2021 (7) TMI 868 - HC - Income Tax

High Court upholds assessee's right to carry forward unabsorbed depreciation, setting precedent for extended benefit.

The High Court dismissed the Revenue's appeal, affirming the assessee's entitlement to carry forward unabsorbed depreciation from AY 1997-98 and 1998-99 ... Carry forward of unabsorbed depreciation and set off against the income which is beyond the period of eight assessment years - HELD THAT:- Having regard to the submissions made on either side, following the ratio laid down in Harvey Heart Hospitals Ltd. [2021 (1) TMI 296 - MADRAS HIGH COURT] and Sanmar Speciality Chemicals Ltd.[2020 (9) TMI 770 - MADRAS HIGH COURT] the question of law is decided against the Revenue and in favour of the assessee as held unabsorbed depreciation pertaining to the assessment year can be carry forward and adjusted after the lapse of eight assessment years in view of the section 32(2) as amended by the Finance Act, 2001. - Decided against revenue. Issues Involved:1. Whether the assessee is entitled to carry forward the unabsorbed depreciation of Rs. 13,71,60,209/- pertaining to AY 1997-1998 and 1998-99 and set off against the income of Assessment Year 2007-08 beyond the period of eight assessment years.Issue-wise Detailed Analysis:1. Entitlement to Carry Forward Unabsorbed Depreciation Beyond Eight Years:The primary issue in this appeal is whether the assessee can carry forward unabsorbed depreciation from AY 1997-98 and 1998-99 to AY 2007-08, despite the initial eight-year restriction imposed by the amendment effective from AY 1997-98, which was later removed from AY 2002-03.The assessee had filed a return for AY 2007-08, admitting a business loss and carrying forward unabsorbed depreciation. The Assessing Officer initially accepted this but later proposed to withdraw a significant portion of the depreciation allowance under Section 154 of the Income Tax Act, claiming it was a mistake apparent on the record. This proposal was dropped after the assessee's objection. Subsequently, a notice under Section 148 was issued, leading to the reassessment and withdrawal of the carry forward of unabsorbed depreciation.The Tribunal allowed the assessee's appeal, leading to the Revenue's appeal to the High Court. The High Court noted that the substantial question of law had already been decided against the Revenue in previous judgments, including:- Harvey Heart Hospitals Ltd. Vs. Assistant Commissioner of Income Tax [2021] 127 taxmann.com 805 (Madras): This judgment upheld the assessee's right to carry forward unabsorbed depreciation beyond eight years, citing the amendment effective from AY 2002-03 which removed the eight-year cap.- Commissioner of Income Tax, Chennai Vs. Sanmar Speciality Chemicals Ltd. [2020] 122 taxmann.com 212 (Madras): This judgment reiterated that post-amendment, unabsorbed depreciation could be carried forward indefinitely, benefiting the assessee.The High Court also referred to the Supreme Court's decision in CIT v. Bajaj Hindustan Ltd. [2019] 103 taxmann.com 32, which supported the indefinite carry forward of unabsorbed depreciation post-amendment.The Revenue's reliance on the Calcutta High Court's decision in Peerless General Finance & Investment Co. Ltd. v. CIT was found unhelpful, as the Supreme Court had dismissed the special leave petition against this decision, and the context differed.The High Court concluded that the amendment effective from AY 2002-03 allowed the carry forward of unabsorbed depreciation without any time limit, benefiting the assessee. The Tribunal's decision was upheld, and the Revenue's appeal was dismissed.Conclusion:The High Court dismissed the Revenue's appeal, affirming that the assessee is entitled to carry forward the unabsorbed depreciation from AY 1997-98 and 1998-99 to AY 2007-08, beyond the initial eight-year period, due to the amendment effective from AY 2002-03 which removed the time restriction. The judgment aligns with previous decisions favoring the assessee on this issue.