Tribunal upholds set-off of unabsorbed depreciation against income from other sources

The Tribunal upheld the CIT(A)'s decision to allow the set-off of unabsorbed depreciation against 'income from other sources,' dismissing all appeals filed by the Revenue on 27/11/2019.

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Issues Involved:
1. Set-off of unabsorbed depreciation allowance against income from other sources and capital gains.
2. Requirement of carrying on business activity for allowing set-off of unabsorbed depreciation.
3. Applicability of the restriction of 8 years for carry forward and set-off of unabsorbed depreciation.
4. Validity of the assessee's claim in light of previous disallowances and judicial precedents.

Issue-wise Detailed Analysis:

1. Set-off of Unabsorbed Depreciation Allowance:
The primary issue in the appeal was whether the assessee was entitled to claim set-off of unabsorbed depreciation carried forward from earlier years against income from other sources and capital gains. The Revenue argued that the assessee should not be allowed to claim set-off of unabsorbed depreciation against income arising under different heads other than 'business income'. The CIT(A) had directed the set-off, which the Revenue contested.

2. Requirement of Carrying on Business Activity:
The Revenue contended that carrying on a business was an essential prerequisite for allowing set-off of unabsorbed depreciation, citing the case of Rajaratna Naranbhai Mills Ltd. and Dharti Dredging & Infrastructure Ltd. vs. Additional Commissioner of Income-tax. The AO had rejected the assessee's claim on the grounds that no business activities were carried out during the year under consideration, and thus, set-off of depreciation was not permissible.

3. Applicability of the Restriction of 8 Years:
The Revenue submitted that the restriction of 8 years for carry forward and set-off of unabsorbed depreciation should apply to the unabsorbed depreciation related to the period before the amendment by the Finance Act, 2001. However, the CIT(A) and the Tribunal referred to judicial precedents, including the decision of the Hon’ble Supreme Court in CIT vs. Virmani Industries Pvt. Ltd. and the Hon’ble Gujarat High Court in General Motors India P. Ltd. vs. DCIT, which dispensed with the 8-year restriction due to subsequent amendments.

4. Validity of the Assessee's Claim:
The Tribunal considered the rival submissions and the findings of the CIT(A). The CIT(A) had noted that the unabsorbed depreciation is deemed to be the depreciation of the year under consideration as per Section 32(2), even if no profit under the head business/profession was chargeable to tax. The Tribunal upheld the CIT(A)’s decision, stating that the CIT(A) had rightly appreciated the law concerning the issues raised by the Revenue. The Tribunal also referenced the Hon’ble Gujarat High Court's view that the claim for carry forward of unabsorbed depreciation should be allowed without the limitation of 8 years.

Conclusion:
The Tribunal found the CIT(A)'s order to be in consonance with the decisions of higher judicial authorities and upheld the CIT(A)’s direction to allow the set-off of unabsorbed depreciation allowance carried forward from earlier years against 'income from other sources' after necessary verifications. Consequently, all four appeals filed by the Revenue were dismissed.

Final Pronouncement:
The order was pronounced in Open Court on 27/11/2019, dismissing all the appeals filed by the Revenue.

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