COMMISSIONER OF INCOME TAX V. G T M SYNTHETICS LTD.

ITA/92/2007

AI Insights

The case revolves around the dispute concerning the setting off of unabsorbed depreciation against income from other sources after the closure of business. The Commissioner of Income-tax, Hisar, appealed against the decision of the Income Tax Appellate Tribunal, which had allowed G.T.M. Synthetics Ltd. to set off unabsorbed depreciation from a previous assessment year against income received from enhanced compensation for land acquisition and interest from banks. The primary legal question was whether unabsorbed depreciation could be set off against income under any head when the business had been discontinued. The court referenced amendments to Section 32(2) of the Income-Tax Act, 1961, particularly the removal of the proviso requiring the continuity of business for the set-off of unabsorbed depreciation, effective from April 1, 2001.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 679946 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 11-02-2011
• Assessment Year: misc
• Laws Referred To: Income-Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: D K GOYAL
• Assessee Lawyers: K K MEHTA
• Keywords: Assessment year 2001-2002; Closure of business; Income from other sources; Unabsorbed depreciation
• Section: 143(3); 260A; 32(2)

Judgement Text

" Income Tax Appeal No. 92 of 2007 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 92 of 2007 Date of decision: 11.2.2011 Commissioner of Income-tax, Hisar --- Appellant Versus G.T.M. Synthetics Ltd., Sirsa --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. K.K. Mehta, Standing Counsel for the appellant-Revenue. Mr. D.K. Goyal, Advocate for the respondent. --- 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 30th January, 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 paper-book of this appeal be treated as having been reconstructed. Income Tax Appeal No. 92 of 2007 2 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 19.7.2006, passed by the Income Tax Appellate Tribunal, Chandigarh Bench ‘B’, Chandigarh (in short “the Tribunal”) in ITA No. 122/CHANDI/2005, relating to the assessment year 2001-2002. 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 ITA T 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 return for the assessment year 2001-02 on 30.10.2001 declaring a loss of Rs. 7,22,67,400/- which was said to be mainly on account of 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 Income Tax Appeal No. 92 of 2007 3 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 Finance (No.2) Act, 1996 and applicable w.e.f. 1.4.1997. 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 deprecation vide order dated 4.11.2004. The Tribunal by the order appealed against herein confirmed the order passed by the CIT(A). 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 Finance Act, 2000, w.e.f. 1.4.2001 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.” Income Tax Appeal No. 92 of 2007 4 8. The effect of omission of the aforesaid proviso was enumerated by the Central Board of Direct Taxes, vide circular No. 794 dated 9.8.2000 [(2000) 245 ITR (Statute)] 21 that the unabsorbed depreciation allowance could be set off against the income under any other head even where the business was not carried on. Clause 22 of the said circular which is relevant is as under: “22. Requirement of continuance of 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 same business for the purpose of carry forward and set off of unabsorbed depreciation. 22.3 This amendment will take effect from Ist April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years.” 9. The CIT(A) and the Tribunal, thus, rightly allowed unabsorbed depreciation relevant to the assessment year 1996-97 to be set off Income Tax Appeal No. 92 of 2007 5 against the income from long term capital gains and income from other sources for the assessment year 2001-2002. 10. In view of the above, the substantial question of law is decided against the Revenue and the appeal is consequently dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) February 11, 2011 JUDGE *rkmalik* "