1994 (2) TMI 122 - AT - Income Tax

Summary

Issues:
- Disallowance of carry forward depreciation relating to assessment year 1986-87.
- Interpretation of provisions regarding set off of unabsorbed depreciation.
- Legal correctness of Deputy Commissioner (Appeals) order.

Analysis:
1. The case involves an appeal by the assessee against the Deputy Commissioner of Income-tax (Appeals) order regarding the disallowance of carry forward depreciation for assessment year 1986-87. The assessee, a registered firm, faced challenges in setting off unabsorbed depreciation due to changes in status over different assessment years.

2. The Deputy Commissioner (Appeals) allowed the appeal for other additions but confirmed the disallowance of carry forward depreciation. The Deputy Commissioner acknowledged that a change in status alone does not disentitle carry forward of depreciation. However, he emphasized the importance of the loss being determined by the Assessing Officer for it to be carried forward for set off in subsequent years.

3. In the second appeal, the assessee argued that unabsorbed depreciation remains as depreciation and should not be treated as a business loss. The assessee cited case laws to support the claim that refusal to set off unabsorbed depreciation is illegal. The argument focused on the provisions of section 32(2) and the ability to claim set-off in subsequent assessment years.

4. The judgment referred to various case laws to support the assessee's position, emphasizing that unabsorbed depreciation can be set off against profits of subsequent years. The decisions highlighted the importance of the business showing a profit at any time for setting off unabsorbed depreciation, irrespective of the immediate succeeding assessment year.

5. The judgment also referenced the decision of the Calcutta High Court and the Pune Bench of the Tribunal to reinforce the assessee's argument regarding the set off of unabsorbed depreciation against profits. It was emphasized that even if set off was not claimed in an intervening assessment year, it does not prevent the assessee from claiming set-off in subsequent years.

6. Ultimately, the Tribunal held that the Deputy Commissioner (Appeals) was not legally correct in disallowing the carry forward depreciation for assessment year 1986-87. The judgment set aside the Deputy Commissioner's order and allowed the appeal of the assessee, directing that the unabsorbed depreciation should be allowed while framing the assessment for the relevant year.