2017 (8) TMI 1059 - AT - Income Tax

Allowing carry forward and set off of unabsorbed depreciation from any head of income (except salary head) - A.O. has concluded that sale of depreciable assets is taxable as short term capital gain as per provision of section 50 thus brought forward business loss cannot be set off against short term capital gain - Held that - The assessee has claimed the set off of depreciation from short term capital gain. However, the A.O. has wrongly understood the claim of set off of unabsorbed depreciation by the appellant, as set off of brought forward business loss and therefore, disallowed the claim. In these facts, the findings of the A.O. that the appellant has claimed set off of brought forward business loss, is not correct. It is also clear that the assessee has set off the unabsorbed depreciation, against short term capital gain in terms of section 32(2) r.w.s. 72(2) of the Act. In these facts and circumstances, the findings of the A.O. regarding set off of brought forward business loss, was not correct, hence, the claim of the assessee of brought forward depreciation against short term capital gain, is correct and accordingly, findings of the A.O., are erroneous, therefore, disallowance was rightly deleted and after set off of brought forward depreciation total income will be at NIL, as claimed by the assessee in the return of income, which does not need any interference on my part, hence, uphold the same and reject the issue involved in the present Appeal raised by the Revenue. - Decided in favour of assessee.

Summary

Issues:
- Allowance of carry forward and set off of unabsorbed depreciation against business income
- Perversity and erroneous nature of the CIT(A) order

Issue 1: Allowance of carry forward and set off of unabsorbed depreciation against business income
The case involved an appeal by the Revenue against the CIT(A)'s order for the assessment year 2012-13. The assessee, engaged in civil construction and infrastructure development, declared NIL taxable income but faced scrutiny due to discrepancies. The AO observed a profit from the sale of plant and machinery, offsetting business losses. The AO disallowed the set off of brought forward business loss against short-term capital gain, citing Section 50 of the Income Tax Act. However, the assessee claimed set off of unabsorbed depreciation against short-term capital gain under Section 32(2) read with Section 72(2) of the Act. The CIT(A) found the AO's disallowance erroneous, allowing the set off of depreciation against capital gain. The CIT(A) held that unabsorbed depreciation could be set off from income under any head, except salary income. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Issue 2: Perversity and erroneous nature of the CIT(A) order
The Revenue contended that the CIT(A)'s order was perverse and erroneous, emphasizing the AO's stance on the disallowance of set off against capital gain. The Revenue's appeal was based on the grounds that the CIT(A)'s decision was not tenable in law. However, the Tribunal, after hearing both parties and reviewing the case details, found the CIT(A)'s order well-reasoned and supported by legal provisions. The Tribunal upheld the CIT(A)'s decision, stating that the AO's disallowance of the set off was incorrect. The Tribunal concluded that the claim of the assessee regarding the set off of unabsorbed depreciation against short-term capital gain was valid, resulting in a NIL total income. Therefore, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order.

In summary, the Tribunal upheld the CIT(A)'s decision to allow the set off of unabsorbed depreciation against short-term capital gain, rejecting the Revenue's appeal. The judgment clarified the applicability of relevant sections of the Income Tax Act in determining the treatment of depreciation and business losses, emphasizing the correctness of the assessee's claim and the erroneous nature of the AO's disallowance.