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2016 (4) TMI 907 - ITAT MUMBAI

2016 (4) TMI 907 - ITAT MUMBAI - TMI - Carry forward of unabsorbed depreciation - denial of claim on the plea that sections 80 of the Act restrict the same - Held that:- If an assessee has unabsorbed depreciation u/s 32(2) of the Act as well as unabsorbed business loss carried forward u/s 72(1), section 72(2) provided the unabsorbed losses shall have precedence, and be set off first, so far as the sufficiency of income to be set off against permits. It is only after the carried forward business .....

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s also some unabsorbed depreciation allowance carried forwarded to be set off, the former shall get priority. This is so because unabsorbed depreciation retains its own character even in succeeding year(s) as distinguished from current depreciation

Under section 32(2) a legal fiction has been created that unabsorbed depreciation of the earlier year shall form part of current year’s disallowance and therefore it shall have to dealt with accordingly subject to the provision of section .....

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/MUM/2013 - Dated:- 14-3-2016 - Shri Joginder Singh, Judicial Member and Shri Rajendra, Accountant Member For The Revenue : Shri M.Murli-DR For The Assessee : Shri Mayur Kisnadwala ORDER The Revenue is aggrieved by the impugned order dated 23/07/2013 of the ld. First Appellate Authority, Mumbai, on the ground whether the ld. Commissioner of Income Tax (Appeals) erred in directing the Assessing Officer to allow carry forward and set off of depreciation relating to A.Y. 2009-10 without appreciatin .....

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the assessee by placing reliance upon the decision in CIT vs Shri Subhu Laxmi Mills Ltd. 249 ITR 795(SC), CIT vs Govind Nagar Sugar Ltd. 334 ITR 13 (Del.), CIT vs Haryana Hotels Ltd. 276 ITR 521 (P & H). This claim of the assessee was not controverted by the ld. DR and he relied upon the assessment order. 2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is engaged in the business of manufacturing of comput .....

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duly attended the assessment proceedings. The assessee filed the return on 01/10/2009 i.e. after the due date of filing of return of income. The assessee sought carried forward of entire loss, which was on account of unabsorbed depreciation u/s 32(2) of the Act. Such claim of the assessee of carry forward of such unabsorbed depreciation was denied by the Assessing Officer on the plea that sections 80 of the Act restrict the same. On appeal, before the ld. Commissioner of Income Tax (Appeals), t .....

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of the Act for ready reference and analysis:- 32. (1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- .....

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ebruary, 1975 but before the 1st day of April, 2001, unless it is used- (i) in a business of running it on hire for tourists ; or (ii) outside India in his business or profession in another country ; and (b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42 : Provided further that where an asset referred to in clause (i) or clause (ii) or clause (iia) 12[or the first proviso .....

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nserted after the second proviso to clause (ii) of sub-section (1) of section 32 by the Finance Act, 2015, w.e.f. 1-4-2016 : Provided also that where an asset referred to in clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business for a period of less than one hundred and eighty days in that previous year, and the deduction under this sub-section in respect of such asset is restricte .....

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, 1998 but before the 1st day of April, 1999 and is put to use before the 1st day of April, 1999 for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed. Explanation.-For the purposes of this proviso,- (a) the expression "commercial vehicle" means "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium go .....

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gs respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988): Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the comme .....

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on 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the am .....

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g of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. Explanation 2.-For the purposes of this sub-section "written down value of the block of assets" shall have the same meaning as in clause* (c) of sub-section† (6) of section 43. Explanation 3.-For the purposes of this sub-section, the expression "ass .....

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ineral deposits (including searching for discovery or testing of deposits for the winning of access thereto). Explanation 5.-For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income; (iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an as .....

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aking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new machinery or plant (other than ships and aircraft) for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 .....

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fice premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year; (iii) in the case of any building, machinery, plant or furniture i .....

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anation.-For the purposes of this clause,- (1) "moneys payable" in respect of any building, machinery, plant or furniture includes- (a) any insurance, salvage or compensation moneys payable in respect thereof; (b) where the building, machinery, plant or furniture is sold, the price for which it is sold, so, however, that where the actual cost of a motor car is, in accordance with the proviso to clause (1) of section 43, taken to be twenty-five thousand rupees, the moneys payable in res .....

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of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company or in a scheme of amalgamation of a banking company, as referred to in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) with a banking institution as referred to in sub-section (15) of section 45 of the said Act, .....

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isions 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 the allowance for that previous year, and so on for the succeeding previous years. 2.3. If the aforesaid sub-section .....

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orward losses, section 32(2) is not included. In the present case, the assessee has claimed set of and carry forward of unabsorbed depreciation against the profit & gains of business of the succeeding year. The business loss determined in the hands of the assessee under the head profit & gains of business stands of different footing then unabsorbed depreciation determined in the hands of the assessee, thus, the assessee having claimed the set of and carry forward of allowance of deprecia .....

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he contention of the Revenue that section 80 of the Act restrict the same, is concerned, it is noted that section 32 of the Act deals with different types of depreciation, whereas, section 80 deals with carry forward of unabsorbed losses other than losses on account of depreciation. 2.4. The Hon ble Apex Court in CIT vs Shri Shubh Laxmi Mills Ltd. (2001) 249 ITR 795(SC), while deliberating upon sections 32, 33, 79 (prior to amendment in 1988) with respect to carry forward of losses held that in .....

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139(3) apply to business losses and not unabsorbed depreciation, which is exclusively govern by provisions of section 32(2) and therefore, period of limitation for filing loss return as provided u/s 139(1), held that it shall not be applicable for carry forward of unabsorbed depreciation. While coming to this conclusion, the Hon ble Court considered following judicial pronouncements:- a) Sri Hari Mills Ltd. v. First ITO [1967J 65 ITR 348 (Mad) b) Sathappa Textiles (P.) Ltd. v. Second ITO [1969] .....

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Silk Wvg. Factory v CIT [1991] 189 itr 512/56 Taxman 4K (SC) 2.5. According the newly substituted (w.e.f 01/04/2002) section 32 (2) by the Finance Act, 2001 (14 of 2001) , which is operative for and from A.Y. 2002-03, certain conditions, inter-alia, the restriction of eight years for carry forward and set off of unabsorbed depreciation was dispensed with, reverting to pre-1997 position. It may be noted that the legal fixation of treating unabsorbed depreciation as the depreciation of the subsequ .....

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off against permits. It is only after the carried forward business loss is set off, and there yet remains positive income, that the unabsorbed depreciation would come in for a set off. This is beneficial to the assessee in as much as the unabsorbed business losses have a time bar of eight years while the unabsorbed depreciation has no time bar, it integrates with, and is treated as depreciation allowable for the subsequent year itself (CIT vs Jaipuria China Clay Mines Pvt. Ltd. (1966) 59 ITR 555 .....

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even in succeeding year(s) as distinguished from current depreciation (CIT vs Ravi Industries Ltd. ) (1963) 49 ITR 145, 155 (Bom.). The Hon ble Madras High Court in Seshasayee Paper & bonds Ltd. vs DCIT(2005) 272 ITR 165 (Mad.) held that under section 32(2) a legal fiction has been created that unabsorbed depreciation of the earlier year shall form part of current year s disallowance and therefore it shall have to dealt with accordingly subject to the provision of section 72(2) and 72(3) of .....

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