Judgment:
1. This appeal is directed against the order passed by the CIT(A) raising for the consideration of the Tribunal three separate issues which are being disposed of as under: 2. The assessee in this case carries on the business of manufacturing ice. It filed a return declaring net income of Rs. 27,500 but came to be assessed at a figure of Rs. 1,06,340 in the status of U.R.F.3. The ITO rejected the claim for set off in respect of carried forward loss of Rs. 51,151 on the ground that no such loss was available as assessment for assessment year 1985-86 had been completed at Rs. ML It was pointed out to him on behalf of the assessee that claims on account of carried forward unabsorbed depreciation and investment allowance were available being absolutely legal and these could not be rejected.
The however disagreed with the assessee and opined that "all the claims" had been considered in determining the figure of Rs. Ml. On further appeal the CIT(A) confirmed the view of the ITO.4. We have heard both the parties, the learned counsel reiterating the arguments advanced before the CIT(A) and the ITO and the learned D.R.in support of the orders of the tax authorities. In our opinion the action of the tax authorities is not justified either on facts or in accordance with the provisions of law. Taking note of the order of assessment for assessment year 1984-85 we find that return had been filed showing a loss of Rs. 98,370 and assessment was completed at Rs. Ml with the further direction that the "remaining loss" determined in assessment year 1983-84 shall be carried forward "as per law". In assessment year 1985-86 the assessee filed a return showing a loss of Rs. 51,150 which comprised of the net income of Rs. 37,224 for the year in question but adjusted against "brought forward unabsorbed depreciation and investment allowance" to the tune of Rs. 88,375. The ITO "after discussion" took the "income" at Rs. Ml and the tax demand was also Rs. ML 5. On the basis of the aforesaid facts it becomes quite apparent that in assessment year 1985-86 the carried forward loss from assessment year 1984-85 was adjusted to the extent of the income of Rs. 37,224 otherwise the assessment would have been completed at a positive figure, viz., Rs. 37,224 and not Rs. Ml as has been done by the ITO.Then again it has not been challenged before us on the part of the revenue that the figure of Rs. 51,150 claimed as a set off in assessment year 1986-87 pertains to the assessment years prior to assessment year 1985-86 and being primarily on account of unabsorbed depreciation and investment allowance. If such is the situation we fail to understand as to how the aforesaid legal claims could be neutralised by the ITO "after discussion" with the assessee. It is a well accepted legal proposition that valid claims of an assessee cannot be nullified by the ITO who is obliged to consider these and allow them on merits even to an assessee who is ignorant of the law or his rights under the said law.
6. We now envisage another situation where the present assessee is assumed not to have filed any return for assessment year 1985-86 but was assessed at loss figures in assessment years 1983-84 and 1984-85 as is the accepted position before us. Even in such a situation necessary adjustment would be available to the assessee in assessment year 1986-87 vis-a-vis the unabsorbed depreciation and investment allowance up to assessment year 1984-85 subject to the other conditions stipulated by law being fulfilled.
7. In the final analysis we accept the assessee's claim in respect of unabsorbed depreciation and investment allowance brought forward from the earlier years to be set off against the business income of the current year subject to necessary figures being verified by the ITO and provided all other conditions stipulated by laws are satisfied.
8 to 11. [These paras are not reproduced here as they involve minor issues.)