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A.S. Ganesh Murthy Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1984)7ITD204(Bang.)
AppellantA.S. Ganesh Murthy
Respondentincome-tax Officer
Excerpt:
.....computed since the details are available. the unabsorbed depreciation has to be treated as current year's depreciation and it can be determined and allowed as set off in the two years under consideration. the learned departmental representative strongly repelled the above contentions. he urged that section 32(2) speaks of an assessment made on the assessee.in the absence of any assessment made, the unabsorbed depreciation cannot be carried forward and set off. since no assessment has been made for the assessment years 1975-76 and 1976-77, the unabsorbed depreciation of those years cannot be set off in these two years.4. in the departmental appeals, the learned departmental representative submitted that what applies to unabsorbed depreciation equally applies to unabsorbed development.....
Judgment:
1. Two appeals are by the assessee and the other two appeals are by the revenue. They are being disposed of together.

2. The assessee claimed that the unabsorbed depreciation and unabsorb-ed development rebate relating to the assessment years 1975-76 and 1976-77 should be set off" against the income for the assessment years 1977-78 and 1978-79. The ITO held that returns for the assessment years 1975-76 and 1976-77 were filed belatedly on 6-11-1980. Under Section 139 (3) of the Income-tax Act, 1961 ('the Act'), any assessee who wants that the losses of eariler years should be carried forward under Section 72, 73 or 74 of the Act, has to file the return of income wtihin the time allowed under Sub-section (1) of Section 139 or within such further time which, on an application made in the prescribed form, the ITO may in his discretion allow. He held that the returns for the assessment years 1975-76 and 1976-77 are belated and in the eye of law non est. In the circumstances, the unabsorbed development rebate and unabsorbed depreciation cannot be set off against the income for the assessment years 1977-78 and 1978-79. Thus, he disallowed the claim of the assessee. On appeal, the AAC held that the carry forward of the unabsorbed depreciation was rightly refused by the ITO but he should not have denied the claim for carry forward of unabsorbed development rebate as there was no profit and the assessee sustained loss for the assessment years 1975-76 and 1976-77. Thus, he directed the ITO to allow the claim for the set off of the unabsorbed development rebate.

Against the said order the assessee has come up in appeal with respect to the refusal to set off the unabsorbed depreciation and the revenue has come up in appeal against the direction to allow set off of unabsorbed development rebate.

3. The learned counsel for the assessee strongly urged that the claim of the assessee is under Section 32(2) of the Act, but the unabsorbed depreciation cannot be treated as business loss. Section 139(3) contemplates business loss. He strongly urged that even though there was no assessment order made, the unabsorbed depreciation for the assessment years 1975-76 and 1976-77 is allowable as it can be computed since the details are available. The unabsorbed depreciation has to be treated as current year's depreciation and it can be determined and allowed as set off in the two years under consideration. The learned departmental representative strongly repelled the above contentions. He urged that Section 32(2) speaks of an assessment made on the assessee.

In the absence of any assessment made, the unabsorbed depreciation cannot be carried forward and set off. Since no assessment has been made for the assessment years 1975-76 and 1976-77, the unabsorbed depreciation of those years cannot be set off in these two years.

4. In the departmental appeals, the learned departmental representative submitted that what applies to unabsorbed depreciation equally applies to unabsorbed development rebate. Section 33(2) of the Act also speaks of the method of set off. Unless there is a claim in the year, the question of determination of the unabsorbed development rebate will not arise. Since the returns are filed belatedly, they are non est and as such no assessments have been made. Since no assessments have been made for the earlier years, the unabsorbed development rebate in those years cannot be set off in these years. The learned counsel for the assessee submitted that so as far as the unabsorbed development rebate is concerned, it can be allowed for a period of 8 years from the year of installation of the plant and machinery. The year of installation is available as the machinery was installed in the assessment year 1975-76. So, the 8 years period can be calculated from the assessment year 1975-76. Section 33 does not contemplate an assessment being made.

He further submitted that since there were losses in the assessment years 1975-76 and 1976-77, the asses-see could not have created a reserve as contemplated under Section 34(3) of the Act and as such the assessee could not have made a claim also. He submitted that since the returns have been submitted though belatedly, it should be considered that there was a claim.

5. We will first consider the set off of the unabsorbed depreciation, Admittedly, the returns for the assessment years 1975-76 and 1976-77 have been filed belatedly on 6-11-1980. They have not been filed within the time allowed under Section 139(1). No application has been made for any extension of time. The returns have been filed after the expiry of two year period of limitation for making the assessments. Thus, the return filed are non est and have to be ignored. Section 32(2) reads as under: Where, in the assessment of the assessee (or, if the assessee is a registered firm or an unregistered firm assessed as a registered firm, in the assessment of its partners) full effect cannot be given to any allowance under Clause (i) or Clause (if) or Clause (iia) or Clause (v) or Clause (v) or Clause (vi) of Sub-section (1) or under Clause (i) of Sub-section (1A) in any previous year owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of Sub-section (2) of Section 72 and Sub-section (3) of Section 73, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year and soon for the succeeding previous years.

The words in Section 32(2) 'where, in the assessment of the assessee' would clearly show that an assessment has to be made on the assessee.

Unless assessment has been made and the depreciation allowance is determined, the assessee will not be entitled for the set off of the unabsorbed depreciation in the following years. In the instant case, no assessment has been made for the assessment years 1975-76 and 1976-77 and the depreciation allowance has not been determined. Hence, unabsorbad depreciation claimed by the assessee in respect of those years cannot be set off in the assessment years 1977-78 and 1978-79.

Thus, we reject the assessee's contention and uphold the AAC's order on this point.

6. Now we will take up the ground in the departmental appeal relating to the set off of the unabsorbed development rebate. Under Section 33(1) deduction shall be allowed by way of development rebate as specified in Clause (i)(b) subject to the provisions of Sections 33 and 34. Where the total income of the assessee assessable is nil or is less than the full amountof the development rebate allowable for that year, the development rebate to the extent to which it has not been allowed shall be carried forward to the following assessment.

No portion of the development rebate shall be carried forward for more than 8 years immediately succeeding the assessment year relevant to the previous year in which the machinery or plant was installed. The above provision does not contemplate that an assessment should have been made for the carry forward of the unabsorbed development rebate to the following year, as in the case of depreciation. The word used in Section 33(2) is 'assessable' and not 'assessed'. Section 34(3) contemplates creation of development rebate reserve account. Since there was loss as per books in the assessment years 1975-76 and 1976-77, the assessee could not create a reserve. The provisions of Sections 34(3) and 33(2) were considered by the Karnataka High Court in Dodballapur Spg. Mills Ltd. v. CIT [1980] 121 ITR 94. It was held therein that the condition required for the actual allowance of the development rebate by creation of a specific reserve in that behalf as provided under Section 34(3) does not control the carry forward of the development rebate computed in the earlier years and does not provide that if in the year when new machinery is installed such a reserve is not created, the development rebate allowable shall not be carried forward or shall not be allowable in any subsequent year when the condition is satisfied. In view of the above decision, the claim of the assessee cannot be negatived on the ground that no reserve has been created in the assessment years 1975-76 and 1976-77. The claim also cannot be negatived on the ground that no assessment order has been made for the assessment years 1975-76 and 1976-77 determining the unabsorbed development rebate.

7. In Addl. CIT v. Sheetalaya [1979] 117 ITR 658 (All.) dealing with the claim under Section 80J of the Act, the Allahabad High Court held that 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 deduction could be adjusted. The above ratio squarely applies in respect of development rebate.

8. Thus, in our view, the AAC was right in directing the ITO to set off the unabsorbed development rebate of the assessment years 1975-76 and 1976-77 in these two years under appeal.

9. In the result, the assessee's appeal as well as the departmental appeals are dismissed.


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