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income-tax Officer Vs. Kamla Knitting Works Ltd. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1982)1ITD1108(Mum.)
Appellantincome-tax Officer
RespondentKamla Knitting Works Ltd.
Excerpt:
.....in the year ended 30-9-1968 for the manufacture and sale of knitted clothes. it did not claim relief under section 80j of the income tax act, 1961 ("the act"), during the first assessment year, namely, 1969-70, because the capital employed by the assessee out of its own funds during that year was a negative figure. in the second assessment year 1970-71 also, the assessee did not claim relief under section 80j for the same reason. in the subsequent three assessment years, namely, 1971-72, 1972-73 and 1973-74, the capital employed by it became positive, so that it was entitled to relief under section 80j at a certain percentage of such capital. even so, the assessee did not claim relief under section 80j during these three years, because the gross total income was a negative.....
Judgment:
1. This appeal has been filed by the department against the order dated 10-4-1981 of the Commissioner (Appeals), relating to the assessment year 1976-77 the previous year of which ended on 30-9-1975.

2. The assessee is a company established in the year ended 30-9-1968 for the manufacture and sale of knitted clothes. It did not claim relief under Section 80J of the Income Tax Act, 1961 ("the Act"), during the first assessment year, namely, 1969-70, because the capital employed by the assessee out of its own funds during that year was a negative figure. In the second assessment year 1970-71 also, the assessee did not claim relief under Section 80J for the same reason. In the subsequent three assessment years, namely, 1971-72, 1972-73 and 1973-74, the capital employed by it became positive, so that it was entitled to relief under Section 80J at a certain percentage of such capital. Even so, the assessee did not claim relief under Section 80J during these three years, because the gross total income was a negative figure in these three years. The assessee found that the gross total income was a positive figure, for the first time, during the assessment year 1976-77, which is under consideration. A claim was made before the ITO in the course of assessment proceedings for the carry forward and set off of Section 80J relief deficiency of the assessment years 1971-72, 1972-73 and 1973-74, amounting in all to Rs. 10,718. This claim was made under Section 80J(3) before the ITO. The assessment year under consideration was within the permitted period of seven years from the end of the initial assessment year. The ITO did not allow the set off of the deficiency under Section 80J(3) on the ground that the assessee did not make the claim at the time of the assessments of the years in which the deficiency arose, and the said deficiencies were not quantified. He rejected the claim of the assessee summarily on this ground alone.

3. The assessee appealed to the Commissioner (Appeals), and contended that its claim should have been accepted. Reliance was placed on the decision in the case of Addl. CIT v. Sheetalaya [1979] 117 ITR 658 (All.). The Commissioner (Appeals) quoted the following passage from the aforesaid decision : ... 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 a loss which had been accepted while making the assessment. Since the provision is intended to provide incentive to industry by means of relief from tax and provision is also made for carry forward for seven years, the deduction is permissible even in a case where the formality of making a claim has not been complied with by the assessee in the first or the relevant assessment year in which, admittedly, loss had been sustained and there was no profit or gain against which the deduction could be adjusted.... (p. 658) Following the aforesaid decision, the Commissioner (Appeals) directed the ITO to allow the claim of the assessee.

4. The only ground taken in this appeal filed by the department is that the Commissioner (Appeals) erred in directing the ITO to allow the claim of the assessee to set off deficiencies of the earlier years.

Shri L.N. Joy, learned representative for the department, urged before me that the Commissioner (Appeals) was not justified in directing to allow the claim when the said claim was not made in the relevant assessment years before the ITO. He relied on the decision in the case of Addl. CIT v. Gurjargravures (P.) Ltd. [1978] 111 ITR 1 (SC). He further stated that the decision in the case of Sheetalaya (supra) was confined to the facts of that case, because the assessee in that case claimed the set off of the deficiency in an assessment year which was within the first five years, and in respect of which a claim under Section 80J(1) was also made. He stated that this fact was absent in the instant case.

5. Shri Gautam Doshi, learned respresentative for the assessee, on the other hand, supported the order of the Commissioner (Appeals). He pointed out that the Allahabad High Court in the case of Sheetalaya (supra) has noticed and distinguished the decision in the case of Gurjargravures (P.) Ltd. (supra). He pointed out that the decision in the case of Sheetalaya (supra) has clearly laid down the proposition that a claim for setting off of deficiency of earlier years can be made under Section 80J(3) in the year in which the profit was made, and it need not be made in the year in which the deficiency arose. He pointed to the following passage appearing in the aforesaid decision of Sheetalaya (supra} : 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 assessment on that basis. Since the provision is intended to provide incentive by giving relief from tax and since it permits carry forward for seven years, 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 bad been sustained and there is no profit or gain against which the deduction could at all be adjusted. (p. 660) 6. He then referred to the decision in the case of Indian Aluminium Co.

Ltd. v. CIT [1980] 122 ITR 660 (Cal.) wherein it has been held that Section 80J(3) did not provide that in respect of the assessment years subsequent to April 1968, the assessee was required to have its deficiency in every year determined so that it could be carried forward. It has also been held in the case that even the rules do not provide for any prior determination of such deficiency and the income-tax return forms also did not have any column for making such a claim. Further, he referred to the decision of the Madras High Court in the case of CIT v. Bluemount Ceramics Ltd. [1980] 123 ITR 385, wherein it has been held that unlike Section 34(1) of the Act, there is no statutory obligation on the part of the assessee under Section 80J to furnish the necessary particulars for claiming relief under that section in the initial year in which the industrial undertaking was set up. It was further held in that case that the deduction under Section 80J(3) was permissible even in a case where the claim had not been made in a preceding assessment year in which loss had been sustained, but was made in a subsequent year when profits were made against which the deduction could be adjusted.

7. I have considered the contentions of both the parties as well as the facts on record. The short question that has raised in this appeal is whether the claim of an assessee under Section 80J(3) to set off the deficiency of the earlier years can be entertained when made before the ITO in a subsequent year in which profit was earned, even though no claim for the determination of deficiency was made in the year in which the deficiency arose. I find that in the case of Gurjargravures (supra), it has been held ".. .We are not here called upon to consider a case where the assessee failed to make a claim though there was evidence on record to support it, or a case where a claim was made out but no evidence or insufficient evidence was adduced in support ..." (p. 5). Though the decision in the case of Gurjargravures (supra) went against the assessee, yet the above quotation shows the principle laid down by the Supreme Court as explained by the Andhra Pradesh High Court in the case of CIT v. Gangappa Cables Ltd. [1979] 116 ITR 778. In other words, the ratio in the case of Gurjargravures (supra) will not apply to two types of cases, namely, (i) a case where the assessee failed to make a claim and, (ii) where a claim was made but no sufficient evidence in support thereof was adduced. In the instant case, the claim was admittedly made before the ITO. Hence, it comes within the first exception stated above. So, I come to the conclusion that the assessee's claim under Section 80J(3) made before the ITO was clearly entertainable on the authority of the decision in the case of Gurjargravures (P.) Ltd. (supra) as explained by Gangappa Cables (supra). This conclusion is also supported by the decisions in the cases of Sheetalaya (supra), and Indian Aluminium Co. Ltd. (supra) and Bluemount Ceramics Ltd. (supra). All these cases have held that a claim for deficiency need not be made in the year of deficiency but can be made in a subsequent year, when there is profit against which the deficiency can be adjusted.

8. However, coming to the order of the Commissioner (Appeals), under appeal, I find that he has directed the ITO to allow the relief straightaway. Evidently, the ITO had rejected the claim of the assessee summarily on the short ground that the deficiency was not determined in the earlier years, and so, he had no occasion to consider whether the conditions laid down in Section 80J(2) applied to the facts of the case. It goes without saying that no relief under Section 80J(1) or 80J(3) can be allowed unless the conditions under Section 80J(2) have been fulfilled. Hence, I feel that the ITO should have entertained the claim and examined whether the conditions under Section 80J(2) were fulfilled by the assessee and if so, allowed the claim of the assessee.

Under the circumstances, I vacate the order of the Commissioner (Appeals), and restore the matter to the file of the ITO. The ITO should, after due enquiry, give a finding as to whether the conditions under Section 80J(2) were satisfied by the assessee or not in the years in which the deficiencies arose. He should give a reasonable opportunity of being heard to the assessee. Then he should dispose of the matter in accordance with the law.

9. In the result, the appeal may be treated as allowed for statistical purposes.


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