SUDHINDRA MOHAN GUHA, J.

( 1 ) THIS reference, at the instance of the Commissioner of Income-tax, West Bengal-IV, Calcutta, under Section 256 (1) of the I. T. Act, 1961, relates to the assessment year 1968-69, for which the relevant previous year ended on 30th June, 1967.

( 2 ) THE assessee is a manufacturer of sugar. As per its profit and loss account for the year under reference, there was a loss of Rs. 73,535. The ITO, after disallowing the depreciation claimed and some other expenses. determined it at a profit of Rs. 3,15,064. Out of this, he deducted profit on sale of fixed assets of Rs. 3,207 resulting in a net profit of Rs. 3,11,857. The depreciation claimed in this year, as per rules, worked out to Rs. 3,18,430. This was set off by the ITO against the profit of Rs. 3,11,857 as worked out above resulting in a net loss of Rs. 6,573 (Rs. 3,18,430 minus Rs. 3,11,857 ). Ultimately, he carried forward this amount as unearned depreciation to be set off against the income of future years. The assessee was also carrying forward unabsorbed business loss of Rs. 75,720 from the assessment year 1965-66.

( 3 ) THE assessee filed an appeal to the AAC and among others claimed that the c

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