The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has allowed assessee to carry forward the depreciation loss pertaining to the assessment year 1997-98 on the gound that the restriction of 8 years for carry forward, set-off of unabsorbed depreciation had been dispensed with.
The assessee, M/s.J.K.Fenner (India) Limited has claimed set-off of unabsorbed depreciation pertaining to AYs 1997-98 to 1999-2000. The AO, taking note of amendment made by Finance Act,1996, with effect from 01.04.1997, to Section32(2) and further amendment by Finance Act, 2001, with effect from 01.04.2002, held that current depreciation for the year u/s 32(1) starting from AYs 1997-98 up-to 2001-02 could be set off firstly against business income and then against income under any other head. However, current depreciation for AYs 1997-98 to 2001-02 which could not be set- off in this manner, could be carried forward for a maximum period of eight AYs from the Assessment Year immediately succeeding the Assessment Year for which it was first computed and the same could be set-off only against the income under the head ‘Profit and Gains from Business or Profession’.
Thus, the depreciation for AYs 1997-98 to 1999-2000 could be set-off during eight AYs only which would expire during AY 2007-08. It was also noted that the changes brought in to Sec.32(2) was substantive provisions and not a procedural one and therefore, the amendment made by way of Finance Act, 2001, with effect from 01.04.2002, permitting set-off of depreciation for infinite period was prospective in nature and applicable from AY 2002-03 onwards only. Accordingly, the adjustment as claimed by the assessee could not be allowed.
The coram of Judicial Member, V.Durga Rao and Accountant Member Manoj Kumar Aggarwal has held that if, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year.
The ITAT opined 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 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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