The Madras High Court held that the restriction of 8 years for carry forward and set-off of unabsorbed depreciation had been dispensed with.
The assessee Company is a wholly owned Company of Government of Tamil Nadu. It filed its return of income for the Assessment Year 2008-09 declaring taxable income after setting off loss from business with the long term capital gains. The case was taken up for scrutiny and assessment under Section 143(3) was completed with assessed income by making additions. The case was reopened by issuing notice under Section 148 for the reason that the unabsorbed depreciation pertains to Assessment Years 1997-98, 1998-99 and 1999-2000, was allowed in the assessment order though not allowable beyond 8 years and also can be set off only against income under the head ‘business income’.
As per Section 32(2) prior to amendment dated April 1, 2002, the unabsorbed depreciation can be carried forward only for 8 subsequent years and set off only against the business income and hence, not an allowable claim. The re-opened assessment order was completed on March 5, 2014. Aggrieved over the order of assessment, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and the Appellate Authority allowed the appeal.
The appellant, Commissioner of Income Tax has raised the issue 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.
Mr.M.Swaminathan, Senior Standing Counsel assisted by Ms.V.Pushpa, learned Junior Standing Counsel, fairly submitted that the question of law that arise for consideration in the above appeal has already been decided against the Revenue and in favour of the assessee in the judgment made in the case of the Commissioner of Income Tax, Trichy Vs. M/s.KMC Speciality Hospitals India Ltd.
The division bench of Justice M.Duraiswamy and Justice R.Hemalatha while ruling in favour of the assessee held that 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 assessment year 1997-98 up to the assessment year 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.
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