2006 (4) TMI 89 - HC - Income Tax

Carry forward business loss - time was not extended by the Income-tax Officer for filing of return - held that when an application for extension of time for furnishing the return is not disposed of by the Income-tax Officer the assessee would be justified in entertaining a reasonable belief that his application is granted by the Income-tax Officer. Hence Tribunal was right in directing the Income-tax Officer to allow to carry forward business loss though intimation regarding extension of time to file the return was not given to the assessee. - in respect of depreciation and investment allowance held that Tribunal is right in directing the Income-tax Officer to allow depreciation and investment allowance on the cost of the assets without deducting the amount of subsidy

Summary

Issues:
1. Whether the Appellate Tribunal was right in directing the Income-tax Officer to allow carrying forward business loss without an extension of time for filing the return?
2. Whether the Appellate Tribunal was correct in directing the Income-tax Officer to allow depreciation and investment allowance without deducting the amount of subsidy?

Analysis:

Issue 1:
The case involved the assessment year 1985-86 where the assessee filed a return showing a loss. The Assessing Officer allowed unabsorbed depreciation to be carried forward but denied carrying forward the business loss as the extension of time for filing the return was not officially granted. However, the Commissioner of Income-tax (Appeals) held that as the assessee had applied for an extension of time and the Department did not respond within the stipulated time, the assessee was justified in assuming the extension was granted. The Tribunal upheld this view. The High Court noted that when an application seeking extension is not disposed of, the assessee can assume it is granted. The court emphasized that the Department should inform the assessee if the extension is denied to avoid penal consequences. Therefore, the court agreed with the Tribunal's decision to allow carrying forward the business loss without formal intimation of the time extension.

Issue 2:
Regarding the second question, the court referred to the Supreme Court's decision in CIT v. P.J. Chemicals Ltd. The Supreme Court held that a subsidy meant to encourage entrepreneurs does not need to be deducted from the 'actual cost' for depreciation calculations. The High Court, based on this precedent, agreed with the Tribunal's decision to allow depreciation and investment allowance on the cost of assets without deducting the subsidy amount. Therefore, the court answered the second question in favor of the assessee and against the Revenue.

In conclusion, the High Court answered both questions in favor of the assessee, allowing the carrying forward of business loss without formal extension and permitting depreciation and investment allowance without deducting the subsidy amount. The reference was disposed of with no order as to costs.