Tribunal Upholds Set-Off of Unabsorbed Depreciation Against House Property Income, Dismissing Revenue's Appeal.

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to allow the set-off of unabsorbed depreciation against income from house property for the assessment year 1997-98. The Tribunal underscored the binding nature of CBDT Circulars, which supported the CIT(A)'s decision based on the Finance Minister's assurance and Circular No. 762. The Tribunal also awarded costs to the assessee, emphasizing that the Revenue's challenge was contrary to the established Circular. Consequently, the assessee's claim to set off unabsorbed depreciation was upheld, and the Revenue's appeal was rejected.

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Issues involved:
The appeal by Revenue against the order of CIT(A) allowing set off of unabsorbed depreciation for earlier years against income from house property for assessment year 1997-98.

Summary:
The appeal was filed by Revenue against the order of CIT(A) allowing the assessee to set off unabsorbed depreciation for earlier years against income from house property for assessment year 1997-98. The Assessing Officer disallowed this claim based on Section 32(2) as amended by Finance (No.2) Act, 1996. However, CIT(A) allowed the claim based on the Finance Minister's speech and Circular No. 762 issued by CBDT. The dispute centered around the interpretation of the provisions of Section 32(2) pre and post the 1996 amendment.

A comparative analysis of the pre-amended and post-amended provisions of Section 32(2) revealed that the benefits available to the assessee under the pre-amended section were curtailed by the 1996 amendment. The Finance Minister, in his Budget Speech, assured that the unabsorbed depreciation as of 1-4-1997 could still be set off against taxable profits for assessment year 1997-98 and subsequent years. This assurance was further clarified in Circular No. 762 issued by CBDT, emphasizing the treatment of unabsorbed depreciation for assessment year 1996-97 in the subsequent year.

The CBDT's power under Section 119 to issue Circulars for fair enforcement of tax laws was highlighted. The Supreme Court's rulings in UCO Bank v. CIT and Commissioner of Customs v. Indian Oil Corpn. Ltd. affirmed the binding nature of CBDT Circulars on departmental authorities. In this case, the relief granted by CIT(A) based on the Finance Minister's assurance and CBDT Circular was upheld, dismissing the Revenue's appeal.

The Tribunal emphasized the binding nature of CBDT Circulars and awarded costs to the assessee due to the Revenue challenging an order in line with the Circular. The appeal by Revenue was ultimately dismissed, affirming the allowance of the claim to set off unabsorbed depreciation against income from house property for assessment year 1997-98.

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