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2016 (7) TMI 1002 - ITAT AHMEDABAD

2016 (7) TMI 1002 - ITAT AHMEDABAD - TMI - Carry forward of business loss - Held that:- The grievance raised is misplaced inasmuch as the claim of set off of business loss is for the business losses which pertain to assessment years of more than 8 years.Since, the assessee is not entitled to carry forward any loss for more than 8 assessment years and since the ld. counsel has conceded ground is accordingly dismissed.- Decided against assessee. - Denial of set off of unabsorbed depreciation - .....

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t the normal rate of bank interest is 12.50% but the A.O. has not realized is that the public make deposits in Companies to get more interest than from the bank. If the companies are paying the same rate of interest as the bank are paying then the public would not see any benefit in making deposits with the Company and they will go for bank interest. Further, by no stretch of imagination rate of interest of 15% can be considered as excessive. We, accordingly, set aside the findings of the ld. CI .....

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substantive grievance of the assessee reads as under:- 1. That on facts, and in law, the ld. CIT(A) has grievously erred in not allowing the carry forward of business loss of ₹ 74,44,271/-. 2. That, on facts and in law, the ld. CIT(A) has grievously erred in not allowing either set-off or carry forward of unabsorbed depreciation amounting to ₹ 3,17,82,254/-. 3. That the ld. CIT(A) has grievously erred in confirming the disallowance of ₹ 3,00,544/- out of interest payment. 3. At .....

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, the revenue authorities have denied the set off of unabsorbed depreciation in the light of the provisions of sub section 2(iii)(b) of Section 32 as amended by the Finance (No. 2) Act, 1996 with effect from 1st April, 1997. According to the revenue authorities, the said amendment is applicable in the case of assessee and, therefore, the assessee is not allowed to carry forward unabsorbed depreciation for more than 8 assessment years immediately succeeding the assessment years for which the afor .....

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nd circumstances of the case, the ITAT was right in allowing the claim of the assessee for carry forward of unabsorbed depreciation of ₹ 58,48,076/- for the period A.Y. 1997-98 to 2000-01 i.e. more than eight years in contravention to the provisions of the unamended provisions of section 32(2)(iii)(b) as stood in the assessment years 1997-98 to 2000-2001?" 7. The Hon ble High Court observed as under:- 3. This very issue has been decided by this Court in the case of General Motors Indi .....

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unabsorbed depreciation pertaining to A.Y. 1997-98 could be allowed to be carried forward and set off after a period of eight years or it would be governed by Section 32 as amended by Finance Act 2001? The reason given by the Assessing Officer under section 147 is that Section 32(2) of the Act was amended by Finance Act No.2 of 1996 w.e.f. A.Y. 1997-98 and the unabsorbed depreciation for the A.Y. 1997-98 could be carried forward up to the maximum period of 8 years from the year in which it was f .....

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f 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.I997-98. 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 .....

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endment by Finance Act 2001. The section prior to its amendment by Finance Act, 2001, read as under:- "Where in the assessment of the assessee full effect cannot be given to any allowance under clause (ii) of sub-section (1) in any previous year owning to there being no profits or gains chargeable for that previous year or owing to the profits or gains being less than the allowance, then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as u .....

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use (i) and Clause (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 depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight .....

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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 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." The aforesaid provision was introduced by Finance (No.2) Act, 1996 and further amended by the Finance Act, 2000. Th .....

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us year, 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 allowance for that previous year, be deemed to be allowance o .....

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try to conserve sufficient funds to replace plant and machinery, specially in an era where obsolescence takes place so often, the Act has dispensed with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The Act has also clarified that in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. 30.3 Under the existing provisions, no deduction for depreciation is allowed on any .....

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e intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means 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 se .....

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f 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 assesse .....

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eciation or part thereof could not be set off till the A.Y. 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. Therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or bu .....

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s part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. 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 .....

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by the ld. D.R. in favour of the revenue. Respectfully following the decision of the Hon ble Jurisdictional High Court (supra), we direct the A.O to allow set off/carry forward of unabsorbed depreciation as claimed by the assessee. Ground no. 2 is accordingly allowed. 9. Ground no. 3 relates to the disallowance of ₹ 3,00,544/- out of interest payment. 10. On scrutinizing the financial statements of the assessee, the A.O found that the assessee has paid interest @ 15% to the parties listed .....

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