2022 (9) TMI 1475 - AT - Income Tax

Disallowance of unabsorbed brought forward depreciation which is beyond eight Assessment Years - HELD THAT - This issue is squarely covered by Jurisdictional High Court which has considered the amendments made in the Finance Act, 2001 and CBDT Circular No. 14 of 2002, which clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from AY 1997-98 to 2001- 02 got carried forward to the assessment year 2002-03 and became part thereof. Thus the assessee is eligible to carry forward and the set off against the profits and gains of subsequent years, without any limit whatsoever. Recording the above submission of the D.R. and CIT(A) who has followed the jurisdictional High Court judgment in the case of General Motors (India) Pvt. Ltd. 2012 (8) TMI 714 - GUJARAT HIGH COURT - Appeal filed by the Revenue is hereby dismissed.

Summary

Issues:
Appeal against deletion of addition of unabsorbed brought forward depreciation for Assessment Year 1996-97 to 1998-99 beyond eight Assessment Years.

Analysis:
The Revenue filed an appeal against the deletion of an addition of Rs. 5,22,76,985 made on account of disallowance of unabsorbed brought forward depreciation for Assessment Year 1996-97 to 1998-99, which was set off beyond eight assessment years. The assessee, engaged in the manufacturing of cotton yarn and job work, had the issue of carry forward of unabsorbed depreciation to the tune of Rs. 5,22,76,985 beyond the permissible limit of eight years. The CIT(A) held that the unabsorbed depreciation could be carried forward without restriction for eight years. The AO had treated the unabsorbed depreciation as lapsed due to the amended provisions of section 32(2) of the Income Tax Act. The appellant cited precedents and argued for the allowance of carrying forward the unabsorbed depreciation. The CIT(A) relied on the decision of the Hon'ble Jurisdictional High Court in the case of General Motors P. Ltd. The CBDT Circular clarified that the restriction of eight years for carry forward and set off of unabsorbed depreciation had been dispensed with, allowing carry forward without any limit. The Revenue's appeal was dismissed based on the jurisdictional High Court's judgment.

This judgment clarifies the interpretation of the provisions related to the carry forward and set off of unabsorbed depreciation beyond eight assessment years. The decision emphasizes the importance of following the amendments made in the Finance Act, 2001 and the CBDT Circular No. 14 of 2002. The judgment highlights that the restriction of eight years for carry forward and set off of unabsorbed depreciation has been removed, enabling taxpayers to carry forward unabsorbed depreciation without any limit. The ruling is based on a purposive and harmonious interpretation of the law, ensuring that taxpayers are entitled to benefits within the ambit of the section as per the clear words used in the statute. The judgment also underscores the significance of following precedents set by the Jurisdictional High Court, providing a clear framework for the treatment of unabsorbed depreciation in subsequent assessment years.

In conclusion, the judgment sets a precedent for the treatment of unabsorbed depreciation beyond eight assessment years, allowing taxpayers to carry forward such depreciation without any limit as per the provisions of the Finance Act, 2001 and relevant CBDT Circulars. The decision emphasizes the need for a purposive interpretation of tax laws and underscores the importance of following jurisdictional High Court rulings in similar matters. Overall, the judgment provides clarity on the issue of unabsorbed depreciation and sets a clear direction for future cases involving the carry forward and set off of such depreciation amounts.