The Madras High Court unabsorbed depreciation is eligible for set off against income even after the lapse of eight years.
The appellant, M/s. Harvey Heart Hospitals Ltd. is in the healthcare industry. For the assessment year 2005-06, it has filed the original return of income declaring ‘nil’ income.
The appellant filed an appeal before the Commissioner of Income Tax (Appeals). The appellant also raised the plea of jurisdiction to complete the assessment under section 153A read with section 147 of the Income Tax Act.
With regard to disallowance on gains on slump sale and omission to set off business loss, the appellant raised a plea that the sale of business assets though computed under the head income from capital gains, the sale would partake the character of the business income and accordingly, would be eligible for set off against business losses brought forward.
It is the case of the appellant that the Assessing Officer ought not to have ignored the expenditure incurred and depreciation and business losses brought forward while arriving at the business income at ‘nil’.
The Commissioner of Income Tax (Appeals) dismissed the appeal field by the appellant and the appellate authority was of the opinion that when once a capital gain is computed in relation to sale of a capital asset notwithstanding its being in the nature of a business asset, the same cannot be allowed to be set off against unabsorbed brought forward business loss within the meaning of the provisions of Section 72.
Regarding the eligibility of getting the unabsorbed depreciation pertaining to the assessment year 1997-98 to 2000-01 set off against short-term capital gain computed by the Assessing Officer under section 50 of the Income Tax Act, the appellate authority chose to follow the order of the Tribunal referred to by him in his order and confirmed the dis-allowance of the set-off of brought forward unabsorbed depreciation relating to the assessment year 1997-98 to 2000-01 in the assessment order as well as the rectification order dated 26.03.2008.
The appellate authority confirmed the view of the Assessing Officer in the same manner and with regard to the claim of bad debts, the appellate authority found no infirmity in the order of the Assessing Officer.
The appleelant sought the relief in respect of the issue whether the Tribunal was right in law in holding that the unabsorbed depreciation relating to Assessment Year 1997-98 to 2000-2001 is not eligible for set off against any income of the appellant for the Assessment Year 2005- 06.
The division bench of Justice M.V. Duraiswamy and T.V. Thamilselvi allowed the appeal of the assessee in the light of the decision of the Apex court in the case of Commissioner of Income-tax v. Bajaj Hindustan Ltd. wherein it was held that unabsorbed depreciation can be carry forward and adjusted after the lapse of eight assessment years in view of section 32(2) as amended by the Finance Act, 2001.
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