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Income Tax Appellate Tribunal, MUMBAI BENCH “J” MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the Revenue. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-14, Mumbai [in short CIT(A)] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal raised by the Revenue read as under: i. The Ld. CIT(A) has erred on facts and in law in directing the Assessing Officer (AO) to allow to carry forward of the unabsorbed depreciation u/s 32(1) without properly appreciating the factual and legal matrix as clearly brought out by the AO.
M/s Sunshield Chemicals ii. The Ld. CIT(A) has erred on facts and in law in directing the AO to allow to carry forward of the unabsorbed depreciation pertaining to AY 1995-96 to AY 1997-98 appreciating the fact that the time period as mentioned u/s 32(1) of the Act, for claiming the above depreciation had already lapsed.
Briefly stated, the facts of the case are that the assessee filed its return of income for the assessment year (AY) 2011-12 declaring total income at Rs. Nil as per normal provisions and book profits u/s 115JB at Rs.2,55,04,197/-. The AO observed from the computation of total income that the assessee had set off unabsorbed depreciation amounting to Rs.85,55,591/- for AY 1996-97 against the income from business or profession and Rs.5,000/- against income from other sources. The AO distinguished the case of the assessee from the judgment of the Hon’ble Gujarat High Court in General Motors India Pvt. Ltd. v. DCIT (2012) 25 taxmann.com 364 (Guj) and then followed the decision of the Tribunal in DCIT v. Times Guaranty Ltd. 131 TTJ 257. Thus the AO declined to allow the set off of brought forward unabsorbed depreciation under the normal provisions of the Act for the AY 1995-96 to 1999-00 since the same had expired the terms of eight years to be carried forward. The AO held the assessee to be eligible to have benefit of brought forward depreciation losses for AY 2001-02 onwards.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) followed the order of his predecessor for AY 2009-10 and AY 2010-11 and the decision in General Motors India Pvt. Ltd. (supra) and directed the AO to consider the unabsorbed depreciation loss of earlier years as part of current M/s Sunshield Chemicals years depreciation and allow carry forward of loss accordingly as per law.
Before us, the Ld. DR submits that the Ld. CIT(A) should have considered the fact that the time period as mentioned in section 32(1) had already expired in the instant case for claiming the said depreciation and therefore, he should have upheld the action of the AO in denying the carry forward the unabsorbed depreciation for AY 1995-96 to AY 1997-98.
On the other hand, the Ld. counsel of the assessee relies on the decision in General Motors India Pvt. Ltd. (supra) and thereby supports the order of the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. The reasons for decisions are given below. We find that the issue raised in this appeal is covered in favour of the assessee by the judgment of Hon’ble Gujarat High Court in the case of General Motors India (P.) Ltd. (supra). The question before the Hon’ble High Court was whether the unabsorbed depreciation pertaining to AY 1997-98 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? We find that the Hon’ble Gujarat High Court has held as under: “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 u/s 32 shall be mandatory. Therefore, the provisions of section 32(2) amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the AY 1997-98, 1999- 2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, M/s Sunshield Chemicals AY 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. Therefore, it can be said that, current depreciation is deductible in such 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 (AY 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 AY 1997-98 upto the AY 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.” 7.1 Now we refer to the judgment of the Hon’ble Bombay High Court in the case of CIT vs. M/s Hindustan Unilever Ltd. (ITA No. 1873 of 2013) by the Bombay High Court.The relevant question of law before the High Court is mentioned below:
M/s Sunshield Chemicals “7. Whether on facts and in circumstances of the case and in law the Tribunal was right in directing to allow the set off of brought forward depreciation losses of amalgamating company for the Assessment Years 1996-97 and 1997-98 i.e. for the period prior to amendment in sub-section (2) of Section 32 of the Act w.e.f. 01/04/2002?” The Hon’ble High Court held as under:
6. Regarding question No.7: (a) The impugned order of the Tribunal has allowed the respondent- assessee’s appeal on the issue of allowing unabsorbed depreciation pertaining to Assessment Year 1996-97 and 1997-98 which was carried forward to be set off in the subject Assessment Year. (b) The grievance of the Appellant is that in view of the fetter (of eight years) in carrying forward depreciation for Assessment Year 1997-98 upto Assessment Year 2002-03, the set off of the same cannot be allowed in this Assessment Year. (c) We find that the impugned order of the Tribunal while allowing the Assessee-respondents’ claim follows the decision of the Gujarat High Court in General Motors India Pvt. Ltd. vs. DCIT reported in 354 ITR 244 wherein on identical facts it was held that the unabsorbed depreciation for the Assessment Year 1997-98 upto Assessment Year 2001-02 could be allowed to be set off, if it was still unabsorbed on 1st April, 2001. The above decision also placed upon the CBDT circular No. 14 of 2001 dated 22nd November, 2001 to hold that any unabsorbed depreciation which is available on 1st day of April, 2001 would be dealt with in accordance with the provisions of section 32(2) of the Act as amended by the Finance Act 2001. Moreover, the Circular No. 14 of 2001 issued by the CBDT clarifies that restriction of the eight years to carry forward and set off the unabsorbed depreciation has been dispensed with. Consequently, unabsorbed M/s Sunshield Chemicals 1997-98 upto 2001-02, if available in the assessment year 2002-03 would be allowable as part of carried forward depreciation from Assessment Year 2002-03 onwards. No decision contrary to the decision of the Gujarat High court has been shown to us. It is clarified that although the decision of the Gujarat High Court was rendered in context of re-opening notice it has also examined the issue on merits and drew support from the CBDT circular which is beneficial to the assessee to conclude as aforesaid. Nothing has been shown to us to indicate why the decision of the Gujarat High Court in General Motors (India) Ltd. should not be followed in the present facts.
7.2 In view of the ratio laid down by the Hon’ble Gujarat High Court in General Motors India (P.) Ltd. (supra) and Hon’ble Bombay High Court in M/s Hindustan Unilever Ltd. (supra), we uphold the order of the Ld. CIT(A).
In the result, the appeal is dismissed.