2015 (7) TMI 982 - AT - Income Tax

Carry forward depreciation to assessee disallowed u/s. 154/ rws 263 - CIT(A) allowed claim - Held that - The restriction of eight years was removed. Even though Special Bench decision of the ITAT in the case of DCIT Vs. Times Guaranty Ltd., 2010 (6) TMI 516 - ITAT, MUMBAI was relied on by the CIT at the time of passing the order u/s. 263, subsequently, Hon ble Gujarat High Court in the case of General Motors India Pvt. Ltd., Vs. DCIT (2012 (8) TMI 714 - GUJARAT HIGH COURT ) has held that restriction is not valid and unabsorbed depreciation could be set-off against the profits and gains of subsequent years. In view of this, I agree with the order of the CIT(A) and reiterate that assessee is entitled to set-off the carried forward depreciation of AY 1996-97 and 1997-98. In view of this, we direct the AO to modify the orders if not done so far and allow the set-off accordingly. - Decided against revenue.

Summary

Issues:
Revenue's appeal against Commissioner of Income Tax (Appeals) order allowing carry forward depreciation disallowed under Income Tax Act.

Analysis:
1. The case involved appeals by the Revenue against the Commissioner of Income Tax (Appeals) order allowing the carry forward depreciation disallowed under the Income Tax Act for Assessment Years 2004-05 and 2006-07.
2. The appellant, a company of public interest, had unabsorbed depreciation for AY 1996-97 and 1997-98, initially allowed to be set-off under a specific order. However, a subsequent order by the CIT under section 263 challenged this carry forward beyond eight years.
3. The CIT(A) considered the appellant's submissions, the Finance Act 2001, Circular No. 14 of 2001, and the decision of the Gujarat High Court in General Motors India Pvt. Ltd. vs. DCIT, allowing the carried forward depreciation amounts.
4. The Revenue raised two grounds challenging the CIT(A)'s decision, primarily disputing the time limit for carrying forward unabsorbed depreciation of earlier years.
5. The Tribunal noted that the CIT(A) should not have modified the order based on the CIT's directions under section 263. However, due to the absence of ITAT's orders before the CIT(A), the decision was made on the merits of the contentions.
6. The Finance Act 1996 allowed unabsorbed depreciation to be carried forward for eight subsequent years, with the Finance Act 2001 removing the eight-year restriction, enabling indefinite carry forward.
7. The decision of the Gujarat High Court in General Motors India Pvt. Ltd. vs. DCIT emphasized that unabsorbed depreciation could be carried forward without any time limit, overriding the eight-year restriction.
8. The ITAT concurred with the CIT(A) and directed the AO to modify the orders accordingly, allowing the set-off of carried forward depreciation amounts. The Revenue's appeals were dismissed based on the legal provisions and precedents cited.

This detailed analysis of the judgment outlines the key legal issues, arguments presented, relevant legal provisions, and the final decision rendered by the ITAT Hyderabad.