Unabsorbed depreciation is eligible for set-off against Income even if there was a lapse of eight years: Madras HC

Unabsorbed depreciation is eligible for set-off against Income even if there was a lapse of eight years: Madras HC

The Madras High Court (HC) has ruled that unabsorbed depreciation is eligible for set off against income even after the lapse of eight years

M/s. Harvey Heart Hospitals Ltd. (appellant) is in the healthcare industry. had filed the original return of income declaring 'nil' income for the assessment year (AY) 2005-06.

An appeal was filed by the appellant before the Commissioner of Income Tax (CIT) wherein the appellant raised the plea of jurisdiction to complete the assessment under Section 153A read with Section 147 of the Income Tax Act, 1961 (IT Act). A plea was also raised regarding the disallowance of gains on slump sale and omission to set-off a business loss.

The appellant raised a plea that the sale of business assets through computed under the head income from capital gains, the sale would part-take the character of the business income and accordingly, would be eligible for set-off against business losses brought forward.

The appellant stated that the Assessing Officer (AO) 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) [CIT(A)] dismissed the appeal filed by the appellant.

It was held by the CIT(A) that when once a capital gain is computed regarding the sale of a capital asset nevertheless it is a business asset. The CIT(A) also held that it cannot be allowed to be set off against unabsorbed brought forward business loss within the meaning of the provisions of Section 72.

The eligibility of getting the unabsorbed depreciation in the AY 1997-98 to 2000-01 set off against short-term capital gain computed by the AO under Section 50 of the IT Act.

The CIT(A) stated that the dis-allowance of the set-off brought forward unabsorbed depreciation relating to the AY 1997-98 to 2000-01 in the assessment order and also the rectification order dated 26 March 2008. It also confirmed the view of the AO regarding the claim of bad debts, the CIT(A) found no infirmity in the order of the AO.

The appellant approached the HC and the matter was listed before the division bench of Justice M.V. Duraiswamy and T.V. Thamilselvi.

The Court allowed the appeal of the assessee referring to the judgment of the Supreme Court of India (SC) in the case of Commissioner of Income-tax v. Bajaj Hindustan Ltd. wherein the SC held that unabsorbed depreciation can be carry forward and adjusted after the lapse of eight assessment years given under Section 32(2) as amended by the Finance Act, 2001.