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2016 (6) TMI 931 - ITAT KOLKATA

2016 (6) TMI 931 - ITAT KOLKATA - TMI - Revision u/s 263 - Determination of loss to be carried forward - loss represented unabsorbed depreciation which was to be carried forward to the subsequent assessment year along with the earlier year’s unabsorbed depreciation - CIT(A) held that unabsorbed depreciation cannot be carried forward without set off beyond a period of 8 years and AO ought to have held that unabsorbed depreciation which remained without set off ought to have been treated by the AO .....

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012 (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 years without any limit and which has the effect of overruling the decision of the Special Bench in the case of Times Gurantee (2010 (6) TMI 516 - ITAT, .....

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e interests of Revenue, the provisions of section 263(1) of the Act are not attracted as the phrase ‘prejudicial to the interests of Revenue’ is to be read in conjunction with an ‘erroneous’ order passed by the Assessing Officer. When an Assessing Officer adopts one of the courses permissible in law and it has resulted in loss of Revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prej .....

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.Srivastava, CIT ( DR ) ORDER Per N. V. Vasudevan, JM This is an appeal by the Assessee against the order dated 28.03.2013 of CITKolkata- IV, passed u/s 263 of the I.T.Act relating to AY 2008-09. 2. The Assessee is a company. It is engaged in the business of manufacturing and selling of textile yarns, nylon synthetic, polyester filament yarn, polyester chips etc. For AY 2008-09, the Assessee filed return of income declaring total loss at ₹ 28,88,03,082. Assessment u/s.143(3) of the Income .....

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relating to AY 1996-97, 1997-98, 1998-99 & 2000-01 and as per the law applicable to those years, those unabsorbed depreciation cannot be carried forward without set off beyond a period of 8 years. According to the CIT, the AO ought to have held that unabsorbed depreciation which remained without set off ought to have been treated by the AO as not eligible for carry forward. Accordingly a show cause notice u/s.263 of the Act was issued by the CIT and an order u/s.263 of the Act dated 28.3.201 .....

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issions of the learned DR, who relied on the order of the CIT. The learned counsel for the Assessee explained the law on the issue as will be discussed in the subsequent paragraphs of this order and submitted that the order of the CIT has to be quashed. 5. To appreciate the issue that arises for consideration in this appeal, the provisions of Sec.32(2) of the Income Tax Act, 1961 (Act) as it existed at three different point of time need to be set out. The provisions of s. 32(2) prior to the amen .....

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) of s. 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 deemed to be the allowance for that previous year, and so on for the succeeding previous years." 6. A glance at this provision indicates that if there are sufficient profits or gains to adjust .....

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eciation allowance for that previous year and so on for eternity. 7. The provisions of s. 32(2) as substituted by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997 (hereinafter called the "second period") 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 being less th .....

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f any, assessable for that assessment year; (iii) if the unabsorbed depreciation allowance cannot be wholly set off under cl. (i) and cl. (ii), the amount of allowance not so set off shall be carried forward to the following assessment year and- (a) it 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; (b) if the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed dep .....

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) shall not apply in the case of a company for the assessment year beginning with the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-s. (1) of s. 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment 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 c .....

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as "unabsorbed depreciation allowance". Such unabsorbed depreciation allowance is to be set off firstly against the income under the head "Profits and gains of business or profession" from any other business or profession carried on by the assessee for that assessment year. If such business profit is also insufficient to absorb the unabsorbed depreciation allowance, then the remaining amount shall be set off against income under other heads, as mentioned in s. 14 of the Act .....

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rofession . Not only that, the business or profession for which the allowance was computed should continue to be carried on by the assessee during the previous year relevant to assessment year in which the set off is claimed. The exercise of carrying forward such unabsorbed depreciation allowance is to be continued upto eight assessment years immediately succeeding assessment year for which the aforesaid depreciation allowance was first computed. From here it follows that the amount of unabsorbe .....

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pril, 2002, applicable for AY 2004-05 & 2005-06 ) Assessment years under consideration (hereinafter called the "third period") reads as under : "(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under 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 .....

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in the first period. Thus the law as existing in the second period was completely taken back and as a result of that the provision as prevailing in the first period was restored. 11. The CIT was of the view that the claim of the Assessee for carry forward of unabsorbed depreciation for 96-97 to 98-99 & 2000-01 for set off after the period of 8 years cannot be allowed because unabsorbed depreciation for the aforesaid AYs becomes current year depreciation of AY 2008-09 and as per the law appl .....

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., 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 first period was restored. From the language of the sub-s. (2) of s. 32 it is manifest that it is a substantive provision and not a procedural one. It is settled legal position that the amendment to substantive provision is normally prospective unless expressly stated otherwise or it appears so by necessary implicat .....

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(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 current depreciation. B. In the second period (i.e. asst. yrs. 1997-98 to 2001-02). (i) brought forward unadjusted depreciation allowance for and upto asst. yr. 1996-97 (hereinafter called the First unadjusted depreciation allowance ), which could not be set off upto asst. yr. 1996-97, shall be carried forward for set off .....

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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 was first computed, to be set off only against the income under the head Profits and gains of business or profession . C. In the third period (i.e. asst. yr. 2002-03 onwards). (i) first unadjusted depreciation allowance can be set off upto asst. yr. 2004- 05, that is, the remaining period out of maximum period of eight assessment years .....

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o set off (hereinafter called the Third unadjusted depreciation allowance ) shall be carried forward to the following year. (iv) the Third unadjusted depreciation allowance 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 current depreciation, in perpetuity. 12. Before us, the learned counsel for the Assessee relied on the decision of the Gujarat High Court in the case of General M .....

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"We are of the considered opinion that 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 the A. Y. 2001-02 got carried forward to the a .....

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nn.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'ble Gujarat High Court in the case of General Motors Ltd. (supra), it was held that carry forward of unabsorbed depreciation concerning AY. 2001-02 and assessment years prior thereto can be set off in subsequent years without any set time limit. 14. Reference was further made to the decision of the Hon'ble Jurisdictional Tribunal in the case of Bengal Te .....

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a High Court in the case of Karnataka Cooperative Milk producers Federation Ltd. -vs.- DC IT (2011) 53 DTR 81 (Kar) and Hon'ble Amritsar Tribunal in the case of ITO -vs- Suraj Solvent Vanaspati Industries Ltd. (2008) 16 DTR 492 (Amritsar) and further accepting the fact that since there is no contrary decision of the Hon'ble Calcutta High Court on the aforesaid issue has held that the Assessing officer had taken a correct view of the amended provisions of the section 32(2) of the Act to a .....

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