TMI Blog2011 (3) TMI 1023X X X X Extracts X X X X X X X X Extracts X X X X ..... within which loss can be adjusted, whereas in the case of unabsorbed depreciation there is no time-limit and further that under the statute there is a separate identity with respect to unabsorbed depreciation though at the time of computation, it becomes a part of loss. Thus it comes out that the effect of section 32(2) is that unabsorbed depreciation of a year becomes part of depreciation of subsequent year by legal fiction and when it becomes part of current year depreciation it is liable to be set off against any other income, irrespective of the fact that the earlier years return was filed in time or not - in favour of the assessee. - IT APPEAL NO. 164 OF 2008 - - - Dated:- 25-3-2011 - A.K. SIKRI, M.L. MEHTA, JJ. Ms. Prem Lata Bansal and Deepak Anand for the Appellant. Rajiv Dutta, Sanjay Kumar Singh and Dushyant for the Respondent. JUDGMENT M.L. Mehta, J. This is an appeal against the order dated 25th May, 2007 of the Income-tax Appellate Tribunal (hereinafter, referred to as 'ITAT') whereby it allowed the appeal of the assessee in respect of the assessment years 2000-01 and 2001-02. The present appeal against the impugned order, however, relates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unabsorbed depreciation for the year under appeal to the subsequent year. The ground is allowed." 2. The revenue has preferred this appeal against the order of the ITAT. The present appeal was admitted on the following substantial questions of law:- "(a) Whether ITAT was correct in law in holding that for carried forward of unabsorbed depreciation, it was not necessary that the return should have been filed within the time allowed under section 139(1) read with section 139(3) of the Income-tax Act? (b) Whether ITAT was correct in law in holding that the provisions of section 80 of the Income-tax Act do not apply to unabsorbed depreciation covered by section 32(2) of the Act?" 3. For answering the questions on which this appeal has been admitted, we may see that the issue involved in this appeal is as to whether the unabsorbed depreciation should be carried forward under section 32(2) of the Act despite the fact that the return of the said year was filed belatedly. The instant question involves interpretation of provision of sections 32, 80 and 139 of the Act. 4. The relevant provision, as contained in section 32(2) of the Act reads as under:- 32(2) "Where in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)." 7. From the provision of section 139(1), it is evident that the return was to be filed within the due time relevant to the previous year during which the loss was sustained. Sub-section (3) of section 139 provides for carrying forward of loss or any part thereof sustained by any person in the previous year under any of provisions of section 72(1), 73(2), 74(1), 74(3) or 74A(3). 8. Section 80 contemplates determination of loss in pursuance of return filed under section 139(3) of the Act which is to be carried forward under sections 72, 73, 74, 74A. In other words, only such losses which have been determined in pursuance of return filed in accordance with provisions of section 139(1) (3), could be carried forward. 9. The question that follows for consideration is as to whether the loss referred under section 80 of the Act also includes unabsorbed depreciation and investment allowances. For this we may examine the provisions of losses referred to under section 80 of the Act. Section 72 provides for provisions with regard to carry forward and set off of business losses. According to this section, where for any assessment year, the net result of computation under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by Madras High Court in Sathappa Textiles (P.) Ltd.'s case (supra). In Brahmaver Chemicals (P.) Ltd.'s. case (supra) it was held as under:- "The above provision contemplates determination of loss in pursuance of the return filed under section 139(3) of the Income-tax Act which are to be carried forward to be set off under section 72, 73, 74 or 74A. Section 139(3) also refers to the same provision contemplating for filing of the return within the time allowed under section 139(1) and thus the determination of the loss is permissible when the return is filed within the stipulated time under section 139(1). There is no reference to the provision for carry forward of depreciation or investment allowance in section 80." 11. In the case of CIT v. Virmani Industries (P.) Ltd. [1995] 216 ITR 607 (SC), it was held as under:- "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 steep pip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance. 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]59ITR555(SC) 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." 13. In the case of CIT v. J. Patel Co. [1984] 149 ITR 682, the Division Bench of our High Court endorsed with approval the case of Madras High Court titled as CIT v. Nagapatinam Import Export Corpn. [1975] 119 ITR 444/[1980] wherein it was held as under :- "The point to be considered is whether the allowance for depreciation is to be equated with the loss that had been contemplated for apportionment among the partners. For some purposes of the Act, depreciation forms part of the loss. The income of the firm or the loss in the hands of the firm cannot be computed without making allowance for depreciation in case the assessee is eligible for, and has made such a claim by complying with the relevant provisions of the Act. If there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at section 32(2) of the Act governs exclusively as to the manner of carry forward and set off in respect of depreciation allowance. In this view of the matter, the rigour of limitation as to the time up to which unabsorbed depreciation allowance can be set off is not applicable in case of such depreciation allowance. Further, section 32(2) being the provision providing the manner of carry forward and set off of such allowances, the provisions of section 75 are inapplicable section 75 which provides that the partners of a registered firm are exclusively entitled to carry forward and set off losses are only applicable in respect of business losses or losses in speculation business and cannot be applicable to carry forward and set off of depreciation allowance." 15. Learned counsel appearing for the Revenue relied upon the case of Garden Silk Weaving Factory v. CIT [1991] 189 ITR 512 (SC) in support of his submission that unabsorbed depreciation is indeed a part of loss and if the same was not claimed within the due time under section 139, it could not be allowed to be carried forward. In view of what has been discussed above the learned counsel is not right in interpreting the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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