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TMI Blog2018 (2) TMI 1585X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 71 against income of the same year under any other head. Section 71 permits the assessee to set off losses other than capital gains against the income from other heads. Since the unabsorbed depreciation par takes the character of current year’s depreciation in the following year, we hold that the CIT(A) has rightly allowed the set off of unabsorbed depreciation and we do not find any infirmity in the well reasoned order of the Ld. CIT(A) and the same is upheld. - Decided against revenue. - I.T.A. No. 108/Viz/2016 - - - Dated:- 21-2-2018 - Shri V. Durga Rao, Judicial Member And Shri D. S. Sunder Singh, Accountant Member Appellant by : Shri Deba K.Sonowala, DR Respondent by : Shri I Kama Sastry, AR ORDER Per D. S. Sunder Singh, Accountant Member: This appeal is filed by the revenue against the order of the Commissioner of Income-Tax (Appeals) [CIT(A)]-1, Guntur vide ITA No.65/CIT(A)-1/GNT/2015-16 dated 30.12.2015 for the assessment year 2012-13. 2. All the grounds of appeal are related to the set off of carried forward depreciation against the addition made u/s 68 of IT Act. In this case, the assessee filed return of income declaring total income of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom undisclosed income sources. However, the assessee-company is eligible to carry forward the same to the subsequent years. The assessee-company on the other hand has taken a stand that the appellant plea for set off of depreciation loss of ₹ 93,08,058/- against such addition, which the learned Assessing Officer has not considered and completed assessment. The additions made under section 68 are taxed under any heads of income as provided in section 14. If the addition under section 68 is not fit into any heads of income of A to E then it should be considered as part of income from other sources . Else such addition is not taxable at all. Once it is treated as part of gross total income then unabsorbed depreciation is to be allowed as set off of such income. The Hon'ble Supreme Court of India in the case of KalekhanMohd. Hanif Vs. CIT 50 ITR 1 held that the expression 'nature and source' has to be understood as a requirement of identification of the source and its genuineness. That the onus on the assessee has to be understood with reference to the facts of each case and proper inference drawn from the facts. The Hon'ble Madras High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Court considered the issue in following manner: Heard Counsel. The Assessing Officer has not given any reason whatsoever to deny the set off of the business loss against the income declared under the head other sources. Section 71 deals with set off of loss against income under any other head. After setting off losses against the income under the same head, if the net result is still a loss, the assessee can set off the said loss under Section 71 of the Act against income of the same year under any other head, except for losses which arise under the head capital gains. The income tax is only one tax and levied on the sum total of the income classified and chargeable under the various heads. Section 14 has classified the different heads of income and income under each head is separately computed. Income which is computed in accordance with law is one income and it is not a collection of dist inct tax levied separately on each head of income and it is not an aggregate of various taxes computed with reference to each of the different sources separately. There is only one assessment and the same is made after the total income has been ascertained. The assessee is subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncomes under any of these various heads, will not be attracted in case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions. 3.1. The Ld.CIT(A) also relied on the decision of Guru Prasad Vs.CIT [158 ITR 278] (Pat) and argued that the additions made u/s 68 is altogether on different footing and no other deduction required to be allowed from the income so assessed u/s 68. Hence requested to set aside the order of the Ld.CIT(A) and restore the order of the AO. 4. On the other hand, Ld.AR argued that the income has to be assessed under various heads of income of A to E as per section 14 of IT Act. If the addition u/s 68 is not fit into any of the heads then it should be considered as income from other sources and to be included in gross total income. Once the income is treated as part of gross total income, then unabsorbed depreciation is to be allowed as set off and there is no other alternative for it. The Ld.AR relied on the decision of ACIT circle -4, Surat Vs Shree Raghupati Fibres Pvt. Ltd. In ITA No.256/Ahd/2011 of ITAT D Bench, Ahmedabad, for the assessment year 2004-05 dated 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of the order of the Hon ble Apex court s decision in para No.10 and 11 is reproduced as under: 10. It is true that proviso (b) to s. 10(2)(vi) creates a legal fiction and under that fiction unabsorbed depredation either with or without current years depreciation is deemed to be the current years depreciation but it is well settled, as has been observed by this Court in Bengal Immunity Co. Ltd. vs. The State of Bihar (1955) 2 SCR 603 at 606 that legal fictions are created only for some definite purpose and these must be limited to that purpose and should not be extended beyond that legitimate field. Clearly, the avowed purpose of the legal fiction created by the deeming provision contained in proviso (b) to s. 10(2)(vi) is to make the unabsorbed carried forward depredation partake of the same character as the current depreciation in the Viewing year, so that it is available, unlike unabsorbed carried forward business loss, for being set off against other heads of income of that year. Thatit is so becomes clear from this Court's observations in Jaipuria China Cray Mines (P) Ltd. case (supra) appearing at page 561 of the Report which run thus: 'The unabsorbed de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried forward loss to be set off against the business income and then apply the unabsorbed depreciation. A reading of section 32(2) thus makes it clear that if the unabsorbed depreciation allowance could not be wholly set off under clause (i) and clause (ii), the amount of depreciation not so set off can lie set off from income from other head if any, available for that assessment year. The language of Section 32(2) is very clear and there is hardly anything contained in Section 72 (2) to prevent such set off of carried forward depreciation being given to the assessee under the head of income from business or income from other sources. The Revenue does not deny the fact that as far as the income from other sources are concerned, there could be no set off of business loss or carried forward loss. However, what is contended by the Revenue is that Section 72(2) controls the operation of Section 32(2) to have the set off of unabsorbed depreciation against the income from other sources. We do not agree with this line of reasoning. 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 ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot applicable in the assessee s case. In the instant case the addition was cash credits u/s 68 and the income required to be taxed as income from other sources and to be included in the gross total income. Once the addition is included in the gross total income, the AO has to allow the set off of unabsorbed depreciation loss as provided u/s 71 of the IT Act. Hon ble Supreme court held that the unabsorbed carried forward depreciation par takes the character of current year depreciation in the following year and the same is allowed to be set off against other heads of income of that year. The AO has not assigned any reason for denying the claim of the assessee for set off of unabsorbed depreciation. Section 71 deals with the set off of loss from one head against income from another head. After setting up of losses against income under the same head, if the net result is still losses, the assessee can set off the such losses u/s 71 of the Act, against income of the same year under any other head. Section 71 permits the assessee to set off losses other than capital gains against the income from other heads. Since the unabsorbed depreciation par takes the character of current year s dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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