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Before: SHRI H.S. SIDHU
These appeals by the Assessee are directed against the common order of the Ld. Commissioner of Income Tax (Appeals)-I, Noida dated 30.5.2016 pertaining to assessment years 2012-13 & 2014-15 respectively. Since the issues involved in these appeals are common, hence, the appeals were heard together and therefore, are being disposed of by this common order for the sake of convenience, by dealing with (AY 2012-13).
The following are the common grounds of appeal in both the appeals which read as under:-
That on the facts and circumstances of the case, the order passed by the AO is bad both in law and on facts of the case.
2. That on the facts and circumstances of the case, the AO has erred in not adjusting brought forward unabsorbed depreciation loss against current year’s income.
The Ld. CIT(A), Noida is totally unjustified in upholding the order of the AO and not giving relief by adjusting brought forward unabsorbed depreciation loss against current year’s income.
4. That the appellant craves leave to add, amend or alter any of the grounds of appeal.
3. The brief facts of the case are that return declaring NIL income was e-filed on 10.9.2012. The case was selected for scrutiny through CASS. Notice under section 143(2) was issued on 19.8.2013, which was duly served upon the assessee. In response thereto the Assessee’s AR attended the hearing. He was required to file copies of ITR, audit report, balance sheet etc. which were filed on 9.12.2013. Consequent upon the jurisdiction orders dated 15.11.2014 passed by the ld. CIT, Noida the case records was transferred to ITO, Wards 3(3), New Delhi. Notices under section 142(1) and 143(2) were issued but adjourned on several times. Therefore, a notice under section 144 was issued on 27.2.2015 fixing date of compliance on 9.3.2015. On 9.3.2015 the assessee’s AR filed letter dated 9.3.2015. Therefore, the proceedings were decided under section 144 of the Income Tax Act, 1961. In the return of income the assessee has declared income from house property at Rs. 6,30,000/- and loss from business and profession at (-) Rs. 17,93,290/-. Thus the current year’s loss has been claimed at Rs. 11,63,290/- to be carried forward in subsequent years. Perusal of P&L a/c revealed that the assessee has shown other income (rental) at Rs. 9,00,000/- and shown under the head house property at Rs. 6,30,000/-. The expense claimed as per P&L account, and brought forwards business losses were disallowed and income from house property was assessed at Rs. 6,30,000/- vide order under section 144 of the I.T. Act, 1961 on 11.3.2015.
4. Aggrieved with the assessment order dated 11.3.2015, assessee appealed before the Ld. CIT(A), who vide impugned order dated 30.5.2016 has dismissed the appeal of the assessee by holding as under:-
“2. The only dispute between the appellant and the Revenue is setting off the brought forward unabsorbed depreciation against the Income from House Property. The Ld. Counsel for the appellant submitted that the depreciation brought forward from earlier years should be allowed to be set off against the income other than from the head Business and Profession. The facts of the case are not in dispute. The appellant has no business activities during the year and has income from House Property only. The provisions of section 71 provide for setting off of losses from one head against income from another and the setting off of loss under one head of income is permitted against another head but during the same year. The brought forward losses whether on account of unabsorbed depreciation or business loss from earlier years are to be set off only against income from business and not against other heads of income.
Admittedly, in this case the brought forward unabsorbed depreciation has been set off against the House Property income. The same is not admissible in law. The Ld. AO has therefore correctly disallowed the claim of the appellant. There is no infirmity in the impugned assessment orders the same are therefore confirmed. The appeals of the appellant fails and is dismissed.”
5. Against the aforesaid order of the Ld. CIT(A), the Assessee is in appeal before the Tribunal.
6. Ld. Counsel of the assessee has filed a Paper Book containing pages 1 to 45 having the written submissions; copy of AO’s order for AY 2012-13 & 2014-15, order of Hon’ble Madras High Court in the case of CIT vs. Spel Semi Conductors Ltd. (2012) 27 Taxmann.com 242 (Mad.); order of ITAT Delhi in the case of ITO vs. Selchem Engineers (P) Ltd. (2004) 90 ITD 732 (Delhi); Hon’ble Gujrat High Court in the case of CIT vs. Farbiquip (P) Ltd. (2002) 123 Taxman 820 (Gujarat); ITAT, Kolkata in the case of JCIT vs. India Stemship Co. Ltd. (2003) 129 Taxman 158 (MAG) Kolkata; ITAT, Bombay High Court in the case of ITO vs. Graham Firth Steel Products (I) Ltd. (2008) 24 SOT 106 (TBOM); Hon’ble High Court of Delhi in the case of Escorts Electronics Ltd. vs. CIT 258 ITR 23 (Del.). He stated that in the aforesaid decisions the issue in dispute i.e. set off unabsorbed depreciation is squarely covered wherein unabsorbed depreciation has been adjusted against income from house property or income from other sources.
On the other hand, Ld. DR relied upon the orders of the authorities below.
I have heard both the parties and perused the records available with me, especially the orders of the revenue authorities and the citations relied upon by the Ld. Counsel of the assessee. I find that during the assessment year 2012-13 the assessee filed the return of income declaring income from house property of Rs. 6,30,000/- and losses from business and profession to the tune of Rs. 17,93,290/- and net loss has been shown is Rs. 11,63,290/-. The assessee has unabsorbed brought forward depreciation of Rs. 1,17,49,133/- and depreciation for the current year is Rs. 11,79,026/-. The AO did not agree and disallowed the claim of the assessee on the basis that expenses incurred are permissible only if any business or profession was carried on during the year and these expenses are not permissible to be adjusted against income from house property as claimed by the assessee. After that the assessee filed first appeal before Ld. CIT(A) and the same was dismissed on the basis that provision of section 71 provide for setting of losses from one head against income from another and the setting of the loss under one head of income is permitted against another head but during the same year. The brought forwards losses whether on account of unabsorbed depreciation or business loss from earlier years are to be set off only against income from business and not against other head of income. We find that on the issue of set off of unabsorbed depreciation there are number of decisions of Hon’ble Supreme Court, Hon’ble High Court and the ITAT in which unabsorbed depreciation has been adjusted against income from house property or income from other sources. i)i)i)i) CIT vs. Spel Semi Conductors Ltd. (2012), 27 Taxmann.com 242 CIT vs. Spel Semi Conductors Ltd. (2012), 27 Taxmann.com 242 CIT vs. Spel Semi Conductors Ltd. (2012), 27 Taxmann.com 242 CIT vs. Spel Semi Conductors Ltd. (2012), 27 Taxmann.com 242 (Mad.) (Mad.) (Mad.) (Mad.) 6. Thus, as far as the income from other sources are concerned, given the fact that under Section 32(2) of the Act, there is a provision of set off of unabsorbed depreciation allowance as against the income from other sources, it is not necessary that one should wait for the assessee to earn income from business so as to exhaust the carried forward loss to be set off as against the business income and then apply the unabsorbed depreciation. A reading of Section 32(2) thus make it clear that if the unabsorbed depreciation allowance could not be wholly ,set off under clause (i) and clause (ii), the amount of depreciation not so set off can be set off from income from other head, if any, available for that assessment year. The language of Section 32(2) is very clear and there is hardly anything contained in Section 72(2) to prevent such set off of carried forward depreciation being given to the assessee under the head of income from business or income from other sources. The Revenue does not deny the fact that as far as the income from other sources are concerned, there could be no set off of business loss or carried forward loss. However, what is contended by the Revenue is that Section 72(2) controls the operation of Section 32(2) to have the set off of unabsorbed depreciation against the income from other sources. We do not agree with this line of reasoning. What is spoken to under Section 72(2) is as regards set off of business loss as against the income from profits and gains of business or profession and if there is loss as well as unabsorbed depreciation, the set off shall be first on the business loss as against the business income and then on unabsorbed depreciation. What is spoken to under Section 32(2) is as regards set off of unabsorbed depreciation as per clause (ii) of sub-section (1) and when the unabsorbed depreciation could not be set off as against the income from business or profession by reason of there being no income available under the said heads and where there is income from other sources, effect must be given to Section 32(2) of the Act for that assessment year. ii)ii)ii)ii) ITO V s Selchem Engineers (P) Ltd., (2004) 90 ITD 732 (Delhi) TO V s Selchem Engineers (P) Ltd., (2004) 90 ITD 732 (Delhi) TO V s Selchem Engineers (P) Ltd., (2004) 90 ITD 732 (Delhi) TO V s Selchem Engineers (P) Ltd., (2004) 90 ITD 732 (Delhi)
7. In the present case, the relief allowed by the learned CIT(A) to the assessee in terms of adjustment of unabsorbed depreciation of the earlier years against the income from house property for the year under consideration i.e. assessment year 1997-98 was based on the assurance given by the Finance Minister in his Speech at the time of the relevant Finance Bill and since the same was further fortified by the aforesaid Board's Circular incorporating such assurance given by the Finance Minister, we are of the view that it was not open to the Revenue to challenge the relief so allowed by the learned CIT(A) on the plea that the same is not in consonance with the relevant provisions of law. In that view of the matter, we find no merits in this appeal filed by the Revenue and upholding the impugned order of the learned CIT (A) allowing the claim of the assessee to set off the unabsorbed depreciation of earlier years against the income from house property for the year under consideration, we dismiss the same. iii). iii). iii). iii). CIT Vs Fabriquip (P.) Ltd., [2002] 1 CIT Vs Fabriquip (P.) Ltd., [2002] 1 CIT Vs Fabriquip (P.) Ltd., [2002] 123 Taxman 820 (Gujarat) CIT Vs Fabriquip (P.) Ltd., [2002] 1 23 Taxman 820 (Gujarat) 23 Taxman 820 (Gujarat) 23 Taxman 820 (Gujarat)
A far as the first question is concerned, our attention is invited to the decision of this Court in Deepak Textile Industries Ltd.'s case (supra) 7 and the decision of the Apex Court in CIT v.Virmani Industries (P.) Ltd. [1995] 216 ITR 6071.
In the aforesaid decisions, the Courts have taken the view that in order to avail of the benefit under section 32(2) of the Act, it is not necessary that the business carried on in the following previous year should be the same business as was carried on in the preceding previous year. In the absence of any words to that effect, no such requirement ought to be read into the said sub-section. Contrasting the provisions of section 32(2) with the provisions of section 72(1), the Courts have further held that in the following year, the assessee need not carryon any business or profession for availing of the benefit of sub-section (2) of section 32. iv.) iv.) iv.) iv.) JCIT V s India Stems hip Co. Ltd., [2003] 129 Taxman 158 (MAG), JCIT V s India Stems hip Co. Ltd., [2003] 129 Taxman 158 (MAG), JCIT V s India Stems hip Co. Ltd., [2003] 129 Taxman 158 (MAG), JCIT V s India Stems hip Co. Ltd., [2003] 129 Taxman 158 (MAG), Kolkatta Kolkatta Kolkatta Kolkatta 9. We have heard the rival submissions and gone through the record. We have noticed that the AO did not give weightage to the clarification issued by the Finance Minister on the floor of the House and the bone of contention arises when he declines to follow Circular No. 762 of CBDT. The AO was of the opinion that Circular No. 762 is against the express provision of the Act and, therefore, the same is not binding on him.
Current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. In this connection the decision of the Hon'ble Bombay High Court in CIT v. Ravi Industries Ltd. [1963] 49 ITR 145 (Born.) may be referred to. In the case of CIT v . Virmani Industries (P) Ltd. [1995] 129 CTR (SC) 189/216 ITR 607 (SC) the Apex Court has observed that to avail of the benefit of sub-section (2) of section 32 two views are possible in his behalf i.e. (1) since sub-section speaks of unabsorbed depreciation on being carried forward to the next year and added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance 11 sub-section necessarily contemplates the existence of business in the following years, and (2) inasmuch as sub-section not only speaks of adding the unabsorbed depreciation to the depreciation allowance allowed in the following year but also says that in the absence of such allowance the carried forward depreciation allowance shall be the allowance for that year. It means that in the following year the assessee need not carryon any business or profession for availing of benefits of sub-section (2) of section 32. The jurisdictional High Court in the case of CIT v. Premchand Jute Mills Ltd. [1986] 56 CTR (Cal.) 225/[1987] 164 ITR 288 (Cal.) has observed that the assessee was held entitled to set off the unabsorbed depreciation pertaining to the assets of the business carried out in earlier years against income from letting out such assets even though such income was assessable as income from other sources. We have further observed that the Hon'ble Supreme Court in the case of UCO Bank v. CIT[1999] 154 CTR 88/237 ITR 889 (SC) has held that the CBDT has power, inter alia, to tone down the rigor of the law and ensure a fair enforcement of a provision by issuing circulars from time to time. The power has been conferred to the CBDT by section 119 of the IT Act, 1961. It has further been noticed by us that the circular number categorically explains the amendment to section 32(2) which is in consonance with the line of argument canvassed by the assessee in the instant case. In view of the above, we are of the considered opinion that there is no infirmity in the order of the learned CIT(A) who has rightly directed the AO to revise the computation of income of the assessee giving an appropriate benefit in this regard.
5. 5. 5. ITO V s Graham Firth Steel Products (I) Ltd., (2008) ITO V s Graham Firth Steel Products (I) Ltd., (2008), 24 SOT 106 ITO V s Graham Firth Steel Products (I) Ltd., (2008) ITO V s Graham Firth Steel Products (I) Ltd., (2008) , 24 SOT 106 , 24 SOT 106 , 24 SOT 106 (TBOM) (TBOM) (TBOM) (TBOM) 19. Having regard to the clarification given by the Finance Minister in his Speech delivered while moving the Finance (No.2) Bill, 1996 in the Lok Sabha and giving harmonious meaning and reasoning to the amended section 32(2) brought into effect on and from 1-4-1997, we are of the considered view that the depreciation allowance allowed to the assessee up to and inclusive assessment year 1996-97 which remained unabsorbed and is brought forward to the assessment year 1997-98 and subsequent assessment years up to assessment year 2004-05 can be set off as per pre-amended section 32(2) and, consequently, it can, be set off against taxable business profits or income under any other head for assessment year 1997-98 and seven subsequent assessment years. Therefore, the assessee's claim, in the present case, to set off unabsorbed depreciation brought forward from (assessment year 1995-96 and 1996-97) against income under 'House Property' for the assessment year 1998-99 is to be allowed, and, we order accordingly. Consequently, the issue involved in the Gross Objection filed by the assessee is decided in favour of the assessee. Before parting with the issue, we may put it on record that we have noticed a decision where a similar view has been taken by the Income-tax Appellate Tribunal, Delhi Bench in the case of Income Tax Officer v. Selchem Engineers (P.) Ltd. vide order dated 16-4- 2004, reported in (2004) 90 ITD 732 (Delhi). Income-tax Appellate Tribunal, ‘E' Bench, Calcutta in the case of [t. CIT v. India Steamship Co. Ltd. [IT Appeal No.1308/Cal./2000 vide order dated 24-7- 2002], which was later followed by ITAT, ‘A’ Bench, Calcutta in the case of Poddar Udyog Ltd. [IT Appeal No. 1678/Cal/2000 order dated 9-6-2003], has also taken the similar view."
Decision of H ecision of Ho'ble Delhi High Court in the case of Escorts Electronics 'ble Delhi High Court in the case of Escorts Electronics ecision of H ecision of H 'ble Delhi High Court in the case of Escorts Electronics 'ble Delhi High Court in the case of Escorts Electronics Ltd. Vs CIT 258 ITR 23 (DEL) Ltd. Vs CIT 258 ITR 23 (DEL) wherein it has been held that Tribunal was Ltd. Vs CIT 258 ITR 23 (DEL) Ltd. Vs CIT 258 ITR 23 (DEL) 11 not right in holding that the unabsorbed depreciation carried forward from earlier years could not be allowed against the income assessed under section 56 of the Act under the head “Income from other sources”. Consequently, the first question is answered in the negative, i.e. in favour of the assessee and against the Revenue.
8.5 In the background of the aforesaid discussions and respectfully following the above precedents, I allow the claim of the assessee of adjusting the Brought Forward Unabsorbed Depreciation Loss against current year’s income and accordingly, allow the appeal of the Assessee.
8.6 In the result, both the appeals filed by the assessee stand allowed.
Order pronounced in the open court on 25/10/2016.