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2015 (1) TMI 555 - AT - Income TaxSetting off the brought forward depreciation against the income from Business or Profession of the current year disallowed - Held 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 current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion 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 once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. Thus we disapprove the conclusions arrived at by the authorities below and direct the Assessing Officer to grant the set off of the unabsorbed depreciation in the light of the legal position set out. - Decided in favour of assessee. Increasing the book profit under Section 115JB - Prior period expenses - Held that - As regards the adjustment of ₹ 4,12,896 in respect of the prior period expenses, learned representatives fairly agree that this issue is covered, in favour of the assessee, by a coordinate bench decision in the case of Shivashahi Punarvasan Prakalp Ltd Vs ITO 2011 (10) TMI 153 - ITAT MUMBAI . - Decided in favour of assessee. Disallowance of expenses under Section 14A - Held that - here cannot be any disallowance under section 14A unless there is corresponding exempt income and the assessee has no such exempt income, adjustment under clause (f) of Explanation to Section 115JB (2) cannot indeed be made. The adjustment has to meet the tests of law and what cannot be considered to be expenditure relatable to exempt income under the law, cannot be subjected to the adjustment either. The mere fact that the assessee has accepted this disallowance affects that disallowance only and nothing more than that; it does not clothe such an adjustment, in computation of book profit under section 115JB, with legality. There is no dispute that there is no corresponding tax exempt income. Therefore, the adjustment in question is indeed unsustainable in law. Thus direct the AO to delete the impugned adjustment of 2,00,225. Decided partly in favour of assessee.
Issues Involved:
1. Set-off of unabsorbed depreciation from previous years. 2. Increase in book profit under Section 115JB of the Income Tax Act. 3. Credit of tax deducted at source and related interest under Sections 234D and 244A of the Income Tax Act. Issue-wise Detailed Analysis: 1. Set-off of Unabsorbed Depreciation from Previous Years: The primary issue was whether unabsorbed depreciation from assessment years 1999-2000 and 2000-01, amounting to Rs. 4,39,46,863, could be set off against the current year's income under 'profits and gains from business and profession.' The Assessing Officer (AO) denied this set-off based on a Special Bench decision in DCIT Vs Times Guaranty Limited, which held that unabsorbed depreciation from years prior to 2002-03 could only be carried forward for eight subsequent assessment years. The CIT(A) upheld this view, relying on the same Special Bench decision. However, the Tribunal referred to the Gujarat High Court decision in General Motors India Pvt Ltd Vs DCIT, which allowed unabsorbed depreciation from assessment years 1997-98 to 2001-02 to be carried forward beyond eight years and set off against subsequent years' profits without any time limit. The Tribunal emphasized the hierarchical judicial system, noting that decisions of higher courts must be followed. Consequently, the Tribunal directed the AO to grant the set-off of unabsorbed depreciation in line with the Gujarat High Court's ruling. 2. Increase in Book Profit under Section 115JB: The assessee contested the increase in book profit due to: - Provision for doubtful debts: Rs. 5,61,837 - Prior period expenses: Rs. 4,12,896 - Disallowance of expenses under Section 14A: Rs. 2,00,225 For the provision for doubtful debts, the assessee did not present specific arguments, so this part of the ground was treated as not pressed. Regarding prior period expenses, the Tribunal noted that a similar issue had been decided in favor of the assessee in a previous case (Shivashahi Punarvasan Prakalp Ltd Vs ITO). Therefore, the Tribunal directed the AO to delete the addition of Rs. 4,12,896. For the disallowance under Section 14A, the Tribunal referred to the Delhi High Court decision in CIT Vs Holcim India Pvt Ltd, which held that disallowance under Section 14A could not be invoked without corresponding exempt income. The Tribunal applied this principle to Section 115JB, concluding that the adjustment for disallowance under Section 14A was unsustainable in law, as there was no corresponding exempt income. Thus, the Tribunal directed the AO to delete the adjustment of Rs. 2,00,225. 3. Credit of Tax Deducted at Source and Related Interest: The assessee claimed a credit of Rs. 44,55,301 for tax deducted at source (TDS) but received credit for only Rs. 28,69,587. The assessee also contested the charging of interest under Section 234D and the withdrawal of interest under Section 244A. The Tribunal remitted this issue to the AO for necessary verification, as no specific grievances were raised, and the Departmental Representative did not oppose this course of action. Conclusion: The Tribunal allowed the appeal partly, directing the AO to grant the set-off of unabsorbed depreciation, delete the adjustments in book profit for prior period expenses and disallowance under Section 14A, and verify the TDS credit and related interest issues. The decision emphasized adherence to higher judicial authorities' rulings and proper application of legal principles.
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