The Revenue Is Before Us By Referring To The Decision Ofthe High Court Of Calcutta In The Case Of Peerless Generalfinance & Investment Co. Ltd v. For Better Appreciation, We Quote Paragraphs 30.1 To 30.5Of The Said Circular As Hereunder :“30.1 Under The Existing Provisions Ofsection 32 Of The Income-Tax A

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 14.9.2020 CORAM : THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMANDTHE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN TAX CASE APPEAL NO.358 OF 2018 The Commissioner of Income Tax, Chennai ...Appellant/AppellantVs M/s.Sanmar Speciality ChemicalsLtd., Chennai-86 ...Respondent/Respondent Prayer: Tax CaseAPPEAL filed under Section 260A of the IncomeTax Act, 1961 against the order dated 21.10.2016 made inITA.No.2015/Mds/2016 on the file of the Income Tax AppellateTribunal, Chennai 'C' Bench for the assessment year 2006-07 andagainst the order of the Commissioner of Income Tax (Appeals)15Chennai-34 dated 11.03.2016, made in I.T.A. No. 4/CIT(A)-2014-2015 for the Assessment year 2006-2007 and against the order ofthe Deputy Commissioner of Income Tax Company Circle-VI(1) 7[th]Floor, New Block, 121 Mahathma Gandhi Road, Chennai 34 dated24.01.2014 made in PAN/GIR. No. for the Assessmentyear 2006-2007. For Appellant :Mr.J.Narayanasamy, SSCFor Respondent:Mr.R.Vijayaraghavan for M/s.Subbaraya Aiyer Padmanabhan Judgment was delivered by T.S.Sivagnanam,J We have heard Mr.J.Narayanasamy, learned Senior StandingCounsel appearing for the appellant – Revenue and Mr.R.Vijayaraghavan, learned counsel appearing for the respondent –assessee. 2. This appeal, filed by the Revenue under Section 260A ofthe Income Tax Act, 1961 (for brevity, the Act), is directedagainst the order dated 21.10.2016 made in ITA.No.2015/Mds/2016the file of the Income Tax Appellate Tribunal, Chennai 'C' Bench(for short, the Tribunal) for the assessment year 2006-07. https://hcservices.ecourts.gov.in/hcservices/ 3. The appeal was admitted on 02.12.2019 on the followingsubstantial question of law : “Whether, on the facts and in thecircumstances of the case, the Tribunal wasright in holding that the assessee isentitled for carry forward of thedepreciation loss pertaining to theassessment year 1997-98 to the presentassessment year 2006-07, which is beyond theeight year period mandated under theprovisions of Section 32 of the Act?” 4. The short issue, which falls for consideration, is as towhether, in the facts and circumstances of the case, theTribunal was right in permitting the assessee to carry forwardthe depreciation loss pertaining to the assessment year 1997-98to the present assessment year namely 2006-07, which is beyondthe eight year period mandated under the provisions of Section32 of the Act. 5. The Revenue is before us by referring to the decision ofthe High Court of Calcutta in the case of Peerless GeneralFinance & Investment Co. Ltd. Vs. CIT [(2016) 73 Taxmann.com257) and submitting that an identical issue was considered bythe Calcutta High Court wherein the assessee was not grantedrelief. It is further submitted that the said decision of theCalcutta High Court was tested for its correctness by theHon'ble Supreme Court and the special leave petition filedagainst the judgment of the Calcutta High Court was dismissed inthe decision reported in (2016) 73 Taxmann.com 258. 6. After elaborately hearing the learned Senior StandingCounsel appearing for the appellant – Revenue, we are of theconsidered opinion that the reliance placed on the decision inthe case of Peerless General Finance & Investment Co. Ltd.,would, in no manner, assist the case of the Revenue. We say soafter referring to Circular No.14/2001 dated 22.11.2002 issuedby the Central Board of Direct Taxes, which are ExplanatoryNotes on Provisions relating to Direct Taxes. Paragraph 30 ofthe said circular deals with modification of provisions relatingto depreciation. 7. For better appreciation, we quote paragraphs 30.1 to 30.5of the said circular as hereunder :“30.1 Under the existing provisions ofsection 32 of the Income-tax Act, carryforward and set off of unabsorbeddepreciation is allowed for 8 assessmentyears. https://hcservices.ecourts.gov.in/hcservices/ 7. For better appreciation, we quote paragraphs 30.1 to 30.5of the said circular as hereunder :“30.1 Under the existing provisions ofsection 32 of the Income-tax Act, carryforward and set off of unabsorbeddepreciation is allowed for 8 assessmentyears. https://hcservices.ecourts.gov.in/hcservices/ 30.2 With a view to enable the industryto conserve sufficient funds to replaceplant and machinery, specially in an erawhere obsolescence takes place so often, theAct has dispensed with the restriction of 8years for carry forward and set off ofunabsorbed depreciation. The Act has alsoclarified that in computing the profits andgains of business or profession for anyprevious year, deduction of depreciationunder section 32 shall be mandatory. 30.3 Under the existing provisions, nodeduction for depreciation is allowed on anymotor car manufactured outside India unlessit is used (i) in the business of running iton hire for tourists, or (ii) outside Indiain the assessee’s business or profession inanother country. 30.4 The Act has allowed depreciationallowance on all imported motor carsacquired on or after 1st April, 2001. 30.5 These amendments will take effectfrom the 1st April, 2002, and will,accordingly apply in relation to theassessment year 2002-2003 and subsequentyears.” 8. From paragraph 30.2 of the above circular, it is clearthat the restriction of 8 years for carry forward and set off ofunabsorbed depreciation was dispensed with, with a view toenable the industries to conserve sufficient funds to replaceplant and machinery. 9. The learned Senior Standing Counsel appearing for theRevenue would point out that those amendments took place witheffect from 01.4.2002 and would accordingly apply in relation tothe assessment year 2002-03 and the subsequent years whereas inthe assessee's case, the depreciation loss, which they sought tocarry forward is for the assessment year 1997-98. 10. The proper manner, in which, the modification has to beunderstood, is to the effect that from the assessment year 2002-03, if the eight years' period was not lapsed, then the assesseewould be entitled to carry forward the loss without anyrestriction on the time limit. This aspect has been dealt withelaborately in the decision of the Division Bench of the GujaratHigh Court in the case of General Motors India (P) Ltd. Vs. DCIT[reported in (2013) 354 ITR 0244] wherein the relevant portionsare as follows : https://hcservices.ecourts.gov.in/hcservices/ 10. The proper manner, in which, the modification has to beunderstood, is to the effect that from the assessment year 2002-03, if the eight years' period was not lapsed, then the assesseewould be entitled to carry forward the loss without anyrestriction on the time limit. This aspect has been dealt withelaborately in the decision of the Division Bench of the GujaratHigh Court in the case of General Motors India (P) Ltd. Vs. DCIT[reported in (2013) 354 ITR 0244] wherein the relevant portionsare as follows : https://hcservices.ecourts.gov.in/hcservices/ intent of the amendment that it is forenabling the industry to conserve sufficientfunds to replace plant and machinery andaccordingly the amendment dispenses with therestriction of 8 years for carry forward andset off of unabsorbed depreciation. Theamendment is applicable from assessment year2002-03 and subsequent years. This meansthat any unabsorbed depreciation availableto an assessee on 1st day of April, 2002(A.Y. 2002-03) will be dealt with inaccordance with the provisions of section 32(2) as amended by Finance Act, 2001 and notby the provisions of section 32(2) as itstood before the said amendment. Had theintention of the Legislature been to allowthe unabsorbed depreciation allowance workedout in A.Y. 1997-98 only for eightsubsequent assessment years even after theamendment of section 32(2) by Finance Act,2001 it would have incorporated a provisionto that effect. However, it does not containany such provision. Hence keeping in viewthe purpose of amendment of section 32(2) ofthe Act, a purposive and harmoniousinterpretation has to be taken. Whileconstruing taxing statutes, rule of strictinterpretation has to be applied, givingfair and reasonable construction to thelanguage of the section without leaning tothe side of assessee or the revenue. But ifthe legislature fails to express clearly andthe assessee becomes entitled for a benefitwithin the ambit of the section by the clearwords used in the section, the benefitaccruing to the assessee cannot be denied.However, Circular No.14 of 2001 hadclarified that under Section 32(2), incomputing the profits and gains of businessor profession for any previous year,deduction of depreciation under Section 32shallbemandatory.Therefore,theprovisions of section 32(2) as amended byFinance Act, 2001 would allow the unabsorbeddepreciation allowance available in the A.Y.1997-98, 1999-2000, 2000-01 and 2001-02 tobe carried forward to the succeeding years,and if any unabsorbed depreciation or partthereof could not be set off till the A.Y.2002-03 then it would be carried forward till the time it is set off against theprofits and gains of subsequent years. 38. Therefore, it can be said that,current depreciation is deductible in thefirst place from the income of the businessto which it relates. If such depreciationamount is larger than the amount of theprofits of that business, then such excesscomes for absorption from the profits andgains from any other business or business,if any, carried on by the assessee. If abalance is left even thereafter, thatbecomes deductible from out of income fromany source under any of the other heads ofincome during that year. In case there is astill balance left over, it is to be treatedas unabsorbed depreciation and it is takento the next succeeding year. Where there iscurrent depreciation for such succeedingyear the unabsorbed depreciation is added tothe current depreciation for such succeedingyear and is deemed as part thereof. If,however, there is no current depreciationfor such succeeding year, the unabsorbeddepreciation becomesthedepreciationallowance for such succeeding year. We areof the considered opinion that anyunabsorbed depreciation available to anassessee on 1st day of April 2002 (A.Y.2002-03) will be dealt with in accordancewith the provisions of section 32(2) asamended by Finance Act, 2001. And once theCircular No.14 of 2001 clarified that therestriction of 8 years for carry forward andset off of unabsorbed depreciation had beendispensed with, the unabsorbed depreciationfrom A.Y.1997-98 upto the A.Y.2001-02 gotcarried forward to the assessment year 2002-03 and became part thereof, it came to begoverned by the provisions of section 32(2)as amended by Finance Act, 2001 and wereavailable for carry forward and set offagainst the profits and gains of subsequentyears, without any limit whatsoever.” 11. A similar issue was considered by a Division Bench ofthe Bombay High Court in the case of CIT-3 Vs. M/s.BajajHindustan Ltd. [reported in 2018-TIOL-2730-HC-MUM-IT] followingthe decision in the case of CIT Vs. Hindustan Unilever Ltd.[reported in (2017) 394 ITR 73]. The special leave petitionfiled by the Revenue against the above decision was dismissed by the Hon'ble Supreme Court in the decision reported in 2019-TIOL-36-SC-IT [PCIT-3 Vs. M/s.Bajaj Hindustan Ltd]. 12. In the decision of the Punjab & Haryana High Court inthe case of CIT Vs. GTM Synthetics Ltd. [reported in (2012) 347ITR 0458], an identical issue was considered in the followingterms : 11. A similar issue was considered by a Division Bench ofthe Bombay High Court in the case of CIT-3 Vs. M/s.BajajHindustan Ltd. [reported in 2018-TIOL-2730-HC-MUM-IT] followingthe decision in the case of CIT Vs. Hindustan Unilever Ltd.[reported in (2017) 394 ITR 73]. The special leave petitionfiled by the Revenue against the above decision was dismissed by the Hon'ble Supreme Court in the decision reported in 2019-TIOL-36-SC-IT [PCIT-3 Vs. M/s.Bajaj Hindustan Ltd]. 12. In the decision of the Punjab & Haryana High Court inthe case of CIT Vs. GTM Synthetics Ltd. [reported in (2012) 347ITR 0458], an identical issue was considered in the followingterms : “8. The effect of omission of theaforesaid proviso was enumerated by theCentral Board of Direct Taxes, vide circularNo. 794 dated 9.8.2000 [(2000) 245 ITR(Statute)]21thattheunabsorbeddepreciation allowance could be set offagainst the income under any other head evenwhere the business was not carried on.Clause 22 of the said circular which isrelevant is as under:"22. Requirement of continuance of samebusinessforset-offofunabsorbeddepreciation dispensed with:22.1 Under the existing provisions ofsub-section (2) of section 32 of the Income-tax Act, carried forward unabsorbeddepreciation is allowed to be set offagainst profits and gains of business orprofession of the subsequent year, subjectto the condition that the business orprofession for which depreciation allowancewas originally computed continued to becarried on in that year. A similar conditionin section 72 for the purpose of carryforward and set off of unabsorbed businessloss was removed last year.22.2 With a view to harmonise theprovisions relating carry forward and setoffofunabsorbeddepreciationandunabsorbed loss, the Act has dispensed withthe condition of continuance of samebusiness for the purpose of carry forwardand set off of unabsorbed depreciation.22.3 This amendment will take effectfrom 1st April, 2001, and will, accordingly,apply in relation to the assessment year2001-2002 and subsequent years." 9. The CIT(A) and the Tribunal, thus,rightly allowed unabsorbed depreciationrelevant to the assessment year 1996-97 tobe set off against the income from long termcapital gains and income from other sourcesfor the assessment year 2001-2002.” 9. The CIT(A) and the Tribunal, thus,rightly allowed unabsorbed depreciationrelevant to the assessment year 1996-97 tobe set off against the income from long termcapital gains and income from other sourcesfor the assessment year 2001-2002.” 13. Recently, in the decision of a Division Bench of theBombay High Court in the case of PCIT Vs. Gunnebo India Pvt.Ltd. [reported in (2019) 104 CCH 0227], the issue was consideredin favour of the assessee after referring to the decision of theDivision Bench of the Gujarat High Court in the case of GeneralMotors India (P) Ltd., wherein the relevant portions read thus :“3. The Revenue carried the matter inappeal. The Appellate Tribunal dismissed theappeal of the Revenue making the followingobservations- "16. We have observed that thecurrent year's depreciation is allowed to beset off against the income from business aswell as against the other heads of incomeand unabsorbed depreciation in carry forwardand become part of the depreciation of thesubsequent year and the total depreciationbecomes current year's depreciation as persection 32(1) of the Act, which is allowedto be set off against the income under anyhead of income. As per the provisions ofsection 32(2) of the Act r.w.s. 70, 71 and72 of the Act, it becomes very clear thatthe total depreciation comprising of thedepreciation of the relevant assessment yearalong with the unabsorbed depreciation ofthe earlier years becomes the total currentyear's depreciation which is allowed to beset off against income under any head ofincome including Long Term Capital Gain.Accordingly, we find no reason to interferewith the order of CIT(A) qua this issue andthe same is hereby upheld. We also hold thatas per provisions of section 72 of the Act,the unabsorbed business loss (other thanspeculative loss) of earlier years shall beallowed to be set off only against theprofits and gains from business carried onby the assessee of the current year and soon. We order accordingly. However, our abovedecision with respect to ground no. (i) and(ii) raised in memo of appeal filed byRevenue should be read in conjunction withand subject to our findings with respect toground no. (iii) and (iv) which are decidedby us in the preceding para's of this orderand the computation shall be madeaccordingly." 4. Having heard the learned counsel forparties and having perused the documents on record, we do not find any error in theorder of the Appellate Tribunal. GujaratHigh Court in the case of General MotorsIndia (P) Ltd. (supra) had consideredsomewhat similar issue, of course in thebackdrop of the assessee's challenge to anotice of reopening of the assessment. TheGujarat High Court had held and observed asunder - "38 Therefore, it can be said that,current depreciation is deductible in thefirst place from the income of the businessto which it relates. If such depreciationamount is larger than the amount of theprofits of that business, then such excesscomes for absorption from the profits andgains from any other business or business,if any, carried on by the assessee. If abalance is left even thereafter, thatbecomes deductible from out of income fromany source under any of the other heads ofincome during that year. In case there is astill balance left over, it is to be treatedas unabsorbed depreciation and it is takento the next succeeding year. Where there iscurrent depreciation for such succeedingyear the unabsorbed depreciation is added tothe current depreciation for such succeedingyear and is deemed as part thereof. If,however, there is no current depreciationfor such succeeding year, the unabsorbeddepreciation becomesthedepreciationallowance for such succeeding year. We areof the considered opinion that anyunabsorbed depreciation available to anassessee on 1st April, 2002 (asst. yr. 2002-03) will be dealt with in accordance withthe provisions of s. 32(2) as amended byFinance Act, 2001. And once the Circular No.14 of 2001 clarified that the restriction of8 years for carry forward and set off ofunabsorbed depreciation had been dispensedwith, the unabsorbed depreciation from asst.yr. 1997-98 up to the asst. yr. 2001- 02 gotcarried forward to the asst. yr. 2002-03 andbecame part thereof, it came to be governedby the provisions of s. 32(2) as amended byFinance Act, 2001 and were available forcarry forward and set off against theprofits and gains of subsequent years,without any limit whatsoever." 14. In our considered view, the above decisions will clearlyenure to the benefit of the respondent – assessee. 15. Accordingly, the above tax case appeal is dismissed andthe substantial question of law is answered against the Revenue.No costs. s/d- Assistant Registrar True Copy Sub-Assistant Registrar To1.The Income Tax Appellate Tribunal, Chennai 'C' Bench.2.The Commissioner of Income Tax (Appeals)15Chennai 343.The Deputy Commissioner of Income TaxCompany Circle VI(1) 7[th] Floor, New Block121 Mahathma Gandhi RoadChennai 34.+1 CC to M/s. Subbaraya Aiyar, Advocate sr 29959.TCA.No.358 of 2018MR(CO)SP(19/10/2020)