2019 (9) TMI 1063 - AT - Income Tax

Set off of unabsorbed depreciation against Income from House Property and Income from Other Sources - HELD THAT - Admittedly, as per the provisions of Sec. 32(2) of the Act prior to their amendment by the Finance Act, 2000 w.e.f 01.04.2001 the set off of the unabsorbed depreciation was restricted to the profits and gains from business or profession. Post-amendment of Sec. 32(2) the set off of unabsorbed depreciation is no more restricted to the profits and gains of business or profession. In fact, pursuant to the amendment made available on the statute vide the Finance Act, 2001, w.e.f 01.04.2002 the liberal regime prior to A.Y 1997-98 had been restored from A.Y 2002-03 onwards. The observations of the A.O as regards the limited scope of set off of unabsorbed depreciation appears to be guided by the pre-amended provisions of Sec. 32(2) of the Act i.e as had remained available on the statute during the period A.Y 1997-98 to A.Y 2000-01. Our aforesaid view that existence of any business in the year in which the unabsorbed depreciation is sought to be set off by the assessee is not required is fortified by the judgment of the Hon ble Supreme Court in the case of CIT Vs. Virmani Industries Pvt. Ltd. 1995 (10) TMI 1 - SUPREME COURT As is discernible from a perusal of the aforesaid statutory provision i.e Sec. 32(2), it can safely be concluded that as the same in substance had remained the same as in context to that applicable to the case of the assessee before us, therefore, the aforesaid view arrived at by the Hon ble Apex Court seizes the issue under consideration. We are of the considered view that as the set off of the unabsorbed depreciation cannot be bridled with a condition that the business should be continued by the assessee in the said year, therefore, the claim of set off of the brought forward unabsorbed depreciation by the assessee against its current year Income from house property and Income from other sources is found to be in conformity with the mandate of law. - Decided against revenue.

Issues Involved:
1. Set off of unabsorbed depreciation against income from house property and income from other sources.
2. Set off of earlier years' business losses against current year's business income.
3. Applicability of decisions based on the Income Tax Act, 1922 to cases under the Income Tax Act, 1961.
4. Consideration of judicial precedents from different High Courts.

Issue-wise Detailed Analysis:

1. Set off of unabsorbed depreciation against income from house property and income from other sources:
The assessee claimed set off of unabsorbed depreciation from earlier years against its income from house property and other sources. The Assessing Officer (A.O) disallowed this claim, arguing that since the assessee had discontinued its business activities in the previous year, it was not entitled to such set off. However, the CIT(A) allowed the set off, following the assessee's argument that unabsorbed depreciation under Sec. 32(2) could be carried forward indefinitely and set off against any head of income. The Tribunal upheld the CIT(A)'s decision, noting that post-amendment of Sec. 32(2) by the Finance Act, 2000, the set off of unabsorbed depreciation is not restricted to profits and gains of business or profession. The Tribunal cited the Hon'ble Supreme Court's judgment in CIT Vs. Virmani Industries Pvt. Ltd., which supported the view that unabsorbed depreciation could be set off against income from other heads, even if the business was not carried on during the year.

2. Set off of earlier years' business losses against current year's business income:
The A.O disallowed the set off of earlier years' business losses against the current year's business income, stating that since the business was discontinued in the previous year, the set off was not justified. The CIT(A) disagreed and allowed the set off, a decision upheld by the Tribunal. The Tribunal clarified that under Sec. 72(1), business losses can be carried forward and set off against profits from any business or profession carried on by the assessee in subsequent years. The Tribunal emphasized that Sec. 72(1)(i) does not mandate that the business must be carried on during the previous year for the set off to be allowed, as long as there are profits and gains of any business or profession assessable for that assessment year.

3. Applicability of decisions based on the Income Tax Act, 1922 to cases under the Income Tax Act, 1961:
The A.O rejected the assessee's reliance on the Hon'ble Supreme Court's judgment in CIT Vs. Jaipuria China Clay Mines (P) Ltd., arguing that it was based on the Income Tax Act, 1922, and not relevant for the Income Tax Act, 1961. However, the Tribunal found that the principles laid down in the judgment were applicable, as the statutory provisions regarding unabsorbed depreciation under the Income Tax Act, 1961, were similar in substance to those under the Income Tax Act, 1922.

4. Consideration of judicial precedents from different High Courts:
The A.O cited the Hon'ble Kerala High Court's decision in Malabar Agricultural Co. Ltd., which held that in the absence of business activity, earlier years' losses and unabsorbed depreciation could not be set off. The Tribunal, however, preferred the view taken by the Hon'ble Bombay High Court in CIT vs. Estate & Finance Ltd., which allowed such set off. The Tribunal noted that judicial precedents from the jurisdictional High Court (Bombay High Court) were binding and more relevant to the case at hand.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order allowing the set off of unabsorbed depreciation against income from house property and other sources, and the set off of earlier years' business losses against current year's business income. The Tribunal emphasized that the provisions of Sec. 32(2) and Sec. 72(1) of the Income Tax Act, 1961, supported the assessee's claims, and judicial precedents from the jurisdictional High Court were binding.

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