2017 (2) TMI 1377 - HC - Income Tax

Appeal admitted for for the following question of laws - Whether on the facts and in the circumstances of the case and in law the Income Tax Appellate Tribunal was justified in directing the Assessing Office to allow set off of brought unabsorbed depreciation allowance for the Assessment Years 1995 -96 1998 -99 2000 -01 and 2001 -02 when there was specific prohibition as per clause (iii)(b) of Sub Section (2) of Section 32 to allow carry forward of unabsorbed depreciation allowance beyond 8 years from the assessment year for which the depreciation allowance was first computed? Whether on the facts and in the circumstances of the case in law the Income Tax Appellate Tribunal is right in directing the Assessing Office to allow set off of brought unabsorbed depreciation allowance for the Assessment Years 1995- 96 1998 -99 2000 -01 and 2001 -02 by taking recourse to amendment which was brought in sub section (2) of Section 32 by way of Finance Act 2001 w.e.f. 1.4.2002 which did not operate retrospectively in respect of unabsorbed depreciation allowance of years prior to AY 2002 2003?

Summary

Issues Involved:
1. Interpretation of provisions related to unabsorbed depreciation allowance.
2. Retroactive application of an amendment in Section 32 of the Income Tax Act.

Issue 1: Interpretation of provisions related to unabsorbed depreciation allowance:
The High Court considered whether the Income Tax Appellate Tribunal was justified in directing the Assessing Officer to allow the set off of brought unabsorbed depreciation allowance for specific assessment years, despite a prohibition on carrying forward unabsorbed depreciation beyond 8 years from the assessment year. The court analyzed the clause (iii)(b) of Sub Section (2) of Section 32 and questioned the Tribunal's decision based on the specific prohibition mentioned in the law. The court noted the importance of adhering to statutory provisions and the limitations imposed by the law regarding the carry forward of unabsorbed depreciation.

Issue 2: Retroactive application of an amendment in Section 32 of the Income Tax Act:
The second issue involved the retroactive application of an amendment introduced in sub-section (2) of Section 32 through the Finance Act 2001, effective from 1.4.2002. The High Court deliberated on whether the Income Tax Appellate Tribunal was correct in directing the Assessing Officer to allow the set off of unabsorbed depreciation for certain assessment years by relying on this amendment. The court examined the retrospective operation of the amendment and its impact on unabsorbed depreciation allowance from years preceding the amendment's effective date. The court assessed the legality and validity of applying the amendment to prior assessment years and scrutinized the Tribunal's decision in this regard.

This judgment by the Bombay High Court delves into the intricate details of the Income Tax Act, specifically focusing on the interpretation of provisions related to unabsorbed depreciation allowance and the retroactive application of amendments. The court's analysis provides clarity on the statutory limitations concerning the carry forward of unabsorbed depreciation and the implications of amendments on past assessment years. The judgment emphasizes the importance of legal compliance and adherence to statutory provisions while addressing complex tax-related issues.