Income Tax Appellate Tribunal - Cochin
Pioneer Enterprises vs Income-Tax Officer on 16 February, 1995
Equivalent citations: [1995]53ITD435(COCH)
ORDER
P.K. Ammini, Judicial Member
1. This is an appeal by the assessee. We are concerned with the assessment year 1989-90. The assessee is a partnership firm. From the assessment order for the assessment year 1989-90 it is found that the assessee had furnished the return of income for the assessment years 1986-87, 1987-88 and 1989-90 belatedly showing nil income but at the same time claimed carry forward of unabsorbed depreciation and unabsorbed investment allowance from year to year. However, the Assessing Officer has accepted the returns under Section 143(1) in respect of the above three years but declined to carry forward of unabsorbed depreciation and unabsorbed investment allowance. The Assessing Officer while dealing with the assessment for the assessment year 1989-90 was of the view that the assessee was not entitled to carry forward of unabsorbed depreciation and unabsorbed investment allowance since the loss return was filed belatedly. He drew support from the provisions of Section 139(3) of the Act, which requires that a person claiming to carry forward of the loss should have filed the return under Section 139(1) of the Income-tax Act, 1961. He also relied on the provisions of Section 139(10) of the Act. For these reasons, he disallowed the claim of the assessee.
2. The assessee appealed and relied on the following decisions before the CIT (Appeals) :
(a) CIT v. Kalpaka Enterprises (P.) Ltd. [1986] 157 ITR 658 (Ker.)
(b) CIT v. Concord Industries. Ltd. [1979] 119 ITR 458 (Mad.)
(c) Sathappa Textiles (P.) Ltd. v. Second ITO [1969] 71 ITR 260 (Mad.)
(d) Sri Hari Mills Ltd. v. First ITO [1967] 65 ITR 348 (Mad.)
(e) Vora Industries Tools (P.) Ltd. v. ITO [1991] 39 ITR 116 (Pune) The learned CIT (Appeals) did not agree with the assessee for the reason that in these cases the issue was the availability of depreciation in the year in which the return was filed belatedly but in the case of the assessee the issue was not one of such one decided by the Courts but the issue was set off depreciation in subsequent year. Secondly he held that in case the depreciation was not quantified in the earlier assessment year, there was nothing to be carried forward and that the assessee was only entitled to depreciation of the relevant previous year in terms of Section 32(1), read with Section 43(6) of the Act. Thus he dismissed the appeal of the assessee. The assessee is in second appeal.
3. We have heard rival submissions and perused the records. The Assessing Officer erred in treating the unabsorbed depreciation and unabsorbed investment allowance on a par with business loss. The Hon'ble Kerala High Court is Kalpaka Enterprises (P.) Ltd.'s case (supra) has drawn a distinction between these two in the following words :
Section 72 provides for carry forward and set off of business losses and Sub-section (2) of this Section only provides a rule of priority under which set off of business losses shall have statutory preference over carry forward of allowances under Section 32(2) of the Act.
Even this provision does not speak of 'unabsorbed depreciation' as losses; but describes it as 'allowances'. Unabsorbed depreciation as an item of allowance which can be carried forward is specifically mentioned in Section 32(2) and carry forward of unabsorbed development rebate is provided for in Section 32(2)(ii), both the provisions occurring in Chapter IV of the Act. The Act does not treat or describe 'unabsorbed depreciation' or 'unabsorbed development rebate' as losses and these items cannot be treated as losses for purposes of Section 79 alone. By excluding 'unabsorbed depreciation' or 'unabsorbed development rebate' from the content of the expression 'losses' in Section 79, there is no attempt to give any narrow interpretation to the word 'loss'. It cannot have, in any case, a wider definition to include items which are in fact not losses under the Act, at least for the purposes mentioned in Chapter VI. Hence, the bar imposed under Section 79 does not apply to 'unabsorbed depreciation' or 'unabsorbed development rebate'.
The Assessing Officer further erred in invoking the provisions of Section 139(3) to his aid in dismissing the claim of the assessee. Section 139(3) reads as follows :
If any person who has not been served with a notice under subSection (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) of Section 74, [or Sub-section (3) of Section 74A], he may furnish within the time allowed under Sub-section (1) [or within such further time which, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, allow], a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed and the provisions of this Act shall apply as if it were a return under Sub-section (1).
From the plain reading of the above Section it is manifest that the filing of the return of income within the time allowed under Section 139(1) is a condition precedent for allowing carry forward of business loss or loss under the head 'Capital gains' and not for carry-forward of unabsorbed depreciation or unabsorbed investment allowance. These are governed by the provisions of Sections 32 and 33 which form a code by itself. The Assessing Officer is not justified in invoking the provisions of Section 139(3) to disallow the claim of the assessee.
4. The Assessing Officer invoked the provisions of Section 139(10) to say that the return filed by the assessee is non est in the eye of law as the income returned is below taxable limit. The proviso to Section 139(10) which carved out certain exceptions from the operation of that Section mention only 'a return of the partner of the firm' as it stood as on 1-4-1989 relevant to the assessment year 1989-90. However, with effect from 1-4-1990 'return of the firm' also was included as one of the exceptions to Section 139(10). This amendment should be considered as clarificatory in nature and retrospective in effect. We strengthen in this belief when we look into the reasons adduced for the remover of this provision for and from the assessment year 1991-92 by the Finance (No. 2) Act, 1991. In the Memorandum explaining the reason for omitting this Section it has been stated as follows :
Sub-section (10) of Section 139 of the Income-tax Act, which was inserted with effect, from 1st April, 1986, provides that a return of income which shows total income below the maximum amount not chargeable to tax is deemed as never to have been furnished, with certain exceptions. The insertion of the aforesaid Sub-section has created certain anomalies. For example, furnishing of evidence along with the return of income is a necessary condition for claiming exemption from tax or deduction from gross total income in a number of provisions of the Income-tax Act. However, if as a result of such claims, the returned income falls below the taxable limit, the return becomes non est and such claims cannot be verified by the Assessing Officer. This provision has disturbed the continuity of assessment records in certain cases.
Therefore, the Bill seeks to omit Sub-section (10) of Section 139 of the Income-tax Act.
Thus in the interest of continuity of the assessment records, it can be held that even when the Section was in force, the amendment carried out to it with effect from 1-4-1990 including the return of the firm as one of exceptions to Section 139(10) must be deemed to be clarificatory in nature. Even otherwise the assessee is entitled to succeed.
5. The CIT (Appeals) erred in holding that the issue before him was not carry forward of unabsorbed depreciation and unabsorbed investment allowance but the issue was one of set off of the depreciation in the subsequent year. We do not agree with the first appellate authority. No doubt, the carried forward depreciation and carried forward investment allowance are to be set off or adjusted against the current year's computation of income. The core issue is whether unabsorbed depreciation or unabsorbed investment allowance can be carried forward for purposes of set off in the subsequent year. We have already held that the unabsorbed depreciation and unabsorbed investment allowance are to be carried forward under the very provisions of Sections 32 and 33 and are unaffected by the provisions relating to the carry forward of business loss or loss under 'Capital gains' nor was it affected by the provisions of Section 139(3) or 139(10). The cases relied on by the learned representative of the assessee before the CIT (Appeals) do support his stand.
The learned departmental representative contended that the quantum of depreciation for the assessment years 1986-87, 1987-88 and 1988-89 have not been determined by the Assessing Officer and in this connection he referred to Section 80 of the Income-tax Act. In our opinion Section 80 only deals with the return of loss and embargo is only against the carry forward of business loss or loss under the head 'Capital gains' or speculation loss or losses from race horses. The learned departmental representative further submitted that the Assessing Officer disallowed carry forward of unabsorbed depreciation and investment allowance in the assessment years 1986-87 to 1988-89 and therefore the assessee is disentitled to claim the same. This contention cannot be upheld in view of the decision of the Supreme Court in CIT v. Manmohan Das [1966] 59 ITR 699 to the following effect :
Whether the loss in any year may be carried forward to the following year and set off against the profits and gains of the subsequent year under Section 24(2) has to be determined by the Income-tax Officer who deals with the assessment of the subsequent year. A decision recorded by the Income-tax Officer who computes the loss in the previous year that the loss cannot be set off against the income of the subsequent year is not binding on the assessee.
The ratio decidendi of the Apex Court will apply in equal force to set off unabsorbed depreciation and unabsorbed investment allowance and therefore we uphold the claim of the assessee and direct the Assessing Officer to quantify the unabsorbed depreciation and unabsorbed investment allowance of earlier assessment years to be set off against the income for the assessment year 1989-90.
6. In the result, the appeal is allowed.