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A.C.I.T., Central Circle-VI, Kolkata Versus M/s. J.K. Tyre and Industries Ltd.

2016 (9) TMI 1077 - ITAT KOLKATA

Addition on account of carried forwarded unabsorbed depreciation - CIT(A) deleted the addition - Held that:- Perusal of 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") says if 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 ‘P .....

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lows that the amount of unabsorbed depreciation allowance which could not be set off against income under any head in the year 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. - The provisions of Sec.32(2) as substituted .....

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s of sub-s. (2) of s. 72 and sub-s. (3) of s. 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". - The CIT(A) rightly accepted the stand taken on behal .....

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d depreciation prior to the period 1997-98 can be carried forward for set off against the income for a maximum of eight years starting from the A.Y. 1997-98 and also on the basis of other decisions referred to above, the order of the CIT(A) does not call for any interference - Decided in favour of assessee - I.T.A No. 143/Kol/2014 - Dated:- 12-8-2016 - Sri N.V.Vasudevan, JM and Dr.Arjun Lal Saini, AM For The Appellant : None For The Respondent : Shri Akkal Dudhwewala, FCA ORDER Per N.V.Vasudevan .....

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ify the grounds of appeal before the hearing of the case. 3. The Assessee is a company engaged in the business of manufacturing and sale of automobile tyres, tubes & flaps and generation and distribution of power. During the course of assessment proceedings for A.Y.2008-09 the AO on perusal of the records of the A.Y. 2007-08, observed that Unabsorbed Depreciation of ₹ 1,39,1,4,439/-, ₹ 2,18,64,403/-, ₹ 1,67,38,266/- & ₹ 30,59,114/- for the A.Y. 94-95, 95-96, 96-97 .....

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e the unabsorbed depreciation for the period mentioned above was wrongly set off with the business income for the A.Y. 2007-08. The AO observed that remedial measures were being taken for the A.Y. 2007-08 to withdraw the Unabsorbed Depreciation set off which was allowed u/s 143(3) in violation of provisions of sec. 32 of I.T. Act, 1961. The AO in coming to the above conclusion that depreciation for the period 1997-98 to 2000-01 cannot be carried forward for set off beyond 8 years, placed relianc .....

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endment w.e.f. 1-4-1997 of Sec. 32(2) can be carried forward 8 years and can be set off against any other head of income. In other words, unabsorbed depreciation upto the A.Y. 1996- 97 can be set off with the business income or any other head of income upto the A.Y. 2004-05. Unabsorbed Depreciation for the" period from A.Y.1997-98 to 2001-02 can be carried forward for a maximum period of 8 years against the business income only. Therefore, the unabsorbed depreciation claimed by the assessee .....

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be set off against the business income. In view of the decisions of the Special Bench of Mumbai Tribunal in the case of Time Warranty Ltd., the AO held that the Unabsorbed Depreciation needs to be recalculated and only the eligible Unabsorbed Depreciation is to be allowed. 6. In view of the above discussions, the Unabsorbed Depreciation of ₹ 1,39,14,439/-, ₹ 2,18,64,403/-, ₹ 1,67,38,266/- & ₹ 30,59,114/- for the A.Ys 94- 95, 95-96, 96-97 & 97-98 respectively which .....

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d out that the proceedings taken by the AO for A.Y.2007-08 in the case of the assessee were dropped. The CIT(A) on a consideration of the aforesaid submissions held as follows :- I have called for the relevant assessment record for the assessment year 2007-08 and verified the facts. I find that the contention of the assessee is factually correct. The proceedings u/s 147 pertaining to the assessment year 2007-08 thereby proposing withdrawal of set off in respect of unabsorbed depreciation aggrega .....

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and the decision of the Hon ble Special Bench of the ITAT in the case of M/s. Times Guarantee Ltd is not before me. The issue relates to the assessment year 2007-08 and does not actually emerge from the order under appeal wherein the AO has only given the consequential effect to his findings pertaining to the assessment year 2007-08. As the AO has dropped the proceedings u/s 147 for the assessment year 2007-08 thereby proposing withdrawal of set off in respect of unabsorbed depreciation aggrega .....

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the side of the revenue. The ld. Counsel for the assessee submitted before us that identical issue was considered and decided by this Tribunal in the case of Epcos India Pvt. Ltd. Vs. DCIT vide ITA No.2110/Kol/2013 order dated 01.06.2016 in favour of the Assessee and by following the decision of the Hon ble Gujarat High Court in the case of General Motors (I) Pvt.Ltd.(supra). He therefore submitted that order of the CIT(A) should be upheld. None appeared on behalf of the Revenue nor was any req .....

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) Act, 1996 w.e.f. 1st April, 1997 (hereinafter called the "first 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 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 par .....

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r the current year under s. 32(1) of the Act, then it will be adjusted accordingly. 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 pre .....

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lowance 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 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 ass .....

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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 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 .....

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ll have the meaning assigned to it in cl. (ga) of sub-s. (1) of s. 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)." 13. 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 deprecia .....

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t year. This exercise of setting off the unabsorbed depreciation allowance 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, th .....

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h could not be set off against income under any head in the year 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. 14. The provisions of Sec.32(2) as substituted by the Finance Act, 2001 w.e.f. 1st April, 2002, applicable for A .....

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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". 15. The above provision in fact, is reinforcement of the provision as existing in the first period. Thus t .....

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1996-97 (Second period) unabsorbed depreciation can be carry 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. 17. The position of unabsorbed depreciation for AY 1994-95 till 2003-04 is given as an annexur .....

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rs. 18. The AO in coming to the above conclusion by placing reliance on the special bench decision of ITAT Mumbai in the case of DCIT Vs. Times Guarantee 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 .....

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depreciation allowance in the three periods, is summarized 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) t .....

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eciation for the year under s. 32(1) (for each 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 succeedi .....

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he income 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 following year. (iv .....

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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. 2002-03) will be dealt with .....

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for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. " 20. 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'ble Gujarat High .....

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sions 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 Amritsar Tribunal in the .....

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