Guj HC | Unabsorbed depreciation could be carried forward up to maximum period of 8 years from the year in which it was first computed

Gujarat High Court: A Division Bench of J.B. Pardiwala and A.C. Rao, JJ. dismissed a tax appeal filed under Section 260-A of the Income Tax Act, 1961 (ITA) against an order passed by the Income Tax Appellate Tribunal on 25-05-2018 for the Assessment Year 2007-08.

The appellant asked the High Court to address the following substantial question of law:

(a) Whether ITAT has erred in law in allowing carry forward of unabsorbed depreciation for the AYs 1996-97, 1997-98 and 1998-99 beyond the period of eight AYs in contravention of applicable provisions being section 32(2)(iii)(b) of the ITA as amended by Finance (No.2) Act, 1996?

(b) Whether ITAT should not have directed the Assessing Officer to allow carry forward of unabsorbed depreciation after verification of carry forward of unabsorbed depreciation for the AYs as mentioned above by holding that carry forward of unabsorbed depreciation prior to assessment can be set off in subsequent years without setting time limit?

The questions of law as proposed by the appellant were not res integra for the High Court as they had discussed these issues in General Motors (India) (P) Ltd. v. CIT, 2012 SCC OnLine Guj 6101, wherein, the Court held that Section 32(2) of ITA was amended by the Finance (No.2) Act of 1996, with effect from the AY 1997-98 and the unabsorbed depreciation for the AY 1997-98 could be carried forward up to the maximum period of eight years from the year in which it was first computed. When eight years expired in the AY 2005-06, the assessee would be eligible to claim unabsorbed depreciation of the AY 1997-98 for being carried forward and set off against the income for the AY 2005-06. But the assessee was not entitled to unabsorbed depreciation for the AY 1997-98, which was not eligible for being carried forward and set off against the income for the AY 2006-07.

Based on this judgment, the Court dismissed the Tax Appeal.[Principal Commissioner of Income Tax v. SNS Textiles Ltd., 2019 SCC OnLine Guj 1478, decided on 05-08-2019]

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