2017 (1) TMI 773 - AT - Income Tax

Carry forward of depreciation - Held that - We direct the AO to allow carry forward of depreciation which has not been allowed to the assessee because unabsorbed depreciation upto 1997-98 would become depreciation of the current year and it is to be treated in accordance with law. See General Motors India P. Ltd. Vs. DCIT 2012 (8) TMI 714 - GUJARAT HIGH COURT

Summary

Issues Involved:
1. Entitlement to claim carry forward of unabsorbed depreciation of earlier years (prior to the amendment in section 32 by Finance Act, 2001) to subsequent years.

Issue-Wise Detailed Analysis:

1. Entitlement to Claim Carry Forward of Unabsorbed Depreciation:

The primary grievance of the assessee was whether it is entitled to claim carry forward of unabsorbed depreciation from earlier years, specifically those prior to the amendment in section 32 by the Finance Act, 2001, to subsequent years.

Assessment by AO:
The Assessing Officer (AO) noted the details of unabsorbed business loss and unabsorbed depreciation for various assessment years. According to the AO, before the amendment in section 32(2) by the Finance Act, 2001, the assessee was entitled to carry forward depreciation for eight subsequent assessment years. The AO opined that after the amendment, depreciation after AY 1997-98 could not be carried forward. Specifically, the AO concluded that depreciation up to AY 1997-98 amounting to ? 13571.58 lakhs was not allowable for carry forward.

Appeal to CIT(A):
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] did not record any independent findings for the year under consideration and relied on his orders from AY 2007-08 and 2008-09. The assessee brought to the notice of the CIT(A) the decision of the Hon’ble jurisdictional High Court in the case of General Motors India P. Ltd. Vs. DCIT reported in 354 ITR 244 (Guj). Despite this, the CIT(A) did not take cognizance of the decision and did not adjudicate the issue on merit.

Tribunal’s Judgment:
The Tribunal found that the CIT(A) should have dealt with the decision of the Hon’ble jurisdictional High Court. The Tribunal cited the judgment of the Hon’ble jurisdictional High Court, which clarified that the unabsorbed depreciation pertaining to AY 1997-98 could be carried forward and set off after a period of eight years, governed by the amended Section 32 by Finance Act, 2001.

Key Points from High Court Decision:
- Prior to the Finance Act No.2 of 1996, unabsorbed depreciation was allowed to be carried forward indefinitely.
- The Finance Act No.2 of 1996 restricted the carry forward to a limit of 8 years starting from AY 1997-98.
- The Finance Act, 2001, amended Section 32(2) to remove the 8-year restriction, allowing unabsorbed depreciation to be carried forward indefinitely.
- The CBDT Circular No.14 of 2001 clarified that the amendment was intended to enable the industry to conserve funds for replacing plant and machinery, thus removing the 8-year limit for carrying forward unabsorbed depreciation.

Conclusion by Tribunal:
Respectfully following the decision of the Hon’ble High Court, the Tribunal directed the AO to allow the carry forward of unabsorbed depreciation, treating the unabsorbed depreciation up to AY 1997-98 as depreciation of the current year, to be treated in accordance with the amended law.

Result:
The appeal of the assessee was allowed, and the order was pronounced in the Court on 12th January, 2017, at Ahmedabad.