1997 (3) TMI 160 - AT - Income Tax

Assessing Officer, Assessing Officer, Assessment Year, Assessment Year, Carry Forward And Set Off, Carry Forward And Set Off, Market Value, Market Value, Purchase Price, Purchase Price, Unabsorbed Depreciation, Unabsorbed Depreciation

Issues Involved:
1. Legitimacy of the CIT(Appeals)'s direction to compute and allow set off of unabsorbed depreciation and investment allowance for the assessment year 1986-87.
2. Deletion of addition made under section 40A(3) by the CIT(Appeals).
3. Deletion of disallowance made under section 40A(2)(b) by the CIT(Appeals).

Issue-wise Detailed Analysis:

1. Legitimacy of the CIT(Appeals)'s direction to compute and allow set off of unabsorbed depreciation and investment allowance for the assessment year 1986-87:

The primary contention was whether the CIT(Appeals) erred in directing the Assessing Officer to compute the unabsorbed depreciation and investment allowance for the assessment year 1986-87 and allow set off. The assessee had filed a belated return for the assessment year 1986-87, which was treated as non est under section 139(10) due to late filing. The CIT(Appeals) held that the belated submission would not affect the carry forward of unabsorbed depreciation and investment allowance, although it might affect the carry forward of business losses as per section 80 and section 139(10).

The Revenue argued that under section 139(10), if a return is declared non est, the provisions of the Act would not apply, and thus, unabsorbed depreciation and investment allowance could not be carried forward. The Departmental Representative cited the Gauhati High Court's decision in Ampee Industries (P.) Ltd. v. CIT, which stated that section 139(10) does not distinguish between positive and negative income and that unabsorbed depreciation and investment allowance not quantified in the assessment year 1986-87 could not be carried forward.

The Tribunal noted that since no assessment was made for the assessment year 1986-87, there was no quantification of investment allowance and depreciation. Citing the Supreme Court's decision in CIT v. Dalmia Cement (Bharat) Ltd., it was held that the assessee could not claim unabsorbed depreciation or investment allowance for the assessment year 1986-87 in subsequent years since no valid assessment was made for that year. The Tribunal concluded that the CIT(Appeals) exceeded its jurisdiction by directing the Assessing Officer to set off unabsorbed depreciation and investment allowance for the assessment year 1986-87 against the income for the assessment year 1987-88. Therefore, the Tribunal reversed the CIT(Appeals)'s order and restored the Assessing Officer's decision.

2. Deletion of addition made under section 40A(3) by the CIT(Appeals):

The Revenue challenged the CIT(Appeals)'s deletion of an addition of Rs. 29,89,450 made under section 40A(3). The CIT(Appeals) had held that the decision in CIT v. Ahmad Hussain should be considered by the Assessing Officer. The assessee's counsel argued that this issue was covered by the Tribunal's earlier order in the assessee's own case for the assessment year 1987-88. Since the issue was previously adjudicated by the Tribunal, the Revenue's ground of appeal was dismissed.

3. Deletion of disallowance made under section 40A(2)(b) by the CIT(Appeals):

The Assessing Officer had disallowed Rs. 2,49,407 under section 40A(2)(b), arguing that the assessee paid higher amounts to M/s. Prabhakar Ginning Factory (PGF) than the prevailing market rates. The CIT(Appeals) found that the Assessing Officer failed to prove that the payments to PGF were excessive or unreasonable compared to market rates. The CIT(Appeals) noted that the market rates provided by the assessee substantiated their claim that the purchase price from PGF was not excessive.

The Departmental Representative contended that the CIT(Appeals) erred in comparing the sale bills issued by PGF to third parties and that the details furnished by the assessee showed higher payments to PGF. However, the Tribunal upheld the CIT(Appeals)'s finding that the assessee had not paid an excessive price to PGF and declined to interfere with the CIT(Appeals)'s order. Thus, this ground raised by the Revenue was rejected.

Conclusion:

The Tribunal partly allowed the Revenue's appeal by reversing the CIT(Appeals)'s direction to set off unabsorbed depreciation and investment allowance for the assessment year 1986-87. However, it upheld the CIT(Appeals)'s decisions on the deletions made under sections 40A(3) and 40A(2)(b).

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