unabsorbed depreciation allowances in amalgamation or de-merger etc. This Section deals with the circumstances under which the Central Government make a declaration on the recommendation of specified authorities for carry forward of the accumulated loss and unabsorbed depreciation of the amalgamating company vis-a-vis the amalgamated company. Though in the title the Legislature has used the word unabsorbed depreciation allowance but in the body of the Section they are only concerned with the unabsorbed depreciation and there is no reference of investment allowances and Section 72A confines only with respect to carry forward and set off of accumulated losses and unabsorbed depreciation. The Learned DR further invited our attention to the provisions of Section 32(1) of Sick Industrial Companies Act, 1985 with the submissions that no doubt it talks about overriding effects over provisions of other Act but its Sub-section (2) only talks about the effect of provisions of Section 72A of the Income Tax Act. According to Sub-section (2), the provisions of Section 72A shall be applied subject to the scheme approved under SICA and the amalgamation of Sick Industrial Company with another company. Section 72A only deals with the carry forward of accumulated loss and unabsorbed depreciation in case of amalgamation. Meaning thereby, there was no reference of Section 32A(6) which deals with the carry forward of unabsorbed investment allowance in case of amalgamation. The Learned DR further invited our attention to the sanctioned scheme with the submissions that Clause (i) Part B talks about the tax benefit under Section 72A. It does not talk about the carry forward of the unabsorbed investment allowance as per Section 32A(6) of the Income Tax Act. Meaning thereby in the entire scheme, the order of the BIFR and declaration under Section 72A, a reference was made with regard to provisions of Section 72A relating to carry forward of unabsorbed accumulated loss and unabsorbed depreciation. The word investment allowances was used at some places in the body of the scheme but it does not mean that the investment allowances has to carry forward in the same manner as in the case of accumulated loss and unabsorbed depreciation.
9. Having heard the rival submissions and from the careful perusal of the record, we find that the A.K. Structural Form Ltd. (AKSK) was amalgam-ated with the assessee-company with the prior approval of BIFR and scheme for rehabilitation-cwm-amalgamation was also sanctioned by the BIFR. Consequent thereto declaration under Section 72A(1) of the Income Tax Act was issued by the BIFR. Through this declaration, it has been declared that notwithstanding anything contained in any provisions of the Income Tax Act, the accumulated loss and depreciation of M/s. AKSF Ltd. shall be deemed to be the loss or as the case may be, allowances for depreciation of M/s. Supreme Industries Ltd. for the previous year in which the amalgamation was effected and other provisions of Income Tax Act relating to set off of and allowance for depreciation would be allowed accordingly. It was also declared that the amalgamation takes place with effect from 1-4-1991. We have also examined the order of the BIFR according the sanction of rehabilitation-cum-amalgamation scheme under Section 18(4) read with Section 19(3) of Sick Industrial Companies (Special Provisions) Act, 1985. In its Para-5, the BIFR has recorded the submissions of Shri O.P. Roongta, representing Supreme Industries Ltd., the assessee. In the scheme, the tax benefit under Section 72A of the Income Tax Act was specified and it was stated the carry forward accumulated loss including investment allowance and unabsorbed depreciation of AKSF are estimated at Rs. 1,026.90 lakhs as on 31 -3-1991. The estimated tax set off of on this count, at current rate under Section 72A would work out at Rs. 531.42 lakhs. Under this head of tax benefit under Section 72A nowhere it has been mentioned that the carry forward unabsorbed investment allowance shall be deemed to be the investment allowance of the Supreme Industries Ltd. i.e. amalgamated company for the previous year in which the amalgamation was effected.
10. Now the moot question raised before us is whether the unabsorbed investment allowance shall be deemed to be the investment allowance of the assessee for the previous year in which the amalgamation was affected and assessee shall be entitled to carry forward up to 8 assessment years immediately succeeding the assessment year relevant to the previous year in which amalgamation takes place or the assessee is entitled for the carry forward of the unabsorbed investment allowance for the remaining un-exhausted assessment years. The reference of investment allowance in the scheme and in the BIFR order was made when there was discussion of income-tax benefit under Section 72A of the Income Tax Act. There is no specific independent reference of the carry forward of the investment allowance.
11. We have carefully examined the provisions of Section 72A relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation and de-mergers. Before dealing with this Section, we f eel it proper to extract it as under:
72 A. Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in certain cases of amalgamation.(1) Where there has been an amalgamation of a company owning an industrial undertaking or a ship with another company and the Central Government, on the recommendation of the specified authority, is satisfied that the following conditions are fulfilled, namely:
(a) the amalgamating company was not, immediately before such amalgamation, financially viable by reason of its liabilities, losses and other relevant factors;
(b) the amalgamation was in the public interest; and
(c) such other conditions as the Central Government may, by notification in the Official Gazette, specify, to ensure that the benefit under this Section is restricted to amalgamations which would facilitate the rehabilitation or revival of the business of the amalgamating company, then, the Central Government may make a declaration to that effect, and, thereupon, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected, and the other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly.
(2) Notwithstanding anything contained in Sub-section (1), the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamatedcompany unless the following conditions are fulfilled, namely:
(i) during the previous year relevant to the assessment year for which such set off or allowance is claimed, the business of the amalgamating company is carried on by the amalgamated company without any modification or reorganisation or with such modification or reorganisation as may be approved by the Central Government to enable the amalgamated company to carry on such business more economically or more efficiently;
(ii) the amalgamated company furnishes, along with its return of income for the said assessment year, a certificate from the specified authority to the effect that adequate steps have been taken by thatcompany for the rehabilitation or revival of the business of theamalgamating company.
(3) Where a company owning an industrial undertaking or a ship proposes to amalgamate with any other company and such other company submits the proposed scheme of amalgamation to the specified authority and that authority is satisfied, after examining the scheme and taking into account all relevant facts, that the conditions referred to in Sub-section (1) would he fulfilled if such amalgamation is effected in accordance with such scheme or, as the case may be, in accordance with such scheme as modified in such manner as that authority may specify, it shall intimate such other company that, after the amalgamation is effected in accord-ance with such scheme or, as true case may be, such scheme as so modified, it would make (unless there is any material change in the relevant facts) a recommendation to the Central Government under Sub-section (1).
(4) Where there has been reorganisation of business, whereby, a firm is succeeded by a company fulfilling the conditions laid down in Clause (xiii) of Section 47 or a proprietary concern is succeeded by a company fulfilling the conditions laid down in Clause (xiv) of Section 47, then, notwithstanding anything contained in any other provisions of this Act, the accumulated loss and the unabsorbed depreciation of the predecessor firm or the proprietary concern, as the case may be, shall be deemed to be the loss or allowance for depreciation of the successor company for the previous year in which business reorganisation was effected and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly:
Provided that if any of the conditions laid down in the proviso to Clause (xiii) or the proviso to Clause (xiv) to Section 47 are not complied with, the set off of loss or allowance of depreciation made in any previous year in the hands of the successor company, shall be deemed to be the income of the company chargeable to tax in the year in which such conditions are not complied with.
(5) For the purposes of Sub-section (4)
(a)”accumulated loss” means so much of the loss of the predecessorfirm or the proprietary concern, as the case may be, under the head “Profits and gains of business or profession” (not being a losssustained in a speculation business) which such predecessor firmor the proprietary concern would have been entitled to carryforward and set off under the provisions of Section 72 if thereorganisation of business had not taken place;
(b) “unabsorbed depreciation” means so much of the allowance for depreciation of the predecessor firm or the proprietary concern, as the case may be, which remains to be allowed and which would have been allowed to the predecessor firm or the proprietary concern, as the case may be, under the provisions of this Act, if the reorganisation of business had not taken place.
Explanation – In this Section
(a) “accumulated loss” means so much of the loss of the amalgamating company under the head “Profits and gains of business or profession” (not being a loss sustained in a speculation business) which the amalgamating company would have been entitled to carry forward and set off under the provisions of Section 72 if the amalgamation had not been effected;
(b)”specified authority” means such authority as the Central Government may, by notification in the Official Gazette, specify for the purposes of this Section:
(c) “unabsorbed depreciation” means so much of the allowance for depreciation of the amalgamating company which remains to be allowed and which would have been allowed to the amalgamating company under the provisions of this Act if the amalgamation had not been effected.
12. From a plain reading of this Section, we find that this Section was brought to the statute by the Finance Act, 1977 with effect from 1-4-1978to make the amalgamation of the Sick Companies with other companies workable. Under Sub-section (1) if the Central Government on the recommendation of the specified authority, is satisfied that the conditions prescribed under this Section are fulfilled, it may make declaration to that effect and thereafter the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or as the case may be, allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected, and the other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly, notwithstanding any-thing contained in any provisions of the Act. This Section was amended by the Finance Act, 1978 with effect from 1-4-1978 and again by 1998 with effect from 1 -4-1999. This Section deals with the carry forward and set off of the accumulated loss and unabsorbed depreciation allowance. It has no relevance with unabsorbed investment allowance.
13. As per Section 72 of the Act, so much of the business loss of a year as cannot be set off against the other income of the assessee for that year can be carried forward and set off by him against the profit of the following year from any business carried on by him. If the loss cannot be wholly so set off, the amount not so set off can be carried forward to the next following year and so on, upto a maximum of eight assessment years immediately succeeding the assessment year for which the loss was first computed. The benefit of carry forward and set off business loss, is, however, not available unless the business in which the loss was originally sustained is continued to be carried on by the assessee. Further, only the assessee who incurred the loss has the right to carry forward the same, so that the successor in business cannot claim to carry forward the loss incurred by his predecessor.
14. The Finance Act, 1977 has inserted a new Section 72A in the Income Tax Act relaxing the aforesaid provisions relating to carry forward and set off of a accumulated business loss and unabsorbed depreciation allowance in certain cases of amalgamation. Sub-section (1) of Section 72A provides that where there has been an amalgamation of a company owning an industrial undertaking or a ship with another company and the Central Government, on the recommendation of the specified authority, is satisfied that certain conditions specified in this behalf are fulfilled, the Central Government may make a declaration to that effect and thereupon, notwithstanding any thing contained in any other provision of the Income Tax Act, the accumulated loss and unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected and the other provisions of the Act relating to carry forward and set off of loss and allowance for depreciation shall apply accordingly. It is to be noted that as the unabsorbed loss of the amalgamating company is deemed to be the loss for the previous year in which the amalgamation was effected, the amalgamated company will have the right to carry forward the loss for a period of eight assessment years immediately succeeding the assessment year relevant to the previous year in which the amalgamation was effected. Similar is the position with regard to the unabsorbed depreciation. Meaning thereby, Section 72A deals with regard to the carry forward and set off of accumulated business loss and unabsorbed depreciation. It has no relevance with regard to the carry forward of investment allowance in case of amalgamation.
15. This situation is dealt with by Sub-section (6) of Section 32A of the Income Tax Act. Section 32A deals with the investment allowance, its allowability and its carry forward and set off. As per Sub-section (3) where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship or aircraf t was acquired or the machinery or plant was installed, or, as the case may be the immediately succeeding previous year (the total income for this purpose being computed after deduction of the allowances under Section 33 and Section 33A, but without making any deduction under Sub-section (1) of this Section or any deduction under Chapter VI-A) is M7 or is less than the fuil amount of the investment allowance (z) the sum to be allowed by way of investment allowance for that assessment year under Sub-section (1) shall be only such amount as is sufficient to reduce the said total income to Nil; and (ii) the amount of the investment allowance to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the investment allowance to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the investment allowance, if any, still outstanding shall be carried forward to the following assessment year and so on, so, however, that no portion of the investment allowance shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, as the case may be, the immediately succeeding previous year. Meaning thereby, the unabsorbed investment allowance shall be carried forward and adjusted against the total income of the assessee up to 8 assessment years from the immediately succeeding previous year of the year in which the ship or aircraft was acquired or the plant was installed as the case may be.
16. Sub-section (6) of Section 32A deals with the situation of carry forward and adjustment of the unabsorbed investment allowance of the amalgamating company in case of amalgamation. According to Sub-section (6),where the amalgamating company sells or transfers the eligible assets in respect of which investment allowance has been granted under Sub-section (1) of Section 32A in a scheme of amalgamation, to the amalgamated company (a) the amalgamated company shall comply with the conditions enjoined by Section 32A(4) as regards reserve created and the period of retention of the eligible asset; in the event of default of such provisions, the provisions of Section 155(4A) shall apply in. the hands of the amalgamated company as they would have applied if the amalgamating company had committed the breach of such condition and (b) the balance of investment allowance, if any, still outstanding to the amalgamating company in respect of such ship, aircraft, machinery or plant, shall be allowed to the amalgamated company in accordance with the provisions of Sub-section (3), so, however, that the total period for which the balance of investment allowance shall be carried forward in the assessment of the amalgamating company and the amalgamated company shall not exceed the period of eight years specified in Sub-section (3) and the amalgamated company shall be treated as the assessee in respect of such ship, aircraft, machinery or plant for the purposes of this Section.
17. For the sake of reference, we extract the Sub-section (1), Sub-section (3) sind Sub-section (6) of Section 32A in order to understand the controversy involved in this case.
32A.(1) In respect of a ship or an aircraft or machinery or plant specified in Sub-section (2) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this Section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, óf a sum by way of investment allowance equal to twenty five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee:
(Provided that in respect of a ship or an aircraft or machinery or plant specified in Sub-section (8B), this sub-section shall have effect as if for the words “twenty five per cent”, the words “twenty per cent” had been substituted:)
Provided (further) that no deduction shall be allowed under this Section in respect of
(a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest house;
(b) any office appliances or road transport vehicles;
(c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under Section 33; and
(d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any one previous year.
(Explanation – For the purpose of this sub-section, “actual cost” means the actual cost of the ship, aircraft, machinery or plant to the assessee as reduced by that part of such cost which has been met out of the amount released to the assessee under Sub-section (6) of Section 32AB)
** ** **
(3) Where the total income of the assessee assessable for the assessmentyear relevant to the previous year in which the ship or aircraft wasacquired or the machinery or plant was installed, or, as the case may be,the immediately succeeding previous year (the total income for this purpose being computed af ter deduction of the allowances under Section 33 and Section 33 A, but without making any deduction under Sub-section (1) of this Section or any deduction under Chapter VI-A is nil or is less than the full amount of the investment allowance:
(i) the sum to be allowed by way of investment allowance for that assessment year under Sub-section (1) shall be only such amount as is sufficient to reduce the said total income to nil; and
(ii) the amount of the investment allowance, to the extent to which ithas not been allowed as aforesaid, shall be carried forward to thefollowing assessment year shall be such amount as is sufficiënt toreduce the total income of the assessee assessable for thatassessment year, computed in the manner af oresaid, to nil, and thebalance of the investment allowance, if any, still outstanding shallbe carried forward to the following assessment year and so on, so,however, that no portion of the investment allowance shall be carried forward for more than eight assessment years immediatelysucceeding the assessment year relevant to the previous year inwhich the ship or aircraft was acquired or the machinery or plantwas installed or, as the case may be, the immediately succeedingprevious year.
(6) Where in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company any ship, aircraft, machinery or plant, in respect of which investment allowance has been allowed to the amalgamating company under Sub-section (1),
(a) the amalgamated company shall continue to fulfil the conditions mentioned in Sub-section (4) in respect of the reserve created by the amalgamating company and in respect of the period within which such ship, aircraft, machinery or plant shall not be sold or otherwise transf erred and in def ault of any of these conditions, the provisions of Sub-section (4A) of Section 155 shall apply to the amalgamated company as they would have applied to the amalgamating company had it committed the default; and
(b) the balance of investment allowance, if any, still outstanding to the amalgamating compajiy in respect of such ship, aircraft, machinery or plant, shall be allowed to the amalgamated company in accordance with the provisions of Sub-section (3), so, however, that the total period for which the balance of investment allowance shall be carried forward in the assessments of the amalgamating company and the amalgamated company shall not exceed the period of eight years specified in Sub-section (3) and the amalgamated company shall be treated as the assessee in respect of such ship, aircraft, machinery or plant for the purposes of this Section.
18. Having gone through both the provisions of Sections 72A and 32A, of the Act we are of the view tha.t Section 72A deals with carry forward and set off of accumulated business loss and unabsorbed depreciation allowance in case of amalgamation. According to this Section, accumulated business loss and unabsorbed. depreciation allowance of the amalgamating company shall be deemed to be the loss or as the case may be of the amalgamated company for the previous year in which amalgamation was affected and other provisions of this Act relating to set off of and carry forward of loss allowance for depreciation shall apply accordingly. Mean-ing thereby the amalgamated company would get the original period for its carry forward and set off. But in case of investment allowance, the unabsorbed/balance of investment allowance of the amalgamating company shall be deemed to be the unabsorbed investment allowance of the amalgamated company and amalgamated company shall be entitled to claim its carry forward and adjustment against the total income subject to fulfilment of other conditions for the refraining period of 8 years. In any case the total period of its carry forward would not exceed the period of 8 years specified in Sub-section (3). Meaning thereby if the amalgamating company has availed the benefit of carry forward for three assessment years, the amalgamated company can claim the carry forward only up to 5 years and not full of 8 years as in the case of carry forward of accumulated loss and unabsorbed depreciation. We have also carefully considered the argument of the assessee that the provisions of SICA Act, 1985 has an overriding effect over other provisions of Act but nowhere either under the scheme or the BIFR order, it has been mentioned that investment allowance shall be carried forward up to the full period of 8 years contrary to the provisions of Section 32A(6) of the Act. We therefore do not find any force in the argument of the assessee that it has been specifically specified in the BIFR order or the scheme that amalgamated company shall be entitled to carry forward of the unabsorbed investment allowance up to 8 years. We therefore of the view that the amalgamated company shall only be entitled for the carry forward of unabsorbed investment allowance subject to fulfilment of other conditions up to the remaining period of eight years.
19. Turning to the facts of the case, we find that the amalgamating company AKSF has claimed investment allowance first time in the assessment year 1988-89 and it could be carry forward and set off for a period of 8 years i.e. up to assessment year 1996-97. The AKSF was amalgamated with the assessee-company in the assessment year 1992-93 and the assessee claimed its carry forward for a period 8 years from the year of amalgamation i.e. Assessment Year 1992-93. The revenue has disallowed the claim of the assessee on the ground that the carry forward of unabsorbed investment allowances and set off is allowable only up to the assessment year 1996-97 and since the impugned assessment year is 1997-98 which is beyond the period of 8 years, assessee cannot claim a carry forward of unabsorbed investment allowance and its set off. In the light of the foregoing discussion, we are of the view that the revenue’s stand is correct and assessee is not entitled for set off of unabsorbed investment allowance for the impugned assessment year as it f alls beyond the period of 8 years. Accordingly assessee fails on this ground.
20. Ground No. 2 relating to deduction of 90 per cent of receipts like interest received, labour charges, commission etc. from the business profits as contemplated in Explanation (bad) to Section 80HHC of the Act while calculating the deduction under Section 80HHC of the Act.
21. The learned Counsel for the assessee has submitted that this issue requires to be re-examined in the light of the judgment of Jurisdictional High Court in the case of CIT v. Bangalore Clothing Co. to which revenue has no objection. We accordingly set aside the order of the Commissioner (Appeals) in this regard and restore the matter to the file of the assessing officer with the direction to adjudicate the issue in the light of the judgment of jurisdictional High Court in the case of Bangalore Clothing (supra).
22. Ground No. 3 relates to restriction of claim of deduction under Sections80HH, 80-1 and 80-IA of the Act to Rs. 4,02,06,950 as against a sum of Rs. 4,10,80,981 as claimed by the assessee.
23. The facts borne out from the record in this regard are that the assessee-company has claimed deduction under Sections 80HH, 80-1 and 80-IA in respect of its various units for a sum of Rs. 6,28,86,365. On perusal of the working, the assessing officer noticed that expenses pertaining to the Head Office and non-manufacturing branches have not been apportioned to the eligible units. Accordingly it was referred to special audit and in the special audit report, the said expenses/income have apportioned on the basis of turnover and capital employed amongst the eligible units. As the taxable profits from each unit is based on the turnover of those units, the expenses of the Head Office and non-manufacturing units are apportioned on the basis of the total turnover and the deductions was accordingly worked out.
24. Before the Commissioner (Appeals), it was contended that the assessee had not allocated the expenses incurred at Head Office and non-manufacturing branches to manufacturing units, primarily because the assessee was not claiming benefits under Chapter VI-A. The assessee had started allocating the expenses from the financial year 1997-98, during which its Pondicherry II Unit commenced production and the assessee also started claiming benefits of Chapter VI-A. During the assessment proceedings for the previous year relevant to the assessment year under appeal, the assessee submitted revised working of eligible deduction under Sections 80HH,80-1 and 80-IA of the Act, pertaining to eligible units after allocation of expenses/income pertaining to Head Office and non-manufacturing units/branches to manufacturing units/branches on the basis of (d) total turnover basis and (b) turnover and capital employed (for financial and other charges) basis and reckoned the eligible deduction based on latter basis. The Commissioner (Appeals) re-examined the claim of the assessee. But he was not convinced with the contentions of the assessee and has observed that the reasoning advanced by the assessee is not valid and will give rise to distorted allocation. Head Office and non-manufacturing units are necessarily less capital intensive than the manufacturing units. Moreover, it cannot be a general proposition that financial charges have only been incurred with respect of capital expenditure. Financial charges can also be incurred in the day-to-day working of the units and the Head Office, to finance purchase of raw materials or to finance advances to suppliers or other parties. The learned Commissioner (Appeals) has also observed that the assessee has advanced a substantial amount to a subsidiary concern i.e. M/s. Premier Lighting Indus. Pvt. Ltd. and Rs. 96,12,334 was outstanding from the said party as on 31-3-1997. He accordingly observed that the funds, for which the financial and other related expenses have been incurred, cannot be said to have been deployed exclusively for capital expenditure. He accordingly confirmed the method of allocation of expenses adopted by the assessing officer on turnover basis.
25. The assessee preferred an appeal but could not substantiate its claim as to how the method adopted by it is more scientific and correct method. Moreover, it has been held that wherever there is no proper identification of the expenditure pertaining to different units, its allocation can only be done on turnover basis. We, therefore of the view that the method adopted by the assessing officer is most appropriate and correct method and we find no infirmity therein. Accordingly, we confirm the order of the Commissioner (Appeals).
26. Ground No. 4 is general in nature and needs no comments. ITA No. 3474/Mum./2004
27. This appeal is preferred by the revenue against the order of the Commissioner (Appeals) mainly on two grounds.
28. The first ground relate to exclusion of excise duty and sales tax from the total turnover while computing the deduction under Section 80HHC of the Income Tax Act.
29. During the course of hearing, the Learned Counsel for the assessee has invited our attention that this ground is squarely covered by the judgment of the Jurisdictional High Court in the case of CIT v. Sudarshan Chemicals Industries Ltd. (2000) 245ITR 769′ (Bom.) in which it has been held that the turnover should be restricted to such receipts which have an element of profit in it. Anything charged by way of sales tax and excise duty, have no element of profit, hence it cannot be a part of total turnover. The view taken by the Jurisdictional High Court has been approved by the Apex court in the case of CIT v. Lakshmi Machine Works (2007) 290 ITR 667. Therefore, the impugned issue is squarely covered against the revenue. We confirm the order of the Commissioner (Appeals). Accordingly, revenue f ails.
30. Ground No. 2 relate to deletion of disallowance out of interest paid amounting to Rs. 18,22,631 being attributable to the interest-free advance given to the sister concern M/s. Premier Lighting Industries Ltd.
31. The Learned Counsel for the assessee has invited our attention that the identical additions were made in the assessment years 1993-94, 1995-96and 1996-97 but the same were deleted by the Commissioner (Appeals). Since nothing has been placed by the revenue as what has happened in those years, we are of the view that the orders of the earlier years attained the finality as no appeal was preferred by the revenue. Since the Commissioner (Appeals) has decided the issue following its order for the earlier years, we find no infirmity in its order. Accordingly, we confirm the order of the Commissioner (Appeals).
32. In the result, the appeal of the assessee is partly allowed for statistical purposes and that of revenue is dismissed.