JUDGMENT
1. The Tribunal, Allahabad, has referred the following questionslaw under Section 256(2) of the IT Act, 1961, hereinafter referred to as the Act, for opinion to this Court:
"1. Whether Tribunal was legally correct in holding that the ITO was justified in directing in the original order that the loss on account of depreciation be carried forward or set off in the subsequent years ?
2. Whether, on the face of specific provisions of law contained in Section 32(2) and Section 75 of the IT Act, 1961, the Tribunal was justified in upholding the order of CIT(A) ?
3. Whether the Tribunal was legally correct in holding that the issue, whether unabsorbed depreciation has to be allowed in the case of the firm or of the partners, is a debatable issue which cannot be made subject-matter of rectification under Section 154 ?"
2. The present reference relates to the asst. yr. 1980-81.
3. Briefly stated, the facts giving rise to the present reference are as follows:
The respondent-assessee is engaged in the business of bottling of aerated soft drink. For the assessment year in question the assessment was completed on 28th March, 1983, in the status of registered firm. The loss on account of depreciation and investment allowance was computed at Rs. 3,55,227 which was allowed to be carried forward for the next year. However, while passing the assessment order on 28th March, 1983, the ITO had not allocated the shares of the different partners in terms of Section 158 of the Act. Proceedings under Section 154 of the Act was initiated and vide order passed on 12th Feb., 1985, the ITO allocated shares of profit and loss amongst various partners. While doing so, he had also allocated the loss on account of unabsorbed depreciation and investment allowance at the hands of different partners. The net loss was recomputed at Rs. 1,54,611. Feeling aggrieved, the respondent preferred an appeal before the CIT(A) who had held that the AO was not justified in withdrawing depreciation in the order passed under Section 154 of the Act. Feeling aggrieved by the order of the CIT(A) the Revenue preferred an appeal before the Tribunal. The Tribunal has upheld the order passed by the CIT(A). It has further held that the AO was justified in directing, in the original assessment, that loss on account of depreciation can be carried forward for set off in the subsequent years. It was further of the view that the issue whether unabsorbed depreciation has to be allocated in the case of the respondent or of the partners, was a debatable issue, which could not be made a subject-matter of rectification under Section 154 of the Act.
4. We have heard Sri A.N. Mahajan, learned standing counsel appearing for the Revenue. Nobody has appeared on behalf of the respondent-assessee.
5. The learned standing counsel submitted that in view of the specific provisions of Section 158 of the Act, the assessing authority was enjoined to apportion the amount of loss between the several partners and in exercise of powers under Section 154 of the Act he had revised the net loss assessed in the hands of the respondent. He further submitted that there is no question of reducing the loss determined but the full effect of the provisions of Sections 32(2) and 75 of the Act was not given. He further submitted that while apportioning the loss at the hands of different partners, the amount of unabsorbed depreciation and investment allowance which was allowed to be carried forward at the hands of the firm was necessarily to be apportioned at the hands of the various partners and if in the assessment of the partners the loss which has resulted on account of unabsorbed depreciation and investment allowance is not set off and remaining unabsorbed, the loss would revert back at the hands of the firm for the subsequent assessment year and, therefore, the order of the CIT(A) which was affirmed by the Tribunal is erroneous.
6. Having heard learned Counsel for the parties, we find that under Section 158 of the Act, the ITO has been enjoined to notify the firm which has been assessed as a registered firm, the amount of its total income assessed and the apportioned amount between the several partners. While making the original assessment, he had not apportioned the loss of the firm between the several partners and, therefore, recourse to provisions of Section 154 of the Act was rightly taken. Under Section 32(2) read with Sections 72 and 75 of the Act we find that even unabsorbed depreciation has to be apportioned at the hands of the several partners which has to be set off against the income of the partners in that assessment year and the remaining amount of loss which has not been set off would revert back at the hands of the firm to be set off from the profit and loss of the next year. That is the view taken by the assessing authority, therefore, the order passed by the CIT(A) which has been upheld by the Tribunal is erroneous.
7. In view of the foregoing discussions, we answer all the questions referred to us in the negative, i.e., in favour of the Revenue and against the assessee. However, there shall be no order as to costs.