TMI Blog2013 (1) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... b) to section 32(2) restricting the right to set-off of unabsorbed depreciation for a period of not more than eight assessment years succeeding the assessment year in which the allowance was first computed - Thus it is clear that unabsorbed depreciation for the block of Assessment year 1997-98 to 2001-02 which could not have been set off earlier, cannot be allowed to be set off now. Therefore, set aside the order of the CIT(A) and remit the matter back to the file of AO with a direction to only allow set off of unabsorbed depreciation which is outside the block of Assessment year 1997-98 to 2001-02 - See CIT, Kanpur Versus Mother India Refrigeration Industries Private Limited [1985 (8) TMI 2 - SUPREME COURT] - partly in favour of assessee. - IT APPEAL NO. 727 (CHD.) OF 2012 - - - Dated:- 17-12-2012 - T.R. SOOD AND MS. SUSHMA CHOWLA, JJ. Sudhir Sehgal for the Appellant. J.S. Nagar for the Respondent. ORDER T.R. Sood, Accountant Member - This appeal is directed against the order passed by the ld. CIT(A), Panchkula dated 1.5.2012. 2. In this appeal the assessee has raised the following grounds: "1 That the ld. CIT(A) has erred in law and facts in confirmin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings was taken up again in view of the revisionary order u/s 263 as well as the order of the Tribunal, it was mainly submitted before the Assessing Officer that out of a sum of Rs. 70.00 lakhs, Rs. 57.50 lakhs was disclosed in the profit and loss account under the head "total sales and other income" and balance of Rs. 12.50 lakhs was surrendered on account of "expenditure" and was added to the taxable income in the computation. It was further submitted that the decision of Hon'ble Gujarat High Court in case of Fakir Mohmed Haji Hasan (supra) should not be followed in the present case because in that case assessee was not able to explain the source of acquisition of gold whereas in the present case the source was business only. It was contended that in the scheme of Act income can be assessed under the heads given in Section 14 and whatever does not fall under these heads, cannot be assessed. Reliance was placed on the decision of Hon'ble Bombay High Court in case of Kevalchand Nemchand Mehta v. CIT [1968] 67 ITR 804 as well as the decision of Hon'ble Supreme Court in case of CIT v. D.P. Sandu Bros. Chembur (P.) Ltd. [2005] 273 ITR 1. Some other case laws were also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional income was assessed as Deemed income by the appellant u/s 69/4, 69B 69 as under :- Unaccounted cash found surrendered u/s 69/4 50,00,0007- Unaccounted investment surrendered u/s 69B 7,50,000/- Unaccounted Expenditure surrendered u/s 69C cash 12,50,000/- The income surrendered/ determined u/s 69, 69/\, 69B A 69C is to be treated separately as "Deemed Income'' and is not assessable under any other head of income. Therefore no set off is allowable to the appellant against this income in view of the appellant against this income in view of the judgment of Hon'ble Gujarat High Court in the case of Fakir Mohammed Haji Hasan [2002] 247 ITR 290 (Guj.) 3.1 The appellant's plea that income can be assessed only under five heads of income as per Section 14 is not acceptable in view of the opening words of Section .- 'save as otherwise provided by this Act". Deemed income is not covered under my of the heads u/s 14 i.e. (i) Salary (ii) Income from house property (iii) Profits gains of business or profession (iv) Capital gains (v) Income from other sources The surrendered income has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich means it would become current depreciation of the next year. Such depreciation can be adjusted or set off against any head of the income. In this regard he relied on the decision of Hon'ble Madras High Court in case of CIT v. Chensing Ventures [2007] 291 ITR 258. He also relied on the decision of Ahmedabad Bench of the Tribunal in case of ITO v. Hytaisun Magnetics Ltd. [ITA Nos. 2897 2898/Ahd/2008] (copy of order filed at page 1 to 8 of paper book) wherein it was observed as under: "We find that it is not in dispute that during the year under consideration the assessee had income of Rs. 2,34,10,540/- assessed under the head income from other sources in view of provisions of section 69 of the Act. Further it is also not in dispute that the assessee had brought forward unabsorbed depreciation of Rs. 10.13 crores in Assessment year 1993-94 , Rs. 1.59 crores in Assessment year 1994-95 and Rs. 68.14 lakhs in Assessment year 1995-96 which is available for set off against income of the current year. As per provisions of section 32(2) unabsorbed depreciation are deemed as part of current year's depreciation to the extent of available income. Further there is no provisions under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Act, 1961 as it stood at eh relevant time similarly provided that "all income shall for the purpose of charge of income-tax and computation of total income be classified under six heads of income", namely:- (A) Salaries; (B) Interest on Securities; (C) Income from house property; (D) Profits and gains of business or profession; (E) Capital gains; (F) Income from other sources unless otherwise, provided in the Act has not to be excluded from the total income under the Act, only if it is not chargeable to income tax under any of the heads specified in section 14, items A to E. Therefore, if the income is included under any one of the heads, it cannot be brought to tax under the residuary provisions of section 56. There is no dispute that a tenancy right is a capital asset the surrender of which would attract section 45 so that the value received would be capital receipt and assessable if at all only under item E of section 14. That being so, it cannot be treated as a casual or non-recurring receipt u/s 10(3) and be subjected to tax u/s 56. The argument of the appellant that even if the income cannot be chargeable u/s 45, because of the inapplicability of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years." The plain reading of the above clearly shows that if the depreciation cannot be fully adjusted against profits and gains chargeable in the relevant year because of inefficiency of the profits then the same would be addled to the depreciation of the following year. This means that unabsorbed depreciation which cannot be set off in a particular year, would become current depreciation in the following year and there is no restriction against such set off. Therefore, un-absorbed depreciation which is carry forward as current depreciation u/s 32(2) is clearly available for setting off and similar view was taken by the Ahmedabad Bench of the Tribunal in case of Hytaisun Magnetics Ltd. (supra) held as under: "We find that it is not in dispute that during the year under consideration the assessee had income of Rs. 2,34,10,540/- assessed under the head income from other sources in view of provisions of section 69 of the Act. Further it is also not in dispute that the assessee had brought forward unabsorbed depreciation of Rs. 10.13 crores in Assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of years against income under any head, was further diluted by way of clause (iii)(b) to section 32(2) restricting the right to set-off of unabsorbed depreciation for a period of not more than eight assessment years succeeding the assessment year in which the allowance was first computed. This part of the provision did not deal with the treatment of unadjusted brought forward depreciation allowance for and up to the assessment year 1996-97. The Finance Minister clarified the amendment as prospective inasmuch as the cumulative unabsorbed depreciation brought forward as on April 1, 1997, could be set off against taxable profits or income under any other head for the assessment year 1997-98 and seven subsequent assessment years. In other words, the period of eight years under clause (iii)(b) of section 32(2) came to be reckoned from assessment year 1997-98 irrespective of the fact that the unadjusted brought forward depreciation arose in an earlier assessment year. Thus, on the strength of the clarification given by the Finance Minister, the unadjusted depreciation brought forward up to April 1, 1997 became eligible for set off not only against the business income but also agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be adjusted due to inadequacy of profits, is for the current year alone starting from assessment year 2002-03 onwards. The brought forward unabsorbed depreciation of earlier years cannot be included within the scope of section 32(2). In section 32(2) the depreciation allowance for the current year to which full effect cannot be given due to the paucity of profits, has been referred to as "unabsorbed depreciation allowance". Such unabsorbed depreciation allowance for the assessment years 1997-98 to 2001-02 strictly comes under section 32(2) as "unabsorbed depreciation allowance". As the language of this deeming provision does not talk of any brought forward "unabsorbed depreciation allowance" or depreciation allowance which could not be given effect to in the earlier years that resultantly became part of section 32(2), there is no question of expanding the scope of the legal fiction. The purpose of a legal fiction in section 32(2) is to make the unabsorbed carried forward depreciation partake of the same character as the current depreciation in the following year. In other words the object of the provision is to treat the whole or part of the depreciation allowance un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation allowance"), which could not be set off up to assessment year 1996-97, shall be carried forward for set off against income under any head for a maximum period of eight assessment years starting from assessment year 1997-98. Current depreciation for the year under section 32(1) (for each year separately starting from assessment years 1997-98 up to 2001-02) can be set off firstly against business income and then against income under any other head. The amount of current depreciation for assessment years 1997-98 to 2001-02 which cannot be so set off, the "second unabsorbed depreciation allowance", shall be carried forward for a maximum period of eight assessment years from the assessment year immediately succeeding the assessment year for which it was first computed, to be set off only against the income under the head "Profits and gains of business or profession". For the assessment year 2002-03 onwards the "first unadjusted depreciation allowance" can be set off up to assessment year 2004-05, that is, the remaining period out of maximum period of eight assessment years against income under any head. The "second unabsorbed depreciation allowance" can be set off only against ..... X X X X Extracts X X X X X X X X Extracts X X X X
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