2017 (6) TMI 1185 - HC - Income Tax

Set off of accumulated losses and unabsorbed depreciation - Held that - Tribunal by the impugned judgment allowed the carry forward holding that the unabsorbed depreciation related to earlier years upto the assessment year 1996-97 and brought forward in those earlier years to the assessment year 1997-98 can be set off against the profit and gain of the assessee for the assessment year 1997-98 and if it is not possible to set off entire amount of unabsorbed depreciation the same can be carry forward to next seven assessment years. A view of the Tribunal gets support from the decision of the Division Bench of this Court in case of General Motors India P. Ltd. v. Deputy Commissioner of Income Tax 2012 (8) TMI 714 - GUJARAT HIGH COURT wherein held Any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act 2001 thus once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof it came to be governed by the provisions of section 32(2) as amended by Finance Act 2001 and were available for carry forward and set off against the profits and gains of subsequent years without any limit whatsoever - Decided in favour of assessee.

Summary

Issues involved:
Challenge to the judgment of the Income Tax Appellate Tribunal regarding the deletion of additions made on account of disallowance of carry forward and set off of unabsorbed depreciation for the assessment year 2009-10.

Analysis:
1. The appeal filed by the Revenue contested the Tribunal's decision to delete the addition of ?37.23 crores and ?265.90 crores on account of disallowance of carry forward and set off of unabsorbed depreciation for the assessment year 2009-10. The main question of law was whether the Tribunal was justified in deleting these additions despite the amended provisions of section 32(2) of the Income Tax Act, effective from 1.4.1997, being applicable to the case.

2. The respondent assessee had filed a return of income for the assessment year 2009-10, claiming set off of accumulated losses and unabsorbed depreciation from the assessment years 1987-88, 1988-89, and 1989-90. The Assessing Officer denied the carry forward of depreciation determined up to 1989-90, citing the amended provisions of section 32 of the Income Tax Act from 01.04.1997.

3. The Tribunal, in its judgment, allowed the carry forward of unabsorbed depreciation, stating that the unabsorbed depreciation from earlier years up to the assessment year 1996-97 could be set off against the profit and gain of the assessee for the assessment year 1997-98. If the entire amount could not be set off, it could be carried forward to the next seven assessment years. This decision was supported by a previous judgment of the Division Bench of the Court in the case of General Motors India P. Ltd. v. Deputy Commissioner of Income Tax.

4. The Court reiterated the principles outlined in the General Motors case, emphasizing that any unabsorbed depreciation available to an assessee on 1st day of April 2002 would be governed by the provisions of section 32(2) as amended by the Finance Act, 2001. The restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, allowing unabsorbed depreciation from A.Y. 1997-98 up to A.Y. 2001-02 to be carried forward without any limit, as clarified in Circular No.14 of 2001.

5. Following the precedents set by the General Motors case and subsequent judgments, the Court answered the question of law against the Revenue and in favor of the assessee, ultimately dismissing the Tax Appeal.