Whether depreciation allowance of earlier years can be adjusted in the relevant assessment year if no business being carried out in the relevant assessment year?
Forum: Ahmedabad ITAT
Access all the links in this article by signing up for free with Riverus Research Map for income tax here.
- This appeal by the revenue to the ITAT clubs similar claims pertaining to the following Assessment Years: 2004-05, 2009-10, 2011-12 and 2012-13. For the purposes of deciding this appeal, the lead year taken into account was 2012-13
- The Assessee is a cooperative credit society engaged in manufacturing of polyester filament yarn.
- The assessee was making heavy losses and hence a liquidator was appointed since April, 2001 to wind up the assessee society. The assessee was not carrying on any business since 2001.
- The assessee earned long term and short term capital gains in the relevant assessment year (2012-13) and claimed set off of brought forward unabsorbed depreciation allowance against the capital gains income under Section 32(2) of the Income Tax Act, 1961.
- AO rejected the assessee’s claim on the ground that as the assesse was not carrying out any business in the relevant assessment year, set off of depreciation is not permissible.
- Assessee appealed to the CIT(A), which upheld the appeal and allowed the assessee to claim the set-off of depreciation of earlier years in the relevant assessment year.
- Revenue hence appealed before the ITAT on the ground of maintainability of set off of unabsorbed depreciation.
- The restriction of 8 years of carry forward and set off of unabsorbed depreciation should be applied for the unabsorbed depreciation in relation to the period prior to amendment brought forward by the Finance Act, 2001.
- Assessee should not be permitted to claim set off of unabsorbed depreciation against income arising under any other head other than `business income’.
- The assessee drew attention to its own case pertaining to assessment years 2006-07 to 2009-10, where coordinate bench of ITAT had relied on the Supreme Court’s decision of CIT v. Virmani Industries and General Motors India P. Ltd. v. DCIT. In consonance with these decisions, it was held that restriction of 8 years has already been dispensed off by subsequent amendment and that unabsorbed depreciation arising in assessment years prior to the amendment will also be governed by Section 32(2).
- By placing reliance on the decision of the coordinate bench and the cases relied therein, the assessee, also argued that unabsorbed depreciation can be set off against `income from other sources’.
- Tribunal upheld the CIT(A)’s decision of allowing the set-off of unabsorbed depreciation of earlier years, as they were in consonance with the Supreme Court and Gujarat High Court judgements of Virmani Industries, General Motors and Gujarat Themis Biosyn Ltd.
- The Tribunal also confirmed the CIT(A)’s decision of allowing the assessee to set off the unabsorbed depreciation against ‘income from other sources’. This was in consonance with the reasoning given in the aforementioned decisions, wherein it was held that unabsorbed depreciation can be set off not only against the profits arising from the business being carried out but also against profits or gains chargeable under any other head of income.