FABRKONS Vs. ASSISTANT COMMISSIONER OF INCOME TAX
INCOME TAX APPELLATE TRIBUNAL
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T.V.Rajagopala Rao, -
(1.) THIS is an appeal Tiled by the assessee against the order of the Deputy Commissioner of Income-tax (Appeals), Vijayawada, dated 25-10-1990 relating to assessment year 1989-90.
(2.) The assessee is a registered firm engaged in the business of fabricating works. For assessment year 1986-87, the assessee was an unregistered firm and it had to get set off of unabsorbed depreciation of Rs. 82,508. For assessment year 1986-87, the assessee-firm filed a return of Loss on 7-11-1988. Since it was a belated return, it was simply lodged. For assessment 1988-89, the assessee was granted registration as a partnership firm. Out of Rs. 1,05,658 profit earned for assessment year 1988 89, the assessee claimed set off of unabsorbed depreciation of Rs. 82,508 relating to assessment year 1986-87. However, the set off was refused since there was a change in the status of the assessee, that since the income-tax return for assessment year 1986-87 was simply lodged and, therefore, the Income-tax Officer merely said that the question of set-off of unabsorbed depreciation relating to assessment year 1986-87does not arise. Thus he disallowed Rs. 82,508 and added it as part of the income returned. For assessment years 1987-88 and 1988-89, the unabsorbed depreciation was not claimed because of inadequate profits and secondly, because in all these three years, the status of the firm was recognised as U.R.F. However, for assessment year 1989-90, the assessee-firm filed its return of income on 24-8-1989 and it also claimed registration. Registration was granted. The income returned was Rs. 82,508.51 and because the unabsorbed depreciation of assessment year 1986-87 to the extent of Rs. 82,508 out of Rs. 1,05,658 remained to be set off a nil return was filed for 1989-90. The Income-tax Officer refused to carry forward and absorb the depreciation of earlier years on the ground that the income-tax return for 1986-87 was not filed in time, that the status of the assessee was U.R.F. whereas for assessment year 1989-90 it was registered firm. On 30-3-1990, the assessment order was passed making the disallowance of Rs. 82,508 and also making certain other additions and thus determining the total income at Rs. 96,508 or Rs. 96,510 (in round figures) as against nil return filed by the assessee. Against the additions and disallowances, the assessee filed an appeal before the Deputy Commissioner (Appeals).
The Deputy Commissioner (Appeals) allowed the appeal filed by the assessee before him regarding the other additions. However, he confirmed the disallowances of carry forward depreciation relating to assessment year 1986-87. The learned Deputy Commissioner (Appeals) in his impugned order, however, has conceded the argument that simply because in the assessment year 1986-87, the status of the assessee was recognised as URF and for assessment year 1989-90, the status of the assessee was recognised as R.F. that by itself does not disentitle carry forward of depreciation of earlier years. The Deputy Commissioner (Appeals) found in his impugned assessment order that what is vital in the appeal before him so as to decide as to whether unabsorbed depreciation relating to assessment year 1986-87 could be set off against the income of this year is to find out whether the loss in the year 1986-87 though arising out of unabsorbed depreciation was determined by the Assessing Officer at the time of assessment or not. Until and unless the loss is determined whether arising out of unabsorbed depreciation or otherwise, the same cannot be carried forward for setting off in subsequent years. The income-tax return for 1986-87 having been found belatedly filed, the loss was not determined and in fact the loss was ignored. Even for subsequent two assessment years there was no mention of such carried forward loss. Thus the loss having not been determined in assessment year 1986-87, the Deputy Commissioner (Appeals) held that the same cannot be held to have been carried forward during the subsequent years for being set off against the income of this year (1989-90), particularly, when no mention of such carry forward is also there, while completing the assessment proceedings of the intervening two assessment years.
(3.) IN this second appeal filed by the assessee, the learned counsel for the assessee contended that the nature of depreciation if unabsorbed continues to be depreciation only and does not become business loss or governed by Sub-section (i) of Section 72. Under the provisions of Section 32(2) unabsorbed depreciation of earlier years would become part of current year's depreciation. Even when in one assessment year, to claim unabsorbed depreciation is barred by late filing of the income-tax return, it does not preclude the assessee to claim set-off of unabsorbed depreciation in a subsequent assessment year. The assessee relied upon the following case laws :
(1) CIT v. Jaipuria China Clay Mines (P.) Ltd.  59 ITR 555 (SC)
(2) Weston Leasing & Finance (P.) Ltd. v. Asstt. CIT  37 ITD 506 (Delhi)
(3) Vora INdustries Tools (P.) Ltd. v. ITO  39 ITD 116 (Pune).
It contended that refusal to set off the unabsorbed depreciation is quite illegal and that part of the order of the Deputy Commissioner (Appeals) is to be reversed. It is submitted that for assessment year 1989-90, the assessee can file its return within 31-8-1989. The objection that because the income-tax return for assessment year 1986-87 was filed late and since the unabsorbed depreciation was not ascertained in that year it should not be allowed to be set off from out of the profits for assessment year 1989-90 does not appear to be correct under law. Firstly, the Hon'ble Supreme Court in Jaipuria China Clay Mines (P.) Ltd. (supra) held that the unabsorbed depreciation of past years had to be added to the 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 present assessment year. Their Lordships of the Supreme Court had approvingly quoted the decision of the Bombay High Court in Ambika Silk Mills Co. Ltd. v. CIT  22 ITR 58 at 65 in which it is stated as under:
But in the case of depreciation and to the extent that the loss was caused by depreciation being not fully absorbed there would be no limit to the carrying forward of that depreciation and that depreciation can be set off at any time so long as the business showed a profit in the future.
Therefore, the sine qua non to set off the unabsorbed depreciation is that the business should show a profit at any time and not necessarily in the immediately succeeding assessment year to the year of loss.;
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