2011 (2) TMI 1465 - HC - Income Tax

Benefit of carrying forward the depreciation u/s 32(2) denied - Petitioner contends, the unabsorbed depreciation for the year 1993-94 is thus, according to s. 32(2) of the Act and had been carried forward while filing assessment for the subsequent years - scope of amendment introduced - HELD THAT - The order passed at Annex. Q by the CIT that the unabsorbed depreciation incurred for the asst. yr. 1993-94 gets lapsed on 31st March, 2002. The said order has affected the petitioner, since according to the petitioner, prior to the amendment introduced during 1996-97, it was permissible to carry forward the unabsorbed depreciation and from 1993-94 to 1996-97, the unabsorbed depreciation has been carried forward. The amendment introduced limiting the time for carrying forward for a period of eight years has to be reckoned not from 1993-94 but from 1996-97 and the same was carried forward and by the year 2006-07 since again there is an amendment introduced during 2002 making this period of eight years as unlimited, from 2002 onwards even till 2006-07, it is permissible to carry forward the unabsorbed depreciation in view of the change in position of law. This aspect has not been considered by the revisional authority as such, the impugned order passed at Annex. Q is without taking into consideration the provisions under s. 32(2) of the Act which came to be introduced limiting/extending the period from eight years for an unlimited period. Further, carrying forward of unabsorbed depreciation for every year has to be calculated individually based on the audit report and to arrive at the exact amount to be carried forward. The impugned order at Annex. Q and also the order of the assessing authority at Annex. J in not taking into consideration the legal position as to carrying forward the unabsorbed depreciation require interference and reconsideration - Matter is remitted to the 1st respondent for reconsideration in accordance with law taking into consideration the provisions provided under the IT Act regarding allowing of depreciation and also carrying forward the claim of depreciation, to arrive at a conclusion on such carrying forward of the depreciation as to what would be the remaining amount to be determined for the purpose of payment of tax. Petition allowed in part.

Summary

Issues:
1. Rejection of revised return by the 1st respondent
2. Disallowance of carrying forward unabsorbed depreciation
3. Interpretation of s. 32(2) of the IT Act
4. Calculation of limitation period for carrying forward depreciation
5. Legal position on carrying forward unabsorbed depreciation

Analysis:

1. The petitioner, a co-operative society, filed a return of income for the asst. yr. 1993-94 without enclosing the audited balance sheet due to delayed audit work. The 1st respondent rejected the claim and invalidated the return. Despite filing a revised return with the audited balance sheet, the claim was rejected again. Appeals were filed, leading to the Tribunal remanding the matter for reconsideration. The CIT dismissed the appeal, prompting a second appeal to the Tribunal, which directed the AO to assess the petitioner in accordance with the law.

2. The main contention was the carrying forward of unabsorbed depreciation amounting to Rs. 3,33,01,745 for the asst. yr. 1993-94. The petitioner argued that there was no time limit for carrying forward depreciation under s. 32(2) of the IT Act. The 1st respondent, however, disallowed the claim citing the lapse of the eight-year period for carrying forward business losses. The petitioner sought adjustment of the unabsorbed depreciation for the asst. yr. 2006-07 based on the Tribunal's decision served in 2006.

3. The petitioner's counsel argued that the eight-year limitation period introduced in 1996-97 was repealed, allowing for limitless assessment years for carrying forward unabsorbed depreciation. The petitioner contended that the unabsorbed depreciation for 1993-94 could be carried forward till 1996-97 and subsequent years as per the law. The standing counsel for the Revenue maintained that the limitation period should be reckoned from 1993-94, not 1996-97.

4. The order passed by the CIT stated that the unabsorbed depreciation for the asst. yr. 1993-94 lapsed on 31st March, 2002. The petitioner argued that the eight-year limitation should be calculated from 1996-97 onwards, as per the law changes introduced in 2002, allowing for the continued carrying forward of unabsorbed depreciation. The revisional authority's failure to consider these legal provisions led to the quashing of the impugned orders and remittance of the matter for reconsideration.

5. The High Court allowed the petition in part, directing the 1st respondent to reassess the petitioner in accordance with the law and considering the provisions of the IT Act regarding the allowance and carrying forward of depreciation. The court emphasized the need for a proper calculation of the remaining amount to determine the tax liability, leaving all issues open for further arguments.