Court upholds unlimited set-off of unabsorbed depreciation pre-2002

The High Court dismissed the Revenue's appeal, upholding the Tribunal's decision that unabsorbed depreciation from assessment years 2001-02 and prior could be set off without any time limit under the amended provision of Section 32(2) of the Income Tax Act. The Tribunal's deletion of the disallowance for setting off brought forward unabsorbed depreciation for assessment years 1999-2000 and 2000-2001 was also affirmed. The Court found no substantial question of law and dismissed the appeal, ruling in favor of the assessee without costs.

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Issues Involved:

1. Whether unabsorbed depreciation from assessment years 2001-02 and prior can be set off in subsequent years without any limit as per the amended provision of Section 32(2) of the Income Tax Act.
2. Whether the Tribunal was correct in deleting the disallowance of the claim for setting off brought forward unabsorbed depreciation amounting to Rs. 1,19,02,780/- for assessment years 1999-2000 and 2000-2001.

Issue-wise Detailed Analysis:

1. Unabsorbed Depreciation Set-Off:

The primary issue was whether unabsorbed depreciation from assessment years 2001-02 and prior could be set off in subsequent years without any limit, as per the amended provision of Section 32(2) of the Income Tax Act. The Tribunal's findings, supported by the Gujarat High Court's decision in General Motors India (P.) Ltd. v. DCIT, clarified that unabsorbed depreciation available on 1st April 2002 (A.Y. 2002-03) would be governed by the amended Section 32(2) of the Finance Act, 2001. This amendment removed the eight-year limit for carrying forward unabsorbed depreciation, allowing it to be set off against profits of subsequent years indefinitely. The Tribunal concluded that the unabsorbed depreciation from A.Y. 1997-98 to A.Y. 2001-02 could be carried forward and set off without any time restriction, thus favoring the assessee.

2. Deletion of Disallowance for Brought Forward Unabsorbed Depreciation:

The second issue was whether the Tribunal was correct in deleting the disallowance of the claim for setting off brought forward unabsorbed depreciation amounting to Rs. 1,19,02,780/- for assessment years 1999-2000 and 2000-2001. The Tribunal, referencing its earlier decision in the case of Best & Crompton Engineering Ltd. and the Gujarat High Court's ruling, held that the unabsorbed depreciation losses from these years merged with subsequent years' depreciation and became part of the current depreciation. The Tribunal confirmed that the assessee could claim these losses in the assessment year 2010-11, as the amended Section 32(2) allowed for indefinite carry forward and set off of such unabsorbed depreciation. The Tribunal dismissed the Revenue's contention, affirming the CIT(A)'s direction to allow the unabsorbed depreciation for the relevant years.

Additional Consideration:

The Revenue also highlighted the findings of the Commissioner of Income Tax (Appeals) for the assessment year 2007-08, which confirmed that the amalgamated company achieved more than 100% of its installed capacity in the fourth year post-merger. The Tribunal noted that the requirement of filing Form No.62 for the third assessment year was not a mandatory condition to claim carry forward losses under Section 72A. The Tribunal emphasized that the condition of achieving 50% of the installed capacity within four years was met, and the non-filing of Form No.62 did not disentitle the assessee from claiming the set-off.

Conclusion:

The High Court dismissed the Revenue's appeal, concluding that no substantial question of law arose for consideration. The Tribunal's decision to allow the set-off of unabsorbed depreciation without any time limit and the deletion of the disallowance for the brought forward unabsorbed depreciation was upheld. The appeal was found to be without merit and was accordingly dismissed with no costs.

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