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Ausom Enterprises Ltd. Versus Deputy Commissioner Of Income Tax Or His Sucessor To Office

2014 (4) TMI 1189 - GUJARAT HIGH COURT

Reopening of assessment - Carry forward of unabsorbed depreciation beyond a period of eight years - Held that:- Carry forward of unabsorbed depreciation can be set off beyond the period of eight subsequent years without any set time limit. Reopening of assessment, as could be noticed from the reasons recorded particularly emphasized that the unabsorbed depreciation had been carried forward by the petitioner beyond a period of eight years resulting into the income escaping the assessment and ther .....

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allowed quashing the impugned notice and the proceedings, if any, undertaken by the respondents - Decided in favour of assessee. - SPECIAL CIVIL APPLICATION NO. 15825 of 2012 - Dated:- 9-4-2014 - Honourable Mr.Justice Akil Kureshi And Ms Justice Sonia Gokani Mr Rk Patel, Advocate for the Petitioner(s) Mr Nitin K Mehta, Advocate for the Respondent(s) ORAL JUDGMENT Ms Justice Sonia Gokani Challenge in this petition is to proceedings of reassessment by way of notice under section 148 of the Income .....

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crutinized by the Assessing Officer and the assessment was framed under section 143(3) of the Act, the Assessing Officer, initiated the process of reassessment by issuing notice dated 21st March 2012 and the reason for reopening of such assessment essentially revolves around the question of depreciation loss of 1997-98 and 1998-99 to be set off up to eight succeeding assessment years and not beyond such period, by giving following reasons: 2. Vide above referred to letter, you have sought a copy .....

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orbed depreciation, loss carried forward for set off in subsequent assessment years. On verification of the case records, it is found that the assessee is having unabsorbed depreciation loss of ₹ 17,54,57,695/- of A.Y. 1997-98 and of ₹ 17,92,65,382/- of A.Y. 1998-99 (total ₹ 35,47,23,077/-). Further it is noticed that the assessee has shown the said unabsorbed depreciation loss of ₹ 35,47,23,077/- as loss pertaining to A.Y. 2000-01 and has carried forward the same for set .....

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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. Since the depreciation loss of ₹ 35,47,23,077/- of A.Y. 197-98 and 1998-99 is not set off within eight succeeding assessment years, carried forward of the same beyond the period of eight years was irregular. In view of the above, I am sa .....

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unabsorbed depreciation loss of ₹ 35,47,23,077/- as loss pertaining to A.Y. 2000-01 and has carried forward the same for set off in subsequent assessment years. Since the depreciation loss was of A.Y. 1997-98 and 1998-99, it can be set off in eight succeeding assessment years only i.e. loss of A.Y. 1997-98 can be set off up to A.Y. 2005- 06 and depreciation loss pertaining too 1998-99 requires can be set off up to A.Y. 2006-07. Since the depreciation loss of ₹ 35,47,23,077/- of A.Y. .....

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urnish your submissions/comments and attend the office of the undersigned on 26/07/20-12 at 4.00 p.m. Failure to comply with the requirement of this notice may result in invoking the penal and other legal provisions of I.T.Act,1961. Authorized Representative without proper authorization of the assessee will not be allowed to represent the case. Adjournment will not be given in normal circumstances. This was objected to by the petitioner-assessee by raising objections vide communication dated 14t .....

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t on dated 31st October 2012. The aggrieved assessee preferred the present petition. While issuing notice, it was noticed that the claim of the petitioner was for depreciation which was examined in the original assessment raising specific query which had been attended to by the petitioner and relying on the decision of this Court in the case of General Motors India Pvt. Ltd. v. Deputy Commissioner of Income-tax, 354 ITR 244, challenge is made to such proceedings of reopening. The respondent s af .....

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f the Revenue that the applicability of such judgment could be examined at the time of reassessment. Furthermore, this is not a case of unabsorbed depreciation allowance, but a case of business loss which has been carried forward from the assessment year 1996-97 onwards and in view of the embargo under section 72(3) of the Act, such loss cannot be allowed to be carried forward beyond a period of eight years. We have heard learned counsel Shri R.K.Patel for the petitioner and learned counsel Shri .....

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sing 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 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 .....

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unabsorbed depreciation and 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. So, the unabsorbed depreciation allowa .....

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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 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 deprecia .....

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m 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 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 fo .....

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ing 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. The provision introduced by Finance (No.2) Act was clarified by the Finance Minister to be applicable with prospective effect. Section 32 (2) of the Act was amended by Finance Act, 2001 and the provision so amended reads as under :- Where, in the assessmen .....

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n, 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. 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 under :- Modification of p .....

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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 assessees business or profession in another country. 30.4 The Act has allowed depreciation allowance on all imported motor cars acquir .....

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e 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. 1997-98 only for eight subsequent assessment .....

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e 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 mandatory. Therefore, the provisions of section 32( .....

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e 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 left over, it is to be treated as unabsorbed depr .....

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f 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 assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amende .....

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