2016 (4) TMI 907 - AT - Income Tax

Carry forward of unabsorbed depreciation - denial of claim on the plea that sections 80 of the Act restrict the same - Held that - If an assessee has unabsorbed depreciation u/s 32(2) of the Act as well as unabsorbed business loss carried forward u/s 72(1), section 72(2) provided the unabsorbed losses shall have precedence, and be set off first, so far as the sufficiency of income to be set off against permits. It is only after the carried forward business loss is set off, and there yet remains positive income, that the unabsorbed depreciation would come in for a set off. This is beneficial to the assessee in as much as the unabsorbed business losses have a time bar of eight years while the unabsorbed depreciation has no time bar, it integrates with, and is treated as depreciation allowable for the subsequent year itself What section 72(2) contemplates is that if there is some unabsorbed losses carried forward to be set off, and there is also some unabsorbed depreciation allowance carried forwarded to be set off, the former shall get priority. This is so because unabsorbed depreciation retains its own character even in succeeding year(s) as distinguished from current depreciation Under section 32(2) a legal fiction has been created that unabsorbed depreciation of the earlier year shall form part of current year s disallowance and therefore it shall have to dealt with accordingly subject to the provision of section 72(2) and 72(3) of the Act. Thus, the carried forward unabsorbed depreciation of the earlier year has to be taken as a part of the current year s depreciation allowance and to be set off, to the extent possible, against income of the current year. The unabsorbed depreciation should be allowed before the unabsorbed investment allowance and that would be the order of priority in claiming the unabsorbed depreciation and unabsorbed investment allowance. - Decided in favour of assessee.

Summary

Issues Involved:

1. Whether the Commissioner of Income Tax (Appeals) erred in directing the Assessing Officer to allow carry forward and set off of depreciation relating to A.Y. 2009-10 despite the return being filed after the expiry of the time prescribed under section 139(1).

Detailed Analysis:

1. Carry Forward and Set Off of Depreciation:

The primary issue was whether the Commissioner of Income Tax (Appeals) was correct in directing the Assessing Officer to allow the carry forward and set off of unabsorbed depreciation for the Assessment Year (A.Y.) 2009-10, despite the return being filed after the due date prescribed under section 139(1) of the Income Tax Act.

During the hearing, the Revenue's representative argued against the carry forward and set off of depreciation, citing that the return was filed late and thus, under section 139(3) and section 80, the assessee was not eligible for such benefits. The assessee's counsel, however, defended the decision of the Commissioner of Income Tax (Appeals) by referencing several judicial precedents, including CIT vs Shri Subhu Laxmi Mills Ltd., CIT vs Govind Nagar Sugar Ltd., and CIT vs Haryana Hotels Ltd., which supported the assessee's claim.

The Tribunal considered the facts and submissions from both sides. The assessee, engaged in the business of manufacturing various products, filed a return declaring a loss and paid tax on book profit under section 114JB. The return was filed after the due date, and the assessee sought to carry forward the entire loss due to unabsorbed depreciation under section 32(2). The Assessing Officer denied this claim, citing section 80, which restricts the carry forward of losses if the return is not filed within the due date.

The Tribunal analyzed section 32(2) of the Act, which allows for the carry forward of unabsorbed depreciation without the restriction of filing within the due date as per section 139(1). It noted that section 80 pertains to carry forward of business losses, not unabsorbed depreciation. The Tribunal emphasized that unabsorbed depreciation is treated differently from business losses and is not subject to the same filing deadlines.

Judicial Precedents:

The Tribunal referenced several judicial precedents to support its decision:

- CIT vs Shri Shubh Laxmi Mills Ltd. (2001) 249 ITR 795 (SC): The Supreme Court held that section 79, which deals with carry forward and set off of losses, requires proof of intent to reduce or avoid tax liability.

- CIT vs Govind Nagar Sugar Ltd. (334 ITR 13) (Del.): The Delhi High Court held that section 80 and 139(3) apply to business losses and not unabsorbed depreciation, which is governed by section 32(2).

- CIT vs Haryana Hotels Ltd. (276 ITR 521) (P & H): The Punjab & Haryana High Court held that unabsorbed depreciation can be carried forward even if the return is filed late.

The Tribunal concluded that the assessee is entitled to the benefit of carry forward and set off of unabsorbed depreciation, as section 139(3) does not apply to section 32(2). The Tribunal dismissed the Revenue's appeal, upholding the decision of the Commissioner of Income Tax (Appeals).

Final Judgment:

The appeal of the Revenue was dismissed, and the order was pronounced in the open court in the presence of representatives from both sides on 14/03/2016.