“unabsorbed depreciation set off”
The decision most relied on for unabsorbed depreciation set off is Velayudhaswamy Spinning Mills (P) Ltd. v. ACIT (340 ITR 477), cited in 213 judgments on BharatTax.
Leading authorities on unabsorbed depreciation set off
If unabsorbed depreciation or losses from years prior to the initial assessment year for Section 80-IA claim have already been set off against other income, they cannot be notionally carried forward again to reduce the profits of the eligible unit for computing deduction under Section 80-IA. The notional carry forward provision under Section 80-IA(5) applies only to unabsorbed depreciation or losses that have not yet been absorbed.
Unabsorbed depreciation from Assessment Year 1997-98 to 2001-02, carried forward to AY 2002-03, is governed by Section 32(2) as amended by the Finance Act, 2001, allowing its unlimited carry forward and set off against income of subsequent years. Reassessment proceedings under Section 148 challenging such set-off require valid reasons and new tangible material.
Deduction under Section 10A of the Income-tax Act is to be allowed only after setting off unabsorbed depreciation and brought forward business losses against the profits of the business.
Depreciation, including unabsorbed depreciation, should not be reduced from the profits of an undertaking eligible for deduction under Section 10A of the Income-tax Act, 1961, when computing the deduction amount.
An assessee is not required to carry on business in the year in which unabsorbed depreciation is sought to be set off, provided the return is filed within the stipulated time. The carry forward of depreciation or investment allowance is permissible even if the business was stopped in the prior year.
Gross total income must be computed by setting off losses, including brought-forward losses and unabsorbed depreciation, before any deductions under Chapter VI-A can be considered. Deductions under Chapter VI-A are only available if the resulting gross total income is positive.
Income from a new industrial undertaking cannot be recomputed by setting off carry forward unabsorbed depreciation or depreciation allowance from previous years if there were no carry forward losses from the prior year to be set off against the current year's income.
Unabsorbed depreciation concerning AY 2001-02 and assessment years prior thereto can be set off in subsequent years without any time limit. The Gujarat High Court upheld the ITAT's view on this matter.
