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Facts
The assessee, a partnership firm, had business losses and unabsorbed depreciation from previous assessment years (2018-19 and 2019-20). For AY 2021-22, the assessee had income from other sources and claimed set-off of brought forward unabsorbed depreciation against this income.
Held
The Tribunal held that brought forward unabsorbed depreciation needs to be added to the current year's depreciation, and once it takes the character of current year depreciation, it becomes eligible for set-off against income from other sources as per Section 72(1) of the Act.
Key Issues
Whether brought forward unabsorbed depreciation can be set-off against income from other sources.
Sections Cited
Section 72(1), Section 32(2)
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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
Before: SHRI MANISH BORAD & SHRI S. S. VISWANETHRA RAVI
ORDER
PER MANISH BORAD, AM:
This appeal filed at the instance of assessee is directed against the order of Ld. Addl./JCIT(A)-3, Hyderabad [‘Ld. CIT(A)’] dated 15.01.2025 which is arising out of intimation u/s 143(1)(a) of the Act for Assessment Year 2021-22 framed on 16.11.2022 by the ADIT, CPC, Bengaluru.
The only grievance of the assessee is that Ld. CIT(A) erred in confirming the action of CPC, Bengaluru of not allowing set-off of brought forward unabsorbed depreciation against the income from other sources.
Facts in brief are that the assessee is a partnership firm having income from business. Return of income for assessment year 2021- 22 furnished on 18.01.2022 declaring Nil income after claiming set- off of brought forward unabsorbed depreciation against the income from other sources. The CPC, Bengaluru denied this claim and subsequently even in appeal before Ld. CIT(A), assessee failed to succeed as Ld. CIT(A) dismissed the assessee’s appeal by observing as under :- “5.4 In the submission made the appellant has stated that set off of unabsorbed depreciation of Rs.5,72,880/- which was carried forward from AY 2018-19 and 2019-20 has not been allowed against the income computed in intimation. The appellant has claimed that it is entitled to set-off of brought forward depreciation as the ROI for AY 2018-19 and 2019-20 were filed in time. The appellant has furnished copies of ROI for the AY 2018-19 and 2019-20 in support of its claim. 5.5 From the facts of the case the claim of the appellant seems to be misconceived. In the ROI the appellant has clearly shown loss from business and income from other sources which was correctly computed as per ROI filed. As per provisions of Clause (i) section 72(1) of the Act, the carried forward business loss (which comprises of unabsorbed depreciation) can be carried forward and set off against the profit and gains of any business only and not against income from any other heads. 5.6 The appellant during the AY 2021-22 has derived only "Income from Other Sources” and therefore the brought forward business loss comprising of unabsorbed depreciation cannot be set-off against income shown under the head "Income from Other Sources". In view of above, not allowing set-off of brought forward depreciation (business loss) against the "Income from Other Sources” of current year in the intimation issued u/s 143(1) of the Income Tax Act, 1961, dated 16/11/2022 is found to be in order. 6.0 In the result, the appeal of the appellant is dismissed.”
4. Aggrieved assessee is now in appeal before this Tribunal.
Ld. Counsel for the assessee referred to the paper book running into 308 pages and also referred to the judgements of the Hon’ble Bombay High Court in the case of CIT vs. Estate & Finance Ltd., 111 ITR 119 (Bombay) and the Hon’ble High Court of Gujarat in the case of CIT vs. Deepak Textiles Industries Ltd., [1995] 81 Taxman 375 (Gujarat) and stated that the unabsorbed depreciation is different from business loss and it can be carried forward for unlimited period and can be set-off against the income from other sources also.
Ld. DR supported the orders of the lower authorities.
We have heard rival contentions and perused the records placed before us. The only issue for our consideration is whether unabsorbed depreciation brought forward from previous year can be set-off against the income from other sources. We notice that for the year under consideration assessee had loss under the head ‘business’ but had income from interest under the head ‘income from other sources’. Assessee had brought forward unabsorbed depreciation at Rs.7,37,257/- for assessment year 2018-19 and Rs.28,00,074/- for assessment year 2019-20. Against the income from other sources of Rs.6,51,330/-, the assessee has set-off business loss for current year of Rs.51,566/- and further claimed set- off of unabsorbed depreciation of Rs.5,99,764/-.
We find that section 32(2) of the Act has a direct bearing to the issue in hand and the same reads as under :- “32 (1) xxxxx (2) 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 owing 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 the allowance for that previous year, and so on for the succeeding previous years.”
From perusal of the above provisions, in our considered view, brought forward unabsorbed depreciation needs to be added to current year depreciation and is treated as current depreciation loss. Once it takes the colour of current year depreciation then it becomes eligible for set-off against other income as provided in section 72(1) of the Act. The above provisions is squarely applicable in the facts of the instant case and, therefore, the claim of the assessee of setting-off of unabsorbed depreciation brought forward from preceding year against the current year income from other sources is valid and deserves to be allowed. Finding of Ld. CIT(A) is