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Unabsorbed depreciation

Siddharth Zaveri (Mahavir Hydraulics Pvt Ltd) (48 Points)

22 March 2010

The provisions of the income tax act say that unabsorbed depreciation can be set off against any head of income other than that of "Salaries". So it means if I have a part of income under "Capital Gains" (Short or Long) I can set off this depreciation against it?

Regards

Siddharth Zaveri

sidsplanet @ gmail.com

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20 Replies

Rajat Singhal CA,CS,CFA (Senior Manager (F&A)) (254 Points)
Replied 22 March 2010

Yes you can use the capital gains for the same....

Rajat Singhal CA,CS,CFA (Senior Manager (F&A)) (254 Points)
Replied 22 March 2010

Dear Sidharth, can you tell me just for my knowledge I am asking that which provision of income tax act say that unabsorbed depreciation cannot be setoff against salary income.

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 22 March 2010

Wait, who said that UNABSORBED DEPRECIATION can't be set off against "SALARY"???? It can be done undoubtedly

1 Like

Rajat Singhal CA,CS,CFA (Senior Manager (F&A)) (254 Points)
Replied 22 March 2010

Dheeraj bhai same subjective question again

Gita Iyer (Specialist) (135 Points)
Replied 22 March 2010

71(2A) prevents only the set off of business loss against salary income and not depreciation.

Rajat Singhal CA,CS,CFA (Senior Manager (F&A)) (254 Points)
Replied 22 March 2010

Dear Uday bhai,

One question please according to section 80 business loss can be carry forward only if return is filed on the due date u/s 139(3).

Whether this section is applicable for unabsorbed depreciation is well????

1 Like

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 22 March 2010

Unabsorbed depreciation loss can be carried forward even if the return is filed after due date.

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 22 March 2010

I dont know why this discussion lead so far..

But according to me, Its true that biz loss cannot be set off against salary, but section 32 says that unabsorbed depreciation can be set off against any income... The restriction in set off provision is in setting off the business loss against salary. Means there is an express allowance in the act, which has been denied.

If CY business loss can be set off against income from HP, and CY HP loss can be set off against salary, then y should the unabsorbed depreciation not be set off against salary.... again, there is nothing that the act says that it cant... its just that Dept have gone straight ahead and made a form which wont even give assessee an option to challenge the dept.

Siddharth Zaveri (Mahavir Hydraulics Pvt Ltd) (48 Points)
Replied 22 March 2010

I am refering to Prof. T. N. Manoharan's book on income tax and the book says-

Unabsorbed depreciation can be set off not only against PGBP but also against income under any other head except under the head SALARIES.

Rajat Singhal CA,CS,CFA (Senior Manager (F&A)) (254 Points)
Replied 22 March 2010

Dear Uday,

WE have discussed this topic earlier is well, below are some points which were raised by G.K. bhai.

Section 32(2)

Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1 (– Depreciation)) 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 section 72 and sub-section (3) of section 73, 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, and so on for the succeeding previous years.

Section 72(2)

Where any allowance or part thereof is, under sub-section (2) of section 32 or sub-section (4) of section 35, to be carried forward, effect shall first be given to the provisions of this section.

This only says that the assessee should first set off unabsorbed depreciation against business income of the year first before setting off against other heads.

Losses in speculation business. – In case you want to see what 32(2) says actually

73(3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business.

The fact that in section 72, “Carry forward and set off of business losses.” says

“72(3) No loss (other than the loss referred to in the proviso to sub-section (1) of this section) shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed.”

Still unabsorbed depreciation is carried forward infinitely. Why? Because it is not business loss, and as per section 32(2) it can be carried for any number of previous years.

See sections

72A - Provisions relating to carry forward and set off of accumulated loss AND unabsorbed depreciation allowance in amalgamation or demerger, etc.

72AA - Provisions relating to carry forward and set-off of accumulated loss AND unabsorbed depreciation allowance in scheme of amalgamation of banking company in certain cases.

72AB - Provisions relating to carry forward and set off of accumulated loss AND unabsorbed depreciation allowance in business reorganisation of co-operative banks.

These sections describe how business loss AND unabsorbed depreciation will be allowed to be carried forward and set off.

Why did that I bring up this section? Cos if section was not there, The IT Dept would have told the assessee, see sir, only loss can be carried forward, not the unabsorbed depreciation.

This shows beyond doubt that unabsorbed depreciation is not the same as business loss.

Countering the matching concept

The general principle is that only the expenditure which is incurred to earn income can be set off against that income. Depreciation is not an expense. It is an allowance; for the return on capital invested by business man. Technical definitions aside, unabsorbed depreciation can be set off against any income. This shows that the unabsorbed depreciation does not stick to matching of the income and expenditure. Thus to say that unabsorbed depreciation cannot be set off against on the grounds that it was not incurred to earn salary has no merit.

Above points given by G.K. Bhai are logical & business loss is different then unabsorbed depreciation.

and sectuion 32(2) does not restrict anywhere that unabsorbed dep cant be setoff against the salary income.

But practicaly you cant do the same becoz in the return for setoff of unabsorbed dep there is no option of salary income.

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 22 March 2010

I still stay with SET OFF AGAINST SALARY...

Though whatever some of u want to prove or have proven...

BUT UNABSORBED DEPRECIATION CAN BE SET OFF AGAINST SALARY

nilesh dube (Service ) (74 Points)
Replied 22 March 2010

Unabsorbed depreciation can not be set off against the salary income.

When we talk about business loss ,it includes unabsorbed depreciation also. when we calculate loss under the head business & profession it includes depreciation also.

so neither the current year's unabsorbed depreciation nor the carried forward unabsorbed depreciation can be set off against the salary income. As the carried forward unabsorbed depreciation is treated as current years depreciation only.