Law:

Section:

- Section 32(2) - Income-tax Act, 1961 CASES REFERRED TO K.T. Wire Products v. UOI [1973] 92 ITR 459 (All.) Raj Narain Agarwala v. CIT [1970] 75 ITR 1 (Delhi), Ballarpur Collieries Co. v. CIT [1973] 92 ITR 219 (Bom.), CIT v. Dhanji Shamji [1974] 97 ITR 173 (Guj.) and S. Sankappa v. ITO [1968] 68 ITR 760; [1968] 2 SCR,674 (SC) JUDGMENT B.K. Mehta, J.-The following two questions have been referred to us for our opinion: "1. Whether, on the the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee, a registered firm, is entitled to carry forward unabsorbed depreciation from earlier years and that it will be deemed to be an allowance in the nature of depreciation in the previous year relevant to the assessment year 1968-69? 2. Whether the claim of the assessee to carry forward and set off loss of Rs. 3,49,242 against its total income for the assessment year 1968-69, has been rightly rejected?" 2. Shortly stated the facts leading to this reference are as under : The relevant assessment year was 1968-69. The assessee which is a registered firm filed a return of income showing the total income of Rs. 3,94,483. A provisional assessment under section 141 was made on November 18, 1968, on the basis of the income disclosed and tax was paid accordingly. It appears that the Income-tax Officer found subsequently that the assessee had in fact earned a profit of Rs. 11,82,856 in the previous year, but had deducted Rs. 7,87,573 consisting of Rs. 3,49,242 as business loss, Rs. 1,59,181 as depreciation and Rs. 2,79,150 as development rebate, all carried forward from the assessment year 1967-68. The Income-tax Officer, therefore, passed an order under section 154 and section 155 of the Income-tax Act, 1961, and held that business loss and depreciation which were unabsorbed in the earlier years could not be set off against the income of the firm in the year under reference. The matter was carried by the assessee-firm in appeal before the Appellate Assistant Commissioner, who,, however, dismissed the appeal and confirmed the order of the Income-tax Officer. The matter was, therefore, carried in appeal by the assessee-firm to the…

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