Unabsorbed Depreciation in ITR

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CA Jigisha (Querist)
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09 July 2011 If we only fill the Schedule BFLA/CYLA in form ITR 5 for the firm for unabsorbed depreciation, then it is not considered by CPC Bangalore unless we also fill the Schedule CFL. Now the problem arises as the schedule CFL consists only for unabsorbed Losses and not UNABSORBED DEPRECIATION. As per the Income Tax act Unabsorbed loss can be carried forward only for 8 years whereas for unabsorbed depreciation it is unlimited. so even if we enter the unabsorbed depreciation amount in schedule CFL, we cannot get it unlimited. On the other side if we do not consider the above then the demand arises for the amount written off for unabsorbed depreciation.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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10 July 2011 It's better to show the Unabsorbed Depreciation Under the column Loss from Business in Schedule CFL. This is a better representation in the given circumstances when no specific column in this schedule has been provided for Un. Dep..

Have a memorandum or note in your file so that in the subsequent years you can set off it so.

(Be optimistic for the turnaround of the firm. It can not sustain losses successively up to 8 years. Either it will be dissolved.)

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CA Jigisha

CA Jigisha (Querist)
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11 July 2011 Thank you Sir,

We have already applied the above mentioned process but we have to see all the pros and cons as a CA. Just being optimistic can't resolve the problem. Law is clear but problem relates to software. Can't we suggest the software change to Income Tax India? This is a serious problem as it can create complicated consequences in future.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 This is a classic and frustrating issue many tax professionals face when dealing with **unabsorbed depreciation** in the Income Tax Return (ITR) system, especially for firms filing **ITR-5** or companies filing ITR-6.

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### The Crux of the Problem:

* **Unabsorbed Depreciation** has **unlimited carry forward** as per Income Tax Act (Section 32(2)).
* **Unabsorbed Business Loss** has a **carry forward limit of 8 years** (Section 72).
* **Schedule CFL** in the ITR form is designed for **carrying forward losses only**; it has no dedicated column for unabsorbed depreciation.
* CPC (Central Processing Centre) in Bangalore processes returns and **requires details in Schedule CFL** to recognize carried forward losses/depreciation.
* Hence, if you only enter unabsorbed depreciation in **Schedule BFLA/CYLA** (Current Year Losses and Allowances), CPC may ignore it or raise demands.
* If you enter unabsorbed depreciation under losses in Schedule CFL to get it processed, it might incorrectly apply the 8-year expiry rule, which legally does not apply to depreciation.

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### Workarounds Practiced:

1. **Enter Unabsorbed Depreciation under Loss from Business in Schedule CFL:**

* As per your mention and common practice, tax professionals enter unabsorbed depreciation amount under “Loss from Business” in Schedule CFL.
* This ensures CPC Bangalore considers it while processing.
* Make sure to keep a **detailed note/memorandum in your records** clarifying that this figure is unabsorbed depreciation with unlimited carry forward.

2. **Maintain Proper Documentation:**

* Because this is a software limitation, it’s important to maintain supporting working papers showing the breakup of unabsorbed depreciation and business loss.
* This will help in case of future scrutiny or if CPC raises queries.

3. **Suggesting Software Improvements:**

* Yes, this is a valid suggestion for the Income Tax Department to update the e-filing utility to include a **separate column for unabsorbed depreciation in Schedule CFL**.
* However, software updates usually take time and depend on volume of demand and feedback.
* Professional bodies like ICAI or Tax Bar Associations often raise these issues with the Department.

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### What You Can Do Practically Now:

* **Continue using the workaround** of entering unabsorbed depreciation under loss in Schedule CFL to avoid CPC ignoring it.
* **File a detailed letter or note** if possible with the return explaining the issue.
* Maintain **working papers with the exact calculation and carry forward position** of unabsorbed depreciation.
* **Keep track of any notices or demands raised** and be ready to clarify with CPC citing the legal provisions.
* You may also consider **sending feedback to the Income Tax Department through official channels** or via professional bodies for better software support.

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### Summary Table:

| Issue | Cause | Practical Solution |
| ------------------------------------------------------ | ------------------------------------------------------------- | --------------------------------------------------------- |
| Unabsorbed depreciation ignored by CPC if only in CYLA | No specific field in Schedule CFL for unabsorbed depreciation | Enter under Loss from Business in Schedule CFL with notes |
| Risk of 8-year expiry being wrongly applied | Software treats all in CFL as losses | Maintain documentation and be ready for clarification |
| Software limitation | Outdated return formats | Suggest update to Income Tax Department |

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If you want, I can help draft a **representation letter or note** for your records explaining this workaround for future scrutiny or assist with how to document this properly. Would you like that?

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