AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (2) TMI 1585
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....e, the AO allowed the set off of unabsorbed brought forward business loss of Rs. 1,99,59,152/- and set off of depreciation amounting to Rs. 43,71,967/-and assessed the income at Rs. 3.99 crores. The AO did not allow the unabsorbed brought forward depreciation loss from the income assessed. Aggrieved by the order of the AO the assessee went on appeal before the CIT(A) and the Ld.CIT(A) allowed the appeal of the assessee holding that the income required to be assessed under the head 'income from other sources' and once it is treated as part of gross total income, the unabsorbed carried forward depreciation has to be allowed as set off from such total income. For ready reference, we extract the relevant paragraph of Ld.CIT(A)'s order which reads as under : "I have gone through the facts of the case, contents of the assessment order, written submissions filed by the assessee and the case laws relied by the AO and the assessee. The assessee-company is engaged in the business of manufacturing of iron in the name of Sal Bhaskar Irons Limited, during the financial year relevant to the assessment year 2012-13 has introduced the share capital to the tune of Rs. 7,22,89,833/- out of ....
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....osses which arise under the head "capital gains". The income tax is only one tax and levied on the sum total on the income classified and chargeable under the various heads. Section 14 has classified different heads of income and income under each head is separately computed. Income which is computed in accordance with law is one income and it is not a collection of distinct tax levied separately on each heads of income and it is not an aggregate of various taxes computed with reference to each of the different sources separately. There is only one assessment and the same is made after the total income has been ascertained. The assessee is subject to income-tax on his total income though his income under each head may be well below the taxable limit. Hence the loss sustained in any year under any heads of income will have to be set off against income under any other head. In this case, the Assessing Officer made addition of Rs. 28,50,000/- as undisclosed income under Section 69 of the Act. Once the loss is determined, the same should be set off against the income determined under any other head of income. In the assessment, no reasons were given by the Assessing Officer to deny the....
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....losed income under Section 69 of the Act. Once the loss is determined, the same should be set off against the income determined under any other head of income. Section 71 permits assessee to set off loss other than that of capital gains against income from other head. Thus, statutory provisions contained in section 71 was applicable in present case. In view of the detailed discussion of the facts and circumstances of the case, it is not appropriate to disallow the claim of carry forward depreciation set off against the additions made u/s.68 of the I.T. Act, 1961. Hence, the AO is directed to allow the set off of carry forward depreciation." 3. Aggrieved by the order of the Ld.CIT(A), the revenue is in appeal before us. Appearing for the revenue, the Ld.DR argued that unexplained cash credits assessed u/s 68 required to be assessed separately as undisclosed income and no deduction required to be allowed from the income so assessed u/s 68. The Ld.DR relied on the decision of Hon'ble Gujarat high court in the case of Fakir Mohmed Haji Hasan Vs. Commissioner of Income Tax in IT reference No.267 of 1993 dated 10 August 2000, which reads as under : "6.2. The opening ....
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.... Hon'ble Madras High Court judgement in the case of CIT Vs. SPEL SEMI Conductor Ltd. (2013) 212 taxman 0506, the Ld.AR argued that there is income available in other head and the unabsorbed depreciation required to be set off as per Section 32(2) r.w.s.72(2) and Section 72(2) does not come on its way for set off. 4.2. The Ld.AR invited our attention to Hon'ble Supreme Court decision in CIT vs. Mother India Refrigeration Industries Private Ltd. (1985) 23 Taxman 0008 and argued that Hon'ble Supreme Court in para No. 10 and 11 held that the unabsorbed carried forward depreciation par takes the character of current depreciation in the following year so that it is available unlike unabsorbed carry forward business loss for being set off against other heads of income of that year. 5. We have heard both the parties and perused the material placed on record. As held by the Coordinate Bench in the case of Shree Raghupati Fibres Pvt. Ltd., Ahmedabad, the income required to be assessed as per Section 14 of the IT Act under any one of the heads of income from A to E. If the addition u/s 68 does not fit into any of the heads of income of A to E then it should be considered as part of "inc....
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....nce is that it falls in the following year within cl. (vi) and has to be deducted as allowance." In CIT vs. Ravi Industries (1963) 49 ITR 145 (Born) TC27R .635, the same position has been clarified by the Bombay High Court. The Court has observed that the unabsorbed depreciation does not lose its character and attributes when it is carried forward to the following year; such unabsorbed depreciation of the earlier year, which is carried forward to the current year and which is deemed to be of the current year under proviso (b) of s. 10(2) (vi) can be set off unlike other business losses, against income under other heads. Such being the purpose for which the legal fiction is created it is difficult to extend the same beyond its legitimate field and will have to be confined to that purpose, It is, therefore, not possible to accept the contention of counsel for the assessee that because of the legal fiction the unabsorbed carried forward losses should be given preference not merely over the unabsorbed carried forward depreciation but also over the current years depreciation, There is thus no modification of, nor deviation from, the basic and well recognised principle of commer....
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....and when the unabsorbed depreciation could not be set off as against the income from business or profession by reason of there being no income available under the said heads and where there is income from other sources, effect must be given to Section 32(2) of the Act for that assessment year." 5.2. As discussed, Hon'ble Madras High Court in the case of SPEL SEMI Conductor Ltd. (2013) 90 DTR 0436, if the unabsorbed depreciation allowance could not be wholly set off under clause (i) and (ii) of section 32, the amount of depreciation not so set off can be set off from the income of the other head if any available for the assessment year. The language of section 32 (2) is very clear and there is hardly contained in the section 72(2)to prevent such set off of carry forward depreciation being given to the assessee under the head income from business or income from other sources. As per the settled principles of law, the unabsorbed depreciation gets accumulated and partake the character of the current year depreciation and required to be set off against the income available under any other head . This view is supported by the Hon'ble Apex court's decision cited supra. The decision of ....