2006 (10) TMI 141 - HC - Income Tax

Depreciation of firm determined after assessment of partner Whether Tribunal was correct in law in holding that the assessee was not entitled to set off depreciation allowed in the case of the firm by taking recourse to S. 155 - partner is entitled to set off his share of unabsorbed depreciation in A.Y. 1992-93 for A.Y. 1993-94 to 1995-96 the assessee would not be entitled to claim any benefit for the reason that in the subsequent years the firm ceased to exist. In case the firm itself is not in existence and the unabsorbed depreciation is not carried forward in the hands of the firm there was no question of apportionment thereof in the hands of the partners

Issues:
1. Entitlement to set off depreciation under section 155 of the Income-tax Act, 1961.
2. Claim for carry forward of losses for assessment years 1992-93 to 1995-96.
3. Rectification under section 154 of the Act for the assessment year 1992-93.
4. Apportionment of unabsorbed depreciation among partners.

Analysis:

1. Entitlement to set off depreciation under section 155 of the Income-tax Act, 1961:
The primary issue in this case revolved around the entitlement of the assessee to set off depreciation allowed in the case of the firm by invoking the provisions of section 155 of the Income-tax Act, 1961. The court examined whether the Tribunal was correct in holding that the assessee was not entitled to such set off. The court found in favor of the assessee, stating that the application for rectification under section 154 of the Act was maintainable, and the assessee was entitled to the benefit of carry forward of losses as determined in the appeal effect order dated November 9, 1993.

2. Claim for carry forward of losses for assessment years 1992-93 to 1995-96:
For the assessment year 1992-93, the court observed that the assessee could not claim carry forward of losses from the previous year as the dispute regarding carry forward of losses for the year 1991-92 had not been settled at the time of filing the return. However, once the appeal effect was given, the assessee moved an application under section 154 of the Act for rectification, which was initially rejected by the Assessing Officer. The court held that the assessee was entitled to the benefit of carry forward of losses as determined in the appeal effect order.

3. Rectification under section 154 of the Act for the assessment year 1992-93:
The court analyzed the rejection of the claim for rectification under section 154 of the Act by the Assessing Officer, based on the grounds that the return had been processed under section 143(1)(a) of the Act. The court disagreed with this reasoning and held that the application for rectification was maintainable, especially considering that the claim for the previous years had not been determined before the filing of the return for the assessment year 1992-93.

4. Apportionment of unabsorbed depreciation among partners:
Regarding the assessment years 1993-94 to 1995-96, the court ruled that the assessee would not be entitled to claim any benefit as the firm ceased to exist in those years. Since the unabsorbed depreciation was not carried forward in the hands of the firm, there was no possibility of apportioning it among the partners. Consequently, the court dismissed the appeals for those years.

In conclusion, the court ruled in favor of the assessee for the assessment year 1992-93 concerning the entitlement to set off depreciation and rectification under section 154 of the Act. However, for the subsequent assessment years, the court dismissed the appeals due to the non-existence of the firm, rendering the apportionment of unabsorbed depreciation among partners impermissible.

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