2016 (12) TMI 1477 - AT - Income Tax

Tribunal allows adjustment of unabsorbed depreciation, setting precedent for tax appeals

M/s SAI ASTHA EXPORTS PVT. LTD. Versus ITO, Ward 3 (3), NEW DELHI

The Tribunal allowed the adjustment of brought forward unabsorbed depreciation against current year's income, overturning the lower authorities' ... Setting off the brought forward unabsorbed depreciation against the Income from House Property - Held that:- As decided in CIT vs. Spel Semi Conductors Ltd [2012 (12) TMI 81 - MADRAS HIGH COURT] revenue does not deny the fact that as far as the income from other sources are concerned, there could be no set off of business loss or carried forward loss. Section 72(2) is as regards set off of business loss as against the income from profits and gains of business or profession and if there is loss as well as unabsorbed depreciation, the set off shall be first on the business loss as against the business income and then on unabsorbed depreciation. What is spoken to under Section 32(2) is as regards set off of unabsorbed depreciation as per clause (ii) of sub section (1) and when the unabsorbed depreciation could not be set off as against the income from business or profession by reason of there being no income available under the said heads and where there is income from other sources, effect must be given to Section 32(2) of the Act for that assessment year - rejecting the Revenue's plea, there by confirming the order of Tribunal Allow the claim of the assessee of adjusting the Brought Forward Unabsorbed Depreciation Loss against current year’s income and accordingly, allow the appeal of the Assessee. Issues Involved:1. Validity of the Assessment Order.2. Adjustment of Brought Forward Unabsorbed Depreciation Loss against Current Year’s Income.Issue-Wise Detailed Analysis:1. Validity of the Assessment Order:The Assessee challenged the assessment order passed by the AO, claiming it was 'bad both in law and on facts.' The return declaring NIL income was e-filed on 10.9.2012, and the case was selected for scrutiny through CASS. Notices under sections 143(2) and 142(1) were issued, and the case was transferred to ITO, Wards 3(3), New Delhi. Despite several adjournments, the proceedings were decided under section 144 of the Income Tax Act, 1961. The AO assessed income from house property at Rs. 6,30,000 and disallowed the expenses claimed under the P&L account, resulting in a net loss of Rs. 11,63,290 to be carried forward. The Ld. CIT(A) upheld the AO's order, dismissing the appeal.2. Adjustment of Brought Forward Unabsorbed Depreciation Loss against Current Year’s Income:The primary dispute was whether the brought forward unabsorbed depreciation could be set off against the income from house property. The AO disallowed this adjustment, stating that expenses incurred are permissible only if any business or profession was carried on during the year. The Ld. CIT(A) agreed, citing that brought forward losses, whether on account of unabsorbed depreciation or business loss from earlier years, are to be set off only against income from business and not other heads of income. The Assessee appealed to the Tribunal, arguing that several judicial precedents support the set-off of unabsorbed depreciation against income from other sources.The Tribunal reviewed various judgments, including:- CIT vs. Spel Semi Conductors Ltd. (2012): The Madras High Court held that unabsorbed depreciation could be set off against income from other sources, and Section 32(2) allows such set-off without waiting for business income.- ITO vs. Selchem Engineers (P) Ltd. (2004): The ITAT Delhi allowed the set-off of unabsorbed depreciation against house property income based on the Finance Minister's assurance and CBDT Circular.- CIT vs. Fabriquip (P.) Ltd. (2002): The Gujarat High Court ruled that the benefit under Section 32(2) does not require the same business to be carried on in the following year.- JCIT vs. India Steamship Co. Ltd. (2003): The ITAT Kolkata supported the set-off of unabsorbed depreciation against income from other sources, citing the CBDT's power to issue clarifications.- ITO vs. Graham Firth Steel Products (I) Ltd. (2008): The ITAT Bombay allowed the set-off of unabsorbed depreciation against house property income, aligning with previous ITAT decisions.- Escorts Electronics Ltd. vs. CIT (Delhi High Court): The court held that unabsorbed depreciation carried forward from earlier years could be allowed against income assessed under Section 56.Based on these precedents, the Tribunal concluded that the Assessee's claim of adjusting the brought forward unabsorbed depreciation loss against current year's income is valid. Consequently, the appeals filed by the Assessee were allowed.Conclusion:The Tribunal allowed the adjustment of brought forward unabsorbed depreciation against current year’s income, overturning the lower authorities' decisions. The appeals were decided in favor of the Assessee, setting a precedent for similar cases.