Benefit of Carry Forward and Set Off of Unabsorbed Depreciation can be extended to a Period more than 8 Years: Delhi HC [Read Judgment]

A division bench of the Delhi High Court, last week held that the benefit of carry forward and set off of unabsorbed depreciation can be extended to a period more than eight years even before the amendment to Section 32(2) of the Income Tax Act, 1961.

The sole issue before the Court in the case was that whether the interpretation of Section 32(2) of the Income Tax Act, as amended by Finance Act, 2001, could be given effect to beyond the period of eight years, prior to its commencement?

In the instant case, the Assessing Officer (AO) disallowed the amounts claimed as depreciation on the ground that the amendment to Section 32(2) of the Act, which removed the cap, was prospective and effective only from 01.04.2002.

Prior to its amendment, the provision had limited the carry forward of depreciation to 8 years. This restriction was brought in, by Finance Act, 1996. Prior to that amendment, there was no restriction or cap in the carrying forward of depreciation.

On first and second appeals, the appellate authorities decided the issue in favour of the assessee by relying on the decision of the Gujarat High Court in the case of General Motors India Pvt. Ltd wherein the Court allowed a similar claim.

Upholding the Tribunal order, the bench comprising Justices S Ravindra Bhatt and A K Chawla held that “this Court is in agreement with the reasoning of the Gujarat High Court. The rationale for the amendment appears to be that the restriction against set off and carry forward limited to 8 years, beyond which the benefit could not be claimed under provisions of the Income Tax Act, was for the reasons deemed appropriate by the Parliament. The limit was imposed in 1996 through Finance Act No.2. As the Gujarat High Court observed, Had the intention of Parliament being really to restrict the benefit (of unlimited carry forward prospectively), there were more decisive ways of doing so-such as, an expressed provision or an exception or proviso etc. The absence of any such legislative devise meant that provisions had to be construed in its own term and not so as to restrict the benefit or advantage, it sought to confirm.”