TaxTMI 
TaxTMI 
2019 (8) TMI 1414
X X X X Extracts X X X X
X X X X Extracts X X X X
....by wrongly interpreting the provisions relating to unabsorbed depreciation and its set off. 3. Representatives of both the sides were heard at length and case records perused carefully. 4. Facts on record show that assessment was framed u/s 143(3) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'] vide order dated 18.0.2014. The returned income was assessed by disallowing the claim of depreciation of Rs. 10.67 lakhs and loss declared by the assessee was reduced to Rs. 1.77 lakhs. Further, rental income of Rs. 3 crores and interest income of Rs. 4.62 lakhs were set off with loss and net income was determined at Rs. 1.06 crores and unabsorbed depreciation of Rs. 112.34 crores was set off and net income of the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inion that it is mandatory to carry forward the unabsorbed depreciation if the same cannot be set off from business income and since in the case of the assessee there is loss under the head 'Profits or gain of business' and no business income is available for set off against unabsorbed depreciation, therefore, no amount of unabsorbed depreciation can be set off. 10. As regards the set off of unabsorbed depreciation against income under the head 'Income from house property' and 'income from other sources', the CIT(A) was of the opinion that there is no provision under the Act which may allow such set off. Accordingly, the Assessing Officer held that the brought forward unabsorbed depreciation cannot be allowed to be set off from income unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....resh Industries [supra]. The relevant findings read 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. 17,48,195/-. To this, the assessee added current year's depreciation at Rs. 2,32,059/- and unabsorbed depreciation brought forward from assessment years 1999-2000 and 2002-03 at Rs. 6,42,208/- and claimed set o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1-4-2002. Prior to its substitution, sub-section (2), as amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988, Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and Finance Act, 1992, w.e.f. 1-4-1993, substituted by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997 and further amended by the Finance Act, 2000, w.e.f. 1-4-2001, read as under : '(2) Where in the assessment of the assessee full effect cannot be given to any allowance under clause (ii) of sub-section (1) in any previous year owing to there being no profits or gains chargeable for that previous year or owing to the profits or gains being less than the allowance, then, the allowance or the part of allowance to which effect has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year relevant to the previous year in which the entire net worth of such company becomes equal to or exceeds the accumulated losses." 10. A comparative study of pre-amendment and post amendment provisions of Sec. 32(2) suggests that prior to the amendment, the set off was restricted to the profits and gains, if any, of any business or profession whereas post amendment (i.e. the law applicable for the year under consideration) the set off is available from profits or gains chargeable for the previous year. The claim of the lower authorities that profits or gains so mentioned should be restricted to profits or gains of business or profession can....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evious 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 give....