Commissioner of Income Tax vs Sri Vijayalakshmi Mineral and Trading Co.

Ms. S.V. Maruthi, J.

This application is filed u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "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 u/s 139(10) of the Act. The assessee filed the return for the assessment year 1988-89 on 29-7-1988, declaring loss of Rs. 4,75,879 and on 3-8-1989, 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 Commissione (Appeals) and the same has been allowed holding that unabsorbed depreciation can be carried forward and u/s 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 (Appeals) has been confirmed and the Tribunal also refused to state a case which gives rise to the present application of the revenue u/s 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 off 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 (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 u/s 22(2A) of the Indian Income Tax Act, 1922, on par with the return treated as non est u/s 139(10) of the Income Tax Act, 1961, and applying the ratio of the decision of the Madras High Court in the case of Sathappa Textiles Private Ltd. Vs. Second Income Tax Officer, Circle II, Coimbatore, and Another, "

The main argument of learned counsel for the revenue is that since the return filed u/s 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 sub-section (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 sub-section (2) of section 72 and sub-section (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 our view with the judgment of the Supreme Court in Commissioner of Income Tax, Calcutta Vs. Jaipuria China Clay Mines (P) Ltd., 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 question sought to be raised.

Learned counsel relying on the judgment in Commissioner of Income Tax, Madras and another Vs. M/s. Dalmia Cement (Bharat) Ltd., 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 in accordingly rejected.