TMI Blog2018 (2) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... countant Member And Shri Partha Sarathi Chaudhury, Judicial Member Appellant by : Shri Sandeep Kumar Jain, F.C.A. Respondent by : Shri R. K. Vishwakarma, Sr. D. R. ORDER Per T. S. Kapoor, A. M. This is an appeal filed by the assessee against the order of CIT(A) dated 25/08/2015. 2. The only grievance raised by the assessee in its grounds of appeal is the action of learned CIT(A) by which he has confirmed the addition of ₹ 2,17,44,000/- which the Assessing Officer had made on account of capital gains. 3. The brief facts, as noted in the assessment order, are that assessee company declared nil income. In the return of income the assessee also declared unabsorbed depreciation and business loss brought forward from earlier years. During the year under consideration the assessee did not do any manufacturing activity as noted by the Assessing Officer in the assessment order. The Assessing Officer further observed that the assessee had sold industrial land amounting to ₹ 2,30,00,000/- which it had shown in the profit loss account and had declared capital gain to the tune of ₹ 2,17,44,000/-. The Assessing Officer further observed that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer itself. The provisions relating to inter set off of income are contained in section 71 of the Act. Clause (2) of section 71 states as under: (2) Where in respect of any assessment year, the net result of the computation under any head of income, other than Capital gains , is a loss and the assessee has income assessable under the head Capital gains , such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head Capital gains (whether relating to shortterm capital assets or any other capital assets). 6.1 From the above provisions, it is apparent that the set off provision allow adjustment of loss under any head other than capital gain against income from any head including the head capital gains. In the present case the assessee had earned capital gain but had no loss under any other head but it had accumulated depreciation which has been brought forward from earlier years. The various decisions of various Benches of the Tribunal and Hon'ble Supreme Court in the case of Virmani Industries Pvt. Ltd. and Others (supra) has held that brought forwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned section shows that Sec. 32(2) has been subjected to the provisions of Sec. 72(2) and 73(3) of the Act. Before discussing the provisions of Sec. 72(2) let us first analyze the provisions of Sec. 32(2) of the Act prior to this amendment w.e.f. 1.4.2002 Substituted by the Finance Act, 2001, w.e.f. 1-4-2002. Prior to its substitution, sub-section (2), as amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988, Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and Finance Act, 1992, w.e.f. 1-4-1993, substituted by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997 and further amended by the Finance Act, 2000, w.e.f. 1-4-2001, read as under: '(2) Where in the assessment of the assessee full effect cannot be given to any allowance under clause (ii) of sub-section (1) in any previous year owing to there being no profits or gains chargeable for that previous year or owing to the profits or gains being less than the allowance, then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as unabsorbed depreciation allowance), as the case may be,- (i) shall be set off against the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t off was allowable against any income. This was also upheld by the Hon ble Supreme Court in the case of CIT Vs CIT Vs Virmani Indus. Pvt. Ltd Ors 216 ITR 607 (SC) (supra). However, the law regarding such set off was changed by the Finance Act No. 2 of 1996 and from A.Y. 1997-98 to 2002-03 the unabsorbed depreciation was put at par with business losses u/s. 72. However the status quo have been restored from A.Y. 2003-04 and therefore the ratio laid down by the Hon ble Supreme Court in the case of CIT Vs Virmani Indus. Pvt. Ltd Ors 216 ITR 607 (SC) (supra) once again hold good and so now unabsorbed depreciation can be set off against any income. Thus, the claim of current year s depreciation of ₹ 2,32,059/- is directed to be set off against the income under the head Capital gains . Accordingly, ground No. 1 of the appeal is allowed. 11. Having considered the provisions of Sec. 32(2), it is also clear that if the current year s depreciation cannot be set off owing to the profits or gains chargeable being less than the allowance, the allowance or the part of the allowance to which effect has not been given shall be added to the amount of allowance for depreciation for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed forward from A.Y. 1995- 96 to 1997-98 for ₹ 89,36,000/- does not apply to this case, as per the provision of the sections 70 to 80 of the Act of carry forward and set off of losses. The current year capital gain (long term and short term) cannot be set off from brought forward business loss or unabsorbed depreciation. Upon assessee's appeal Ld. Commissioner of Income Tax (A) has affirmed the action of the Assessing Officer and has inter-alia observed that the assessee has not filed return of intervening period for A.Y. 2001-02 to 2005-06 and hence, assessee cannot be allowed to avail the set oft of the unabsorbed depreciation. In this regard, Ld. Commissioner of Income Tax (A) has observed that the case laws relied upon by the assessee are not applicable. Furthermore, he has referred that Punjab and Haryana High Court's Case in the case of C.I.T. vs. Haryana Hotels Ltd. (Supra) supports the case of the Assessing Officer. 10. In this regard, Ld. Counsel of the assessee has submitted that reference by the Assessing Officer to provision of Sections 70 to 80 in disallowing adjustment of carried forward losses and unabsorbed deprecation is erroneous. These section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, the assessee can have it determined in a subsequent year in which the business loss is to be set off. It was an admitted fact that no valid return for the asstt. yr. 1986-87 had been made by the assessee and accordingly no assessment could be made and the business losses could not be notified to the assessee. Once it is established that no valid return had been filed by the assessee for the asstt. yr. 1986-87, the assessee cannot be allowed to set off the business losses of earlier years during the assrt. yr. 1987-88. The Tribunal, thus, clearly erred in allowing set off of business losses for earlier asstt. yrs. 1984-85 and 1985-86 during the asstt. yr. 1987-88. 12.2 With regard to unabsorbed depreciation the Hon'ble High Court has held as under:- Under s. 32(2) the unabsorbed depreciation of earlier previous years forms part of the current year's depreciation and thereafter allowance for depreciation is given from the current years' income. There is no such provision in s. 72 by virtue of which business losses of earlier years shall form part of the current year's business losses and be allowed to be set off from current year's income. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught forward depreciation merges with the depreciation of the current year and becomes current year s depreciation which is permitted to be set off against any income of the current year other than salary. Income determined u/s. 68 of the Income Tax Act is income under other sources and therefore the brought forward depreciation will have to be allowed as a set off against income determined u/s. 68 of the Income Tax Act. 6. Being aggrieved by the said order of the Commissioner of Income Tax (Appeals), the Revenue is in appeal before us. 7. We find that the Hon ble Supreme Court in the case of CIT Vs. D.P. Sandu Bros. Chembur (P) Ltd. (2005) 273 ITR 1 (SC) has held as under: Section 14 of the Income-tax Act, 1961 as it stood at the relevant time similarly provided that all income shall for the purposes 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. Section 56 provides for the chargeability of inco ..... 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