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Indore Steel and Iron Mills Ltd. Versus ITO -3 (2) (1) , Mumbai

2016 (8) TMI 736 - ITAT MUMBAI

Entitlement for claim of unabsorbed deprecation - Held that:- It is an undisputed fact that the claim of carried forward of depreciation aggregating to ₹ 1,31,03,362/- pertains to assessment years 1998-99, 2000-01 and 2001-02. Before the amendment, the time limit for carried forward of unabsorbed depreciation was for period not more than 8 assessment years immediately succeeding the assessment years for which the aforesaid allowance was first computed. However, by the Finance Act, 2001 an .....

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by ld. CIT(Appeals) -4, Mumbai in relation to the order passed under section 154 for the assessment year 2010-11. The grounds raised by the assessee reads as under:- (1) That the learned CIT(A) has erred in law and facts of the case: (2) That the learned CIT(A) has erred in considering only a part of the submission, made before him, and has happened to totally ignore to take into consideration the submission of the Appellant vide its letter dated 08.09.2014 and also the ratio of the decisions o .....

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ation of the said order by the learned CIT(A) is improper and unjust. (4) That the learned CIT(A) has also erred in dismissing the appellant s appeal by wrongly applying the decision of the Honourable Special Bench of ITAT, Mumbai Bench in the case of DCTI vs Time Guarantee Ltd the facts of the said case being different besides the said case had not arisen out of an order u/s 154 but out of an order /s 143(3) the application of the ratio of the said case to that the appellant s is untenable and .....

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-02 aggregating to ₹ 1,31,03,362/- has been claimed and allowed to be set off against the current year s income of AY 2010-11. He observed that, such a brought forward unabsorbed depreciation allowance pertaining to the period 1998-99 to 2001-02 can be carried forward for maximum period of 8 assessment years from the assessment year immediately succeeding the assessment year for which it was first computed to be set off against the income under the head profits and gains of business and pr .....

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.2013 had objected to such a rectification and also gave submissions on merits. However, the Ld. Assessing Officer after referring to section 32(2) as it stood prior to amendment brought by Finance Act, 2001 w.e.f. 01.04.2002, held that, unabsorbed depreciation totaling to ₹ 1,31,03,362/-, pertaining to the assessment years 1998-99, 2000-01 and 2001-02, which has been claimed in AY 2010-11, will not be allowable as it is beyond the period of 8 years. 3. Before the Ld. CIT(A), detailed subm .....

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of section 154 and secondly, the unabsorbed depreciation pertaining to the assessment years prior to the assessment year 2002-03 shall be allowed to be carried forward for more than the period of 8 years as per the amended provision. In support, strong reliance has been placed on the decision of Hon ble Gujarat High Court in the case of General Motors India Ltd vs DCIT, reported in 354 ITR 244. 5. On the other hand, Ld. DR strongly relied upon the order of the CIT(A). 6. After considering the r .....

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forward of unabsorbed depreciation was for period not more than 8 assessment years immediately succeeding the assessment years for which the aforesaid allowance was first computed. However, by the Finance Act, 2001 an amendment was brought under section 32(2), whereby, restriction of 8 years for the carried forward and set off of unabsorbed depreciation was removed. This precise issue has been answered by Hon ble Gujarat High Court in the case of General Motors India Pvt Ltd vs DCIT (supra) aft .....

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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 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. .....

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nd 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 next year and be deemed to be part thereof. 32. So, the unabsorbed depreciation allowance of A.Y. 1996-97 wo .....

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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 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 .....

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ble 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 assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed: Provided that the time limit of eight assessment years specified in sub-clause (b) shall not apply in case of a company for the assessm .....

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ng assigned to it in clause (ga) of subsection (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 t .....

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ot 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 of that previous year, and so on for the succeeding previous years." 36. The purpose of this amendment has been clarified by Central Board of Direct Taxes in the Circular No.14 of 2001. The relevant portion of the said Circular reads as unde .....

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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 motor car manufactured outside India unless it is used (i) in the business of running it on hire for tourists, or (ii) outside in the assessee's business or profession in another country. 30.4 The Act has allowed depreciation allowance .....

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ed 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 section 32(2) as amended by Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in A.Y. 19 .....

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tion 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 mandator .....

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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 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 l .....

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