Case Law Details

Case Name : Bhai Infotech Ltd. Vs Income-tax Officer, Ward 2(3), Chandigarh (ITAT Chandigarh)
Appeal Number : IT Appeal No. 1211 (CHD.) OF 2011
Date of Judgement/Order : 30/04/2012
Related Assessment Year : 2007-08
Courts : All ITAT (4212) ITAT Chandigarh (105)

IN THE ITAT CHANDIGARH BENCH ‘A’

Bhai Infotech Ltd.

V/s.

Income-tax Officer, Ward 2(3), Chandigarh

IT APPEAL NO. 1211 (CHD.) OF 2011

[ASSESSMENT YEAR 2007-08]

APRIL 30, 2012

ORDER

Ms. Sushma Chowla, Judicial Member – The present appeal filed by the assessee is against the order of Commissioner of Income Tax (Appeals), Chandigarh dated 16.09.2011 relating to assessment year 2007-08 against the order passed under section 143(3) of the Income-tax Act (in short ‘the Act’).

2. The only ground of appeal raised by the assessee reads as under:

“1. The Ld. CIT(A) is not justified in upholding the action of AO in not allowing the current year loss of Rs. 12,11,410/- on account of unabsorbed depreciation to be carried forward & set off against future years income, which is highly unjustified, bad in law & is uncalled for”.

3. The issue raised in the present appeal is in relation to computation of brought forward and carried forward of unabsorbed depreciation in the hands of the assessee.

4. The brief facts of the case are that during the year under consideration the assessee had e-filed its return of income on 10.11.2007 declaring net loss of Rs. 12,11,410/-. The assessee had paid tax on MAT on book profits for the year under consideration. During the course of assessment proceedings the Assessing Officer noted the assessee to have filed its return of income late on 10.11.2007 and consequently show cause notice was issued to the assessee proposing to disallow current year loss claimed to be carried forward to be set off in future. Reliance was placed on the provisions of section 139(3) of the Act by the Assessing Officer. In response to the query raised by the Assessing Officer, the assessee pointed out that the carry forward claimed in the return of income was not because of business loss but only on account of depreciation and the plea was raised for carry forward of the said unabsorbed depreciation to the succeeding years. The Assessing Officer rejected the claim of the assessee in view of the provisions of sections 139(3) and 72(1) of the Act. The Assessing Officer further observed that there was no justification between the depreciation loss or other than depreciation loss under section 139(1) of the Act. Consequently, depreciation loss amounting to Rs. 12,11,410/- relating to financial year 2006-07 claimed to be carried forward for set off in the succeeding year was disallowed by the Assessing Officer. The Assessing Officer thus held as under:

“As per discussion in Para 6, the current loss of Rs. 12,11,410 is not allowed to carry forward.

Loss for A.Y. 2006-07 claimed to carry forward Rs. 1,93,554/-, which will be treated as per provisions of the Income Tax Act, 1961.”

5. The CIT (Appeals) upheld the order of the Assessing Officer.

6. The assessee is in appeal against the order of the CIT (Appeals). The learned A.R. for the assessee pointed out that in the return of income filed for the current year the assessee had only claimed depreciation, which was unabsorbed. The learned A.R. for the assessee further pointed out that the Assessing Officer had relied upon the provisions of section 139(3) and 72(1) of the Act, which cover cases of business loss only. It was further pointed out by the learned A.R. for the assessee that carry forward of unabsorbed depreciation is provided under section 32(2) of the Act, which in turn is governed by section 72(2) of the Act. Reliance was placed in the case of CIT v. Haryana Hotels Ltd. [2005] 276 ITR 521/148 Taxman 373 (Punj. & Har.), CIT v. Govind Nagar Sugar Ltd. [2011] 334 ITR 13/11 taxmann.com 274 (Delhi) and Asstt. CIT v. Mehsana District Co-op. Milk Producers Union Ltd. [2011] 46 SOT 218/12 taxmann.com 32 (Ahd.). The learned D.R. for the Revenue referred to the provisions of section 80, 139(1) and 139(3) of the Act.

7. The learned A.R. for the assessee in reply pointed out that section 80 dealt with the same provision as in section 139(1) of the Act.

8. We have heard the rival contentions and perused the record. In order to adjudicate the issue in the present case it is relevant to refer to the provisions of the Act. Section 139(1) of the Act requires every person to furnish the return of income relating to the previous year, in the prescribed form and verified in the prescribed manner, setting forth such particulars as may be prescribed, on or before the due date of filing the return of income. Further under section 139(3) of the Act it is provided that where any person had sustained loss in any previous year under the head ‘profits and gains’ of business, or ‘capital gains’ and claimed that such loss is to be carried forward under section(s) 72(1)/73(2)/74(1)/74(3)/74A(3) of the Act may furnish return of loss in the prescribed form and verified in the prescribed manner, within the time allowed under sub-section (1) to section 139 of the Act. Consequently return of loss by any person in order to claim the carry forward loss are to be furnished within the time prescribed for filing the return of income under section 139(1) of the Act.

9. Now coming to the provisions of carry forward of business loss, we find that under the provisions of section 72(1) of the Act it is provided that where the net result under the head ‘profits and gains’ of business is a loss which could not be wholly set off against the income under any other head of income in accordance to section 31 of the Act, the whole loss shall be carried forward to be set off against the profits and gains, if any of the business or profession carried on by him in the following assessment years. Under sub-section (2) of section 72 of the Act, it is provided that where any allowance or part thereof is under section 32(2)/35(4) of the Act and the same is to be carried forward then the effect shall be first given to the provisions of this section. Under section 72(3) of the Act it is provided that no loss shall be carried forward for more than eight assessment years immediately succeeding assessment year in which the said loss was first computed. Reading the provisions of section 72 of the Act, it transpires that sub-section (1) to the said section deals with the business loss computed in the hands of the assessee and its set off and carried forward; provisions of sub-section (2) of the said section deals with the unabsorbed depreciation to be set off and carried forward in the hands of the assessee; implying thereof that the statute had drawn distinction between the business loss computed in the hands of the assessee and unabsorbed depreciation determined in the hands of the assessee, which in turn have to be carried forward in the hands of the assessee.

10. Under section 32(1) of the Act the manner of allowance of depreciation on the assets owned by the assessee is extensively provided.

Section 32(2) of the Act reads as under:

“32. [(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under 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 chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation 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.] “

11. In view of the provisions of section 32(2) of the Act the depreciation allowance or part thereof, which could not be given effect to during the previous year, owning to there being no profits or gains chargeable for that previous year, then such depreciation allowance is to be added to the amount of depreciation allowance in the following year and is deemed to be part of that allowance. In case there being no allowance in the succeeding year, then such allowance of depreciation would be deemed to be allowance of that previous year or in the succeeding previous year/s. In view thereof, depreciation allowable in the hands of the assessee is allowance under the statute and cannot be equated with the loss of the business determined under the head profits and gains of business or profession. The return of income claiming carry forward of business loss are compulsorily to be filed within the time allowed under sub-section (1) to section 139 of the Act, in order to claim the carry forward of such loss. The loss referred to in section 139(3) of the Act are the losses which would be carried forward under section(s) 72(1)/73(2)/74(1)/74(3)/74A(3) of the Act. However, in the present facts of the case before us, the assessee had claimed carried forward of depreciation allowance, which could not be adjusted against the profits of the captioned previous year. In view of the provisions of the Act i.e. section 32(2) of the Act where depreciation allowance is not adjusted against profits of the previous year, forms part of the allowance for depreciation for the succeeding previous year, and as per provisions of section 72(2) of the Act, the effect of the allowance which is carried forward to the succeeding year is to be allowed first as against the current allowance of depreciation of the previous year. Accordingly, the allowance of depreciation which has not been set off against the profits and gains of the previous year in question cannot be equated with the business loss determined in the hands of the assessee. The provisions of section 139(3) of the Act are to be applied in cases, where any person had suffered losses in any previous year under the head profits and gains of the business or under the head capital gains. Such business loss is at variance with allowance of depreciation not adjusted against the profits of business. Under the Statute, the allowance of depreciation is to be carried forward and set off as part of the depreciation of the succeeding year, are governed by separate provisions of Act which are at variance with the provisions of set off and carry forward of business loss under the head profits and gains of business. In view thereof, provisions of section 139(3) of the Act which relate to the losses under the head profits and gains of business or capital gains are not to be applied in cases where the assessee has only determined the depreciation allowance not adjusted against the profits of business for the captioned previous year.

12. We find support from Mehsana District Co-op. Milk Producers Union Ltd. (supra). The Ahmedabad Bench of the Tribunal held as under:

“From the reading of section 32, it is evident that for carry forward of unabsorbed depreciation, the only condition is that full effect cannot be given to depreciation allowable under section 32(1) on account of there being insufficient profit. No other condition is required to be fulfilled by the assessee for carry forward of unabsorbed depreciation. Once the depreciation allowable under section 32(1) cannot be allowed or partly allowed, the unabsorbed portion of such depreciation automatically becomes the depreciation of the subsequent year. This is subject to the provisions of sections 72(2) and 73(3).

From the reading of sub-sections (2) and (3) of section 72, it is evident that these sub-sections only provide the priorities which is to be given while setting of the unabsorbed depreciation vis-a-vis business loss.

Thus, both these sub-sections have no relevance for the right of the assessee to get carry forward of unabsorbed depreciation. Carry forward of unabsorbed depreciation, as per section 32(2) is automatic and the assessee is not required to fulfil any condition so as to be entitled to get such carry forward. Admittedly in the relevant year, after giving effect to the order of appellate authorities full effect could not be given to the depreciation permissible under section 32(1), because of no profit or gains. Therefore, unabsorbed depreciation of the relevant year was to be carried forward and added to the depreciation of the following year. In view of the above, there was no infirmity in the order of the Commissioner (Appeals) wherein he directed the Assessing Officer to carry forward unabsorbed depreciation. [Para 9]”

13. In the facts of the present case the assessee had claimed set off and carry forward of unabsorbed depreciation to be made against the profits and gains of the business of the succeeding year. The said claim of the assessee was rejected by the Assessing Officer as the return of income in the assessment year was filed late by the assessee and provisions of section 139(3) of the Act were invoked and applied. We find no merit in the stand of the authorities below in this regard. In view of our holding that the business loss determined in the hands of the assessee under the head ‘profits and gains’ of business stands on a different footing than unabsorbed depreciation determined in the hands of the assessee for the previous year under consideration. The assessee having claimed the set off and carry forward of allowance of depreciation unadjusted against the profits of the current previous year cannot be denied such set off or carry forward of the unabsorbed depreciation allowance as the provisions of section 139(3) of the Act are not applicable. The assessee having filed return of income, though belatedly but within the extended period allowed under the Statute is entitled to the benefit of carry forward and set off of unabsorbed depreciation allowance as part of depreciation of the succeeding year in view of the provisions of section 32(2) of the Act and section 72(2) of the Act. The learned D.R. for the Revenue had placed reliance on the provisions of sections 80 and 139(3) of the Act for negating the claim of the assessee of carry forward of unabsorbed depreciation. We find no merit in the objections raised by the Revenue as the provisions of sections 80 and 139(3) of the Act are applicable to business losses and not to unabsorbed depreciation governed by section 32(2) of the Act. The limitation for filing the return claiming loss are not applicable for carry forward of unabsorbed depreciation.

14. We find support from the decision of Hon’ble Delhi High Court in Govind Nagar Sugar Ltd. (supra). The Hon’ble High Court held as under:

“6. We have already noted above that section 32 deals with the different types of depreciation whereas section 80 deals with carry forward of unabsorbed losses other than losses on account of depreciation. If that was not so, there was no need for Legislature to provide specific provision for carrying forward of depreciation under section 32 of the Act. It has already been noted that in case of Nagapatinam Import & Export Corpn. (supra), which was relied by our High Court in the case of J. Patel & Co. (supra) whereby, it was held that section 72 contemplates loss other than unabsorbed depreciation and there was a time-limit within which loss can be adjusted, whereas in the case of unabsorbed depreciation there is no time-limit and further that under the statute there is a separate identity with respect to unabsorbed depreciation though at the time of computation, it becomes a part of loss.

17. From the above, it comes out that the effect of section 32(2) is that unabsorbed depreciation of a year becomes part of depreciation of subsequent year by legal fiction and when it becomes part of current year depreciation it is liable to be set off against any other income, irrespective of the fact that the earlier years return was filed in time or not.”

15. The Hon’ble Punjab & Haryana High Court in CIT v. Haryana Hotels Ltd. (supra) held as under:

20. A reading of section 32(2) of the Act makes it clear that a carried forward unabsorbed depreciation allowance is deemed to be part of and stands on the same footing as current depreciation, i.e., in the assessment of the assessee, if full effect cannot be given to any allowance in any previous year owing to there being no profits or gains chargeable for that previous year, the allowance or part of the allowance to which effect has not been given, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of the said allowance. There is no time-limit provided under section 32(2) of the Act for carry forward of unabsorbed depreciation to any subsequent year. The Apex Court in CIT v. Jaipuria China Clay Mines (P.) Ltd. [1966] 59 ITR 555 has held that unabsorbed depreciation of past years had to be added to depreciation of the current year and the aggregate unabsorbed and current year’s depreciation had to be deducted from the total income of the assessment year.

The Hon’ble High Court further held as under:

“After giving our thoughtful consideration, we are unable to accept the view as laid down by the Madras High Court in Sri Rajarathinam Transports (P.) Ltd.’s case (supra). Under section 32(2) of the Act, 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 year’s income. There is no such provision in section 72 of the Act 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. However, only the business losses of earlier years which are notified by the Assessing Officer are allowed to be carried forward and set off from the current year’s income. Similarly, there is no provision under the Act which makes it mandatory for the assessee to file return for carry forward and set-off of unabsorbed depreciation which is to be notified by the Assessing Officer as in the case of unabsorbed business loss. Thus, from a reading of the provisions of the Act, the distinction between unabsorbed depreciation and unabsorbed business loss for the purposes of set off and carry forward is clear”.

16. Accordingly, we allow the claim of the assessee of carry forward of unabsorbed depreciation. The Assessing Officer is directed accordingly. Ground No.1 of appeal raised by the assessee is thus allowed.

17. In the result, the appeal filed by the assessee is allowed.

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0 responses to “Unabsorbed depreciation can be claimed even if return is filed belatedly”

  1. B.Sreenivasa Rao says:

    Yes, being depreciation a statutory allowance given by statue and being brought forward depreciation being ranked as current depreciation, the assessee should not lose his entitlement of claim whatever the omissions and commissions in filing the return.

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