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TMI Blog2015 (3) TMI 977X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the financial year 1994-95 the asset was a capital asset. Therefore, the market value and the cost inflation index applicable for the financial year 1994-95 should be applied together and not disparagingly like the one claimed by the assessee, in adopting the cost inflation index of year in which the asset was converted into stock-in-trade in computing long-term capital gains, the reasoning of the Assessing Officer appears to be correct and logical. In the circumstances, we are in agreement with the view of the Assessing Officer that the cost inflation index as stood in the year of conversion only has to be applied not the cost inflation index as stood in the year of taxation of capital gains of the asset - Decided against assessee. Set off of unabsorbed depreciation prior to the assessment year 1997-98 denied -Enhancement proposal of the Assessing Officer accepted by CIT(A) - Held that:- This issue is squarely covered in favour of the assessee by the decision of the hon'ble Gujarat High Court in the case of General Motors India P. Ltd. v. Deputy CIT [2012 (8) TMI 714 - GUJARAT HIGH COURT] wherein held that unabsorbed depreciation from 1997-98 up to assessment year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n appeal, the Commissioner of Income-tax (Appeals) upheld the action of the Assessing Officer in adopting cost inflation index of the year of conversion against which the assessee is in appeal before us. 4. Counsel for the assessee submits that property which was converted into stock-in-trade in the year 1994-95 was sold in the financial year 2006- 07 relevant to the assessment year 2007-08 and as per section 45 of the Income-tax Act, chargeability to capital gains consequently arose in the assessment year 2007-08. Counsel submits that the assessee computed long-term capital gains adopting cost inflation index of the year of sale, i.e., financial year 2006-07 as numerator figure. Counsel submits that section 45 is the chargeability section and determines the chargeability of capital gains in case of conversion of property into stock-in-trade to the assessment year to its year of sale irrespective of year of conversion into stock-in-trade. Counsel submits that in its case the property in question was converted in the financial year 1994-95 but was sold only in the financial year 2006-07. The determination of indexed cost of acquisition is covered by section 48 of the Act. He subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act is, '(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to Income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.' It is by this logic that the long-term capital gain is subjected to taxation in the financial year 2007-08. But, the market value considered for the purpose of this computation as the sale value is ₹ 22.71 crores being the value for the financial year 1994-95. Taking a market value as on the date of conversion into stock-in-trade of the financial year 1994-95 and applying cost inflation index of the financial year 2006-07 is found to lack lucidity. By applying the cost inflation index of the financial year 2006-07, it is perceived that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absorbed depreciation prior to assessment year 2002-03, i.e., from the assessment years 1999-2000 to 2001-02 which was set off against long-term capital gains against which the assessee is in appeal before us. 8. At the time of hearing, counsel for the assessee submits that this issue is squarely covered in favour of the assessee by the decision of the hon'ble Gujarat High Court in the case of General Motors India P. Ltd. v. Deputy CIT [2013] 354 ITR 244 (Guj), wherein the hon'ble Gujarat High Court held that unabsorbed depreciation from 1997-98 up to assessment year 2001-02 got carried forward to the assessment year 2002-03 and became part thereof and was available for carry forward and set off against profits and gains of subsequent years without any limit whatsoever. He also places reliance on the Mumbai Bench of this Tribunal in the case of Arch Fine Chemicals v. Asst. CIT in I.T.A. Nos. 2414 and 2415/Mum/2012 dated October 9, 2013, where similar view was taken by the Tribunal following the decision of the hon'ble Gujarat High Court in the case of General Motors India P. Ltd. [2013] 354 ITR 244 (Guj). 9. The Departmental representative supported the orders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 32. So, the unabsorbed depreciation allowance of the assessment year 1996-97 would be added to the allowance of the assessment year 1997-98 and the limitation of 8 years for the carry forward and set-off of such unabsorbed depreciation would start from the assessment year 1997-98. 33. We may now examine the provisions of section 32(2) of the Act before its amendment by the Finance Act, 2001. The section prior to its amendment by the Finance Act, 2001, read as under : 'Where in the assessment of the assessee full effect cannot be given to any allowance under clause (ii) of sub-section (1) in any previous year owning to there being no profits or gains chargeable for that previous year or owing to the profits or gains being less than the allowance, then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as unabsorbed depreciation allowance), as the case may be,- (i) shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year ; (ii) if the unabsorbed depreciation allowance cannot be who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be allowance of that previous year, and so on for the succeeding previous years.' 36. The purpose of this amendment has been clarified by Central Board of Direct Taxes in the Circular No. 14 of 2001 (see [2001] 252 ITR (St.) 65, 90 ). The relevant portion of the said circular reads as under : 'Modification of provisions relating to depreciation 30.1 Under the existing provisions of section 32 of the Income- tax Act, carry forward and set off of unabsorbed depreciation is allowed for 8 assessment years. 30.2 With a view to enable the industry to conserve sufficient funds to replace plant and machinery, specially in an era where obsolescence takes place so often, the Act has dispensed with the restriction of 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the section, the benefit accruing to the assessee cannot be denied. However, Circular No. 14 of 2001 had clarified that under section 32(2), in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by the Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the assessment years 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the assessment year 200203 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. 38. Therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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