Tribunal Upholds CIT(A)'s Order on Unabsorbed Depreciation

The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. The decision was based on the authoritative ruling of the Gujarat High Court in General Motors India (P) Ltd., allowing the carry forward of unabsorbed depreciation without any time limit, overriding the Special Bench decision in Times Guarantee Ltd. The appeal by the Revenue was dismissed, and the CIT(A)'s order was affirmed.

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Issues Involved:
1. Deletion of addition on account of carried forward unabsorbed depreciation.
2. Applicability of the decision of the Special Bench of ITAT Mumbai in the case of Times Guarantee Ltd.
3. Interpretation of Section 32(2) of the Income Tax Act, 1961, regarding the carry forward and set off of unabsorbed depreciation.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Carried Forward Unabsorbed Depreciation:
The Revenue appealed against the CIT(A) order dated 29.11.2013, which deleted the addition of Rs. 5,55,76,222/- on account of carried forward unabsorbed depreciation. The AO had observed that unabsorbed depreciation from AY 1994-95 to 1997-98 was wrongly set off against the business income for AY 2007-08. The AO relied on the decision of the Special Bench of ITAT Mumbai in the case of Times Guarantee Ltd., which held that unabsorbed depreciation prior to AY 1997-98 could only be carried forward for eight years. Consequently, the AO withdrew the unabsorbed depreciation set off for AY 2007-08, which was allowed in violation of Section 32 of the IT Act, 1961.

2. Applicability of the Decision of the Special Bench of ITAT Mumbai in the Case of Times Guarantee Ltd.:
The AO's decision was based on the Special Bench ruling in Times Guarantee Ltd., which stated that unabsorbed depreciation for AY 1997-98 and earlier years could not be carried forward beyond eight years. The AO recalculated the unabsorbed depreciation and reduced the claim by Rs. 5,55,76,222/-. However, the Assessee contended that the Gujarat High Court in General Motors India (P) Ltd. ruled in favor of the Assessee, allowing the carry forward of unabsorbed depreciation without any time limit, as per the amended provisions of Section 32(2) by the Finance Act, 2001.

3. Interpretation of Section 32(2) of the Income Tax Act, 1961:
The Tribunal examined the provisions of Section 32(2) as it existed at different periods:
- First Period (prior to 1st April 1997): Unabsorbed depreciation could be carried forward indefinitely.
- Second Period (1st April 1997 to 1st April 2002): Unabsorbed depreciation could be carried forward for a maximum of eight years.
- Third Period (post 1st April 2002): The provision reverted to allowing indefinite carry forward of unabsorbed depreciation.

The Tribunal noted that the Gujarat High Court in General Motors India (P) Ltd. held that unabsorbed depreciation as of 1st April 2002 would be governed by the amended provisions of Section 32(2) and could be carried forward indefinitely. This decision overruled the Special Bench decision in Times Guarantee Ltd. The CIT(A) had accepted the Assessee's contention based on this ruling and reversed the AO's action.

The Tribunal also referenced other supportive rulings, including those of the Gujarat High Court in Gujarat Themis Biosyn Ltd. and the Kolkata Tribunal in Bengal Tea & Fabrics Limited, which upheld the indefinite carry forward of unabsorbed depreciation as per the amended Section 32(2).

Conclusion:
The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. The decision was based on the authoritative ruling of the Gujarat High Court in General Motors India (P) Ltd., which allowed the carry forward of unabsorbed depreciation without any time limit, thus overriding the earlier Special Bench decision in Times Guarantee Ltd. The appeal by the Revenue was dismissed, and the CIT(A)'s order was affirmed.

Order Pronounced:
The appeal by the Revenue was dismissed, and the order was pronounced in the Court on 12.08.2016.

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