2020 (1) TMI 1053 - AT - Income Tax

Enhancement order of CIT(A) - not allowing set off of unabsorbed depreciation against the income earned by the assessee - whether unabsorbed depreciation available in the hands of the assessee, where the business of the assessee has been temporarily closed and the assets leased for a short period in order to tide over the losses of business, then can the unabsorbed depreciation be adjusted against the income from property earned from leasing of the said assets? - HELD THAT - Similar issue arose before the Tribunal in assessee s own case in Assessment Year 2011-12 2019 (8) TMI 1414 - ITAT DELHI similar disallowance was made in the hands of the assessee and the set off of unabsorbed depreciation against income from house property and income from other sources was not allowed by the CIT(A)/Assessing Officer. The Tribunal relied on the ratio laid down in M/s. Suresh Industries Pvt. Ltd. relating to Assessment Year 2007-08 in 2012 (11) TMI 674 - ITAT MUMBAI which in turn relied on the decision of Jaipuria China Clay Mines Pvt.Ltd. 1965 (11) TMI 32 - SUPREME COURT , Rajapalayam Mills 1978 (10) TMI 4 - SUPREME COURT and Virmani Industries Pvt.Ltd. 1995 (10) TMI 1 - SUPREME COURT and applied the said propositions vide paras 14 15 at pages 05 to 12 and allowed the claim of the assessee, by holding that brought forward depreciation had to be treated as current year depreciation under the provisions of section 32(2) of the Act. The Tribunal (supra) also noted that in Assessment Year 2007-08, the CIT(A) allowed the claim of set off in assessee s own case and in Assessment Year 2013-14, the Assessing Officer himself had allowed the said claim of set off of unabsorbed deprecation against the income from house property and other sources. Assessing Officer is directed to set off brought forward unabsorbed depreciation as part of current depreciation against the income from house property and income from other source, since the brought forward unabsorbed depreciation was the depreciation of the current year. - Appeal of the assessee is allowed.

Summary

Issues:
- Whether unabsorbed depreciation can be adjusted against income from property earned from leasing assets when the business is temporarily closed?

Analysis:

Issue 1: Set off of unabsorbed depreciation against non-business income
The primary issue in the present appeal was regarding the enhancement order of CIT(A) disallowing the set off of unabsorbed depreciation against the income earned by the assessee. The Assessing Officer disallowed the depreciation claim as the business assets were not used for business purposes for the past 10 years. The Assessing Officer further disallowed the set off of unabsorbed depreciation against the net income, resulting in a computed net income of NIL. The CIT(A) deliberated on the issue and concluded that depreciation could only be deducted on profits chargeable under the head of business income. Referring to relevant provisions of the Income Tax Act, the CIT(A) held that unabsorbed depreciation could not be set off against income under any head other than business or profession income. The CIT(A) also highlighted the changes in section 32(2) of the Act post-April 2002, emphasizing that unabsorbed depreciation could only be set off against business or profession income. Additionally, the CIT(A) stated that depreciation allowance should only be allowed to the extent of available profits, disallowing any loss on account of depreciation.

Issue 2: Adjustment of unabsorbed depreciation against non-business income
The Tribunal, in a similar case concerning the assessee's own case for the Assessment Year 2011-12, allowed the claim of set off of unabsorbed depreciation against income from house property and other sources. The Tribunal relied on precedents and held that brought forward depreciation should be treated as current year depreciation under section 32(2) of the Act. The Tribunal noted that in previous years, both the CIT(A) and the Assessing Officer had allowed the set off of unabsorbed depreciation against non-business income. Therefore, in the present appeal, the Tribunal allowed the claim of the assessee in entirety, directing the Assessing Officer to set off brought forward unabsorbed depreciation as part of current depreciation against income from property and other sources. The Tribunal's decision was based on the principle that unabsorbed depreciation should be treated as current year depreciation, aligning with the provisions of the Income Tax Act.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the treatment of unabsorbed depreciation as current year depreciation and permitting its adjustment against non-business income, specifically income from property earned from leasing assets.