2016 (1) TMI 1346 - AT - Income Tax

Set off of unabsorbed depreciation allowance after the lapse of 8 years - Held that - Once 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 got carried forward to next A.Y.2002-03 and became a 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. See General Motors India P. Ltd. Vs. DCIT 2012 (8) TMI 714 - GUJARAT HIGH COURT - Decided in favour of assessee. Addition u/s 14A - Held that - AO has not considered the supportive documents placed on record specifically entries at page No. 5 & 8 of the paper book. Having regard to the facts and circumstances of the case as well as concurring with the principles laid down in the case of Garware Wall Ropes Ltd. (2015 (2) TMI 628 - ITAT MUMBAI) we are of the considered opinion that the matter deserves to be remanded back to the file of the Assessing Officer for analyzing and consideration of the paper book

Summary

Issues:
1. Set off of unabsorbed depreciation allowance from A.Y. 1996-97 in A.Y. 2009-10.
2. Applicability of the amendment to section 32(2) w.e.f. 01.04.2002 to assessment years prior to A.Y. 2002-03.

Issue 1: Set off of unabsorbed depreciation allowance from A.Y. 1996-97 in A.Y. 2009-10:
The Assessing Officer disallowed the unabsorbed depreciation set off by the assessee for A.Y. 1996-97, as it had lapsed on 31.3.2006. The AO relied on the ITAT Special Bench decision in the case of Times Guarantee Ltd. to disallow the depreciation. However, the learned CIT(A) allowed the set off based on the amendment in section 32(2) by the Finance Act, 2001, which allowed unabsorbed depreciation of earlier years to be treated as current year's depreciation and carried forward indefinitely. The CIT(A) referred to the decision of the Hon'ble Gujarat High Court in the case of General Motors India P Ltd., which supported the carry forward and set off of unabsorbed depreciation from A.Y. 1997-98 to A.Y. 2001-02. The ITAT upheld the CIT(A)'s decision, stating that the AO should allow the carry forward and set off of unabsorbed depreciation in accordance with the provisions of section 32(2) of the Act.

Issue 2: Applicability of the amendment to section 32(2) w.e.f. 01.04.2002 to assessment years prior to A.Y. 2002-03:
The Revenue filed an appeal questioning the applicability of the amendment to section 32(2) w.e.f. 01.04.2002 to assessment years prior to A.Y. 2002-03. The Revenue argued that the CIT(A) erred in directing the set off of unabsorbed depreciation allowance from A.Y. 1996-97 in A.Y. 2009-10 based on the retrospective effect of the amendment. However, the ITAT upheld the CIT(A)'s decision, citing the amendment's intent to enable industries to conserve funds for plant and machinery replacement. The ITAT also referred to Circular No. 14 of 2001 clarifying the removal of the 8-year restriction for carry forward and set off of unabsorbed depreciation. The ITAT agreed with the CIT(A) that the amendment applied to earlier years, allowing for indefinite carry forward and set off of unabsorbed depreciation.

In conclusion, the ITAT dismissed the Revenue's appeal and allowed the assessee's appeal for statistical purposes, remanding the matter back to the Assessing Officer for further analysis based on the supportive documents and judicial pronouncements presented by the assessee.