Depreciation(Unabsorbed): Carry forward and set off: A. Y. 2006-07: Effect of amendment of section 32(2) w.e.f. 01/04/2002: Unabsorbed depreciation from A. Y. 1997-98 to 2001-02 got carried forward to A. Y. 2002-03 and became part thereof: It is available for carry forward and set off against the profits and gains of subsequent years, without any limit:

In this case, the question for consideration before the Gujarat High Court was as to “whether the unabsorbed depreciation pertaining to A. Y. 1997-98 could be allowed to be carried forward and set off after a period of eight years or it would be governed by section 32 as amended by Finance Act 2001?”. The reason given by the Assessing Officer is that section 32(2), was amended by Finance Act No. 2 Act of 1996 w.e.f. A.Y. 1997-98 and the unabsorbed depreciation for the A. Y. 1997-98 could be carried forward up to the maximum period of 8 years from the year in which it was first computed. According to the Assessing Officer, 8 years expired in the A. Y. 2005-06 and only till then, the assessee was eligible to claim unabsorbed depreciation of A. Y. 1997-98 for being carried forward and set off. But the assessee was not entitled for unabsorbed depreciation of Rs. 43,60,22,158/- for A. Y. 1997-98, which was not eligible for being carried forward and set off against the income for the A. Y. 2006-07.

The Gujarat High Court held as under:

“i) Amendment of section 32(2) by Finance Act, 2001 is applicable from A. Y. 2002-03 and subsequent years. Therefore unabsorbed depreciation from A. Y. 1997-98 upto the A. Y. 2001-02 got carried forward to the A. Y. 2002-03 and became part thereof.

ii) It came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and was available for carry forward and set off against the profits and gains of subsequent years, without any limits whatsoever.”