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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 ..... 2007-08, observed that Unabsorbed Depreciation of Rs. 1,39,1,4,439/-, Rs. 2,18,64,403/-, Rs. 1,67,38,266/- & Rs. 30,59,114/- for the A.Y. 94-95, 95-96, 96-97 & 97-98 respectively aggregating Rs. 5,55,76,222/- was set off against the business income of the relevant assessment year. As per provisions 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 Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was also pointed out that the proceedings taken by the AO for A.Y.2007-08 in the case of the assessee were dropped. The CIT(A) on a consideration of the aforesaid submissions held as follows :- "I have called for the relevant assessment record for the assessment 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 Rs. 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 the allowance for that previous year, and so on for the succeeding 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of depreciation allowance under s. 32(1) for the current year of a business cannot be absorbed fully or partly due to inadequacy of profits or gains from such business, then such allowance or part of it which remained 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed depreciation for AY 94-95 and 95-96 totalling Rs. 8,77,48,743 becomes current year depreciation of AY 96-97 and as per the law applicable from AY 1996-97 (Second period) unabsorbed depreciation can be carry forward 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 Rs. 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 Rs. 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 placi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment years from the assessment year immediately succeeding the assessment year for which it was first computed, to be set off only against the income under the head 'Profits and gains of business 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee would be entitled to set off the unabsorbed depreciation for the AYs 1997-98 and 1998-99 against the income of the AY 2008-09 (i.e. beyond assessment years 2004-05/2005-06). 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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