2016 (3) TMI 1297

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.... of the assessee same as the original assessment i.e.at Rs NIL. However, in the reopened assessment unabsorbed depreciation pertaining to AY.1997-98 to AY.1999-2000, amounting to Rs. 1.17 crores was not allowed to be carried forward. While completing the assessment, the AO held that depreciation pertaining to AY.1997-98 could not be carried forward for more than 8 AY.s i.e.,it could not be carried forward beyond AY. 2007-08. The AO relied upon the decision of the Special Bench delivered in the case of Times Guarantee Ltd.(40SOT14).The claim of the assessee for carry-forward of unabsorbed depreciation Rs. 1,17,14,644/- was rejected by the AO. 3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).Before him, the assessee contended that it had incurred losses in the earlier years, that those losses consisted of business loss as well as unabsorbed depreciation, that against the profit earned by the assessee for the AY.2008-09 amounting to Rs. 2.53 crores, that part of the carry forward loss was set off ,that as per the provisions of the Act the business loss was set off first before setting off of the unabsorbed depreciation, th....

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.... to the cases of General Motors(I)Ltd., Bajaj Hindustan Ltd.(47taxmann.com333) dt.17.4.14, and Smith and Nephew Healthcare(P) Ltd.  (50 taxmann.com420 dt.15.1.14). 5.We have heard the rival submissions and perused the material before us. We find that the Hon'ble Gujarat High Court has dealt with the issue at length as under. "32.The last question which arises for consideration is that whether the unabsorbed depreciation pertaining to the assessment year 1997-98 could be allowed to be carried forward and set off after a period of eight years or it would be governed by section 32 as amended by the Finance Act, 2001 ? The reason given by the Assessing Officer under section 147 is that section 32(2) of the Act was amended by the Finance (No. 2) Act of 1996, with effect from the assessment year 1997-98 and the unabsorbed depreciation for the assessment year 1997-98 could be carried forward up to the maximum period of eight years from the year in which it was first computed. According to the Assessing Officer, eight years expired in the assessment year 2005-06 and only till then, the assessee was eligible to claim unabsorbed depreciation of the assessment year 1997-98 for being c....

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....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 the allowance of that previous year, and so on for the succeeding previous years." 38. The purpose of this amendment has been clarified by the Central Board of Direct Taxes in Circular No. 14 of 2001 (see [2001] 252 ITR (St.) 65, 90). The relevant portion of the said Circular reads as under : "Modification of provisions relating to depreciation 30.1 Under the existing provisions of section 32 of the Income-tax Act, carry forward and set off of unabsorbed depreciation is allowed for eight assessment years. 30.2 With a view to enable the industry to conserve sufficient funds to replace plant and machinery, specially in an era where obsolescence takes place so often, the Act has dispensed with the restriction of eight years for carry forward and set off of unabsorbed depreciation. The Act has also clarified that in computing the profits and gains of business or profession for any previous year, deduction of depreciation under ....

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....of depreciation under section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by the Finance Act, 2001, would allow the unabsorbed depreciation allowance available in the assessment years 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 assessment year 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. 40. 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 larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is curre....