Punjab & Haryana H.C : The hon’ble Income-tax Appellate Tribunal was right in allowing setting-off the income derived during the year under consideration under the head ‘Income from other sources’ from the unabsorbed depreciation, relevant to the assessment year 1996-97 despite closure of business by the assessee

High Court Of Punjab & Haryana

CIT vs. G.T.M. Synthetics Ltd.

Assessment Year : 2001-02

Section : 32

Adarsh Kumar Goel And Ajay Kumar Mittal, JJ.

IT Appeal No. 92 Of 2007

February 11, 2011

JUDGMENT

Ajay Kumar Mittal, J. – The paper-book of this case has not been received from the concerned branch as the same is said to have burnt in the fire incident that took place in the premises of this court on the night of January 30, 2011. Learned counsel for the appellant has made available two copies of paper-book to the court for reconstruction of the file. The said copies are taken on record and the paper-book of this appeal be treated as having been reconstructed.

2. This appeal under section 260A of the Income-tax Act, 1961 (for short “the Act”), has been filed by the Revenue against the order dated July 19, 2006, passed by the Income-tax Appellate Tribunal, Chandigarh Bench “B”, Chandigarh (in short “the Tribunal”) in I. T. A. No. 122/Chandi/2005, relating to the assessment year 2001-02.

3. The following substantial question of law has been claimed for determination of this court :

“Whether, on the facts and in the circumstances of the case, the hon’ble Income-tax Appellate Tribunal was right in allowing setting-off the income derived during the year under consideration under the head ‘Income from other sources’ from the unabsorbed depreciation, relevant to the assessment year 1996-97 despite closure of business by the assessee ?”

4. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the assessee filed its return for the assessment year 2001-02 on October 30, 2001, declaring a loss of Rs. 7,22,67,400 which was said to be mainly on account of the claim of unabsorbed depreciation/brought forward losses. The Assessing Officer, while finalizing the assessment proceedings under section 143(3) of the Act, assessed the total income of the assessee at Rs. 71,49,036, i.e., the income of Rs. 30,03,629 received by the assessee on account of enhanced compensation for compulsory acquisition of its land and an amount of Rs. 41,45,407 received from banks on account of interest on the enhanced amount of compensation. In the said proceedings, the Assessing Officer noticed that the business being carried out by the assessee had been closed and no business related activities were carried out during the year under reference. The Assessing Officer for this reason did not allow the assessee to adjust the non-business income out of the brought forward unabsorbed depreciation of Rs.2,94,38,438, relevant to the assessment year 1996-97 in view of the provisions of section 32(2) of the Act, as amended by the Finance (No. 2) Act, 1996, and applicable with effect from April 1, 1997. The Commissioner of Income-tax (Appeals) (in short “the CIT(A)”), however, on an appeal being carried out by the assessee allowed setting off of the income from unabsorbed depreciation, vide order dated November 4, 2004. The Tribunal by the order appealed against herein confirmed the order passed by the Commissioner of Income-tax (Appeals).

5. We have heard learned counsel for the parties and have perused the record.

6. The point for consideration in this case is, whether the carried forward unabsorbed depreciation allowance could be set off against the income under any other head when the business itself had discontinued.

7. Section 32(2) of the Act relates to carry forward of unabsorbed depreciation. It has undergone various changes. It was amended by the Finance Act, 2000, with effect from April 1, 2001, and as applicable to the assessment year 2001-02, i.e., the assessment year in question, the first proviso and the word “further” in the second proviso were deleted. The proviso so omitted reads thus :

“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.”

8. The effect of omission of the aforesaid proviso was enumerated by the Central Board of Direct Taxes, vide Circular No. 794, dated August 9, 2000 ([2000] 245 ITR (St.) 21, 40) that the unabsorbed depreciation allowance could be set off against the income under any other head even where the business was not carried on.

9. Clause 22 of the said circular which is relevant is as under :

“22. Requirement of continuance of the same business for set-off of unabsorbed depreciation dispensed with :

22.1 Under the existing provisions of sub-section (2) of section 32 of the Income-tax Act, carried forward unabsorbed depreciation is allowed to be set off against profits and gains of business or profession of the subsequent year, subject to the condition that the business or profession for which depreciation allowance was originally computed continued to be carried on in that year. A similar condition in section 72 for the purpose of carry forward and set off of unabsorbed business loss was removed last year.

22.2 With a view to harmonise the provisions relating carry forward and set off of unabsorbed depreciation and unabsorbed loss, the Act has dispensed with the condition of continuance of the same business for the purposes of carry forward and set off of unabsorbed depreciation.

22.3 This amendment will take effect from 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-02 and subsequent years.”

10. The Commissioner of Income-tax (Appeals) and the Tribunal, thus, rightly allowed the unabsorbed depreciation relevant to the assessment year 1996-97 to be set off against the income from long-term capital gains and income from other sources for the assessment year 2001-02.

11. In view of the above, the substantial question of law is decided against the Revenue and the appeal is consequently dismissed.

[Citation : 347 ITR 458]

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