2016 (8) TMI 736 - AT - Income Tax

Entitlement for claim of unabsorbed deprecation - Held that - It is an undisputed fact that the claim of carried forward of depreciation aggregating to ₹ 1,31,03,362/- pertains to assessment years 1998-99, 2000-01 and 2001-02. Before the amendment, the time limit for carried forward of unabsorbed depreciation was for period not more than 8 assessment years immediately succeeding the assessment years for which the aforesaid allowance was first computed. However, by the Finance Act, 2001 an amendment was brought under section 32(2), whereby, restriction of 8 years for the carried forward and set off of unabsorbed depreciation was removed. - Decided in favour of assessee.

Issues Involved:
1. Whether the rectification under section 154 was beyond the scope and ambit of the section.
2. Whether the unabsorbed depreciation pertaining to assessment years prior to 2002-03 can be carried forward beyond the period of 8 years as per the amended provision.

Detailed Analysis:

1. Scope and Ambit of Section 154:
The primary contention raised by the assessee was that the issue could not be raised within the scope of section 154. The assessee argued that the rectification by the Assessing Officer was beyond the permissible limits of section 154, which is intended for rectifying apparent mistakes. The assessee objected to the rectification notice issued under section 154 on 26.11.2013, arguing that the issue was highly debatable and thus not suitable for rectification under this section. The CIT(A) dismissed the appeal, relying on the decision of the ITAT Special Bench in the case of DCIT vs Times Guarantee Ltd.

2. Carry Forward of Unabsorbed Depreciation:
The core issue was whether the unabsorbed depreciation from assessment years 1998-99, 2000-01, and 2001-02, totaling ?1,31,03,362, could be carried forward beyond the period of 8 years. The Assessing Officer had disallowed the set-off of this unabsorbed depreciation against the current year’s income, citing the restriction of 8 years as per the pre-amended section 32(2). However, the Finance Act, 2001, had removed this restriction, allowing unabsorbed depreciation to be carried forward indefinitely.

Findings and Judgment:
The Tribunal considered the relevant findings and submissions and noted that the authorities below had relied on the ITAT Special Bench decision in DCIT vs Times Guarantee Ltd. The Tribunal observed that the Finance Act, 2001, had amended section 32(2), removing the 8-year restriction on carrying forward unabsorbed depreciation. This amendment was clarified by the CBDT Circular No. 14 of 2001, which stated that the restriction of 8 years was dispensed with to enable the industry to conserve funds for replacing plant and machinery.

The Tribunal referred to the Gujarat High Court's decision in General Motors India Pvt Ltd vs DCIT, which held that any unabsorbed depreciation available as of 1st April 2002 would be governed by the amended provisions of section 32(2), allowing it to be carried forward indefinitely. The High Court emphasized that the amendment was intended to remove the 8-year restriction and that unabsorbed depreciation from prior years would be carried forward and set off against subsequent years' profits without any time limit.

Conclusion:
The Tribunal concluded that in light of the Gujarat High Court's decision, the Special Bench's decision in Times Guarantee Ltd would not have persuasive precedence. Therefore, the assessee was entitled to claim the unabsorbed depreciation of ?1,31,03,362 from the assessment years 1998-99, 2000-01, and 2001-02 against the current year’s income. The appeal was allowed, and the grounds raised by the assessee were treated as allowed.

Result:
The appeal of the assessee was allowed, and the order was pronounced in the open court on 16th August 2016.

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