2014 (5) TMI 1027 - AT - Income Tax

Disallowance of unabsorbed depreciation - Whether it is proper on the part of the Assessing Officer to disallow a sum of ₹ 13,71,60,209 from unabsorbed depreciation eligible to be carried forward and set off against future profits of the assessee-company - Held that - Ongoing through the orders of the Assessing Officer and the Commissioner of Income-tax (Appeals), we find that both authorities have considered different case law not relevant for the issue in hand. It is true that for an interregnum period, the eligibility of unabsorbed depreciation to be carried forward was limited for a period of eight years. But, the old position that unabsorbed depreciation becomes the current depreciation under section 32(2) and therefore eligible for carry forward and set off without any limitation, was restored by the amendment brought in with effect from the assessment year 2002-03. When the quantum of unabsorbed depreciation is computed after the amendment, whatever balance of unabsorbed depreciation is available to the credit of the assessee, must be determined as unabsorbed depreciation eligible for carry forward and set off. The interregnum restriction of limiting the claim for an eight-year period does not take away the right of an assessee to claim the balance of unabsorbed depreciation, forever. The balance of unabsorbed depreciation revives back into life and becomes eligible for carry forward and set off along with the other part unabsorbed depreciation available to the credit of the assessee. - Decided in favour of assessee.

Summary

Issues:
1. Proper disallowance of unabsorbed depreciation for carry forward and set off.

Analysis:
The appeal pertains to the assessment year 2007-08 and challenges the order of the Commissioner of Income-tax (Appeals) regarding the withdrawal of a significant amount of unabsorbed depreciation eligible for carry forward and set off. The assessing authority initially proposed to rectify the assessment order under section 154 by withdrawing depreciation of &8377; 13,71,60,209, which was related to earlier assessment years. However, upon the assessee's response, the rectification proposal was dropped. Subsequently, the Assessing Officer issued a notice under section 148 and completed the assessment, withdrawing the same amount from the unabsorbed depreciation. The main issue raised in the appeal was the propriety of this disallowance.

The Appellate Tribunal found that the assessing authorities had incorrectly relied on irrelevant case law and failed to consider the applicable provisions correctly. It was noted that the amendment introduced from the assessment year 2002-03 reinstated the position that unabsorbed depreciation, which was not allowed to be set off after eight years, could be carried forward without any limitation. Therefore, the Tribunal held that the balance of unabsorbed depreciation, which was previously restricted due to the eight-year period, should be reconsidered for carry forward and set off post-amendment. The Tribunal emphasized that the right of an assessee to claim the balance of unabsorbed depreciation remains intact, and such balance revives for carry forward and set off along with other unabsorbed depreciation available to the assessee.

Consequently, the Tribunal set aside the orders of the lower authorities and directed the Assessing Officer to redetermine the unabsorbed depreciation eligible for carry forward and set off in accordance with the post-amendment provisions. The Tribunal did not delve into the issue of the notice under section 148 or the subsequent assessment under section 147/143(3) as the appeal was decided on the merits of the disallowance of unabsorbed depreciation. Ultimately, the appeal filed by the assessee was allowed, and the decision was pronounced in an open court hearing in May 2014 in Chennai.