1960 (8) TMI 88 - HC - Income Tax

Summary

Issues:
1. Disallowance of loss and depreciation allowance claimed by the assessee for the business, Gujrat Pottery Works, for the assessment year 1947-48.
2. Rejection of books of account by the Income-tax Officer and subsequent disallowance of loss and depreciation allowance.

Analysis:
The case involved a firm with multiple businesses, including Gujrat Pottery Works, which consistently operated at a loss. The Income-tax Officer rejected the cash book as it was not written from day to day, citing errors in recording the English year. Consequently, the loss and depreciation allowance claimed by the assessee were disallowed. The Appellate Assistant Commissioner disagreed, allowing a reduced loss amount and directing the set-off against other profits. However, the Income-tax Appellate Tribunal upheld the Income-tax Officer's decision, leading to the reference to the High Court.

The High Court analyzed the situation, emphasizing the requirement under Section 13 of the Income-tax Act for income computation based on the method of accounting regularly employed by the assessee. It was noted that the cash book not being written daily justified the rejection, as it indicated a lack of regular accounting method. The court supported the Income-tax Officer's decision to disallow the loss but highlighted the necessity of allowing depreciation as mandated by the statute, emphasizing that depreciation is not contingent on the genuineness of account books.

Regarding depreciation, the court held that it must be allowed as per statutory provisions, regardless of the reliability of account books. The Income-tax Officer's failure to grant depreciation was deemed unjustified. Ultimately, the court concluded that while the disallowance of the loss was supported by evidence, the refusal to grant depreciation allowance was unwarranted. The Income-tax Appellate Tribunal's decision to disallow the loss was upheld, but its denial of the depreciation claimed by the assessee was deemed incorrect.

In conclusion, the High Court ruled in favor of allowing the depreciation claimed by the assessee for the business of Gujrat Pottery Works, while upholding the disallowance of the loss. Each party was directed to bear their own costs, with the counsel for the Income-tax Department assessed a fee of &8377;200.