ADIT, BANGALORE vs. HAZARATH MAHABOOB SUBHANI (HMS), TUMKUR

The appeal is preferred by the revenue against the order of CIT(Appeals) on the solitary ground that the CIT(Appeals) erred in holding that the assessee is eligible for unabsorbed depreciation of earlier years without appreciating the fact that assessee had not filed returns prior to A.Y. 2006-07, thereby revenue had no occasion to examine whether the CO No.27/Bang/2013 Page 2 of 6 conditions for allowing the depreciation were fulfilled in those years and therefore, the benefit of carry forward cannot be granted.

The assessee has also filed the cross objection by raising the following concised grounds:- “1. The order of the learned authorities, in so far as it is against the respondent / Cross Objector is opposed to law, equity, facts, weight of evidence, probabilities and circumstances of the case. 2. The Respondent/Cross Objector denies itself liable to be assessed to tax over and above the declared total income of Rs. NIL by the Respondent/Cross Objector under the facts and circumstances of the case.

The learned Commissioner of Income-tax [Appeals] erred in confirming the disallowance made by the learned assessing officer on account of unabsorbed depreciation of Rs.16,13,452/- as against the actual unabsorbed depreciation amount of Rs. 79,15,745/- claimed by the Respondent / Cross Objector in law and in facts and circumstances of the case. 4. The learned Commissioner of Income-tax [Appeals] failed to appreciate that filing of return is not mandatory for setting-off of unabsorbed depreciation of earlier years under the provisions of section 32 of the Act in the facts circumstances of the case. 5. The Respondent/Cross Objector craves leave to add, alter, delete, substitute any or all of the grounds of appeal

The assessee preferred appeal before the CIT(Appeals) challenging the disallowance of unabsorbed depreciation with the submission that the AO has not considered the unabsorbed depreciation of the previous assessment years. The AO has failed to appreciate the fact that unabsorbed depreciation can be carried forward and set off against income of the succeeding assessment year, even if no returns were filed for the previous year. Reliance was placed upon the judgment of Hon’ble Punjab & Haryana High Court in the case of CIT v. Haryana Hotels Ltd., 276 ITR 521 and 216 ITR 607. It has filed written submissions before the CIT(Appeals) which were confronted to the AO and his comments were called. The CIT(Appeals) briefly examined the legal provisions and was of the view that there was no stipulation in the Income-tax Act, 1961 [“the Act”] that for the purpose of claiming unabsorbed depreciation of earlier

Aggrieved, the revenue is in appeal before the Tribunal and placed heavy reliance upon the assessment order, whereas the ld. counsel for the assessee has invited our attention to the provisions of section 32(2) of the Act, according to which, the unabsorbed depreciation of previous years shall be added to the amount of allowance for depreciation for the following previous year and taken to be part of that allowance. While allowing unabsorbed depreciation, there is no condition precedent in the Act that return of income should be filed for the earlier years.

Having carefully examined the orders of lower authorities in the light of rival submissions, we find that depreciation is to be allowed as per provisions of sub-section (2) of section 32 of the Act and according to this sub-section, where 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 the previous year or for any other reason, 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. Sub-section (2) of section 32 is extracted hereunder for the sake of reference:-

While allowing unabsorbed depreciation, there is no condition precedent in the Act that return of income should have been filed for the earlier years. In the light of these facts, we are of the view that the CIT(Appeals) has rightly adjudicated the issue following the provisions of the Act and the judgment of Hon’ble Punjab & Haryana High Court. Since we do not find any infirmity in the order of CIT(Appeals), we confirm his order. Since the revenue’s appeal has been dismissed, the CO of the assessee has become infructuous and stands dismissed.

In the result, the appeal of the revenue and CO of the assessee are dismissed. Pronounced in the open court on this 22nd day of September, 2017.