DCIT, CHENNAI vs. STERLING HOLIDAY FINANCIAL SERVICES LTD., CHENNAI

आदेश / O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

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Since, the assessee has claimed set off unabsorbed depreciation loss pertaining to a y 1998-99 against the long term capital gains for the ay 2007-08, the claim is not allowed. Aggrieved, the assessee filed an appeal before the CIT (A). The CIT(A) by following the judgments of the Hon’ble Gujarat High Court in the case of General Motors India Pvt. Ltd. vs. DCIT (2013) 354 ITR 244 (Guj) and others reported in 370 ITR 107 (Guj) & 370 ITR 119 (Guj) allowed the appeal. Aggrieved against that order, the Revenue filed this appeal with the following grounds of appeal:

1. The order of the Ld CIT(A) is contrary to law and facts of the case.

2. The Ld CIT(A) direct the AO to allow set off of unabsorbed depreciation against capital gains. 2.1 The Ld CIT(A) failed to appreciate, even though the unabsorbed depreciation allowance can only be set off against the profits and gains of business or profession and also for not being more than eight assessment years. 2.2 The Ld CIT(A) failed to appreciate, even though unabsorbed depreciation for the asst years 1997-98 to 2001-02 only — not eligible for relief granted by amended section 32(2) in Asst year 2002-03. 2.3 The Ld CIT(A) failed to appreciate , eventhough the substitution of section 32(1) w.e.f. 2002-03 is a limited respect of the old section 32(2) and its ITA No.1128/Mds/2016 :- 3 -:

effect is that “unabsorbed depreciation of the earlier period is allowable under the new provision but has to be dealt with in accordance with the old depreciation and is subject to the limitation of being eligible for set off only against business income for eight years” 3. For these and other grounds that may be adduced at the time of hearing. It is prayed that the order of the Learned CIT(A) may be set aside and that of the Assessing Officer restored.

3. The D R presented the case on the lines of grounds of appeal, supra. The AR relied on the decisions of the Hon’ble High Court of Gujarat, based on which the CIT (A) allowed the appeal. Further, he relied on the decision of this Tribunal in the case of ACIT vs. M/s. Tamil Nadu Cements Corporation Ltd., for the a y 2008-09 in dated 29.06.2017. The relevant portion is extracted as under:

“ ………………The Ld.DR placed his reliance on the judgment of the Apex court in Peerless General Finance and Investment Co. Ltd. vs. Commissioner of Income Tax, (2016) 380 ITR 165.

“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 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 ITA No.1128/Mds/2016 :- 4 -: allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.”

In view of the latest provisions of Sec. 32(2), the depreciation which cannot be allowed shall be added to the amount of depreciation for the following year and the same shall be treated as income of the previous year and deemed to be allowance for that year. Accordingly, it can be carry forward even for the succeeding previous years without any restriction. Since the Parliament has removed the restriction of 8 succeeding years w.e.f. 01.04.2002, the Ld.CIT(Appeals) has rightly placing his reliance on the judgment of the Gujarat High Court and this Tribunal decision, allowed the claim of the assessee. Therefore, we do not find any reason to interfere with the order of the lower authority. Accordingly the same is confirmed.

3.1 Further, the AR relied on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. S&S Power Switchgear Ltd. reported in 218 CTR 0701 and the head note of the jurisdictional High Court decision is extracted below:

Depreciation (unabsorbed)—Carry forward and set off—Effect of amendment of s. 32(2) w.e.f. 1st April, 1997—As per clarification of Finance Minister as also by CBDT Circular No. 762 dt. 18th Feb., 1998, unabsorbed depreciation brought forward as on 1st April, 1997, could be set off against business income or income under any other head for asst. yr. 1997-98 and seven subsequent years—Tribunal was therefore justified in allowing set off of prior years business loss and unabsorbed depreciation against short-term capital gains—No substantial question of law arises.

4. We have considered the rival submissions and gone through the material. Since the facts and position of law remain same, following the above decisions, we hold that decision of the CIT (A) does not require any interference and hence dismiss the Revenue’s appeal.

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Order pronounced in the Open Court on October 31, 2017, at Chennai.