Tribunal permits adjusting unabsorbed depreciation against non-business income, aligning with Income Tax Act

The Tribunal allowed the appeal, permitting adjustment of unabsorbed depreciation against non-business income, including income from property leasing. The decision aligned with the Income Tax Act, treating unabsorbed depreciation as current year depreciation, contrary to the CIT(A)'s disallowance based on past business asset non-use. The Tribunal's ruling emphasized the applicability of set off provisions under section 32(2) of the Act, allowing the assessee's claim in full.

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Issues:
- Whether unabsorbed depreciation can be adjusted against income from property earned from leasing assets when the business is temporarily closedRs.

Analysis:

Issue 1: Set off of unabsorbed depreciation against non-business income
The primary issue in the present appeal was regarding the enhancement order of CIT(A) disallowing the set off of unabsorbed depreciation against the income earned by the assessee. The Assessing Officer disallowed the depreciation claim as the business assets were not used for business purposes for the past 10 years. The Assessing Officer further disallowed the set off of unabsorbed depreciation against the net income, resulting in a computed net income of NIL. The CIT(A) deliberated on the issue and concluded that depreciation could only be deducted on profits chargeable under the head of business income. Referring to relevant provisions of the Income Tax Act, the CIT(A) held that unabsorbed depreciation could not be set off against income under any head other than business or profession income. The CIT(A) also highlighted the changes in section 32(2) of the Act post-April 2002, emphasizing that unabsorbed depreciation could only be set off against business or profession income. Additionally, the CIT(A) stated that depreciation allowance should only be allowed to the extent of available profits, disallowing any loss on account of depreciation.

Issue 2: Adjustment of unabsorbed depreciation against non-business income
The Tribunal, in a similar case concerning the assessee's own case for the Assessment Year 2011-12, allowed the claim of set off of unabsorbed depreciation against income from house property and other sources. The Tribunal relied on precedents and held that brought forward depreciation should be treated as current year depreciation under section 32(2) of the Act. The Tribunal noted that in previous years, both the CIT(A) and the Assessing Officer had allowed the set off of unabsorbed depreciation against non-business income. Therefore, in the present appeal, the Tribunal allowed the claim of the assessee in entirety, directing the Assessing Officer to set off brought forward unabsorbed depreciation as part of current depreciation against income from property and other sources. The Tribunal's decision was based on the principle that unabsorbed depreciation should be treated as current year depreciation, aligning with the provisions of the Income Tax Act.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the treatment of unabsorbed depreciation as current year depreciation and permitting its adjustment against non-business income, specifically income from property earned from leasing assets.

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