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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 ..... (A) erred in upholding the order of learned AO and not appreciating that the issue is covered by favourable judicial precedents. Ground No. 2: The CIT(A) erred in not giving appropriate directions for computing the interest correctly under section 234D of the Act. Ground No. 3: The CIT(A) erred in not giving appropriate directions for computing the interest correctly under section 244A of the Act. Each one of the above grounds of appeal is without prejudice to the other. The appellant reserves the right to add, alter, amend, vary, omit or substitute the above grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised 2. The brief facts of the case are that, the assessee company is engaged in the business of manufacturing and supply of electrical steel lamination, gas cutting products, gas regulators, and assembling of welding equipment, & AC/DC ARC Welders. The assessee has filed the return of income for the A.Y 2014-15 disclosing a total income of Rs. Nil. Subsequently the case was selected for limited scrutiny under the CASS and notice u/s 143(2) and u/sec 142(1) of the Act along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. Per Contra, the Ld. DR supported the order of the CIT(A). 5. Heard the rival submissions and perused the material on record. The sole matrix of the disputed issue envisaged by the Ld. AR that the CIT(A) has erred in sustaining the action of the AO in denial of claim of setoff of unabsorbed depreciation carried forward from earlier year against the income from short term capital gains. The contentions of the Ld. AR are that the unabsorbed depreciation carried forward from earlier year has to be treated on par with the Current Year depreciation. The Ld.AR emphasized on the provisions of Section 71 & 72 of the Act and the methodology adopted in setoff of current year losses and carried forward/brought forward business loss and unabsorbed depreciation. The Ld. AR has relied on the fallowing judicial decisions as under: 1. PCIT v. Gunnebo India Pvt. Ltd ITA No 1337 of 2016, order dated 11.02.2019. 2. Bond Safety Belts v. DCIT ITA No. 853 of 2018, order dated 27.09.2023. 3. CIT v. Virmani Industries (P.) Ltd. [1995] 83 Taxman 343 (SC). 4. General Motors India (P.) Ltd. v. DCIT, [2012] 25 taxmann.com 364 (Gujarat) 5. CIT v. Kisan Engineering Works Ltd. [2013] 33 taxmann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the other heads of income and unabsorbed depreciation in carry forward and become part of the depreciation of the subsequent year and the total depreciation becomes current year's depreciation as per section 32(1) of the Act, which is allowed to be set off against the income under any head of income. As per the provisions of section 32(2) of the Act r.w.s 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. Accordingly, we find no reason to interfere with the order of CIT(A) qua this issue and the same is hereby upheld. We also hold that as per provisions of section 72 of the Act the unabsorbed business loss (other than speculative loss) of earlier years shall be allowed to be set off only against the profits and gains from business carried on by the assessee of the current year and so on. We order accordingly. However, our above decision with respect to ground no. (i) and ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any limit whatsoever." 13. In the appeal at hand, the ITAT, in the impugned order, after relying on General Motors (supra), has incorrectly come to a conclusion that the Assessee has claimed set-off of the impugned unabsorbed depreciation against the income under the head capital gain which is not permissible. This is totally contrary to the conclusion of the co-ordinate bench of the ITAT in Gunnebo (supra) where, as quoted above, the ITAT has held that the unabsorbed depreciation of earlier years become the total current year depreciation which is allowed to be set-off against income under any head of income including long term capital gain. 14. The CBDT issued a Circular No. 14 of 2001 and the relevant portion of the said circular reads as under. "Modification of provisions relating to depreciation 30.1 Under the existing provisions of section 32 of the Income- tax Act carry forward and set off of unabsorbed depreciation is allowed for 8 assessment years. 30.2 With a view to enable the industry to conserve sufficient funds to replace plant and machinery. specially in an era where obsolescence takes place so often, the Act has dispensed with the restriction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(2) of the Act was amended by Finance Act. 2001 and the provision so amended reads as under- "Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owning to the profits or gains chargeable for that previous year, owing to the profits or gains to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub- section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be allowance of that previous year, and so on for the succeeding previous years." 36. The purpose of this amendment has been clarified by Central Board of Direct Taxes in the Circular No. 14 of 2001. The relevant portion of the said Circular reads as under- "Modification of provisions relating to depreciation 30.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction to the language of the section without leaning to the side of assessee or the revenue But if the legislature fails to express clearly and the assessee becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assessee cannot be denied. However, Circular No. 14 of 2001 had clarified that under Section 32(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the AY. 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years and if any unabsorbed depreciation or part thereof could not be set off till the Assessment Year 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. 38. Therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even therea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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