CIT V. Govind Nagar Sugar Ltd. (ITA No. 164 of 2008) (Del)
Facts: – Taxpayer filed its return of income for the assessment year 2001-02 on 31 March 2003 declaring a loss. The due date of filing the return of loss in terms of provisions of section 139(3) of the Income Tax Act,1 961 (the Act) was 31 October 2001. In the assessment order, the Assessing Officer (the AO) did not allow the carry forward of unabsorbed loss including the unabsorbed depreciation. The Commissioner (Appeals) confirmed the AO’s order and held that the taxpayer was not allowed to carry forward the losses by virtue of section 80 of the Act. On appeal, the Income Tax Appellate Tribunal (the Tribunal) allowed the carry forward of unabsorbed depreciation for the assessment years 2000-0 1 and 2001-02. Aggrieved by the order of the Tribunal, the tax authorities filed an appeal before the High Court.
Issues before the High Court :- Whether it is necessary to file the return of income within the time limit specified under the Act for the purpose of carrying forward the unabsorbed depreciation? Whether the provisions of section 80 would apply to carry forward of unabsorbed depreciation which is governed by provisions of section 32(2) of the Act?
Observations and Ruling of the High Court
- Section 80 deals with carry forward of the following losses-
─ Business losses (Section 72)
─ Losses in speculation business (Section 73)
─ Losses under the head capital gains (Section 74)
- Section 80 does not cover or deal with setting off of unabsorbed depreciation and investment allowance
- Section 80 and 139(3) of the Act apply to business losses and not to unabsorbed depreciation which is exclusively governed by the provisions of section 32(2) of the Act.
- The provisions of the law and the decision of the Supreme Court (SC) in the case of Garden Silk Weaving Factory V. CIT (189 ITR 512) were incorrectly interpreted by the tax authorities. In fact the SC had held that though ‘depreciation’ is component element of the genus described as ‘loss’, there is nothing anomalous or absurd in the statute providing for a dissection of the amount of loss for the purpose of carrying forward and providing for a special or different treatment to unabsorbed depreciation.
- Hence, relying on the decisions of various courts (See Note 1 for list of such cases) which directly supported the above proposition of law, it was held that the period of limitation as provided in section 80 will not be applicable to the carry forward of unabsorbed depreciation.
Conclusion :- The above decision stipulates that the taxpayer is eligible to carry forward unabsorbed depreciation even if the return of loss is not filed within the time limit stipulated under section 139(1) of the Act. In relation to the captioned issue, a reference may also be made to the SC’s decision in the case of Shri Subhulaxmi Mills Ltd (249 ITR 795). The SC in the context of section 79 held that section 79 deals with ‘loss’ and hence does not include unabsorbed depreciation.
Shri Hari Mills Ltd. V. First ITO 65 ITR 348 (Mad); Sathappa Textiles Pvt. Ltd. V. Second ITO 71 ITR 260 (Mad); Brahmaver Chemicals Pvt. Ltd. V. Second ITO 239 ITR 807 (Kar); CIT V. Haryana Hotels Ltd. 276 ITR 521 ( P&H); and CBDT Instruction No. F.No. 13/8/69-IT(A-III) dated 24 June 1969.