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2016 (9) TMI 1077 - AT - Income TaxAddition on account of carried forwarded unabsorbed depreciation - CIT(A) deleted the addition - Held that - Perusal of provisions of s. 32(2) as substituted by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997 (hereinafter called the second period ) says if income of the assessee under all heads is insufficient to absorb the unabsorbed depreciation allowance, then such amount is to be carried forward to the following assessment year to be set off against the income arising under the head Profits and gains of business or profession . Not only that, the business or profession for which the allowance was computed should continue to be carried on by the assessee during the previous year relevant to assessment year in which the set off is claimed. The exercise of carrying forward such unabsorbed depreciation allowance is to be continued upto eight assessment years immediately succeeding assessment year for which the aforesaid depreciation allowance was first computed. From here it follows that the amount of unabsorbed depreciation allowance which could not be set off against income under any head in the year in which the allowance was first computed, shall be eligible to be carried forward for set off only against income under the head Profits and gains of business or profession to the following assessment year(s) not more than eight assessment years immediately succeeding the assessment year for which it was first computed. The provisions of Sec.32(2) as substituted by the Finance Act, 2001 w.e.f. 1st April, 2002, applicable for AY 2004-05 & 2005-06 ) Assessment years under consideration (hereinafter called the third period ) reads as under (2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-s. (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-s. (2) of s. 72 and sub-s. (3) of s. 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years . The CIT(A) rightly accepted the stand taken on behalf of the Assessee and reversed the action of the AO. We are of the view that in the light of the decision of the Hon ble Gujarat High Court in the case of General Motors India Pvt. Ltd. wherein held that carry forward of unabsorbed depreciation concerning AY. 2001-02 and assessment years prior thereto can be set off in subsequent which has the effect of overruling the decision of the Special Bench in the case of Times Gurantee (2010 (6) TMI 516 - ITAT, MUMBAI ) wherein it was held that unabsorbed depreciation prior to the period 1997-98 can be carried forward for set off against the income for a maximum of eight years starting from the A.Y. 1997-98 and also on the basis of other decisions referred to above, the order of the CIT(A) does not call for any interference - Decided in favour of assessee
Issues Involved:
1. Deletion of addition on account of carried forward unabsorbed depreciation. 2. Applicability of the decision of the Special Bench of ITAT Mumbai in the case of Times Guarantee Ltd. 3. Interpretation of Section 32(2) of the Income Tax Act, 1961, regarding the carry forward and set off of unabsorbed depreciation. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Carried Forward Unabsorbed Depreciation: The Revenue appealed against the CIT(A) order dated 29.11.2013, which deleted the addition of ?5,55,76,222/- on account of carried forward unabsorbed depreciation. The AO had observed that unabsorbed depreciation from AY 1994-95 to 1997-98 was wrongly set off against the business income for AY 2007-08. The AO relied on the decision of the Special Bench of ITAT Mumbai in the case of Times Guarantee Ltd., which held that unabsorbed depreciation prior to AY 1997-98 could only be carried forward for eight years. Consequently, the AO withdrew the unabsorbed depreciation set off for AY 2007-08, which was allowed in violation of Section 32 of the IT Act, 1961. 2. Applicability of the Decision of the Special Bench of ITAT Mumbai in the Case of Times Guarantee Ltd.: The AO's decision was based on the Special Bench ruling in Times Guarantee Ltd., which stated that unabsorbed depreciation for AY 1997-98 and earlier years could not be carried forward beyond eight years. The AO recalculated the unabsorbed depreciation and reduced the claim by ?5,55,76,222/-. However, the Assessee contended that the Gujarat High Court in General Motors India (P) Ltd. ruled in favor of the Assessee, allowing the carry forward of unabsorbed depreciation without any time limit, as per the amended provisions of Section 32(2) by the Finance Act, 2001. 3. Interpretation of Section 32(2) of the Income Tax Act, 1961: The Tribunal examined the provisions of Section 32(2) as it existed at different periods: - First Period (prior to 1st April 1997): Unabsorbed depreciation could be carried forward indefinitely. - Second Period (1st April 1997 to 1st April 2002): Unabsorbed depreciation could be carried forward for a maximum of eight years. - Third Period (post 1st April 2002): The provision reverted to allowing indefinite carry forward of unabsorbed depreciation. The Tribunal noted that the Gujarat High Court in General Motors India (P) Ltd. held that unabsorbed depreciation as of 1st April 2002 would be governed by the amended provisions of Section 32(2) and could be carried forward indefinitely. This decision overruled the Special Bench decision in Times Guarantee Ltd. The CIT(A) had accepted the Assessee's contention based on this ruling and reversed the AO's action. The Tribunal also referenced other supportive rulings, including those of the Gujarat High Court in Gujarat Themis Biosyn Ltd. and the Kolkata Tribunal in Bengal Tea & Fabrics Limited, which upheld the indefinite carry forward of unabsorbed depreciation as per the amended Section 32(2). Conclusion: The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. The decision was based on the authoritative ruling of the Gujarat High Court in General Motors India (P) Ltd., which allowed the carry forward of unabsorbed depreciation without any time limit, thus overriding the earlier Special Bench decision in Times Guarantee Ltd. The appeal by the Revenue was dismissed, and the CIT(A)'s order was affirmed. Order Pronounced: The appeal by the Revenue was dismissed, and the order was pronounced in the Court on 12.08.2016.
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