2023 (7) TMI 20 - HC - Income Tax

Carry forward and set off of unabsorbed depreciation without any limitation of period - carry forward after period of 8 years - HELD THAT - As the provisions of section 32(2) was introduced by Finance Act, 1998 and further came to be amended by the Finance Act, 2000. The provisions introduced by the Finance Act, 1996 was clarified by the Finance Minister to be applicable with the prospective effect. The court referred to the relevant circular of the Central Board of Direct Taxes and attached purposive and harmonious interpretation keeping in view the purpose of amendment of section 32(2) and held that the assessee becomes entitled to the benefit within the ambit of section in view of the clear language of the section. The questions framed as substantial question of law on the ground of carry forward of unabsorbed depreciation without any limitation period, does not arise as the issue is settled in General Motors India (P) Ltd. 2012 (8) TMI 714 - GUJARAT HIGH COURT as held that once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997- 98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. No substantial question of law.

Summary

Issues involved:
The issues involved in this case are related to the challenge against the order passed by the Income Tax Appellate Tribunal for the assessment year 2007-08. The appellant, Principal Commissioner of Income Tax-1, has raised substantial questions of law regarding the carry forward and set off of unabsorbed depreciation without any limitation of period, the applicability of CBDT's circular, and the finality of the issue.

Issue 1: Carry forward of unabsorbed depreciation
The Assessing Officer disallowed the improper set off of unabsorbed depreciation against the income under the head "Short Term Capital Gain and Long Term Capital Gain." The Commissioner of Income Tax (Appeal) partly allowed the appeal of the assessee by deleting the disallowance of unabsorbed brought forward depreciation for certain assessment years. The Income Tax Appellate Tribunal dismissed the revenue's appeal, citing a jurisdictional High Court judgment which clarified that there is no limitation period for carrying forward unabsorbed depreciation.

Issue 2: Applicability of CBDT Circular
The Tribunal upheld the finding of the CIT(A) based on CBDT's circular No.14 of 2001, which clarified the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with. The Tribunal followed the ratio of the jurisdictional High Court judgment and found no merit in the grounds raised by the Revenue.

Issue 3: Finality of the Issue
The Division Bench of the court had previously addressed the issue of unabsorbed depreciation and the period of carry forward in the context of relevant amendments. The court held that the issue is settled law based on the General Motors India (P) Ltd. case, where it was established that unabsorbed depreciation could be carried forward and set off after a period of 8 years without any limit. As a result, no substantial question of law was found to be arising in this appeal, and it was rejected at the admission stage.