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TMI Blog2016 (9) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... set off against income under any head in the year in which the allowance was first computed, shall be eligible to be carried forward for set off only against income under the head ‘Profits and gains of business or profession’ to the following assessment year(s) not more than eight assessment years immediately succeeding the assessment year for which it was first computed. The provisions of Sec.32(2) as substituted by the Finance Act, 2001 w.e.f. 1st April, 2002, applicable for AY 2004-05 & 2005-06 ) Assessment years under consideration (hereinafter called the "third period") reads as under : "(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-s. (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-s. (2) of s. 72 and sub-s. (3) of s. 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 allowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of Sec.32 of I.T. Act, 1961 (as it stood before amendment made in Finance Act 2001) Unabsorbed Depreciation prior to the A.Y. 1997-98 and 97-98 to 2000-01 cannot be carried forward beyond eight years. In other words, unabsorbed depreciation upto A.Y. 1997-98 can be carried forward upto A.Y. 2004-05 and not beyond that. According to the AO therefore the unabsorbed depreciation for the period mentioned above was wrongly set off with the business income for the A.Y. 2007-08. The AO observed that remedial measures were being taken for the A.Y. 2007-08 to withdraw the Unabsorbed Depreciation set off which was allowed u/s 143(3) in violation of provisions of sec. 32 of I.T. Act, 1961. The AO in coming to the above conclusion that depreciation for the period 1997-98 to 2000-01 cannot be carried forward for set off beyond 8 years, placed reliance on the decision of the Special Bench of ITAT Mumbai in the case of DCIT Cir-1(3) Vs. M/s. Times Guarantee Ltd. in ITA No. 4917 4918/Mum/2008 wherein it was held that unabsorbed depreciation prior to the period 1997-98 can be carried forward for set off against the income for a maximum of eight years starting from the A.Y. 1997-98. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2007-08 and verified the facts. I find that the contention of the assessee is factually correct. The proceedings u/s 147 pertaining to the assessment year 2007-08 thereby proposing withdrawal of set off in respect of unabsorbed depreciation aggregating to ₹ 5,22,76,222/- pertaining to the assessment years 1994-95 to 1997-98 was dropped by the AO vide his order sheet entry dated 28-03-2013. I am afraid the issue as to whether the AO was justified in holding that unabsorbed depreciation related to the assessment years 1994-95 to 1997-98 aggregating to ₹ 5,55,76,222/- could not allowed to be set off in the assessment year 2007-08 in view of the provisions of section 32(2) s it stood prior to the amendment by the Finance Act, 2001 and the decision of the Hon ble Special Bench of the ITAT in the case of M/s. Times Guarantee Ltd is not before me. The issue relates to the assessment year 2007-08 and does not actually emerge from the order under appeal wherein the AO has only given the consequential effect to his findings pertaining to the assessment year 2007-08. As the AO has dropped the proceedings u/s 147 for the assessment year 2007-08 thereby proposing withdrawal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding previous years. 11. A glance at this provision indicates that if there are sufficient profits or gains to adjust full depreciation allowance for the current year under s. 32(1) of the Act, then it will be adjusted accordingly. If however there are no profits or gains at all or they are insufficient to accommodate the depreciation allowance for the year in full, then subject to the provisions of ss. 72(2) and 73(3), the amount of such unadjusted allowance, to which effect has not been given, shall be added to the amount of depreciation allowance for the following previous year and deemed to be part of depreciation allowance for that previous year and so on for eternity. 12. The provisions of s. 32(2) as substituted by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997 (hereinafter called the second period ) read as under : (2) Where in the assessment of the assessee full effect cannot be given to any allowance under cl. (ii) of sub-s. (1) in any previous year owing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unabsorbed, is to be referred to as unabsorbed depreciation allowance . Such unabsorbed depreciation allowance is to be set off firstly against the income under the head Profits and gains of business or profession from any other business or profession carried on by the assessee for that assessment year. If such business profit is also insufficient to absorb the unabsorbed depreciation allowance, then the remaining amount shall be set off against income under other heads, as mentioned in s. 14 of the Act assessable for that assessment year. This exercise of setting off the unabsorbed depreciation allowance against any head of income is restricted to the year in which the claim for depreciation has arisen under s. 32(1). If however income of the assessee under all heads is insufficient to absorb the unabsorbed depreciation allowance, then such amount is to be carried forward to the following assessment year to be set off against the income arising under the head Profits and gains of business or profession . Not only that, the business or profession for which the allowance was computed should continue to be carried on by the assessee during the previous year relevant to assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd and set off only upto a period of 8 years. The period of 8 years would i.e., upto 2003-04 and from AY 2004-05 these unabsorbed depreciation cannot be carry forward for set off. Similar reasoning was adopted by the AO for withdrawing carry forward of unabsorbed depreciation of ₹ 3,24,68,197/- of AY 1997-98 claimed in AY 2005-06. 17. The position of unabsorbed depreciation for AY 1994-95 till 2003-04 is given as an annexure to this order for better appreciation of facts. The AO was of the view that the carry forward of unabsorbed depreciation for AY. 1994-95, AY. 19 5-96 and A.Y. 1996-97 to subsequent years aggregating to ₹ 8,77,48,743/- on the ground that the same is not allowable to be carried forward to subsequent years under the provisions of the Act. Under the amended provisions the above unabsorbed depreciation were eligible for set off up to AY. 2004-05 and cannot be carried forward to subsequent years. 18. The AO in coming to the above conclusion by placing reliance on the special bench decision of ITAT Mumbai in the case of DCIT Vs. Times Guarantee Ltd. (2010) 40 SOT 14 (SB)(Mum) wherein it was held the provisions of Sec.32(2) as substituted by the Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or profession . C. In the third period (i.e. asst. yr. 2002-03 onwards). (i) first unadjusted depreciation allowance can be set off upto asst. yr. 2004- 05, that is, the remaining period out of maximum period of eight assessment years (as per B(i) above) against income under any head. (ii) second unabsorbed depreciation allowance can be set off only against the income under the head Profits and gains of business or profession within a period of eight assessment years succeeding the assessment year for which it was first computed. (iii) current depreciation for the year under s. 32(1), for each year separately, starting from asst. yr. 2002-03 can be set off against income under any head. Amount of depreciation allowance not so set off (hereinafter called the Third unadjusted depreciation allowance ) shall be carried forward to the following year. (iv) the Third unadjusted depreciation allowance shall be deemed as depreciation under s. 32(1), that is depreciation for the current year in the following year(s) to be set off against income under any head, like current depreciation, in perpetuity. 19. Before CIT(A) the Assessee relied on the decision of the Gujarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Hon'ble Kolkata Tribunal after analyzing and accepting the principles of the decisions of the Hon'ble Karnataka High Court in the case of Karnataka Cooperative Milk producers Federation Ltd. -vs.- DC IT (2011) 53 DTR 81 (Kar) and Hon'ble Amritsar Tribunal in the case of ITO vs- Suraj Solvent Vanaspati Industries Ltd. (2008) 16 DTR 492 (Amritsar) and further accepting the fact that since there is no contrary decision of the Hon'ble Calcutta High Court on the aforesaid issue has held that the Assessing officer had taken a correct view of the amended provisions of the section 32(2) of the Act to allow the assessee to carry forward the depreciation allowance for the previous year 2004-05 and 2005-06. Reliance was also placed on the decision of the Hon'ble Karnataka High Court in the case of Cooperative Milk producers Federation Ltd. (supra) held as under: ..... the provision u/s 32(2) of the Act which came to be introduced limiting/extending the period from eight years for an unlimited period. Further, carrying forward of unabsorbed depreciation for every year has to be calculated indivi ally based on audit report and to arrive at the exact amount to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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