TaxTMI 
TaxTMI 
2025 (2) TMI 1683
X X X X Extracts X X X X
X X X X Extracts X X X X
....wer authority are that the assessee is a partnership firm engaged in the business of hiring out of equipment and as studio owners and allied business. During the year under consideration, the assessee has shown income from house property of Rs. 2,10,252/- after setting off unabsorbed depreciation of Rs. 4,33,328/- of A.Y. 2006-07, business loss of Rs. 2,10,252/- and income from capital gain of Rs. 11,14,59,699/- which has been set off against the unabsorbed depreciation for A.Y. 2007-08, thus resulting in Nil total income for the year under consideration. The return of income was filed by the assessee on 25.07.2013, declaring total income at Rs. Nil. A revised return of income was filed on 04.03.2014 declaring total income at Rs. Nil. The return was processed u/s. 143(1) accepting returned income. The case was selected for scrutiny under CASS and the first statutory notice u/s. 143(2) of the Act was issued on 04.09.2014 which was duly served upon the assessee. Subsequently, notice u/s. 142(1) along with detailed questionnaire was sent to the assessee on 21.07.2015 which was responded by filing details and submissions. 3. The ld. AO was of the view that the business losses includ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oncluded that the same was not acceptable. The observation of the ld. AO are relevant and reproduced as under: "The submission of the assessee is perused, but the same is not acceptable. Section 72 of the Income tax Act, 1961 stipulates that, *Where for any assessment year, the net result of the computation under the head, "Profits and gains of business or profession" is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year and (i) 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; (ii) If the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on........." Further, section 32(2)(iii) prior to its ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee against the house property income and capital gains, is disallowed and the incomes under respective heads are brought to tax. (2) Whether the loss from unabsorbed depreciation before 2002 can be carry forward upto unlimited time? Assessee has claimed the carry forward of loss pertaining to Assessment Year 1995-96 onwards, as mentioned above and which is also claimed to be set off against the current year income. As per section 32(2) prior to its amendment w.e.f. 01.04.2002, the loss not so set off can be carried forward to only fight assessment years immediately succeeding the assessment year for which the loss was first computed. In the case of the assessee, it is seen that brought forward depreciation loss has been adjusted against income from house property and income from capital gain thereby resulting in a Nil income for this relevant assessment year. Moreover, the unabsorbed depreciation pertains to Assessment Years 1995-96, 1996-97 and 1997-98. Reliance is also placed on the decision of the Hon'ble Tribunal in the case of DCIT vs. Times Guaranty Ltd. the Hon'ble Tribunal vide its order No. 4917 & 4918/Mum/2008 dated 30th June, 2010, wherein the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....09 425192 272433 2016-17 Unlimited period 2009-10 314459 207444 2017-18 Unlimited period 2010-11 18139 180533 2018-19 Unlimited period 2011-12 13480 157239 2019-20 Unlimited period 2012-13 483365 137062 2020-21 Unlimited period As seen above, unabsorbed depreciation pertaining to Assessment Years 1995-96 to 1999-2000 and business loss pertaining to Assessment Year 2003-04, will not be allowed to be carried forward. Thus, the claim of the assessee for setting off of depreciation loss of these above mentioned years against house property income and capital gain income of current year is disallowed and the incomes as shown in the computation of income are brought to tax under their respective heads as claimed by the assessee. However, the said loss which is disallowed may be carried forward for subsequent years as stated in the following table: - Asst. Year Business loss Unabsorbed Depreciation Time limit for carry forward of business loss Time limit for carry forward of depreciation loss 2002-03 - - 321120 Unlimited period 2003-04 - - 1686352 Unlimited period ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) Income from capital gain (short term capital gain as per computation of income) 1,14,59,699 Gross total income 1,14,59,699 Deduction under Chapter VIA NIL Total Income 1,18,93,027 Total Income (Rounded off to) 1,18,93,030 Assessed u/s. 143(3) of the Act. Give credit for prepaid taxes after due verification. Charge interest as per law, issue demand notice /R.O. accordingly. Penalty proceedings u/s. 271(1)(c) of the Income Tax Act, 1961 for furnishing inaccurate particulars of income and concealment of income is separately being initiated." 6. The ld. CIT(A) has noted down that the appellant has filed online written submissions, where they have discussed various amendments over a period in depreciation provision is as under: "3.3. We disagree to the contention of the assessee. There had been various amendments over a period in Depreciation provision. We would like to summarize the same as below, Provision upto 31.03.1996 i.e., A.Y 1996-97. (i) Current depreciation, that is the amount of allowance for the year under sec. 32(1), can be set off against income under an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in A.Y. 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken" b. DCIT Vs Andhra Petrochemicals Ltd 123ITD 89 The Tribunal held that: "15. The only other issue remains for the asst. yr. 2002-03 is with regard to the entitlement to carry forward depreciation per....
X X X X Extracts X X X X
X X X X Extracts X X X X
....num restriction of limiting of the claim for eight-year period does not take away the right of an assessee to claim the balance of unabsorbed depreciation, forever. The balance of unabsorbed depreciation revives back into life and becomes eligible for carry forward and set off along with the other part unabsorbed depreciation available to the credit of the assessee." d. 81 Karnataka Co-operative Milk Producers' Federation Ltd. Vs. DCIT (2011) 53 DTR (Kar) e. ITO VS Suraj Solvent & Vanaspati Industries Ltd 16 DTR (Asr)(Trib) 492 f. DCIT VS Tamil Nadu State Transport Corporation (Villupuram) Limited dt 18.01.2012 3.4. Therefore, we see that the above decisions have held that the amendment by Finance Act 2002 was a return back to the original provision, to make the claim simple. The old position has been restored, which allows set off unabsorbed depreciation against any head of income and the restrictive period of 8 years for claiming the set off has been deleted vide CBDT circular, thereby extending the claim period. Based upon the above stated facts and circumstances of the case, your honor is requested to allow the appeal of the Appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y prospective unless expressly stated otherwise or it appears so by necessary implication. The special Bench summarised its conclusions thus: "The legal position of current and brought forward unadjusted/unabsorbed depreciation allowance in the three periods, is summarized as under. 1. In the first period (i.e. upto asst, yr. 1996-97) (1) current depreciation, that is the amount of allowance for the year under s. 32(1), can be set off against income under any head within the same year. (ii) amount of such current depreciation which cannot be so set off within the same year as per (i) above shall be deemed as depreciation under s. 32(1), that is depreciation for the current year in the following year(s) to be set off against income under any head, like current depreciation, 2. In the second period (i.e, asst, yrs. 1997-98 to 2001 01-02), (1) brought forward unadjusted depreciation allowance for and upto asst. yr. 1996-97 (hereinafter called the 'First unadjusted depreciation allowance'), which could not be set off upto asst. yr. 1996-97, shall be carried forward for set off against income under any head for a maximum period of eight assessment years startin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rcumstances of the case learned Assessing Officer (hereinafter referred to as 'Ld. AO') has erred in disallowing the set-off of Unabsorbed Depreciation against Income from House Property and Income from Short-term capital gain. HENCE APPEALED 2. The appellant craves leave to add, alter, delete, rectify and modify any of the grounds of appeals before or at the time of hearing the appeal." 9. We have heard the ld. AR on behalf of the assessee who would argue that both the lower authorities have misdirected themselves and has not followed the correct law laid down by the General Motors India (P). Ltd. Vs. DCIT (supra) and has failed to acknowledge that as per provisions with effect from 01.04.2001 onwards i.e., from A. Y. 2002-03, the old provisions as applicable before 01.04.1996 was restored and any unabsorbed depreciation which could not be set off till A. Y. 2001-02 will be carried forward and considered as the depreciation of the current year. The ld. AR has also relied upon following decisions in support of his contentions. * "General Motors India (P). Ltd. Vs DCIT (2013) 354ITR 244 (Guj) * DCIT Vs Andhra Petrochemicals Ltd 123ITD 8....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er the assessee is entitled to set off the said unabsorbed depreciation against income from house property and income from stock and capital gains as claimed by the appellant? 14. The ld. AO while denying the claim of the assessee was of the opinion that the unabsorbed depreciation pertaining to A.Y. 1995-96 to 1999-2000 was not allowable to be carried forward after the amendment of Section 32(2) w.e.f. 01.04.2002 which is prospective in nature and prior to the said amendment, the loss and unabsorbed depreciation which could not be set off was allowable to be carried forward to only 8 assessment years immediately succeeding the assessment year for which the loss/depreciation was first computed. The ld. AO was also of the opinion that the unabsorbed depreciation if permissible could be set off against business income and not permissible to be set off against capital gains income. The said decision of the ld. AO has been confirmed by the ld. CIT(A) who has based his decision on the Mumbai Tribunal Special Bench decision in case of DCIT vs. Times Gurantee Ltd. (supra). 15. As noted earlier the ld. CIT(A) had not considered the judgment of the Hon'ble Gujrat High Court Genera....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gains chargeable for that previous year, owing to the profits or gains to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be allowance of that previous year, and so on for the succeeding previous years." 36. The purpose of this amendment has been clarified by Central Board of Direct Taxes in the Circular No. 14 of 2001. The relevant portion of the said Circular reads as under :- "Modification of provisions relating to depreciation 30.1 Under the existing provisions of section 32 of the Income- tax Act, carry forward and set off of unabsorbed depreciation is allowed for 8 assessment years. 30.2 With a view to enable the industry to conserve sufficient funds to replace plant and machinery, specially in an era where obsolescence takes pl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it accruing to the assessee cannot be denied. However, Circular No. 14 of 2001 had clarified that under section 32(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the A. Y. 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the A. Y. 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. 38. Therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onand Dadaji (P.) Ltd., (2020) 120 taxmann.com 93 (Bombay):- This case involved carry forwarding of unabsorbed depreciation available to the assessee on the first day of April, 2002 for the A.Y. 2002-03 without the restriction of 8 years, which was applicable during the A.Y. 1997-98 to 2001-02 and it was held that the circular no. 14/2001 dated 22.11.2001 clarifies that the restriction of 8 years as existing between A. Y. 1997-98 upto 2001-02 to carry forward and set off unabsorbed depreciation has been dispensed w.e.f. A.Y. 2002-03. Consequently, the unabsorbed depreciation available from 1st April, 2001 will be allowable from the A.Y. 2002-03. c. Harvey Heart Hospitals Ltd. vs. Assistant Commissioner of Income Tax [2021] 127 taxmann.com 805 (Madras)/[2021] 431 ITR 83 (Madras)[06-01-2021]:- In this case the Hon'ble High Court while referring the judgement of the Hon'ble Gujarat High Court reported in General Motors India (P.) Ltd. Vs. DCIT (2013) 354 ITR 244 (Guj). (supra), was pleased to hold that unabsorbed depreciation pertaining to A. Y. 1997-98 to 2001-02 can be carry forward and adjusted after the lapse of 8 years in view of Section 32(2) o....