Tribunal Upholds Rectification Order, Allows Set-off of Unabsorbed Depreciation

The Tribunal upheld the rectification order issued by the Assessing Officer under sections 154/143(3)/250 of the Income Tax Act, 1961, stating it was within the statutory time limit. It directed the AO to allow the set off of unabsorbed depreciation as claimed by the assessee, following the judgment of the Hon'ble Madras High Court. The Tribunal dismissed the appellant's arguments regarding the time limitation for rectification and the disallowance of depreciation, ultimately partially allowing the appeal and pronouncing the decision on 31st December 2021.

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Issues:
1. Legality and jurisdiction of rectification order u/s. 154/143(3)/250 of the Income Tax Act, 1961.
2. Time limitation for rectification u/s. 154 and its calculation.
3. Disallowance of set off of unabsorbed depreciation under section 32(2).
4. Merit of the disallowance of depreciation by the Ld. CIT(A).
5. Error in computation of disallowance of carry forward of depreciation.

Issue 1 - Legality and jurisdiction of rectification order u/s. 154/143(3)/250:
The appeal challenged the rectification order dated 16.03.2016 by the Assessing Officer (AO) under sections 154/143(3)/250 of the Income Tax Act, 1961. The appellant contended that the order was illegal, without jurisdiction, and barred by time limitation. The appellant argued that the order was beyond the prescribed four-year limit under section 154(7) of the Act. However, the Tribunal dismissed the grounds as the order was issued within the statutory time limit.

Issue 2 - Time limitation for rectification u/s. 154 and its calculation:
The Tribunal clarified that the time limitation for passing an order under section 154 starts from the end of the financial year in which the original order was passed. In this case, the AO sought to amend an order dated 25/3/2013, making the limitation period expire on 31st March 2017. Since the impugned order was dated 16/3/2016, it was within the statutory time limit, leading to the dismissal of the appellant's arguments.

Issue 3 - Disallowance of set off of unabsorbed depreciation under section 32(2):
The dispute involved the disallowance of set off of unabsorbed depreciation amounting to Rs. 3,83,54,673 for Assessment Years 1995-96, 1996-97, and 1998-99 against the profits of Assessment Year 2007-08. The AO denied the set off based on the interpretation of section 32(2) of the Act. However, the Tribunal, following the judgment of the Hon'ble Madras High Court, directed the AO to delete the disallowance and allow the setting off of unabsorbed depreciation as claimed by the assessee.

Issue 4 - Merit of the disallowance of depreciation by the Ld. CIT(A):
The Ld. CIT(A) had declined the claim of the assessee regarding the disallowance of depreciation, relying on the judgment of the Special Bench of the Tribunal. However, the Tribunal, in line with the decision of the Hon'ble Madras High Court, directed the AO to delete the disallowance and allow the setting off of unabsorbed depreciation as claimed by the assessee.

Issue 5 - Error in computation of disallowance of carry forward of depreciation:
Since the Tribunal allowed the setting off of unabsorbed depreciation as claimed by the assessee, the ground related to the error in the computation of disallowance of carry forward of depreciation became infructuous and was dismissed. The general nature of Ground No. 9 required no separate adjudication.

In conclusion, the Tribunal partly allowed the appeal of the assessee, directing the AO to delete the disallowance and allow the setting off of unabsorbed depreciation as claimed. The decision was pronounced on 31st December 2021 after a Virtual Hearing in the presence of both parties.

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