2020 (2) TMI 614 - AT - Income Tax

Set off of unabsorbed business/depreciation loss - carried forward and set off only up to 8 subsequent assessment years - HELD THAT - Amendment relied upon by Ld.AO has been substituted by Finance Act 2001 w.e.f. 01/04/02, wherein new subsection (2) of section 32 reinstated the provisions, as it stood in assessment year 1996-97. It has been observed that restrictions imposed by Finance Act (No.2) Act, 1996 in the matter of set off of unabsorbed depreciation has been dispensed with and original provision has been restored. Reliance is also been placed on the decision of on coordinate bench of this Tribunal in case of as Gran it private limited vs ITO 2013 (1) TMI 998 - ITAT BANGALORE for assessment year 2005-06 and 2006-07, wherein this tribunal relied upon decision of jurisdictional High Court in case of Karnataka Co-Operative Milk Producers Federation Ltd vs DCIT 2011 (2) TMI 1465 - KARNATAKA HIGH COURT and various other decisions as has been placed in the paper book filed before us wherein it was held that where ever unabsorbed depreciation was not allowed to be set off against the profit arising after the period of 8 years should be a game considered to be set off after amendment. It was observed that when quantum of unabsorbed depreciation is computed after the amendment, whatever balance of unabsorbed depreciation is available to the credit of assessee must be determined as unabsorbed depreciation eligible for carry forward and set off. Hon ble Court held that the interregnum restriction of limiting claim of eight-year period does not take away right of an assessee to claim balance of unabsorbed depreciation forever. Thus the legislature has resorted to original provisions by amendment brought in by Finance Act 2001, thereby resorting to old position, which allows set off of unabsorbed depreciation and restrictive period of 8 years for claiming set off has been deleted, thereby extending the benefit against profit and gains of subsequent years without any bar. - Decided against revenue

Summary

Issues:
1. Allowance of carry forward of unabsorbed depreciation for more than 8 years.
2. Interpretation of provisions enacted in Finance Act 1988-89 regarding limitation on carry forward of depreciation.

Analysis:
1. The appeal was filed by the revenue against the order passed by the Ld. CIT (A) for the assessment year 2011-12. The Ld. AO had made additions to the assessment, including disallowance of employees' contribution to PF/ESI and extra set off of unabsorbed business/depreciation loss. The Ld. CIT (A) partly deleted these additions, leading to the revenue filing an appeal.

2. The main contention revolved around the allowance of carry forward of unabsorbed depreciation for more than 8 years. The Ld. CIT DR argued that the provisions of section 32 of the Act restricted the carry forward and set off of unabsorbed depreciation to only 8 subsequent assessment years. However, the Tribunal observed that the amendment made by the Finance Act 2001 reinstated the original provisions regarding the set off of unabsorbed depreciation. The Tribunal referred to various decisions, including the case of Karnataka Co-Operative Milk Producers Federation Ltd vs. DCIT, to support the view that the restriction of limiting the claim to an 8-year period was no longer applicable. The Tribunal upheld the view of the Ld. CIT (A) and dismissed the grounds raised by the revenue.

3. Regarding the interpretation of provisions enacted in the Finance Act 1988-89, the Tribunal found that the original provisions regarding the set off of unabsorbed depreciation had been restored by the Finance Act 2001. This restoration allowed for the set off of unabsorbed depreciation against profits and gains of subsequent years without any limitation on the number of years for carry forward. The Tribunal's decision was based on the legislative intent to revert to the original provisions, thereby extending the benefit of set off without any restrictive period.

4. In conclusion, the Tribunal upheld the decision of the Ld. CIT (A) and dismissed the appeal filed by the revenue. The judgment was pronounced on 13-12-2019, affirming the allowance of carry forward of unabsorbed depreciation beyond 8 years and interpreting the provisions enacted in the Finance Act 1988-89 in favor of the assessee.