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2021 (8) TMI 1171 - HC - Income TaxUnabsorbed depreciation loss set-off pertaining to assessment year 1997-98 against income of assessment year 2006-07 - HELD THAT - Substantial questions of law framed for consideration have been answered against the Revenue in the case of CIT vs. Sanmar Speciality Chemicals Ltd. 2020 (9) TMI 770 - MADRAS HIGH COURT - Decided against the Revenue.
Issues Involved:
1. Whether unabsorbed depreciation loss from the assessment year 1997-98 can be set off against income for the assessment year 2006-07. 2. Interpretation of legislative intent regarding the carry forward of unabsorbed depreciation beyond eight years from the year of computation. Detailed Analysis: Issue 1: Whether unabsorbed depreciation loss from the assessment year 1997-98 can be set off against income for the assessment year 2006-07. The core issue is whether the Income Tax Appellate Tribunal (ITAT) was correct in allowing the assessee to carry forward and set off unabsorbed depreciation loss from the assessment year 1997-98 against the income for the assessment year 2006-07. The Revenue contended that such a set-off was not permissible as it exceeded the eight-year limit prescribed under Section 32 of the Income Tax Act, 1961. The court referred to the decision in CIT vs. Sanmar Speciality Chemicals Ltd., which had already addressed similar questions. The relevant paragraphs from this judgment emphasized that the restriction of eight years for carrying forward unabsorbed depreciation was removed by the Finance Act, 2001, effective from the assessment year 2002-03. This amendment was intended to enable industries to conserve funds for replacing plant and machinery. The court also cited the Central Board of Direct Taxes (CBDT) Circular No. 14/2001, which clarified that the restriction of eight years was dispensed with to allow unabsorbed depreciation to be carried forward indefinitely from the assessment year 2002-03 onwards. The Gujarat High Court's decision in General Motors India (P) Ltd. vs. DCIT supported this interpretation, stating that any unabsorbed depreciation available on April 1, 2002, would be governed by the amended provisions of Section 32(2), allowing indefinite carry forward. Further, the Bombay High Court in CIT-3 vs. M/s. Bajaj Hindustan Ltd. and the Punjab & Haryana High Court in CIT vs. GTM Synthetics Ltd. had also ruled in favor of allowing unabsorbed depreciation to be carried forward beyond eight years, aligning with the legislative intent and CBDT circulars. Issue 2: Interpretation of legislative intent regarding the carry forward of unabsorbed depreciation beyond eight years from the year of computation. The Revenue argued that the legislative intent was to restrict the carry forward of unabsorbed depreciation to eight years, as originally stipulated. However, the court found that the legislative amendments and CBDT Circular No. 14/2001 clarified that this restriction was removed to aid industries in conserving funds for replacing plant and machinery. The court noted that the proper interpretation of the amendment was that from the assessment year 2002-03, if the eight-year period had not lapsed, the assessee could carry forward the unabsorbed depreciation without any time limit. This interpretation was reinforced by multiple judicial precedents, including the Gujarat High Court's decision in General Motors India (P) Ltd. and the Bombay High Court's decision in PCIT vs. Gunnebo India Pvt. Ltd. The court concluded that the legislative intent was clear in allowing the indefinite carry forward of unabsorbed depreciation from the assessment year 2002-03 onwards, and any unabsorbed depreciation from prior years, such as 1997-98, could be carried forward and set off against income for subsequent years without restriction. Conclusion: The court dismissed the Revenue's appeal and upheld the ITAT's decision, allowing the assessee to set off unabsorbed depreciation from the assessment year 1997-98 against the income for the assessment year 2006-07. The substantial questions of law were answered against the Revenue, affirming that the legislative amendments and judicial precedents supported the indefinite carry forward of unabsorbed depreciation.
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