Sabyasachi Mukharji, J. - (1.) This reference under Section 256(1) of the I.T. Act, 1961, involves the assessment year 1973-74. In view of the peculiar nature of the facts it would be relevant to refer to the appropriate orders of the ITO, the AAC and the Tribunal. The assessee filed the return for the relevant assessment year on June 22, 1973, showing a loss of Rs. 58,483. The assessee claimed deduction of a sum of Rs. 1,863 on account of building repairing. It was stated by the ITO that no evidence in this regard could be produced by the assessee and such expenses, as claimed by the assessee, were disallowed keeping in view, the ITO observed, that "the business of the company has stopped functioning for the last few years". So far as promts under Section 41(2) of the I.T. Act, 1961, was concerned, the ITO further observed that the assessee had sold away plants and machineries as per list filed for a consideration of Rs. 1,21,001 to M/s. Central Refrigeration Service, 61, Sova Bazar Street, Calcutta. The assessee was granted depreciation on the said machinery, etc., up to December 31, 1970, of which the ITO noted the figures as follows : JUDGEMENT_664_ITR139_1983Html1.htm
(2.) The ITO, thereafter, went on to observe that no depreciation was allowed for the assessment year 1972-73 as "there was no claim for the same". Accordingly, he computed the profit under Section 41(2) as indicated in the order, that is to say, sale proceeds at Rs. 1,21,001 less written down value at Rs. 90,187 and arrived at the figure of Rs. 30,814 and after taking that into account had arrived at Rs. 31,422. It is apparent from the aforesaid order of the ITO that no set-off for the unabsorbed depreciation was allowed to the assessee in the year in question. There was an appeal before the AAC. The AAC in his order observed as follows ; "The appellant sold its plant and machinery during the year for a sum of Rs. 1,21,000 on which profit under Section 41(2) was computed at Rs. 30,814. This entire amount has been subjected to tax by the ITO in complete disregard of the fact that Rs. 52,405 was brought forward from the year 1965-66 as uuabsorbed depreciation. Since profit under Section 41(2) is a profit derived from business any amount of unabsorbed depreciation that has been brought forward has to be set-off against such profit. The ITO is directed to do so and the appeal for 1973-74 is allowed. This appeal for 1974-75 not having been pressed the appeal is dismissed."
(3.) The ITO was, therefore, directed to compute the income in accordance with the direction contained in the order of the AAC. There was a further appeal by the Revenue against the said order of the AAC. The Appellate Tribunal noted that the assessee had sold plant and machinery during the year under consideration and profit under Section 41(2) was computed at Rs. 30,814 which was subjected to tax. The Tribunal noted the views of the AAC and referred to the decision of the Supreme Court in the case of CIT v. Jaipuria China Clay Mines (P.) Ltd. and the Tribunal was of the view that the facts were similar. A reference was also made to Section 34(2)(ii) of the Act. The Tribunal after hearing the respective submissions upheld the Revenue's contention and was of the view that in view of the provisions of Section 34(2)(ii) of the I.T. Act, 1961, the AAC was not justified in allowing the assessee's contention. The appeal of the Revenue was, therefore, allowed. Upon this, the following question has been referred to this court under Section 256(1) of the I.T. Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the unabsorbed depreciation should not be deducted in computing the profits under Section 41(2) of the Income-tax Act, 1961 ?";