Commissioner of Income Tax vs Andhra Cotton Mills Ltd.

T.N.C. Rangarajan, J.—The facts leading to this reference are as follows :

The assessee is a company. For the asst. yr. 1979-80, corresponding to the previous year ended 31st March, 1979, the assessee filed a return on 16th March, 1980, showing a loss of Rs. 1,32,40,102. Later, a revised return was filed on 31st Aug., 1981, showing a loss of Rs. 1,29,77,453. The ITO, in the assessment order, computed the current profits at Rs. 4,32,364 and the current depreciation at Rs. 9,64,029 leading to a net loss of Rs. 5,31,665. The contention of the assessee was that since there was carried forward loss, if depreciation is not allowed as a deduction, then the carried forward loss could be set off against the current profit and the current depreciation could be carried forward without limitation, unlike business loss, for which there is a period of limitation for set-off. That was the reason why the assessee had filed a revised return withdrawing the claim for deduction of depreciation. The ITO rejected that claim following the decision of this Court in Additional Commissioner of Income Tax Vs. Andhra Printers Ltd., . On appeal, the CIT(A) accepted the claim of the assessee and directed the ITO to withdraw the depreciation allowance given in the computation of income. On the Revenue''s appeal, the Tribunal affirmed the order of the CIT(A) following the decision of the Punjab & Haryana High Court in Beco Engineering Co. Ltd. Vs. Commissioner of Income Tax, and distinguishing the decision of this Court in Andhra Printers'' case (supra). At the instance of the Revenue, the following question has been referred :

"Whether, on the facts and in the circumstances of the case, the Tribunal is justified in upholding the orders of the CIT(A) directing withdrawal of the deduction by way of depreciation allowed by the ITO ?"

A 2. Learned counsel for the Revenue argued that the provisions of the statute require that true income should be ascertained and such income in respect of a business cannot be properly ascertained without deducting the depreciation, which is the first charge on the profits, as held by the Supreme Court in Commissioner of Income Tax, Kanpur Vs. Mother India Refrigeration Industries P Ltd., . It was pointed out that the decision of the Punjab & Haryana High Court in Beco Engg. Co. Ltd.''s case (supra) and of the Bombay High Court in Commissioner of Income Tax Vs. Shri Someshwar Sahakari Sakhar Karkhana Ltd., had held that depreciation allowance need not be given if particulars are not furnished as required by s. 34 of the IT Act and, therefore, the assessee had an option not to claim depreciation. It is argued that this view was not shared by the Madras High Court in Dasaprakash Bottling Co. Vs. Commissioner of Income Tax, where it was held that the ITO had a duty to allow depreciation when the particulars were available. None appeared for the respondent although notice was duly served.

According to learned counsel for the Revenue, even the statutory provisions relating to assessment require that the particulars of depreciation had to be given and the deduction of depreciation allowance was necessary in making the assessment. We have gone through the decision cited by learned counsel for the Revenue and also the provisions of the IT Act. We find that under s. 139(5), a revised return could be filed if there is an omission or a wrong statement. No doubt, in the case of a company under the Companies Act, Sch. VI, Part II, the P&L account need not contain a provision for depreciation. But that fact has to be mentioned. In the present case, the assessee had prepared a P&L account providing for depreciation and, therefore, did not opt for at the option in the normal course of its business. In the original return, the P&L account containing the provision for depreciation has been filed. In the circumstances, it cannot be said that there was any wrong statement in the original return which could enable the assessee to file a revised return under s. 139(5). Since that valid revised return itself was not a valid return for being processed by the ITO, the claim of the assessee that the particulars of depreciation are not given and, therefore, the deduction should not be allowed is untenable. Moreover, under s. 143(1)(b)(iv), even while making an assessment accepting the return of the assessee, the ITO has to allow the proper deduction under s. 32. Under s. 143(3), an assessment made under s. 143(1) is deemed to be incomplete or inadequate if proper depreciation is not allowed. These provisions also indicate, along with s. 28 which requires that the income from a business has to be computed in accordance with the provisions of ss. 29 - 44, and r/w s. 145, that depreciation is a proper deduction in arriving at the correct income from business. No doubt, s. 34 provides that the deduction shall be allowed only if the prescribed particulars are furnished. This only ensures that correct information is available to the ITO for allowing the proper deduction. But this cannot be construed to mean that where the assessee deliberately withholds the information, no deduction for depreciation could be given in computing the income. In the present case, the motivation for the assessee to withdraw the claim for deduction of depreciation is only to get a set-off of the business loss of the earlier year. But the current depreciation is a first charge on the profit as held by the Supreme Court in Mother India Refrigeration Industries (P) Ltd.''s case (supra) and that charge cannot be ignored by withholding the particulars so as to avail of the setting off the earlier year''s loss which lapses by the prescribed period of limitation. In our considered opinion, therefore, the assessee cannot withdraw the claim for depreciation allowance when particulars are available in accordance with s. 34 only for the purpose of setting off of the loss of the earlier years. Since the particulars were available as furnished along with the original return, the ITO is bound to allow the deduction of depreciation in computing the income from business. The assessment made by the ITO, in this case, is, therefore, correct and in accordance with law. The question referred to us is, therefore, answered in the negative, in favour of the Revenue and against the assessee.