2014 (3) TMI 1080 - AT - Income Tax

Reopening of assessment - whether issue was subject matter of rectification u/s 154? - disallowance of the claim with respect to the carried forward of unabsorbed depreciation - Held that - On the issue of reopening, it is true that the Assessing Officer in his order u/s 154 dated 09.11.2009, was concerned with the processing of return u/s 143(1). The request of the assessee was, as extracted in order u/s 154 was as follows In reply to the above demand notice the assessee filed a petition u/s 154 stating that while filing the return electronically an error has crept in uploading E-return in as much carry forward loss to the tune of ₹ 4,27,99,748/- which is available has erroneously not mentioned in the schedules and accordingly the return was processed by not taking in to account of Brought forward of losses of previous years and requested to rectify the mistake. This demonstrates that the issue was not subject matter of rectification u/s 154. The order passed u/s 143(3) on 09.12.2009, the A.O. referred to this rectification u/s 154 at para 2.1 as observed as follows Since the claim of the assessee-company was in order as verified from the records an order u/s 154 of the Act was passed on 09.11.2009 wherein the income was determined at NIL after setting-off brought forward losses. It appears, that the Assessing Officer has not examined the legal aspect of this issue. As no express opinion has been stated on this issue and we hold that the Assessing Officer has not formed an opinion in the original order passed u/s 143(3). When the Assessing Officer has not formed an opinion during the course of original assessment proceedings, reopening cannot be said to be a change of opinion. the Hon ble Gujarat High Court has considered an identical issue in the case of General Motors India Pvt. Ltd. v. DCIT (2012 (8) TMI 714 - GUJARAT HIGH COURT) and adjudicated the matter in assessee favour stating any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001, thus once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. And when a decision of a High Court on the point of law is available, then that interpretation has to be followed in preference to a decision of the Tribunal, even if it is a Special Bench decision of the Tribunal. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act.
2. Disallowance of the claim for carried forward unabsorbed depreciation for assessment years 1997-98 and 1998-99.

Issue-Wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147 of the Income Tax Act:

The appellant challenged the reopening of the assessment, arguing that it was based on a change of opinion and lacked new tangible material. The original return was processed under Section 143(1), and a rectification application under Section 154 was filed by the appellant due to an error in uploading the return, which was subsequently rectified by the Assessing Officer (AO). The AO later issued a notice under Section 148 to reopen the assessment, which the appellant contended was invalid as it was based on the same records without any new material.

The Tribunal agreed with the appellant, citing the Supreme Court's decision in CIT vs. Kelvinator of India Ltd., which held that reopening based on a change of opinion is invalid. The Tribunal emphasized that the AO did not form a new opinion with fresh tangible material, and thus, the reopening was not justified. Consequently, the Tribunal upheld the appellant's contention and allowed the ground, declaring the reopening invalid.

2. Disallowance of the Claim for Carried Forward Unabsorbed Depreciation for Assessment Years 1997-98 and 1998-99:

The AO disallowed the set-off of unabsorbed depreciation for the assessment years 1997-98 and 1998-99, citing the legislative provision in Section 32(2) of the Income Tax Act, as amended by the Finance Act, 1996, which limited the carry forward to a maximum of 8 years. The appellant argued that the Finance Act, 2001, amended Section 32(2) to allow unlimited carry forward and set-off of unabsorbed depreciation, supported by the Gujarat High Court's decision in General Motors India Pvt. Ltd. v. DCIT.

The Tribunal examined the legal framework and the relevant judgments, including the Gujarat High Court's decision, which clarified that the amendment by the Finance Act, 2001, allowed unabsorbed depreciation from assessment years 1997-98 to 2001-02 to be carried forward indefinitely. The Tribunal noted that the Hyderabad 'A' Bench's decision in M/s. Dharti Dredging & Infrastructure Ltd. was not applicable as it did not address the specific issue of unabsorbed depreciation between 1997-98 and 2005-2006.

Following the principle that a High Court decision should prevail over a Tribunal decision, the Tribunal relied on the Gujarat High Court's ruling, allowing the appellant's claim for set-off of unabsorbed depreciation for the assessment years 1997-98 and 1998-99. The Tribunal concluded that the unabsorbed depreciation from these years could be carried forward and set off against profits of subsequent years without any time limit.

Conclusion:

The Tribunal allowed the appeal, declaring the reopening of the assessment invalid and permitting the set-off of unabsorbed depreciation for the assessment years 1997-98 and 1998-99, in line with the Gujarat High Court's decision. The judgment emphasized adherence to legal precedents and the importance of tangible material for reopening assessments.