Law:

Section:

Section 72(3) of the Income-tax act, 1961-Loss-Carry forward and set off of business losses - Unabsorbed business loss of 1965-66 claimed to be set off against income for assessment year 1968-69 and balance to be set off against current depreciation for 1968-69-Claim disallowed by lower authorities-Whether impugned carried forward business losses should be set off before deducting current year's depreciation-Held, on facts, no Facts For the assessment year 1968-69, the assessee claimed that the business loss carried forward from the assessment year 1965-66 should first be set off from the current year's income and the balance should be set off against the current year's depreciation. The ITO rejected the assessee's claim, holding that the current year's depreciation should first be allowed in computing business income under section 28( a) and that the consequent net loss should be carried forward for adjustment against income of future years. The assessee's appeal before the AAC was unsuccessful. On further appeal, the Tribunal directed (i ) that the unabsorbed business loss of previous year should first be set off against the current year's income leaving the balance to be set off against the current year's depreciation ; and (ii) that the unabsorbed depreciation should be carried forward for adjustment against future year's income. On reference : Held Section 32(2) (which provides for set off of unabsorbed depreciation against current year's income and allows the "carried forward business loss" to take priority for the purpose of set off against the revenue income of the relevant assessment year) does not apply to the case of assessment of current year's income governed by section 32(1) which provides for deduction of depreciation in respect of the assessment year itself and which is not subject to section 72(2). In the first instance, income of the current year must be ascertained and the depreciation of the relevant accounting year should be deducted therefrom. It is only thereafter that the question arises for set off of carried forward business loss against the revenue income. Therefore, the business losses carried forward from the previous years cannot…

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