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Income Tax Appellate Tribunal, C BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI SHRI OM PRAKASH KANT ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 1488/MUM/2020 (ASSESSMENT YEAR: 2011-12) Cinerad Communications Limited, G58 Om Heera Panna Premises, Co-op. Society Ltd. Oshiwara, Andheri (West), Mumbai - 400053 [PAN: AAACC9117H] …………… Appellant Vs Income Tax Officer, Ward 3(1)(3), Mumbai, Room No. 666, Aayakar Bhavan, Maharishi Karve Road, Mumbai - 400020 ……………… Respondent Appearances For the Appellant/Assessee : None For the Respondent/Department : Shri B.K. Bagchi Date of conclusion of hearing : 28.04.2022 Date of pronouncement of order : 25.07.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant has challenged the order, dated 10.02.2020, passed by the Ld. Commissioner of Income Tax (Appeals)- 8, Mumbai, [hereinafter referred to as „the CIT(A)‟], for the Assessment Year 2011-12, whereby the Ld. CIT(A) had partly allowed the appeal filed by the Appellant against the Assessment Order, dated 25.03.2014, passed under section 143(3) of the Act.
ITA No. 1488/Mum/2020 Assessment Year: 2011-12 2. The Appellant has raised the following grounds of appeal read as under:
1(a) The appellant-company submits that the Hon‟ble Commissioner of Income-tax (Appeals)-8, Mumbai (hereinafter referred to as “the CIT(A)”) erred in confirming that unabsorbed depreciation cannot be set-off against short term capital gains determined u/s 50 of the Act.
(b) The appellant-company submits that on the facts and circumstances of the case, as well as in law, the grounds on which the Hon‟ble CIT(A) has confirmed the disallowance of set-off of unabsorbed depreciation is contrary to the provisions of the Act and therefore, the impugned set-off of unabsorbed depreciation against short term capital gains determined u/s 50 of the Act be allowed.
The Appellant, a company engaged in media and entertainment business, filed return of income on 29.09.2011 declaring „Nil‟ income.
During the previous year, Appellant sold two office premises for INR 1,10,00,000. The said premises were part of the block of asset viz. 'buildings' on which depreciation was claimed and allowed under section 32 of the Act. Since, the sale proceeds exceeded the written down value of the aforesaid block of asset by INR 99,48,212/-, the provisions of Section 50 were attracted and sale consideration exceeding the written down value of the block of asset, was treated by the Appellant as Short Term Capital Gains (STCG).
ITA No. 1488/Mum/2020 Assessment Year: 2011-12 5. The Appellant had carried forward unabsorbed depreciation for the Assessment Year 2002-03 and onwards the details of which are as under:
Assessment Year Unabsorbed Depreciation 2002-2003 35,50,125 2005-2006 16,26,427 2007-08 4,08,655 2008-09 3,57,144 2009-10 4,11,604 2010-2011 3,43,535 Total 66,97,490
In the computation of income, the Appellant claimed set-off of the unabsorbed depreciation for AY 2002-2003 & onwards amounting to INR 66,97,490/- as the same was added by the Appellant to the current depreciation of INR 10,30,001/- as per Section 32(2) of the Act and the aggregate depreciation of INR 77,27,491 was set-off against the income under the head Capital Gains for the current year.
The assessment under Section 143(3) of the Act was completed on 25.03.2014 determining total income of INR 96,28,720/-. While framing the assessment the Assessing Officer concluded that unabsorbed depreciation pertaining to earlier years (including Assessment Years 2002-03 & onwards) cannot be set off against the STCG computed under Section 50 of the Act by placing reliance on the judgment of the Hon‟ble Chhattisgarh High Court in the case of Commissioner of Income Tax, Bilaspur (CG) Vs. Income Tax Appellate Tribunal, Jabalpur and Another: Tax Case No. 10 of 2006, decided on 09.05.2013 (herein after referred to as „Jyoti Straw Products Case‟).
ITA No. 1488/Mum/2020 Assessment Year: 2011-12 8. Being aggrieved the Appellant preferred appeal before the CIT(A). However, the CIT(A) confirmed the order of the Assessing Officer on this issue holding as under:
“5.3.2. During the appellate proceedings, the appellant company submitted its argument. The appellant company candidly agreed that as per the judgment of Hon‟ble Chhattisgarh High Court in the case of Jyoti Straw Products Ld. (supra), the brought forward depreciation cannot be set off against the income computed under Section 50 as Short Term Capital Gain. However, it is submitted that the provisions of Sec. 32(2), prior to Finance Act, 2001 and after amendment w.e.f. 2002-03, there is a material change in the provisions of Sec. 32(2) of the Act and according to the appellant company under the new provisions, the set off carry forward unabsorbed depreciation with short term capital gain computed under Section 50 of the Act, is allowable.
5.3.3. If we look at the new provision minutely it states subject to the provisions of sub-section (2) of Section 72. Even this provision allows carry forward business loss to be set off against the Profit & Gains of Business only, if any, carried out by the assessee. Thus, there is no ambiguity in the amended provision. Even under the, amended provision in my considered view, the Short Term Capital Gain computed u/s 50 cannot be subjected to setting off of business losses brought forward, from earlier years. The appellant company has relied on certain decisions which the has also discussed in his order. However, the AO's order is fortified by the judgment of Chhattisgarh High Court in the case of Jyoti Straw Products Ltd. (supra). Hon'ble High Court has clearly concluded
ITA No. 1488/Mum/2020 Assessment Year: 2011-12 (a) In order to claim set off it was not necessary to carry on the business for entire previous year. The only necessity was that it should be carried on in that year. It could be only for part of the year;
(b) The carried forward unabsorbed depreciation allowance for depreciable assets could be set off only against the profit and gains of business of profession and not against any other income.
(c) short term capital gain on sale of depreciable assets is not profits and gains of any business or profession
(d) Carried forward unabsorbed depreciation allowance cannot be set off.
Thus the denial of set off of carried forward unabsorbed depreciation with short term capital gain computed u/s 50 is upheld and grounds of appeal on this issue is dismissed.“ 9. Being aggrieved the Appellant has carried this issue in appeal before us.
We have heard the Ld. Departmental Representative, perused the records, and considered the contentions raised on behalf of the Appellant before the lower authorities. We note that the Special Bench of the Tribunal in the case of DCIT, Circle-1(3), Mumbai Vs. Times Guaranty Limited: /[2010] 4 ITR(T) 210 (Mumbai) (SB) had observed as under:
“38.The legal position of current and brought forward unadjusted/unabsorbed depreciation allowance in the three periods, is summarized as under :
ITA No. 1488/Mum/2020 Assessment Year: 2011-12 A. In the first period (i.e. up to assessment year 1996-97) xx B. In the second period (i.e., assessment years 1997-98 to 2001-02) xx xx C. In the third period (i.e., assessment year 2002-03 onwards) (i) xx xx (ii) xx xx (iii) Current depreciation for the year under section 32(1), for each year separately, starting from assessment year 2002-03 can be set off against income under any head. Amount of depreciation allowance not so set off (hereinafter called the „Third unadjusted depreciation allowance‟) shall be carried forward to the following year. (iv) The „Third unadjusted depreciation allowance‟ shall be deemed as depreciation under section 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, in perpetuity.” (Emphasis Supplied)
Further, the Co-ordinate Bench of the Tribunal in the case of Suresh Industries (P) Ltd. Vs Assistant Commissioner of Income Tax - 7(2) Mumbai : 54 SOT 450 (Mumbai)[10-10-2012] wherein it has been held as under:
A comparative study of pre-amendment and post amendment provisions of Sec. 32(2) suggests that prior to the amendment, the set off was restricted to the profits and gains, if any, of any business or profession whereas post amendment (i.e. the law applicable for the year under consideration) the set 6
ITA No. 1488/Mum/2020 Assessment Year: 2011-12 off is available from profits or gains chargeable for the previous year. The claim of the lower authorities that profits or gains so mentioned should be restricted to profits or gains of business or profession cannot be accepted because had that been the intention of the legislature it would not have deleted phrase "of any business or profession in the post amended provisions of Sec. 32(2). The law regarding set off of unabsorbed depreciation upto 1.4.1996 was very liberal and set off was allowable against any income. This was also upheld by the Hon'ble Supreme Court in the case of Virmani Indus. (P.) Ltd. (supra). However, the law regarding such set off was changed by the Finance Act No. 2 of 1996 and from A.Y. 1997-98 to 2002-03 the unabsorbed depreciation was put at par with business losses u/s. 72. However the status quo have been restored from A.Y. 2003-04 and therefore the ratio laid down by the Hon'ble Supreme Court in the case of Virmani Indus. (P.) Ltd. (supra) once again hold good and so now unabsorbed depreciation can be set off against any income. Thus, the claim of current year's depreciation of Rs. 2,32,059/- is directed to be set off against the income under the head "Capital gains". Accordingly, ground No. 1 of the appeal is allowed.
Having considered the provisions of Sec. 32(2), it is also clear that if the current year's depreciation cannot be set off owing to the profits or gains chargeable being less than the allowance, the allowance or the part of the allowance to which effect has not been given shall be added to the amount of allowance
ITA No. 1488/Mum/2020 Assessment Year: 2011-12 for depreciation for the following previous year and deemed to be part of the allowance which means that brought forward depreciation merges with the current year's depreciation because of the legal fiction created by provisions of Sec. 32(2) of the Act. However, this fiction has been subjected to the provisions of Sec. 72(2) and 73(3) of the Act.
Let us first consider the provisions of Sec. 72(2) of the Act which provides as under:
"Whether any allowance or part thereof is, under sub-section2 of Sec. 32 or sub section (4) of Sec. 35, to be carried forward, effect shall first be given to the provisions of this section. 13. A simple reading of this section suggests that in case of set off of business loss vis-a-vis depreciation, the first preference shall be given to the business loss as per the provisions of Sec. 72(1) of the Act for the simple reason that the business loss can be carried forward only upto 8 assessment years whereas the depreciation can be carried over upto unlimited period. As has been discussed hereinabove, the brought forward unabsorbed depreciation is treated as current years' depreciation because of the legal fiction, therefore the treatment given to the current year's depreciation is equally applicable to brought forward depreciation after the application of Finance Act, 2001.
We have already 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
ITA No. 1488/Mum/2020 Assessment Year: 2011-12 year's depreciation as per the legal fiction of section32(2), the same is also to be allowed to be set off from the Long Term Capital Gains. Accordingly, ground No. 2 of the appeal is also allowed.
In the result, the appeal filed by the assessee is allowed.”
In view of the above, respectfully following the above decisions of the co-ordinate bench of the Tribunal, we set aside the order passed by the Assessing Officer and CIT(A) on the issue before us. We direct the Assessing Officer to grant benefit of set-off of unabsorbed depreciation amounting to INR 66,97,490/- for Assessment Years 2002-03 & onwards brought forward to the Assessment Year 2011-12 and treated as part of current year depreciation in terms of Section 32 of the Act with the Short Term Capital Gains income of the Appellant. In terms of the aforesaid, Ground No.1(a) & (b) are allowed.
In result the present appeal is allowed.
Order pronounced on 25.07.2022.
Sd/- Sd/- ( Om Prakash Kant) (Rahul Chaudhary) Accountant Member Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 25.07.2022 Alindra, PS
ITA No. 1488/Mum/2020 Assessment Year: 2011-12 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.
आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदिकरण, म ुंबई / ITAT, Mumbai