M/S. HINDON RIVER MILLS LTD,GHAZIABAD vs. DCIT, GHAZIABAD

The present appeal filed by assessee is against order of CIT(A), Aligarh dated 08.02.2016 relating to assessment year 2012-13 against the order passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).

The Ld.AR for the assessee at the outset pointed out that the issue raised in the present appeal stands squarely covered by the order of Tribunal in assessee’s own case in relating to Assessment Year 2011-12 order dated 28.08.2019.

The Ld.DR on the other hand placed reliance on the orders of the authorities below.

We have heard the rival contentions and perused the record. The only issue raised by the assessee in the present appeal is against the enhancement order of CIT(A) by not allowing set off of unabsorbed depreciation against the income earned by the assessee.

Briefly in the facts of the case the assessee company was engaged in the business of manufacturing of yarn and fabric. The assessee due to heavy loss, labour problems and other factors had to temporarily discontinue the manufacturing operation in the year 2000. During the year under consideration, the assessee had declared income from house property from lease of factory premises. The submissions of the assessee before the authorities below were that the premises were temporarily given on lease to meet day to day expenses. The case of the assessee was taken up for scrutiny. The Assessing Officer noted that the assessee had declared business loss of Rs.98,65,80,356/- as per the P&L A/c and after making disallowance of expenses claimed in the P&L A/c at Rs.1,01,07,61,214/-, the income was shown as Rs.2,41,80,858/-. The assessee deducted rental income of Rs.4,17,50,849/-, depreciation of Rs.9,06,430/- and interest income of Rs.4,09,400/- and net loss declared by the assessee company was Rs.1,88,85,821/-. The Assessing Officer was of the view that the assessee was not entitled to claim depreciation on fixed assets as the business assets were not used for business purposes for the past 10 years. Hence, depreciation on claim of Rs.9,06,430/- was disallowed. The Assessing Officer further notes that the assessee had adjusted unabsorbed depreciation of Rs.1,16,55,603/- against the net income for the year under consideration. The Assessing Officer computed the net income at NIL.

The CIT(A) while deciding the issue of allowance of depreciation of Rs.9,06,430/- sought certain information from the assessee with regard to claim of depreciation and also claim of set off of unabsorbed depreciation against non-business income. The assessee filed its reply and relied on various case laws, which is reproduced in the appellate order. The CIT(A) was of the view that the issue of set off of unabsorbed depreciation against the other income needs to be deliberated upon. After referring to various provisions of the Act, he came to the conclusion that in a particular year, depreciation could be deducted only on the profits chargeable under the head business income. Referring to the provisions of section 72 & 73 of the Act, the CIT(A) held that there was nothing in the Income Tax Act, which would allow set off of brought forward unabsorbed depreciation against the income under any head other than the income from business or profession. The CIT(A) also refers to the provisions to section 32(2) of the Act, which were modified w.e.f. 01.04.2002 and observed that under the earlier provision, there was specific clause where brought forward, unabsorbed depreciation allowance could be set off from income under any head. However, under the amended provisions w.e.f. 01.04.2002, the unabsorbed depreciation allowance could not be set off only from the income under the head income from business or profession.

We have heard the rival contentions and perused the record. The limited issue which arises in the present appeal is whether unabsorbed depreciation available in the hands of the assessee, where the business of the assessee has been temporarily closed and the assets leased for a short period in order to tide over the losses of business, then can the unabsorbed depreciation be adjusted against the income from property earned from leasing of the said assets.

We find that similar issue arose before the Tribunal (supra) in assessee’s own case in Assessment Year 2011-12. Similar disallowance was made in the hands of the assessee and the set off of unabsorbed depreciation against income from house property and income from other sources was not allowed by the CIT(A)/Assessing Officer. The Tribunal relied on the ratio laid down by the Mumbai Bench of the Tribunal in M/s.

We find that the issue arising in the present appeal is at parity with the issue before the Tribunal in assessee’s own case relating to Assessment Year 2011-12. Relying on the said findings of the Tribunal in paras 14 & 15, to which reference is being made, but not being reproduced for the sake of brevity, we allow the claim of the assessee in entirety. The Assessing Officer is directed to set off brought forward unabsorbed depreciation as part of current depreciation against the income from house property and income from other source, since the brought forward unabsorbed depreciation was the depreciation of the current year. Thus, grounds of appeal raised by the assessee are allowed.

In the result, the appeal of the assessee is allowed.