COMMISSIONER OF INCOME-TAX VS VIJAYALAKSHMI MINERAL AND TRADING CO, 2000 PTD-ANDHRA-PRADESH-HIGH-COURT-INDIA 552 (1998)

Income-tax---

----Reference---Return---Delay in filing return---Depreciation---Unabsorbed depreciation---Carry forward and set off---Unabsorbed depreciation in respect of an assessment year where return filed under S.139(10) was non est---Could be carried forward to subsequent assessment year and set off against profit of subsequent assessment year---Answer self-evident-- Question need not be raised---Indian Income Tax Act, 1961, Ss.32(2), 139(10) & 256(2).

The assessee filed a return for the Assessment Year 1987-88 belatedly under section 139(10) of the Income Tax Act, 1961. The assessee filed the return of income for the Assessment Year 1988-89 on July 29, 1988, declaring loss of Rs.4,75,879 and on August 3, 1989, the assessee filed a revised return declaring loss of Rs.7,41,330. While completing the assessment, the Assessing Officer rejected the claim of the assessee for carrying forward depreciation relating to the Assessment Year 1987-88, on the ground that the return for the Assessment Year. 1987-88 was non est and therefore, the depreciation allowance for 1987-88 had not been quantified. On appeal, the Commissioner of Income-tax (Appeals) held that unabsorbed depreciation could be carried. forward and under section 32(21 of the Act it could be given effect to in the current year, i.e., in the Assessment Year 1988-89. On further appeal, the Tribunal confirmed the order of the Commissioner of Income-tax (Appeals). The Tribunal also rejected the application of the revenue under section 256(1) to refer questions of law. On an application filed under section 256(2):

Held, that a reading of section 32(2) of the Act makes it clear that in the assessment of the assessee if full effect cannot be given to any allowance in any previous year owing to there being no profits or gains chargeable for that previous year, the allowance or part of the allowance to which effect has not been given shall be added to the amount of allowance for depreciation in the following previous year and deemed to be part .of the allowance. Therefore, if full effect could not be given to the depreciation on account of lack of profits or gains in the previous year, the said depreciation shall be treated as depreciation in the current year. Therefore, the Tribunal was right in holding that unabsorbed depreciation in. respect of the Assessment Year 1987-88 where the return was non est under section 139110) of the Income Tax Act, 1961, could be carried forward to the subsequent Assessment Year 1988-89 and set off against the profits of that assessment year. The answer to the questions were self-evident and hence no reference was called for.

CIT v. Jaipuria China Clay Mines (P.) Ltd. (1966) 59 ITR 555, (SC) fol.

CIT v. Dalmia Cement (Bharat) Ltd. (1995) 216 ITR 79 (SC) and Sathappa Textiles (P.) Ltd. v. Second ITO (1969) 71 ITR 260 (Mad.) ref.

J. V. Prasad for the Commissioner.

Srinivasa Reddy for the Assessee.

JUDGMENT

Ms. S. V. MARUTHI, J.---This application .is filed under section 256(2) of the Income Tax Act, 1961 (for short "the Act"), at the instance of the Revenue.

The assessee firm was dealing in mining of barytes and exports the same and sells the barytes within the country. The assessee filed a return of income for the Assessment Year 1987-88 belatedly under section 139(10) of the Act. The assessee filed the return for the Assessment Year 1988-89 on July 29, 1988, declaring loss of Rs.4,75,879 and on August 3, 1989, the assessee filed a revised return declaring loss of Rs.7;41,330. While completing the-assessment, the Assessing Officer has rejected the claim of the assessee for carrying forward the depreciation relating to the Assessment Year 1987-88 on the ground that the return for the Assessment Year 1987-88 was non-est. Therefore, the depreciation allowance for 1987-88 has not been quantified. Aggrieved by the assessment order, the assessee preferred' an appeal to the Commissioner of Income-tax (Appeals) and the same has been allowed holding chat unabsorbed depreciation can be carried forward and, under section 32(2) of the Act, it could be given effect to in the current year for the year 1988-89, On further appeal to the Tribunal, the order of the Commissioner of Income-tax (Appeals) has been confirmed and the Tribunal also refused to state a case which gives rise to the present application of the Revenue under section 256(2). .

The Revenue sought reference of the following three questions.

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the unabsorbed depreciation in respect of an assessment year where the return was non est under the provisions of section 139(10) .can be carried forward to a subsequent assessment year and set o4 against the profit of that subsequent assessment year?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was not incorrect in upholding the order of the Commissioner of Income-tax (Appeals) holding that allowing the carry forward of depreciation allowance relating to the assessment year, where the return was non est under the provisions of section 139(10) of the Income-tax Act would be the same as allowing depreciation for a subsequent year at a higher figure, viz., the cost of the assessment (asset ?) before reducing the depreciation allowance for the Assessment Year 1987-88?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law, in treating a return filed under section 22(2A) of the Indian Income-tax Act, 1922, on par with the return treated as non-est under section 139(10) of the Income Tax Act, 1961, and applying the ratio of the decision of the Madras High Court fn the case of Sathappa Textiles (P.) Ltd. v. ITO (Second) (1969) 71 ITR 260?"

The main argument of learned counsel for the Revenue is 'that since the return filed under section 139(10) for the Assessment Year 1987-88 is non est, the depreciation for that year cannot be carried forward to the Assessment Year 1988-89 and treated as depreciation for that year. To consider the argument of learned counsel for the Revenue, it is necessary to refer to section 32(2) of the Act.

"32. (2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under clause (ii) of subsection (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 subsection (2) of section 72 and subsection (3) of section 73, the allowance or 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."

A reading of the above section makes it clear that in the assessment of the assessee if full effect cannot be given to any allowance in any previous year owing to there being no profits or gains chargeable for that previous year, the allowance or part of the allowance to which effect has not been given shall be added to the amount of allowance for depreciation in the following previous year and deemed to be part of the allowance. Therefore, if full effect could not be given to the depreciation on account of lack of profits or gains in the previous year, the said depreciation shall be treated as depreciation in the current year. We are also fortified in Court view with the judgment of the Supreme Court in CIT v. Jaipuria China Clay Mines (P.) Ltd., (1966) 59 ITR 555 wherein it was held "that. the unabsorbed depreciation of past years had to be added to depreciation of the current year and the aggregate unabsorbed and current year's depreciation had to be deducted from the total income of the previous year relevant to the assessment year".

Following the above, the answer to the questions are self-evident. Therefore, it is not necessary to call for the questions sought to be raised.

Learned counsel relying on the judgment in CIT v. Dalmia Cement (Bharat) Limited (1995) 216 ITR 79 (SC) argued that in case a return is non est, the depreciation cannot be carried forward for the current year, cannot be sustained, as that judgment relates to carrying forward of losses of the previous year to the current year, for which there are limitations under the Act. Further, there is no provision similar to section 32(2) of the Act in section 72 of the Act deeming unabsorbed loss of the earlier year to be the loss of the current year. Therefore, it is not a fit case calling for reference. The petition is accordingly rejected.

M.B.A./3220/FCPetition rejected.