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Unit 4: Set-off and Carry Forward of Losses

view, the Income-tax Officer accepted the income returned by the assessee and completed Notes
the assessment.
The Tribunal, also relying on S. 80, concluded that no loss inclusive of depreciation could
be carried forward and set-off, unless it had been determined in pursuance of a return.
The Tribunal dismissed the appeal of the assessee. The following questions of law were
referred to the Court, at the instance of the assessee. “Whether, on the facts and in the
circumstances of the case, the Appellate Tribunal was right in holding that the assessee is
not entitled to set-off of the depreciation claimed to the extent of ` 13,016, ` 18,012, ` 2,304
and ` 19,487 in the A.Ys. 1960-61, 1961-62, 1662-63 and 1964-65, respectively, inasmuch as
the amount was not determined for the respective assessment years ?” and that “Whether,
on the facts and in the circumstances of the case, the Tribunal’s decision that the assessee is
not entitled to, in view of S. 80 of the Income-tax Act, 1961, the depreciation and allowance
in 1965-66 of depreciation relating to the earlier years even though they were not quantifi ed
and notified for carry forward in those assessment years, is correct ?”

The Court noted that u/s.32(2) read with S. 34 of the Act, the depreciation or part of the
depreciation in a previous year to which effect has not been given, shall be added to the
amount of depreciation for the following previous year and deemed to be part of that
allowance, or if there was no such allowance for that previous year, it should be deemed
to be the allowance for that previous year and so on for the succeeding previous years.
The Court further observed that such finding that the depreciation was not absorbed was

possible only in the assessment where full effect could not be given to the depreciation as

claimed in any previous year owing to there being no profits or gains chargeable for that
previous year or, owing to the profits or gains chargeable being less than the allowance.

That in the absence of any specific and clear findings in the assessment order regarding the

claim for depreciation, its allowance either in full or in part, as the case may be, and the
carry forward of the unabsorbed depreciation in accordance with S. 32(2) of the Act, it was
not possible for the assessee to claim set-off of unabsorbed depreciation.
The Court further observed that Section D of the return of income applicable to companies
required adjustments to be made in the income on account of items shown in Section A and
Section B of Part I of the return including on account of depreciation or capital expenditure

on scientific research carried forward from earlier assessment years as per S. 32(2), S. 35(4)
read with S. 72(2) and S. 73(3) of the Act. These adjustments were required to be indicated
in the relevant part of the return and that in spite of the details having been so indicated,
the depreciation or the carry forward of unabsorbed depreciation was disallowed, then it
was for the assessee to further agitate its entitlement to the same and, if it was not so done,
then the assessee could not turn around in a later assessment year and claim the benefi t of
set-off of unabsorbed depreciation, which, according to the Court was not in accordance
with S. 32(2) read with S. 34 of the Act.
Source: http://www.bcasonline.org/articles/artin.asp?581

Self Assessment

Fill in the blanks:
1. When income from a particular head and a loss from another head or same head is adjusted,
it is called ……………
2. Where the losses are not fully adjusted against the income of the same tax year and are
transferred to the next tax year, it is known as …………….
3. A loss in ……………business can be set-off only against the profits of any other speculation

business and not against any other business or professional income.

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