2018 (2) TMI 166

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.... assessee had sold industrial land amounting to Rs. 2,30,00,000/- which it had shown in the profit & loss account and had declared capital gain to the tune of Rs. 2,17,44,000/-. The Assessing Officer further observed that the assessee had set off the said capital gain against brought forward unabsorbed depreciation and business loss and therefore, the assessee was show caused to explain the set off. In response the assessee explained that the company had unabsorbed depreciation brought forward from earlier years and Long Term Capital Gains are eligible for set off against the same. The Assessing Officer was however not satisfied with the reply of the assessee and therefore, he did not allow the assessee to set off the Long Term Capital Gain. Aggrieved with the order of the Assessing Officer, the assessee preferred appeal before the CIT(A) who also upheld the addition. Aggrieved, the assessee is in appeal before us. 4. At the outset, Learned A. R. submitted that the claim of the assessee is duly covered in its favour by the order of Hon'ble Supreme Court in the case of CIT vs. Virmani Industries Pvt. Ltd. and Others [1995] 216 ITR 607 (SC). It was further stated that the issu....

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.... has been brought forward from earlier years. The various decisions of various Benches of the Tribunal and Hon'ble Supreme Court in the case of Virmani Industries Pvt. Ltd. and Others (supra) has held that brought forward depreciation from earlier years becomes part of the current year's depreciation and has further held that since there is no difference between the brought forward depreciation and current year's depreciation therefore, is allowable as set off against the capital gains. For the completeness, the findings of Mumbai Bench 'E' of Tribunal in the case of Suresh Industries Pvt. Ltd. in I.T.A. No.5374/Mum/2011, while deciding the similar issue vide order dated 10/10/2012 has held as under: 8. We have heard the rival submissions and perused the orders of the lower authorities and have carefully considered the relevant provisions of the Act and the Paper Book submitted by the assessee. A perusal of the statement of income for the year under consideration show that the assessee has shown Long Term capital gains at Rs. 1,30,00,000/- after claiming exemption u/s. 54EC of the Act. The assessee has also shown net loss from business before depreciation at Rs. 17,48,....

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....wance, then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as unabsorbed depreciation allowance), as the case may be,- (i) shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (ii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year; (iii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i) and clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year and- (a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (b) if the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeedin....

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....ion cannot be set off owing to the profits or gains chargeable being less than the allowance, the allowance or the part of the allowance to which effect has not been given shall be added to the amount of allowance for depreciation for the following previous year and deemed to be part of the allowance which means that brought forward depreciation merges with the current year's depreciation because of the legal fiction created by provisions of Sec. 32(2) of the Act. However, this fiction has been subjected to the provisions of Sec. 72(2) and 73(3) of the Act. 12. Let us first consider the provisions of Sec. 72(2) of the Act which provides as under: "Whether any allowance or part thereof is, under sub-section 2 of Sec. 32 or sub section (4) of Sec. 35, to be carried forward, effect shall first be given to the provisions of this section. 13. A simple reading of this section suggests that in case of set off of business loss vis-a-vis depreciation, the first preference shall be given to the business loss as per the provisions of Sec. 72(1) of the Act for the simple reason that the business loss can be carried forward only upto 8 assessment years whereas the depreciation....

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.... 10. In this regard, Ld. Counsel of the assessee has submitted that reference by the Assessing Officer to provision of Sections 70 to 80 in disallowing adjustment of carried forward losses and unabsorbed deprecation is erroneous. These sections are not at all relevant. Further, it has been submitted that the assessee is eligible for the adjustment of unabsorbed depreciation as per section 32(2) of the Act. Further, Id. Counsel of the assessee has submitted that the Ld. Commissioner of Income Tax (A) has erred in holding that the decision of the Haryana Hotels Ltd. (Supra) affirmed the action of the Assessing Officer. He submitted that Ld. Commissioner of Income Tax (A) has not considered the decision fully and properly. In another portion of the decision it has been clearly mentioned that unabsorbecl depreciation has to be allowed. 11. We have carefully considered the submissions and perused the records. We can gainfully refer the section 32(2) of the I.T. Act: "[(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under subsection (i) in any previous year, owing to there being no profits or gains chargeable for that prev....

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....r depreciation is given from the current years' income. There is no such provision in s. 72 by virtue of which business losses of earlier years shall form part of the current year's business losses and be allowed to be set off from current year's income. However, only the business losses of earlier years which are notified by the Assessing Officer are allowed to be carried forward and set off from the current year's income. Similarly, there is no provision under the Act which makes it mandatory for the assessee to file return for carry forward and set off of unabsorbed depreciation which is to be notified by the Assessing Officer as in the case of unabsorbed business loss. Therefore, the Tribunal was right in holding that the assessee is entitled to get unabsorbed depreciation of the earlier years 1984-85 and 1985-86 set off in 1987-88 ITA NO. 6294/Del/20i2 even if no valid return for the asstt. yr. 1986-87 had been filed by the assessee." 13. A reading of the provisions of section 32(2) alongwith the exposition of the Hon'ble High Court as above, it is evident that there is no provision under the Act which makes it mandatory for the assessee to file th....