TMI Blog2004 (10) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... y following the Special Bench decision, the order of the ld. CIT(A) is reversed and that of the Assessing Officer is restored. This ground is, therefore, decided in favour of the Revenue. 4. Now coming to the Cross Objection filed by the assessee, we observe that the assessee has disputed the order of the ld. CIT(A) in upholding the Assessing Officer's order rejecting the assessee's claim of setting off cumulative unabsorbed depreciation brought forward from earlier years and remained unabsorbed as on 1-4-1997 amounting to Rs. 4,37,186 against the income from any head other than the business. 5. The unabsorbed depreciation amounting to Rs. 4,37,186 pertaining to the assessment years 1995-96 and 1996-97 has been claimed to be set off against the current year's income under the head "income from house property". The assessee's this claim was rejected by the Assessing Officer in view of the amended provisions of section 32(2) amended by the Finance Act, 1996 by observing and saying that the unabsorbed depreciation pertaining to the assessment years 1995-96 and 1996-97 cannot be set off against income under any head other than the business income, inasmuch as, the amended provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him and assessable for that assessment year; (ii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year; (iii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i) and clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year and- (a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (b) if the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed: (Provided that the business or profession for which the allowance was originally computed continued to be carried on by him in the previous year relevant for that assessment year), Provided [further] that the time limit of eight ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years. The effect of these provisions is that the unabsorbed depreciation for a particular year becomes, by legal fiction, part of the depreciation allowance for the succeeding year and so on without any time limit. What section 32(2) as operative upto and including assessment year 1996-97 contemplates is that current depreciation is deductible, in the first place, from the income of the business to which it relates; if such depreciation amount is larger than the amount of the profits of that business, then such process (sic-excess) is deductible from the profits or gains of any other business/es, if any, carried on by the assessee, and if a balance is left even thereafter, that comes for absorption from the income from any source under any of the other heads of income during that year, and in case there is still a balance left over, it is to be treated as unabsorbed depreciation and it shall be carried forward to the next succeeding year, and where there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords, the restrictions imposed by the Finance (No. 2) Act, 1996 w.e.f. 1-4-1997 in the matter of set-off of unabsorbed depreciation has been dispensed with by substituting the section 32(2) by the Finance Act, 2001 w.e.f. 1-4-2002 and status quo ante i.e., status quo of section 32(2) as existed prior to the amendment made by Finance (No. 2) Act, 1996 w.e.f. 1-4-1997 has been restored. 14. Now, the question arises as to whether the provisions of section 32(2)(iii) as substituted w.e.f. 1-4-1997 can be applied to the unabsorbed depreciation brought forward from assessment year 1996-97 or earlier years thereto. There is no doubt as to the proposition that if full effect cannot be given to current depreciation allowance of the assessment year 1997-98 because business/profession income or any other income of that assessment year 1997-98 is not sufficient to absorb it, it can be carried forward in the next eight assessment years for being set off against any business/profession income of the assessee subject to the condition that carry forward of depreciation is possible only if the business or profession for which the allowance was originally computed is continued to be carried on by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-98 and seven subsequent assessment years. Therefore, the proposed change will have effect only after 8 years and there is no cause for immediate concern about its likely impact on industry. Eight years is a period long enough for industry to adjust itself to the new dispensation and provide for depreciation accordingly. A number of Hon'ble Members have brought to my notice that the proposed amendment may adversely affect sick companies. I accept the suggestions made by them. I, therefore, propose to provide that the time limit of 8 years shall not apply to sick companies, during the period the company is treated as a "sick company" under the Sick Industrial Companies (Special Provisions) Act, 1985." 16. It is also pertinent to note that Circular No. 762 dated February 18,1998 explaining the amendments made by the Finance (No. 2) Act, 1996, has also confirmed the assurance by pointing out that the unabsorbed allowance upto the assessment year 1996-97 will be added to the allowance of 1997-98 and that the limitation of 8 years will start only from assessment year 1997-98. It also follows that the limitation against set-off of against other income should also be applicable for una ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered view that the depreciation allowance allowed to the assessee upto and inclusive assessment year 1996-97 which remained unabsorbed and is brought forward to the assessment year 1997-98 and subsequent assessment years upto assessment year 2004-05 can be set-off as per pre-amended section 32(2) and, consequently, it can be set-off against taxable business profits or income under any other head for assessment year 1997-98 and seven subsequent assessment years. Therefore, the assessee's claim, in the present case, to set-off unabsorbed depreciation brought forward from assessment years 1995-96 and 1996-97 against income under 'House Property' for the assessment year 1998-99 is to be allowed, and, we order accordingly. Consequently, the issue involved in the Cross Objection filed by the assessee is decided in favour of the assessee. Before parting with the issue, we may put it on record that we have noticed a decision where a similar view has been taken by the Income Tax Appellate Tribunal, Delhi Bench 'A' in the case of ITO v. Selchem Engineers (P.) Ltd. [2004] 90 ITD 732 vide order dated April 16, 2004. Income Tax Appellate Tribunal, 'E' Bench, Calcutta in the case of Join ..... X X X X Extracts X X X X X X X X Extracts X X X X
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