2016 (7) TMI 1232 - HC - Income Tax

Validity of reopening of the assessment - Held that - Hearing of the appeals has been adjourned to several dates, only on the request of the appellant, despite clear indication by the Tribunal that no further adjournments would be granted. Having regard to the above, this court is not inclined to accept the contention that the appellant, has been denied an opportunity and thus there was violation of principles of natural justice, in passing an ex-parte order. Going through the orders impugned, we are also, of the view that, the reopening of assessment, has been done in accordance with the provisions Depreciation on Wind Mills already adjusted against the profits of Printing Business artificially carried forward for the impugned assessment year for the purpose of denial of relief u/s 80IA - Held that - As decided in Velayudhaswamy Spinning Mills (P.) Ltd. v. Assistant Commissioner of Income-tax reported 2010 (3) TMI 860 - Madras High Court Tribunal has not erred in holding that there was no rectification possible under Section 80-I in the present case, albeit, for reasons somewhat different from those which prevailed with the Tribunal. There being no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, recomputation of income for the purpose of computing permissible deduction under section 80-I for the new industrial undertaking was not required in the present case. - Decided in favour of assessee

Issues Involved:

1. Reopening of assessment.
2. Violation of principles of natural justice.
3. Interpretation of Sections 80AB, 80IA, 80IA(5), and 80IA(7) of the Income Tax Act, 1961.
4. Denial of relief under Section 80IA.

Detailed Analysis:

1. Reopening of Assessment:

The appellant challenged the reopening of assessments for the years 1997-98 to 2000-2001, arguing that the assessments had become final and that the reassessment was based on an audit party's opinion, which is not permissible under the law. The court referred to the Supreme Court's decision in CIT v. P.V.S. Beedies Pvt. Ltd. (237 ITR 13) and the Delhi High Court's decision in Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT (246 ITR 173), which allowed reopening of assessments based on factual errors pointed out by the Internal Audit Party. The court upheld the reopening of assessments, stating that it was done in accordance with the provisions of the law.

2. Violation of Principles of Natural Justice:

The appellant contended that the Income Tax Appellate Tribunal (ITAT) violated the principles of natural justice by passing an ex-parte order without providing a fair hearing. The court noted that the appellant had repeatedly sought adjournments, and the Tribunal had clearly indicated that no further adjournments would be granted. Given the appellant's history of adjournments and the Tribunal's clear warning, the court rejected the appellant's contention, stating that there was no violation of natural justice.

3. Interpretation of Sections 80AB, 80IA, 80IA(5), and 80IA(7) of the Income Tax Act, 1961:

The appellant argued that the ITAT incorrectly interpreted these sections in denying relief under Section 80IA. The court referred to its earlier decision in Velayudhaswamy Spinning Mills (P.) Ltd. v. Assistant Commissioner of Income-tax (21 taxmann.com 95), which held that losses of earlier years that were already set off against other income could not be brought forward notionally to deny relief under Section 80IA. The court reiterated that once losses were set off in earlier years, they could not be reworked or brought forward notionally for the purpose of denying relief under Section 80IA.

4. Denial of Relief Under Section 80IA:

The appellant claimed that the ITAT wrongly denied relief under Section 80IA by carrying forward depreciation on windmills, which had already been adjusted against the profits of the printing business in earlier years. The court, following its decision in Velayudhaswamy Spinning Mills, held that the Revenue could not bring forward and set off losses that were already absorbed in earlier years. The court concluded that the ITAT's interpretation was incorrect and allowed the appellant's claim for relief under Section 80IA.

Conclusion:

The court answered the first substantial question of law against the appellant, upholding the reopening of assessments. However, it answered the second and third substantial questions of law in favor of the appellant, allowing the tax appeals and granting relief under Section 80IA. The court emphasized that losses or deductions already set off in earlier years should not be reopened for computing current income under Section 80IA. The appeals were allowed with no order as to costs.

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