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2020 (12) TMI 164 - AT - Income TaxRectification u/s 154 - Disallowing set off of brought forward losses/unabsorbed depreciation against the total income declared by the assessee - application u/s. 154 immediately after the assessment order, praying for set off of business losses/unabsorbed depreciation against the total income for the assessment year 2005-2006 - HELD THAT - In view of section 72(2)(i), 32(2) and in the case of CIT v. Yokogawa India Ltd. 2016 (12) TMI 881 - SUPREME COURT the business loss and unabsorbed depreciation of AY 2002-03 to AY 2004-05 ought to have been set off against the business income remaining after claiming deduction under section 10A and against the Income from other sources of the subsequent years. The CBDT Circular No. 14 dated 11.04.1955 states that the income tax authorities are required to bring to the notice of the assessee any claim of relief, exemption, deduction etc. to which the assessee is legally entitled and allow the same even though the assessee may not have claimed the said relief, exemption, deduction etc. for any reason. It was further stated that the Officers of the Department must not take advantage of ignorance of an assessee as to his rights. In the light of the above CBDT Circular No. 14 dated 11.04.1955, the fact that the assessee inadvertently did not set off the business losses and unabsorbed depreciation of AY 2002-03 to AY 2004-05 against the remaining business income (after claiming deduction u/s. 10A) and Income from other sources of the subsequent years does not obviate the duty of the assessing officer in rectifying the said mistake and allowing set off for the same. If an assessee makes a mistake in submitting to be assessed on a particular income before the assessing authority, he is not estopped or precluded by law from preferring an appeal and showing to the appellate authority that the income is, in fact, either wholly or partly, not exigible to tax. If such a contention is taken, it is the duty of the appellate authority to examine the matter and determine the proper tax leviable. Hon'ble Karnataka High Court in Wipro Limited v. DCIT 2015 (10) TMI 826 - KARNATAKA HIGH COURT had held that claims not made in the return of income are also allowable by the assessing officer as placing reliance of the CBDT Circular No. 14 dated 11.04.1955. We are of the view that the matter needs to be considered afresh by the A.O. The A.O. is directed to consider the assessee's claim of set off of unabsorbed losses/depreciation against the declared income for assessment year 2005-2006. The A.O. shall afford an opportunity of hearing to the assessee. - Appeals filed by the assessee are allowed for statistical purposes.
Issues Involved:
1. Set off of brought forward losses/unabsorbed depreciation against total income. 2. Limiting set off of brought forward losses/unabsorbed depreciation against business income only and not income from other sources. Detailed Analysis: Issue 1: Set off of Brought Forward Losses/Unabsorbed Depreciation Against Total Income The primary issue raised in these appeals is whether the Assessing Officer (A.O.) and the Commissioner of Income Tax (Appeals) [CIT(A)] erred in not allowing the set off of brought forward losses/unabsorbed depreciation from assessment years 2002-2003 to 2004-2005 against the total income declared in the assessment years under consideration (2005-2006 to 2008-2009). The assessee, a private limited company engaged in software development, filed returns for the relevant assessment years within the due dates, declaring business losses and unabsorbed depreciation. However, these were not set off against the income from other sources in the respective years. The A.O. restricted the set off of brought forward losses only to business income and not to income from other sources. The Tribunal noted that as per section 72(1)(i) of the Income Tax Act, 1961, business losses of an earlier year, if not set off against income under any head, shall be carried forward and set off against the profits and gains of any business in the subsequent year. This statutory compulsion mandates the set off of business loss with business income of a subsequent year, irrespective of whether the assessee has claimed it in the return of income. Similarly, unabsorbed depreciation forms part of current year depreciation under section 32(2) and should be set off against any income of a subsequent year under any head. The restriction of eight years for carry forward and set off of business loss does not apply to unabsorbed depreciation, which can be carried forward indefinitely. The Tribunal referenced judicial pronouncements, including CIT v. Jaipuria China Clay Mines (P.) Ltd., CIT Vs Mother India Refrigeration Inds (P) Ltd., and CIT v. Mangalore Chemicals and Fertilizers Ltd., which support these principles. Additionally, the Supreme Court in CIT v. Yokogawa India Ltd. held that deductions under section 10A should be computed and allowed while computing the income of the eligible undertaking under Chapter IV of the Act. The Tribunal concluded that the business loss and unabsorbed depreciation of AY 2002-03 to AY 2004-05 should have been set off against the remaining business income after claiming deduction under section 10A and against the income from other sources of the subsequent years. Issue 2: Limiting Set Off of Brought Forward Losses/Unabsorbed Depreciation Against Business Income Only For the assessment year 2005-2006, an additional ground was raised where the assessee challenged the limiting of set off of brought forward losses/unabsorbed depreciation against business income only and not income from other sources. The A.O. and CIT(A) had restricted the set off to business income, ignoring the income from other sources. The Tribunal referred to the CBDT Circular No. 14 dated 11.04.1955, which mandates that income tax authorities must bring to the notice of the assessee any claim of relief, exemption, deduction, etc., to which the assessee is legally entitled, even if not claimed. This duty extends to rectifying any mistakes and allowing set off for the same. The Tribunal also referenced the Karnataka High Court's decision in Wipro Limited v. DCIT, which held that claims not made in the return of income are also allowable by the assessing officer, emphasizing that the assessing authority must consider and grant relief for legitimate claims even if not made in the original return. The Tribunal directed the A.O. to reconsider the assessee's claim of set off of unabsorbed losses/depreciation against the declared income for assessment year 2005-2006, providing the assessee an opportunity of hearing and not rejecting the claim solely because it was not made in the original return. Conclusion: The appeals were allowed for statistical purposes, and the Tribunal ordered the A.O. to consider the set off of unabsorbed losses/depreciation against the total income for the assessment years under consideration, ensuring compliance with the statutory provisions and judicial precedents. The decision rendered for assessment year 2005-2006 was applied mutatis mutandis for the other assessment years.
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