{"id":6277,"date":"2019-10-09T10:08:12","date_gmt":"2019-10-09T04:38:12","guid":{"rendered":"http:\/\/itatonline.org\/articles_new\/?p=6277"},"modified":"2019-10-09T10:08:12","modified_gmt":"2019-10-09T04:38:12","slug":"unabsorbed-depreciation-u-s-32-of-income-tax-act-benefit-without-limits","status":"publish","type":"post","link":"https:\/\/itatonline.org\/articles_new\/unabsorbed-depreciation-u-s-32-of-income-tax-act-benefit-without-limits\/","title":{"rendered":"Unabsorbed Depreciation U\/s 32 Of Income-Tax Act – Benefit Without Limits"},"content":{"rendered":"

CA Pratik Sandbhor has dealt with the important questions (i) whether unabsorbed depreciation can be set off against any head of income and (ii) whether unabsorbed depreciation can be carried forward in perpetuity. He has answered the questions with reference to the statutory provisions, Circulars issued by the CBDT and the judgements on the point<\/strong><\/p>\n

With the decision of Hon’ble Supreme Court<\/em><\/strong> in case of Tasgaon Taluka SSK  Ltd. – 412 ITR 420 <\/em><\/strong>holding that Excess Cane Price(ECP<\/strong>) contains element of profit distribution and the said profit element embedded in such ECP shall be disallowed, the SSK’s shall be facing huge tax demands. In such circumstances the SSK’s seek some sigh of relief form the set off losses carried forward over the years to reduce the mounting tax burden. Substantial portion of such losses includes Unabsorbed Depreciation which has popularity of being carried forward in perpetuity. But can it be actually carried forward perpetually and be set off against any head of income.  Lets take a further dive to decipher the true position in respect of the following two issues:-<\/p>\n

<\/p>\n

1. Whether unabsorbed depreciation can be set off against any head of income.<\/p>\n

2. Whether unabsorbed depreciation can be carried forward in perpetuity<\/p>\n

Section 32(1)<\/strong> of Income Tax Act 1961 states that in respect of assets (tangible & intangible) the assesse shall be eligible to claim depreciation at prescribed rates on meeting the following two conditions:-<\/p>\n

i. The asset is owned<\/strong> (wholly or partly) by the assesse<\/p>\n

ii. The assets is used for purpose of business & profession<\/strong> <\/p>\n

Further Section 32(2)<\/strong> expounds on the terminology of Unabsorbed Depreciation<\/strong>.  Section 32(2) has not been any indifferent to the amendments that the Income Tax Act 1961 has seen over the years. The said section has been amended by Finance Act 1996<\/strong>&the amendment by Finance Act 2001<\/strong>reverting to original position. <\/p>\n

For the sake of brevity lets peruse the section as it exists today (since A.Y. 2002-03) <\/p>\n

“32<\/strong><\/em>
\n (1)…….<\/em><\/strong><\/p>\n

(2)<\/em><\/strong>  Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of <\/em>section 72<\/em> and sub-section (3) of <\/em>section 73<\/em>, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year,<\/strong> and so on for the succeeding previous years.”<\/em><\/p>\n

On reading through the said section it can be gleaned that where full effect cannot be given to depreciation as computed u\/s 32(1), in any previous year, owing to fact that the depreciation allowance for said year exceeds the profit or gains for said previous year then subject to section 72(2) & 73(3),  the excess of such depreciation shall be added to the depreciation of following previous year and where there exists no depreciation for following previous year, such unabsorbed depreciation shall deemed to be the depreciation for that year. <\/p>\n

In other words depreciation of a particular year just adds up to the depreciation of next year and attains the form of depreciation of that particular year<\/strong>. Thus such unutilized depreciation is termed as ‘unabsorbed depreciation’ and cannot be said to be a ‘carried forward loss’, it stands distinct.<\/p>\n

As far as set off of depreciation is concerned it is pertinent to note the following points form the section 32(2):- <\/p>\n