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2016 (5) TMI 1021 - AT - Income TaxAllowance of carry forward of unabsorbed depreciation - Held that - Gujarat High Court in the case of.General Motors India Pvt. Ltd. -vs.- DCIT (Guj.) (2012 (8) TMI 714 - GUJARAT HIGH COURT ) wherein held that unabsorbed depreciation from AY. 1997-98 up to AY. 2001-02 got carried forward to AY. 2002-03 and became part thereof and it came to be governed by the provisions of sec. 32(2) as amended by the Finance Act, 2001 and were available for carry forward and set off against income of subsequent years without any limit. - Decided against revenue
Issues Involved:
1. Justification of allowing the carry forward of unabsorbed depreciation for AY 1994-95, 1995-96, and 1996-97. 2. Justification of allowing the carry forward of unabsorbed depreciation for AY 1997-98. 3. Interpretation of the provisions of Section 32(2) of the Income Tax Act, 1961, as amended over different periods. 4. Validity of reassessment proceedings initiated under Section 147 of the Act. Issue-wise Detailed Analysis: 1. Justification of Allowing the Carry Forward of Unabsorbed Depreciation for AY 1994-95, 1995-96, and 1996-97: The Revenue contended that the CIT(A) was not justified in allowing the carry forward of unabsorbed depreciation aggregating ?8,77,48,743/- for AY 1994-95, 1995-96, and 1996-97, citing the amendment by the Finance Act, 2001, which substituted the old Section 32(2) of the Income Tax Act, 1961, effective from 01.04.2002. The AO argued that as per the amended provisions, the unabsorbed depreciation up to AY 1996-97 was eligible for set-off only up to AY 2004-05. However, the CIT(A) allowed the carry forward based on judicial precedents, including the Gujarat High Court's decision in General Motors India Pvt. Ltd. vs. DCIT, which held that unabsorbed depreciation from AY 1997-98 up to AY 2001-02 could be carried forward without any time limit under the provisions of Section 32(2) as amended by the Finance Act, 2001. 2. Justification of Allowing the Carry Forward of Unabsorbed Depreciation for AY 1997-98: Similarly, for AY 1997-98, the Revenue argued that the CIT(A) was not justified in allowing the carry forward of unabsorbed depreciation amounting to ?3,24,68,197/- due to the same amended provisions of Section 32(2). The AO maintained that the unabsorbed depreciation from AY 1997-98 to 2001-02 was eligible for set-off only against the income under the head 'Profit and gains of business or profession' for a maximum period of eight assessment years. The CIT(A), however, allowed the carry forward based on the same judicial precedents that supported the Assessee's claim. 3. Interpretation of the Provisions of Section 32(2) of the Income Tax Act, 1961: The Tribunal analyzed the provisions of Section 32(2) as they existed at three different points in time: - First Period (up to AY 1996-97): Unabsorbed depreciation could be carried forward indefinitely and set off against income under any head. - Second Period (AY 1997-98 to 2001-02): Unabsorbed depreciation could be carried forward for a maximum of eight assessment years and set off against income under the head 'Profits and gains of business or profession'. - Third Period (from AY 2002-03 onwards): The law reverted to the provisions as they existed in the first period, allowing indefinite carry forward and set off against income under any head. The Tribunal noted that the decision of the Special Bench in DCIT vs. Times Guarantee Ltd., which supported the Revenue's view, was overruled by the Gujarat High Court's decision in General Motors India Pvt. Ltd., thus supporting the Assessee's claim. 4. Validity of Reassessment Proceedings Initiated Under Section 147 of the Act: Since the appeals by the Revenue were dismissed, the cross objections filed by the Assessee challenging the validity of the reassessment proceedings under Section 147 of the Act for AY 2004-05 and 2005-06 were dismissed as not requiring adjudication. Conclusion: The Tribunal dismissed the appeals by the Revenue, upholding the CIT(A)'s decision to allow the carry forward of unabsorbed depreciation for AY 1994-95, 1995-96, 1996-97, and 1997-98. The Tribunal relied on the Gujarat High Court's decision in General Motors India Pvt. Ltd., which allowed the indefinite carry forward of unabsorbed depreciation under the amended provisions of Section 32(2) of the Income Tax Act, 1961. The cross objections filed by the Assessee were dismissed as not requiring adjudication.
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