Unabsorbed depreciation can be carried forward without the old time limit and set off against income under any head.

Unabsorbed depreciation available on 1 April 2002 was governed by the amended Section 32(2) of the Income-tax Act, 1961, and could be carried forward without the earlier eight-year limit. Once brought into the post-amendment regime, it assumed the character of current depreciation and could be set off against income under any head, including house property and short-term capital gains. Applying that interpretation and the jurisdictional High Court view, the ITAT held that the restrictive treatment adopted by the lower authorities was incorrect and deleted the disallowance.

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Issues: Whether the assessee was entitled to carry forward unabsorbed depreciation from earlier assessment years and set it off against income from house property and short-term capital gains in the relevant assessment year.

Analysis: The relevant legal position under Section 32(2) of the Income-tax Act, 1961, as amended by Finance Act, 2001, was applied in the light of the binding interpretation that unabsorbed depreciation available on 1 April 2002 is to be governed by the amended provision and is available for carry forward without the earlier eight-year restriction. The reasoning accepted that unabsorbed depreciation, once carried forward into the post-amendment regime, assumes the character of current depreciation and may be adjusted against income under any head. The decision also followed the jurisdictional High Court view that the restrictive approach adopted by the lower authorities was not in accordance with the correct law.

Conclusion: The assessee was entitled to carry forward the unabsorbed depreciation and to set it off against income from house property and short-term capital gains; the disallowance was deleted.

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