Tribunal rejects assessee's claim to adjust unabsorbed depreciation against income

The Tribunal was correct in rejecting the assessee's claim to adjust unabsorbed depreciation against the income of the assessment years 1969-70 and 1970-71. The court held that unabsorbed depreciation must be adjusted in the next previous year and cannot be indefinitely carried forward for set off against income in later years. The judgment favored the revenue, with no costs awarded in the case.

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Issues:
Whether the Tribunal was right in rejecting the assessee's claim for adjustment of unabsorbed depreciation against the income of the assessment years 1969-70 and 1970-71Rs.

Analysis:

The case involved a reference under section 256(1) of the Income Tax Act, 1961, regarding the adjustment of unabsorbed depreciation of earlier years against the income of the assessment years 1969-70 and 1970-71. The assessee, a company, had a closed cotton mill in earlier years with unabsorbed depreciation. The assessee earned income from various sources during the relevant accounting years, including rent and sale of assets, but claimed certain losses from the business which were disallowed by the Income Tax Officer (ITO) due to no business activity in the accounting years.

The assessee contended that under section 32(2) read with section 72 of the Act, unabsorbed depreciation of earlier years should be set off against the income of the assessment years. The assessee relied on a case law where unabsorbed depreciation was allowed to be set off against income from a different source. However, the Tribunal found that the unabsorbed depreciation was not adjusted in any earlier year, and the assessee did not challenge this fact.

Section 32(2) of the Act provides for the treatment of excess depreciation in the accounting year, stating that unless unabsorbed depreciation is adjusted in the next previous accounting year, it cannot be considered for the computation of total income in subsequent years. The court held that the provisions of the Act clearly show that unabsorbed depreciation must be adjusted in the next previous year and cannot be carried forward indefinitely for set off against income in later years.

In conclusion, the court was not persuaded by the assessee's argument and answered the question in the affirmative, in favor of the revenue. The judgment was delivered unanimously by both judges, and no costs were awarded in the case.

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