Section 41(2) balancing charge limited where depreciation was deemed allowed only in the later assessment year.

Depreciation was treated as having been allowed only in the assessment year where the assessment order expressly stated that the estimated taxi income was fixed after depreciation. On that basis, the balancing charge on sale of the taxis under section 41(2) was confined to the depreciation deemed to have been allowed for that later year alone. The earlier assessment year, which did not show that the estimate was made after allowing depreciation, did not enlarge the statutory withdrawal. The addition was therefore limited accordingly.

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Issues: Whether depreciation could be deemed to have been allowed only for the assessment year in which the assessment order specifically treated estimated taxi income as after depreciation, so that the balancing charge under section 41(2) would be confined to that year alone.

Analysis: The assessee sold two cars used as taxis and the only dispute was the extent of profit assessable under section 41(2) of the Income-tax Act, 1961. The earlier assessment order for 1973-74 did not indicate that the estimated income had been arrived at after allowing depreciation, whereas the assessment order for 1974-75 specifically stated that the flat-rate estimate was after depreciation. On that footing, depreciation could be treated as having been allowed only for the later year, and the statutory withdrawal on sale had to be restricted to the depreciation deemed to have been allowed for that year.

Conclusion: The addition under section 41(2) was directed to be limited to the depreciation deemed to have been allowed for assessment year 1974-75 only, and the assessee succeeded to that extent.

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