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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND Dr. M.L. MEENA
आदेश /O R D E R PER BENCH:
This appeal by the assessee is arising out of the order of Learned Commissioner of Income Tax (Appeals)-9, Chennai in dated 12.01.2017. The assessment was framed by the DCIT, Company Circle II(1), Chennai for the assessment year 2007-08 u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’) vide order dated 28.12.2011.
2 2. The second issue raised by assessee is as regards to the order of CIT(A) in not allowing the carry forward of unabsorbed depreciation for the period 1996-97 to 2001-02. For this assessee has raised following ground Nos. 9 & 10.
9. The learned CIT(A) erred in giving a finding that the business operations of the appellant are closed down and therefore the appellant is not entitled to carry forward of unabsorbed depreciation for the period 1996-97 and 1997-98 to 2001-02 without any restriction.
The learned CIT(A) erred in not allowing the appellant to carry forward the depreciation loss for the A.Y.2000-01 and 2001-02 without any restriction to the number of years under the pretext that the appellant had closed down its business and therefore is not entitled to carry forward benefits.
Brief facts are that the AO during the course of assessment proceedings relying on the decision of Special Bench of ITAT, Mumbai in the case of DCIT vs. Times Guaranty Limited disallowed the depreciation losses of earlier years which remain unabsorbed. The details are as under:- Assessment Year Unabsorbed Depreciation (Rs.) 1996 – 1997 (After set off in 11,018,958 A.Y. 06-07) 1997-1998 9,589,625 1998-1999 7,704,828 1999-2000 6,062,011 2000-2001 4,749,645 2001-2002 4,052,697 2002-2003 3,292,891 3 According to AO, the depreciation losses for assessment years 1996-97 to 1998-99 already got lapsed and cannot be brought forward even to the relevant assessment year 2007-08. The unabsorbed depreciation loss of assessment year 1999-2000 cannot be carried forward to subsequent assessment year i.e., assessment year 2008-09, as the same got lapsed in this assessment year. According to him, as per amended provision of section 32(2) of the Act w.e.f. 01.04.2002, the depreciation loss pertaining to assessment year 2002-03 can be carried forward to any subsequent assessment year and shall be treated as forming part of subsequent years current depreciation. Aggrieved against disallowance of depreciation losses brought forward, assessee preferred appeal before CIT(A), who also upheld the action of AO by observing in para 8.3 and 9.3 as under:- 8.3 I have considered the AO’s observation’s in para 8.1 and the appellant’s submission in para 8.2.1 and 8.2.2. As mentioned in para 8.2.1 and 8.2.2, legally unabsorbed depreication for the period 1996-97 and 1997-98 to 2001-02 are allowed to be carried forward without any restriction in number of years but in this case as already held, the assessee has closed down the business and therefore it is not entitled for any carried forward benefit. The appellant is not entitled for the benefit because of the special circumstances in this case. No loss could be carried forward when business operations are closed down. Therefore, the Assessing Officer’s action of not allowing the carry forward benefit of unabsorbed depreciation pertaining to Assessment years 1996-97 to 1999-2000 is hereby upheld.
9.3 I have considered the AO’s observation’s in para 9.1 and the appellant’s submission in para 9.2. As mentioned in para 8.2.1 and 8.2.2 legally unabsorbed depreciation for the period 1996-97 and 1997-98 to 2001-02 are 4 allowed to be carried forward without any restriction in number of years but in this case as already held, the assessee has closed down the business and therefore it is not entitled for any carried forward benefit. The appellant is not entitled for the benefit because of the special circumstances in this case. No loss could be carried forward when business operations are closed down. Therefore, the Assessing Officer’s action of not allowing the carry forward benefit of unabsorbed depreciation pertaining to Assessment Years 2000-01 and 2001-02 is hereby upheld.
Aggrieved, now assessee is in appeal before the Tribunal.
At the outset, the ld.counsel for the assessee stated that the issue is squarely covered by the decision of Hon’ble Gujarat High Court in the case of General Motors India (P) Ltd., vs. Dy.CIT, [2012] 25 taxmann.com 364, wherein the Hon’ble Gujarat High Court considered the CBDT Circular No.14/2001 dated 22.11.2002 and held 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 5 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.Ys. 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.Ys. 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.”
6 Even, the Hon’ble Jurisdictional High Court in the case of CIT vs. Tamil Nadu Small Industries Corporation Limited in TCA No. 236 of 2017, by following various High Court decisions has decided the following substantial question of law and decided in favour of assessee. Whether the direction of the Tribunal on the Assessing Officer to set off the unabsorbed depreciation pertaining to Assessment Year 1997-98 is bad, when according to the appellant the intention of the legislature was not to carry forward the unabsorbed depreciation beyond eight years from the year of computation? 5. The ld. Senior DR only relied on the assessment order and that of the CIT(A) but could not controvert the above cited case laws.
After hearing both the sides and going through the facts of the case, we noted that the carry forward of depreciation loss is unabsorbed and it can be carried forward in term of CBDT Circular No.14/2001 and also decision of Hon’ble Jurisdictional High Court in the case of Tamil Nadu Small Industries Corporation Limited, supra, wherein the decision of Hon’ble Gujarat High Court in the case of General Motors India (P) Ltd., was followed. Respectfully following the order of Jurisdictional High Court, we allow the claim of assessee and direct the AO accordingly.
7 7. The first issue is as regards to reopening of assessment, which we need not to adjudicate as the issue on merits is covered in favour of assessee. Hence, the same is dismissed as academic.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the court on 31st March, 2022 at Chennai.