Court rules deficiency claim under Income-tax Act must be quantified in the year it arises before carry forward.

The court held that under section 80J of the Income-tax Act, a claim for deficiency must be made and quantified in the year it arises before it can be carried forward. The court ruled against the assessee, stating that the relief for the assessment year 1968-69 cannot be computed in the assessment proceedings of 1973-74 and carried forward to 1974-75. The court emphasized that the computation of deficiency in the initial year is a prerequisite for carrying it forward to subsequent years. The decision favored the Revenue, with each party bearing its own costs.

---

---

Issues Involved:
1. Whether section 80J of the Income-tax Act requires that the claim for deficiency relating to an earlier assessment year should be made and quantified in that year before it can be carried forward and set off against the profits of subsequent years.
2. Whether the assessee-company is entitled to have the relief under section 80J computed for the assessment year 1968-69 in the assessment proceedings of the assessment year 1973-74 and have it carried forward to 1974-75 for set-off against the assessee's income.

Issue-wise Detailed Analysis:

Issue 1:
Claim for Deficiency in Earlier Years:

The court examined whether section 80J necessitates that a claim for deficiency be made and quantified in the year it arises before it can be carried forward. The assessee did not claim relief under section 80J for the assessment year 1968-69 due to no profits but sought to carry forward the deficiency from later years (1969-70 to 1972-73) to 1973-74. The Income-tax Officer (ITO) initially conceded this claim but rejected the computation for 1968-69 in 1973-74. The Appellate Assistant Commissioner (AAC) and the Tribunal allowed the claim, following precedents that section 80J(3) does not explicitly require the deficiency to be claimed and computed in the year of occurrence.

The Revenue argued that the claim must be made and quantified in the year it arises to be carried forward. The court analyzed section 80J, emphasizing that the scheme requires the deficiency to be computed in the previous year before it can be carried forward. The court referenced CIT v. Kulu Valley Transport Co. P. Ltd. and Addl. CIT v. Gurjargravures P. Ltd., which highlighted the necessity of making claims in the relevant year. The court concluded that section 80J(1) and (3) must be read together, requiring the computation of loss in the year it arises.

Answer to Question 1: The court answered in the negative, in favor of the Revenue, stating that section 80J requires the claim for deficiency to be made and quantified in the year it arises before it can be carried forward.

Issue 2:
Relief Computation in Subsequent Years:

The second issue was whether the assessee could compute the relief for 1968-69 in the assessment proceedings of 1973-74 and carry it forward to 1974-75. The court examined the scheme of section 80J, which allows deduction from profits and gains and mandates that any deficiency be carried forward to subsequent years. The court noted that if the deficiency is not computed in the initial year, there is nothing to carry forward.

The court referenced CIT v. Manmohan Das (deceased), which indicated that the Income-tax Officer for the subsequent year determines the carry-forward and set-off, but the loss must be computed in the initial year. The court also considered decisions from various High Courts (Allahabad, Calcutta, Madras, Andhra Pradesh, and Jammu & Kashmir) that allowed deductions in subsequent years even if not claimed in the initial year. However, the court emphasized that section 80J(1) and (3) should be read together, requiring the initial computation of deficiency.

Answer to Question 2: The court answered in the negative, in favor of the Revenue, stating that the assessee is not entitled to compute the relief for 1968-69 in the assessment proceedings of 1973-74 and carry it forward to 1974-75.

Conclusion:
The court concluded that section 80J necessitates the computation of deficiency in the year it arises, and without such computation, the deficiency cannot be carried forward. Both questions were answered in favor of the Revenue and against the assessee, with each party bearing its own costs.

---