2017 (4) TMI 173 - AT - Income Tax

Treatment of unabsorbed depreciation carried forward in the subsequent assessment year - Held that - Since the brought forward depreciation is to be considered as forming part of the current year s depreciation by legal fiction as noted, same treatment to unabsorbed depreciation of earlier years would follow at par with the current year s depreciation. In view of the aforesaid position of law set off of unabsorbed depreciation of the earlier years is not confined to the profits and gains of business or profession alone in the relevant assessment year. In this view of the matter, we find no infirmity in the order of the CIT(A) in admitting the set off of unabsorbed depreciation of the earlier year against the current year s income as claimed. - Decided against revenue

Summary

Issues: Treatment of unabsorbed depreciation for set off against income from other sources during the Assessment Year 2007-08.

The judgment by the Appellate Tribunal ITAT Ahmedabad involved an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals)-Gandhinagar regarding the treatment of unabsorbed depreciation for the Assessment Year 2007-08. The Revenue contested the decision of the CIT(A) to allow the assessee's claim of accumulated unabsorbed depreciation for AYs 2001-02 to 2003-04 amounting to ?85,66,206 to be set off against income from other sources in the AY 2007-08. The central question revolved around the interpretation of Section 32 of the Income Tax Act, 1961, which deals with depreciation on assets used for business purposes and provides for the carry forward and set off of unabsorbed depreciation.

The Tribunal examined the provisions of Section 32(2) of the Act, which governs the treatment of unabsorbed depreciation carried forward to subsequent assessment years. It was highlighted that the unadjusted brought forward depreciation is to be considered as the current year's depreciation, subject to certain provisions of the Act. Section 32 by legal fiction treats unabsorbed depreciation allowances of earlier years as part of the current year's depreciation, necessitating the authorities to handle it accordingly. The section is divided into two parts, with the first part allowing for the carry forward of unabsorbed depreciation and the second part mandating the aggregation of carried forward depreciation with the current year's depreciation. The judgment clarified that the impact of certain provisions like s.72(2) is limited to the carried forward allowance and not the clubbing of unabsorbed depreciation. Section 73(3) dealing with losses in speculation business was deemed irrelevant to the case at hand.

The Tribunal concluded that the treatment of unabsorbed depreciation of earlier years should be on par with the current year's depreciation, as per the legal fiction created by Section 32. Therefore, the set off of unabsorbed depreciation from previous years against the current year's income was not restricted to 'profits and gains of business or profession' alone for the relevant assessment year. Consequently, the Tribunal found no fault in the decision of the CIT(A) to allow the set off of unabsorbed depreciation from earlier years against the income of the current year as claimed. As a result, the appeal of the Revenue was dismissed by the Tribunal, with the order pronounced in the Open Court on the day of the hearing.