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D.C.I.T., Circle-11, Kolkata Versus M/s. Epcos India Pvt. Ltd. Vice-Versa

2016 (5) TMI 1021 - ITAT KOLKATA

Allowance of carry forward of unabsorbed depreciation - Held that:- Gujarat High Court in the case of.General Motors India Pvt. Ltd. -vs.- DCIT (Guj.) (2012 (8) TMI 714 - GUJARAT HIGH COURT ) wherein held that unabsorbed depreciation from AY. 1997-98 up to AY. 2001-02 got carried forward to AY. 2002-03 and became part thereof and it came to be governed by the provisions of sec. 32(2) as amended by the Finance Act, 2001 and were available for carry forward and set off against income of subsequent .....

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mp; 2005- 06, respectively. The Assessee has filed cross-objections against the very same order of the CIT(A). ITA No.815 & 816/Kol/13: (Revenue's appeals) 2. The issue raised by the Revenue in both the appeals are identical and arise out of identical facts and circumstances. The grounds of appeal raised by the Revenue in ITA No.815/Kol/13 reads as follows: "1. That on the facts and circumstances of the case, Ld. CIT(Appeal) was not justified in allowing the carry forward of unabsor .....

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2(2) of the I.T. Act, 1961. 3. That on the facts and circumstances of the case and also in view of amended provision of law, the unabsorbed depreciation upto assessment year 1996-97 was eligible for set off, up to assessment year 2004-05 only." 3. The grounds of appeal raised by the revenue in ITA No.816/Kol/13 reads as follows: 1. That on the facts and circumstances of the case, Ld. CIT(Appeal) was not justified in allowing the carry forward of unabsorbed depreciation for the A.Y. 1997-98 .....

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n view of amended provision of law, unabsorbed depreciation from assessment year 1997-98 to 2001-02 was eligible for set off only against the income under head 'Profit and gains of business or profession' for a period not more than eight assessment years. 4. That on the facts and circumstances of the case and also in view of amended provision of law, the unabsorbed depreciation upto assessment year 1997-98 was eligible for set off, up to assessment year 2004-05 only. " 4. The Assess .....

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sment Year Amount (Rs.) 1 1994-95 3,18,90,852 2 1995-96 2,08,68,162 3 1996-97 3,49,89,729 Total 8,77,48,743 Since the total income was negative it was not possible for the respondent to claim set off of the aforesaid unabsorbed depreciation against the income for the relevant year and hence in the return the same was claimed to be carried forward. The details of brought forward loss in respect of the aforesaid assessment years have been reported by the Tax Auditors in Annexure - XI of the Tax Au .....

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nt. In the said Order the then AO had not discussed about the allowability of carry forward of the aforesaid unabsorbed depreciation. Subsequently, the Ld. Income Tax Officer (hereinafter referred to as 'AO') issued notice under section 148 on 31-03-2011 initiating reassessment proceedings. Thereafter, as per specific request of the Respondent, reasons for re- opening of assessment were provided to the Respondent vide letter dated 19-10-2011. In the said letter the AO has contended that .....

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ia, carry forward of unabsorbed deprecation for A. Y. 1997-98 amounting to ₹ 3,24,68,197/-. Since the total income was negative it was not possible for the respondent to claim set off of the aforesaid unabsorbed depreciation against the income for the relevant year and hence in the return the same was claimed to be carried forward. The details of brought forward loss in respect of the aforesaid assessment year have been reported by the Tax Auditors in Annexure - X of the Tax Audit Report f .....

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Order the then AO had not discussed about the allowability of carry forward of the aforesaid unabsorbed depreciation. Subsequently, the Ld. Income Tax Officer (hereinafter referred to as 'AO') has issued notice under section 148 on 31-03-2011 initiating reassessment proceedings. Thereafter, as per specific request of the Respondent, reasons for re- opening of assessment were provided to the Respondent vide letter dated 19-10-2011. In the said letter the AO has contended that the Respond .....

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eriod") read as under : "(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under cl. (ii) of sub-s. (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-s. (2) of s. 72 and sub-s. (3) of s. 73, the allowance or part of the allowance to which effect has not been given, as the case may b .....

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cordingly. If however there are no profits or gains at all or they are insufficient to accommodate the depreciation allowance for the year in full, then subject to the provisions of ss. 72(2) and 73(3), the amount of such unadjusted allowance, to which effect has not been given, shall be added to the amount of depreciation allowance for the following previous year and deemed to be part of depreciation allowance for that previous year and so on for eternity. 10. The provisions of s. 32(2) as subs .....

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inafter referred to as unabsorbed depreciation allowance), as the case may be,- (i) shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (ii) if the unabsorbed depreciation allowance cannot be wholly set off under cl. (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year; (iii) if the unabsorbed depreciation allowance cannot be wh .....

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more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed : Provided that the business or profession for which the allowance was originally computed continued to be carried on by him in the previous year relevant for that assessment year : Provided further that the time-limit of eight assessment years specified in sub-cl. (b) shall not apply in the case of a company for the assessment year beginning with the assessment year r .....

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he Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)." 11. A bare perusal of this provision indicates that where the amount of depreciation allowance under s. 32(1) for the current year of a business cannot be absorbed fully or partly due to inadequacy of profits or gains from such business, then such allowance or part of it which remained unabsorbed, is to be referred to as "unabsorbed depreciation allowance". Such unabsorbed depreciation allowance is to be set .....

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e against any head of income is restricted to the year in which the claim for depreciation has arisen under s. 32(1). If however income of the assessee under all heads is insufficient to absorb the unabsorbed depreciation allowance, then such amount is to be carried forward to the following assessment year to be set off against the income arising under the head 'Profits and gains of business or profession'. Not only that, the business or profession for which the allowance was computed sh .....

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in which the allowance was first computed, shall be eligible to be carried forward for set off only against income under the head 'Profits and gains of business or profession' to the following assessment year(s) not more than eight assessment years immediately succeeding the assessment year for which it was first computed. 12. The provisions of Sec.32(2) as substituted by the Finance Act, 2001 w.e.f. 1st April, 2002, applicable for AY 2004-05 & 2005-06 ) Assessment years under consi .....

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t 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". 13. The above provision in fact, is reinforcement of the provision as existing in the first period. Thus the law as existing in the second period was completely .....

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rry forward and set off only upto a period of 8 years. The period of 8 years would i.e., upto 2003-04 and from AY 2004-05 these unabsorbed depreciation cannot be carry forward for set off. Similar reasoning was adopted by the AO for withdrawing carry forward of unabsorbed depreciation of ₹ 3,24,68,197/- of AY 1997-98 claimed in AY 2005-06. 14. The position of unabsorbed depreciation for AY 1994-95 till 2003-04 is given as an annexure to this order for better appreciation of facts. The AO w .....

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g reliance on the special bench decision of ITAT Mumbai in the case of DCIT Vs. Times Guartee Ltd. (2010) 40 SOT 14 (SB)(Mum) wherein it was held the provisions of Sec.32(2) as substituted by the Finance Act, 2001 w.e.f. 1st April, 2002, which is reinforcement of the provision as existing in the first period i.e., prior to 1st April, 1997. Thus the law as existing in the second period w.e.f. 1st April, 1997 was completely taken back and as a result of that the provision as prevailing in the firs .....

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rized as under : A. In the first period (i.e. upto asst. yr. 1996-97) (i) current depreciation, that is the amount of allowance for the year under s. 32(1), can be set off against income under any head within the same year. (ii) amount of such current depreciation which cannot be so set off within the same year as per (i) above shall be deemed as depreciation under s. 32(1), that is depreciation for the current year in the following year(s) to be set off against income under any head, like curre .....

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h year separately starting from asst. yr. 1997-98 upto 2001-02) can be set off firstly against business income and then against income under any other head. (iii) amount of current depreciation for asst. yrs. 1997-98 to 2001-02 which cannot be so set off as per (ii) above, hereinafter called the 'Second unabsorbed depreciation allowance' shall be carried forward for a maximum period of eight assessment years from the assessment year immediately succeeding the assessment year for which it .....

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ome under the head 'Profits and gains of business or profession' within a period of eight assessment years succeeding the assessment year for which it was first computed. (iii) current depreciation for the year under s. 32(1), for each year separately, starting from asst. yr. 2002-03 can be set off against income under any head. Amount of depreciation allowance not so set off (hereinafter called the 'Third unadjusted depreciation allowance') shall be carried forward to the follow .....

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nabsorbed depreciation from AY. 1997-98 up to AY. 2001-02 got carried forward to AY. 2002-03 and became part thereof and it came to be governed by the provisions of sec. 32(2) as amended by the Finance Act, 2001 and were available for carry forward and set off against income of subsequent years without any limit. The relevant extracts of the judgment is as under: "We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A. Y. 2002- .....

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01 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. " 17. It was pointed out that the above decision in the case of General Motors India Pvt. Ltd. (supra) has been followed by the Hon'ble Gujarat High Court in the case of CIT - vs.- Gujarat Themis Biosyn Ltd. (2014) 44 taxmann.com 204 (Guj.). In this case the Hon'ble High Court upheld the view taken by the ITAT wherein, following the decision of the Hon .....

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w of the amended provisions of section 32(2) of the Act the assessee would be entitled to set off the unabsorbed depreciation for the AYs 1997-98 and 1998-99 against the income of the AY 2008-09 (i.e. beyond assessment years 2004-05/2005-06). The Hon'ble Kolkata Tribunal after analyzing and accepting the principles of the decisions of the Hon'ble Karnataka High Court in the case of Karnataka Cooperative Milk producers Federation Ltd. -vs.- DC IT (2011) 53 DTR 81 (Kar) and Hon'ble Amr .....

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e decision of the Hon'ble Karnataka High Court in the case of Cooperative Milk producers Federation Ltd. (supra) held as under: " ..... the provision u/s 32(2) of the Act which came to be introduced limiting/extending the period from eight years for an unlimited period. Further, carrying forward of unabsorbed depreciation for every year has to be calculated indivi ally based on audit report and to arrive at the exact amount to be carried forward. 19. The CIT(A) allowed the claim of the .....

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ed a copy of the order of the jurisdictional Hon'ble Kolkata Tribunal in the case of Bengal Tea & Fabrics Ltd. Vs. DClT Cir-4, Kolkata (ITA No. 467/Kol/2012 dt. 26-07-2012) wherein the Tribunal has categorically given its finding that the assessee company would be entitled to set off unabsorbed depreciation .or the A.Ys. 1997-98, 1998-99 against the income of A.Y. 2008-09 (i.e. beyond the A.Ys.2004-05/2005-06). The Hon'ble Kolkata Tribunal has also discussed, analyzed and accepted th .....

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