2016 (7) TMI 1002

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....or the assessee fairly conceded that the grievance raised vide ground no. 1 is misplaced inasmuch as the claim of set off of business loss is for the business losses which pertain to assessment years of more than 8 years. 4. Since, the assessee is not entitled to carry forward any loss for more than 8 assessment years and since the ld. counsel has conceded ground no. 1 is accordingly dismissed. 5. In so far as the grievance relating to ground no. 2 is concerned, the revenue authorities have denied the set off of unabsorbed depreciation in the light of the provisions of sub section 2(iii)(b) of Section 32 as amended by the Finance (No. 2) Act, 1996 with effect from 1st April, 1997. According to the revenue authorities, the said amendment is applicable in the case of assessee and, therefore, the assessee is not allowed to carry forward unabsorbed depreciation for more than 8 assessment years immediately succeeding the assessment years for which the aforesaid allowance was first computed. 6. This issue is no more res integra and has been settled in favour of the assessee and against the revenue by the decision of the Hon'ble Jurisdictional High Court in the case of General Mo....

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....g fiction became allowance of the immediately succeeding year. The Finance Act No.2 of 1996 restricted the carry forward of unabsorbed depreciation and set-off to a limit of 8 years, from the A.Y.I997-98. Circular No.762 dated 18.2.1998 issued by the Central Board of Direct Taxes (CBDT) in the form of Explanatory Notes categorically provided, that the unabsorbed depreciation allowance for any previous year to which full effect cannot be given in that previous year shall be carried forward and added to the depreciation allowance of the next year and be deemed to be part thereof. So, the unabsorbed depreciation allowance of A.Y. 1996-97 would be added to the allowance of A.Y. 1997-98 and the limitation of 8 years for the carryforward and set-off of such unabsorbed depreciation would start from A.Y. 1997-98. We may now examine the provisions of section 32(2) of the Act before its amendment by Finance Act 2001. The section prior to its amendment by Finance Act, 2001, read as under:- "Where in the assessment of the assessee full effect cannot be given to any allowance under clause (ii) of sub-section (1) in any previous year owning to there being no profits or....

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.... Section 32 (2) of the Act was amended by Finance Act, 2001 and the provision so amended reads as under:- "Where, in the assessment of the assessee, full effect cannot be given to any allowance under subsection (1) in any previous year, owing to there being no profits or gains chargeable for that previous year or owing to the profits or gains chargeable for that previous year, owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be allowance of that previous year, and so on for the succeeding previous years." The purpose of this amendment has been clarified by Central Board of Direct Taxes in the Circular No.14 of 2001. The relevant portion of the said Circular reads as under :- "Modification of provisions relating to depreciation ....

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....e applied, giving fair and reasonable construction to the language of the section without leaning to the side of assessee or the revenue. But if the legislature fails to express clearly and the assessee becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assessee cannot be denied. However, Circular No. 14 of 2001 had clarified that under Section 32(2), in computing the profits and gains of business or profession for any previous year, deduction of depreciation under Section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the A.Y. 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the A.Y. 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. Therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is ....