J.R Organics Ltd., Barabanki V. Dy. Commissioner of Income Tax, Lucknow

ITA 698/LKW/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1162 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 18-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Unabsorbed depreciation
• Section: 72(1); 32; 68; 56; 12

Judgement Text

I.T.A. NO.698/LKW/2015 ASSESSMENT YEAR:2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI T. S. KAPOOR, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO.698/LKW/2015 ASSESSMENT YEAR:2012-13 M/S J. R. ORGANICS LTD., SOMAIYA NAGAR, DEWA ROAD, BARABANKI. PAN:AAFCS 3091 P VS. DY.C.I.T.-V, LUCKNOW. (APPELLANT) (RESPONDENT) O R D E R PER T. S. KAPOOR, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A) DATED 25/08/2015. 2. THE ONLY GRIEVANCE RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL IS THE ACTION OF LEARNED CIT(A) BY WHICH HE HAS CONFIR MED THE ADDITION OF RS.2,17,44,000/- WHICH THE ASSESSING OFFICER HAD MA DE ON ACCOUNT OF CAPITAL GAINS. 3. THE BRIEF FACTS, AS NOTED IN THE ASSESSMENT ORDE R, ARE THAT ASSESSEE COMPANY DECLARED NIL INCOME. IN THE RETURN OF INCOM E THE ASSESSEE ALSO DECLARED UNABSORBED DEPRECIATION AND BUSINESS LOSS BROUGHT FORWARD FROM EARLIER YEARS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE DID NOT DO APPELLANT BY SHRI SANDEEP KUMAR JAIN, F.C.A. RESPONDENT BY SHRI R. K. VISHWAKARMA, SR. D. R. DATE OF HEARING 12/12/2017 DATE OF PRONOUNCEMENT 18 / 01 /201 8 I.T.A. NO.698/LKW/2015 ASSESSMENT YEAR:2012-13 2 ANY MANUFACTURING ACTIVITY AS NOTED BY THE ASSESSIN G OFFICER IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER FURTHER OB SERVED THAT THE ASSESSEE HAD SOLD INDUSTRIAL LAND AMOUNTING TO RS.2,30,00,00 0/- WHICH IT HAD SHOWN IN THE PROFIT & LOSS ACCOUNT AND HAD DECLARED CAPI TAL GAIN TO THE TUNE OF RS.2,17,44,000/-. THE ASSESSING OFFICER FURTHER OB SERVED THAT THE ASSESSEE HAD SET OFF THE SAID CAPITAL GAIN AGAINST BROUGHT F ORWARD UNABSORBED DEPRECIATION AND BUSINESS LOSS AND THEREFORE, THE A SSESSEE WAS SHOW CAUSED TO EXPLAIN THE SET OFF. IN RESPONSE THE ASS ESSEE EXPLAINED THAT THE COMPANY HAD UNABSORBED DEPRECIATION BROUGHT FORWARD FROM EARLIER YEARS AND LONG TERM CAPITAL GAINS ARE ELIGIBLE FOR SET OF F AGAINST THE SAME. THE ASSESSING OFFICER WAS HOWEVER NOT SATISFIED WITH TH E REPLY OF THE ASSESSEE AND THEREFORE, HE DID NOT ALLOW THE ASSESSEE TO SET OFF THE LONG TERM CAPITAL GAIN. AGGRIEVED WITH THE ORDER OF THE ASSE SSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) WHO ALS O UPHELD THE ADDITION. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. AT THE OUTSET, LEARNED A. R. SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS DULY COVERED IN ITS FAVOUR BY THE ORDER OF HON'B LE SUPREME COURT IN THE CASE OF CIT VS. VIRMANI INDUSTRIES PVT. LTD. AND OT HERS [1995] 216 ITR 607 (SC). IT WAS FURTHER STATED THAT THE ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF MUMBAI TRIBUNAL IN THE CAS E OF SURESH INDUSTRIES (P) LTD. VS. ACIT IN I.T.A. NO.5374/MUM/2011. SIMI LARLY IT WAS SUBMITTED THAT THE ISSUE UNDER APPEAL IS DULY COVERED IN FAVO UR OF THE ASSESSEE BY THE ORDERS OF VARIOUS BENCHES OF THE TRIBUNAL AND OUR A TTENTION WAS INVITED TO COPIES OF THE TRIBUNAL ORDERS PLACED AT PAGES 55 TO 70 OF THE PAPER BOOK. LEARNED A. R. EXPLAINED THAT IN ALL THESE CASES, HO N'BLE TRIBUNALS HAVE HELD THAT UNABSORBED DEPRECIATION BECOMES PART OF THE CU RRENT YEARS DEPRECIATION AND THEREFORE, ALLOWABLE AS PER THE PR OVISIONS OF SECTION 71(2) OF THE ACT. LEARNED A. R. IN THIS RESPECT READ THE FINDINGS OF HON'BLE MUMBAI TRIBUNAL IN THE CASE OF SURESH INDUSTRIES (P ) LTD. (SUPRA). I.T.A. NO.698/LKW/2015 ASSESSMENT YEAR:2012-13 3 5. LEARNED D. R., ON THE OTHER HAND, HEAVILY PLACED HIS RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW AND ARGUED THAT THE UNABSORBED DEPRECIATION CANNOT BE ADJUSTED AGAINST THE INCOME UNDER THE HEA D CAPITAL GAIN. 6. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT IT IS AN UNDISPUTED FACT THAT ASSESSEE EARNED A LONG TERM CAPITAL GAIN OF RS.2,17,44,000/- FROM S ALE OF INDUSTRIAL LAND. IT IS ALSO AN UNDISPUTED FACT THAT THE ASSESSEE HAD UN ABSORBED DEPRECIATION AND BUSINESS LOSS PENDING SET OFF TO THE TUNE OF RS .13,01,43,291/-. THIS FIGURE IS VERIFIABLE FROM THE ORDER OF THE ASSESSIN G OFFICER ITSELF. THE PROVISIONS RELATING TO INTER SET OFF OF INCOME ARE CONTAINED IN SECTION 71 OF THE ACT. CLAUSE (2) OF SECTION 71 STATES AS UNDER: (2) WHERE IN RESPECT OF ANY ASSESSMENT YEAR, THE N ET RESULT OF THE COMPUTATION UNDER ANY HEAD OF INCOME, OTHER THA N 'CAPITAL GAINS', IS A LOSS AND THE ASSESSEE HAS INCOME ASSES SABLE UNDER THE HEAD 'CAPITAL GAINS', SUCH LOSS MAY, SUBJECT TO THE PROVISIONS OF THIS CHAPTER, BE SET OFF AGAINST HIS INCOME, IF ANY, ASSESSABLE FOR THAT ASSESSMENT YEAR UNDER ANY HEAD OF INCOME INCLUDING THE HEAD 'CAPITAL GAINS' (WHETHER RELATIN G TO SHORT- TERM CAPITAL ASSETS OR ANY OTHER CAPITAL ASSETS). 6.1 FROM THE ABOVE PROVISIONS, IT IS APPARENT THAT THE SET OFF PROVISION ALLOW ADJUSTMENT OF LOSS UNDER ANY HEAD OTHER THAN CAPITAL GAIN AGAINST INCOME FROM ANY HEAD INCLUDING THE HEAD CAPITAL GAI NS. IN THE PRESENT CASE THE ASSESSEE HAD EARNED CAPITAL GAIN BUT HAD NO LOS S UNDER ANY OTHER HEAD BUT IT HAD ACCUMULATED DEPRECIATION WHICH HAS BEEN BROUGHT FORWARD FROM EARLIER YEARS. THE VARIOUS DECISIONS OF VARIOUS BE NCHES OF THE TRIBUNAL AND HON'BLE SUPREME COURT IN THE CASE OF VIRMANI INDUST RIES PVT. LTD. AND OTHERS (SUPRA) HAS HELD THAT BROUGHT FORWARD DEPREC IATION FROM EARLIER YEARS BECOMES PART OF THE CURRENT YEARS DEPRECIATION AND HAS FURTHER HELD THAT SINCE THERE IS NO DIFFERENCE BETWEEN THE BROUGHT FO RWARD DEPRECIATION AND CURRENT YEARS DEPRECIATION THEREFORE, IS ALLOWABLE AS SET OFF AGAINST THE I.T.A. NO.698/LKW/2015 ASSESSMENT YEAR:2012-13 4 CAPITAL GAINS. FOR THE COMPLETENESS, THE FINDINGS O F MUMBAI BENCH E OF TRIBUNAL IN THE CASE OF SURESH INDUSTRIES PVT. LTD. IN I.T.A. NO.5374/MUM/2011, WHILE DECIDING THE SIMILAR ISSUE VIDE ORDER DATED 10/10/2012 HAS HELD AS UNDER: 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND HAVE CAREFULLY CONSIDE RED THE RELEVANT PROVISIONS OF THE ACT AND THE PAPER BOOK S UBMITTED BY THE ASSESSEE. A PERUSAL OF THE STATEMENT OF INCOME FOR THE YEAR UNDER CONSIDERATION SHOW THAT THE ASSESSEE HAS SHOW N LONG TERM CAPITAL GAINS AT RS. 1,30,00,000/- AFTER CLAIM ING EXEMPTION U/S. 54EC OF THE ACT. THE ASSESSEE HAS AL SO SHOWN NET LOSS FROM BUSINESS BEFORE DEPRECIATION AT RS. 1 7,48,195/-. TO THIS, THE ASSESSEE ADDED CURRENT YEARS DEPRECIA TION AT RS. 2,32,059/- AND UNABSORBED DEPRECIATION BROUGHT FORW ARD FROM ASSESSMENT YEARS 1999-2000 AND 2002-03 AT RS. 6,42, 208/- AND CLAIMED SET OFF AMOUNTING TO RS. 26,22,462/- FR OM THE LONG TERM CAPITAL GAINS AT RS. 1,30,00,000/-. PROFIT AND GAINS OF BUSINESS OR PROFESSION ARE COMPUTED IN ACCORDANCE W ITH THE PROVISIONS CONTAINED IN SEC. 30 TO 43 OF THE ACT. D EPRECIATION IS ALLOWED AS PER THE PROVISIONS OF SEC. 32(1) OF THE ACT. SECTION 32(2) OF THE ACT CONTAINS PROVISIONS RELATING TO UN ABSORBED DEPRECIATION WHICH IS AS UNDER: WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FULL EFF ECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB-SECTION (1) IN ANY PREVIOUS YEAR, OWING TO THERE BEING NO PROFI TS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING T O THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALL OWANCE, 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 EFF ECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR TH E FOLLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF TH AT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THA T PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR TH AT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOU S YEARS.] 9. A PERUSAL OF THE AFOREMENTIONED SECTION SHOWS TH AT SEC. 32(2) HAS BEEN SUBJECTED TO THE PROVISIONS OF SEC. 72(2) AND I.T.A. NO.698/LKW/2015 ASSESSMENT YEAR:2012-13 5 73(3) OF THE ACT. BEFORE DISCUSSING THE PROVISIONS OF SEC. 72(2) LET US FIRST ANALYZE THE PROVISIONS OF SEC. 32(2) O F THE ACT PRIOR TO THIS AMENDMENT W.E.F. 1.4.2002 SUBSTITUTED BY T HE FINANCE ACT, 2001, W.E.F. 1-4-2002. PRIOR TO ITS SUBSTITUTI ON, SUB-SECTION (2), AS AMENDED BY THE TAXATION LAWS (AMENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 1986, W.E.F. 1-4-198 8, DIRECT TAX LAWS (AMENDMENT) ACT, 1987, W.E.F. 1-4-1989 AND FIN ANCE ACT, 1992, W.E.F. 1-4-1993, SUBSTITUTED BY THE FINANCE ( NO. 2) ACT, 1996, W.E.F. 1-4-1997 AND FURTHER AMENDED BY THE FI NANCE ACT, 2000, W.E.F. 1-4-2001, READ AS UNDER: '(2) WHERE IN THE ASSESSMENT OF THE ASSESSEE FULL E FFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER CLAUSE (II) OF SUB-SECTION (1) IN ANY PREVIOUS YEAR OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YE AR OR OWING TO THE PROFITS OR GAINS BEING LESS THAN THE ALLOWANCE, THEN, THE ALLOWANCE OR THE PART OF ALLOW ANCE TO WHICH EFFECT HAS NOT BEEN GIVEN (HEREINAFTER REF ERRED TO AS UNABSORBED DEPRECIATION ALLOWANCE), AS THE CA SE MAY BE, (I) SHALL BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR; (II) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SET OFF UNDER CLAUSE (I), THE AMOUNT NOT SO SET OFF SHALL BE SET OFF FROM THE INCOME UNDER ANY OTHER HEAD, IF ANY, ASSESSABLE FOR THAT ASSESSMENT YEAR; (III) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SET OFF UNDER CLAUSE (I) AND CLAUSE (II), THE AMOUNT OF ALLOWANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND (A) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR; (B) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SO SET OFF, THE AMOUNT OF UNABSORBED DEPRECIATION ALLOWANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR NOT BEING MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE I.T.A. NO.698/LKW/2015 ASSESSMENT YEAR:2012-13 6 ASSESSMENT YEAR FOR WHICH THE AFORESAID ALLOWANCE WAS FIRST COMPUTED: PROVIDED THAT THE TIME LIMIT OF EIGHT ASSESSMENT YEARS SPECIFIED IN SUB-CLAUSE (B) SHALL NOT APPLY IN THE CASE OF A COMPANY FOR THE ASSESSMENT YEAR BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SAID COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUB-SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 (1 OF 1986) AND ENDING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE ENTIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES. 10. A COMPARATIVE STUDY OF PRE-AMENDMENT AND POST AMENDMENT PROVISIONS OF SEC. 32(2) SUGGESTS THAT PR IOR TO THE AMENDMENT, THE SET OFF WAS RESTRICTED TO THE PROFIT S AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION WHEREAS POST AMENDMENT (I.E. THE LAW APPLICABLE FOR THE YEAR UNDER CONSIDE RATION) THE SET OFF IS AVAILABLE FROM PROFITS OR GAINS CHARGEABLE F OR THE PREVIOUS YEAR. THE CLAIM OF THE LOWER AUTHORITIES THAT PROFI TS OR GAINS SO MENTIONED SHOULD BE RESTRICTED TO PROFITS OR GAINS OF BUSINESS OR PROFESSION CANNOT BE ACCEPTED BECAUSE HAD THAT BEEN THE INTENTION OF THE LEGISLATURE IT WOULD NOT HAVE DELE TED PHRASE OF ANY BUSINESS OR PROFESSION IN THE POST AMENDED PROV ISIONS OF SEC. 32(2). THE LAW REGARDING SET OFF OF UNABSORBED DEPRECIATION UPTO 1.4.1996 WAS VERY LIBERAL AND SET OFF WAS ALLOWABLE AGAINST ANY INCOME. THIS WAS ALSO UPHELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS CIT VS VIRMANI INDUS. PVT. LTD & ORS 216 ITR 607 (SC) (SUPRA). HOW EVER, THE LAW REGARDING SUCH SET OFF WAS CHANGED BY THE FINAN CE ACT NO. 2 OF 1996 AND FROM A.Y. 1997-98 TO 2002-03 THE UNAB SORBED DEPRECIATION WAS PUT AT PAR WITH BUSINESS LOSSES U/ S. 72. HOWEVER THE STATUS QUO HAVE BEEN RESTORED FROM A.Y. 2003-04 AND THEREFORE THE RATIO LAID DOWN BY THE HONBLE SU PREME COURT IN THE CASE OF CIT VS VIRMANI INDUS. PVT. LTD & ORS 216 ITR 607 (SC) (SUPRA) ONCE AGAIN HOLD GOOD AND SO NOW UNABSO RBED DEPRECIATION CAN BE SET OFF AGAINST ANY INCOME. THU S, THE CLAIM OF CURRENT YEARS DEPRECIATION OF RS. 2,32,059/- IS DIRECTED TO BE SET OFF AGAINST THE INCOME UNDER THE HEAD CAPITAL GAINS. ACCORDINGLY, GROUND NO. 1 OF THE APPEAL IS ALLOWED. I.T.A. NO.698/LKW/2015 ASSESSMENT YEAR:2012-13 7 11. HAVING CONSIDERED THE PROVISIONS OF SEC. 32(2), IT IS ALSO CLEAR THAT IF THE CURRENT YEARS DEPRECIATION CANNO T BE SET OFF OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE, THE ALLOWANCE OR THE PART OF THE ALLOWAN CE TO WHICH EFFECT HAS NOT BEEN GIVEN SHALL BE ADDED TO THE AMO UNT OF ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIO US YEAR AND DEEMED TO BE PART OF THE ALLOWANCE WHICH MEANS THAT BROUGHT FORWARD DEPRECIATION MERGES WITH THE CURRENT YEARS DEPRECIATION BECAUSE OF THE LEGAL FICTION CREATED B Y PROVISIONS OF SEC. 32(2) OF THE ACT. HOWEVER, THIS FICTION HAS BEEN SUBJECTED TO THE PROVISIONS OF SEC. 72(2) AND 73(3) OF THE ACT. 12. LET US FIRST CONSIDER THE PROVISIONS OF SEC. 72 (2) OF THE ACT WHICH PROVIDES AS UNDER: WHETHER ANY ALLOWANCE OR PART THEREOF IS, UNDER SUB-SECTION 2 OF SEC. 32 OR SUB S ECTION (4) OF SEC. 35, TO BE CARRIED FORWARD, EFFECT SHALL FIRST BE GIVEN TO THE PROVISIONS OF THIS SECTION. 13. A SIMPLE READING OF THIS SECTION SUGGESTS THAT IN CASE OF SET OFF OF BUSINESS LOSS VIS-A-VIS DEPRECIATION, THE FI RST PREFERENCE SHALL BE GIVEN TO THE BUSINESS LOSS AS PER THE PROV ISIONS OF SEC. 72(1) OF THE ACT FOR THE SIMPLE REASON THAT THE BUS INESS LOSS CAN BE CARRIED FORWARD ONLY UPTO 8 ASSESSMENT YEARS WHEREAS THE DEPRECIATION CAN BE CARRIED OVER UPTO UNLIMITED PERIOD. AS HAS BEEN DISCUSSED HEREINABOVE, THE BROUGHT FORWARD UNABSORBED DEPRECIATION IS TREATED AS CURRENT YEARS DEPRECIATION BECAUSE OF THE LEGAL FICTION, THEREFOR E THE TREATMENT GIVEN TO THE CURRENT YEARS DEPRECIATION IS EQUALLY APPLICABLE TO BROUGHT FORWARD DEPRECIATION AFTER TH E APPLICATION OF FINANCE ACT, 2001. 14. WE HAVE ALREADY HELD THAT CURRENT YEARS DEPREC IATION IS TO BE ALLOWED AS SET OFF FROM THE LONG TERM CAPITAL GA INS AND BROUGHT FORWARD DEPRECIATION IS TO BE TREATED AS CU RRENT YEARS DEPRECIATION AS PER THE LEGAL FICTION OF SECTION 32 (2), THE SAME IS ALSO TO BE ALLOWED TO BE SET OFF FROM THE LONG T ERM CAPITAL GAINS. ACCORDINGLY, GROUND NO. 2 OF THE APPEAL IS A LSO ALLOWED. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. I.T.A. NO.698/LKW/2015 ASSESSMENT YEAR:2012-13 8 6.2 SIMILAR FINDING HAS BEEN MADE BY THE ORDER OF D ELHI BENCH A OF THE TRIBUNAL IN THE CASE OF AARVEE WASPOL TOOLS (I) PVT . LTD IN I.T.A. NO.6294/DEL/2012 WHICH VIDE ITS ORDER DATED 10/05/2 013 HAS HELD AS UNDER: 9. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIN D THAT THE CORE OF DISPUTE IN THIS CASE IS THAT WHETHER THE CA PITA) GAIN COMPUTED IN THE CURRENT ASSESSMENT YEAR NEEDS TO BE ADJUSTED AGAINST THE UNABSORBED DEPRECIATION WHICH ARE CARRI ED FORWARD FROM EARLIER YEARS. THE ASSESSING OFFICER HAS HELD THAT THE SET OFF OF UNABSORBED DEPRECIATION CARRIED FORWARD FROM A.Y. 1995- 96 TO 1997-98 FOR RS.89,36,000/- DOES NOT APPLY TO THIS CASE, AS PER THE PROVISION OF THE SECTIONS 70 TO 80 OF THE A CT OF CARRY FORWARD AND SET OFF OF LOSSES. THE CURRENT YEAR CAP ITAL GAIN (LONG TERM AND SHORT TERM) CANNOT BE SET OFF FROM B ROUGHT FORWARD BUSINESS LOSS OR UNABSORBED DEPRECIATION. U PON ASSESSEE'S APPEAL LD. COMMISSIONER OF INCOME TAX (A ) HAS AFFIRMED THE ACTION OF THE ASSESSING OFFICER AND HA S INTER-ALIA OBSERVED THAT THE ASSESSEE HAS NOT FILED RETURN OF INTERVENING PERIOD FOR A.Y. 2001-02 TO 2005-06 AND HENCE, ASSES SEE CANNOT BE ALLOWED TO AVAIL THE SET OFT OF THE UNABSORBED D EPRECIATION. IN THIS REGARD, LD. COMMISSIONER OF INCOME TAX (A) HAS OBSERVED THAT THE CASE LAWS RELIED UPON BY THE ASSE SSEE ARE NOT APPLICABLE. FURTHERMORE, HE HAS REFERRED THAT PUNJA B AND HARYANA HIGH COURT'S CASE IN THE CASE OF C.I.T. VS. HARYANA HOTELS LTD. (SUPRA) SUPPORTS THE CASE OF THE ASSESS ING OFFICER. 10. IN THIS REGARD, LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED THAT REFERENCE BY THE ASSESSING OFFICER TO PROVISIO N OF SECTIONS 70 TO 80 IN DISALLOWING ADJUSTMENT OF CARRIED FORWA RD LOSSES AND UNABSORBED DEPRECATION IS ERRONEOUS. THESE SECTIONS ARE NOT AT ALL RELEVANT. FURTHER, IT HAS BEEN SUBMITTED THAT T HE ASSESSEE IS ELIGIBLE FOR THE ADJUSTMENT OF UNABSORBED DEPRECIAT ION AS PER SECTION 32(2) OF THE ACT. FURTHER, ID. COUNSEL OF T HE ASSESSEE HAS SUBMITTED THAT THE LD. COMMISSIONER OF INCOME T AX (A) HAS ERRED IN HOLDING THAT THE DECISION OF THE HARYANA H OTELS LTD. (SUPRA) AFFIRMED THE ACTION OF THE ASSESSING OFFICE R. HE SUBMITTED THAT LD. COMMISSIONER OF INCOME TAX (A) H AS NOT CONSIDERED THE DECISION FULLY AND PROPERLY. IN ANOT HER PORTION OF THE DECISION IT HAS BEEN CLEARLY MENTIONED THAT UNA BSORBECL DEPRECIATION HAS TO BE ALLOWED. I.T.A. NO.698/LKW/2015 ASSESSMENT YEAR:2012-13 9 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D PERUSED THE RECORDS. WE CAN GAINFULLY REFER THE SECTION 32( 2) OF THE I.T. ACT: '[(2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FUL L EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUBSE CTION (I) IN ANY PREVIOUS YEAR, OWING TO THERE BEING NO P ROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWIN G TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE, THEN, SUBJECT TO THE PROVISIONS OF SUB-S ECTION (2) OF SECTION 72 AND SUB-SECTION (3) OF SECTION 73 , THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFF ECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR TH E FOLLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF TH AT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THA T PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR TH AT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOU S YEARS.' 12. WE FURTHER FIND THAT THE DECISION OF THE HON'BL E PUNJAB AND HARYANA HIGH COURT IN THE CASE OF HARYANA HOTELS LT D. (SUPRA) HAD DEALT BOTH WITH UNABSORBED BUSINESS LOSS AND UN ABSORBED DEPRECIATION. 12.1 WITH REGARD TO BUSINESS LOSS THE HON'BLE HIGH COURT HAS HELD AS UNDER: 'A BUSINESS LOSS CANNOT BE CARRIED FORWARD UNLESS I T HAS BEEN DETERMINED IN PURSUANCE OF A RETURN FILED UNDE R S.139. IN ORDER TO BE ENTITLED TO CARRY FORWARD A B USINESS LOSS, THE ASSESSEE MUST SUBMIT A RETURN UNDER S. 13 9(3) AND HAVE AN ASSESSMENT MADE FOR THE YEAR IN WHICH H E HAS INCURRED THE LOSS. THE ASSESSING OFFICER HAS TO NOTIFY TO THE ASSESSEE BY AN ORDER IN WRITING THE AMOUNT O F THE BUSINESS LOSS AS COMPUTED BY HIM WHICH THE ASSESSEE IS ENTITLED TO HAVE CARRIED FORWARD. WHERE THE BUSINES S LOSS DETERMINED HAS NOT BEEN NOTIFIED TO THE ASSESSEE BY THE ASSESSING OFFICER, THE ASSESSEE CAN HAVE IT DETERMI NED IN A SUBSEQUENT YEAR IN WHICH THE BUSINESS LOSS IS TO BE SET OFF. IT WAS AN ADMITTED FACT THAT NO VALID RETURN F OR THE ASSTT. YR. 1986-87 HAD BEEN MADE BY THE ASSESSEE AN D ACCORDINGLY NO ASSESSMENT COULD BE MADE AND THE BUSINESS LOSSES COULD NOT BE NOTIFIED TO THE ASSESS EE. I.T.A. NO.698/LKW/2015 ASSESSMENT YEAR:2012-13 10 ONCE IT IS ESTABLISHED THAT NO VALID RETURN HAD BEE N FILED BY THE ASSESSEE FOR THE ASSTT. YR. 1986-87, THE ASS ESSEE CANNOT BE ALLOWED TO SET OFF THE BUSINESS LOSSES OF EARLIER YEARS DURING THE ASSRT. YR. 1987-88. THE TRIBUNAL, THUS, CLEARLY ERRED IN ALLOWING SET OFF OF BUSINESS LOSSE S FOR EARLIER ASSTT. YRS. 1984-85 AND 1985-86 DURING THE ASSTT. YR. 1987-88.' 12.2 WITH REGARD TO UNABSORBED DEPRECIATION THE HON 'BLE HIGH COURT HAS HELD AS UNDER:- 'UNDER S. 32(2) THE UNABSORBED DEPRECIATION OF EARL IER PREVIOUS YEARS FORMS PART OF THE CURRENT YEAR'S DEPRECIATION AND THEREAFTER ALLOWANCE FOR DEPRECIAT ION IS GIVEN FROM THE CURRENT YEARS' INCOME. THERE IS NO S UCH PROVISION IN S. 72 BY VIRTUE OF WHICH BUSINESS LOSS ES OF EARLIER YEARS SHALL FORM PART OF THE CURRENT YEAR'S BUSINESS LOSSES AND BE ALLOWED TO BE SET OFF FROM CURRENT YE AR'S INCOME. HOWEVER, ONLY THE BUSINESS LOSSES OF EARLIE R YEARS WHICH ARE NOTIFIED BY THE ASSESSING OFFICER A RE ALLOWED TO BE CARRIED FORWARD AND SET OFF FROM THE CURRENT YEAR'S INCOME. SIMILARLY, THERE IS NO PROVISION UND ER THE ACT WHICH MAKES IT MANDATORY FOR THE ASSESSEE TO FI LE RETURN FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION WHICH IS TO BE NOTIFIED BY THE ASSESSI NG OFFICER AS IN THE CASE OF UNABSORBED BUSINESS LOSS. THEREFORE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT T HE ASSESSEE IS ENTITLED TO GET UNABSORBED DEPRECIATION OF THE EARLIER YEARS 1984-85 AND 1985-86 SET OFF IN 1987-8 8 ITA NO. 6294/DEL/20I2 EVEN IF NO VALID RETURN FOR THE A SSTT. YR. 1986-87 HAD BEEN FILED BY THE ASSESSEE.' 13. A READING OF THE PROVISIONS OF SECTION 32(2) AL ONGWITH THE EXPOSITION OF THE HON'BLE HIGH COURT AS ABOVE, IT I S EVIDENT THAT THERE IS NO PROVISION UNDER THE ACT WHICH MAKES IT MANDATORY FOR THE ASSESSEE TO FILE THE RETURN FOR CARRY-FORWA RD AND SET OFF OF UNABSORBED DEPRECIATION WHICH IS TO BE' NOTIFIED BY THE ASSESSING OFFICER IN THE CASE OF UNABSORBED BUSINES S LOSS. THUS, WE NOTED THAT THE ASSESSEE IS ENTITLED TO GET SET O FF OF THE UNABSORBED DEPRECIATION OF EARLIER YEARS, EVEN IF N O VALID RETURN FOR THE INTERVENING PERIOD HAS BEEN FILED BY THE AS SESSEE. HENCE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES B ELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. I.T.A. NO.698/LKW/2015 ASSESSMENT YEAR:2012-13 11 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. 7. THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF SHRI RAGHUPATI FIBRES PVT. LTD. IN ITS ORDER DATED 12/09/2014 HAS HELD THAT INCOME FROM OTHER SOURCES IN THE FORM OF ADDITION U/S 68 IS ELI GIBLE FOR SET OFF AGAINST UNABSORBED DEPRECIATION. THE TRIBUNAL HAS HELD AS UNDER: 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER OBSERVED TH AT THE ADDITION OF RS 13,80,000/- WAS MADE U/S. 68 OF THE INCOME TAX ACT WHICH DOES NOT FORM PART OF ANY SPECIFIC HEAD O F INCOME AND IS ALSO NOT BUSINESS INCOME, THEREFORE BROUGHT FORWARD UNABSORBED DEPRECIATION CANNOT BE ALLOWED SET OFF A GAINST THE SAME. 5. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEA LS) OBSERVED THAT BROUGHT FORWARD DEPRECIATION CAN BE S ET OFF AGAINST INCOME UNDER ANY OTHER HEAD OTHER THAN BUSI NESS IN SUBSEQUENT YEARS AS SECTION 32 PROVIDES THAT BROUGH T FORWARD DEPRECIATION MERGES WITH THE DEPRECIATION OF THE CU RRENT YEAR AND BECOMES CURRENT YEARS DEPRECIATION WHICH IS PE RMITTED TO BE SET OFF AGAINST ANY INCOME OF THE CURRENT YEAR O THER THAN SALARY. INCOME DETERMINED U/S. 68 OF THE INCOME TAX ACT IS INCOME UNDER OTHER SOURCES AND THEREFORE THE BROUGH T FORWARD DEPRECIATION WILL HAVE TO BE ALLOWED AS A SET OFF A GAINST INCOME DETERMINED U/S. 68 OF THE INCOME TAX ACT. 6. BEING AGGRIEVED BY THE SAID ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS), THE REVENUE IS IN APPEAL BEFO RE US. 7. WE FIND THAT THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. D.P. SANDU BROS. CHEMBUR (P) LTD. (2005) 273 IT R 1 (SC) HAS HELD AS UNDER: SECTION 14 OF THE INCOME-TAX ACT, 1961 AS IT STOOD AT THE RELEVANT TIME SIMILARLY PROVIDED THAT ALL INCOME S HALL FOR THE PURPOSES OF CHARGE OF INCOME-TAX AND COMPUTATIO N OF TOTAL INCOME BE CLASSIFIED UNDER SIX HEADS OF INCOM E, NAMELY:- (A) SALARIES; (B) INTEREST ON SECURITIES; (C) INCOME FROM HOUSE PROPERTY; (D) PROFITS AND GAINS O F BUSINESS OR PROFESSION; (E) CAPITAL GAINS; (F) INCO ME FROM OTHER SOURCES UNLESS OTHERWISE, PROVIDED IN TH E ACT. I.T.A. NO.698/LKW/2015 ASSESSMENT YEAR:2012-13 12 SECTION 56 PROVIDES FOR THE CHARGEABILITY OF INCOME OF EVERY KIND WHICH HAS NOT TO BE EXCLUDED FROM THE TO TAL INCOME UNDER THE ACT, ONLY IF IT IS NOT CHARGEABLE TO INCOME-TAX UNDER ANY OF THE HEADS SPECIFIED IN SECT ION 14, ITEMS A TO E. 8. THUS, IN VIEW OF THE ABOVE DECISION OF THE HONB LE SUPREME COURT, THE AMOUNT WHICH HAS BEEN DEEMED AS INCOME U /S. 68 IS ASSESSABLE AS INCOME FROM OTHER SOURCES AND BECAUSE OF THE SAME, IT FORMS PART OF THE TOTAL INCOME OF THE ASSE SSEE. 9. IT IS NOT IN DISPUTE THAT BROUGHT FORWARD UNABSO RBED DEPRECIATION CAN BE SET OFF AGAINST THE INCOME WHIC H IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S. WE, THEREFORE, DO NOT FIND ANY ERROR IN THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS). IT IS CONFIRM ED. THE GROUND OF APPEAL OF REVENUE IS DISMISSED. 8. RESPECTFULLY FOLLOWING THE ABOVE ORDERS OF THE T RIBUNAL, WE HOLD THAT THE LONG TERM CAPITAL GAIN EARNED BY THE ASSESSEE I S ELIGIBLE TO BE SET OFF AGAINST THE BROUGHT FORWARD UNABSORBED DEPRECIATION AND THEREFORE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 18/01/2018) SD/. SD/. (PARTHA SARATHI CHAUDHURY) ( T. S. KAPOOR ) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED:18/01/2018 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW