Depreciation allowance will be set off and carry forward as follows: -
If in the assessment of the assessee full effect cannot be given to depreciation allowance owing to profits or gains being less than the allowance or there being no chargeable profits or gains for that provision.
If the unabsorbed depreciation allowance cannot be wholly set off under (1) above the amount not set off shall be set off against any other income of the taxpayer for the same year.
If the unabsorbed depreciation cannot be wholly set of the amount of allowance not set off shall be carried forward to the following assessment year and it shall be set off against the profits and gains of any business or profession carried on by him.
The unabsorbed brought forward depreciation of the A.Y 1997‑98 or subsequent years can be set off only against the business income of the A.Y 1998‑99 or subsequent years even if the business to which the depreciation relates, is not in existence.
Any expenditure not specifically covered by section 30 to 36 is deductible under section 3 7, provided the following conditions are satisfied:
It should be in respect of a business carried on by the assessee
It should have been laid out or expended wholly and exclusively for the purpose of business.
It must have been incurred during the previous year; and
It should not be in the nature of capital expenditure or personal expenditure of the assessee.