Law:

Section:

Unabsorbed depreciation gets precedence over unabsorbed investment allowance Section 32, read with section 32A, of the Income-tax Act, 1961 - Depreciation - Unabsorbed depreciation - Assessment years 1991-92 and 1992-93 - Whether unabsorbed depreciation should be given priority over unabsorbed investment allowance in arriving at total income for purpose of income-tax under Scheme of Act - Held, yes Interpretation of statutes - Rule of liberal interpretation FACTS The assessee-company filed its return under section 139 for the assessment year 1991-92 declaring income as 'nil', which was arrived at after adjusting the carried forward investment allowance relating to the earlier years. The assessee-company claimed that the carried forward investment allowance may be absorbed in priority over the carried forward depreciation. However, the assessing authority held that claim of assessee was untenable under the Act as unabsorbed depreciation would get precedence over unabsorbed investment allowance. He, therefore, deducted the unabsorbed depreciation first, which reduced the taxable income to 'nil' . The Commissioner (Appeals) as well as the Tribunal confirmed the order of the Assessing Officer. For the assessment year 1992-93 again, the Assessing Officer refused to grant the benefit of deduction of carry forward of investment allowance and also refused to accept the deduction under section 80HHC before the set-off of unabsorbed loss and unabsorbed depreciation, which was confirmed by the Commissioner (Appeals). On further appeal, the Tribunal accepted the contentions of the assessee with regard to the claim of deduction under section 80HHC. However, following the earlier decision relating to the assessment year 1991-92, it was held that the unabsorbed depreciation should first be allowed before allowing the carry forward of investment allowance. On appeals, it was contended by the assessee that in the absence of any claim by the assessee for deduction towards the depreciation allowance, the assessing authority could not erroneously assume that such a claim would be untenable; that the assessee could not be compelled to seek depreciation allowance if he had not…

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