Assessee's Appeal Partially Allowed: Business Loss Claim Dismissed, Depreciation Set-Off Permitted Indefinitely

The appeal by the assessee was partly allowed. The claim for carry forward of business loss was dismissed due to exceeding the 8-year limit. However, the set-off/carry forward of unabsorbed depreciation was allowed indefinitely following a relevant amendment removing the 8-year restriction. Additionally, the disallowance of interest payment was overturned as the Tribunal found the higher interest rate justified. The order was pronounced on 11-07-2016.

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Issues Involved:
1. Carry forward of business loss.
2. Set-off or carry forward of unabsorbed depreciation.
3. Disallowance of interest payment.

Issue-wise Detailed Analysis:

1. Carry Forward of Business Loss:
The assessee's appeal against the order of CIT(A)-III, Baroda, dated 17.04.2012, pertained to the carry forward of business loss of Rs. 74,44,271/-. The counsel for the assessee conceded that the claim for set off of business loss was for losses pertaining to assessment years older than 8 years. Since the law does not permit carrying forward losses beyond 8 assessment years, this ground was dismissed.

2. Set-off or Carry Forward of Unabsorbed Depreciation:
The revenue authorities denied the set-off of unabsorbed depreciation amounting to Rs. 3,17,82,254/- based on the provisions of Section 32(2)(iii)(b) as amended by the Finance (No. 2) Act, 1996, which limited the carry forward to 8 years. However, this issue had been settled in favor of the assessee by the Hon’ble Jurisdictional High Court in the case of General Motors India (P.) Ltd. 354 ITR 244, which was followed in Gujarat Themis Biosyn Ltd. 228 taxman.com 359. The High Court ruled that the unabsorbed depreciation from A.Y. 1997-98 onwards could be carried forward indefinitely following the amendment by Finance Act, 2001, which removed the 8-year restriction. The Tribunal directed the A.O. to allow the set-off/carry forward of unabsorbed depreciation as claimed by the assessee, thus allowing this ground.

3. Disallowance of Interest Payment:
The A.O. disallowed Rs. 3,00,544/- out of interest payment, restricting the interest rate to 12.50% instead of the 15% paid by the assessee. The assessee argued that the higher interest rate was justified due to past financial losses and the need to attract depositors. The Tribunal found that the A.O. failed to provide comparable cases to justify the disallowance and noted that a 15% interest rate was not excessive. Consequently, the Tribunal set aside the findings of the CIT(A) and directed the A.O. to delete the addition, allowing this ground.

Conclusion:
The appeal by the assessee was partly allowed, dismissing the claim for carry forward of business loss but allowing the set-off/carry forward of unabsorbed depreciation and deleting the disallowance of interest payment. The order was pronounced in open court on 11-07-2016.

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