1983 (2) TMI 55 - AT - Income Tax

Business Loss Gross Total Income Mistake Apparent From Record Set Off Unabsorbed Depreciation

Summary

Issues Involved:
1. Rectification of the original assessment order under section 154 of the Income-tax Act, 1961.
2. Computation of gross total income.
3. Applicability of section 80M deduction.
4. Inclusion of unabsorbed depreciation in the computation of gross total income.
5. Determination of whether the mistake was apparent from the record.

Detailed Analysis:

1. Rectification of the Original Assessment Order under Section 154:
The assessee challenged the rectification of the original assessment order made by the Income Tax Officer (ITO) under section 154 of the Income-tax Act, 1961, arguing that there was no mistake apparent from the record in the original assessment order.

2. Computation of Gross Total Income:
The original assessment for the assessment year 1977-78 determined a business loss of Rs. 16,289 and dividend income of Rs. 41,600. The ITO initially allowed a deduction under section 80M, resulting in a net dividend income of Rs. 16,640, which was adjusted against the business loss, leading to a positive income of Rs. 351. This was set off against unabsorbed depreciation, reducing the total income to nil. However, upon realizing the mistake, the ITO recomputed the gross total income as nil after setting off the unabsorbed depreciation of Rs. 46,171 against the dividend income, thus disallowing the section 80M deduction.

3. Applicability of Section 80M Deduction:
The Commissioner (Appeals) upheld the ITO's rectification, stating that the rectification was due to the ITO's initial failure to consider the provisions of section 80A(2) and section 80B(5). The gross total income had to be computed after setting off unabsorbed depreciation, resulting in a nil gross total income, thereby disqualifying the assessee from claiming the section 80M deduction.

4. Inclusion of Unabsorbed Depreciation in the Computation of Gross Total Income:
The ITO's original error was in not treating the unabsorbed depreciation of the assessment year 1976-77 as part of the depreciation for the current year, which should have been set off against the dividend income. This inclusion is mandated by sub-section (2) of section 32, which states that unabsorbed depreciation should be added to the current year's depreciation and treated as a business loss to be set off against other income.

5. Determination of Whether the Mistake was Apparent from the Record:
The Tribunal concluded that the mistake was apparent from the record as it involved a clear misapplication of the law, which did not require detailed argument or debate. The definition of gross total income under section 80B(5) and the provisions of section 80A(2) and section 32(2) clearly indicated that unabsorbed depreciation should be set off before computing the gross total income. The Supreme Court decisions in CIT v. Jaipuria China Clay Mines (P.) Ltd. and Cambay Electric Supply Industrial Co. Ltd. supported this interpretation, leaving no room for two opinions.

Conclusion:
The Tribunal confirmed the order of the Commissioner (Appeals), rejecting the assessee's appeal and upholding the ITO's rectification. The original assessment order was found to have a clear error in not setting off unabsorbed depreciation against the dividend income, which was apparent from the record and did not involve a debatable point of law. The appeal was dismissed.