2016 (8) TMI 1206 - HC - Income Tax

Unabsorbed depreciation brought forward to be carried forward in the year under consideration - Held that - Gujarat High Court in the case of General Motors India Private Limited 2012 (8) TMI 714 - GUJARAT HIGH COURT said any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act 2001. And once the Circular No. 14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with the unabsorbed depreciation from A.Y.1997-98 upto A.Y. 2001-02 got carried forward to the assessment year 2002- 03 and became part thereof it came to be governed by the provisions of section 32(2) as amended by Finance Act 2001 and were available for carry forward and set off against the profits and gains of subsequent years without any limit whatsoever - Decided against revenue

Summary

Issues:
1. Disallowance of depreciation under section 154
2. Direction to carry forward unabsorbed depreciation
3. Interpretation of provisions of section 32(2) as per the Gujarat High Court judgment

Analysis:
1. The appeal challenged a judgment and order by the Income Tax Appellate Tribunal, Kolkata, dismissing the revenue's appeal related to the assessment year 2007-08. The initial assessment order allowed depreciation under section 32 of the Income Tax Act, which was later sought to be restricted by an order under section 154. The order limited the carry forward of unabsorbed depreciation for specific assessment years and set it off only against income under the head "Profits and Gains of Business or Profession."

2. In response to an appeal by the assessee, the CIT(A) directed the Assessing Officer to carry forward unabsorbed depreciation for certain assessment years beyond the eight-year limit, in line with the judgment of the Gujarat High Court in the case of General Motors India Private Limited. The Tribunal, upholding the appellate order, relied on the Gujarat High Court judgment, which clarified that the restriction of eight years for carrying forward and setting off unabsorbed depreciation had been removed from the assessment year 2002-03 onwards. The Tribunal affirmed that unabsorbed depreciation from previous years could be carried forward without any time limit and set off against profits in subsequent years.

3. The views expressed by the Gujarat High Court emphasized that unabsorbed depreciation available to an assessee on April 1, 2002, would be governed by the provisions of section 32(2) as amended by the Finance Act, 2001. The judgment clarified that the cap of eight years for carrying forward and setting off unabsorbed depreciation was removed from the assessment year 2002-03 onwards, allowing for unlimited carry forward and set off against profits in subsequent years. The appellant's advocate did not contest the removal of the eight-year limit from the assessment year 2002-03 onwards.

In conclusion, the High Court dismissed the revenue's appeal for the assessment year 2007-08, aligning with the interpretation provided by the Gujarat High Court regarding the carry forward and set off of unabsorbed depreciation beyond the eight-year limit.