1976 (3) TMI 65 - AT - Income Tax

Summary

Issues:
1. Whether unabsorbed depreciation brought forward can be set off against profit under section 41(2) when the business has ceased to exist in a later year.

Analysis:
The case involved Kapila Textiles (P) Ltd., a company that ceased business in 1956 and went into liquidation in 1958. The issue was regarding setting off unabsorbed depreciation against profit under section 41(2) for the assessment year 1964-65. The Income Tax Officer (ITO) disallowed the claim, stating that there was no provision to allow losses of a defunct business to be set off against profit under section 41(2). The Assistant Commissioner (AAC) upheld the assessee's claim, citing relevant case laws. The Departmental Representative argued that the business must be in existence for the allowance of carry forward of unabsorbed depreciation. The counsel for the assessee relied on judgments to support the claim.

The Tribunal analyzed the provisions of section 32(1) and 32(2) concerning depreciation and carry forward of unabsorbed depreciation. It noted that section 32(1) requires the business to be in existence for depreciation allowance, whereas section 32(2) deals with the carry forward of unabsorbed depreciation, allowing set off in subsequent years. The Tribunal referred to the Allahabad High Court judgment in a similar case and held that unabsorbed depreciation could be set off in any subsequent year, even if the business had ceased to exist. The Tribunal upheld the AAC's order based on the legal principles and precedents cited.

In conclusion, the Tribunal dismissed the appeal, affirming the order to allow the set off of unabsorbed depreciation against profit under section 41(2) for the assessment year 1964-65. The decision was based on the interpretation of relevant provisions and judicial precedents supporting the allowance of such set off in cases where the business has ceased to exist.