2016 (3) TMI 749 - AT - Income Tax

Revision u/s 263 - CIT found that unabsorbed depreciation was not allowable to be carried forward for a period more than 8 years - Held that - As decided in GENERAL MOTORS INDIA PVT. LTD Versus DEPUTY COMMISSIONER OF INCOME-TAX 2012 (8) TMI 714 - GUJARAT HIGH COURT held Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. Thus 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. And 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 2001-002 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. In this view of the matter, we find that the order passed by Assessing Officer is not only erroneous but also prejudicial to the interest of revenue. Accordingly, we reverse the order of Ld. CIT passed u/s. 263 - Decided in favour of assessee.

Summary

Issues:
1. Challenge to order u/s 263 by the assessee.
2. Treatment of unabsorbed depreciation by the CIT.

Analysis:

Issue 1: Challenge to order u/s 263
The appeal was against the order of the Commissioner of Income Tax, Kolkata, initiating proceedings u/s 263 and directing revision of the original assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2010-11. The assessee raised several grounds challenging the CIT's order, alleging lack of proper consideration of facts and law. The CIT found the AO's order erroneous and prejudicial to revenue for allowing the carry forward of unabsorbed depreciation beyond the stipulated period of 8 years. The CIT set aside the AO's order, directing a fresh examination of the issue. The assessee contended that the unabsorbed depreciation from previous years could be carried forward beyond 8 years, citing relevant provisions. The Tribunal, after hearing both parties and considering legal precedents, found the CIT's order unsustainable in law and allowed the appeal, stating that the AO's order was not only erroneous but also prejudicial to the interest of revenue.

Issue 2: Treatment of unabsorbed depreciation by the CIT
The core issue revolved around the CIT's objection to the AO allowing the assessee to carry forward unabsorbed depreciation from assessment years 2000-01 and 2001-02 for an amount exceeding the stipulated 8-year period. The CIT contended that the unabsorbed depreciation beyond 8 years should not have been set off against the current year's income. However, the assessee argued that the provisions allowed carry forward beyond 8 years, relying on legal interpretations and relevant provisions. The Tribunal referred to a judgment by the Hon'ble Gujarat High Court in a similar case, providing relief to the assessee on the same grounds. Additionally, the Tribunal cited a previous order in the assessee's case for another assessment year where a similar view was upheld. Relying on these precedents and legal interpretations, the Tribunal concluded that the AO's order was not only erroneous but also prejudicial to revenue, reversing the CIT's order under section 263.

In conclusion, the Tribunal allowed the assessee's appeal, finding the CIT's order unsustainable in law and reversing it. The judgment provided detailed analysis and legal interpretations to support the decision, ensuring a fair and just outcome for the assessee in the matter of unabsorbed depreciation treatment.