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TMI Blog2005 (2) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to subsequent assessment years. - - - - - Dated:- 17-2-2005 - Judge(s) : G. S. SINGHVI., A. K. MITTAL. JUDGMENT The judgment of the court was delivered by Ajay Kumar Mittal J.- The Revenue feeling aggrieved by order dated October 9, 2001, passed by the Income-tax Appellate Tribunal, Delhi Bench "E", New Delhi (in short "the Tribunal"), has filed this appeal under section 260A of the Income-tax Act, 1961 (in short, "the Act"), which was admitted on December 7, 2004, for determination of the following substantial questions of law by this court: "(i) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in giving the relief on a ground (carry forward of unabsorbed losses) which was never taken by the assessee before the learned Commissioner of Income-tax (Appeals) and which accordingly does not emerge out of the order of the learned Commissioner of Income-tax (Appeals)? (ii) Without prejudice of the above, whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in allowing the carry forward of business losses and depreciation when neither any valid return fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down value determined as on March 31,1985, and thereafter to calculate and allow the same for the assessment year in question and written down value should accordingly be redetermined for being carried forward to the succeeding year. The assessee preferred further appeal to the Tribunal assailing the order of the Commissioner of Income-tax (Appeals) regarding the carry forward of unabsorbed losses and disallowance of unabsorbed depreciation for the assessment years 1984-85 and 1985-86 during the assessment year 1987-88. The Tribunal, vide order dated October 9, 2001 allowed the appeal of the assessee and directed the Assessing Officer to allow the claim of carry forward of unabsorbed depreciation as well as unabsorbed losses subject to the period of limitation in respect of the unabsorbed losses. The Revenue had also filed an application under section 254(2) of the Act before the Tribunal on the ground that the issue regarding carry forward of business losses was not taken up by the assessee before the Commissioner of Income-tax (Appeals) and, therefore, the issue decided by it did not emerge from the order of the Commissioner of Income-tax (Appeals). The Tribunal, vide order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, thus, had not been determined for the said assessment year, the assessee still would be held entitled to carry forward the same in the assessment year 1987-88. The second limb/aspect of the question is could the Tribunal grant relief on a ground regarding carry forward of unabsorbed business losses which was never taken by the assessee before the Commissioner of Income-tax (Appeals). Secondly, the question would be whether in the facts and circumstances, the unabsorbed depreciation could be allowed to be set off when no valid return for the assessment year 1986-87 was filed and, thus, there was no unabsorbed depreciation determined for carrying forward to assessment year 1987-88. Now, adverting to the first issue, the relevant provisions need to be noticed: "72.(1) Where for any assessment year, the net result of the computation under the head 'Profits and gains of business or profession' is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer, shall be carried forward and set off under sub-section (1) of section 72 or subsection (2) of section 73 or sub-section (1) or sub-section (3) of section 74 or sub-section (3) of section 74A. 139.(3) If any person who has not been served with a notice under sub-section (2) has sustained a loss in any previous year under the head 'Profits and gains of business or profession' or under the head 'Capital gains' and claims that the loss or any part thereof should be carried forward under sub-section (1) of section 72, or sub-section (2) of section 73, or sub-section (1) or sub-section (3) of section 74, or sub-section (3) of section 74A, he may furnish, within the time allowed under sub-section (1) or by the thirty-first day of July of the assessment year relevant to the previous year during which the loss was sustained, a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under sub-section (1). 157. When, in the course of the assessment of the total income of any assessee, it is established that a loss has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Daga [1961] 42 ITR 177, the apex court ruled that where the loss determined has not been notified to the assessee, the assessee can have it redetermined in a subsequent year. An irresistible conclusion on the conjoint reading of the aforesaid provisions would be that a business loss cannot be carried forward unless it has been determined in pursuance of a return filed under section 139 of the Act. In order to be entitled to carry forward a business loss, the assessee must submit a return under section 139(3) of the Act and have an assessment made for the year in which he has incurred the loss. The Assessing Officer has to notify to the assessee by an order in writing the amount of the business loss as computed by him which the assessee is entitled to have carried forward. Where the business loss determined has not been notified to the assessee by the Assessing Officer, the assessee can have it determined in a subsequent year in which the business loss is to be set off. It was an admitted fact as is apparent from a perusal of the order of the Commissioner of Income-tax (Appeals) that no valid return for the assessment year 1986-87 had been made by the assessee and accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of the said allowance. There is no time limit provided under section 32(2) of the Act for carry forward of unabsorbed depreciation to any subsequent year. The apex court in CIT v. Jaipuria China Clay Mines (P.) Ltd. [1966] 59 ITR 555 has held that unabsorbed depreciation of past years had to be added to depreciation of the current year and the aggregate unabsorbed and current year's depreciation had to be deducted from the total income of the assessment year. In Virmani Industries Pvt. Ltd.'s case [1995] 216 ITR 607 (SC), the assessee was engaged in the manufacture of soap and oil during the previous year relevant to the assessment year 1956-57. The assessee had stopped the business in that year and had let out the factory on hire. Ten years later, i.e., in the previous year relevant to the assessment year 1965-66, the assessee started the business of manufacture of steel pipes and that business used part of the old machinery which was being used for soap and oil. It was during the assessment proceedings relating to the assessment year 1965-66, the assessee claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of unabsorbed business loss. Thus, from a reading of the provisions of the Act, the distinction between unabsorbed depreciation and unabsorbed business loss for the purposes of set off and carry forward is clear. Therefore, the Tribunal was right in holding that the assessee is entitled to get unabsorbed depreciation of the earlier years 1984-85 and 1985-86 set off in 1987-88 even if no valid return for the assessment year 1986-87 had been filed by the assessee. Resultantly, the appeal is partly allowed and it is held that in the absence of the assessee's filing a valid return and consequently, no order being passed by the Assessing Officer for set off and carry forward of business losses, for the assessment year 1986-87, the assessee could not be held entitled to set off and carry forward business loss during the assessment year 1987-88. However, the unabsorbed depreciation of the assessment years 1984-85 and 1985-86 is to be set off from the business income of the assessment year 1987-88 and the unabsorbed depreciation is to be carried forward to subsequent assessment years. The substantial questions of law reproduced above stand answered accordingly. - - TaxTMI - TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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