1996 (9) TMI 44 - HC - Income Tax

Accounting Year Burden Of Proof Cash Credits High Court Question Of Fact Tea Estate Unabsorbed Depreciation

Summary

Issues Involved:
1. Set-off of carried forward loss from earlier years.
2. Set-off of unabsorbed depreciation from earlier years.
3. Addition to income on account of debts borrowed.

Issue-wise Detailed Analysis:

1. Set-off of carried forward loss from earlier years:
The first issue pertains to whether the assessee could set off the loss carried forward from earlier years against the income of the current year. The Income-tax Officer recorded that the assessee did not engage in any manufacturing or processing activities during the previous year, nor was there any trading activity. Consequently, no tea was manufactured during the previous year. Based on section 72(1)(i) of the Income-tax Act, 1961, the officer concluded that since no business activity was carried on by the assessee during the year, the losses of earlier years could not be set off. This position was endorsed by the first appellate authority, which noted that the tea factory had been sold and no business of manufacturing tea existed during the year. The Tribunal also examined section 72 and observed that one of the conditions for set-off or carrying forward of loss is that the business in which the loss was sustained should continue to be carried on by the assessee in the year the loss is to be set off. Since the assessee had not carried on the business of manufacturing tea and had sold the tea factory, the Tribunal held that the business had not been carried on in the year under consideration, even if there was only a temporary suspension.

2. Set-off of unabsorbed depreciation from earlier years:
The second issue concerns the set-off of unabsorbed depreciation from earlier years against the income of the current previous year. The Income-tax Officer emphasized that no tea was manufactured during the previous year, leading to the same consequence regarding the set-off of unabsorbed depreciation. The first appellate authority considered the question similarly. The Tribunal, in paragraph 4.2 of its order, noted that depreciation allowance is admissible only for assets used for the business. Since the business of manufacturing tea was not carried on during the year under consideration, there was no user of the assets for business purposes. Consequently, the Tribunal declined to allow any depreciation under section 32(2) of the Act.

3. Addition to income on account of debts borrowed:
The third issue involves the addition to income on account of debts borrowed. The assessee contended that the initial onus of proving the genuineness of such debts was discharged. However, the Tribunal and the authorities consistently held that the genuineness of the debts was not discharged by the assessee. The Tribunal sustained the addition of Rs. 2,28,000 and found no referable question of law. Regarding the credits in the names of Shri M. E. Mathew, Cherian, and P. A. Joseph, the Tribunal confirmed the addition under section 68 of the Income-tax Act. The Tribunal noted that the assessee failed to prove the credits in the names of these individuals. The first appellate authority observed that no other evidence was produced to support the creditworthiness of these parties, and the confirmatory letters did not prove the sources of funds. The Tribunal endorsed these factual findings, concluding that the credits were unexplained.

Conclusion:
Questions Nos. 1 and 2 were answered in the affirmative, against the assessee and in favor of the Revenue. Question No. 3 was declined as it related to the factual position. The judgment emphasized the importance of the statutory language and the factual matrix of the assessment year in question.