High Court allows set off of unabsorbed depreciation from one business against profits of another

The High Court affirmed the Tribunal's decision, allowing the set off of unabsorbed depreciation from a defunct firm against the assessee's profits from other businesses in the subsequent assessment year. The court held that the assessee's multiple businesses formed one entity, permitting losses from one business to be offset against profits from another. Relying on precedents, including decisions in cases like CIT v. Virmani Industries Pvt. Ltd., the court concluded in favor of the assessee, stating that the unabsorbed depreciation could be set off against profits in the following year.

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Issues:
Whether unabsorbed depreciation of a defunct firm can be set off against the profits of the assessee from other businesses in the subsequent assessment year.

Analysis:
The case involved a partner in a firm, Sri Abirami Cotton Mills, which had become defunct and was sold as a going concern in the assessment year 1978-79. The partner had carried forward losses and unabsorbed depreciation from this firm, which he sought to set off against his income for the assessment year 1979-80. The Income-tax Officer initially denied the claim, stating that the carried forward loss could not be set off as the business of the defunct firm had been closed down.

On appeal, the assessee argued that since he was a partner in multiple firms, the businesses formed one entity, allowing losses from one business to be set off against profits from another. Additionally, the assessee contended that the unabsorbed depreciation of the defunct firm should be carried forward and set off against the profits of the current year. The Appellate Assistant Commissioner rejected the first contention but accepted the alternative claim based on precedents like CIT v. Virmani Industries (P.) Ltd. and CIT v. Estate and Finance Ltd.

The Tribunal upheld the Appellate Assistant Commissioner's decision, allowing the set off of carried forward depreciation from the defunct firm against the profits of the assessment year 1979-80. The Tribunal relied on a previous decision involving a similar issue in the case of Smt. C. Angammal. The Supreme Court's decision in CIT v. Virmani Industries Pvt. Ltd. was also cited, supporting the allowance of set off for unabsorbed depreciation from previous years against current year profits.

Considering the precedents and decisions in similar cases, the High Court affirmed the Tribunal's order, ruling in favor of the assessee. The judgment concluded by answering the referred question in the affirmative, stating that the unabsorbed depreciation of the defunct firm could indeed be set off against the assessee's profits from other businesses in the subsequent assessment year.

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