1991 (8) TMI 171 - AT - Income Tax

Summary

Issues Involved:
1. Whether unabsorbed depreciation can be carried forward for set-off when the return is filed beyond the time specified under section 139(1) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Whether unabsorbed depreciation can be carried forward for set-off when the return is filed beyond the time specified under section 139(1) of the Income-tax Act, 1961.

Relevant Facts:
- The assessee, a private limited company, filed a return on 17-9-1985 declaring a loss of Rs. 33,785 for the assessment year 1985-86.
- The Income Tax Officer (ITO) declined to carry forward the loss, including unabsorbed depreciation, as the return was filed beyond the extended time under section 139(1).

Arguments by the Assessee:
- The assessee contended that depreciation allowance is different from business loss, relying on sections 32(2), 72(2), and 73(3) of the Income-tax Act, 1961.
- It was argued that section 32(2) does not require the filing of a return within the specified time under section 139(1) for the unabsorbed depreciation to be carried forward.
- Reliance was placed on the judgment of the Madras High Court in CIT v. Concord Industries Ltd. [1979] 119 ITR 458.

CIT(A)'s Decision:
- The CIT(A) upheld the ITO's decision, stating that the phrase "profits and gains of business or profession" in section 72 is broader than "business loss" and includes depreciation.
- The CIT(A) distinguished the judgment in Concord Industries Ltd., emphasizing the amendment to section 80 by the Taxation Laws (Amendment) Act, 1984.

Assessee's Further Arguments:
- The assessee's counsel referred to authoritative commentaries and judicial precedents, arguing that unabsorbed depreciation should be carried forward and set off against future profits.
- Cited cases included Burrakur Coal Co. Ltd. v. ITO, CIT v. Kalpaka Enterprises (P.) Ltd., and the Supreme Court's observations in Garden Silk Weaving Factory v. CIT [1991] 189 ITR 512.

Department's Arguments:
- The departmental representative supported the orders of the authorities, relying on the Supreme Court's observation that unabsorbed depreciation is part of the 'loss' and thus subject to the same filing requirements under section 139(1).

Tribunal's Analysis and Decision:
- The Tribunal highlighted the distinct nature of unabsorbed depreciation, emphasizing that it is not strictly a business loss but a "specie" of the larger genus "loss."
- Referenced Supreme Court decisions, including CIT v. Jaipuria China Clay Mines (P.) Ltd. and Garden Silk Weaving Factory, which support the special treatment of unabsorbed depreciation.
- The Tribunal noted that section 32(2) is a self-contained provision for carrying forward unabsorbed depreciation, subject to sections 72(2) and 73(3).
- The Tribunal concluded that the return filed by the assessee, though delayed, did not bar the carry forward of unabsorbed depreciation as it does not fall squarely within the requirement of section 139(1) for business loss.

Conclusion:
- The Tribunal upheld the assessee's claim, setting aside the CIT(A)'s order and directing the ITO to carry forward the unabsorbed depreciation for set-off in the subsequent assessment year 1986-87.

Final Order:
- The appeal was allowed, and the assessee was entitled to carry forward the unabsorbed depreciation.

Summary:
The Tribunal concluded that unabsorbed depreciation can be carried forward for set-off even if the return is filed beyond the time specified under section 139(1), distinguishing it from business loss and emphasizing the self-contained nature of section 32(2) for such carry forward. The appeal was allowed, directing the ITO to carry forward the unabsorbed depreciation for the subsequent assessment year.