1. These appeals by the assessee arise out of the two separate orders dated 13-2-1991 and 7-3-1991 passed by the CIT(A)-I, Indore, pertaining to the assessment years 1972-73, 1973-74 and 1974-75.
2. The assessee has common grievance in these appeals that the CIT(A) erred in confirming the order of the Assessing Officer not allowing proper set off of carried forward losses of past years.
3. The assessee has been represented by Shri M. Mehta, C.A. and the Revenue was represented by Shri Brajesh Gupta, Sr. D.R. Both have been heard at length.
4. Briefly stated, the facts are that the assessee claimed before the Assessing Officer that after adjusting current year's depreciation and carry forward business losses the inter se priority between different kinds of allowances as admissible under the Act should be allowed in the following order : 5. The assessee's claim was not acceptable to the Assessing Officer. He allowed set off of loss/allowances in the following priority on the basis of decision in the case of Monogram Mills Co. Ltd. v. CIT [1982] 135 ITR 122 (Guj.) :- 6. It was contended before the CIT(A) that the Assessing Officer erred in not giving proper set off of carried forward loss of the assessment years 1967-68 to 1971-72. It was submitted that loss having shortest period of set off should be given priority over the losses having longer or unlimited period of set off. It was thus, argued that the set off of deduction under section 80J should get priority over all other losses. The submissions of the assessee did not find favour with the CIT(A). He approved the action of the Assessing Officer and observed that deductions under Chapter VI-A are allowable only if there is positive income available for current assessment year. The income of the current assessment year can be determined only after the brought forward losses are set off as per provisions of section 72. He was, therefore, of the view that without setting off the losses of the earlier years, the deduction under section 80J cannot be allowed. He, therefore, declined to interfere with the order of the Assessing Officer. Dissatisfied, the assessee is in appeal before us.
7. Shri Mehta, the ld. counsel for the assessee submitted that deduction under section 80J is allowed for five assessment years, i.e., initial assessment year and each of the four assessment year immediately succeeding the initial assessment year. He pointed out that sub-section (3) read with proviso (i) of section 80J provide for set off and carry forward of unabsorbed deductions under section 80J.According to him, the assessee-company started production in the account year relevant to the assessment year 1967-68 and, therefore, leaving the initial assessment year 1967-68, the set off and carry forward of unabsorbed deduction under section 80J could be allowed up to further seven years, i.e., up to assessment year 1974-75 in accordance with sub-section (3), read with proviso (i) of section 80J.Referring to the provisions of sub-section (2)(ii) of section 33, Shri Mehta pointed out that the assessee is entitled to set off and carry forward of unabsorbed development rebate for eight further years starting from each assessment year separately. By way of illustration, he submitted that for the assessment year 1971-72 set off and carry forward of unabsorbed deduction under section 80J will be allowed to the assessee up to the assessment year 1974-75 i.e., the first assessment year 1967-68 in which the production started + seven subsequent assessment years, whereas carry forward and set off of unabsorbed development rebate in the case of the assessee will be allowed up to the assessment year 1979-80, i.e., the assessment year 1971-72 + eight further assessment years. Shri Mehta further submitted that the case of the assessee is distinguishable on facts from the case of Monogram Mills Co. Ltd. (supra) decided by the Gujarat High Court.
He argued that losses which get time barred earlier should be given priority for set off over those losses which have longer period for set off. According to him, the unabsorbed deduction under section 80J which has shorter life for set off should be given first priority. In this connection, he placed reliance on the decision of the Indore Bench of the Tribunal rendered on 30-4-1985 in the case of Indore Bright Bars v.ITO [1985] 13 ITC 371. In the decision (supra), the Tribunal held that the deduction under section 80J should first be allowed because the deduction under section 80J can be carried forward only for seven years, development rebate can be carried forward for eight years and depreciation can be carried forward indefinitely. Shri Mehta further argued that the beneficial provisions should be construed liberally. In this connection, he placed reliance on the decision of the Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188.
8. Assailing the contentions of Shri Mehta, the Id. D.R. Shri Brajesh Gupta, strongly supported the view taken by the Revenue authorities.
Inviting our attention to sub-section (1) of section 80A, he submitted that in computing the total income of an assessee, deductions specified in sections 80C to 80U are allowed from his gross total income.
However, sub-section (2) of section 80A limits the aggregate of the deductions under the aforesaid sections, i.e., the deductions allowable under sections 80C to 80U cannot exceed the gross total income of the assessee. In other words, the deductions cannot result in loss. Shri Gupta further submitted that section 80AB provides that where any deduction is required to be made or allowed under any section (except section 80M) included in Chapter VI-A under the heading 'C - deductions in respect of certain incomes' in respect of any income of the nature specified in that section, which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under Chapter VI-A) shall alone be deemed to be the amount of income of that nature, which is derived or received by the assessee and which is included in his gross total income. Shri Gupta further argued that gross total income has been defined in sub-section (5) of section 80B, according to which, 'gross total' income means the total income computed in accordance with the provisions of this Act, before making any deductions under this Chapter VI-A. He pointed out that though section 80AB was inserted by the Finance (No. 2) Act, 1980 w.e.f. 1-4-1981 but it has been held to be retrospective in nature in view of the decision of the Supreme Court in the case of H.H. Sir Rama Varma v. CIT [1994] 205 ITR 433. At page 440 of the said report, their Lordships held that section 80AB was enacted to declare the law as it always stood in relation to the deductions to be made in respect of the income specified under the head 'C' of Chapter VI-A. Shri Gupta argued that if section 80J is read with section 80AB, it would be seen that the gross total income of the Assessee has to be worked out after deducting unabsorbed depreciation and unabsorbed development rebate and the income eligible for deduction under section 80J will be the net income as computed in accordance with the provisions of the Act. In support of his contentions, he placed reliance on the following decisions :- (ii) CIT v. North Arcot District Co-operative Spg. Mills Ltd. [1985] 151 ITR 238 (Mad.).
9. We have considered the rival submissions and perused the decisions cited by the parties as also the material placed before us. In our opinion, the assessee will not succeed. In the case of Patiala Flour Mills Co. (P.) Ltd. (supra) their Lordships observed at page 647 of the report as under :- "The proper construction of sub-section (1) of section 80J must, therefore, be taken to be that the profits or gains of the new industrial undertaking must be computed in accordance with the provisions of the Act in the same manner as they would be in determining the total income chargeable to tax and it must follow a fortiori that if the losses, depreciation allowance and development rebate in respect of the new industrial undertaking for the past assessment years have been fully set off against the profit of the assessee from other businesses or for the matter of that, against the income of the assessee under any other head by reason of section 70 and 71 read with sub-section (2) of section 32 and sub-section (2) of section 32A, no part of such losses, depreciation allowance or development rebate would be liable to be adjusted over again in computing the profits or gains of the new industrial undertaking for applying the provision contained in sub-section (1) of section 80J. The same mode of computation must prevail also in applying the provision contained in sub-section (3) of section 80J, because that sub-section provides for setting off the carried forward amount of deficiency of the past assessment years against 'the profits and gains referred to in sub-section (1) of section 80J, as computed after allowing, inter alia, the deduction admissible under that sub-section and, therefore, if, for the purpose of sub-section (1) of section 80J, the profits or gains of the new industrial undertaking are to be computed in accordance with the provisions of the Act and no part of the losses, depreciation allowance or development rebate for the past assessment years which has been fully set off against the profit from other businesses or income under any other head is liable to be adjusted over again in computing the profits or gains of the new industrial undertaking, no such adjustment would equally be permissible in applying the provision contained in sub-section (3) of section 80J." In that case, there was profit of Rs. 1,51,011 which was derived from the cold storage business in the assessment year 1970-71. The said profit was not liable to be reduced by adjustment of any part of the losses, depreciation allowance or development rebate for the past assessment years. In the above back-drop their Lordships held that the High Court as well as the Tribunal were right in adjusting a sum of Rs. 83,391 being the relevant amount of capital employed during the assessment year 1970-71 as also amounts of deficiencies for the assessment years 1967-68 and 1968-69 against the profit of Rs. 1,51,011 derived by the assessee from the cold storage business. From the above, it is abundantly clear that the deduction under section 80J as also the carried forward deficiencies of earlier years can be allowed only after unabsorbed losses, unabsorbed depreciation allowance or unabsorbed development rebate of earlier years have been adjusted against the profit derived from an industrial undertaking to which the provisions of section 80J applies. We further find that identical issue had arisen before their Lordships of Madras High Court in the case of North Arcot District Co-operative Spg. Mills Ltd. (supra). In that case also, the claim of the assessee was that deduction under section 80J should be given first before allowing deduction for carried forward losses or carried forward development rebate or carried forward depreciation.
When the matter came up before the Tribunal, the Tribunal held that the carried forward loss and the unabsorbed development rebate of earlier years have to be taken note of before granting relief under section 80J. The Tribunal was, however, of the view that the carried forward unabsorbed depreciation will be taken note of only after granting the relief under section 80J. The assessee did not question the decision of the Tribunal whereas it related to the unabsorbed development rebate and the carried forward business loss. The Revenue, however, challenged the decision of the Tribunal that the unabsorbed depreciation will be set off lastly after working out the relief under section 80J. On reference, their Lordships held, thus : "No distinction can be made between the current year's depreciation and carried forward unabsorbed depreciation of the earlier years in view of the specific provisions of section 32(2) of the Income-tax Act, 1961. Giving effect to section 32(2) which deems unabsorbed depreciation of the earlier year as part of the current year's depreciation, the deduction under section 32(1) must related to both the current year's depreciation as well as the depreciation of the earlier years. The deduction towards unabsorbed depreciation of the earlier years should be granted and only after that the relief under section 80J can be allowed." Similar view has been expressed by Bombay High Court in the case of Asian Cables Corpn. (P.) Ltd. v. CIT [1981] 132 ITR 34/6 Taxman 244. In Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, the Supreme Court held that before deduction is made under section 80E as it stood prior to the amendment by the Finance (No. 2) Act, 1987, income from business in view of section 29 has to be computed in accordance with sections 30 to 43A, which would include section 32(2) providing for carry forward of depreciation, section 33(2) providing for carry forward of development rebate and section 41(2) providing for the balancing charge. Therefore, the relief under section 80E can be considered only after giving effect to the provisions of sections 32(2), 33(2) and 41(2). The principles of law enunciated by the Supreme Court in this case are also applicable to the case in hand.
10. For the reasons aforesaid, we hold that there is no infirmity in the order of the CIT(A), which we hereby sustain.