2004 (10) TMI 284 - AT - Income Tax

Appeal Granted: Unabsorbed Depreciation Setoff Allowed, Creditor Addition Disallowed, Mandatory Interest Charging Cited.

The Tribunal allowed the appeal of the assessee on all three grounds. It permitted the setting off of unabsorbed depreciation against short-term capital ... Carry Forward And Set Off - Disallowance of setting off unabsorbed depreciation against short-term capital gain - Addition of unmoved creditor amount to the income. HELD THAT:- The controversy revolves around the amendment carried out in s. 32(2) by the Finance (No, 2) Act, 1996 w.e.f. 1st April, 1997, Prior to the amendment, the allowance of depreciation which could not be fully set off was added to the amount of allowance of depreciation for the following assessment year and was deemed to be part of that allowance for the said following year. By way of the amendment carried out by the Finance (No.2) Act, 1996 w.e.f.1st April, 1997, the aforesaid deeming fiction of treating the earlier years unabsorbed depreciation as current year's depreciation is sought to be done away with. Also, the period available for absorbing the unabsorbed depreciation against the profits of the succeeding years was limited to 8 years as against no such limit in the pre-amended provisions. It is discernible that the unabsorbed depreciation of the assessee pertaining to the asst. yr. 1996-97 is liable to be considered as a part of the depreciation allowance for the impugned asst. yr. 1997-98 and, therefore, it shall be entitled to set off of the same either against the income from business or profession or against income under any other head resulting in the hands of the assessee for the impugned assessment year. The claim of the assessee is ostensibly in line with the clarification issued by the Board by way of its circular dt.18th Feb., 1998. Thus, pleading by the Revenue to the contrary is liable to be dismissed. We hold so. In the result, on the first ground, the assessee succeeds. Unmoved creditor - We do not find that the Revenue has any material or evidence to substantiate that the said supplier had given up its claim against the assessee. The onus to bring on record such material or evidence is on the Revenue, specially after the appellant having relied on the communication of the supplier dt. 10th April. 1999. Therefore, in the absence of any such material brought on record by either of the lower authorities, it could not be concluded, on the facts and evidence as found, that the said supplier ceased to sustain the impugned claim against the assessee. Therefore, we are unable to sustain the impugned addition as made by the lower authorities. Therefore, we are unable to hold that the liability had ceased to exist in the hands of the assessee in the absence of any material to the contrary. Thus, we also find that insofar as intention of the appellant is concerned, the depiction of the balance to the credit of the supplier in the balance sheet as on the year end clearly demonstrates that the liability does exist and it had not ceased. In the result, the assessee succeeds in the second ground also. Issues involved:The judgment addresses the following issues: 1. Disallowance of setting off unabsorbed depreciation against short-term capital gain.2. Addition of unmoved creditor amount to the income of the assessee.3. Charging of interest under section 234B of the Act.Issue 1: Disallowance of setting off unabsorbed depreciation against short-term capital gain:The appellant, a company engaged in the business of industrial and medical gases, claimed setting off of unabsorbed depreciation against short-term capital gains. The Assessing Officer disallowed the claim based on the amendment to section 32(2) by the Finance Act of 1996. The CIT(A) upheld the disallowance, leading to the appeal. The appellant argued that the unabsorbed depreciation could be set off against any income under any head for the assessment year 1997-98. The Tribunal, considering the relevant provisions and precedents, held that the appellant was entitled to set off the unabsorbed depreciation against any income for the assessment year 1997-98, in line with the circular issued by the CBDT. The appeal on this ground was allowed.Issue 2: Addition of unmoved creditor amount to the income of the assessee:The Assessing Officer added an amount representing an unmoved creditor balance to the income of the assessee, as it remained outstanding for over three years. The CIT(A) upheld this addition, stating that the liability was not intended to be paid off. The appellant contended that the liability existed due to a dispute with the supplier, supported by documentary evidence. The Tribunal observed that the Revenue failed to prove the cessation of liability, especially in the absence of evidence that the supplier had given up the claim. As the liability was shown in the balance sheet and the supplier had not abandoned the claim, the Tribunal held in favor of the assessee, disallowing the addition.Issue 3: Charging of interest under section 234B of the Act:The issue of charging interest under section 234B was deemed mandatory and consequential in nature, without further elaboration in the judgment.In conclusion, the Tribunal allowed the appeal of the assessee on all three grounds, setting aside the disallowances and additions made by the lower authorities.