Hotel Ayodhya Vs ADIT (ITAT Pune)
In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Pune Bench, delivered a significant decision in the case of Hotel Ayodhya against the Assistant Director of Income Tax (ADIT), CPC, Bengaluru. The dispute centered on whether unabsorbed depreciation carried forward from previous assessment years could be set off against income from other sources. The ITAT’s verdict, pronounced on March 27, 2025, sided with the assessee, allowing the set-off and overturning the previous orders.
The appellant, Hotel Ayodhya, a partnership firm, had filed its return of income for Assessment Year (AY) 2021-22, declaring a nil income. This was achieved by claiming a set-off of brought forward unabsorbed depreciation against income derived from other sources. However, the Centralized Processing Centre (CPC), Bengaluru, in its intimation under Section 143(1)(a) of the Income Tax Act, 1961, denied this claim. This denial was subsequently upheld by the Additional/Joint Commissioner of Income Tax (Appeals)-3, Hyderabad (Ld. CIT(A)), in an order dated January 15, 2025.
The core of the Ld. CIT(A)’s reasoning was that carried forward business loss, which was understood to comprise unabsorbed depreciation, could only be set off against profits and gains of any business, not against income from any other heads. The CIT(A) observed that for AY 2021-22, Hotel Ayodhya had primarily derived “Income from Other Sources,” and therefore, the brought forward business loss, including unabsorbed depreciation, could not be adjusted against it. Consequently, the CIT(A) found the CPC’s action of disallowing the set-off to be in order and dismissed the assessee’s appeal.
