INCOME TAX OFFICER vs. JIVRAJ SIZO-FIL PVT. LTD.

Facts

The appellant-revenue has challenged an order dated January 12, 2007, passed by the Income-tax Appellate Tribunal (ITAT), Ahmedabad Bench, in ITA No. 842/Ahd/2002 for the assessment year 1998-99. The appeal was admitted by the High Court on January 23, 2008, with a substantial question of law framed regarding the ITAT's decision to allow the set-off of unabsorbed brought-forward depreciation of Rs. 3,83,557/-. This depreciation pertained to earlier assessment years and fell beyond the eight-year period, in view of Section 32(2) of the Income Tax Act, as amended from April 1, 1997. The High Court noted that the revenue effect was less than Rs. 1 lakh.

Held

The High Court did not decide the substantial question of law on merits. Instead, it dismissed the appeal on the ground of the 'smallness of amount'. The Court observed that the amount involved was small, with a revenue effect less than Rs. 1 lakh. Citing CBDT Instruction No. 1979 dated March 27, 2000, and Instruction No. 02 of 2005, the Court opined that the revenue ought not to have filed an appeal in cases where the total revenue effect is less than Rs. 1 lakh. Consequently, the questions were answered in favour of the assessee and against the revenue. The appeal was dismissed on this procedural ground, with liberty granted to the revenue to revive the appeal in case of difficulty. No specific finding was made on the interpretation of Section 32(2) or the period of carry-forward of depreciation.

Key Issues

1. Whether, on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal is right in allowing the set-off of unabsorbed brought-forward depreciation of Rs. 3,83,557/- pertaining to earlier assessment years which fell beyond the period of eight years, in view of the provisions of Section 32(2) of the Income Tax Act which came into force from April 1, 1997? Assessee's Contention: Not recorded in the judgment. Revenue's Contention: The revenue argued that the ITAT erred in allowing the set-off of unabsorbed brought-forward depreciation beyond the stipulated eight-year period, contrary to the provisions of Section 32(2) of the Income Tax Act, as amended. The revenue relied on the amended provisions effective from April 1, 1997, to contest the allowance of depreciation that had accumulated over more than eight years.