THE DCIT, CIRCLE-1(1), BARODA vs. BARODA EXTRUSION LTD., BARODA

PER MAHAVIR PRASAD, JUDICIAL MEMBER :

This is an appeal by the revenue against the order of the Commissioner of Income Tax(Appeals)-I, Baroda, dated 17.07.2014 for the Assessment Year (AY) 2007-08, on the following Grounds: i. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing the claim of carried forward unabsorbed depreciation to the assesses for A.Y. 1996-97 & A.Y.1997-98 being Rs.36,16,083/- and Rs.51,45,427/- respectively, holding that the amendment brought in Section 32(2) of the Income Tax Act w.e.f. 01.04.2002 (A.Y. 2002-03) is applicable to the present case. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in not appreciating that in the assessee’s case, the unabsorbed depreciation pertained to A.Ys 1996-97 & 1997- 98 which are governed by the provisions of Section 32(2) of the Income-tax Act as amended by the Finance (No.2) Act, 1996 w.e.f. 01.04.1997 and therefore, the same are not liable to be carried forward for set-off beyond eight assessment years.

“The bench of Board for Industrial and Financial Reconstruction (BIFR) having satisfied itself about the viability of Baroda Extrusion Ltd (BEL) sanctioned the rehabilitation scheme on 19.09.2001 as the company became "sick" within the meaning of Section 3(1)(O) of SICA. BIFR allowed certain relief and concession in the form of rescheduling of outstanding term loan and conversion of interest charged by banks from date of sanction limit till date of sanction of scheme by it in to Funded Interest Term Loan (FITL) and Working Capital Term Loan (WCTL). Interest charged by each of the banks was debited to Profit and Loss Account and claimed as expenditure in the year in which it was accrued. The above referred scheme sanctioned by BIFR delayed by bankers and they were not ready further rehabilitation and requested BEL to settle its dues under OTS scheme. Accordingly Dena Bank and The South Indian Bank Ltd agreed to settle their outstanding dues as under:

Name of the Bank Balance as per Amount Difference Book agreed under OTS Dena Bank 303.76 113.71

in view of the legal position as explained above the remission of interest liability be banks which was allowed as an expenditure against the income of earlier years would always considered as deemed business profit. It may kindly be noted that interest on bank loans is business expenditure as the loans related to the business and in any case have in the past always been claimed as business expenditure. And hence any remission in the liability of such interest would always be considered as a business profit under section 41 under the head "profit or Gains from Business or Profession".

assessee that the said benefit may have been denied on account of position of law prevailing during the said assessment years. As per ld.AR the said denied is without considering the subsequent amendment in the law and the judicial decision rendered in this respect. As per ld.AR the unabsorbed depreciation for A.Y.1996-97 and A.Y.1997-98 being Rs.36,16,083/- and Rs.51,45,427/- respectively, had been correctly brought forward by it as the same was allowable under section 32(2) as the said section was again amended by the Finance Act, 2001, which entitled the Company to treat the said depreciation as current depreciation without any limit of time. The ld.AR has drawn our attention to the decision of the Jurisdictional Gujarat High Court in the matter of General Motors India Pvt. Ltd. vs. DCIT, in which it is held: “Section-32 of the Income-tax Act, 1961 - Depreciation - Unabsorbed depreciation Assessment Year 2006-07 - Whether unabsorbed depreciation pertaining to assessment year 1997-98 could be allowed to be carried forward and set off after a period of eight years without any limit whatsoever in accordance with section 32(2) as amended by Finance Act 2001 - Held, yes [In favour of assessee] Section- 147, read with section 32, of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts - Assessment year 2006-07 - During assessment proceedings Assessing Officer considered material on record and took a conscious decision in scrutiny assessment and thereafter, allowed unabsorbed depreciation pertaining to assessment year 1997-98 to be set off against income of assessment year 2006-07 - Subsequently assessment was reopened on ground that unabsorbed depreciation was allowed to be set off in violation of provisions of amended section 32(2) - Whether original assessment order could not be reopened as it amounted to change of opinion by Assessing Officer - Held, yes [In favour of assessee]” (supra) wherein it is held that any unabsorbed depreciation available to an assessee on first 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. As per the Hon’ble High Court of Gujarat thus, once this Circular No. 14 of 2001 of CBDT clarified that the restriction of ATS for carry forward and set-off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto A.Y.2001-02 got carried forward to A.Y.2002-03 and became part.

उप/सहायक पंजीकार (Dy./Asstt.