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Facts
The assessee, a private limited company, adjusted brought forward unabsorbed depreciation against long-term capital gains. The AO disallowed this, a decision upheld by the CIT(A). The revenue challenged this before the Tribunal.
Held
The Tribunal held that brought forward unabsorbed depreciation can be set off against income from capital gains, subject to factual verification by the AO. The matter was restored to the AO for a fresh assessment.
Key Issues
Whether brought forward unabsorbed depreciation can be set off against long-term capital gains.
Sections Cited
250, 143(1), 72, 32, 73
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH MUMBAI
ORDER
PER SANDEEP GOSAIN, JM:
The present appeal has been filed by the revenue challenging the impugned order 19.02.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the assessment year 2021-22.
The only ground raised
by the Assessee relates to Challenging the order of denial of adjustment made by the 2 M/s. Medical Solutions (Ind) Pvt Ltd., Mumbai assessee of unabsorbed depreciations against the long term capital gain earned during the year.
3. In this regard, I have heard the counsels for both the parties, Perused the material placed on record, judgments cited before me and the orders passed by the revenue authorities.
4. From the records , I noticed that assessee is a private limited company and had carried forward business loss of Rs 43,28,042/- and unabsorbed depreciation of Rs 20,69,539/-from Assessment Year: 2019-2020, therefore, adjusted unabsorbed depreciation against the long term capital gain earned during the year amounting to Rs 3,58,168/-, accordingly declared income of Rs Nil.
5. The said adjustment was disallowed vide intimation issued u/s 143(1) of the Act, which was also upheld by Ld. CIT(A) by referring to the provisions of section 72 and section 32 of the Act, which reveals that long term capital gain cannot be set off against brought forward unabsorbed depreciation.
6. In this regard, to counter the findings of Ld.CIT(A), it is submitted that if full effect cannot be given to any allowance under sub-section (1) of section 32 in any previous year, owing to there being no profits or gains chargeable for that previous year then, subject to the 3 M/s. Medical Solutions (Ind) Pvt Ltd., Mumbai provisions of subsection (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. In other words, it means that the depreciation amount has to be adjusted in the following order: (a) first against profits and gains from business; (b) then against excess of income 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.
7. And in support of the above proposition, relied upon the decision of Hon'ble Bombay High Court Bond Safety Belts (Dissolved) v/s. Dy. CIT [ITA No.: 853 of 2018; Order dated: 27.09.2023] wherein it was held that brought 4 M/s. Medical Solutions (Ind) Pvt Ltd., Mumbai forward unabsorbed depreciation can be set off against income from capital gains. The Hon'ble Tribunal in the case of J.B. Advani & Co. P. Ltd. v/s. ACIT [ITA No. 2544/M/2023; Order dated: 06.11.2023] while following the decision of Hon'ble Bombay High Court in the case of Bond Safety Belts (supra) allowed the assessee's claim of set off of unabsorbed depreciation carried forward from earlier years against income from capital gains. The Hon'ble Mumbai Tribunal in the case of Suresh Industries (P.) Ltd. v/s. ACIT [(2012) 27 taxmann.com 203 (Mum)] also held that current year's depreciation is to be allowed as set off from the long-term capital gains and brought forward depreciation is to be treated as current year's depreciation as per the legal fiction of section 32(2) and the same is also to be allowed to be set off from the long-term capital gains.
Be that as it may after having heard both the parties at length, I am of the view that the brought forward unabsorbed depreciation can be set off against the income from capital gains subject to factual verification at the end of AO, with regard to adjustment of depreciation amount in the manner prescribed under subsection (1) of section 32 and subsection (2) and (3) of section 72 of the Income Tax Act and also taking into consideration the decision of 5 M/s. Medical Solutions (Ind) Pvt Ltd., Mumbai Hon'ble Bombay High court and Tribunals as mentioned above. With these directions , matter stands restored to AO for passing afresh order in terms indicated above. Needless to mention, after providing fair opportunity of hearing to the assessee.
Before parting, I make it clear that our decision to restore the matter back to the file of the AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the AO independently in accordance with law.
In the result, the appeal filed by the assessee is allowed for statistical purposes