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2024 (10) TMI 367 - HC - Income TaxCarry forward and set off of business losses - right u/s 32 (2) is specifically made subject to the provisions of Sections 72 (2) and 72 (3) - HELD THAT - It is clear from the reading of the provisions of Section 72 of the 1961 Act that even if the depreciation allowance under Section 32 of the 1961 Act, which was carried forward in terms of sub-section (2) of Section 32, is deemed to be a business loss for the purposes of Sections 71 and 72, it can be set off only against profits or gains of any business or profession and it cannot be set off against income from any other sources. Though the learned counsel for the petitioner took considerable efforts to establish that Section 72 is always subject to the provisions of Section 71 going by the express provisions in sub-section (2) of Section 32 permitting the carry forward of depreciation allowance subject to the provisions of Section 72 of the 1961 Act, we find no merit in the said contention taken by the learned counsel for the petitioner. There is absolutely no error in Ext.P6 warranting the exercise of jurisdiction under Article 226 of the Constitution of India. WP Dismissed.
Issues:
1. Interpretation of Section 32 and Section 72 of the Income Tax Act, 1961 regarding carry forward and set off of depreciation allowance. 2. Validity of the order passed under Section 154 of the Income Tax Act, 1961 denying full set off of unabsorbed depreciation. 3. Whether the depreciation allowance can be set off against income from sources other than profits or gains of business or profession. Analysis: Issue 1: Interpretation of Section 32 and Section 72 The petitioner claimed a carry forward loss of Rs. 1,14,60,832 as unabsorbed depreciation, seeking full set off. The petitioner argued that Section 32(2) allows for the carry forward of depreciation allowance to the next year. However, the respondent contended that Section 72 restricts the set off of such depreciation allowance only against profits or gains of business or profession. The court analyzed the provisions of Section 32(2) and Section 72, concluding that the depreciation allowance carried forward is deemed a business loss under Section 72 and can only be set off against business income, not income from other sources. Issue 2: Validity of the Section 154 Order The petitioner filed a rectification application under Section 154 of the Income Tax Act, which was rejected. The petitioner challenged the order, seeking relief through a writ petition. The court examined the grounds for rectification and found that the denial of full set off of unabsorbed depreciation was in accordance with the provisions of Section 72. The court held that there was no error in the order passed under Section 154, dismissing the petitioner's claim for relief. Issue 3: Set Off Against Income from Other Sources The petitioner argued that Section 71 allows for the set off of business losses, including depreciation allowance, against income from any other source. However, the court held that Section 72 specifically limits the set off of depreciation allowance to profits or gains of business or profession. The court rejected the petitioner's contention that Section 72 is subject to Section 71, emphasizing that the carry forward of depreciation allowance is governed by the restrictions outlined in Section 72. In conclusion, the court found no merit in the petitioner's arguments and dismissed the writ petition, upholding the denial of full set off of unabsorbed depreciation under the Income Tax Act, 1961.
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