The Judgment of the Court was delivered by

V.V Kamat, J.:— In this proceeding relating to the assessment year 1983-84, the previous year ending on June 30, 1982, the factual matrix is undisputed. During the assessment year, the assessee who was engaged in the business of growing tea for manufacture and sale had actually sold part of the tea garden along with the whole of the factory. The question that was urged by the assessee was whether the assessee could be understood to be entitled to set off the loss carried forward from earlier years against the income of the current year. In a similar character, the question also related to unabsorbed depreciation of the earlier years also for set off against the income of the current previous year. The questions are with regard to the above two aspects to the following effect as questions Nos. 1 and 2:

“(1) Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the loss carried forward from earlier years in the business of ‘growing and manufacturing of tea in India’ cannot be set off against the income of the relevant previous year, as manufacturing activity was not carried on in the current previous year; particularly in the light of judicial decision and the fact that manufacturing activity was restated after an interval of six years?

(2) Whether, in the facts and circumstances of the case, the Tribunal was right in holding that unabsorbed depreciation of the earlier years cannot be set off against the income of the current previous year, on the ground that there is no depreciation during the current previous year on assets on which the unabsorbed depreciation was allowed, or on any other ground?”

2. The proceeding presents yet a third feature in the matter of deleting the addition to the income on account of debts borrowed. In regard to this position, the assessee contended for a reference of the question framed by him as question No. 3 in the following manner:

“(3) Whether, in the facts and circumstances of the case, the Tribunal was right in not deleting the addition to the income on account of debts borrowed, when the initial onus of proving the genuineness of such debts was discharged by the assessee?”

3. However, with regard to the particulars of the amounts of debts borrowed they were examined by the Tribunal and with regard to the addition amounting to Rs. 2,28,000, not only was the addition sustained, but the Tribunal thought that no referable question of law would arise therefrom. Proceeding further, however, in relation to the credits appearing in the names of Shri M.E Mathew, Cherian and P.A Joseph, instead of question No. 3 applied for by the assessee, the following question as question No. 3 has been referred by the Tribunal:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the addition under section 68 of the Income-tax Act in respect of the credits appearing in the names of Shri M.E Mathew, Shri Cherian and Shri P.A Joseph?”

4. Therefore, learned counsel for the assessee urged that in fact the question should have been framed as was sought to be urged by him as reproduced hereinbefore. We have been taken through the contents of the three orders. We find that all the three authorities have consistently held that the genuineness of such debts was not discharged by the assessee and have consistently rejected the contention that the amounts on account of debts, on probabilities, could have been borrowed by the assessee holding consequently that there was justification in the approach in regard thereto. Therefore, the question as proposed by the assessee on the assumption that the onus of proving the genuineness was discharged by the assessee is obviously on a wrong presumption. The submission of learned counsel for the assessee, therefore, cannot be accepted as regards any consequence in regard thereto.

5. We will, therefore, consider the questions expecting our answers on a reference by the Tribunal.

6. As far as question No. 1 is concerned, the Income-tax Officer has recorded a positive finding that the assessee, during the previous year, did not engage in any manufacturing or processing, nor was there any trading activity. It is further observed that no tea was manufactured during the previous year. This reasoning of the Income-tax Officer is supported by details in regard thereto. The Income-tax Officer has, therefore, on a plain reading of the statutory provisions of section 72(1)(i) of the Income-tax Act, 1961, held that since there is no business activity carried on by the assessee during the year, the losses of earlier years cannot be set off as laid down in section 72(1)(i) of the Act.

7. The first appellate authority also proceeded to endorse the said situation to the effect that the business of manufacturing of tea was not in existence during the year and the tea factory itself had been sold, there is no provision for setting off or bringing forward depreciation against the income of another business. The Tribunal in the course of the travel of the proceedings (in paragraph 3.5—page 16) has examined the statutory provisions of section 72 of the Act and in regard thereto has observed that one of the conditions laid down in section 72 which provides for the setoff or the carrying forward of loss of earlier years against the income of the subsequent years is that the business in which the loss was sustained should continue to be carried on by the assessee in the year in which the carried forward loss is to be set off. The Tribunal further observed that during the year under consideration the assessee had not carried on the business of manufacture of tea, not only that, the assessee had even sold his tea factory during the year in question. It appears that before the Tribunal it was contended that the assessee had temporarily suspended the operation of the manufacture of tea which would not mean that there was total cessation of the manufacturing activity. The Tribunal has observed that the fact remains that the business of manufacture of tea had not been carried on by the assessee in the year under consideration and even if there was only a temporary suspension, the result still would be that the business had not been carried on in the year under consideration.

8. With regard to question No. 2 relating to unabsorbed depreciation of the earlier years sought to be set off against the income of the current pre Vious year, the situation is not different. The Income-tax Officer emphasised the undisturbed factual position that no tea was manufactured during the previous year and, therefore, the consequence would not be different in regard to the setting off of the unabsorbed depreciation of the earlier years.

9. The first appellate authority also considered the question in the same manner.

10. The Tribunal has taken up the question in paragraph 4.2 of its order at page 17 of the paper book. The Tribunal has emphasised the obvious requirement by observing that it is an established principle that depreciation allowance is admissible only in respect of such assets which are used for the purpose of being charged. In the context the provisions of section 32(2) of the Act are taken into consideration. However, the Tribunal has pointedly observed that in the factual matrix under consideration, the business of manufacture of tea had not been carried on in the year under consideration and, therefore, it could not be said that there was any user of the assets for the purpose of the business. It is on this factual basis, the Tribunal declined to consider the question of allowing any depreciation under the provisions of section 32(2) of the Act as was sought to be contended before the Tribunal.

11. With regard to these aspects what is important to be seen and considered is that there was no business activity of the assessee during the year under consideration. Only a feeble attempt has been made and that too at the level of the Tribunal to contend that the situation could be one of temporary suspension of the business. This was also answered by the Tribunal, also in regard to the contention that the assessee could still get tea manufactured by some other concerns, in the following way. The Tribunal has seen the statutory requirement that what is required to be considered is the situation of the assessment year under consideration, it being 1983-84 and in regard thereto, on factual basis, the question whether there could be a set off or there could be carrying forward in the context of the factual position. Obviously submissions were made before the Tribunal on speculative basis at least as far as the assessment year under consideration is concerned.

12. Even a bare perusal of the concerned statutory requirements (section 32 and section 72 of the Act) would show that the period of relevance is the assessment year in question. The provisions of section 32(2) of the Act speak of a situation where full effect cannot be given to any allowance in regard to the assessment year in question. If not anything else, it is abundantly clear from the reading of the statutory provision of section 32 that the situation is required to arise with regard to the assessment year in question, for the purpose of setting off or carrying forward whether in part or full depending on the situation. There is no ambiguity in regard to the requirement that with regard to the year in question with reference to the previous year in regard thereto the required depreciation or loss must lawfully arise and it is then and then alone there could be a possibility of a resort to the statutory provisions. Section 72 of the Act, dealing with the situation of carrying forward and set-off of the losses, virtually opens with the phrase “where for any assessment year” making it abundantly clear that an occasion to carry forward and set off of business losses would arise only when the concerned business losses arise during the assessment year in question. The Tribunal has referred to the decision of the Madras High Court in East Asiatic Company (India) P. Ltd. v. CIT, [1986] 161 ITR 135. However, in our judgment, the statutory provisions are abundantly clear making it unnecessary for us to travel to Madras especially when the factual position before us floats on the surface of the record that during the year in question (the assessment year and the previous year in regard thereto) there was no activity of any kind as far as the assessee is concerned.

13. Learned counsel brought to our notice the decision of the apex court, CIT v. Virmani Industries Pvt. Ltd., [1995] 216 ITR 607. On carefully going through the said decision, considering the statutory provisions of section 32(2) of the Income-tax Act, 1961; we find that the apex court has declared that it is not necessary that the same business should be carried on in the following previous year, nor is it necessary that the assets which earned depreciation in the preceding year should exist and continue to be used in the business in the following year, nor is it necessary that the assessee should carry on any business or profession in the following year. The facts before the apex court would show the situation that the assessee had carried on business in the accounting year relevant to the assessment year 1956-57 leaving thereafter a gap of about 8 years whereafter he started a new business in the accounting year relevant to the assessment year 1965-66. In the intervening years, he was in receipt of income from property only and in regard to them the unabsorbed depreciation relating to the assessment year 1956-57 were not claimed for set-off against the property income. The assessee made a claim only when he commenced another business of a different character in the accounting year relevant to the assessment year 1965-66 only and it was the claim and its consideration for the accounting year relevant to the assessment year 1965-66 that came up for consideration before the apex court. There cannot be any dispute or even discussion in regard to the observations of the apex court in view of the fact that the factual matrix before us, especially with reference to the assessment year 1983-84, leaves no room for any kind of travel subsequent thereto. What we find from the order of the Tribunal is only a speculative submission that it is a temporary suspension. We are afraid that we are not called upon to express anything as to whether the suspension was temporary or otherwise. As and when there is an occasion, if there is any to consider it, the answer to the eventuality might require consideration of the decision cited by learned counsel. In our judgment, the factual matrix accepted consistently and endorsed emphatically by all the three authorities does not require us to look around in any direction except the statutory language of the required provisions.

14. As far as the third aspect of the question is concerned, while answering the submission of learned counsel with regard to question No. 3 applied for by him for a reference as against question No. 3 referred by the Tribunal for our answer, we have already noted that the initial onus of proof of the genuineness of debts has not been accepted by any of the authorities below. We have already observed that the very presumptive basis of the format of the question gets shattered on a bare perusal of the factual findings recorded by the three authorities. It is, therefore, that the Tribunal has observed that in regard to the amount of Rs. 2,28,000 the assessee himself admitted before the Commissioner of Income-tax (Appeals) in his letter dated September 19, 1988, to the effect that the amount was lying idle in his house for a few months and as he wanted to deposit the amount, the ways have been found out. The contents of paragraph 6 of the order of the first appellate authority are eloquent in this regard.

15. However, with regard to the credits in the names of three persons— Sri M.E Mathew, Sri Cherian and Sri P.A Joseph—the question has been referred as reproduced above as to whether the Tribunal was justified in confirming the addition under section 68 of the Income-tax Act.

16. In our judgment, referring to the three orders, we find that the question is purely a question relating to the factual position.

17. The Income-tax Officer refers to the situation that the assessee was required to prove the credits in the names of 12 persons out of whom the names of Sri M.E Mathew and Cherian Noel, and not Sri P.A Joseph appear in the list. The Income-tax Officer has considered the factual material and has recorded a finding that the amount of credits referable to these two persons along with four others are treated as unexplained credits under section 68 of the Act.

18. The first appellate authority has endorsed the conclusion with regard to Sri Cherian and Sri Mathew. With regard to Cherian, the assessee produced a confirmation letter dated November 24, 1986. It is observed that no other evidence has been produced. It is further observed that during the relevant time Sri Cherian Noel was himself a director of the company and on probabilities he would have normally advanced the credit by cheque.

19. With regard to Sri M.E Mathew who has advanced Rs. 60,000 on September 22, 1981, January 6, 1982, and January 8, 1982, it is observed that there was no documentary material to prove the source of the fund to the tune of Rs. 60,000. The creditworthiness of the party is also not established.

20. With regard to the third person Sri P.A Joseph, the first appellate authority has considered the position of advancement of Rs. 15,800 on June 29, 1982, by cash which was repaid on February 28, 1983. It is found that the sources are not disclosed in the confirmation letter. In fact the observation is that the confirmatory letter does not prove anything.

21. Further travel of the proceedings before the Tribunal is an endorsement of the above factual findings. In paragraph 7 of the order, the Tribunal has considered about Sri M.E Mathew observing absence of documentary evidence proving advancement of Rs. 60,000.

22. As far as Sri Cherian is concerned, the situation also is discussed in paragraph 8 of the order. The Tribunal has quoted ad verbatim the reasoning of the first appellate authority and endorsing the same it is observed that Sri Cherian cannot be said to have advanced the credit of Rs. 10,000.

23. Similarly, in paragraph 9 of its order, the situation of Sri P.A Joseph relating to credit of Rs. 15,800 in cash on June 29, 1982, is taken up for consideration. The Tribunal finds that Sri P.A Joseph owns 2.96 acres of patta land in Idukki district and, therefore, could not be understood to have capacity of advancement of Rs. 15,800.

24. Therefore, we find that all the three authorities have factually considered the matter and the consideration spelt out hereinbefore creates a situation of finality in regard thereto.

25. Therefore, whatever may be the way in which question No. 3 is taken up for consideration, either as sought to be framed by the assessee or as sought to be referred by the Tribunal, the result would not be in any way different in the context of the factual matrix. For the above reasons, questions Nos. 1 and 2 are answered in the affirmative—against the assessee and in favour of the Revenue. As far as question No. 3 is concerned, we decline to answer it as relates to the position of facts.

26. A copy of this judgment under the seal of the court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.