TMI Blog2023 (10) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... nd any reason to interfere with the order of CIT(A). The High Court has also quoted relevant paragraph from General Motors [ 2012 (8) TMI 714 - GUJARAT HIGH COURT] where there is reference to a Circular No. 14 of 2001 issued by the CBDT where the Court has held that the unabsorbed depreciation was available for carry forward and set-off in the subsequent assessment year. In the appeal at hand, the ITAT, in the impugned order, after relying on General Motors (supra), has incorrectly come to a conclusion that the Assessee has claimed set-off of the impugned unabsorbed depreciation against the income under the head capital gain which is not permissible. This is totally contrary to the conclusion of the co-ordinate bench of the ITAT in Gunnebo (supra) where, as quoted above, the ITAT has held that the unabsorbed depreciation of earlier years become the total current year depreciation which is allowed to be set-off against income under any head of income including long term capital gain. As stated in General Motors (supra) with which we are in respectful agreement, if current depreciation is deductible in the first place from the income of the business to which it relates and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to AY 1996-97 to 2001-02. The depreciation of Rs. 39,19,416/- was set-off against net short term capital gains of Rs. 2,41,27,331/- and hence, the total income declared was Rs. 2,02,07,915/-. 6. The Assessing Officer ( AO ) passed an assessment order dated 28th March 2013 under Section 143(3) of the Income Tax Act, 1961 ( the Act ) wherein he disallowed Rs. 77,264/- out of the amount of Rs. 1,29,039/-. It is stated in the Appeal that it is not clear how this amount of Rs. 77,264/- was arrived at but it was disallowed under Section 36(2)(i) of the Act. 7. The AO also disallowed set-off of the unabsorbed depreciation of Rs. 13,89,661/- that pertained to AY 1996-97 to 2001-02. The AO had relied upon a decision of the Special bench of the Tribunal in the case of DCIT v/s. Times Guaranty Limited [ITA No. 4947 and 4198/Mum/2008] where the Tribunal had held that depreciation was available for carry forward only for a period of 8 years and set off only against business income. Aggrieved by the said assessment order the firm-Assessee preferred an Appeal before the Commissioner of Income Tax (Appeals) [ CIT(A) ]. The said Appeal was partly allowed. Insofar as deduction in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation of the relevant assessment year along with the unabsorbed depreciation of the earlier years becomes the total current year s depreciation which is allowed to be set-off against income under any head of income including long term capital gain and hence did not find any reason to interfere with the order of CIT(A). The High Court has also quoted relevant paragraph from General Motors (supra) where there is reference to a Circular No. 14 of 2001 issued by the CBDT where the Court has held that the unabsorbed depreciation was available for carry forward and set-off in the subsequent assessment year. Paragraph 3 and 4 of Gunnebo (supra) read as under: 3. The Revenue carried the matter in appeal. The Appellate Tribunal dismissed the appeal of the Revenue making the following observations- 16. We have observed that the current year's depreciation is allowed to be set off against the income from business as well as against the other heads of income and unabsorbed depreciation in carry forward and become part of the depreciation of the subsequent year and the total depreciation becomes current year's depreciation as per section 32(1) of the Act, which is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st April, 2002 (asst. yr. 2002-03) will be dealt with in accordance with the provisions of s. 32(2) as amended by Finance Act, 2001. And once the Circular No. 14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from asst, yr. 1997-98 up to the asst. yr. 2001-02 got carried forward to the asst. yr. 2002-03 and became part thereof, it came to be governed by the provisions of s. 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. (emphasis supplied) 13. In the appeal at hand, the ITAT, in the impugned order, after relying on General Motors (supra), has incorrectly come to a conclusion that the Assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout leaning to the side of the Assessee or Revenue. But if the legislature fails to express clearly and the Assessee becomes entitled for a benefit within ambit of the Section, the benefit accruing to the Assessee cannot be denied. Therefore, as stated in General Motors (supra) with which we are in respectful agreement, if current depreciation is deductible in the first place from the income of the business to which it relates and such depreciation amount is larger than the amount of the profit of that business, then such excess comes for absorption from profit and gains from any other business or business, if any, carried on by the Assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is still a balance leftover, it is to be treated as unabsorbed depreciation and taken to the next succeeding year. 16. Paragraph No. 35 to 38 of General Motors (supra) reads as under: 35. Section 32(2) of the Act was amended by Finance Act, 2001 and the provision so amended reads as under :- Where, in the assessment of the assessee, full effect cannot be given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A. Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in A. Y. 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken. While construing taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable construction to the language of the section without leaning to the side of assessee or the revenue. But if the legislature fails to express cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout any limit whatsoever. (emphasis supplied) In effect what it means is the depreciation amount has to be adjusted in the following order: (a) first against profits and gains from business; (b) excess of depreciation from any other business of the Assessee; (c) even if that leaves a surplus then from out of income from any source under any of the other heads of income during that year. (d) If still there is a balance leftover, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. 17. Otherwise it would leave a peculiar situation inasmuch as like the case at hand, there is no profit from business because the operation of the business had been stopped and to pay off the liabilities other investments or other assets have been disposed leading to capital gains on which capital gains tax has to be paid on the one hand and on the other there will be unabsorbed depreciation perennially pending. 18. Accordingly we hereby quash and set aside the order of ITAT on this issue. We hold that ITAT was not justified. Assessee should be permitted to set off of the unabsorbed depreciation pertaining to A.Y 1005-97 to 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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