Carry forward of business loss and subsidy treatment for depreciation turned on non-retrospective instructions and actual cost computation.

Late filing of a return did not, on the stated facts, bar carry forward of business loss because the CBDT clarification and the instruction relied on by the Assessing Officer were operative only from a later assessment year and could not be applied retrospectively. The assessee was therefore entitled to the loss carry forward. Cash subsidy received from the Government was also not treated as a direct reduction of the actual cost of fixed assets; it was not deductible from asset cost for depreciation or investment allowance. The departmental appeal failed in full and the order in favour of the assessee was left undisturbed.

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Issues: (i) Whether the assessee was entitled to carry forward business loss despite filing the return beyond the time prescribed under section 139(1) of the Income-tax Act, 1961. (ii) Whether cash subsidy received from the Government was liable to be reduced from the actual cost of fixed assets for the purposes of depreciation and investment allowance.

Issue (i): Whether the assessee was entitled to carry forward business loss despite filing the return beyond the time prescribed under section 139(1) of the Income-tax Act, 1961.

Analysis: The return was filed late, but the controversy was governed by the existing judicial view and by the CBDT clarification that the instructions relied upon by the Assessing Officer were operative only from the later assessment year. The late filing, therefore, did not justify denial of the carry forward benefit on the facts of the case.

Conclusion: The assessee was entitled to carry forward the loss; the disallowance was not upheld.

Issue (ii): Whether cash subsidy received from the Government was liable to be reduced from the actual cost of fixed assets for the purposes of depreciation and investment allowance.

Analysis: The subsidy received by the assessee was not treated as a direct reduction of the actual cost of the assets. The reasoning accepted below, based on the applicable precedent, did not permit deduction of the subsidy from the cost for computing depreciation and investment allowance.

Conclusion: The subsidy was not required to be reduced from the actual cost of the fixed assets for computing depreciation and investment allowance.

Final Conclusion: No interference was called for with the order in favour of the assessee, and the departmental appeal failed in entirety.

Ratio Decidendi: A statutory or administrative instruction restricting carry forward of loss cannot be applied retrospectively to an earlier assessment year, and a cash subsidy not directly linked to acquisition cost does not reduce the actual cost of fixed assets for depreciation computation.

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