T.V. Rajagopala Rao, Judicial Member -
(1.) THIS is an appeal filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-IV, Hyderabad dated 28-10-1988 and it relates to assessment year 1985-86. Whether terminal allowance is correctly allowed or not for assessment year 1985-86, forms the subject-matter of the appeal.
(2.) The assessee is public limited company, carrying on leasing and trading activities. For assessment year 1985-86, its previous year ended by 30-4-1984. The assessee filed a return disclosing a total income of Rs. 21,73,168 and after adjusting the carry forward loss arrived at 'Nil' income. As per the assessment order dated 16-6-1986, the terminal allowance under Section 32(1)(iii) in respect of plant and machinery sold, was taken by the Income-tax Officer at Rs. 1,18,529. The said terminal allowance was arrived at as follows:--
Section 32(1)(iii) as far as relevant for our purposes is as follows:--
32(1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall subject to the provisions of Section 34, be allowed--
(iii) in the case of any building, machinery, plant or furniture which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fell short of the written down value thereof:
Provided that such deficiency is actually written off in the books of the assessee :
Explanation : For the purposes of this clause,--
(1) 'moneys payable' in respect of any building, machinery, plant or furniture includes--
(b) where the building, machinery, plant or furniture is sold, the price for which it is sold....
The definition "written down value" was given at Section 43(6). The said definition as far as relevant for all purposes stand as follows:
43(6) 'written down value' means--
(b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1986 (2 of 1986), was in force:
Proviso not extracted as it is not necessary.
The complaint of the assessee in this case is that while determining the terminal allowance, the Income-tax Officer had taken the written down value at Rs. 2,03,529 by deducting not only the depreciation actually allowed but also the depreciation not actually allowed from the cost of Plant and Machinery sold. The particulars of depreciation actually allowed and not actually allowed over the plant and machinery held by the assessee over the assessment years stand as follows :
According to the assessee, the depreciation not actually allowed for assessment year 1976-77 viz., Rs. 47,280 should not also be taken as the depreciation actually allowed and the total depreciation should consequently be not taken at Rs. 3,21,812 but should be taken only at Rs. 2,74,532 and consequently the correct figure of terminal allowance which should be allowed for the assessee, is Rs. 2,50,808 instead of only Rs. 2,03,528. Thus, the contention between the assessee and the department is confined to the prayer that the terminal allowance should be further enhanced by a sum of Rs. 47,280. The circumstances under which the depreciation for assessment year 1976-77 viz., Rs. 47,280, should be deemed not to have been actually allowed within the meaning of Section 43(6), is explained to us to be the following:--
The assessee filed the assessment order dated 30-11-1976 which is relating to assessment year 1976-77. In the said assessment order, though the amount of Rs. 48,883 was held to be the admissible depreciation, the ITO in his assessment order, referred to above, held that this cannot be allowed to be carried forward since there was no business carried on by the assessee company. The assessment dated 30-11 -1976 was rectified under Section 154 by means of the order dated 31-8-1977. In the rectificatory order, the admissible depreciation to the assessee was rectified as Rs. 47,280 instead of Rs. 48,883, noted in the assessment order. However, in that rectificatory order also it is stated that the admissible depreciation cannot be carried forward since the assessed figure is a loss of Rs. 64,870. Therefore, while determining the correct depreciation allowance at Rs. 47,280 for assessment year 1976-77, it was not allowed to be carried forward to the succeeding assessment year for two reasons:-- firstly it is said that the assessee sustained loss and also because the loss itself was determined under the head 'Income from other sources' and not under the head 'business'. The assessee did not file an appeal against the order dated 31-8-1977 under which the request of the assessee to carry forward the depreciation of Rs. 47,280, was negatived. From the assessment order, the said amount of Rs. 47,280 which was refused to be carried forward as depreciation allowed for assessment year 1976-77 was neither adjusted against the income of the assessment year 1976-77 nor allowed to be carried forward to the following assessment years. Thus, according to the assessee, the amount of Rs. 47,280 was not actually allowed by the ITO while computing the written down value in any assessment year till 1985-86. It is the case of the assessee that if depreciation "actually allowed" only amounting to Rs. 2,74,532 as shown in the table above, is taken into account, the correct closing written down value for assessment year 1984-85 and the correct opening written down value for assessment year 1985-86 will Rs. 2,50,808 and consequently the correct terminal allowance under Section 32(1)(iii) therefore works out to Rs. 1,65,808 as shown below:--
Instead of following the correct figure of terminal allowance at Rs. 1,65,808, the ITO allowed the only sum of Rs. 1,18,529 and thus, the short allowance of Rs. 47,280 towards terminal allowance forms the subject-matter of the appeal.
(3.) THE assessee filed 154 application before the ITO asking him to rectify the mistake in allowing the correct terminal allowance in the assessment order dated 16-6-1986 for assessment year 1985-86 which according to the assessee, is apparent on record. THE ITO by his orders dated 9-3-1988 refused to carry out the rectification of his assessment order for assessment year 1985-86 on the ground that the depreciation of Rs. 47,280 for the assessment year 1976-77 was allowed to be carried forward and that if it was not allowed in a later year the mistake was in not giving the set-off in a later year. THE ITO further stated that the assessee should approach for the modification of the assessment of the later relevant year and that the assessee cannot ask for the rectification of the current assessment year 1985-86.;