Tribunal permits set-off of unabsorbed depreciation, resolves interest charges and refund adjustments in favor of assessee

The Tribunal allowed the appeal filed by the assessee, permitting the set off of unabsorbed depreciation from AY 1995-96 to AY 1998-99 against the income for AY 2007-08. The Tribunal held that the Finance Act 2001 allowed for the indefinite carry forward of unabsorbed depreciation, contrary to the AO and FAA's interpretation. Consequently, the interest charged under sections 234B and 234C and the adjustment of demand against the refund due for AY 2008-09 were also resolved in favor of the assessee.

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Issues Involved:
1. Consideration of brought forward unabsorbed depreciation from AY 1995-96 to AY 1998-99 for set off against income for AY 2007-08.
2. Application of provisions relevant to AY 2007-08 versus those applicable to AY 1995-96 to AY 1998-99.
3. Interest charged under sections 234B and 234C and adjustment of demand against refund due for AY 2008-09.

Detailed Analysis:

1. Consideration of Brought Forward Unabsorbed Depreciation:
The primary issue raised by the assessee was the disallowance of brought forward unabsorbed depreciation amounting to Rs. 2,57,26,751/- from AY 1995-96 to AY 1998-99 for set off against the income of AY 2007-08. The assessee argued that the provisions applicable for AY 2007-08 should be considered instead of those relevant to the earlier years. The AO disallowed the claim based on the law applicable up to AY 2001-02, which restricted the carry forward of unabsorbed depreciation to eight years. The First Appellate Authority (FAA) upheld the AO's decision, stating that section 32(2) was a substantive provision and prospective in nature, applicable only from AY 2002-03 onwards.

2. Application of Provisions Relevant to AY 2007-08:
The assessee contended that the Finance Act 2001, which amended section 32(2) effective from 1st April 2002, restored the position as it existed prior to 1st April 1997, allowing unabsorbed depreciation to be carried forward indefinitely. The assessee cited judgments from the High Court of Madras (Craigmore Plantations India Limited) and the High Court of Gujarat (General Motors India Pvt. Ltd.) to support their claim. The Tribunal noted that the AO and FAA did not consider the amended provisions of section 32(2) correctly. The Tribunal emphasized that the amendments made by the Finance Act 2001 intended to allow unabsorbed depreciation to be carried forward beyond eight years, applicable for AY 2002-03 onwards, including AY 2007-08.

3. Interest Charged Under Sections 234B and 234C:
The interest charged under sections 234B and 234C and the adjustment of demand against the refund due for AY 2008-09 were consequential to the primary issue of unabsorbed depreciation. Since the Tribunal decided in favor of the assessee regarding the carry forward and set off of unabsorbed depreciation, the interest and adjustment issues were also resolved in the assessee's favor.

Conclusion:
The Tribunal reversed the order of the FAA and allowed the appeal filed by the assessee. It concluded that the unabsorbed depreciation from AY 1995-96 to AY 1998-99 should be allowed to be set off against the income for AY 2007-08, in line with the provisions of section 32(2) as amended by the Finance Act 2001. The legislative intent was to permit the carry forward of unabsorbed depreciation beyond eight years, applicable from AY 2002-03 onwards. The Tribunal's decision was pronounced in the open court on 24th July 2013.

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