2017 (12) TMI 881 - AT - Income Tax

Set off of brought forward unabsorbed depreciation denied - Held that - Circular No. 14 of 2001 had clarified that under Section 32(2) in computing the profits and gains of business or profession for any previous year deduction of depreciation under Section 32 shall be mandatory. Therefore the provisions of section 32(2) as amended by Finance Act 2001 would allow the unabsorbed depreciation allowance available in the A.Y. 1995-96 to 2001-01 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. 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.Therefore considering the factual position discussed above we allow the appeal of the assessee and we direct the AO to allow set off of depreciation pertaining to A.Y 1995-96 to 2000-01 against income of assessment year 2009-10. - Decided in favour of assessee.

Summary

Issues Involved:
Appeal against order disallowing set off of unabsorbed depreciation for specific assessment years against current income.

Analysis:

Issue 1: Impugned Order Passed in Haste
The appellant argued that the order passed by the Commissioner of Income Tax (Appeals) was hasty and did not consider the evidence and submissions made during the appeal hearing. However, the tribunal did not find merit in this argument.

Issue 2: Rectification Order and Jurisdiction of Assessing Officer
The appellant contended that the rectification order passed by the Assessing Officer was beyond the scope of power vested under section 154 of the Income Tax Act. The tribunal examined the contentious issues involved and held that the rectification order was valid as the Assessing Officer rectified an apparent mistake in allowing set off of unabsorbed depreciation against the income of the relevant assessment year.

Issue 3: Treatment of Unabsorbed Depreciation
The main grievance of the appellant was the disallowance of set off of brought forward unabsorbed depreciation for specific assessment years against the income of the current assessment year. The tribunal analyzed the provisions of section 32(2) of the Act before and after the amendment in Finance Act, 2001. It was held that the unabsorbed depreciation could be carried forward and set off against profits and gains of subsequent years without any time limit post the amendment.

Judgment Outcome:
The tribunal allowed the appeal of the assessee, directing the Assessing Officer to permit the set off of depreciation from assessment years 1995-96 to 2000-01 against the income of the assessment year 2009-10. The decision was based on a purposive interpretation of the amendment in section 32(2) and the CBDT Circular clarifying the intent of the amendment.