1989 (11) TMI 72 - AT - Income Tax

Assessment Order, Assessment Year, Carry Forward And Set Off, Two Partners, Unabsorbed Depreciation

Summary

Issues:
1. Allocation of unabsorbed depreciation among partners for assessment year 1980-81.
2. Computation of depreciation and profit on the sale of a vehicle for the assessment year under appeal.
3. Interpretation of section 32(2) of the Income Tax Act regarding the allowance of depreciation.
4. Statutory obligation of the Income Tax Officer (ITO) to consider unclaimed depreciation in partner assessments.
5. Impact of Tribunal's decision on the allowance of depreciation not claimed by the assessee.

Detailed Analysis:
1. The Revenue's appeal contested the direction given by the AAC to determine the unabsorbed depreciation allocated to partners for the assessment year 1980-81 and carry it forward for set off in the assessment of the assessee firm for the subsequent year. The contention was based on the ITO's computation of depreciation on a truck purchased by the firm, which was later sold, leading to the addition of profit under section 41(2) of the Act due to unclaimed depreciation in the earlier year.

2. The respondent-assessee, a registered firm with two partners, purchased a truck but did not claim depreciation on it. The ITO computed depreciation on the truck and allocated the unabsorbed amount among the partners. Subsequently, when the vehicle was sold in the assessment year under appeal, the ITO added profit under section 41(2) due to the unclaimed depreciation, without considering the absorption of depreciation in the partners' personal assessments from the previous year.

3. The AAC upheld the assessee's contention that the ITO was obligated to consider and allow unabsorbed depreciation in the partners' assessments for the preceding year, as per the provisions of section 32(2) of the Act. This section stipulates that if full effect cannot be given to any allowance in a previous year, the unabsorbed amount should be carried forward and deemed part of the allowance for the following year, emphasizing the statutory obligation to consider unclaimed depreciation.

4. The judgment clarified that the ITO was required to allow depreciation even if not claimed, as established in a previous Tribunal order. The computation of the assessable income was directed to be revised if the assessee succeeded in their contention regarding the disallowance of unclaimed depreciation for the previous year, with no limitations on such revision. The pending Reference Application against the Tribunal's decision for the earlier year was also noted.

5. Despite partially allowing the Revenue's appeal for statistical purposes, the judgment emphasized the prevention of double benefits for the assessee by adjusting depreciation twice if successful in the Reference Application for the previous year. The decision was made under Rule 25 of the Income-tax Appellate Tribunal Rules, 1963, considering the evidence of service of notice and the absence of the partner during the hearing.