2018 (1) TMI 246 - HC - Income Tax

Set off of unabsorbed depreciation pertaining to A.Y. 1997-98 against the income of A.Y. 2007-08 which is beyond eight years immediately succeeding the year for which the depreciation allowance was first computed - Held that - Taking into consideration the amendment which came into force w.e.f. 01.04.2002, in our considered opinion w.e.f. 01.04.2002 the depreciation cannot be claimed. In that view of the matter, the contention that, 1997- 98, 7 years has not lapsed in year 2002 when it came into force. In that view of the matter, issue is required to be answered in favour of assessee against the department.

Summary

Issues:
Challenge to Tribunal's rejection of appeal and cross-objection regarding set off of unabsorbed depreciation.

Analysis:
The High Court considered the substantial question of law framed regarding the set off of unabsorbed depreciation from A.Y. 1997-98 against the income of A.Y. 2007-08. The appellant argued that the Tribunal erred in allowing the set off beyond eight years as per Section 32(2) of the Income Tax Act. The appellant highlighted the amendment in the provisions effective from 01.04.2002, emphasizing that the Tribunal's decision was incorrect post this amendment. The respondent, however, relied on CBDT Circular No.14 of 2001, which allowed for the carry forward and set off of unabsorbed depreciation beyond eight assessment years to enable industries to replace plant and machinery. The court also took into account various judgments cited by both parties.

The court noted the amendment effective from 01.04.2002, which removed the restriction of eight years for carrying forward and setting off unabsorbed depreciation. Considering this amendment, the court held that depreciation claimed before 2002 cannot be denied. The court emphasized that as of 2002, the seven years from 1997-98 had not lapsed, thus allowing for the set off of unabsorbed depreciation. Consequently, the court ruled in favor of the assessee, dismissing the appeal of the department.

In conclusion, the High Court's judgment clarified the application of Section 32(2) of the Income Tax Act in the context of unabsorbed depreciation set off. The court's decision was based on the interpretation of the provisions pre and post the 2002 amendment, ultimately favoring the assessee's position regarding the set off of unabsorbed depreciation against income beyond the initial eight-year period.