SUVINO TELEVIDEO,MUMBAI vs. ITO WARD 25(1)(3), MUMBAI

O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order dated 24.03.2023 of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “CIT(A)”],passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for the A.Y. 2013-14. The ld. CIT(A)

SuvinoTelevideo; A.Y. 2013-14 has dismissed the appeal of the assessee and confirmed the order of the learned Assessing Officer, ITO, Ward – 25(1)(3) (hereinafter referred to as “ld. AO”), dated 18.03.2016, who has refused to allow to carry forward the unabsorbed depreciation pertaining to A.Y. 1995-96 to the considered year 2013-14.

3. The ld. AO was of the view that the business losses included depreciation u/s. 72 of the Act, hence, carry forward of depreciation including business losses can be set off from business income only. It is further stated that in case of assessee there is no business income during the year under consideration. Hence, the set off of unabsorbed depreciation as claimed by the assessee against the house property income and capital gains is disallowed and the incomes under respective heads are brought to tax. It is further observed that the assessee has claimed to carry forward of loss pertaining to A.Y. 1995-96 onwards and the same is also claimed to be set off against the current year income. (A.Y. 2013-14). The ld. AO asked the assessee vide order sheet noting dated 12.02.2016 to justify the claim of unabsorbed depreciation for A.Y. 1995-96, 1996-97 and 1997-98, as against the house property income and capital gains pertaining to the current year (A.Y. 2013-14).

SuvinoTelevideo; A.Y. 2013-14 4. The assessee vide his details dated 18.02.2016 has made submission which find noted and adjudicated upon by the ld. AO. That the combined reading of Section 32(2) and 70(2) shows that if an assessee has unabsorbed depreciation u/s. 32(2) as well as unabsorbed business loss carried forward u/s. 72(1), Section 72(2) provides that the unabsorbed losses shall have precedence and to be set off first, so far as the sufficiency of the income to be set off against permits. Further, it is stated that Section 72(2) contemplates that if there is some unabsorbed loss carried forward to set off and there is also some unabsorbed depreciation allowance carried forward to be set off, the former shall get priority. It is further asserted by the assessee before the ld. AO that u/s. 32(2), unabsorbed depreciation of a year becomes the part of depreciation of subsequent year by legal fiction and when it becomes part of the current year depreciation then it was liable to be set off against any other income. The assessee relied upon the judgment of the Hon'ble Supreme Court in the case of CIT vs. Jaipuria China Clay Mines (P) Ltd. (59 ITR 555) where it was held that “it is wrong to assume that Section 72 also deals with the carrying forward of depreciation. This carry forward having been provide in Section 32(2)

5. The ld. AO has considered these submissions of the assessee and concluded that the same was not acceptable. The observation of the ld. AO are relevant and reproduced as under:

“The submission of the assessee is perused, but the same is not acceptable. Section 72 of the Income tax Act, 1961 stipulates that, *Where for any assessment year, the net result of the computation under the head, "Profits and gains of business or profession" is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year and (i) It shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (ii) If the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on........." Further, section 32 (2) (iii) prior to its substitution w.e.f. 1.4.2002 read as under: “if the unabsorbed depreciation allowance cannot be wholly set off under clause (1) and clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year and - (a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year.

SuvinoTelevideo; A.Y. 2013-14 (b) if the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed....." Thus, as per section 72, where for any assessment year, the net result of the computation under the head, "Profits and gains of business or profession" is a loss to the assessee, means any loss from business which is not set off during the relevant assessment year, is allowed to be carried forward to the following assessment years and can be set off against profits and gains from business and profession income only carried on by the assessee and assessable for those assessment years. The Act clearly states that the business loss has to be adjusted against the head business, or profession income and as such this carried forward loss cannot be adjusted against any other head of income. Reliance is also placed on the decision of the Hon'ble Apex court in the case of Garden Silk Weaving Factory reported at 94CTR 136 (1991), wherein it was held that depreciation is indeed a part of the "loss". This is because, in the first place, 'depreciation' is a normal outgoing, though in a sense notional, which has to be debited in the computation of the profits of a business on commercial principles (quite apart from statute) and it is difficult to see why, when such deduction yields a negative figure of profits, it cannot be a loss' as generally understood. Thus, it means that business losses included depreciation under section 72 of the Act. Hence carry forward depreciation including business losses can be set off from business income only. In the case of assessee there is no business income during the year under consideration. Hence, the set off of unabsorbed depreciation as claimed by the assessee against the house property income and capital gains, is disallowed and the incomes under respective heads are brought to tax. (2) Whether the loss from unabsorbed depreciation before 2002 can be carry forward upto unlimited time? Assessee has claimed the carry forward of loss pertaining to Assessment Year 1995-96 onwards, as mentioned above and which is also claimed to be set off against the current year income. As per section 32(2) prior to its amendment w.e.f. 01.04.2002, the loss not so set off can be carried forward to only fight assessment years immediately succeeding Page | 6 SuvinoTelevideo; A.Y. 2013-14 the assessment year for which the loss was first computed. In the case of the assessee, it is seen that brought forward depreciation loss has been adjusted against income from house property and income from capital gain thereby resulting in a Nil income for this relevant assessment year. Moreover, the unabsorbed depreciation pertains to Assessment Years 1995- 96, 1996-97 and 1997-98. Reliance is also placed on the decision of the Hon'ble Tribunal in the case of DCIT vs. Times Guaranty Ltd. the Hon'ble Tribunal vide its order No. 4917 & 4918/Mum/2008 dated 30the June, 2010, wherein the Hon'ble Tribunal has given the following decision in para 39 and para 40, which is as under: “39. Adverting to the facts of the instant case we find that the unabsorbed depreciation allowance arose in the second period i.e. assessment years 1997-98 to 1999-2000 which 1999-2000 which could not be adjusted against the income under the head "Profits and gains of business or profession' up to assessment year 2002- 2003. Now the assessee cannot claim set off of such unabsorbed depreciation allowance against income under any head other than "Profits and gains of business or profession" in the years under consideration. As the assessee is seeking to claim the set off of such brought forward unabsorbed depreciation allowance against income under the head 'Income from other sources', that cannot be accepted. In view of the foregoing reasons we are of the considered opinion that the learned CIT(A) erred in not correctly interpreting the law in this regard. The impugned order is hereby vacated and the action of the Assessing Officer is restored in both the years under consideration.

Rs. Rs. Income from house property 6,34,580 (as per computation) Income from Business & (2,10,252) Profession (As per computation of income)

Income from capital gain 1,14,59,699 (short term capital gain as per computation of income)

Gross total income 1,14,59,699 Deduction under Chapter VIA NIL Total Income 1,18,93,027 Total Income (Rounded off to) 1,18,93,030 Assessed u/s. 143(3) of the Act. Give credit for pre paid taxes after due verification. Charge interest as per law, issue demand notice /R.O. accordingly. Penalty proceedings u/s. 271(1)(c) of the Income Tax Act, 1961 for furnishing inaccurate particulars of income and concealment of income is separately being initiated.”

“3.3. We disagree to the contention of the assessee. There had been various amendments over a period in Depreciation provision. We would like to summarize the same as below, Provision upto 31.03.1996 i.e., A.Y 1996-97. (i) Current depreciation, that is the amount of allowance for the year under sec. 32(1), can be set off against income under any head within the same year.

SuvinoTelevideo; A.Y. 2013-14 (ii) Amount of such current depreciation which cannot be so set off within the same year as per (i) above shall be deemed as depreciation under s. 32(1), that is depreciation for the current year in the following year(s) to be set off against income under any head, like current depreciation. Provision from 01.04.1996 to 31.03.2001 i.e. from A.Y 1997-98 to A.Y 2001-02. (i) Brought forward unadjusted depreciation allowance for and upto asst. yr. 1996- 97(hereinafter called the "First unadjusted depreciation allowance"), which could not be set off upto asst. yr. 1996-97, shall be carried forward for set off against income under any head for a maximum period of eight assessment years starting from asst. yr. 1997- 98. (ii) Current depreciation for the year under s. 32(1) (for each year separately starting from asst. yr. 1997-98 upto 2001-02) can be set off firstly against business income and then against income under any other head. (iii) Amount of current depreciation for asst. yrs. 1997-98 to 2001-02 which cannot be so set off as per (ii) above, (hereinafter called the "Second unabsorbed depreciation allowance) shall be carried forward for a maximum period of eight assessment years from the assessment year immediately succeeding the assessment year for which it was first computed, to be set off only against the income under the head "Profits and gains of business or profession". Provision from 01.04.2001 onwards ie. from A.Y 2002-03 onwards (i) All the old provision as applicable before 01.04.1996 was restored. (ii) Any Unabsorbed Depreciation which could not be set off till AY 2001- 02 will be carried forward and considered as the depreciation of current year i.e. AY 2002-03. From the above summary it is quite evident that the unabsorbed depreciation of A. Y 199697 are considered as depreciation of current year ie. A.Y 1997-98 Further the said unabsorbed depreciation not adjusted till A.Y 2001-02 will again form part of current year depreciation i.e. for A. Y 2002-03.

SuvinoTelevideo; A.Y. 2013-14 Appellant also relies on the following judgements, a. General Motors India (P). Ltd. Vs DCIT (2013) 354ITR 244 (Guj) "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 1st 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 Act, 2001 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 taken" b. DCIT Vs Andhra Petrochemicals Ltd 123ITD 89 The Tribunal held that: "15. The only other issue remains for the asst. yr. 2002-03 is with regard to the entitlement to carry forward depreciation pertaining to the asst. yr. 1994-95. The provisions as applicable for the asst. yr. 1994-95 do not restrict carry forward of depreciation for any specified period and as per the provisions as they existed then, the depreciation carried forward from the earlier years has to be treated as current year's depreciation in which event, the depreciation of the asst. yr. 1994-95 has to be treated as the current year's depreciation for the asst. yr. 1995-96 and so on. However, by virtue of the amendment to the provisions w.e.f. 1st April, 1997 carried forward depreciation is available for set off only for a period of eight years and the CBDT has clarified the amended provisions by stating that the limitation of eight years shall start from the asst. yr. 1997-98 by which the assessee would be entitled to carry forward the unabsorbed depreciation upto the asst yr. 2004-05 However, by the Finance Act, 2001 w.g 1st April, 2002, the old provisions were revived by dispensing with the restriction of eight years for carry forward and set off of unabsorbed depreciation. As on 1st April, 2002 the assessee's right to carry forward SuvinoTelevideo; A.Y. 2013-14 the depreciation of the asst. yr. 1994-95 being alive and available for set off, the amended provisions come into play, in which event the same has to be determined Since it tras to be carried forward to the next year. In our considered opinion, the AO as well as the CIT(A) have not considered the plain meaning of the provisions in correct perspective. We. therefore, set aside the orders passed by the tax authorities on this issue and direct the AO to permit the assessee to carry forward the depreciation referable to the asst. yr. 1994-95" c. KMC Speciality Hospitals India Ltd. Vs ACIT dt 5th May, 2014 the issue was with respect to the carry forward of unabsorbed depreciation relating to AYs 1989-90 to 1998-99. The Chennai Tribunal held as under. "8. Therefore, it is to be seen that wherever unabsorbed depreciation was not allowed to be set off against the profits arising after the period of eight years, should be again considered to be set off, after the amendment. When the quantum of unabsorbed depreciation is computed after the amendment, whatever balance of unabsorbed depreciation is available to the credit of the assessee, must be determined as unabsorbed depreciation eligible for carry forward and set off. The interregnum restriction of limiting of the claim for eight-year period does not take away the right of an assessee to claim the balance of unabsorbed depreciation, forever. The balance of unabsorbed depreciation revives back into life and becomes eligible for carry forward and set off along with the other part unabsorbed depreciation available to the credit of the assessee." d. 81 Karnataka Co-operative Milk Producers' Federation Ltd. Vs. DCIT (2011) 53 DTR (Kar) e. ITO VS Suraj Solvent & Vanaspati Industries Ltd 16 DTR (Asr)(Trib) 492 f. DCIT VS Tamil Nadu State Transport Corporation (Villupuram) Limited dt 18.01.2012 3.4. Therefore, we see that the above decisions have held that the amendment by Finance Act 2002 was a return back to the original provision, to make the claim simple. The old position has been restored, which allows set off unabsorbed depreciation against any head of income and the restrictive period of 8 years for claiming the set off has been deleted vide CBDT circular, thereby extending the claim period.

SuvinoTelevideo; A.Y. 2013-14 Based upon the above stated facts and circumstances of the case, your honor is requested to allow the appeal of the Appellant. In case of any contrary view and in case of any further details / clarifications are required by honor, the Appellant requests to provide an opportunity to furnish the same and an opportunity of being heard before disposing of the matter.”

5.3.2. The Hon'ble of ITAT Mumbai [Special Bench Decision) in the case of DCIT VS. Times Guartee Ltd. (2010) 40 SOT 14 (SB) (Mum) & & 4918/Mum/2008 Asst. Years 2003-2004 & 2004-2005; wherein it was held the provisions of Sec. 32(2) as substituted by the Finance Act, 2001 w.e.f. 1st April, 2002, which is reinforcement of the provision as existing in the first period i.e.. prior to 1st April, 1997. Thus, the law as existing in the second period w.e.f. 1st April, 1997 was completely taken back and as a result of that the provision as prevailing in the first period was restored. From the language of the sub-s. (2) of s. 32 it is manifest that it is a substantive provision and not a procedural one. It is settled legal position that the amendment to substantive provision is normally prospective unless expressly stated otherwise or it appears so by necessary implication. The special Bench summarised its conclusions thus:

The legal position of current and brought forward unadjusted/unabsorbed depreciation allowance in the three periods, is summarized as under.

SuvinoTelevideo; A.Y. 2013-14 “1. Disallowing Set-off of Unabsorbed Depreciation - INR 1,18,93,030/- That on the facts and circumstances of the case learned Assessing Officer (hereinafter referred to as 'Ld. AO') has erred in disallowing the set-off of Unabsorbed Depreciation against Income from House Property and Income from Short-term capital gain. HENCE APPEALED 2. The appellant craves leave to add, alter, delete, rectify and modify any of the grounds of appeal s before or at the time of hearing the appeal.”

9. We have heard the ld. AR on behalf of the assessee who would argue that both the lower authorities have misdirected themselves and has not followed the correct law laid down by the General Motors India (P). Ltd. Vs. DCIT (supra) and has failed to acknowledge that as per provisions with effect from 01.04.2001 onwards i.e., from A. Y. 2002-03, the old provisions as applicable before 01.04.1996 was restored and any unabsorbed depreciation which could not be set off till A. Y. 2001-02 will be carried forward and considered as the depreciation of the current year. The ld. AR has also relied upon following decisions in support of his contentions.

 “General Motors India (P). Ltd. Vs DCIT (2013) 354ITR 244 (Guj)  DCIT Vs Andhra Petrochemicals Ltd 123ITD 89 (ITAT Vizag)  KMC Speciality Hospitals India Ltd. Vs ACIT dt 5th May, 2014 Chennai SuvinoTelevideo; A.Y. 2013-14  Karnataka Co-operative Milk Producers' Federation Ltd. Vs. DCIT (2011) 53 DTR (Kar) 81.  ITO Vs Suraj Solvent & Vanaspati Industries Ltd 16 DTR (Asr)(Trib) 492.  DCIT Vs Tamil Nadu State Transport Corporation (Villupuram) Limited dt 18.01.2012.”

SuvinoTelevideo; A.Y. 2013-14 14. The ld. AO while denying the claim of the assessee was of the opinion that the unabsorbed depreciation pertaining to A.Y. 1995-96 to 1999- 2000 was not allowable to be carried forward after the amendment of Section 32(2) w.e.f. 01.04.2002 which is prospective in nature and prior to the said amendment, the loss and unabsorbed depreciation which could not be set off was allowable to be carried forward to only 8 assessment years immediately succeeding the assessment year for which the loss/depreciation was first computed. The ld. AO was also of the opinion that the unabsorbed depreciation if permissible could be set off against business income and not permissible to be set off against capital gains income. The said decision of the ld. AO has been confirmed by the ld. CIT(A) who has based his decision on the Mumbai Tribunal Special Bench decision in case of DCIT vs. Times Gurantee Ltd. (supra).

15. As noted earlier the ld. CIT(A) had not considered the judgment of the Hon'ble Gujrat High Court General Motors India (P.) Ltd. Vs. DCIT (supra) and the said judgment has been considered to be the right law on this issue by the Hon'ble Jurisdictional High Court in Bond Safety Belts (Dissolved) vs. DCIT (supra). a. Bond Safety Belts (Dissolved) vs. DCIT [2023] 156 taxmann.com 222 (Mumbai), order dated 27.09.2023

SuvinoTelevideo; A.Y. 2013-14 35. Section 32(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."

19. Appeal accordingly disposed. b. CIT vs. Hicsonand Dadaji (P.) Ltd., (2020) 120 taxmann.com 93 (Bombay):-

This case involved carry forwarding of unabsorbed depreciation available to the assessee on the first day of April, 2002 for the A.Y. 2002-03 without the restriction of 8 years, which was applicable SuvinoTelevideo; A.Y. 2013-14 during the A.Y. 1997-98 to 2001-02 and it was held that the circular no. 14/2001 dated 22.11.2001 clarifies that the restriction of 8 years as existing between A. Y. 1997-98 upto 2001-02 to carry forward and set off unabsorbed depreciation has been dispensed w.e.f. A.Y. 2002-03. Consequently, the unabsorbed depreciation available from 1st April, 2001 will be allowable from the A.Y. 2002-03. c. Harvey Heart Hospitals Ltd. vs. Assistant Commissioner of Income Tax [2021] 127 taxmann.com 805 (Madras)/[2021] 431 ITR 83 (Madras)[06-01-2021]:-

In this case the Hon'ble High Court while referring the judgement of the Hon'ble Gujarat High Court reported in General Motors India (P.) Ltd. Vs. DCIT (2013) 354 ITR 244 (Guj). (supra), was pleased to hold that unabsorbed depreciation pertaining to A. Y. 1997-98 to 2001-02 can be carry forward and adjusted after the lapse of 8 years in view of Section 32(2) of the Act as mandate by the Finance Act, 2001.

SuvinoTelevideo; A.Y. 2013-14 d. Dr. Willmar Schwable India (P.) Ltd. vs. Additional Commissioner of Income-tax (High Court of Delhi) [2023] 152 taxmann.com 428 (Delhi) [17-05-2023] In this case, the unabsorbed depreciation which the petitioner concededly set off in the AY in issue is an amount equivalent to Rs. 7,63,79,560/-. The period over which this depreciation had accumulated spanned between AY 1998-99 and 2001-02.

It was noted as submitted by the Counsel that prior to the Finance Act, 1996, unabsorbed depreciation could be carried forward for an unlimited period, and post the Finance Act, 1996, this period was restricted to eight (8) years. This restriction qua the period for which unabsorbed depreciation could be carried forward was removed, pursuant to Finance Act, 2001. Thus for the A.Y. 2011- 12, there was no bar on the petitioner setting off unabsorbed depreciation which had accrued over the period spanning AY 1998-99 to AY 2001-02. The Hon’ble High Court was pleased to hold that “we are also inclined to accept the other submissions made by Mr. Thakkar on merits, that both the carry forward of

17. We have considered the rival submissions, the case relied upon by the assessee and order of Ld. CIT(A) dated 24.03.2023 wherein para 5.3, he has observed that “there are many differing decisions by various Courts on this issue of unabsorbed depreciation of AY 1996-97 for unlimited period even pertaining to AY 1996-97 as in the present case after the amendment by Finance Act 2002 wherein the old position has been restored which allows set off unabsorbed depreciation against any head of income and the restrictive period of 8 years for claiming the set off has been deleted vide CBDT Circular, thereby extending the claim period, it was observed by Ld. CIT(A) that none of the decision relied upon by the assessee pertain to the Jurisdictional Courts.”

18. It is noticed that the AO as well as ld. CIT(A) has not followed the correct law laid down by the Hon’ble Gujarat High Court reported as General Motors India (P.) Ltd. Vs. DCIT (2013) 354 ITR 244 (Guj) (supra). The said decision of the Hon’ble Gujarat High Court has been followed and accepted by the Hon’ble Jurisdictional High Court in the case of Bond Safety Belts vs. DCIT (2023) 156 taxmann.com Page | 29 SuvinoTelevideo; A.Y. 2013-14 222(Mumbai) dated 27.09.2023. It is thus apparent that when the Ld. CIT(A) has passed the impugned order dated 24.03.2023, the Bond Safety Belts (supra) judgment was not delivered. The Hon’ble Jurisidictional High Court while following the judgment of General Motors India (P.) Ltd. (supra) held that assessee should be permitted to set off unabsorbed depreciation pertaining to AY 1997-98 to 2001-02 against the short term capital gains. Thus, following the mandate of law laid down by Hon’ble Jurisdictional High Court in the case of Bond Safety Belts (supra), the assessee in the presence case is right in carrying forward of unabsorbed depreciation amounting Rs. 1,18,93,030/- against income from house property and income from short term capital gain. Accordingly, the AO is directed to delete the addition. Hence the ground raised by the assessee is allowed.

Order pronounced in the open court on 18.02.2025.