Commissioner of Income Tax vs S and S Power Switchgear Ltd.

K. Raviraja Pandian, J.—The appeal is filed against the order of the Tribunal, Madras ''C'' Bench, dt. 2nd Feb., 2007 made in ITA No.

1964/Mad/2003 for the asst. yr. 2000-01.

The facts of the case culminating in filing of the above appeal culled out from the statement of facts contained in memorandum of appeal go as

follows:

For the asst. yr. 2000-01, the assessee had set off prior years business loss and unabsorbed depreciation against short-term capital gains.

Aggrieved by the assessment order, the assessee filed an appeal before the CIT(A). The CIT(A) allowed the claim of the assessee and directed

the AO to set off the claim. The Revenue filed second appeal before the Tribunal. The Tribunal following the decision of the Delhi Special Bench in

the case of (2006) 99 TTJ 718 allowed the appeal in favour of the assessee.

The correctness of the said order is canvassed by the Revenue by filing the present appeal by formulating the following question of law:

Whether, in the facts and circumstances of the case, the Tribunal was right in allowing set off of prior years business loss and unabsorbed

depreciation against short term gains ?

We heard the argument of the learned Counsel appearing for the Revenue, who in all his fairness submitted that the question of law framed in

this appeal is covered against the Revenue in the case of CIT v. Pioneer Asia Packing (P) Ltd. decided by this Court on 21st Nov., 2007 in Tax

Case (Appeal) No. 1423 of 2007 [reported at (2008) 214 CTR (Mad) 202.].

As per the amended provisions of Section 32(2) of the Act, w.e.f. 1st April, 1997, if the income from business for the assessment year is

insufficient to absorb the depreciation allowance of that assessment year, the amended provision permits absorption of depreciation allowance of a

business against profits and gains of any other business of the same assessment year. When the depreciation allowance of a business of the

assessment year is not absorbed by any other business of the same assessment year, then the remaining unabsorbed depreciation allowance could

be set off against the income under any other head, that is assessable for the same assessment year. In the event of depreciation allowance of the

year is unable to be absorbed by any other business income or from income under any other head in the same assessment year, the remaining

unabsorbed depreciation allowance shall be carried forward to the following year and (a) unabsorbed allowance shall be set off against the profits

and gains of any business carried by a person. (b) If the unabsorbed depreciation allowance cannot be wholly set off so, it shall be allowed to be

carried forward for the following eight assessment years immediately succeeding the assessment year in which it was first computed. The proviso

provides that the business to which depreciation allowance is related to must be carried on in the succeeding year so as to allow such set off. Thus,

by the amendment, the deeming fiction of treating the earlier years'' unabsorbed depreciation as current year depreciation was removed. The

period available for absorbing the unabsorbed depreciation against the profit of the succeeding years was limited to eight years. The clarification of

the Finance Minister in the Parliament is also to the effect that inasmuch as the cumulated unabsorbed depreciation brought forward as on 1st

April, 1997 could still be set off against the taxable business profit or income under any other head for the asst. yr. 1997-98 and seven subsequent

years vide Commissioner of Income Tax Vs. Lakshmi Industries (P.) Ltd., . Circular of the CBDT No. 762, dt. 18th Feb., 1998 [(1998) 145

CTR (St) 5 : (1998) 230 ITR 12] also clarifies the issue to the following effect:

Sub-section (2) of Section 32, as it existed upto asst. yr. 1996-97, provided that the unabsorbed depreciation of a year shall be added to the

amount of the allowance for depreciation of the following previous year and deemed to be part of that allowance. Therefore, the unabsorbed

depreciation allowance, if any, of the asst. yr. 1996-97 shall be added to the amount of the allowance for depreciation of asst. yr. 1997-98 and

deemed to be part of the allowance for this year. In other words, the unabsorbed depreciation allowance of asst. yr. 1996-97 shall be added to

the allowance of 1997-98 and will be deemed to be the allowance of that year. The limitation of eight years shall start from the asst. yr. 1997-98.

In view of the above position of law, we are of the view that the Tribunal has rightly come to the conclusion that the assessee is entitled to the

unabsorbed depreciation brought forward as on 1st April, 1997 and could be set off against the business profits.

For the foregoing reasons, the appeal is dismissed as no question of law, much less a substantial question of law is involved.