The Madras High Court reiterated that the Unabsorbed depreciation can be Carried Forward beyond 8 Years.
The assessee, M/s.KMC Speciality Hospitals India Ltd. for the Assessment Year 2007-08, the return of income was filed admitting business loss and carried forward loss which included depreciation allowance. 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 accepting the loss return and determining the losses carried forward for set-off against future profits. The Assessing Officer, thereafter, proposed to withdraw under Section 154 of the Income Tax Act, the depreciation allowance as according to him, the depreciation relating to the Assessment Year 1997-98 and 1998-99 are required to be withdrawn.
The revenue raises the issue of whether the Tribunal was right in holding that the assessee is entitled to carry forward the unabsorbed depreciation pertaining to AY 1997-1998 and 1998-99 and set off against the income of Assessment Year 2007-08 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.
The division bench of Justice D. Duraiswamy and Justice R.Hemalatha in line with various decisions held that current depreciation is deductible in the 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 April 2002 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 the 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 carrying forward and set-off against the profits and gains of subsequent years, without any limit whatsoever,” the court said.
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