2013 (7) TMI 998 - AT - Income Tax

Un-absorbed depreciation - Held that - AO and the FAA have not considered the amended provisions of the Sec.32(2) of the Act in right perspective. Perusal of provisions of section 32 show that prior to 01- 04-1997, un-absorbed depreciation of the previous year used to be claimed as current depreciation and would be allowed to be set-off against income from any other head. By an amendment to the provisions of Section 32(2) of the Act w.e.f. 01-04-1997, treatment of un-absorbed depreciation underwent a change-because as per the amended provisions un-absorbed depreciation was no longer deemed to be part of current depreciation and the period available for set-off of such unabsorbed depreciation from profits of subsequent years was restricted to eight years. It is noteworthy that during earlier period(up to 31.03.1997) no such time limit was prescribed. Vide finance Act, 2001 the provisions of Section 32(2)were once again amended and a result the position as it existed prior to 01-04-1997 was restored back. From the amendments to Finance Act, 2001 it is clear that legislative intent was to allow un-absorbed depreciation to be carried forward beyond period of eight years. For the AY under consideration correct law applicable was the law that prevailed as on the first day of April of that AY. In our opinion during the assessment year under consideration amended provisions were applicable and AO was supposed to calculate the un-absorbed depreciation as required by the Act. In our opinion there was no bar to allow the un-absorbed depreciation of the earlier years in the AY 2007-08 - Decided in favour of the assessee-company.

Summary

Issues Involved:
1. Consideration of brought forward unabsorbed depreciation from AY 1995-96 to AY 1998-99 for set off against income for AY 2007-08.
2. Application of provisions relevant to AY 2007-08 versus those applicable to AY 1995-96 to AY 1998-99.
3. Interest charged under sections 234B and 234C and adjustment of demand against refund due for AY 2008-09.

Detailed Analysis:

1. Consideration of Brought Forward Unabsorbed Depreciation:
The primary issue raised by the assessee was the disallowance of brought forward unabsorbed depreciation amounting to Rs. 2,57,26,751/- from AY 1995-96 to AY 1998-99 for set off against the income of AY 2007-08. The assessee argued that the provisions applicable for AY 2007-08 should be considered instead of those relevant to the earlier years. The AO disallowed the claim based on the law applicable up to AY 2001-02, which restricted the carry forward of unabsorbed depreciation to eight years. The First Appellate Authority (FAA) upheld the AO's decision, stating that section 32(2) was a substantive provision and prospective in nature, applicable only from AY 2002-03 onwards.

2. Application of Provisions Relevant to AY 2007-08:
The assessee contended that the Finance Act 2001, which amended section 32(2) effective from 1st April 2002, restored the position as it existed prior to 1st April 1997, allowing unabsorbed depreciation to be carried forward indefinitely. The assessee cited judgments from the High Court of Madras (Craigmore Plantations India Limited) and the High Court of Gujarat (General Motors India Pvt. Ltd.) to support their claim. The Tribunal noted that the AO and FAA did not consider the amended provisions of section 32(2) correctly. The Tribunal emphasized that the amendments made by the Finance Act 2001 intended to allow unabsorbed depreciation to be carried forward beyond eight years, applicable for AY 2002-03 onwards, including AY 2007-08.

3. Interest Charged Under Sections 234B and 234C:
The interest charged under sections 234B and 234C and the adjustment of demand against the refund due for AY 2008-09 were consequential to the primary issue of unabsorbed depreciation. Since the Tribunal decided in favor of the assessee regarding the carry forward and set off of unabsorbed depreciation, the interest and adjustment issues were also resolved in the assessee's favor.

Conclusion:
The Tribunal reversed the order of the FAA and allowed the appeal filed by the assessee. It concluded that the unabsorbed depreciation from AY 1995-96 to AY 1998-99 should be allowed to be set off against the income for AY 2007-08, in line with the provisions of section 32(2) as amended by the Finance Act 2001. The legislative intent was to permit the carry forward of unabsorbed depreciation beyond eight years, applicable from AY 2002-03 onwards. The Tribunal's decision was pronounced in the open court on 24th July 2013.