2022 (9) TMI 505 - AT - Income Tax

Rectification u/s 154 - set-off of unabsorbed depreciation against the income from other source in violation of Section 115BBE - Scope of CBDT circular No. 11/2019 dated 19.06.2019 - HELD THAT - CBDT Circular No. 11/2019 dated 19.06.2019 which specifically issued in order to instruct the AOs to allow the set off of unabsorbed loss/depreciation in the assessment years prior to the amendment. We note that the circular was brought by Central Board of Direct Taxes to ensure the same treatment to be given to unabsorbed depreciation in the matter of set off of losses / depreciation against the addition made u/s 68 / 69/ 69A/ 69B / 69C/ 69D of the Act. This Circular was brought out in view of amendment brought about by Finance Act, 2016 w.e.f 01.04.2017 which provides that no set off of any loss shall be given to assessee under the any of provision of the Act against the income as referred to in Clause A and B of sub-section (1) of Section 115BBE of the Act. Prior to that there was no provision existed in the Act and therefore it is permissible to set off of unabsorbed depreciation/losses against the said income. So in order to set the controversy at rest , a Circular No. 11/2019 dated 19.06.2019 was brought as the AOS were not allowing the set off. A perusal of the Circular, abundantly makes it clear that prior to AY 2017-18 the said set off of loss has to be allowed and so the unabsorbed depreciation. Therefore, we do not find any merit in the conclusion drawn by the Ld. CIT(A) on this issue and accordingly we are inclined to reverse the same by directing the AO to allow the set off of unabsorbed depreciation to the assessee. We are not adjudicating the plea raised by the assessee that the withdrawal of set off in respect of unabsorbed depreciation allowed earlier by ways order u/s 154 is not permissible as the same is not apparent mistake. Resultantly, the appeal of the assessee is allowed.

Summary

Issues:
- Disallowance of set-off of unabsorbed depreciation against income from other sources in violation of Section 115BBE of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed against the CIT(A)'s order upholding the AO's disallowance of the set-off of unabsorbed depreciation against income from other sources, citing a violation of Section 115BBE of the Income Tax Act, 1961.

2. The facts revealed that a search and seizure operation was conducted under section 132 of the Act, leading to an assessment under sections 153A/143(3) of the Act. The AO disallowed the set-off of unabsorbed depreciation against the income added under section 68 of the Act, triggering a series of rectification orders and appeals.

3. The AO initially allowed the set-off of unabsorbed depreciation but later withdrew it citing Section 115BBE of the Act. The CIT(A) confirmed the AO's decision, disregarding a CBDT Circular instructing AOs to allow such set-offs in assessments prior to the amendment.

4. The ITAT, after reviewing the case and the CBDT Circular, concluded that the set-off of unabsorbed depreciation should have been allowed as per the Circular, which clarified that such set-offs were permissible until the assessment year 2016-17. The ITAT reversed the CIT(A)'s decision and directed the AO to allow the set-off of unabsorbed depreciation to the assessee.

5. The ITAT emphasized the legislative intent behind the amendment in Section 115BBE and the CBDT Circular, highlighting that prior to the assessment year 2017-18, the set-off of losses, including unabsorbed depreciation, had to be allowed. The ITAT allowed the assessee's appeal, overturning the disallowance of the set-off.

6. Consequently, the ITAT allowed the appeal of the assessee, ordering the AO to permit the set-off of unabsorbed depreciation. The decision was pronounced in an open court on 9th September 2022.