Depreciarion in case of conversion of firm into Co.

Court :
In the ITAT Ahmedabad Bench ‘C’

Brief :
Section 37(1), read with section 170, of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1998-99 - Assessee-company was incorporated through conversion of a partnership firm - It claimed deduction of payment of sales commission which arose on execution of sales by predecessor firm - Whether assessee was eligible to claim said expenditure - Held, no - Whether since liability arose on execution of corresponding sales by predecessor-firm, same could be claimed in firm’s return only even if expenditure stood accounted for in company’s books - Held, yes Section 78, read with section 170, of the Income-tax Act, 1961 - Losses - Carry forward and set-off of in case of change in constitution of firm or on succession - Assessment year 1998-99 - Whether assessee-company, which was incorporated through conversion of a partnership firm, could be allowed to carry forward unabsorbed business loss of erstwhile firm - Held, no Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/Rate of - Assessment year 1998-99 - Whether where assessee-company was incorporated through conversion of a partnership firm, depreciation as allowable in terms of relevant provisions of Act, should be allowed in hands of both predecessor-firm and successor-assessee-company, purpose of assessment being determination of correct liability under Act and fair assessment in terms of extant law which would require allowance of depreciation at correct amount(s) in hands of both, including adjudication of correct amount of WDV in assessee’s hands - Held, yes - Whether, however, carry forward of depreciation under section 32(2) could only be in hands of partnership firm - Held, yes [Matter remitted back to Assessing Officer to decide question as to whether WDV in assessee’s hands could be made after excluding depreciation that stood held as not eligible for carry forward in terms of section 32(2)]

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