General Motors India Pvt. Ltd vs. DCIT (Gujarat High Court)

DATE: (Date of pronouncement)
DATE: August 27, 2012 (Date of publication)

Click here to download the judgement (general_motors_unabsorbed_depreciation_32.pdf)

Unabsorbed depreciation of AYs 1997-98 to 2001-02 is eligible for relief granted by amended s. 32(2) in AY 2002-03

In AY 2006-07, the assessee claimed a set-off of the unabsorbed depreciation brought forward from AY 1997-98, 1999-2000, 2000-01 & 2001-02. The AO allowed the claim u/s 143(3). Subsequently, within four years from the end of the AY he reopened the assessment on the ground that pursuant to the amendment to s. 32(2) by the Finance Act No.2 of 1996 w.e.f. AY 1997-98, the unabsorbed depreciation for AY 1997-98 could be carried forward up to a maximum period of 8 years from the year in which it was first computed and this period expired in AY 2005-06 and could not be allowed in AY 2006-07. The assessee filed a Writ Petition to challenge the reopening in which it claimed (a) that the reopening was based on a “change of opinion” and (b) that as s. 32(2) was amended in AY 2002-03 to remove the time period of 8 years, the claim for unabsorbed depreciation of AY 1997-98 was allowable without any time limit. HELD by the High Court upholding the assessee’s plea:

(i) There must be “tangible material” to reopen the assessment and it cannot be done because he has drawn another inference from the documents already considered by him because it would amount to a change of opinion. The assessee had disclosed the facts and if the AO drew a wrong legal inference, he cannot take benefit of his own wrong & reopen u/s 147.

(ii) Prior to the Finance Act No.2 of 1996 unabsorbed depreciation could be carry forward indefinitely. The Finance Act No.2 of 1996 restricted the period of carry forward & set-off of unabsorbed depreciation to 8 years from AY1997-98. Circular No.762 dated 18.2.1998 clarified that the brought forward depreciation for the earlier years would be added to the depreciation for AY 1997-98 and the period of 8 years would begin from AY 1997-98 onwards. S. 32 (2) was amended by Finance Act, 2001 w.e.f. AY 2002-03 to restore the position as it was prevailing prior to the Finance Act No. 2 of 1996 and the period of 8 years was done away with. In Circular No.14 of 2001, the CBDT clarified that the removal of the 8 year time period was “with a view to enable the industry to conserve sufficient funds to replace plant and machinery“. The effect of the amendment is that the unabsorbed depreciation available to an assessee on 1.4.2002 (AY 2002-03) has to be dealt with in accordance with the s. 32(2) as amended by the Finance Act, 2001 and not by s. 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow unabsorbed depreciation allowance worked out in AY 1997-98 only for eight subsequent assessment years even after the amendment of s. 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision and so a purposive and harmonious interpretation has to be taken. Therefore, the unabsorbed depreciation pertaining to AY 1997-98 can be carried forward for set-off indefinitely.

Note: This impliedly overrules the Special Bench judgement in DCIT vs. Times Guaranty 131 TTJ 257 (Mum)(SB). On the question whether a non-jurisdictional High Court will prevail over the Special Bench see the line of cases where Virgin Creations (Cal HC) was followed in preference to Bharati Shipyard 132 ITD 53 (Mum)(SB).

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