Unabsorbed Depreciation can be carried forward beyond 8 years: Madras High Court [Read Judgment]

The Madras High Court ruled that unabsorbed depreciation can be carried forward beyond 8 years.

The assessee, M/s.KMC Speciality Hospitals India Ltd. submitted that for the Assessment Year 2007-08, the return of income, admitting the business loss of Rs.65,22,677/- and carried forward loss of Rs.18,39,06,826/-, which included depreciation allowance of Rs.17,73,84,149/-. The case was selected for scrutiny and notice under Section 143(2) was issued and after due process of hearing, the assessment order under Section 143(3) was issued on 22.12.2009, accepting the loss return of Rs.65,22,677/- and determining the losses carried forward for set-off against future profits as Rs.18,39,06,826/-.

While challenging the order of assessment, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and the Commissioner of Income Tax (Appeals) dismissed the appeal. Aggrieved over the same, the assessee preferred an appeal before the Income Tax Appellate Tribunal and the Tribunal allowed the appeal. Challenging the order passed by the Income Tax Appellate Tribunal, the Revenue has filed the above appeal.

The issue raised by the revenue was whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to carry forward the unabsorbed depreciation and set off against the income which is beyond the period of eight assessment years, in the light of amendment w.e.f AY 1997-98 putting a cap of eight years for carrying forward of depreciation and the amendment w.e.f. 2002-03 removing the said cap of eight years for carrying forward.

Mr. M. Swaminathan, senior standing counsel appearing for the appellant–Revenue pointed out that those amendments took place with effect from April 1, 2002, and would accordingly apply in relation to the assessment year 2002-03 and the subsequent years whereas in the assessee’s case, the depreciation loss, which they sought to carry forward is for the assessment year 1997-98.

The division bench of Justice M. Duraiswamy and Justice R. Hemalatha ruled that any unabsorbed depreciation available to an assessee on 1st April 2002 (asst. yr. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once Circular No. 14 of 2001 clarified that the restriction of 8 years for carrying forward and set-off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from asst. yr. 1997-98 up to the asst. yr. 2001- 02 got carried forward to the asst. yr. 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 carrying forward and set-off against the profits and gains of subsequent years, without any limitation whatsoever.

The Madras High Court ruled that unabsorbed depreciation can be carried forward beyond 8 years.

The assessee, M/s.KMC Speciality Hospitals India Ltd. submitted that for the Assessment Year 2007-08, the return of income, admitting the business loss of Rs.65,22,677/- and carried forward loss of Rs.18,39,06,826/-, which included depreciation allowance of Rs.17,73,84,149/-. The case was selected for scrutiny and notice under Section 143(2) was issued and after due process of hearing, the assessment order under Section 143(3) was issued on 22.12.2009, accepting the loss return of Rs.65,22,677/- and determining the losses carried forward for set-off against future profits as Rs.18,39,06,826/-.

While challenging the order of assessment, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and the Commissioner of Income Tax (Appeals) dismissed the appeal. Aggrieved over the same, the assessee preferred an appeal before the Income Tax Appellate Tribunal and the Tribunal allowed the appeal. Challenging the order passed by the Income Tax Appellate Tribunal, the Revenue has filed the above appeal.

The issue raised by the revenue was whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to carry forward the unabsorbed depreciation and set off against the income which is beyond the period of eight assessment years, in the light of amendment w.e.f AY 1997-98 putting a cap of eight years for carrying forward of depreciation and the amendment w.e.f. 2002-03 removing the said cap of eight years for carrying forward.

Mr. M. Swaminathan, senior standing counsel appearing for the appellant–Revenue pointed out that those amendments took place with effect from April 1, 2002, and would accordingly apply in relation to the assessment year 2002-03 and the subsequent years whereas in the assessee’s case, the depreciation loss, which they sought to carry forward is for the assessment year 1997-98.

The division bench of Justice M. Duraiswamy and Justice R. Hemalatha ruled that any unabsorbed depreciation was available to an assessee on 1st April 2002 (asst. yr. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once Circular No. 14 of 2001 clarified that the restriction of 8 years for carrying forward and set-off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from asst. yr. 1997-98 up to the asst. yr. 2001- 02 got carried forward to the asst. yr. 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 carrying forward and set-off against the profits and gains of subsequent years, without any limit whatsoever.

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