Income Tax Appellate Tribunal - Pune
Dy. Commissioner Of Income Tax vs Shri Sunil M. Kankariya on 17 January, 2007
Equivalent citations: [2008]112ITD170(PUNE), (2008)116TTJ(PUNE)208
ORDER
Mukul Shrawat, Judicial Member
1. This is an appeal filed by the revenue arising out of the order of CIT(A), Nasik dated 16.12.2002. 6.6.2003. Substantial grounds raised by the revenue are reproduced below:
1) On the facts and in the circumstances of the case the CIT(A) erred in in allowing set off of depreciation carry forward of Rs. 4,22,000/- stating that the provisions of Section 72 not effected by what Section 44 AE provides.
2) On the facts and in the circumstances of the case the CIT(A) is not justified in ignoring the fact that the depreciation carry forward having been provided in Section 32(2) in different manner and Section 72 deals with losses other than losses due to depreciation.
3) On the facts and in the circumstances of the case the CIT(A) is not justified in ignoring the Hon'ble Supreme Court's decision in the case of CIT v. Jaipuria China Clay Mines (P) Ltd. 59 ITR 555 where it is held by the Hon'ble Supreme Court that it is wrong to assume that Section 72 also deals with the carry forward of depreciation. This cany forward having been provided in Section 32(2) in different manner and Section 72 deals with losses other than losses due to depreciation.
2. This appeal was fixed for hearing in the past on number of occasions, however, no-one appeared and on this date of hearing, i.e. on 14/12/06, notice was served and the acknowledgement is on record. It appears that the respondent- assessee is not interested to represent this, appeal, hence we are compelled to proceed Ex-parte qua the assessee after hearing Learned D.R.
3. The issue for our consideration as raised from the side of the revenue is legal one pertaining to applicability of provisions of Section 44 AE read with Section 72 and also Section B2(2) of I.T. Act.
4. Assessee is a transporter assessed in the capacity of 'Individual' vide an order dated 27.1.2000 Under Section 143(3), according to which, a query was raised as to why the brought forward depreciation loss should not be disallowed. It was stated that the assessee has claimed the set off of the said loss against current year's income which was filed Under Section 44AE of I.T. Act. One more thing has also been brought to our notice that the Advocate of the assessee has agreed for the said adjustment as noted by the A.O vide para 5 of the impugned order that the depreciation loss may not be allowed to be set off during the year on account of the fact that the income had been returned Under Section 44AE of I.T. Act. The A.O has reproduced the relevant Clause (b) of Section 44 AE and thereafter held that by virtue of the said Section, the claimed set off is deemed to have been given effect and should not be allowed to be set off against the current year's income. Accordingly, the total income of the assessee was assessed at Rs. 1,78,000/- in terms of the provisions of Section 44 AE of the I.T. Act.
5. When this issue was carried before the Learned CIT(A), it was argued that the A.O was bound to allow various deductions under the provisions of I.T. Act but no speaking order was passed nor any reasons were assigned for not allowing the set off Under Section 72 of I.T. Act. It was also argued that for the preceding year, a loss was computed at Rs. 4,22,900/- which was claimed for set off against the income of the year under consideration irrespective of the provisions of Section 44 AE, because of the provisions of Section 72 did not affect the section in question i.e. Section 44 AE. We have observed that in a very brief para No. 4, the Ld CIT(A) has held in cursory manner that he was in agreement with the arguments of the assessee and the A.O was mistaken in his belief that the set off of loss was barred being the income was computed Under Section 44 AE of I.T. Act. Accordingly, Ld CIT(A) has directed the A.O to allow the claim of set off which, according to him, was otherwise permissible under the law.
6. We have heard the Ld. D.R. Mr. Anoop Kumar and carefully perused the orders of the authorities below as well as a written submission furnished by the assessee before the revenue authorities now placed on record by the revenue. According to this, the admitted position is that for A.Y. 1997-98, the assessee shown transport receipts of Rs. 29,27,851/- and net profit was shown at Rs. 1,43,084/- as per Profit & Loss A/c after claiming set off of carried forward depreciation loss of Rs. 4,47,900/-. The return was filed at Rs. 'Nil' income and the balance depreciation of Rs. 3,04,816/- was carried forward. It is also an admitted position as mentioned in para 3 by A.O in the impugned order that no books of accounts have been maintained and the income was to be assessed Under Section 44AE of the I.T. Act. Another fact has been mentioned by the A.O that the assessee has got 8 trucks, however, the income was computed by him as per the provisions of Section 44 AE in respect of 7 trucks used for 12 months at Rs. 1,68,000/- and for the remaining truck, the income was computed for five months at Rs. 10,000/-, so the income was assessed at Rs. 1,78,000/- without any set off of depreciation loss. With this brief factual background, our attention was firstly drawn on the provision of Section 32 (2) of I.T. Act reproduced below:
Section 32(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under Sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section(2) of Section 72 and Sub-section (3) of Section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.
According to this Sub section as substituted with effect from 1.4.97 by the Finance (No.2) Act 1996, operative from A.Y. 1997-98, where in the assessment of the assessee, full effect cannot be given to any depreciation allowance Under Section 32(1) owing to there being no profit or gains chargeable for that previous year or the profits and gains being less than the depreciation allowance, then the allowance of the part of the allowance to which effect has not been given, referred as unabsorbed depreciation allowance shall be set off against the profits and gains carried by him and assessable for that Assessment Year and if not wholly set off Under Section 32(2)(i), the amount not so set off shall be set off from the income under any other head and if not wholly set off, then shall be carried forward to the following Assessment Year and shall be set off against profits and gains assessable for that Assessment Year and if again not wholly set off, then such amount of unabsorbed depreciation allowance is to be carried forward to the following Assessment Year. It has also been provided that for availing the benefit, it is essential that for which business the allowance was originally computed has to be continued to be carried on by him in the previous year. To deal with this issue, it is also worth mention that current depreciation is deductible, in the first place, from the income of the business to which it relates. If such depreciation amount is larger than the amount of profits, then such excess comes for absorption from the profits and gains of any other business, if any, carried on by the assessee. If a balance is left, even thereafter, that becomes deductible from out of income from any source of the income during that year. If balance is still left over that is treated as "unabsorbed depreciation". The important feature is that either upto A.Y. 96-97 i.e. pre-amendment or operative from A.Y. 97-98 i.e. post amendment, the law is unambiguous that where there is current depreciation, then the unabsorbed depreciation carried over from the succeeding year is to be added to the current depreciation and deemed to be a part thereof. So, the provision of Section 32(2) and other sub-sections have no ambiguity that unabsorbed depreciation is to be treated as per these provisions alone. Next comes the provisions of Section 72 which deals with the carry forward of "unabsorbed business loss" other than losses on account of depreciation and i.e. so because the carry forward of depreciation has already been provided in the statute in Section 32(2) of I.T. Act. The area of operation and the manner of carry forward of these two type of losses in these two provisions are different and distinct. As far as the issue in hand is concerned, the unabsorbed depreciation is carried forward and added to the depreciation of the following year. The total amount of depreciation thus arrived at is deemed to be the depreciation of the year. Otherwise also, this distinction is quite visible in the statute itself because it provides that if any assessee has unabsorbed depreciation Under Section 32(2) as well as unabsorbed business loss carried forward Under Section 72(1), then, Section 72(2) provides that the unabsorbed losses shall have precedence and to be set off first, so far as the sufficiency of the income to be set off against permits. It is only after the carried forward business loss is set off and there yet remains positive income than the unabsorbed depreciation would come in for set off. This method and way of set off of two types of losses are beneficial to the assessee in as much as the unabsorbed business loss have a time bar of 8 years while the unabsorbed depreciation as referred by the Ld. D.R. has no time bar because it integrates with and is treated as depreciation allowable for the subsequent year itself.
6.1. From the foregoing discussions, the position of law emerges that the set off unabsorbed depreciation falls Under Section 32 of I.T. Act and not Under Section 72 of I.T. Act. With this legal background, now we have to examine the applicability of Section 44 AE for the purpose of computation of transport business. Before we proceed further, it is important to mention at this juncture that there is no dispute about the fact that the carried forward loss of Rs. 4,47,900/- was nothing but a "depreciation loss" as mentioned by the A.O as well as admitted by the assessee. Next comes the applicability of Section 44 AE of I.T. Act, wherein Sub-section (1) provides that notwithstanding anything to the contrary contained in Section 28 to Section 43C in the case of an assessee who owns not more than 10 goods carriages and engages in the business or plying, the income of such business shall be deemed to be aggregate profits from the goods carriages owned by the assessee as computed in accordance with the Sub-section (2) of this section. For the purpose of the computation of income, Section 44 AE, Sub-section (2) provides the amount of a fixed income for every month or a part of month. Finally comes the applicability of Sub-section (3) of Section 44AE, and the issue basically revolve around the applicability of Section, hence reproduced below:
43 AE.1. -
2. -
3. Any deduction allowable under the provisions of Sections 30 to 38 shall, for the purposes of Sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.
This Sub-section thus debars an assessee to again claim any deduction which falls Under Section 30 to 38. This is a deeming provision stating that the deductions which had fallen under these Sections shall be deemed to have already been given full effect and no further deduction shall be allowed. As we have discussed above, since the unabsorbed depreciation falls Under Section 32(2) of I.T. Act, which is within the debarred claims as per Sub-section (3) of Section 44AE, therefore, the assessee is not entitled for set off of unabsorbed depreciation while computing the income Under Section 44 AE of I.T. Act. For the sake of clarification, Ld. D.R. has also argued that the assessee has not claimed the applicability of Sub-section (7) of Section 44 AE because of non-maintenance of books of accounts of the transport business. The A.O has also remarked that the profits as computed by the assessee were not based upon any books of accounts. Be that as it was, for the purpose of settling this issue, we have already held that the assessee is not entitled for set off of unabsorbed depreciation because he has opted to compute the transport business income Under Section 44AE of I.T. Act in the absence of maintenance of books of accounts. The revenue has also relied upon a decision of Hon'ble Supreme Court in the case of CIT v. Jaipuria China Clay Mines Pvt. Ltd. 59 ITR 555 for the proposition as held by the Hon'ble Court that the unabsorbed depreciation of past years had to be added to the depreciation of the current year and the aggregate unabsorbed and current year's depreciation had to be deducted from the total income of the previous year.
6.2. In view of the foregoing discussion, in the light of the interpretation of the applicable provision of the statute, we hereby reverse the finding of Ld. CIT(A) and confirm the action of the A.O. Grounds of the revenue are allowed.
7. In the result, revenue's appeal is allowed.