2020 (7) TMI 718 - HC - Income Tax

Benefit of carry forward of losses u/s 72(A) - brought forward losses of the amalgamating company - non fulfilling requirement of filing of the requisite information in Form No.62 for the third assessment year - HELD THAT - We do not think that the requirement of filing of the requisite information in Form No.62 for the third assessment year can be said to be a condition precedent or a mandatory condition to allow the Assessee to carry forward such losses under Section 72A of the Act. The said condition of filing the Form No.62, at best, is only directory and non compliance thereof would not disentitle the Assessee to claim such carry forward losses to be set off against the profits of the Assessee company. There is no dispute before us that the fact of crossing of the 50% of installed capacity of its production stood achieved by the Assessee in the present case in the fourth year, as would be clear from the order of the Commissioner of Income Tax (Appeals) for AY 2007-08, which is produced on record and quoted above. No substantial question of law, as claimed by the Revenue Department

Summary

Issues Involved:

1. Whether unabsorbed depreciation from assessment years 2001-02 and prior can be set off in subsequent years without any limit as per the amended provision of Section 32(2) of the Income Tax Act.
2. Whether the Tribunal was correct in deleting the disallowance of the claim for setting off brought forward unabsorbed depreciation amounting to ?1,19,02,780/- for assessment years 1999-2000 and 2000-2001.

Issue-wise Detailed Analysis:

1. Unabsorbed Depreciation Set-Off:

The primary issue was whether unabsorbed depreciation from assessment years 2001-02 and prior could be set off in subsequent years without any limit, as per the amended provision of Section 32(2) of the Income Tax Act. The Tribunal's findings, supported by the Gujarat High Court's decision in General Motors India (P.) Ltd. v. DCIT, clarified that unabsorbed depreciation available on 1st April 2002 (A.Y. 2002-03) would be governed by the amended Section 32(2) of the Finance Act, 2001. This amendment removed the eight-year limit for carrying forward unabsorbed depreciation, allowing it to be set off against profits of subsequent years indefinitely. The Tribunal concluded that the unabsorbed depreciation from A.Y. 1997-98 to A.Y. 2001-02 could be carried forward and set off without any time restriction, thus favoring the assessee.

2. Deletion of Disallowance for Brought Forward Unabsorbed Depreciation:

The second issue was whether the Tribunal was correct in deleting the disallowance of the claim for setting off brought forward unabsorbed depreciation amounting to ?1,19,02,780/- for assessment years 1999-2000 and 2000-2001. The Tribunal, referencing its earlier decision in the case of Best & Crompton Engineering Ltd. and the Gujarat High Court's ruling, held that the unabsorbed depreciation losses from these years merged with subsequent years' depreciation and became part of the current depreciation. The Tribunal confirmed that the assessee could claim these losses in the assessment year 2010-11, as the amended Section 32(2) allowed for indefinite carry forward and set off of such unabsorbed depreciation. The Tribunal dismissed the Revenue's contention, affirming the CIT(A)'s direction to allow the unabsorbed depreciation for the relevant years.

Additional Consideration:

The Revenue also highlighted the findings of the Commissioner of Income Tax (Appeals) for the assessment year 2007-08, which confirmed that the amalgamated company achieved more than 100% of its installed capacity in the fourth year post-merger. The Tribunal noted that the requirement of filing Form No.62 for the third assessment year was not a mandatory condition to claim carry forward losses under Section 72A. The Tribunal emphasized that the condition of achieving 50% of the installed capacity within four years was met, and the non-filing of Form No.62 did not disentitle the assessee from claiming the set-off.

Conclusion:

The High Court dismissed the Revenue's appeal, concluding that no substantial question of law arose for consideration. The Tribunal's decision to allow the set-off of unabsorbed depreciation without any time limit and the deletion of the disallowance for the brought forward unabsorbed depreciation was upheld. The appeal was found to be without merit and was accordingly dismissed with no costs.