2015 (3) TMI 710 - HC - Income Tax

Depreciation on non performing assets disallowed - Tribunal upholding the order of the CIT(A) in deleting the disallowance of depreciation - Held that - The impugned ITAT's order has followed its own decision in the respondent-assessee's case for the Assessment Year 2001-02, 2002-03, 2003-04, 2004-05 and 2006-07. In all these years the Tribunal has allowed the depreciation in respect of nonperforming assets i.e. not linked to the recognizing of lease income in respect of the leased assets. The revenue does not point out any reasons as to why the order of the Tribunal for earlier years should not be followed in this Assessment Year.Thus no substantial question of law arises. - Decided against revenue. Set off of profit on sale of depreciable assets against long term capital gain - ITAT dismissed the revenue's appeal holding that the respondent-assessee is entitled to set off its profit on sale of depreciable asset against long term capital losses on sale of investment - revenue contends that in terms of Section 50 of the Act the profit on sale of depreciable assets shall be deemed to be short term capital gains - Held that - The impugned order followed its decision in Manali Investment Vs. ACIT reported in 2011 (4) TMI 116 - ITAT MUMBAI on an identical issue following the decision of this Court in CIT Vs. Ace Builders (P) Ltd. reported 2005 (3) TMI 36 - BOMBAY High Court wherein allowing the benefit of exemption under section 54E to the assessee in respect of the capital gains arising on the transfer of a capital asset on which depreciation has been allowed. Tribunal was right in upholding the decision of the CIT(A) on the issue of set off of profit on sale of depreciable assets of ₹ 1.13 crores against long term capital gain which arose to the assessee on indexation method and also allowing brought forward long term capital gain against the said profit on sale of depreciable assets - Decided against revenue.

Summary

Issues:
1. Disallowance of depreciation on nonperforming assets.
2. Set off of profit on sale of depreciable assets against long term capital gain.

Analysis:

Issue 1: Disallowance of Depreciation on Nonperforming Assets
The appellant-revenue challenged the Tribunal's order regarding the disallowance of depreciation amounting to Rs. 7,99,343 on nonperforming assets for the Assessment Year 2005-06. The Tribunal had previously allowed depreciation on nonperforming assets in other assessment years of the respondent-assessee. The appellant failed to provide any reasons as to why the Tribunal's decision for earlier years should not be followed in the present assessment year. As no substantial question of law was raised by the appellant on this issue, Question (a) was dismissed.

Issue 2: Set Off of Profit on Sale of Depreciable Assets
Regarding the set off of profit on the sale of depreciable assets against long term capital losses, the revenue contended that as per Section 50 of the Income Tax Act, profit on sale of depreciable assets should be treated as short term capital gains. The revenue argued that the respondent-assessee was not entitled to set off short term capital gains against long term capital losses under Section 70(3) of the Act. However, the impugned order followed a previous decision in Manali Investment Vs. ACIT and the decision of the Court in CIT Vs. Ace Builders (P) Ltd. The Court confirmed that the principle of law laid down in Ace Builders (P) Ltd. was applicable, and the Tribunal's decision in Manali Investment was upheld. As the issue had already been settled by the Court and no substantial question of law was raised, the appeal was dismissed.

Therefore, the High Court of Bombay upheld the Tribunal's order, dismissing the revenue's appeal under Section 260A of the Income Tax Act for the Assessment Year 2005-06, concerning the disallowance of depreciation on nonperforming assets and the set off of profit on the sale of depreciable assets against long term capital gain.