2012 (9) TMI 989 - AT - Income Tax

Search Assessment u/s 153A - In the return of income filed by the assessee u/s 153A, the return of income was less than the income declared by the assessee in the original return filed us 139(1) of the Act. - Assessment to be made on the basis of ITR filed u/s 153A or u/s 139(1) - AO observed the excess claim of depreciation in the ITR filed u/s 153A - HELD THAT - if the A.O. started with the amount of income declared by the assessee u/s 139(1) then there is no excess depreciation claimed by the assessee in this amount of income declared by it in the return of income filed u/s 139(1) - A.O. has to start the computation of income in the assessment completed by him u/s 153A with the income declared by the assessee in the return filed by it u/s 153A and after this, he can make the adjustment on account of excess depreciation claimed by the assessee Decision in the case of M/S. AIRWIDE EXPRESS CARGO VERSUS. ITO, WARD 7 (1) , VICE VERSA 2011 (10) TMI 631 - ITAT AHMEDABAD , relied upon. Disallowance of bad debts u/s 36(1)(vii) - A.O. has discussed disallowance in respect of the claim of the assessee regarding bad debts u/s 36(1)(vii) but while computing the income on the assessment order, he has made one addition with regard to excess depreciation. - HELD THAT - Bad debt is allowable in the year of write off of bad debt and the assessee is not required to establish that the debt have actually become bad. Thus, no disallowance of bad debts is called for but this fact has to be ascertained by the A.O. as to whether any addition on this account was in fact made by the A.O. or not and if such addition was made then the same should be deleted. Decision in the case of TRF. LTD. VERSUS COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT , relied upon.

Summary

Issues involved:
- Assessment based on return filed under different sections
- Disallowance of excess depreciation claimed
- Denial of refund of taxes based on income disclosed in return

Analysis:

Issue 1: Assessment based on return filed under different sections
The appeals were filed against the orders of the Ld. CIT(A) confirming the assessment made by the Assessing Officer (AO) on the basis of the return filed under section 139 instead of the return filed under section 153A of the Income Tax Act, 1961. The Tribunal considered the argument that the assessment proceedings had not abated for the assessment years 2001-02 to 2004-05 as they were completed before the search date. The Tribunal held that for these years, the AO cannot disturb the income assessed in the original return unless based on material found during the search. However, for the abated years 2005-06 and 2006-07, the AO was directed to decide the depreciation allowable as per law based on the return filed under section 153A.

Issue 2: Disallowance of excess depreciation claimed
The dispute centered around the excess depreciation claimed by the assessee in the return filed under section 153A compared to the return filed under section 139(1). The Tribunal held that for the years where assessments had not abated, the AO could only make changes based on material found during the search. In the case of abated years, the assessment had to include both the original and reassessment based on search material. The Tribunal directed the AO to recompute the income for the years 2001-02 to 2004-05 by starting with the income declared in the return filed under section 153A and then adjusting for the excess depreciation claimed.

Issue 3: Denial of refund of taxes based on income disclosed in return
The Tribunal addressed the denial of the refund of taxes based on the income disclosed in the return filed under section 153A. It was argued that the AO should start the computation of income with the amount declared in the return filed under section 153A and then make adjustments for excess depreciation claimed. The Tribunal directed the AO to recompute the income for the abated years 2005-06 and 2006-07 based on the return filed under section 153A and determine the depreciation allowable as per law.

In conclusion, the Tribunal partly allowed the appeals for the years 2001-02 to 2004-05 and allowed the appeals for the years 2005-06 and 2006-07 for statistical purposes, directing the AO to reconsider the depreciation claimed based on the respective returns filed under section 153A.