TMI Blog2008 (6) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) brought into effect on and from 1-4-1997, we are of the considered view that the depreciation allowance allowed to the assessee up to and inclusive AY 1996-97 which remained unabsorbed and is brought forward to the AY 1997-98 and subsequent assessment years up to assessment year 2004-05 can be set-off as per pre-amended section 32(2) and, consequently, it can, be set-off against taxable business profits or income under any other head for assessment year 1997-98 and seven subsequent assessment years. Therefore, the assessee s claim, to set- off unabsorbed depreciation brought forward from (AY 1995-96 and 1996-97 against income under House Property for the AY 1998-99 is to be allowed, and, we order accordingly. Consequently, the issue involved in the Gross Objection filed by the assessee is decided in favour of the assessee. Before parting with the issue, we may put it on record that we have noticed a decision where a similar view has been taken by the ITAT in the case of ITO v. Selchem Engineers (P.) Ltd.[ 2004 (4) TMI 273 - ITAT DELHI-A] . ITAT in the case of Jt. CIT v. India Steamship Co. Ltd.[ 2002 (7) TMI 226 - ITAT CALCUTTA-E] , which was later followed by ITAT, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the present appeal by the revenue before the Tribunal. 4. We have heard the rival submissions. To appreciate the controversy involved in this appeal in its right and correct perspective, it is useful to refer to the provisions of section 32(2) as existed prior to the amendment made by the Finance (No. 2) Act, 1996 as well as subsequent to such amendment. 5. Provision of section 32(2) as it stood prior to the amendment made by the Finance (No. 2) Act, 1996 with effect from 1-4-1997 is as under :- "(2) Where, in the assessment or the assessee. full effect cannot be given to any allowance under clause ( ii ) of sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owning to the profits or gains 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 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year in which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation - For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause ( ga ) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)." 7. It is further seen that provision of section 32(2) as amended by Finance (No. 2) Act, 1996 with effect from 1-4-1997 had been substituted by the Finance Act, 2001 with effect from 1-4-2002 as under:- "(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (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 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 allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this view of the matter, section 32(2) contained an independent provision for setting off unabsorbed depreciation carried forward from a preceding year. The unabsorbed depreciation can be allowed to be carried forward and set off against income from other sources in a subsequent year notwithstanding the fact that the business in respect of which it arose ceased to exist in the year of such set off. However, certain restrictions have been put, for and from assessment year 1997-98 by an amendment made by the Finance (No. 2) Act, 1996, on allowance of unabsorbed depreciation as the old section 32(2) operative up to assessment year 1996-97 has been substituted. According to section 32(2), as substituted by the Finance (No. 2) Act, 1996 with effect from 1-4-1997, the unabsorbed depreciation of earlier years can be carried forward to the following assessment year and can only be set off against the profit and gains, if any, of any business or profession carried on by the assessee and assessable for that assessment year and following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Southern Travels v. Asstt. CIT [2003] 103 ITD 198 (Chennai) (SB). u CIT v. Pioneer Asia Packing (P.) Ltd. [2008] 170 Taxman 127 (Mad.). u ITO v. Keshwa Enterprises (P.) Ltd. [2006] 100 ITD 365 (Chd.). u Asstt. CIT v. Poddar Projects Ltd. [2005] 92 ITD 468 (Kol.). u Sain Processing Weaving Mills v. Asstt. CIT [2008] 19 SOT 560 (Delhi). It has been held that in respect of depreciation, which remains unabsorbed and pertained to a period prior to assessment year 1997-98. Adjustment or set-off of such unabsorbed portion of the depreciation against income from any other heads including capital gains should be permitted. 10. In the case of Poddar Projects Ltd. ( supra ), the Kolkata Bench of ITAT had to deal with a case where unabsorbed depreciation prior to the Amendment with effect from 1-4-1997 had to be set off for a period between 1997-98 to 2001-02. The Tribunal held as follows: "14. Now, the question arises as to whether the provisions of section 32(2)( iii ) as substituted with effect from 1-4-1997 can be applied to the unabsorbed depreciation brought forward from assessment year 1996-97 or earlier years thereto. There is no doubt as to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a number of Hon ble Members have expressed their apprehension that the proposed amendment limiting carry forward of unabsorbed depreciation to 8 years will adversely affect the growth of industry. Similarly apprehensions have been raised in a large number of post-budget memoranda. I would like to allay these fears. The proposed amendment is only prospective inasmuch as the cumulative unabsorbed depreciation brought forward as on 1-4-1997, can still be set off against taxable business profits or income under any other head for the assessment year 1997-98 and seven subsequent assessment years. Therefore, the proposed change will have effect only after 8 years and there is no cause for immediate concern about its likely impact on industry. Eight years is a period long enough for industry to adjust itself to the new dispensation and provide for depreciation accordingly. A number of Hon ble Members have brought to my notice that the proposed amendment may adversely affect sick companies. I accept the suggestions made by them. I, therefore, propose to provide that the time-limit of 8 years shall not apply to sick companies, during the period the company is treated as a "sick company" und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ala State Industrial Development Corporation v. CIT [2003] 259 ITR 51 has held as under : That the Finance Minister s speech can be relied upon to throw light on the object and purpose of the particular provisions introduced by the Finance Bill has been recognized by this Court in K.P. Varghese v. ITO [1981] 131 ITR 597, 609. 19. Having regard to the clarification given by the Finance Minister in his Speech delivered while moving the Finance (No. 2) Bill, 1996 in the Lok Sabha and giving harmonious meaning and reasoning to the amended section 32(2) brought into effect on and from 1-4-1997, we are of the considered view that the depreciation allowance allowed to the assessee up to and inclusive assessment year 1996-97 which remained unabsorbed and is brought forward to the assessment year 1997-98 and subsequent assessment years up to assessment year 2004-05 can be set-off as per pre-amended section 32(2) and, consequently, it can, be set-off against taxable business profits or income under any other head for assessment year 1997-98 and seven subsequent assessment years. Therefore, the assessee s claim, in the present case, to set- off unabsorbed depreciation brought for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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