2022 (1) TMI 427 - HC - Income Tax

Court Allows Set Off of Unabsorbed Depreciation Against Income

The High Court upheld the Tribunal's decision allowing the set off of unabsorbed depreciation against income from various sources, including long term ... Unabsorbed depreciation set off against short term capital gain - Period of limitation for carrying forward of Unabsorbed depreciation loss - Period of limitation for carrying forward of Unabsorbed depreciation loss - set off from other income relating to unabsorbed depreciation for the assessment year 1996- 97 upto 8 years only as per Section 32(2) - HELD THAT:- Issue decided against revenue in M/S. BEST & CROMPTON ENGINEERING LTD. [2021 (8) TMI 515 - MADRAS HIGH COURT] once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. - Decided against the Revenue. Issues:1. Interpretation of set off unabsorbed depreciation against short term capital gain.2. Validity of Tribunal's decision regarding unabsorbed depreciation set off.3. Setting aside the order passed under Section 263.Interpretation of set off unabsorbed depreciation against short term capital gain:The case involved an appeal by the Revenue under Section 260A of the Income Tax Act, 1961, challenging the Tribunal's decision on whether unabsorbed depreciation for the assessment year 1996-97 could be set off against short term capital gain for the assessment year 2007-08. The Tribunal allowed the set off, which was contested by the Revenue. The High Court referred to previous judgments, including the case of CIT vs. Best & Crompton Engineering Ltd., where similar issues were considered. The Court highlighted that unabsorbed depreciation relevant to a specific assessment year could be set off against income from various sources, as clarified in Circular No. 794 dated 9-8-2000. The Court upheld the Tribunal's decision in allowing the set off of unabsorbed depreciation against income from long term capital gains and other sources.Validity of Tribunal's decision regarding unabsorbed depreciation set off:The High Court analyzed the Tribunal's decision in light of previous judgments, such as the case of CIT v. Bajaj Hindustan Ltd., and the Circular No. 794 dated 9-8-2000. The Court emphasized that the unabsorbed depreciation could be set off against income under any head, even if the business was not carried on, as per the Circular. Referring to the decision in the case of Pr. CIT v. Gunnebo India (P.) Ltd., the Court reiterated that unabsorbed depreciation from earlier years could be carried forward and set off against income under any head, including long term capital gains. The Court dismissed the Revenue's appeal and upheld the Tribunal's decision, stating that there was no error in the Tribunal's order.Setting aside the order passed under Section 263:The Court further addressed the issue of setting aside the order passed under Section 263. The Tribunal's decision to allow the set off of unabsorbed depreciation was considered valid and in line with the provisions of the Income Tax Act. The Court referred to various judgments, including those from the Bombay High Court and Gujarat High Court, to support the decision to uphold the Tribunal's order. Ultimately, the High Court dismissed the appeal by the Revenue, stating that the substantial questions of law were answered against the Revenue, and no costs were awarded.