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2013 (10) TMI 425 - AT - Income TaxTime limit for carry forward of unabsorbed depreciation Applicability of amendment in section 32(2) vide Finance Act 2001 Held that - Amendment made by Finance (No.1) Act was clarified by CBDT vide circular No.14 of 2001. The said amendment is applicable from assessment year 2002-03 and subsequent years. That unabsorbed depreciation available to an assessee on first day of April 2002 (assessment year 2002-03) will be dealt with in accordance with the provisions of section 32(2) of the Act as amended by Finance (No.01) Act, 2001 and not by provisions of section 32(2) as it stood before the said amendment - Provisions of section 32(2) as amended by Finance (No.1) Act, 2001 would allow the unabsorbed depreciation allowance available in the assessment years 1997-98, 1999- 2000, 2000-01 and 2001-02 to be carried forward to the succeeding years and if any unabsorbed depreciation or part thereof could not set off till the assessment year 2002-03, then it would be carried forward till the time it is set off against the profits and gains of subsequent years without any limit whatsoever Decided in favor of Assessee.
Issues Involved:
1. Whether the CIT(A) erred in confirming the action of the Assessing Officer (AO) in not allowing the set-off of brought forward unabsorbed depreciation of earlier years for the assessment years 2005-06 and 2006-07. Detailed Analysis: 1. Facts and Circumstances: The assessee, engaged in the business of manufacturing Organo Phosphorous Chemicals, filed returns for the assessment years 2005-06 and 2006-07, declaring total income at "NIL" under normal provisions of the Income Tax Act, 1961, and book profits under section 115JB of the Act. The assessee claimed set-off of unabsorbed depreciation from previous years, which was disallowed by the AO based on the interpretation of section 32(2) of the Act. 2. Interpretation of Section 32(2): The AO divided the provisions of section 32(2) into three periods: - First Period (up to AY 1996-97): Current depreciation could be set off against income under any head within the same year, and unabsorbed depreciation could be carried forward indefinitely. - Second Period (AY 1997-98 to 2001-02): Unabsorbed depreciation could only be carried forward for eight years and set off against business income. - Third Period (AY 2002-03 onwards): The provisions reverted to the first period, allowing unabsorbed depreciation to be carried forward indefinitely and set off against income under any head. 3. AO's Findings: The AO denied the set-off of unabsorbed depreciation from AY 1997-98 and 1998-99, stating that the amendments to section 32(2) by the Finance (No.1) Act, 2001, were prospective and applicable only from AY 2002-03 onwards. The AO relied on judicial precedents to support this interpretation. 4. CIT(A)'s Decision: The CIT(A) upheld the AO's decision, following his previous orders for AY 2008-09 and 2009-10, which also denied the set-off of unabsorbed depreciation from earlier years. 5. Tribunal's Analysis: The Tribunal considered the submissions of both parties and the relevant judicial precedents. The Tribunal referred to the decision of the Hon'ble Gujarat High Court in the case of General Motors India Pvt. Ltd. vs. DCIT, which clarified that the amendment made by the Finance (No.1) Act, 2001, allowed unabsorbed depreciation from AY 1997-98 to 2001-02 to be carried forward indefinitely and set off against income from subsequent years. 6. Tribunal's Conclusion: The Tribunal held that the CIT(A) was not justified in denying the set-off of unabsorbed depreciation for AY 1997-98 and 1998-99 against the profits for AY 2005-06 and 2006-07. The Tribunal directed the AO to allow the set-off of unabsorbed depreciation for the relevant assessment years and to carry forward any remaining unabsorbed depreciation to subsequent years until fully set off. 7. Final Judgment: The appeals of the assessee for AY 2005-06 and 2006-07 were allowed, and the orders of the authorities below were reversed. The AO was directed to allow the set-off of unabsorbed depreciation as claimed by the assessee. Order Pronounced: The order was pronounced in the open court on October 9, 2013.
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