2018 (3) TMI 1343 - AT - Income Tax

Tribunal allows adjustment & carry forward of unabsorbed depreciation as current for AY 2006-07

Income Tax Officer 13 (2) (2), Mumbai Versus M/s Searock Enterprises Pvt. Ltd C/o Economy Refrigeration Ltd.

The Tribunal upheld the CIT(A)'s decision to allow the adjustment and carry forward of unabsorbed depreciation as current depreciation for AY 2006-07. ... Adjustment of unabsorbed depreciation and carry forward of unabsorbed depreciation - carried forward for 8 years only - Held that:- This issue is covered in favour of assessee by the decision of Hon’ble Gujarat High Court in the case of General Motors India Pvt. Ltd. (2012 (8) TMI 714 - GUJARAT HIGH COURT) held any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001, thus once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever Respectfully following the above, we confirm the order of CIT(A) and this issue of Revenue’s appeal is dismissed. Issues Involved:1. Whether the CIT(A) was correct in directing the Assessing Officer to allow the adjustment and carry forward of unabsorbed depreciation claimed for AY 2001-02 and earlier years as current depreciation for AY 2006-07.Detailed Analysis:1. Allowance of Unabsorbed Depreciation:The primary issue revolves around whether unabsorbed depreciation from AY 1997-98 to 2001-02, amounting to Rs. 57,22,613/-, can be carried forward and adjusted as current depreciation in AY 2006-07. The Assessing Officer (AO) disallowed this claim based on the decision of the Bombay Special Bench of the ITAT in Times Guarantee Ltd., which stated that unabsorbed depreciation up to FY 2001-02 could only be carried forward for eight years and adjusted against business income.2. CIT(A)'s Decision:The CIT(A) allowed the assessee's claim by relying on the Gujarat High Court's decision in General Motors India Pvt. Ltd. vs. DCIT, which held that unabsorbed depreciation could be carried forward beyond eight years without restriction, following the amendment to Section 32(2) by the Finance Act, 2001. The CIT(A) cited several supporting decisions from various tribunals, including Abacus Distribution (India) (P) Ltd. vs. DCIT, Confidence Petroleum India Ltd. vs. DCIT, Hindustan Unilever Ltd. vs. ACIT, and Arch Fine Chemicals v. SCIT.3. Tribunal's Analysis:The Tribunal reviewed the facts and circumstances, acknowledging that the issue was covered in favor of the assessee by the Gujarat High Court's decision in General Motors India Pvt. Ltd. The Tribunal noted that prior to the Finance Act, 1996, unabsorbed depreciation could be carried forward indefinitely. The Finance Act, 1996, introduced a restriction of eight years, but this was removed by the Finance Act, 2001, which restored the earlier position, allowing indefinite carry forward of unabsorbed depreciation.4. Legislative Intent and Judicial Precedents:The Tribunal emphasized that the legislative intent behind the Finance Act, 2001, was to enable industries to conserve funds for replacing plant and machinery by removing the eight-year restriction. The Tribunal cited the CBDT Circular No. 14 of 2001, which clarified this intent. The Tribunal also referenced judicial precedents, including the Madras High Court's decision in Craigmore Plantations India Limited and the Gujarat High Court's decision in General Motors India Pvt. Ltd., which supported the indefinite carry forward of unabsorbed depreciation.5. Conclusion:Respecting the Gujarat High Court's decision and the legislative intent, the Tribunal confirmed the CIT(A)'s order, allowing the adjustment and carry forward of unabsorbed depreciation as current depreciation for AY 2006-07. The Tribunal dismissed the Revenue's appeal, thereby upholding the assessee's claim.Result:The appeal of the Revenue was dismissed, and the CIT(A)'s decision to allow the adjustment and carry forward of unabsorbed depreciation was upheld. The order was pronounced in the open court on 21-03-2018.