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TMI Blog2016 (4) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... ot lead to a different interpretation to the plain language of the provisions. The Assessing Officer went purely by logic, on the basis of the decision of the Supreme Court in Cambay Electric Supply v. CIT [ 1978 (4) TMI 1 - SUPREME Court], to hold that unabsorbed depreciation etc., provided in earlier Sections have to be set off before making a deduction under the latter Sections. Since the carry forward of investment allowance is under Section 32A(3)(ii) and not under Section 72, he held that income from business has to be computed by allowing a deduction as per the benefit available under a prior Section namely Section 32A(3)(ii) before proceeding to give a deduction under the latter Section namely Section 32AB. But we do not find that such a logic has any application. While Section 32A deals with investment allowance, Section 32AB deals with investment deposits. We have already pointed out the object of the amendment made under Finance Act, 1987 to Section 32AB. - Decided in favour of assessee. - Tax Case (Appeal) No. 213 of 2015 - - - Dated:- 28-3-2016 - V. Ramasubramanian And K. K. Sasidharan, JJ. For the Appellant : Mr. R. Vijayaraghavan For the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,21,992/- under Section 32-AB on the ground that the appellant did not have a positive income under the head profits and gains of business was correct (iii) Whether the withdrawal of depreciation at 100% in respect of bricks for cupola was correct and (iv) Whether the levy of interest under Section 216 was correct. 8. The first Appellate Authority upheld the contention of the assessee on the first question relating to the depreciation written back, on the ground that the issue is covered by Circular No.550 dated 1.1.1990 and that therefore, the Assessing Officer should verify the claim with reference to the Board Circular and allow relief. But the first Appellate Authority held against the assessee, the second question relating to deduction under Section 32-AB on the ground that if there is no positive income under the head income from business, there cannot be any scope for allowing this deduction. 9. The assessee as well as the Revenue filed further appeals before the Tribunal. While the appeal filed by the Revenue was for the Assessment Year 1994-95, the appeal filed by the assessee was for the Assessment Years 1988-89, 1992-93, 1993-94 and 1994-95. The appeal of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But while doing so, this Court quoted with approval the order of priority enumerated by the High Court of Gujarat in Monogram Mills Company Limited v. CIT [135 ITR 122]. 13. In Monogram Mills case, the Gujarat High Court held that the scheme of priority would be as follows:- (1) current year's depreciation-because that is the first charge on the receipts in the P L a/c; (2) carried forward business losses under s. 72(2) r/w s.72(1); (3) unabsorbed depreciation by virtue of the provisions of s. 32(2); (4) unabsorbed development rebate - because of the provisions of cls. (i) and (ii) of s. 33(2); and (5) current year's development rebate. 14. Therefore, on the basis of the above decisions, the learned counsel for the assessee contends that the priority of setting off the carried forward business or unabsorbed allowances against the total income should be in the following order of preference: Firstly, current year's depreciation and amortised scientific expenditure have to be deducted (ss 32 35) Then, carried forward business loss (only from business income, under certain conditions) s.72(1); Then, unabsorbed depreciation and amortised scie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the assessee. 20. Sub-section (2) of Section 72 states that where any allowance is to be carried forward in terms of Section 32(2) or 35 (4), effect should first be given to the provisions of Section 72. Under sub-section (2) of Section 32, as it stood at the relevant point of time, the following rules were provided: (i) If full effect cannot be given to any allowance covered by the section, in any previous year owing to there being no profits or gains chargeable for that previous year or owing to the profits and gains being less than the allowance, then the allowance to which effect has not been given may be set off against the profits and gains assessable for that assessment year. (ii) If the unabsorbed depreciation allowance cannot be wholly set off under the first rule, the amount not so set off shall be set off from the income under any other head. (iii) If the unabsorbed depreciation allowance cannot be wholly set off under rules 1 and 2 above, the amount of allowance that could not be set off, shall be carried forward to the following assessment year and set off against profits and gains assessable for that assessment year. This process can be repeated succe ..... 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