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2016 (4) TMI 907 - AT - Income TaxCarry forward of unabsorbed depreciation - denial of claim on the plea that sections 80 of the Act restrict the same - Held that:- If an assessee has unabsorbed depreciation u/s 32(2) of the Act as well as unabsorbed business loss carried forward u/s 72(1), section 72(2) provided the unabsorbed losses shall have precedence, and be set off first, so far as the sufficiency of income to be set off against permits. It is only after the carried forward business loss is set off, and there yet remains positive income, that the unabsorbed depreciation would come in for a set off. This is beneficial to the assessee in as much as the unabsorbed business losses have a time bar of eight years while the unabsorbed depreciation has no time bar, it integrates with, and is treated as depreciation allowable for the subsequent year itself What section 72(2) contemplates is that if there is some unabsorbed losses carried forward to be set off, and there is also some unabsorbed depreciation allowance carried forwarded to be set off, the former shall get priority. This is so because unabsorbed depreciation retains its own character even in succeeding year(s) as distinguished from current depreciation Under section 32(2) a legal fiction has been created that unabsorbed depreciation of the earlier year shall form part of current year’s disallowance and therefore it shall have to dealt with accordingly subject to the provision of section 72(2) and 72(3) of the Act. Thus, the carried forward unabsorbed depreciation of the earlier year has to be taken as a part of the current year’s depreciation allowance and to be set off, to the extent possible, against income of the current year. The unabsorbed depreciation should be allowed before the unabsorbed investment allowance and that would be the order of priority in claiming the unabsorbed depreciation and unabsorbed investment allowance. - Decided in favour of assessee.
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