Commissioner Of Income-Tax, Hisar v. G.t.m. Synthetics Ltd., Sirsa

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 92 of 2007Date 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 GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Mr. K.K. Mehta, Standing Counsel for the appellant-Revenue. Mr. D.K. Goyal, Advocatefor the respondent. --- AJAY KUMAR MITTAL, J. The paper-book of this case has not been received from theconcerned Branch as the same is said to have burnt in the fire incidentthat took place in the premises of this Court on the night of 30[th] January,2011. Learned counsel for the appellant has made available two copiesof paper-book to the Court for reconstruction of the file. The said copiesare taken on record and paper-book of this appeal be treated as havingbeen reconstructed. 2. This appeal under Section 260A of the Income-Tax Act, 1961(for short “the Act”) has been filed by the Revenue against the orderdated 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 ITAT was right in allowing setting-off the incomederived during the year under consideration under the head‘Income from other sources’ from the unabsorbeddepreciation, relevant to the assessment year 1996-97despite 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 year2001-02 on 30.10.2001 declaring a loss of Rs. 7,22,67,400/- which wassaid to be mainly on account of claim of unabsorbed depreciation/brought forward losses. The assessing officer while finalizing theassessment proceedings under Section 143(3) of the Act assessed thetotal 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 enhancedcompensation for compulsory acquisition of its land and an amount ofRs. 41,45,407/- received from banks on account of interest on theenhanced amount of compensation. In the said proceedings, theassessing officer noticed that the business being carried out by theassessee had been closed and no business related activities werecarried out during the year under reference. The assessing officer for this reason did not allow the assessee to adjust the non-businessincome out of the brought-forward unabsorbed depreciation of Rs.2,94,38,438/-, relevant to the assessment year 1996-97 in view of theprovisions 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 beingcarried out by the assessee allowed setting off of the income fromunabsorbed deprecation vide order dated 4.11.2004. The Tribunal bythe order appealed against herein confirmed the order passed by theCIT(A). 5.We have heard learned counsel for the parties and haveperused the record. 6. The point for consideration in this case is, whether thecarried forward unabsorbed depreciation allowance could be set offagainst the income under any other head when the business itself haddiscontinued. 7. Section 32(2) of the Act relates to carry forward of unabsorbeddepreciation. It has undergone various changes. It was amended byFinance Act, 2000, w.e.f. 1.4.2001 and as applicable to the assessmentyear 2001-02 i.e. the assessment year in question, the first proviso andthe word ‘further’ in the second proviso were deleted. The proviso soomitted reads thus: 5.We have heard learned counsel for the parties and haveperused the record. 6. The point for consideration in this case is, whether thecarried forward unabsorbed depreciation allowance could be set offagainst the income under any other head when the business itself haddiscontinued. 7. Section 32(2) of the Act relates to carry forward of unabsorbeddepreciation. It has undergone various changes. It was amended byFinance Act, 2000, w.e.f. 1.4.2001 and as applicable to the assessmentyear 2001-02 i.e. the assessment year in question, the first proviso andthe word ‘further’ in the second proviso were deleted. The proviso soomitted reads thus: “Provided that the business or profession for which theallowance was originally computed continued to be carriedon by him in the previous year relevant for that assessmentyear.” 8. The effect of omission of the aforesaid proviso wasenumerated by the Central Board of Direct Taxes, vide circular No. 794dated 9.8.2000 [(2000) 245 ITR (Statute)] 21 that the unabsorbeddepreciation allowance could be set off against the income under anyother 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 forset-off of unabsorbed depreciation dispensed with: 22.1 Under the existing provisions of sub-section (2) ofsection 32 of the Income-tax Act, carried forwardunabsorbed depreciation is allowed to be set off againstprofits and gains of business or profession of thesubsequent year, subject to the condition that the businessor profession for which depreciation allowance was originallycomputed continued to be carried on in that year. A similarcondition in section 72 for the purpose of carry forward andset off of unabsorbed business loss was removed last year.22.2 With a view to harmonise the provisions relating carryforward and set off of unabsorbed depreciation andunabsorbed loss, the Act has dispensed with the condition ofcontinuance of same business for the purpose of carryforward and set off of unabsorbed depreciation.section 32 of the Income-tax Act, carried forwardunabsorbed depreciation is allowed to be set off againstprofits and gains of business or profession of thesubsequent year, subject to the condition that the businessor profession for which depreciation allowance was originallycomputed continued to be carried on in that year. A similarcondition in section 72 for the purpose of carry forward andset off of unabsorbed business loss was removed last year.22.2 With a view to harmonise the provisions relating carryforward and set off of unabsorbed depreciation andunabsorbed loss, the Act has dispensed with the condition ofcontinuance of same business for the purpose of carryforward 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 assessmentyear 2001-2002 and subsequent years.”and will, accordingly, apply in relation to the assessmentyear 2001-2002 and subsequent years.” 9. The CIT(A) and the Tribunal, thus, rightly allowed unabsorbeddepreciation relevant to the assessment year 1996-97 to be set offdepreciation relevant to the assessment year 1996-97 to be set off against the income from long term capital gains and income from othersources for the assessment year 2001-2002. 10. In view of the above, the substantial question of law isdecided against the Revenue and the appeal is consequentlydismissed. (AJAY KUMAR MITTAL) JUDGE February 11, 2011*rkmalik* (ADARSH KUMAR GOEL) JUDGE