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TMI Blog2024 (1) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... rest u/sec 234D u/sec 244A of the Act in accordance with the provisions of the Act. And the grounds of appeal are allowed in favour of the assessee. - SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER For the Appellant : Shri. Paras Savla Shri Pratik Poddar. AR For the Respondent : Shri. G.J. Ninawe. Sr. DR ORDER PER PAVAN KUMAR GADALE JM: The assessee has filed the appeal against the order of the National Faceless Appeal Centre (NFAC), Delhi / CIT(A) passed u/sec143(3) and u/sec 250 of the Ac. The assessee has raised the following grounds of appeal: Ground No. 1: The CIT(A) erred in upholding the order of learned AO and not allowing the set off of unabsorbed depreciation brought forward from earlier years against the short-term capital gains of Rs. 15,11,940 for the relevant assessment year, ignoring the fact that as per the provisions of section 32(2) read with section 71(2) of the Act, the unabsorbed depreciation of the earlier years stands on the same footing as the depreciation for the current year, and therefore it can be set-off against business profits as well as against the income under any other head. The CIT(A) erred in upholdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017. Whereas the AO was not satisfied with the explanations and has dealt on the provisions of Section 32 section 70 to 72 of the Act is of the opinion that the setoff claim cannot be allowed. Finally the A.O has disallowed the setoff of unabsorbed deprecation of earlier year and assessed the total income of Rs. 15,11,940/- and passed the order u/section 143(3) of the Act dated 10.11.2017. 3. Aggrieved by the order the assessee has filed an appeal before the CIT(A), whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the AO. But has confirmed the action of the Assessing Officer and dismissed the assessee appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal before the Hon ble Tribunal. 4. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in confirming the action of the AO in denial of claim of setoff of unabsorbed depreciation carried forward from earlier year against the income from capital gains and which is permitted in accordance with the provisions of the Act. Further the Ld. AR substantiated the submissions with the factual paper book and judicial decisions and prayed for allowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnebo (supra), has quoted the relevant portion of the order of ITAT which had dismissed the revenue's appeal where ITAT has held that as per the provisions of Section 32(2) of the Act read with Sections 70, 71 and 72 of the Act it becomes very clear that the total depreciation comprising of the depreciation of the relevant assessment year along with the unabsorbed depreciation of the earlier years becomes the total current year's depreciation which is allowed to be set-off against income under any head of income including long term capital gain and hence did not find any reason to interfere with the order of CIT(A)The High Court has also quoted relevant paragraph from General Motors (supra) where there is reference to a Circular No. 14 of 2001 issued by the CBDT where the Court has held that the unabsorbed depreciation was available for carry forward and set-off in the subsequent assessment year. Paragraph 3 and 4 of Gunnebo (supra) read as under. 3. The Revenue carried the matter in appeal The Appellate Tribunal dismissed the appeal of the Revenue making the following observations- 16. We have observed that the current year's depreciation is allowed to be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m any source under any of the other heads of income during that year In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1 st April, 2002 (Asst Yr. 2002-03) will be dealt with in accordance with the provisions of S. 32(2) as amended by Finance Act, 2001. And once the Circular No. 14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from asst, yr. 1997-98 up to the Asst. Yr. 2001-02 got carried forward to the Asst. Yr. 2002-03 and became part thereof, it came to be governed by the provisions of S. 32(2) as amended by Finance Act 2001 and were available for carry forward and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Act 2001 should be interpreted purposively and harmoniously with the intent as it appears from CBDT circular. While construing taxing statutes, rule of strict interpretation has to be applied giving fair and reasonable construction to the language of the Section without leaning to the of the Assessee or Revenue But if the legislature fails to express clearly and the Assessee becomes entitled for a benefit within ambit of the Section, the benefit accruing to the Assessee cannot be denied Therefore, as stated in General Motors (supra) with which we are in respectful agreement, if current depreciation is deductible in the first place from the income of the business to which it relates and such depreciation amount is larger than the amount of the profit of that business, then such excess comes for absorption from profit and gains from any other business or business, if any, carried on by the Assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is still a balance leftover, it is to be treated as unabsorbed depreciation and taken to the next succeeding year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years. 37 The CBDT Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation The amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed depreciation available to an assessee on 1 day of April, 2002 (A. Y 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act2001 and not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in A. Y. 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by Finance Act 2001 it would have incorporated a provision to that effect However it does not contain any such provision Hence keeping in view the purpose of amendment of section 32(2) of the Act a purposive and harmonious interpretation has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. (emphasis supplied) In effect what it means is the depreciation amount has to be adjusted in the following order. (a) first against profits and gains from business; (b) excess of depreciation from any other business of the Assessee; (c) even if that leaves a surplus then from out of income from any source under any of the other heads of income during that year. (d) If still there is a balance leftover, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. 17. Otherwise it would leave a peculiar situation inasmuch as like the case at hand, there is no profit from business because the operation of the business had been stopped and to pay off the liabilities other investments or other assets have been disposed leading to capital gains on which capital gains tax has to be paid on the one hand and on the other there will be unabso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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