TMI Blog2016 (3) TMI 1411X X X X Extracts X X X X X X X X Extracts X X X X ..... 2161/Mds/2015 - - - Dated:- 23-3-2016 - SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER For the Appellant : Mr. A.S.Sriraman, Advocate For the Respondent : Mr. A.V.Sreekanth, JCIT ORDER Per A. Mohan Alankamony, AM:- This appeal is filed by the assessee aggrieved by the order of the learned Commissioner of Income Tax(Appeals)- 11, Chennai, dated 28.09.2015 in ITA No. 12/CIT(A)- 11/2014-15 passed under section 143(3) r.w.s 147 250(6) of the Act for the assessment year 2006-07. 2. The assessee in its appeal has raised several elaborate grounds, however, the cruxes of the issues are as follows:- i) The learned Commissioner of Income Tax (Appeals) has erred in upholding the reopening of assessment under section 143(3) r.w.s 147 of the Act. ii) The learned Commissioner of Income Tax (Appeals) has erred in confirming the order of the learned Assessing Officer in withdrawing the set off of unabsorbed depreciation amounting to ₹ 23,69,592/-. 3. Brief facts of the case are that the assessee is engaged in the business of manufacture of finished leathers filed its return for the assessment year 2006-07 on 25.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated 19th February 2014. The gist of the same is reproduced herein below for reference:- 7. The next issue in the grounds of appeal of the assessee is that Commissioner of Income Tax (Appeals) erred in accepting enhancement proposal of the Assessing Officer and denying set off of unabsorbed depreciation prior to the assessment year 1997-98 based on the decision of Special Bench of Mumbai Tribunal in the case of DCIT Vs. Times Guaranty Ltd. in ITA No.4917 and 4918/Mum/2008 dated 30.06.2010. In the course of proceedings before the Commissioner of Income Tax (Appeals), the Assessing Officer by letter dated 29.07.2010 proposed for enhancement of income by way of reduction in the quantum of carried forward depreciation to be set off against long term capital gains referring to the decision of Special Bench of the Tribunal in the case of Times Guarantee Ltd. (supra). The Commissioner of Income Tax (Appeals) following the above said Special Bench decision of the Tribunal directed the Assessing Officer to disallow unabsorbed depreciation prior to assessment year 2002-03 i.e. from the assessment year 1999-2000 to 2001-02 which was set off against long term capital gains against whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Finance Act No.2 of 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.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 would be added to the allowance of A.Y. 1997-98 and the limitation of 8 years for the carryforward and set-off of such unabsorbed depreciation would start from A.Y. 1997- 98. 33. We may now examine the provisions of section 32(2) of the Act before its amendment 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 canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arified 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 the assessment of the assessee, full effect cannot be given to any allowance under sub-section (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 for that previous 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the A.Y. 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation 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. 38. Therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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