Law:

Section:

Section 32, read with section 72, of the Income-tax Act, 1961 - Depreciation - Unabsorbed depreciation - Assessment year 1970-71 - Whether in computing current year's income, for current year depreciation must be allowed first and thereafter business losses carried forward from previous years - Held, yes FACTS The ITO found that the current year's depreciation was much more than the income of the year without providing for depreciation. The ITO set off the income against the depreciation for that year and directed that the balance of depreciation should be carried forward to the next year as the unabsorbed depreciation. There were carried forward business loss and the assessee's contention was that the amount of income should be set off not against the current year's depreciation but against the carried forward business losses. That contention was rejected by the ITO. On appeal, the AAC accepted the assessee's contention and directed the ITO to set off the business losses brought forward from the previous years against the income before deducting the current year's depreciation. On Revenue's further appeal, the Tribunal upheld the order of the AAC. On reference : HELD Normally, the stage of considering unabsorbed depreciation would only arise for consideration after the computation of current year's business income is over. It is only then the question of unabsorbed depreciation allowance would arise and unabsorbed depreciation of previous year has to yield place to carried forward business losses for set off against the net profit from the current year's business activities ascertained after allowing depreciation for the current year. Therefore, there is no question of setting off carried forward business losses against the current year's revenue income computation of current year's income must be made in accordance with the provisions of sections 30 to 43A. Section 32(1) is one of those sections and it is only 32(2) which yields place to section 72(2) and not section 32(1), and that being the case, in computing current year's income, current year's depreciation must first be allowed and thereafter the business losses carried forward from the previous year. In…

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