By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Bhadresh Doshi
Chartered Accountants
fiogf49gjkf0d
1. (2012) 54 SOT 450 (Mumbai)
Suresh Industries (P.) Ltd. vs. Asst.CIT
ITA No.5374 (Mum.) of 2011
A.Y.: 2007-08. Dated: 10.10.2012
Sections 32 read with section 72 of the Income Tax Act, 1961 – Brought forward unabsorbed depreciation is allowed to be set off against long term capital gains.
For the relevant assessment year, the assessee’s claim for setting off current year’s unabsorbed depreciation and brought forward unabsorbed depreciation against current year’s long term capital gains was rejected by the Assessing Officer and by the CIT(A). The Tribunal allowed the assessee’s claim.
The Tribunal held as under: The law regarding set off of unabsorbed depreciation up to 01-04-1996 was very liberal and set off was allowable against any income. This was also upheld by the Supreme Court in the case of CIT vs. Virmani Industries (P.) Ltd. [1995] 216 ITR 607/83 Taxman 343. However, the law regarding such set off was changed by the Finance Act (No. 2) of 1996 and from assessment years 1997-98 to 2002-03 the unabsorbed depreciation was put at par with business losses u/s. 72.
However, the status quo has been restored from assessment year 2003-04 and, therefore, the ratio laid down by the Supreme Court in the case of Virmani Industries (P.) Ltd. (supra) once again holds good and, therefore, now unabsorbed depreciation can be set off against any income. Because of the legal fiction created by the provisions of section 32(2), brought forward unabsorbed depreciation merges with current year’s depreciation.
The treatment given to current year’s depreciation is equally applicable to brought forward unabsorbed depreciation. Therefore, brought forward unabsorbed depreciation is also allowed to be set off against long term capital gains.
