An assessee is entitled to claim relief under Section 80j (3) by way of carried forward deficiency for an earlier year in the relevant subsequent assessment years, even though such deficiency was neither claimed nor considered by the Income-tax Officer in the earlier assessment year.

DIPAK KUMAR SEN, J.

( 1 ) M. A. Paper and Card Board Factory Pvt. Ltd. , the assessee, was assessed to income-tax for the assessment years 1975-76 and 1976-77. In the assessments, the assessee claimed relief under Section 80j (3) of the Income-tax Act, 1961, contending that the relief available to the assessee under the said section could not be availed of in the assessment year 1974-75, inasmuch as there were no profits and gains of the assessee in the said assessment year and, therefore, the said deficiency should be carried forward and set off against the profits and gains of the assessee arising in the said two assessment years.

( 2 ) THE Income-tax Officer found that for the assessment year 1974-75 no claim had been made by the assessee for deduction under Section 80j neither in the return nor in any other record.

( 3 ) THE Income-tax Officer, therefore, rejected the claim of the assessee for set off of carried forward deficiency under Section 80j (3 ).

( 4 ) THE Appellate Assistant Commissioner also noted that in the assessment year 1974-75, the assessee had not made any claim for deduction under Section 80j and no order was passed in the said year allowing the deficiency under Section 80j to be carried forward. Accordingly, the Appellate Assistant Commissioner upheld the decision of the Income-tax Officer.

( 5 ) BEING aggrieved, the assessee preferred further appeal before the Income-tax Appellate Tribunal. It was contended on behalf of the asses-see before the Tribunal that the disallowance of the assessee's claim for relief under Section 80j pertaining to the earlier year 1974-75 was not justified even though no claim was raised in the earlier assessment year in the return or during the assessment proceedings. It was contended that Section 80j did not require the assessee to make a definite claim nor did the section require determination of the deduction allowable under the said section for the purpose of being carried forward. It was contended that even in a case where formality of making a claim and computation of the deduction had not been complied with, deduction of such deficiency was permissible in the subsequent years. In support of the contention of the assessee, a decision of the Allahabad High Court in Addl. CIT v. Sheetalaya [1979] 117 ITR 658 was cited.

( 6 ) IT was also contended on behalf of the assessee for the first time before the Tribunal following the decision of the Calcutta Hight Court in the case of Century Enka Ltd. v. 1to [1977] 107 ITR 909, that in determining the capital employed by the assessee for the purpose of computation of the relief under Section 80j moneys borrowed should also be taken into account.

( 7 ) CONTENTIONS to the contrary were made on behalf of the Revenue. It was submitted that the claim made in respect of the borrowed capital should not be entertained in view of the decision of the Supreme Court in Addl. CIT v. Gurjargravures Pvt. Ltd. [1978] 111 ITR 1.

( 8 ) THE Tribunal considered the decision of the Allahabad High Court in Sheetalaya [1979] 117 ITR 658 and noted that on identical facts, it was held in that case that the decision of the Supreme Court in Gurjargravures Pvt. Ltd, [1978] 111 ITR 1, had no application. The Tribunal found in favour of the assessee and held that the assessee was entitled to claim relief under Section 80j (3) by way of carried forward deficiency for the earlier year 1974-75 in the relevant subsequent assessment years. The Income-tax Officer was directed to compute the relief under Section 80j in accordance with law.

( 9 ) ON an application of the Revenue under Section 256 (1) of the Income-tax Act, 1961, the following questions have been referred by the Tribunal as questions of law arising out of its order for the opinion of this court:"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled in the assessment years 1975-76 and 1976-77 to the benefit of carry

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