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TMI Blog2014 (11) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... that:- The assessee has invited attention to various documents in the shape of bills, vouchers and further details of the improvements done in the premises in question – the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of assessee. Allowability of set off of unabsorbed depreciation against income from other sources – Held that:- If the current year's depreciation cannot be set off owing to the profits or gains chargeable being less than the allowance, the allowance or the part of the allowance to which effect has not been given shall be added to the amount of allowance for depreciation for the following previous year and deemed to be part of the allowance which means that brought forward depreciation merges with the current year's depreciation because of the legal fiction created by provisions of Sec. 32(2) of the Act - However, this fiction has been subjected to the provisions of Sec. 72(2) and 73(3) of the Act - the unabsorbed depreciation is to be added to the account of allowance of depreciation of the next year and as such merges with next year’s depreciation allowance because of the legal fiction created by provisions of section 32(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Unabsorbed depreciation of ₹ 9,07,981 pertaining to 2001-2002 against Income from Other Sources viz. Interest on fixed deposit with bank. 4. On the facts and circumstances of your appellant's case and in law, the learned Commissioner of Income Tax (Appeals) erred in upholding the view of the learned assessing officer in disallowing bad debts written off by your appellant aggregating to ₹ 7,32,113. 6. On the facts and circumstances of your appellant's case and in law, the learned Commissioner of Income Tax (Appeals) erred in upholding the view of the learned assessing officer in disallowing depreciation u/s 32 (1)(i) of ₹ 1,31,538 claimed by your appellant on additions of ₹ 4,38,460made to Software. Ground Nos.1 2 2. Ground Nos.1 2 are relating to the addition of ₹ 34,75,000/- as unexplained expenditure under section 69C of the Income Tax Act. The assessee during the year claimed capital expenditure of ₹ 34,75,000/- incurred on renovation/refurbishment on leasehold premises and claimed depreciation of ₹ 3,47,500/-. The assessee produced the relevant documents in the shape of cash vouchers etc. to prove the payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ives of the parties, we deem it fit to restore the issue regarding the claim of depreciation to the file of the AO to decide it afresh after giving proper opportunity to the assessee to represent its case. This issue is accordingly allowed for statistical purposes. Ground No.3 6. Ground No.3, as reproduced above, is with regard to not allowing of set off of unabsorbed depreciation of ₹ 9,07,981/- pertaining to assessment year 2001-02 against income from other sources i.e. interest on fixed deposits with bank. The lower authorities denied the said set off observing that the current year depreciation which could not be set off against the profits and gains of business could be carried forward and adjusted only against profits and gains of business and not other heads of income. The Ld. counsel for the assessee has brought our attention to the relevant section 32(2) read with section 71 of the Act. He has further relied upon the decision of the Hon ble Madras High Court in the case of CIT vs. SPEL Semi Conductor Ltd. [2013] 212 Taxman 506 (Mad) wherein the Hon ble High Court has observed that a reading of section 32(2) makes it clear that if the unabsorbed depreciation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned section shows that Sec. 32(2) has been subjected to the provisions of Sec. 72(2) and 73(3) of the Act. Before discussing the provisions of Sec. 72(2) let us first analyze the provisions of Sec. 32(2) of the Act prior to this amendment w.e.f. 1.4.2002 Substituted by the Finance Act, 2001, w. e. f 1-4-2002. Prior to its substitution, sub section (2), as amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f 1-4-1988, Direct Tax Laws (Amendment) Act, 1987, w.e..f 1-4-1989 and Finance Act, 1992, w.e.f 1-4- 1993, substituted by the Finance (No. 2) Act, 1996, w.e.f 1-4-1 997 and further amended by the Finance Act, 2000, w. e. f 1-4-2001, read as under: '(2) Where in the assessment of the assessee full effect cannot be given to any allowance under clause (ii) of sub-section (1) in any previous year owing to there being no profits or gains chargeable for that previous year or owing to the profits or gains being less than the allowance, then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as unabsorbed depreciation allowance), as the case may be, - (i) shall be set off against the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst any income. This was also upheld by the Hon'ble Supreme Court in the case of CIT Vs CIT Vs Virmani Indus. Pvt. Ltd Ors 216 ITR 607 (SC) (supra). However, the law regarding such set off was changed by the Finance Act No. 2 of 1996 and from A.Y. 1997-98 to 2002-03 the unabsorbed depreciation was put at par with business losses u/s. 72. However the status quo have been restored from A.Y. 2003-04 and therefore the ratio laid down by the Hon'ble Supreme Court in the case of CIT Vs Virmani Indus. Pvt. Ltd Ors 216 ITR 607 (SC) (supra) once again hold good and so now unabsorbed depreciation can be set off against any income. Thus, the claim of current year's depreciation of ₹ 2,32,059/- is directed to be set off against the income under the head Capital gains . Accordingly, ground No. 1 of the appeal is allowed. 11.Having considered the provisions of Sec. 32(2), it is also clear that if the current year's depreciation cannot be set off owing to the profits or gains chargeable being less than the allowance, the allowance or the part of the allowance to which effect has not been given shall be added to the amount of allowance for depreciation for the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her have refused to make the payment or there were no chances of recovery of the same. 10. After going through the documents relied upon by the Ld. A.R. and after hearing the Ld. Representatives of the parties, we are of the view that this issue requires adjudication afresh by the AO. We accordingly restore this issue to the file of the AO for decision afresh. Needless to say that the AO will give proper opportunity to the assessee to present its case and produce the necessary evidence and thereafter to decide the same by way of speaking order. Ground No.6 11. Ground No.6 is relating to disallowance of depreciation of ₹ 1,31,538/- on software expenses. The assessee during the year incurred expenses on purchase of software amounting to ₹ 4,38,460/-. The assessee claimed depreciation at the rate of 30%. The AO, however, observed that the assessee had put for use the said software for less than 180 days. He also observed that as per section 32(1)(ii) the said software would fall in the definition of intangible assets and as per the rules, the assessee was entitled to depreciation at the rate of 25% for a year. However, since the assessee had used the software for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in law. Computer software is necessarily required to be used for the running and operation of computer and without software the computer would be a useless machine. Software is an essential part for the use of the computer. From time to time, new softwares are developed. For the proper functioning, improvement, betterment and administration of business, the softwares are purchased and when they are loaded/installed in the computer, it becomes part of the computer. The term Computer software has been separately defined in note to the Appendix-I and there is nothing mentioned in the relevant provisions that computer software cannot be purchased separately or independent of computer machine. 15.1 In our view, it is immaterial as to whether the software was purchased along with the computer or thereafter. The interpretation of the Ld. CIT(A) that the assessee will be eligible for depreciation at the rate of 60% only when the software is purchased along with the computer, in our view, is wrong. 16. As observed above, when the statute has provided a specific percentage to be allowed on a particular thing, no different view can be adopted. Since the statute has provided a depr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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