SABOO SODIUM CHLORO LTD.,JAIPUR vs. ITO, JAIPUR

PER VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 28TH October, 2014 of ld. CIT (A)-II, Jaipur for the assessment year 2008-09. The assessee has raised the following grounds of appeal :-

“ 1.1. The assessment order passed by the ld. AO and confirmed by the ld. CIT (A) is bad in law as well as on the facts of the present case and hence, the same may please be quashed. 1.2. The very initiation of reassessment proceeding is bad in law and on the facts of the present case and the ld. CIT (A) erred in confirming the same. 2. The ld. CIT (A) erred in law as well as on the facts of the present case in confirming the action of the ld. AO in disallowing

2 ITA No. 21/JP/2015 M/s. Saboo Sodium Chloro Ltd., Jaipur.

the claim for set off of Unabsorbed depreciation for the a.Y. 1998-99 and 1999-2000.

has claimed set off of Unabsorbed depreciation of Rs. 33,69,815/- and Rs.

1,34,43,021/- pertains to the assessment years 1998-99 and 1999-2000 respectively.

The AO disallowed the claim of set off on the ground that as per the existing

provisions of section 32(2) of the IT Act applicable for the assessment years 1998-99

and 1999-2000 the unabsorbed depreciation can be carried forward and set off only

upto 8 years. Since the assessment year 2008-09 is beyond the period of 8 years,

therefore, the AO held that the claim of the assessee is not allowable. The assessee

challenged the action of the AO before the ld. CIT (A), however, could not succeed.

legal in nature and the Hon’ble Gujarat High Court in the case of General Motors

India Pvt. Ltd. vs. DCIT, 354 ITR 244 (Guj.) has considered this issue and decided in

favour of the assessee by holding that the unabsorbed depreciation available to the assessee on 1st day of April, 2002 will be dealt with in accordance with the

provisions of section 32(2) of the Act as amended by the Finance Act, 2001. He has

also relied upon the decision of Hon’ble Delhi High Court in the case of Principal CIT

vs. British Motor Co. Ltd. 300 ITR 337 (Del.) as well as the decision of Hon’ble

Bombay High Court in the case of CIT vs. Hindustan Unilever Ltd., 394 ITR 73

(Bom.).

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3.1. On the other hand, the ld. D/R has relied upon the orders of the authorities

below and submitted that as per the existing provisions of section 32(2) applicable

for the assessment years 1998-99 and 1999-2000 the unabsorbed depreciation can

be carried forward and set off upto 8 years.

record. At the outset, we note that this issue is no longer res integra and Hon’ble

Gujarat High Court in case of General Motor India Pvt. Ltd. vs. DCIT (supra) has

considered and dealt with the issue in para 37 and 38 as under :-

“ 37. 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. 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

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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. 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.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 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.”

The same view has been reiterated by the Hon’ble Delhi High Court in the case of

Principal CIT vs. British Motor Co. Ltd. (supra) as well as by the Hon’ble Bombay

5 ITA No. 21/JP/2015 M/s. Saboo Sodium Chloro Ltd., Jaipur. High Court in the case of CIT vs. Hindustan Unilever Ltd. (supra). Accordingly, in the absence of any contrary binding precedent, we follow the decisions relied upon by the ld. A/R of the assessee and hold that when the unabsorbed depreciation was available to the assessee for setting off as on 1st April, 2002, then as per the amended provisions of section 32(2) by Finance Act, 2001 the said unabsorbed depreciation will partake the character of current depreciation and consequently there is no limitation of time period for claiming set off of the same. Hence, we delete the addition made by the AO on this account and allow the claim of the assessee. 5. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 02/07/2018. Sd/- Sd/- ¼ HkkxpUn½ ¼ fot; iky jkWo ½ (BHAGCHAND) ( VIJAY PAL RAO ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 02/07/2018. das/ आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant-M/s. Saboo Sodium Chloro Ltd., Jaipur. 2. izR;FkhZ@ The Respondent- The ITO Ward 6(4), Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File {ITA No. 21/JP/2015} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत

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