2000 (12) TMI 244 - AT - Income Tax

Summary

Issues Involved:
Priority of set-off between unabsorbed investment allowance and unabsorbed depreciation for the assessment year 1991-92.

Detailed Analysis:

1. Background and Assessee's Claim:
The assessee, a public limited company engaged in manufacturing paper, filed a return for the assessment year 1991-92 declaring Nil income after adjusting the brought forward investment allowance of Rs. 2,56,41,378. The Assessing Officer prioritized unabsorbed depreciation over the investment allowance, which the CIT(A) upheld. The assessee appealed, arguing the CIT(A) erred in this prioritization.

2. Assessee's Argument:
The assessee contended that the unabsorbed investment allowance should be set off against the current year's income before unabsorbed depreciation. The rationale was that unabsorbed investment allowance could only be carried forward for eight years, unlike unabsorbed depreciation, which could be carried forward indefinitely. The assessee's counsel argued that as per section 29, deductions under sections 30 to 43A should be allowed without prioritization. He pointed out that section 72(2) prioritizes business loss over unabsorbed depreciation, suggesting a similar approach for investment allowance. The counsel relied on the Supreme Court's decision in CIT V. Mother India Refrigeration Industries (P.) Ltd., asserting that unabsorbed depreciation should not be imposed if it results in the loss of other allowances.

3. Department's Argument:
The Departmental Representative supported the CIT(A)'s order, referencing the Madras High Court's decision in CIT V. Coromandel Steels Ltd., which prioritized unabsorbed development rebate over unabsorbed depreciation. He argued that section 32A's wording was similar to section 33, making the High Court's decision applicable. He also cited Circular No. 202, which outlined the priority order for various allowances, placing unabsorbed depreciation before unabsorbed investment allowance.

4. Tribunal's Analysis:
The Tribunal considered the submissions and reviewed the facts. It noted that section 32A(3) required the total income to be computed first, excluding deductions under section 32A(1) and Chapter VI-A. The Tribunal found that unabsorbed depreciation, as part of the current year's depreciation, had to be deducted first from the profits. The Tribunal referred to the Supreme Court's decision in CIT v. Jaipuria China Clay Mines (P.) Ltd., which established that unabsorbed depreciation becomes part of the current year's depreciation. The Tribunal also noted the absence of a provision similar to section 72(2) for investment allowance, indicating that unabsorbed depreciation should be deducted first.

5. Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming the priority of unabsorbed depreciation over unabsorbed investment allowance for set-off against the current year's income. The appeal by the assessee was dismissed.

Final Decision:
The Tribunal dismissed the appeal, affirming the CIT(A)'s decision to prioritize unabsorbed depreciation over unabsorbed investment allowance for the assessment year 1991-92.