INCOME TAX ACT, 1961

Section 78(2)

Loss - Carry forward and set-off - Unabsorbed depreciation - Assessee's proprietary concern succeeded by the legal heirs of the deceased and carried on by them by converting the same into partnership firm

Assessee-firm was engaged in the transportation business. It had filed return of income after claiming setoff of unabsorbed depreciation pertaining to earlier assessment years. Assessee contended that he was carrying on the business under the name and style of 'N', a proprietor but after demise of 'N', his legal heirs continued the same business as a partnership firm. Further, it contended that as per section 78(2) the unabsorbed depreciation and business loss of proprietary concern was to be set-off against the income of the partnership firm. But, the AO disallowed claim for set-off of unabsorbed depreciation/business loss observing that unabsorbed depreciation could not be carried forward for set off by another person other than the person who has incurred depreciation on his fixed assets. Held: Since the proprietary concern was succeeded by the legal heirs of the deceased and was carried on by them by converting the same into partnership firm there was an inheritance of business and therefore, as per the provisions of section 78(2) assessee is entitled to set off business loss/unabsorbed depreciation of the proprietary concern against income of the successor partnership firm. Thus, assessee-firm had rightly claimed set-off of unabsorbed depreciation pertaining to earlier assessment years.

Followed:CIT v. Madhukant M. Mehta (2001) 247 ITR 805 (SC) : 2001 TaxPub(DT) 0043 (SC)

REFERRED : Saroj Aggarwal v. CIT (1985) 156 ITR 497 (SC) : 1985 TaxPub(DT) 1361 (SC), and CIT v. Bai Maniben (1960) 38 ITR 80 (Bom) : 1960 TaxPub(DT) 0052 (Bom-HC)

FAVOUR : In assessee's favour

A.Y. : 2012-13 to 2014-15

INCOME TAX ACT, 1961

Section 250(5)

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