ITAT allows claim of unabsorbed brought forward depreciation and business loss in the absence of business activity

The brief facts of the case are the assessee is engaged in the business of producing energy. During the course of the assessment proceedings, Ld. Assessing Officer observed that the assessee had not generated any revenue for the year from business operations as the assessee had shifted its plants and machinery in the year under consideration. During the assessment proceedings, AO disallowed the claim of unabsobed brought forward depreciation and business loss to be set off as there was no business activity during the year. CIT(A) conformed the order passed by the AO.Aggrieved by the order passed by CIT(A), assessee preferred an appeal before the tribunal.

ITAT observed that in the case of CIT v Deepak Textile Industries Ltd. [1987] 35 Taxman 92 (Gujarat), the Gujarat High Court held that unabsorbed depreciation can be carried forward and set off by assessee even though business of textile mills to which such unabsorbed depreciation-related had been discontinued by assessee. Again, the Gujarat High Court in the case of Anant Mills Ltd. v Ld. CIT(A) [1994] 206 ITR 582 (Gujarat)/[1993] has held that unabsorbed depreciation should be allowed to be carried forward and set off against assessable income of a subsequent year notwithstanding fact that business in respect of which it arose ceased to exist in year of such set off .

In this case, during the year, admittedly the assessee could not generate revenue on account of relocation of plant to Panoli, but that fact by itself, would not, in our view, ipso facto lead to the conclusion that the business of the assessee has ceased altogether.

Therefore, respectfully following the decisions of jurisdictional High Courts held that merely because there was no manufacturing activity in relevant previous year, that could not be reason enough to come to conclusion that unabsorbed appreciation of assessee in earlier years was not entitled to be set off against its business income in current year, ITAT is of the considered view that assessee should be allowed set-off of unabsorbed brought forward depreciation and business loss during the year.

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