COMMISSIONER OF INCOME TAX Vs. AMERICAN EXPORT LINES

JUDGEMENT

(1.) In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment years 1974-75 and 1975-76, the following question of law has been referred to this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the orders of the Commissioner of Income-tax (Appeals) cancelling the orders passed by the Income-tax Officer under Section 154 of the Income-tax Act, 1961 ?"

(2.) Shortly stated, the facts are that the assessee incurred losses in the assessment years 1968-69, 1970-71, 1971-72 and 1972-73. The losses were carried forward and set off against profits of the assessment years 1969-70 and 1973-74 onwards. In setting off such losses, the Income-tax Officer, who made the original assessments for the assessment years 1974-75 and 1975-76, did not make any distinction between unabsorbed depreciation and business loss and allowed a total loss of Rs. 8,63,760 for the assessment year 1968-69, Rs. 1,72,066 for the assessment year 1970-71, Rs. 14,97,375 for the assessment year 1971-72, and Rs. 42,16,245 for the assessment year 1972-73. In the assessment year 1973-74, there was a profit of Rs. 4,12,440. The Income-tax Officer adjusted the loss of the assessment year 1968-69 to the extent of Rs. 4,12,440 without making any distinction between unabsorbed depreciation and business loss. Similarly, In the assessment year 1974-75, there was a profit of Rs. 8,62,012. This was partly adjusted against the remaining loss for the assessment year 1968-69 and the loss for the assessment year 1970-71, and the balance profit was adjusted against the loss for the assessment year 1971-72. In the assessment year 1975-76, there was a profit of Rs. 18,84,870 and the Income-tax Officer adjusted the remaining loss for the assessment years 1971-72 and 1972-73 against this profit. Subsequently, in view of the amendment of the Income-tax Act, 1961, by introducing Section 44B with effect from April 1, 1976, by which the net profit of seven and a half per cent. had to be estimated on the gross receipts from freight and ignoring the existing sections for computation of such income, the Income-tax Officer was of the opinion that there was a mistake in the assessment orders for the assessment years 1974-75 and 1975-76. The Income-tax Officer, therefore, invoked the provisions of Section 154 of the Act for both the years under appeal and withdrew the benefit of set off already made in the assessment years 1974-75 and 1975-76 to the extent of unabsorbed depreciation.

(3.) Being aggrieved, the assessee filed an appeal to the Commissioner of Income-tax (Appeals). It was pointed out by the assessee that, in the original assessments for the assessment years 1968-69 and 1970-71, no distinction was made between business loss and unabsorbed depreciation. The assessee further contended before the Commissioner of Income-tax (Appeals) that, if at all there was a mistake, such mistake was committed in the assessment orders for the assessment years 1968-69 and 1970-71, and unless these assessment orders were rectified, the Income-tax Officer was not justified in rectifying the assessment orders for the assessment years 1974-75 and 1975-76. The Commissioner of Income-tax (Appeals) accepted this argument of the assessee and cancelled the orders passed by the Income-tax Officer under Section 154 of the Income-tax Act.