High Court rejects rectification application for set off of unabsorbed depreciation

The High Court rejected the rectification application seeking set off of unabsorbed depreciation for the assessment year 1973-74 based on subsequent judgment by the Madras High Court. The Court held that the Tribunal was bound by the Madras High Court decision only for orders pronounced post that judgment. Emphasizing the importance of following jurisdictional High Court rulings, the Court ruled against the assessee, stating that the claim for set off could not succeed even on merits. The decision aligned with a recent Supreme Court ruling clarifying the treatment of unabsorbed depreciation.

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Issues involved: Assessment of unabsorbed depreciation for the assessment year 1973-74, rectification application u/s 254(2) of the Income-tax Act, 1961 based on subsequent judgment of the Madras High Court, and the impact of conflicting decisions on the rectification process.

Assessment of unabsorbed depreciation: The Tribunal initially disallowed the assessee's claim for set off of unabsorbed depreciation based on certain High Court decisions. However, a subsequent judgment by the Madras High Court allowed such set off. The assessee filed a rectification application u/s 254(2) seeking to benefit from the Madras High Court's decision.

Rectification application u/s 254(2): The Tribunal held that the subsequent judgment of the Madras High Court would bind it for orders pronounced after the High Court's decision. Therefore, the Tribunal deemed the rectification application as not maintainable based on this principle.

Legal interpretation and rectification process: The High Court analyzed the legal provisions of section 254(2) and the power to rectify mistakes apparent from the record. It was noted that a Tribunal's decision on debatable issues without a High Court ruling could not be deemed a mistake merely because of a subsequent High Court judgment. The Court disagreed with a previous judgment that suggested otherwise and emphasized the importance of following the jurisdictional High Court's rulings.

Final decision and impact of Supreme Court judgment: The Court ruled against the assessee, stating that even on merits, the assessee could not succeed in claiming set off of unabsorbed depreciation from earlier years. A recent Supreme Court judgment clarified that excessive depreciation should be adjusted against business income, partners' shares should be adjusted accordingly, and any remaining unabsorbed depreciation can be carried forward to subsequent years.

In conclusion, the High Court rejected the rectification application and upheld the decision disallowing the set off of unabsorbed depreciation for the assessment year in question based on legal interpretations and the Supreme Court's guidance on the matter.

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