TMI Blog2014 (4) TMI 1001X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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. 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 - 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 up to the 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 - the order passed by the AO u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amining the assessment record of the assessee for the AY under consideration, was of the view that the rectification order dated 18/08/2010 passed by the Assessing Officer u/s 154 of the Act allowing carry forward and set off of unabsorbed depreciation for the assessment year 1997-98 is erroneous and prejudicial to the interests of the revenue. According to the CIT, unabsorbed depreciation for AY 1997-98, as per the provisions of section 32(2) of the Act, can be carried forward up to a maximum period of 8 years from the year in which it was computed. The CIT, therefore, issued a notice u/s 263 of the Act asking the assessee to show cause. In response to the show cause, it was contended on behalf of the assessee that in view of the amendment made to section 32 of the Act by the Finance Act, 2001 removing 8 year time limit for carry forward and set off of unabsorbed depreciation, the assessee would be entitled for carry forward loss of unabsorbed depreciation relating to AY 1997-98 in the assessment year under consideration. In support of such contention, the assessee relied upon a decision of the Hon ble Gujarat High Court in case of General Motors India Pvt. Ltd. Vs. DCIT vide Spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2010 passed u/s 154 of the Act by the Assessing Officer, but, actually the CIT has ended up revising the consequential order dated 31/01/2011 passed by the Assessing Officer in pursuance to direction of CIT(A). We hold this opinion because the CIT in the revision order has directed the Assessing Officer to withdraw set off of unabsorbed depreciation of Rs. 14,42,694/- pertaining to AY 1997-98 allegedly allowed in the rectification order u/s 154 of the Act. However, a perusal of the order passed u/s 154 of the Act dated 18/08/2010 would clearly reveal that carry forward of unabsorbed depreciation set off by the Assessing Officer pertaining to the AY 1997-98 is Rs. 15,92,450/- and not Rs. 14,42,694/- as directed to be withdrawn by the CIT. Carry forward and set off of unabsorbed depreciation of Rs. 14,42,694/- pertaining to AY 1997-98 was allowed by the Assessing Officer in the consequential order dated 31/01/2011 passed by the Assessing Officer. That apart, after the consequential order dated 31/01/2011 passed by the Assessing Officer implementing the direction of CIT(A), the rectification order passed u/s 154 of the Act has lost its relevance. Hence, there is no meaning in revisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod of 8 years from the year in which it was first computed. According to the Assessing Officer, 8 years expired in the A.Y. 2005-06 and only till then, the assessee was eligible to claim unabsorbed depreciation of A.Y. 1997-98 for being carried forward and set off against the income for the A.Y. 2005- 06. But the assessee was not entitled for unabsorbed depreciation of Rs.43,60,22,158/- for A.Y. 1997-98, which was not eligible for being carried forward and set off against the income for the A.Y. 2006-07. 31. Prior to the Finance Act No.2 of 1996 the unabsorbed depreciation for any year was allowed to be carry forward indefinitely and by a deeming 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.1997-98. 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 ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year relevant to the 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. 34. The aforesaid provision was introduced by Finance (No.2) Act, 1996 and further amended by the Finance Act, 2000. The provision introduced by Finance (No.2) Act was clarified by the Finance Minister to be applicable with prospective effect. 35. 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 subsection (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in A.Y. 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken. While construing taxing statutes, rule of strict interpretation has to be 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inclined to hold that the assessee will be eligible to carry forward and set off of unabsorbed depreciation pertaining to the AY 1997-98 in the impugned assessment year. Therefore, the order passed by the Assessing Officer u/s 154 of the Act cannot be said to be erroneous and prejudicial to the interests of the revenue so as to empower the CIT to revise it u/s 263 of the Act. 6.2 So far as the decision of the coordinate bench in case of Fenoplast Vs. CIT (supra) is concerned, on careful analysis of the factual aspects of the case, we find it to be distinguishable, hence, not applicable. As would be evident from the order passed in the case of M/s Fenoplast (supra), in that case the CIT while exercising power u/s 263 has held that the issue being a contentious and debatable issue could not have been made subject matter of rectification u/s 154 of the Act. This is because of the fact that at the relevant time neither the issue was resolved by any decision of the High Court nor there was any other order favouring assessee. On the contrary the special bench decision in case of DCIT Vs. Times Guarantee Ltd., [2010] 4 ITR (Trib.) 2010 was against the assessee. The decision of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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