AMIT BAJAJ ADVOCATE

Delhi High Court in an important judgment in a case namely CIT vs. Govind Nagar Sugar Limited (2011) ISI B-469 Del. (H.C.), has held that “The effect of Section 32(2) is that unabsorbed depreciation of a year becomes part of depreciation of subsequent year by legal fiction and when it becomes part of current year depreciation it is liable to be set off against any other income, irrespective of the fact that the earlier years return was filed in time or not.”

Brief facts of the case: The assessee filed return declaring loss at Rs. 6,75,38,576/-. The return was filed on 31^st March, 2003, though the due date of filing the return of loss in terms of section 139(3) of Income tax Act was 31^st October, 2001. The A.O framed assessment u/s 143(2) on 31^st October, 2003 at a loss of Rs. 6,03,14,560/- The AO, however, did not make any observation in respect of carry forward of unabsorbed loss including unabsorbed depreciation i.e. AO did not allow the assessee to carry forward the unabsorbed loss including Depreciation.

On appeal CIT confirmed the order of AO and held that assessee was not allowed to carry forward the losses by virtue of section 80 of the Act as it had not filed loss return within time prescribed u/s 139(3) of the Act. On further appeal, ITAT allowed the carry forward of unabsorbed depreciation. Revenue’s appeal to HC was dismissed.

Held: Section 32 deals with the different types of depreciation whereas section 80 deals with carry forward of unabsorbed losses other than losses on account of depreciation. If that was not so, there was no need for legislature to provide specific provision for carrying forward of depreciation under section 32 of the Act. It has already been noted that in case of Nagapatinam Import(supra), which was relied by our High Court in the case of J.Patel(supra) whereby, it was held that section 72 contemplates loss other than unabsorbed depericiation and there was a time limit within which loss can be adjusted, whereas in the case of unabsorbed depreciation there is no time limit and further that under the statue there is a separate identity with respect to unabsorbed depericiation though at the time of computation, it becomes part of loss.