Satish Chandra, C.J.
1. The assessee is a registered firm. It carries on business of running a cold storage. For the assessment year 1972-73, it claimed a deduction of Rs. 2,30,754 under Section 80J of the I.T. Act of 1961 against its income for that year. This amount consisted of deficiency relating to the assessment years 1969-70 to 1971-72 and also a sum of Rs. 70,580 which was the claim made under that section for the current year 1972-73. The deficiency as well as the claim were calculated at the rate of 6% of the capital employed. The ITO refused the claim for the past years but allowed the same for the year 1972-73, to the extent of Rs. 42,154. On appeal, the view of the ITO was affirmed. The assessee went up to the Tribunal. In relation to the first three years, namely, 1969-70, 1970-71 and 1971-72, the Tribunal held that it was admitted between both the parties that in all these years the assessee had suffered losses and the assessments had also been completed by computing the losses. In those years, the assessee did not make any specific claim for relief under Section 80J. It observed that Section 80J did not specifically require that a claim must be made under it in the year in question before it could be permitted to be carried forward because of the occurrence of deficiency, namely, cases where gains or profits may not be equal to the claim or in a case where there is total loss. Consequently, the assessee was entitled to claim carry forward deficiencies as against its income in the fourth year. The assessee's appeal was allowed.
2. At the instance of the Commissioner of Income-tax, the Tribunal has referred the following questions of law for our opinion :
'1. Whether, on the facts and in the circumstances of the case, and in view of the provisions of Sections 80A, 80J(1), (2), Section 2(45), Section 5 and Section 3 of the Income-tax Act, 1961, the assessee's not claim-ing relief under Section 80J in the assessment years 1969-70 to 1971-72 and the Income-tax Officer's not determining the amount of relief in those years was fatal to the assessee's claim under Section 80J(3) for the assessment year 1972-73?
2. Whether, on the facts and in the circumstances of the case, was the Tribunal legally correct in allowing the assessee's claim under Section 80J(3) of the Income-tax Act, 1961:?
3. Section 80J is headed 'Deductions in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases'. It provides relief of an amount computed at 6% of the capital employed in an industrial undertaking of the first year in which the industrial undertaking is established and four subsequent assessment years. Sub-section (3) of Section 80J contemplates a case where the amount of profits and gains in the first assessment year faljs short of the claimed deduction. In a case where there are no profits and gains, the entire deduction shall be carried forward and set off against the profits and gains of subsequent assessment years, and where the deficiency cannot be wholly so set off it shall be set off against such profits and gains of the subsequent assessment years and so on. Under the proviso, the carry forward shall not exceed beyond the seventh assessment year reckoned from the end of the initial assessment year. There are certain other conditions mentioned in the subsection with which we are not concerned.
4. The legislative intent behind Section 80J was to provide incentive for establishment of the mentioned kinds of industries by giving relief in the form of rebate calculated at 6% of the employed capital for five years. The relief was against profits and gains of such newly established undertakings. The carry forward was permissible up to seven years though the claim was confined only to five years.
5. Sub-section (1) of Section 80J applies only where there are profits and gains included in the total income of the first assessment year. Sub-section (3) contemplates that, even though the undertaking may not have earned profits and gains, yet the claim for the relevant amount (namely 6% of the capital employed) is to be carried forward till it is adjusted against profits and gains of subsequent years up to a limit of seven years. It permits the adjustment of the claimed deduction as against profits and gains of subsequent years in cases of shortfall or deficiency.
6. There is no requirement in any part of Section 80J that the assessee must make a definite claim and the ITO must determine the amount of deduction before it can be carried forward in a case where admittedly the undertaking had suffered loss, which had been accepted while making the assess-ment on that basis. Since the provision is intended to provide incentive by giving relief from tax and since it permits carry forward for sevenyears, it seems to us that the deduction should be permissible even in a case where the formality of making a claim has not been specifically done by the assessee in the first or the relevant assessment year, in a case where admittedly loss has been sustained and there is no profit or gain against which the deduction could at all be adjusted.
7. Learned counsel for the revenue relied upon a decision of this court in Sharda Prasad v. CIT : 100ITR373(All) . In that case, a claim was liable to be made because the firm had earned profits but no such claim was made. The court pointed out that there was a specific provision in the return for making such a claim. It was held that, in the circumstances, the disallowance of the deduction under Section 80J could not be hold to be a mistake apparent on the face of the record which can be rectified under Section 154 of the Act, That was a case where the claim ought to have been made because there were profits and unless the claim is considered and the necessary adjustments made, it cannot be said that there was a deficiency which could be carried forward. In the present case, there being no profits or gains against which claim may be executed or adjusted, the position is different. Learned counsel also relied upon Addl. CIT v. Gujargravures P. Ltd. : 111ITR1(SC) . In that case, in the first year, the assessee did not make any claim under Section 84. In subsequent years he made the claim and was given relief. In yet another subsequent year, the assessee wanted for the first time to raise in an appeal the question of grant of relief under Section 84 for the first year. The Supreme Court held that this was not admissible. Merely because the claim had been allowed in subsequent years, it could not be assumed that the prescribed conditions justifying a claim for exemption under Section 84 were also fulfilled in the first year. It was emphasised that there was no material to support the claim. Neither of these two facts have been found to be present in our case. It has not been suggested that there is no material to calculate or compute the claim. It is evident that the assessee made the claim for the first year because it felt that it was allowable for that year. In other words, for the first year, there must have been profits, else the question did not arise. The assessee was not claiming carry forward. For these reasons, this case is not helpful. In our opinion, the Tribunal was justified in allowing the claim.
8. We, therefore, answer the questions referred to us as follows:
Question No. 1.--In the negative, in favour of the assessee and against the department.
Question No. 2.--In the affirmative, in favour of the assessee and against the department.
9. The assessee will be entitled to costs which are assessed at Rs. 200.