1984 (4) TMI 87 - AT - Income Tax

Summary

Issues:
- Whether unabsorbed business loss brought forward from earlier years should be set off before allowing the current year's depreciation.

Analysis:
1. The assessee, a company engaged in the manufacture of transformers and electric motors, declared a total loss for the assessment year 1977-78. The Income Tax Officer (ITO) computed the business income, deducted current year's depreciation, and allowed set off of past losses brought forward from earlier years, resulting in nil business income for the year.

2. The assessee contended before the Commissioner (Appeals) that the investment allowance should not be set off against the current year's business income due to the carry forward of business loss from a previous assessment year. The Commissioner (Appeals) directed the ITO to carry forward the investment allowance and current year's depreciation for set off in subsequent years, following a Tribunal decision and the order of priority for set off as per legal precedents.

3. The revenue appealed to the Tribunal challenging the Commissioner (Appeals) order. The Tribunal considered the issue in light of legal precedents, specifically citing the decisions of the Gujarat High Court and a Special Bench of the Tribunal. These decisions established the order of priority for set off, emphasizing current year's depreciation as the first charge on receipts in the profit and loss account.

4. The Tribunal rejected the assessee's argument based on a previous Tribunal decision, emphasizing that the current case was governed by the legal precedents set by the Gujarat High Court and the Special Bench of the Tribunal. The Tribunal reversed the Commissioner (Appeals) order, reinstating the ITO's decision to allow current depreciation in computing the business income for the assessment year.

5. Ultimately, the Tribunal allowed the revenue's appeal, upholding the order of the ITO regarding the allowance of current depreciation and setting aside the Commissioner (Appeals) decision. The Tribunal's decision was based on the established order of priority for set off as per legal precedents, emphasizing the significance of current year's depreciation in computing business income.

This detailed analysis of the judgment highlights the key issues, arguments presented by the parties, relevant legal precedents, and the Tribunal's decision based on the established order of priority for set off in the computation of business income.