RESHMA TOOLS & ENGG. P.LTD, MUMBAI V. ITO WD 3, THANE

ITA 801/MUM/2016

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4065 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 16-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI; RAJORA SATISH C RAMSEVAK
• Assessee Lawyers: B V JHAVERI
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 143(3); 72(1); 142(1); 32

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE HON BLE SH. SANDEEP GOSAIN , J M & HONBLE SH. N. K. PRADAHAN, A M ./ I.T.A. NO . 801 /MUM/2016 ( / ASSESSMENT YEAR: 2009 - 10 ) RESHMA TOOLS &ENGG. PVT. LTD. 2 ND FLOOR, KAPUR HOUSE, PARAJAPE B. SCHEME, RD. NO. 1 VILE PARLE (E) MUMBAI - 400705 / VS. ITO WD 3 ASHAR ITA PARK WAGLE ESTATE, THANE, PIN - ./ ./ PAN NO. AAACR5912M ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI B. V. JHAVERI AR / RESPONDENTBY : SHRI RAJORA SATISH C. RAMSEVAK, AND SHRI RAM TIWARI , DR / DATE OF HEARING : 03/08 /201 8 / DATE OF PRONOUNCEMENT : 10/10/2018 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF LD. CIT(A) - 2, THANE DATED 30.10.15 FOR AY 2009 - 10 ON THE GROUNDS MENTIONED HEREIN BELOW: - 2 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. 1) THE LEARNED ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED B Y DISALLOWING SET - OFF OF SHORT TER M CAPITAL LOSS OF RS. 685, 490/ - AGAINST LONG TERM CAPITAL GAIN. 2) THE LEARNED ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BY DISALLOWING SET - OFF OF UNABSO RBED DEPRECIATION OF RS. 46,29, 650/ - AGAINST INCOME OF LONG TERM CAPITAL GAIN. 3) THE LEARNED ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BY NOT ALLOWING SET - OFF OF BROUGHT FORWARD LOSSES AGAINST BUSINESS INCOME. 4) THE LEARNED ASSESSING OFFICER AND COMMISSIONER (APPE ALS) HAS ERRED IN REJECTING THE ASSESSEE S CLAIM OF ADJUSTMENT OF UNABSORBED DEPRECIATION ON THE GROUND THAT THE RETURNS FILED FOR ASSESSMENT YEAR 2002 - 03, 200 4 - 05, 2005 - 06 WERE NOT FILED ON DUE DATES OF THE RETURN. 5) THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) HAS ERRED IN CONSIDERING THE AMOUNT OF UNABSORBED DEPRECIATION OF A. Y. 2001 - 02 AT RS. 33 ,03,519/ - INSTEAD OF RS. 6,74, 728/ - . 6) THE APPELLANT CRAVES TO ADD, ALTER, DELETE OR MODIFY ANY GROUND OF APPEAL DURING THE COURSE OF THE APPELLATE PROCEE DINGS. 3 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. 2. AT THE VERY OUTSET, OUR ATTENTION WAS DRAWN TO THE FACT THAT THE PRESENT APPEAL IS PRIMA FACIE BARRED BY 1 DAY DELAY. CONSIDERING THE NEGLIGIBLE PERIOD OF DELAY AND KEEPING IN VIEW THE PRINCIPLES LAID DOWN BY HONBLE SUPREME COURT IN CASE OF LAND ACQUISITION COLLECTOR VRS. MSTKITZI, AIR 1987 S.C. 1353 /(1987) 167 ITR 471 (SC), WE CONDONE THE DELAY OF 1 DAY IN FILING THE APPEAL AND ADMIT THE SAME TO BE HEARD ON MERITS. 3 . THE B RIEF FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A PRIVATE LIMITED COMPANY, CLAIMED TO BE ENGAGED IN THE BUSINESS OF ENGINEERING ACTIVITY. T HE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 30.09.2009 DECLARING INCOME OF RS 1,28,560/ - . THE REAFTER THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY STATUTORY NOTICES U/S 143(2 ) AND 142(1) OF THE I T ACT, ALONG WITHDETAILED QUESTIONNAIRE, WERE ISSUED AND DULY SERVED UPON THE ASSESSEE. ASSESSMENT U/S 143(3) OF THE ACT WAS FINALIZED ON 19.12.2011, AT TOTAL INCOME OF RS 55,03,833/ - . AGGRIEVED BY THE ORDE R OF AO , ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES, DISMISSED THE APPEAL OF THE ASSESSEE. 4 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE HAS PREFERRED THE PRESENT APPEAL BY RAISING THE ABOVE GROUNDS. GROUND NO. 1 . 4 . T H IS G ROUND RAISED BY THE ASSESSEE ELATES TO CHA LLENGING THE ORDER OF LD. CIT(A) IN DISALLOWING SET - OFF OF SHORT TERM CAPITAL LOSS OF RS. 685, 490/ - AGAINST LONG TERM CAPITAL GAIN. 5. WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). THE LD. CIT(A) HAS DEALT WITH THE ABOVE GROUNDS RAISED BY THE A SSESSEE IN PARA NO. 4 OF ITS ORDER. THE OPERATIVE PORTION IS CONTAINED IN PARA NO. 4.4 TO 4.5 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 4.4 I HAVE CAREFULLY CONSIDERED FACTS OF THE CASE, FINDINGS OF THE AO IN ASSESSMENT ORDER, SUBMISSIONS OF THE LD AR AND MATERIAL PLACED ON RECORD. ON GOING THROUGH THE FACTS OF THE CASE, IT IS SEEN THAT DURING THE 5 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. YEAR, THE APPELLANT HAS SOLD PLOT NO 115 (WHIC H WAS PURCHASED ON 30.11.1994), ADMEASURING ABOUT 3266 SQYRD, FOR LUMP - SUM CONSIDERATION OF RS 60 LAKHS, ON 28.04.2008. IN ORDER TO ASCERTAIN THE CLAIM OF THE APPELLANT REGARDING DISPOSAL OF ASSET, NAMELY 1) FACTORY BUILDING - RS 5,69,888/ - , 2) ELECTRICAL INSTALLATIONS - RS 95,998/ - , 3) TOOLS AND EQUIPMENTS - RS 9,732/ - AND FURNITURE - RS 9,872/ - , THE APPELLANT WAS REQUIRED TO FURNISH PROOF REGARDING SALE THEREOF. IN COMPLIANCE, THE LD AR COULD NOT FURNISH CREDIBLE DOCUMENTS, TO SUPPORT THE ABOVE CLAIM, EX CEPT STATING THAT THE SAME WERE SOLD ALONG WITH PLOT OF LAND AND COPY OF SALE DEED WAS ALSO SUBMITTED. 1 HAVE CAREFULLY EXAMINED THE SALE DEED AND NOTICED THAT IN THE SALE DEED THERE IS NO MENTION OF EITHER OF ABOVE ASSETS, EXCEPT SALE OF PLOT AREA OF 3266 SQ YARD, AGAINST ABOVE SALE EXECUTED FOR CONSIDERATION OF RS 60 LAKHS. HAD THE PLOT OF LAND BEEN SOLD ALONG WITH FACTORY BUILDING AND OTHER ASSETS, THE DEED EXECUTOR MUST HAVE INCORPORATED THE SAME IN THE SALE DEED, HENCE THE CLAIM OF THE APPELLANT IS NOT TENABLE. 4.5 IN THE SCHEDULE OF FIXED ASSETS, COPY FILED WITHOUT AUTHENTICATION OF AUDITORS, REFLECT THE VALUE OF FACTORY BUILDING AT RS 17.20 LAKHS, ELECTRIC INSTALLATION AT RS 11.27 LAKHS, FURNITURE AT RS 0.29 LAKHS AND TOOL AND EQUIPMENTS AT RS 1.35 LA KHS, AS ON 01.04.2010, 6 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. TOTALING AROUND RS 30 LAKHS, CLAIMED TO HAD BEEN SOLD ALONG WITH THE PLOT OF THE FACTORY, WITHOUT ANY CONSIDERATION, NOT SO REFLECTED IN THE SALE DEED, IS NOT BELIEVABLE. IT IS FURTHER NOTICED THAT THE APPELLANT HAD SOLD ITS ASSETS I N F YR 2003 - 04 AND ACCORDINGLY SHOWN LOSS ON SALE OF FIXED ASSETS AT RS 6,83,715/ - . ACCORDINGLY THE APPELLANT WAS REQUIRED TO FURNISH YEAR - WISE DETAILS OF BUSINESS ACTIVITIES, DEPRECIATION CLAIMED, WDV WORKED OUT, FOR THE LAST TEN YEARS TO ESTABLISH THE DE PRECIATED VALUE OF ABOVE ASSETS, BROUGHT FORWARD IN THE RELEVANT YEAR IN COMPLIANCE, THE LD AR COULD NOT FURNISH THE SAME, IN THE REQUIRED FORMAT. IN VIEW OF THESE FACTS, THE APPELLANT HAS CLEARLY FAILED TO ESTABLISH THE WORKING OF CLAIM OF LOSS AGAINST AB OVE ASSETS, IF ANY. THE APPELLANT HAS ALSO FAILED TO FURNISH ANY DOCUMENTS REGARDING DISPOSAL OF THESE ASSETS FOR NIL CONSIDERATION. THE SALE DEED DOES NOT TALK ABOUT SALES OF ABOVE ASSETS ALONG WITH PLOT OF LAND, HENCE THE CLAIM OF THE APPELLANT IS NOT VE RIFIABLE. IN THE ABSENCE OF REQUIRED DETAILS / PROOF FOR DISPOSAL OF ASSETS, THE CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE, THEREFORE REJECTED AND DISALLOWANCE OF RS 6,85,490/ - , MADE BY THE AO, IS UPHELD. THIS GROUND OF APPEAL IS DISMISSED. 7 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. AFTER HAVING GONE THROUGH THE ORDERS PASSED BY REVENUE AUTHORITIES AND AFTER HEARING THE ARGUMENTS FOR BOTH THE PARTIES AT LENGTH, WE FIND THAT THE INITIALLY THE ASSESSEE COMPANY WAS CARRYING ON THE BUSINESS OF MAINTENANCE AND SERVICING OF ALL TYPES OF ELECTRICA L AND MECHANICAL EQUIPMENTS FROM ITS FACTORY PREMISES SITUATED AT KAVL E INDUSTRIAL ESTATE, VILLAGE ISAMBE, TAL. KHALAPUR, DIST. RAIGAD. THE BUSINESS OF THE ASSESSEE COMPANY HAD BEEN D ISCONTINUED SINCE A.Y. 2004 - 05, THEREFORE, T HE ASSESSEE SOLD THE PLOT OF LAND ON WHICH FACTORY BUILDING WAS SITUATED, WHICH HAD RESULTED INTO LONG - TERM CAPITAL GAINS OF RS.54,43,696/ - . AS PER THE SUBMISSION OF THE ASSESSEE, THE ASSESSEE COMPANY HAD SOLD THE LAND ALONG WITH THE FACTORY BUILDING SITUATED THEREON AND WRITTEN OFF THE FACTORY BUILDING HAVING W DV OF RS.5,69,888/ - , ELECTRICAL INSTALLATION HAVING W D V OF RS. 95,998/ , - TOOLS AND EQUIPMENT HAVING WDV OF RS.9,732 AND FURNITURE HAVING WDV RS. 10,372/ - , WHICH A GGREGATED TO RS. 6,85,490/ - . THE AFORESAID SHORT TERM CAPITAL LOSS (BALANCING CHARGE) WAS ADJU STED AGAINST THE LONG - TERM CAPITAL GAINS RECEIVED ON SALE OF LAND OF RS.54,43,696/ - . 8 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. WE FIND FROM THE WRITTEN SUBMISSION OF THE ASSESSEE THAT AO DISALLOWED THE AFORESAID SHORT - TERM CAPITAL LOSS MAINLY ON THE GROUND THAT THE ASSESSEE COMPANY DID NOT FURNISH BILLS OR VOUCHERS IN SUPPORT OF THE SALE OF THE SAID ASSETS. SECONDLY , THE ASSETS WHICH WERE DISCARDED COULD HAVE FETCHED SCRAP VALUE WHICH IS NOT ACCOUNTED BY THE ASSESSEE. THEREFORE, THE ASSESSEE'S CLAIM OF SHORT - TERM CAPITAL LOSS WAS REJECTED. IT IS THE CASE OF THE ASSESSEE BEFORE US THAT AS IT HAD CLOSED DOWN ITS BUSINESS ACTIVITIES, THEREFORE THE ASSESSEE SOLD THE LAND ALONG WITH THE STRU CTURE AND THE ELECTRICAL INSTALLATION, EQUIPMENT AND FURNITURE LYING THEREIN FOR A LUMPSUM CONSIDERATION OF RS.60,00,000/ - AND THEREFORE, THE SCRAP VALUES OF BUILDING, ELECTRICAL INSTALLATION, EQUIPMENT OR FURNITURE WERE NOT SEPARATELY FETCHED BY THE ASSES SEE BUT THE SAME IS FORMING PART OF THE AFORESAID CONSIDERATION. SECONDLY , THESE ASSETS WERE NOT REQUIRED BY THE ASSESSEE AND THEREFORE, THEY WERE GIVEN ALONG WITH THE LAND . IT WAS ALSO SUBMITTED THAT THE WDV OF THE AFORESAID ASSET AS ON THE FIRST DAY O F T HE ACCOUNTING PERIOD I.E. 01.04.08, WHICH WAS DISCARDED BY THE ASSESSEE WERE CLAIMED AS SHORT - TERM 9 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. CAPITAL LOSS. IT WAS ALSO SUBMITTED THAT THE DEED OF CONVEYANCE REFERS TO HOUSE, OUT HOUSE, EDIFICE, BUILDING, COURTYARDS, DRAINS , COMPOUND, ETC. HAVING BEEN SOLD ALONG WITH THE LAND . THEREFORE, THE FACTORY BUILDING WHICH WAS CONSTRUCTED ON THE SAID LAND AND ELECTRIC INSTALLATION, EQUIPMENT, FURNITURE, ETC. WERE GIVEN ALONG WITH THE LAND FOR THE LUMP SUM CONSIDERATION OF RS.60,00,000/ - WHICH INCLUDED SCRAP VAL UE OF THE BUILDING, ELECTRICAL INSTALLATION, EQUIPMENT AND FURNITURE LYING THEREIN. IT WAS ALSO SUBMITTED THAT THE SAID SHORT TERM CAPITAL LOSS BEING THE WRITTEN DOWN VALUE OF THESE ASSETS OF RS. 6,85,490/ - MAY BE ALLOWED AND THE SAME MAY BE ADJUSTED AGAIN ST THE LONG TERM CAPITAL GAINS ON SALE OF THE LAND. OUR ATTENTION WAS ALSO DRAWN TOWARDS PAPER BOOK AT PAGE NO. 26, WHICH IS COPY OF DEED OF CONVENIENCE . ON PERUSAL OF THE DEED OF CONVENIENCE, WE NOTICED THAT THE ASSESSEE HAD TRANSFERRED THE PROPERTY IN F AVOUR OF PURCHASER . IT IS AN UNDISPUTED FACT THAT APART FROM 60 LAKHS, NO OTHER AMOUNT HAS BEEN RECEIVED BY THE ASSESSEE AND THE FACTORY BUILDING WHICH WAS CONSTRUCTED ON THE SAID LAND ALONGWITH ELECTRICAL INSTALLATION, EQUIPMENT, FURNITURE, ETC. WERE ALSO SOLD ALONG WITH LAND FOR THE TOTAL LUMPSUM 10 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. CONSIDERATION OF RS. 60 LAKHS WHICH INCLUDES SCRIPT VALUE OF THE BUILDING. WHEREAS THE CLAIM OF THE ASSESSEE WAS REJECTED ON THE GROUND THAT THE SALE DEED DOES NOT TALK ABOUT SALES OF ABO VE ASSETS ALONGWITH PLOT OF LAND AND HENCE THE CLAIM IS NOT VERIFIABLE. ON THE CONTRARY, SALE DEED CONTAINS THE RECITAL THAT THE FACTORY BUILDING WHICH WAS CONSTRUCTED ON THE SAID LAND ALONGWITH ELECTRICAL INSTALLATION, EQUIPMENT, FURNITURE, ETC WERE ALSO SOLD ALONGWITH THE LAND FOR A TOTAL LUMPSUM CONSIDERATION OF RS. 60 LAKHS INCLUDING SCRIPT VALUE OF THE BUILDING. THEREFORE, WHILE TAKING INTO CONSIDERATION THE FACTS OF THE PRESENT CASE AND AFTER APPRECIATING THE DOCUMENTS, MORE PARTICULARLY THE REGISTER ED CONVENIENCE OF DEED , WE ARE OF THE CONSIDERED VIEW THAT THE LUMPSUM SALE CONSIDERATION OF RS. 60 LAKHS INCLUDES VALUE OF LAND AND ELECTRICAL INSTALLATION, EQUIPMENT , BUILDING, FURNITURE, ETC. THEREFORE, IN THESE CIRCUMSTANCES, THE AO IS DIRECTED TO ADJ UST THE SHORT TERM CAPITAL LOSS BEING THE WRITTEN DONE VALUE OF THESE ASSETS OF RS. 6,85,490/ - AGAINST THE LONG TERM CAPITAL GAIN ON THE SALE OF THE LAND. WITH THESE DIRECTIONS, WE ALLOW THIS GROUND OF APPEAL RAISED BY THE ASSESSEE. 11 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. GROUND NO. 3. 5. THIS GROUND HAS NOT BEEN PRESSED BY THE ASSESSEE, THEREFORE THIS GROUND OF APPEAL BECOMES INFRUCTUOUS. GROUND NO. 2, 4 & 5. 6. SINCE ALL THE GROUNDS RAISED BY THE ASSESSEE ARE INTER CONNECTED AND INTER RELATED AND RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN DISALLOWING SET - OFF OF UNABSORBED DEPRECIATION OF RS. 46,29, 650/ - AGAINST INCOME OF LONG TERM CAPITAL G AIN, THEREFORE WE THOUGHT IT FIT TO DISPOSE OF THE SAME BY THIS COMMON ORDER. 7. WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND W E HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE FIND AS PE R THE FACTS OF THE PRESENT CASE, ASSESSEE HAD CARRIED FORWARD BUSINESS LOSS AND DEPRECIATION FOR AY 1998 - 99 TO 2007 - 08 AND AO DISALLOWED THE SET OFF OF UNABSORBED DEPRECIATION FOR THE EARLIER YEARS AGGREGATING TO RS. 46,29,650/ - AGAINST THE LONG TERM CAPITAL GAIN EARNED BY THE ASSESSEE CO MPANY ON THE SALE OF LAND ON ACCOUNT OF VARIOUS REASONS. LD. CIT(A) ALSO CONFIRMED THE ORDER OF AO AND 12 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. THE REASONING IS CONTAINED IN PARA NO. 5.5 & 5.6 OF ITS ORDER . LD. AR SUBMITTED BEFORE US THAT AO WRONG LY DISALLOWED THAT THE SET OFF UNABSORBED DEPRECIA TION BY WRONGLY INTERPRETING THE PROVISION OF SECTION 72( 1)(I) OF THE I.T. ACT BY HOLDING THAT IF THERE IS NO ACTIVITIES IN THE YEAR OF CLAIM, THEN THE BR OUGHT FORWARD LOSSES CANNOT BE ALLOWED TO BE SET OFF. IN THIS RESPECT, IT WAS SUBMITTED BY LD. AR THAT ASSESSEE COMPANY IS CLAIMING CARRIED FORWARD AND SET OFF OF UNABSORBED DEPRECIATION OF THE EARLIER YEARS AND NOT CARRIED FORWARD AND SET OFF OF UNABSORBED BUSINESS LOSS OF THE EARLIER YEARS AND HENCE SEC.72( 1) OF THE ACT HAS NO APPLICATION. IN THIS RESPECT, LD. AR DRAWN OUR ATTENTION TO THE DECISION OF THEMUMBAI TRIBUNAL IN THE CASE OF SURESH INDUSTRIES VS. ACIT 1(2012) 27 TAXMANN.COM 203)] WHEREIN THE HON'BLE TRIBUNAL FOR A.Y.2007 - 08 HELD ASUNDER: '10. A CO MPARATIVE STUDY OF PRE - AMENDMENT AND POST AMENDMENT PROVISIONS OF SEC. 32(2) SUGGESTS THAT PRIOR TO THE AMENDMENT, THE SET OFF WAS RESTRICTED TO THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION WHEREAS POST AMENDMENT (I.E. THE LAW APPLICABLE FO R THE YEAR UNDER CONSIDERATION) THE SET OFF IS AVAILABLE 13 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. FROM PROFITS OR GAINS CHARGEABLE FOR THE PREVIOUS YEAR. THE CLAIM OF THE LOWER AUTHORITIES THAT PROFITS 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 DELETED PHRASE 'OF ANY BUSINESS OR PROFESSION IN THE POST AMENDED PROVISIONS OF SEC. 32(2). THE LAW REGARDING SET OFF OF UNABSORBED DEPRECIATION UPTO 1.4.1996 WAS VERY LI BERAL AND SET OFF WAS ALLOWABLE AGAINST ANY INCOME. THIS WAS ALSO UPHELD BY THE HON'BLE SUPREME COURT IN THE CASE OF VIRMANI INDUS. (P.) LTD. (216 ITR 607). HOWEVER, THE LAW REGARDING SUCH SET OFF WAS CHANGED BY THE FINANCE ACT NO. 2 OF 1996 AND FROM A.Y. 1997 - 98 TO 2002 - 03 THE UNABSORBED 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 HON'BLE SUPREME COURT IN THE CASE OF VIRINANI INDUS. (P.) LTD. (SUPRA) ONCE AGAIN HOLD GOOD AND SO NOW UNABSORBED DEPRECIATION CAN BE SET OFF AGAINST ANY INCOME. THUS, THE CLAIM OF CURRENT YEAR'S DEPRECIATION OF RS. 2,32,059/ - IS DIRECTED TO BE SET OFF AGAINST THE INCOME UNDER THE HEAD 'CAPITAL GAINS'. ACCORDINGLY, GRO UND NO. 1 OF THE APPEAL IS ALLOWED. '11. HAVING CONSIDERED THE PROVISIONS OF SEC. 32(2), IT IS ALSO CLEAR THAT IF THE CURRENT YEAR'S DEPRECIATION CANNOT BE SET OFF OWING TO THE PROFITS OR 14 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE, THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN SHALL BE ADDED TO THE AMOUNT OF ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF THE ALLOWANCE WHICH MEANS THAT BROUGHT FORWARD DEPRECIATION MERGES WITH THE CURREN T YEAR'S DEPRECIATION BECAUSE OF THE LEGAL FICTION CREATED BY 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 SECTION (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 SECT ION SUGGESTS THAT IN CASE OF SET OFF OF BUSINESS LOSS VIS - A - VIS DEPRECIATION, THE FIRST PREFERENCE SHALL BE GIVEN TO THE BUSINESS LOSS AS PER THE PROVISIONS OF SEC. 72(1) OF THE ACT FOR THE SIMPLE REASON THAT THE BUSINESS LOSS CAN BE CARRIED FORWARD ONLYUP TO 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, THEREFORE THE T REATMENT GIVEN TO THE CURRENT YEAR'S 15 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. DEPRECIATION IS EQUALLY APPLICABLE TO BROUGHT FORWARD DEPRECIATION AFTER THE APPLICATION OF FINANCE ACT, 2001. '14. WE HAVE ALREADY HELD THAT CURRENT YEAR'S DEPRECIATION IS TO BE ALLOWED AS SET OFF FROM THE LONG TERM CA PITAL GAINS AND BROUGHT FORWARD DEPRECIATION IS TO BE TREATED AS CURRENT YEAR'S DEPRECIATION AS PER THE LEGAL FICTION OF SECTION 32(2), THE SAME IS ALSO TO BE ALLOWED TO BE SET OFF FROM THE LONG TERM CAPITAL GAINS. ACCORDINGLY, GROUND NO. 2 OF THE APPEAL I S ALSO ALLOWED.' IT WAS FURTHER SUBMITTED BY LD. AR THAT I N RESPECT OF REASONS GIVEN ABOUT DEPRECIATION WRITTEN OFF FOR A.Y.2001 - 02 OF RS.9,89,033/ - , OUR ATTENTION WAS INVITED TO PAGE 74 WHICH IS NOTES TO THE AUDITED ACCOUNTS FOR A.Y. 2001 - 02 WHICH READS AS UNDER: 'DEPRECIATION OF FIXED ASSETS IS PROVIDED ON STRAIGHT LINE METHOD AT THE RATES PRESCRIBED UNDER SCHEDULE XIV OF THE COMPANIES ACT, 1956. THE METHOD OF PROVIDING DEPRECIATION HAS BEEN CHANGED FROM WRITTEN DOWN VALUE METHOD TO STRAIGHT LINE METHOD . THE LOSS FOR THE YEAR IS REDUCED TO THE EXTENT OF DEPRECIATION WRITTEN BACK OF RS.9,89,033/ - .' 16 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. IT WAS SUBMITTED THAT THE AFORESAID IS THE ACCOUNTING ENTRY WRITING BACK THE DEPRECIATION AND THEREFORE, IT HAS NO RELEVANCE TO CARRY FORWARD AND SET OFF OF THE UNABSORBED DEPRECIATION OF THE EARLIER YEARS IN THE YEAR UNDER CONSIDERATION. I N RESPECT OF WAIVER OF LOAN, T HE ASSESSEE COMPANY HAD TAKEN LOAN OF ABOUT RS.58,00,000/ - FROM C.K.P. CO - OP. BANK LTD. IN THEYEAR 1996 - 97. AS PER THE ASSESSEE, IT COULD NOT REPAY THE LOAN AND INTEREST THEREON DUE TO LOSS, THE REFORE THE ASSESSEE HAD APPLIED FOR ONE - TIME SETTLEM ENT TO THE BANK WHEREBY THE PRINCIPAL AMOUNT OF THE LOAN WAS REPAID AND THE INTEREST ON THE LOAN AMOUNT WAS WAIVED. THE SAID INTEREST THOUGH PROVIDED IN THE BOOKS WAS NOT CLAIMED WHILE COMPUTING INCOME IN VIEW OF SEC.43B AS THE SAID INTEREST WAS NOT PAID . THEREFORE, THE WAIVER OF THE INTEREST AMOUNT WAS NOT OFFERED FOR TAXATION. WE FURTHER NOTICE THAT T HE NEXT REASON GIVEN BY AO WHILE MAKING DISALLOWANCE ON ACCOUNT OF BELATED FILING OF RETURNS OF INCOME FOR A.YS. 2002 - 03, 2004 - 05 AND 2005 - 06. IN THIS RESPECT OUR ATTENTION WAS DRAWN TO THE DECISION OF THE APPELLATE 17 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. TRIBUNAL, MUMBAI BENCH,IN THE CASE OF ACIT VS. ANIL PRINTERS LTD. 1(2016) 68 TAXMANN.COM 368) WHEREIN THE TRIBUNAL HELD THAT THE CONDITION OF FILING RETURN OF INCOME WITHIN THE TIME PRESCRIBED U/S.139(1) OF THE ACT IS NOT APPLICABLE FOR THE PROVISIONS OF SEC.32(2) OF THE ACT AND THEREFORE, CARRY FORWARD AND SET OFF OF THE UNABSORBED DEPRECIATION CAN BE ALLOWED EVEN THOUGH THE RETURNS OF THOSE RESPECTIVE YEARS WERE NOT FILED WITHIN THE TIME PRESCRIBED U/S. 139(1) OF THEACT. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AND KEEPING IN VIEW OUR FINDINGS AS MENTIONED ABOVE, WE HOLD THAT BROUGHT FORWARD UNABSORBED DEPRECIATION BE ALLOWED FOR SET OFF AGAINST LONG TERM CAPITAL GAINS AND WE DIRECT ACCORDINGLY. RESULTANTLY, T HESE GROUND S O F APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 8 . IN THE NET RESU LT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED WITH NO ORDER AS TO COST. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH OCT. 2018 SD/ - SD/ - ( N. K. PRADHAN ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 10 . 10 .201 8 18 I.T.A. NO. 801 /MUM/201 6 RESHMA TOOLS &ENGG. PVT. LTD. SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI