Taxpayer wins right to setoff unabsorbed depreciation against short term capital gains under Sections 71-72

ITAT Mumbai allowed taxpayer's claim for setoff of unabsorbed depreciation carried forward from earlier years against short term capital gains income. AO had rejected the claim under Sections 32, 70-72, while taxpayer relied on Sections 71-72. ITAT followed Bombay HC precedent in Bond Safety Belts case, set aside CIT(A) order, and directed AO to allow the setoff claim. AO was instructed to compute interest under Sections 234D and 244A. Appeal allowed in favor of assessee.

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Issues Involved:
1. Set-off of unabsorbed depreciation against short-term capital gains.
2. Directions for computing interest under section 234D.
3. Directions for computing interest under section 244A.

Summary:

Issue 1: Set-off of Unabsorbed Depreciation Against Short-term Capital Gains

The assessee appealed against the CIT(A)'s order, which upheld the AO's decision disallowing the set-off of unabsorbed depreciation brought forward from earlier years against short-term capital gains for the relevant assessment year. The CIT(A) ignored the provisions of section 32(2) read with section 71(2) of the Act, which treat unabsorbed depreciation on par with current year depreciation, allowing it to be set off against income under any head. The assessee cited several judicial precedents supporting their claim. The Tribunal, referencing the Bombay High Court's decision in Bond Safety Belts vs. DCIT and other cases, concluded that unabsorbed depreciation carried forward from earlier years should be treated as current year's depreciation and can be set off against any head of income, including short-term capital gains. The Tribunal directed the AO to allow the set-off of unabsorbed depreciation against short-term capital gains.

Issue 2: Directions for Computing Interest under Section 234D

The CIT(A) failed to provide appropriate directions for computing interest under section 234D of the Act. The Tribunal directed the AO to compute interest in accordance with the provisions of the Act.

Issue 3: Directions for Computing Interest under Section 244A

Similarly, the CIT(A) did not give proper directions for computing interest under section 244A of the Act. The Tribunal instructed the AO to compute interest as per the Act's provisions.

Conclusion:

The Tribunal allowed the appeal in favor of the assessee, directing the AO to set off unabsorbed depreciation against short-term capital gains and compute interest under sections 234D and 244A as per the Act's provisions. The order was pronounced in the open court on 06.11.2023.

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