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2018 (2) TMI 166 - AT - Income TaxAddition of capital gains - set off provision allow adjustment of loss under any head other than capital gain against income from any head including the head capital gains - Held that - In the present case the assessee had earned capital gain but had no loss under any other head but it had accumulated depreciation which has been brought forward from earlier years. The various decisions of various Benches of the Tribunal in the case of Virmani Industries Pvt. Ltd. and Others (1995 (10) TMI 1 - SUPREME Court) has held that brought forward depreciation from earlier years becomes part of the current year s depreciation and has further held that since there is no difference between the brought forward depreciation and current year s depreciation therefore, is allowable as set off against the capital gains. Long Term Capital Gain earned by the assessee is eligible to be set off against the brought forward unabsorbed depreciation and therefore, we set aside the orders of authorities below. - Decided in favour of assessee.
Issues Involved:
1. The confirmation of the addition of ?2,17,44,000/- on account of capital gains. 2. The eligibility of setting off Long Term Capital Gains against brought forward unabsorbed depreciation and business loss. Detailed Analysis: Issue 1: Confirmation of Addition of ?2,17,44,000/- on Account of Capital Gains The assessee company declared nil income in its return, including unabsorbed depreciation and business loss brought forward from earlier years. During the assessment year, the company did not engage in any manufacturing activity but sold industrial land for ?2,30,00,000/-, resulting in a declared capital gain of ?2,17,44,000/-. The Assessing Officer (AO) noted that the assessee set off this capital gain against the brought forward unabsorbed depreciation and business loss, which the AO disallowed. The CIT(A) upheld this addition, leading to the appeal before the Tribunal. Issue 2: Eligibility of Setting Off Long Term Capital Gains Against Brought Forward Unabsorbed Depreciation and Business Loss The assessee argued that the set-off was permissible under the precedent set by the Hon'ble Supreme Court in CIT vs. Virmani Industries Pvt. Ltd. and Others [1995] 216 ITR 607 (SC) and other Tribunal decisions. The core argument was that unabsorbed depreciation becomes part of the current year’s depreciation and is thus allowable for set-off against capital gains as per Section 71(2) of the Act. The Tribunal referred to Section 71(2) which allows the set-off of loss under any head other than capital gains against income from any head, including capital gains. It was noted that the assessee had no loss under any other head but had significant unabsorbed depreciation. The Tribunal cited various decisions, including the Mumbai Tribunal in the case of Suresh Industries (P) Ltd. vs. ACIT, which supported the view that brought forward depreciation merges with current year’s depreciation and is eligible for set-off against capital gains. The Tribunal further analyzed Section 32(2) of the Act, which deals with unabsorbed depreciation, noting that post-amendment, the set-off is available from profits or gains chargeable for the previous year, not restricted to business or profession income. This interpretation aligns with the Hon'ble Supreme Court’s decision in CIT vs. Virmani Industries Pvt. Ltd., which allowed unabsorbed depreciation to be set off against any income. Additionally, the Tribunal referenced the Delhi Bench’s decision in Aarvee Waspol Tools (I) Pvt. Ltd., which confirmed that unabsorbed depreciation can be set off against capital gains, even if no valid return for the intervening period was filed. The Ahmedabad Bench’s decision in Shri Raghupati Fibres Pvt. Ltd. also supported the set-off of unabsorbed depreciation against income from other sources, including additions under Section 68. Conclusion: The Tribunal concluded that the Long Term Capital Gain earned by the assessee is eligible to be set off against the brought forward unabsorbed depreciation. The orders of the authorities below were set aside, and the appeal of the assessee was allowed. Order Pronouncement: The appeal was allowed, and the order was pronounced in the open court on 18/01/2018.
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