2022 (4) TMI 392 - AT - Income Tax

Rectification of mistake - Computation of income u/s. 154 - adjusting brought forward assessed unabsorbed depreciation of assessment year 2004-05 against gross total income of the assessee, resulting in the revised total income coming to Nil and consequently denying any deduction u/s 80IA under Chapter VIA of the Act - HELD THAT - Profits eligible for deduction u/s 80IA of the Act have to be calculated after adjusting brought forward depreciation therefrom. Meaning thereby that law clearly provides for deduction u/s 80IA to be granted after set off of unabsorbed depreciation. There is no scope for any other interpretation, we find, nor has any been pointed out by the assessee before us. We therefore hold that the non adjustment of brought forward depreciation from profits and gains of business and profession, for determining the quantum of deduction u/s 80IA of the Act is a patent mistake amenable to rectification u/s 154 - The rectification so effected in the present case by adjusting brought forward depreciation against profits of the business before granting deduction u/s 80IA of the Act is therefore upheld. In the case of Royal Cushion 2008 (10) TMI 707 - BOMBAY HIGH COURT the rectification carried out by denying deduction u/s 80HHC of the Act for the purposes of computing Book Profits u/s 115JB of the Act, was held to relate to the debatable issue of computation of deduction u/s 80HHC of the Act. The decision in the case of Hirsh Bracelet 2019 (9) TMI 250 - ITAT BANGALORE goes against the assessee and supports our findings since it holds that Unabsorbed depreciation is deemed to be current years depreciation to be set off against all incomes as per section 32(2) r.w.s 71 of the Act. In the case of SRA systems 2021 (3) TMI 1133 - MADRAS HIGH COURT was seized with the issue of set off of unabsorbed depreciation prior to deduction u/s 10A of the Act, which it was held was not tenable in law since deduction u/s 10A of the Act was to be made while computing the gross total income under chapter IV of the Act and not at the stage of computation of total income under chapter VI of the Act, being exemption provisions. In the present case the issue relates to deduction u/s 80IA of the Act which is to be made at the stage of computation of total income under chapter VI of the Act. Hence the ratio laid down in the said decision cannot apply to the present case. Appeal dismissed.

Summary

Issues Involved:
1. Rectification of original assessment under Section 154 of the Income Tax Act.
2. Adjustment of unabsorbed depreciation against business income before allowing deduction under Section 80IA.
3. Eligibility of short-term capital gain for deduction under Section 80IA.
4. Levy of interest under Sections 234A, 234B, 234C, and 234D.

Detailed Analysis:

1. Rectification of Original Assessment under Section 154:
The assessee challenged the rectification order passed by the Assessing Officer (A.O.) under Section 154 of the Income Tax Act, arguing that the issues rectified were debatable and not apparent from the record. The A.O. had rectified the original assessment by adjusting the brought forward unabsorbed depreciation against the gross total income, resulting in a revised total income of NIL and denying any deduction under Chapter VIA. The CIT(A) upheld the rectification, stating that the adjustment of unabsorbed depreciation was a clear mistake apparent from the record and could be rectified under Section 154. The Tribunal agreed with the CIT(A), holding that the non-adjustment of brought forward depreciation was a patent mistake amenable to rectification under Section 154.

2. Adjustment of Unabsorbed Depreciation Against Business Income Before Allowing Deduction under Section 80IA:
The core issue was whether unabsorbed depreciation should be adjusted against business income before allowing deduction under Section 80IA. The Tribunal noted that Section 80IA provides for deduction of profits and gains of eligible business included in the gross total income, and as per Section 32(2), unabsorbed depreciation is to be treated as current year's depreciation and adjusted accordingly. The Tribunal held that the law clearly mandates the adjustment of brought forward depreciation from profits and gains of business and profession before determining the quantum of deduction under Section 80IA. Therefore, the rectification made by the A.O. was correct and upheld.

3. Eligibility of Short-Term Capital Gain for Deduction under Section 80IA:
The assessee contended that short-term capital gain arising from the sale of depreciable business assets should be eligible for deduction under Section 80IA. The CIT(A) rejected this contention, stating that only profits derived from business were eligible for deduction under Section 80IA, and income from the sale of business assets did not qualify as such. The Tribunal dismissed the grounds related to this contention as no arguments were made by the assessee's counsel during the hearing.

4. Levy of Interest under Sections 234A, 234B, 234C, and 234D:
The assessee also contested the levy of interest under Sections 234A, 234B, 234C, and 234D. However, this issue was not elaborated upon in the Tribunal's order, indicating that it was not a primary focus of the appeal.

Conclusion:
The Tribunal dismissed the appeal, upholding the rectification order passed by the A.O. and confirmed by the CIT(A). The Tribunal held that the adjustment of unabsorbed depreciation before allowing deduction under Section 80IA was a clear mistake apparent from the record and could be rectified under Section 154. The Tribunal also dismissed the grounds related to the eligibility of short-term capital gain for deduction under Section 80IA and the levy of interest under various sections. The appeal of the assessee was thus dismissed in its entirety.