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TMI BlogUn-necessary litigation by revenue on issue of set off of unabsorbed depreciationX X X X Extracts X X X X X X X X Extracts X X X X ..... Un-necessary litigation by revenue on issue of set off of unabsorbed depreciation - By: - CA DEV KUMAR KOTHARI - Income Tax - Dated:- 9-4-2013 - - References and links: Section 32 and 72 of Income-tax Act, 1961 . Commissioner of Income-tax Versus SPEL Semi Conductor Ltd. 2012 (12) TMI 81 - MADRAS HIGH COURT Difference between depreciation and loss is well known: Difference between depreciation and losses under different head of income are well known. In case of business loss vis a vis depreciation it is well understand and popularly known that current depreciation as well as brought forward depreciation (which in effect is current depreciation) is a better quality of loss in the context of entitlements for set off and furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her carry forward etc. It is only to prove for a purpose full scheme of set off it is provided in section 72(2) that where assessee has business loss and unabsorbed depreciation both, first business loss shall be set off. However, brought forward business loss can be set off only against income arising from business. Thus before setting off of unabsorbed depreciation, business loss need to be set off against business income. There is no bar to the effect that unabsorbed depreciation could not be set off against income from other sources. Thus in spite of balance remaining on account of business loss, assessee can set off unabsorbed depreciation against income other than income from business. In other words, set off of business loss agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst business income and unabsorbed depreciation against income falling under other heads of income can take place simultaneously. In practice we find that on this aspect there is no dispute and generally such set off is allowed. Different type of losses and quality of losses: Losses under different heads have greater limitations and rigidity about set off in the same year , carry forward and then set off etc. In comparison to depreciation. Depreciation has more flexibility about ascertainment, set off, carry forward and set off and has no limitation on carry forward. This is the reasons that when we speak about losses, the loss by way of deprecation is considered a loss of best quality in comparison to losses under other heads of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come like normal business loss , speculative business loss, loss under head house property, other sources etc. For flexibility of set off normal business loss is superior in comparison to speculative loss etc. Set off of loss and depreciation: The different provisions and scheme for set off of depreciation and business loss is intended to serve different purposes. Depreciation is in fact in nature of consumption of capital. Depreciation is intended to provide for replacement of assets. Therefore, the set off of depreciation should be allowed in a purpose seeking manner and without much technicalities. However, it is experienced that revenue creates litigation on very clear and simple matters. Current depreciation and unabsorbed deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion are allowed to be set off against any income falling under any head. Whereas business loss which is brought forwarded can be set off only against business income. Un-necessary litigation: In the case under consideration assessee could not set off whole of unabsorbed business loss against business income of relevant assessment year and balance of unabsorbed business loss remained which could be further carried forward. The assessee also had unabsorbed depreciation. Assessee claimed that unabsorbed deprecation could be allowed to be set off against income falling under other heads of income like income from other sources. Up to level of first appeal revenue denied such set off of unabsorbed depreciation on the ground and contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that business loss should have been exhausted, then only unabsorbed depreciation can be set off. The Tribunal allowed contention of assessee. The revenue not being satisfied with order of Tribunal preferred appeal before the Madras High Court. The Madras High court held that there is no stipulation under section 72(2) read with section 32(2) that assessee has to wait for business loss to be exhausted first before claiming adjustment of unabsorbed depreciation and confirmed the judgment of Tribunal. He court held that what is spoken to under Section 72(2) is as regards set off of business loss as against the income from profits and gains of business or profession and if there is loss as well as unabsorbed depreciation, the set off s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be first on the business loss as against the business income and then on unabsorbed depreciation. What is spoken to under Section 32(2) is as regards set off of unabsorbed depreciation as per clause (ii) of sub section (1) and when the unabsorbed depreciation could not be set off as against the income from business or profession by reason of there being no income available under the said heads and where there is income from other sources, effect must be given to Section 32(2) of the Act for that assessment year. The Court further held that in the light of the clear provisions, we have no hesitation in rejecting the Revenue's plea, there by confirming the order of Tribunal. The above Tax Case (Appeal) is dismissed. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court did not allow costs. In such cases, by awarding costs, perhaps courts can take steps to eliminate un-necessary litigation. pparently missing contentions on part of assessee- a learning point: Full facts are not available. However, perhaps it could be a case that income falling under head income from other sources , is also income arising from business of assessee as being related to business activities. If that be case, the assessee could have set off even brought forward business loss against income arising from business but falling under head income from other sources. However, on reading of the judgment, we notice that this vital contention was not at all raised. We must learn from judgment and try that in a given situation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , attempt should be made to contend and establish that the income is earned in course of or in relation to business so that business loss can be set off. For example, interest earned from deposits made for the purpose of business, interest on business advances, capital gains arising on sale of business assets, income from trade investments etc. have linking to business and are income from business carried. If so income ,even if falling under other heads of income can be reduced by set off of brought forward business loss. Thanks to revenue authorities: We professionals must thank revenue officers for creating un-necessary litigation, by making high pitched assessments, raising un-necessary litigation etc. Otherwise, tax and legal profes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sionals will have much less assignments. Cenvat Credit-Capital Goods-Damaged in floods while in use and cleared as waste and scrap The capital goods were put to use and when the goods were in use, the floods happened and the capital goods were damaged and they could not be put to use. In as much as the capital goods became waster and scrap, the assessee cleared the same on payment of duty applicable to waster and scrap on the transaction value. The amount of compensation received from the insurance company was in relation to the damaged suffered by the appellant and it cannot be treated as a consideration for the sale of goods which was sold as scrap. Therefore, there is not basis to treat the compensation received from the insuran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce company as the value of the capital goods cleared as waste and scrap.- Total Oil India Pvt. Ltd. v. CCE (CESTAT-Mum) Final Order No. A/408/2011-WZB/C-IV (SMB) decided on 10-10-2011 [2011 (10) TMI 284 - CESTAT, MUMBAI] - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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