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TMI Blog2016 (4) TMI 907X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. - ITA NO.5859/MUM/2013 - - - Dated:- 14-3-2016 - Shri Joginder Singh, Judicial Member and Shri Rajendra, Accountant Member For The Revenue : Shri M.Murli-DR For The Assessee : Shri Mayur Kisnadwala ORDER The Revenue is aggrieved by the impugned order dated 23/07/2013 of the ld. First Appellate Authority, Mumbai, on the ground whether the ld. Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, under the facts discussed hereinabove, first of all, we are reproducing hereunder the relevant provision of section 32of the Act for ready reference and analysis:- 32. (1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed10; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed11: Provided that no deduction shall be allowed under this clause in respect of- (a) any motor car manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation.-For the purposes of this proviso,- (a) the expression commercial vehicle means heavy goods vehicle , heavy passenger motor vehicle , light motor vehicle , medium goods vehicle and medium passenger motor vehicle but does not include maxi-cab , motor-cab , tractor and roadroller ; (b) the expressions heavy goods vehicle , heavy passenger motor vehicle , light motor vehicle , medium goods vehicle , medium passenger motor vehicle , maxi-cab , motor-cab , tractor and road roller shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988): Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991: Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posits for the winning of access thereto). Explanation 5.-For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income; (iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation or generation and distribution of power, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) : Following proviso shall be inserted before the existing proviso to clause (iia) of sub-section (1) of section 32 by the Finance Act, 2015, w.e.f. 1-4-2016 : Provided that where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urance, salvage or compensation moneys payable in respect thereof (including the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso; (2) sold includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company or in a scheme of amalgamation of a banking company, as referred to in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) with a banking institution as referred to in sub-section (15) of section 45 of the said Act, sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of that Act, of any asset by the banking company to the banking institution. xxxxxxxxxxxxxx (2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es on account of depreciation. 2.4. The Hon ble Apex Court in CIT vs Shri Shubh Laxmi Mills Ltd. (2001) 249 ITR 795(SC), while deliberating upon sections 32, 33, 79 (prior to amendment in 1988) with respect to carry forward of losses held that in order to invoke section 79 to deny carry forward and set off of losses in the case of a company, in which public is not substantially interested, the Department has to prove not only that is change in 50% of the voting power has taken palace but also such change has taken place with an intent to reduce or to avoid tax liability. In CIT vs Goving Nagar Sugar Ltd. (334 ITR 13) (Del.), Hon ble High Court while dealing with section 32 r.w.s 80 and 139 of the Act, on the issue whether section 80 and 139(3) apply to business losses and not unabsorbed depreciation, which is exclusively govern by provisions of section 32(2) and therefore, period of limitation for filing loss return as provided u/s 139(1), held that it shall not be applicable for carry forward of unabsorbed depreciation. While coming to this conclusion, the Hon ble Court considered following judicial pronouncements:- a) Sri Hari Mills Ltd. v. First ITO [1967J 65 ITR 348 (Mad) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) (1958) 33 ITR 367 (Cal.) and CIT vs Ahmedabad Electricity Company Ltd. (1973) 89 ITR 77 (Bom.). This is so because unabsorbed depreciation retains its own character even in succeeding year(s) as distinguished from current depreciation (CIT vs Ravi Industries Ltd. ) (1963) 49 ITR 145, 155 (Bom.). The Hon ble Madras High Court in Seshasayee Paper bonds Ltd. vs DCIT(2005) 272 ITR 165 (Mad.) held that 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. Hon ble Punjab Haryana High Court in CIT vs Haryana Hotels Ltd. (2005) 276 ITR 521 even went to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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