2007 (9) TMI 221 - HC - Income Tax

CIT (A) & Tribunal have rightly concluded that unabsorbed depreciation & investment allowance stand on a different footing vis-a-vis unabsorbed business losses for the purpose of section 80 which specifically refers the carry forward & set off of business losses under sections 72, 73 and 74 Tribunal was justified in directing the Assessing Officer to allow adjustment of unabsorbed depreciation & investment allowance of earlier years in spite of the fact that the return was filed late

Summary

Issues:
1. Interpretation of section 80 of the Income-tax Act regarding the carry forward of losses.
2. Whether unabsorbed depreciation and investment allowance can be adjusted despite a late-filed return.

Analysis:
1. The case involved a partnership firm whose original assessment was completed under section 143(1) of the Income-tax Act, 1961. The Assessing Officer passed a rectification order under section 154, withdrawing the allowance of carry forward of depreciation and investment allowance for the assessment year 1985-86 due to a delay in filing the return. The Commissioner of Income-tax (Appeals) allowed the appeal, stating that section 80 did not apply to the carry forward of unabsorbed depreciation and investment allowance. The Income-tax Appellate Tribunal affirmed this decision, leading to a reference to the High Court for interpretation.

2. Section 80 of the Income-tax Act specifies that losses must be determined in pursuance of a return filed in accordance with section 139 to be carried forward and set off under specific sections. An amendment in 1984 made the determination and carry forward of losses in case of a belated return not mandatory from the assessment year 1985-86 onwards. The High Court analyzed the relevant provisions and circulars to determine the applicability of this amendment to unabsorbed depreciation and investment allowance.

3. Sections 72, 73, 74, and 74A of the Act deal with different types of losses, such as business losses, speculation business losses, and capital gains losses. These sections do not explicitly cover the procedure for setting off unabsorbed depreciation and investment allowance. Section 32 specifically deals with depreciation, indicating a distinction between carry forward provisions for business losses and depreciation losses.

4. The High Court concluded that unabsorbed depreciation and investment allowance are distinct from business losses under section 80 of the Act, which refers to the carry forward and set off of losses under sections 72, 73, and 74. Therefore, the court upheld the decision of the Appellate Tribunal, stating that the Assessing Officer should allow adjustment of unabsorbed depreciation and investment allowance despite the late filing of the return.

5. The High Court's judgment, delivered by M. Y. Eqbal J., and supported by D. G. R. Patnaik J., favored the assessee, holding that the Tribunal's direction to allow adjustment of unabsorbed depreciation and investment allowance of earlier years despite a late-filed return was justified.