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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI JASON P. BOAZ
Date of hearing : 26.07.2017 Date of Pronouncement : 22.09.2017 O R D E R
Per Sunil Kumar Yadav, Judicial Member
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
above.
6. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.”
3. In the appeal and CO, the controversy revolves around the allowability of unabsorbed depreciation in the absence of filing of return of income. The facts in brief borne out from the record are that the assessee is a trust engaged in running educational institutions and got registration
CO No.27/Bang/2013 Page 3 of 6 u/s. 12A w.e.f. AY 2010-11. During the course of assessment proceedings, the AO noticed that assessee has been showing a sum of Rs.5,68,32,533 in its balance sheet on the liability side as building and equipment fund.
The AO asked the assessee to recalculate the actual written down value for the purpose of claiming depreciation. After such recalculation by the AR of the assessee, the AO completed the assessment and after allowing depreciation of the current year, the AO arrived at a total income at Rs.1,22,19,830. While doing so, the AO rejected the claim of the assessee with regard to unabsorbed depreciation of earlier years on the ground that the assessee did not file returns of income for the earlier years.
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
CO No.27/Bang/2013 Page 4 of 6 years, returns of income should be filed. He accordingly directed the AO to allow the unabsorbed depreciation.
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:-
“32 (2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any CO No.27/Bang/2013 Page 5 of 6 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.”
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.
Sd/- Sd/-
( JASON P. BOAZ ) ( SUNIL KUMAR YADAV) Accountant Member Judicial Member Bangalore, Dated, the 22nd September, 2017. / Desai Smurthy /
CO No.27/Bang/2013 Page 6 of 6