2016 (8) TMI 736 - AT - Income Tax

Tribunal allows indefinite carry forward of unabsorbed depreciation for assessee

The appeal was allowed by the Tribunal, granting the assessee the right to carry forward unabsorbed depreciation totaling Rs. 1,31,03,362 from assessment ... Carry forward of unabsorbed depreciation - rectification under section 154 - application of amended section 32(2) to unabsorbed depreciation - dispensing with eight year restriction for set off of unabsorbed depreciation - persuasive value of Special Bench decision versus binding High Court ruling - CBDT Circular No.14 of 2001 and purposive construction of taxation amendmentCarry forward of unabsorbed depreciation - application of amended section 32(2) to unabsorbed depreciation - dispensing with eight year restriction for set off of unabsorbed depreciation - CBDT Circular No.14 of 2001 and purposive construction of taxation amendment - rectification under section 154 - Claim for carry forward and set off of unabsorbed depreciation from assessment years 1998-99, 2000-01 and 2001-02 against income of assessment year 2010-11 and validity of the rectification made by the Assessing Officer under section 154. - HELD THAT: - The Tribunal considered that unabsorbed depreciation claimed for the earlier assessment years fell to be governed by the amended scheme of section 32(2) as effected by Finance Act, 2001 with effect from A.Y.2002-03. Reliance was placed on CBDT Circular No.14 of 2001 which clarified that the amendment dispensed with the earlier eight year carry forward restriction and applied to unabsorbed depreciation available on 1 April 2002, such amounts becoming part of the depreciation allowance for A.Y.2002-03 and subsequent years. The Tribunal found the decision of the Hon'ble Gujarat High Court in General Motors India Ltd. v. DCIT to have considered the pre and post amendment provisions and the Circular and to conclude that unabsorbed depreciation pertaining to the earlier years was governed by the amended provision and therefore available for carry forward and set off without the eight year limit. The Tribunal held that the Special Bench decision relied upon by the authorities below was not persuasive in view of the High Court ruling and the CBDT Circular; accordingly the Assessing Officer's rectification treating the amounts as barred by the eight year limit was unsustainable. On that basis the grounds raised were allowed and the assessee's claim for set off was accepted.Assessee entitled to carry forward and set off the unabsorbed depreciation pertaining to A.Y.1998-99, 2000-01 and 2001-02 against income of A.Y.2010-11; the eight year restriction does not apply and the rectification under section 154 is not sustained.Final Conclusion: The appeal is allowed; the assessee's claim for carried forward unabsorbed depreciation from A.Y.1998-99, 2000-01 and 2001-02 is accepted for set off against income of A.Y.2010-11, the eight year limitation being dispensed with by the amendment effective A.Y.2002-03 and supported by CBDT Circular No.14 of 2001 and the Gujarat High Court decision. Issues Involved:1. Whether the rectification under section 154 was beyond the scope and ambit of the section.2. Whether the unabsorbed depreciation pertaining to assessment years prior to 2002-03 can be carried forward beyond the period of 8 years as per the amended provision.Detailed Analysis:1. Scope and Ambit of Section 154:The primary contention raised by the assessee was that the issue could not be raised within the scope of section 154. The assessee argued that the rectification by the Assessing Officer was beyond the permissible limits of section 154, which is intended for rectifying apparent mistakes. The assessee objected to the rectification notice issued under section 154 on 26.11.2013, arguing that the issue was highly debatable and thus not suitable for rectification under this section. The CIT(A) dismissed the appeal, relying on the decision of the ITAT Special Bench in the case of DCIT vs Times Guarantee Ltd.2. Carry Forward of Unabsorbed Depreciation:The core issue was whether the unabsorbed depreciation from assessment years 1998-99, 2000-01, and 2001-02, totaling Rs. 1,31,03,362, could be carried forward beyond the period of 8 years. The Assessing Officer had disallowed the set-off of this unabsorbed depreciation against the current year’s income, citing the restriction of 8 years as per the pre-amended section 32(2). However, the Finance Act, 2001, had removed this restriction, allowing unabsorbed depreciation to be carried forward indefinitely.Findings and Judgment:The Tribunal considered the relevant findings and submissions and noted that the authorities below had relied on the ITAT Special Bench decision in DCIT vs Times Guarantee Ltd. The Tribunal observed that the Finance Act, 2001, had amended section 32(2), removing the 8-year restriction on carrying forward unabsorbed depreciation. This amendment was clarified by the CBDT Circular No. 14 of 2001, which stated that the restriction of 8 years was dispensed with to enable the industry to conserve funds for replacing plant and machinery.The Tribunal referred to the Gujarat High Court's decision in General Motors India Pvt Ltd vs DCIT, which held that any unabsorbed depreciation available as of 1st April 2002 would be governed by the amended provisions of section 32(2), allowing it to be carried forward indefinitely. The High Court emphasized that the amendment was intended to remove the 8-year restriction and that unabsorbed depreciation from prior years would be carried forward and set off against subsequent years' profits without any time limit.Conclusion:The Tribunal concluded that in light of the Gujarat High Court's decision, the Special Bench's decision in Times Guarantee Ltd would not have persuasive precedence. Therefore, the assessee was entitled to claim the unabsorbed depreciation of Rs. 1,31,03,362 from the assessment years 1998-99, 2000-01, and 2001-02 against the current year’s income. The appeal was allowed, and the grounds raised by the assessee were treated as allowed.Result:The appeal of the assessee was allowed, and the order was pronounced in the open court on 16th August 2016.