INCOME TAX ACT, 1961

Section 32

Depreciation - Carry forward of depreciation loss beyond eight years period - Depreciation loss pertaining to assessment year 1997-98 sought to be carried forward to relevant assessment year (2006-07) -

Revenue challenged order of Tribunal holding that assessee was entitled for carry forward of the depreciation loss pertaining to the assessment year 1997-98 to the relevant assessment year (2006-07), which was beyond the eight year period mandated under the provisions of section 32. Held: Restriction of 8 years for carry forward and set off of unabsorbed depreciation was dispensed with, with a view to enable the industries to conserve sufficient funds to replace plant and machinery. Revenue contended that those amendments took place with effect from 1-4-2002 and would accordingly apply in relation to the assessment year 2002-03 and the subsequent years. Whereas in assessee's case, the depreciation loss, which they sought to carry forward was for the assessment year 1997-98. Proper manner, in which, the modification was to be understood, was to the effect that from assessment year 2002-03, if the eight years' period was not lapsed, then assessee would be entitled to carry forward the loss without any restriction on the time limit. Any unabsorbed depreciation available to an assessee on 1-4-2002 (Assessment year 2002-03) 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 restriction of 8 years for carry forward and set off of unabsorbed depreciation was 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.