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2014 (5) TMI 555 - AT - Income TaxAllowability of carry forward of unabsorbed depreciation Held that - CIT(A) rightly followed General Motors India P. Ltd V/s DCIT 2012 (8) TMI 714 - GUJARAT HIGH COURT and was of the view that Section 32(2) as amended by Finance Act, 2001 is applicable from assessment year 2002-03 and subsequent assessment years - Central Board of Direct Taxes Circular clarified the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of eight years for carry-forward and set off of unabsorbed deprecation - any unabsorbed depreciation available to assessee on the date 1.4.2002(assessment year 2002-03), will be dealt with in accordance with the provision of section 32(2) as amended by the Finance Act, 2001 and not by provisions of section 32(2) as it stood before the amendment - there was no material produced by the CIT(A) Decided against Revenue.
Issues Involved:
1. Carry forward of unabsorbed depreciation from Assessment Years (AYs) 1997-98 to 2002-03. 2. Applicability of the amendment to Section 32(2) by the Finance Act, 2001. Detailed Analysis: 1. Carry forward of unabsorbed depreciation from AYs 1997-98 to 2002-03: The primary issue in these appeals is whether the unabsorbed depreciation from AYs 1997-98 to 2002-03 can be carried forward beyond the eight-year limit as per the amended provisions of Section 32(2) by the Finance Act, 2001. The Assessing Officer (AO) restricted the carry forward of unabsorbed depreciation to eight years, aggregating to Rs. 74,67,77,206, which could only be set off up to AY 2002-03. The AO's decision was based on the legal position outlined by the ITAT Special Bench in the case of DCIT v. Times Guaranty Ltd. 2. Applicability of the amendment to Section 32(2) by the Finance Act, 2001: The CIT(A) allowed the carry forward of unabsorbed depreciation beyond the eight-year limit, relying on the decision of the Hon'ble Gujarat High Court in the case of General Motors India P. Ltd. v. DCIT. According to this decision, Section 32(2) as amended by the Finance Act, 2001, applies from AY 2002-03 onwards, allowing unabsorbed depreciation to be carried forward indefinitely. The amendment was intended to enable industries to conserve funds for replacing plant and machinery, thus removing the eight-year restriction. Revenue's Argument: The Revenue argued that the CIT(A) erred in allowing the carry forward of unabsorbed depreciation beyond the eight-year limit, ignoring the legal position laid down by the ITAT Special Bench in Times Guaranty Ltd. The Revenue contended that the amended provisions of Section 32(2) do not apply retrospectively and should not affect the unabsorbed depreciation from AYs 1997-98 to 2001-02. The Revenue relied on several judicial decisions, including those from the Hon'ble Madras High Court and the Special Bench of the ITAT, which supported the view that the unabsorbed depreciation could only be carried forward for eight years. Assessee's Argument: The Assessee argued that the CIT(A) correctly allowed the carry forward of unabsorbed depreciation beyond the eight-year limit, in line with the decision of the Hon'ble Gujarat High Court in General Motors India P. Ltd. The Assessee pointed out that subsequent ITAT decisions, including those by the Mumbai Bench, have followed the Gujarat High Court's ruling, allowing the indefinite carry forward of unabsorbed depreciation post the amendment by the Finance Act, 2001. Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, affirming that the unabsorbed depreciation from AYs 1997-98 to 2001-02 can be carried forward beyond the eight-year limit as per the amended provisions of Section 32(2) by the Finance Act, 2001. The Tribunal relied on the Hon'ble Gujarat High Court's decision in General Motors India P. Ltd., which clarified that the amended Section 32(2) applies from AY 2002-03 onwards, allowing unabsorbed depreciation to be carried forward indefinitely. The Tribunal noted that the decisions of the Hon'ble Madras High Court cited by the Revenue related to the pre-amendment period and were not applicable to the post-amendment scenario. The Tribunal concluded that the CIT(A) did not commit any error in allowing the carry forward of unabsorbed depreciation beyond the eight-year limit, as this was in accordance with the law explained in the decision of the Hon'ble Gujarat High Court. The appeals of the Department were dismissed. Conclusion: The Tribunal dismissed the Department's appeals, affirming that the unabsorbed depreciation from AYs 1997-98 to 2001-02 can be carried forward beyond the eight-year limit as per the amended Section 32(2) by the Finance Act, 2001. This decision aligns with the Hon'ble Gujarat High Court's ruling in General Motors India P. Ltd., which allows indefinite carry forward of unabsorbed depreciation post the amendment.
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