ACIT, CIRCLE-2, BHARUCH vs. SNS TEXTILES LIMITED,, ANKLESHWAR

PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by Revenue is directed against the order of ld. Commissioner of Income tax (Appeals)-2, Surat dated 13.06.2019 for assessment year (AY) 2008-09. The Revenue has raised the following grounds of appeal:- “1. On the facts and circumstances of the case and in law, the C.I.T.(A) erred in allowing assessee’s claim of set off of unabsorbed depreciation of A.Y 1996-97, 1997-98, 1998-99 and 1999-2000 in A.Y 2008-09 beyond the period of eight years in contravention of applicable provisions being section 32(2)(iii)(b) of the Income Tax Act as amended by Finance (NBo.2) Act, 1996 w.e.f. 1st April 1997. 2. On the facts and circumstances of the case and in law, the C.I.T.(A) erred in holding that the disallowance made by the AO on account of carried forward unabsorbed depreciation of A.Y 1996-97, 1997-98, 1998-99 and 1998-99 is being covered by Finance Act 1992 w.e.f. 01.04-1993, Finance Act No. 02 of 1996 w.e.f. 01-04-

ITA No.407/SRT/2019 (A,Y,08-09) M/s SNS Textiles Ltd. 1997 (A.Y 1997-98) and not governed by the provision of Finance Act, 2001 w.e.f. 01-04-2002. 3. On the facts and circumstances of the case and in law, the C.I.T.(A) erred in holding that the disallowance made by the AO on account of carried forward unabsorbed depreciation of A.Y 1996-97, 1997-98 & 1998-99 made by the AO is not sustainable, without appreciating that the provision of Finance Act, 2001 w.e.f. 01-04- 2002 is applicable for A.Y 2002-03 & onwards and not having retrospective effect. The A.O had correctly disallowed the assessee’s claim of carried forward of unabsorbed depreciation of AY 1996-97, 1997-98, 1998-99 and 1999-2000 for future set off in AY 2008-09. 4. On the facts and circumstances of the case and in law, the C.I.T.(A) erred in holding that the disallowance made by the AO on account of carried forward unabsorbed depreciation of AY 1996-97, 1997-98 & 1998-99 made by the AO is not sustainable by relying on the decision of Hon'ble ITAT vide order dated 25.05.2015 dated 25.05.2018 in ITA No. 3015/Ahd/2015 dated 25.05.2018 in the assessee’s case for AY 2007-08, without appreciating that the Department did not accept the said decision of Hon'ble ITAT and had filed appeal u/s 260A of the Act before Hon'ble Gujarat High Court.”

ITA No.407/SRT/2019 (A,Y,08-09) M/s SNS Textiles Ltd. thereby disallowed. Further the carry forward of unabsorbed depreciation of AYs 1996-97, 1997-98, 1998-99 of Rs.12.128 crores was also regular beyond eight assessment years and cannot be allowed to carry forward. On appeal before Ld. CIT(A) the entire carry forward of unabsorbed depreciation and business loss was allowed. Aggrieved by the order of Ld. CIT(A) the Revenue has filed present appeal before this Tribunal. 3. None appeared on behalf of the assessee. When the appeal was taken up for hearing. On perusal of record we find that assessee has already filed written submission dated 12.10.2021. In the written submission, the assessee claimed that the issue is squarely cover in favour of assessee and against the Revenue by the order of Tribunal for AY 2007-08 in ITA No.3015/AHD/2015 dated 25.05.2018. The assessee further stated that in response to show cause notice before the Assessing Officer, the assessee explained that they had shown Rs.14.21 crores as los brought forward to be carried forward in future for AY 2000-01 but said figure does not actual pertain to AY 2000-01. As in ITR, there is no option to show the figure of depreciation loss pertaining to the previous year. The assessee has clubbed the figure of depreciation loss and the business loss in AY 2000-01.The details are furnished in the following manner:- A.Y Nature Amount 1996-97 Depreciation loss 76,17,552 1997-98 depreciation loss 22,05,411 1998-99 depreciation loss 4,10,18,376

ITA No.407/SRT/2019 (A,Y,08-09) M/s SNS Textiles Ltd. 1999-00 depreciation loss 7,10,04,711 2000-01 Business loss 2,02,77,796 Total 14,21,23,846

ITA No.407/SRT/2019 (A,Y,08-09) M/s SNS Textiles Ltd. set off of a period of eight years or would be governed by section 32(2) as amended by Finance Act, 2001. The Hon'ble co-ordinate Bench after considering the submission of both the parties held that the unabsorbed depreciation available to assessee on 01.04.2012 (AY 2002-03) will be dealt with in accordance with provision of section 32(2) as amended by Finance Act, 2001.Further CBDT Circular No.14 of 2001 clarified that restriction to eight years of carry forward and set off unabsorbed depreciation has been dispensed with. The unabsorbed depreciation for AYs 1996-97 upto AY 2001-02 got carried forward to AY 2002-03 and became part thereof, thus to be governed by provision of section 32(2) as amended by Finance Act, 201.The co-ordinate Bench after detailed discussion pass the following order in assessee’s own case ITA No.3015/AHD/2015 darted 25.05.2018:- “7.We have heard the rival submissions and perused the relevant material on record. The question which arises for consideration is that whether the unabsorbed depreciation pertaining to A.Y. 1996- 97 to 1998-99 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 AO are the unabsorbed depreciation of A.Y.1996-97,1997-98 and A.Y. 1998-1999 could be carried forward up to the maximum period of 8 years from the year in which it was first computed. Therefore, the assessee was not entitled for unabsorbed depreciation to be carry forward indefinitely. We notice that 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. So, the unabsorbed depreciation

ITA No.407/SRT/2019 (A,Y,08-09) M/s SNS Textiles Ltd. 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 carry-forward and set- off of such unabsorbed depreciation would start from A.Y. 1997-98. 8.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 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 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 clause (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year; (iii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (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 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 assessment year beginning with the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Company (Special Provisions) Act, 1985 (1 of 1986) and 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. 6

ITA No.407/SRT/2019 (A,Y,08-09) M/s SNS Textiles Ltd. 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." 9.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 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." 10.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 provisions relating to depreciation 30.1 Under the existing provisions of section 32 of the Income-tax Act, carry forward and set off of unabsorbed depreciation is allowed for 8 assessment years. 30.2 With a view to enable the industry 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 motor car manufactured outside India unless it is used (i) in the business of running

ITA No.407/SRT/2019 (A,Y,08-09) M/s SNS Textiles Ltd. 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 on all imported motor cars acquired on or after 1st April, 2001. 30.5 These amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years" 11.The CBDT Circular clarifies the 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 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 years even after the amendment of section 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence keeping in view the purpose of amendment of 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. However, 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. 1996-97 1997-98, and 1998-1999are 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.

ITA No.407/SRT/2019 (A,Y,08-09) M/s SNS Textiles Ltd. 12.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 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 depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as 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 forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1996-97 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 amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever.' 13.On careful consideration of facts, and in law we notice that in the instant case, the that the carry forward of unabsorbed depreciation concerning A.Y.1996-97, 1997-98 and 1998-99 and prior to A.Y. 2001-02 and assessment years prior thereto can be set off in subsequent years without any set time limit, considering the decision in the case of Hon’ble Gujarat High Court in the case of Pr. CIT v. Accura Polytech (P) Ltd. [2018] 89 taxmann.com 183 (Gujarat) wherein it was held that unabsorbed depreciation of assessment years 1997-98, 1999-2000 and 2001-01 could be allowed to be carry forward and set-off beyond period of eight years , in view of amended section 32(2). This decision was rendered after following the decision in the case of General Motors India (P) Ltd. v. DCIT [2012] 25 taxmann.com 364/ 210 Taxman 20 / 354 ITR 244 (Guj.). Similarly the Hon`ble Delhi High Court in the case of Pr. CIT -2 v. British Motor Car Co. (1934) Ltd. [2018] 90 taxmann.com 370 (Delhi) / [2018] 400 ITR 569 (Del) held that unabsorbed depreciation that was carry forward up to assessment year 2001-02 would be carry forward and set-off against profits and gains of subsequent year 9

ITA No.407/SRT/2019 (A,Y,08-09) M/s SNS Textiles Ltd. without any limit whatsoever. So far the contention of the Revenue that there is no mentioned in ITR of carry forward losses, We find that that there was no specific row or column mentioned in the Income Tax return for mentioning losses pertaining to A.Y. 1996-97 to 1998-99. Therefore, losses from A.Y. 1999-00 to 2006-07 have been shown in ITR-6 to be carry forward for future years. In view of above backdrop, we are of the considered opinion that carry forward of unabsorbed depreciation prior to assessment can be set off in subsequent years without setting time limit. In view of these facts and circumstances, the AO is directed to allow carry forward of unabsorbed depreciation after verification of carry forward of unabsorbed depreciation for the assessment year 1996-97, 1997-98 and 1998-99 as available to the assessee as on A.Y. 2001-02. Further, the AO is also directed no to make addition to total income of unabsorbed depreciation or loss while computing the total income of the assessee as don by him for the assessment year under consideration. This grounds of appeal is therefore, allowed accordingly.”

ITA No.407/SRT/2019 (A,Y,08-09) M/s SNS Textiles Ltd.

Copy to: 1. Appellant- 2. Respondent- 3. CIT(A)-Surat 4. CIT 5. DR 6. Guard File True copy/ By order // True Copy // Assistant Registrar, ITAT, Surat True copy/