2014 (4) TMI 1189 - HC - Income Tax

Reopening of assessment - Carry forward of unabsorbed depreciation beyond a period of eight years - Held that - Carry forward of unabsorbed depreciation can be set off beyond the period of eight subsequent years without any set time limit. Reopening of assessment as could be noticed from the reasons recorded particularly emphasized that the unabsorbed depreciation had been carried forward by the petitioner beyond a period of eight years resulting into the income escaping the assessment and therefore AO at the time of issuance of the notice of reopening in absence of any judicial pronouncement on the subject may have assumed jurisdiction when the issue is now well settled by way of judicial decisions as discussed hereinabove allowing continuation of such proceedings would not sub serve any purpose and therefore by way of this writ jurisdiction interference as requested for needs to be made quashing and notice of reassesssment and all subsequent proceedings. The petition is allowed quashing the impugned notice and the proceedings if any undertaken by the respondents - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of reassessment proceedings initiated under section 148 of the Income Tax Act, 1961.
2. Validity of carrying forward unabsorbed depreciation beyond eight years as per the amended Section 32(2) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legality of Reassessment Proceedings:

The petitioner-assessee challenged the reassessment proceedings initiated by a notice under section 148 of the Income Tax Act, 1961. The petitioner, engaged in manufacturing corrugated boxes, had filed a return for the assessment year 2007-08 declaring a total loss of Rs. 2.02 crores. This loss was set off against the business loss of the assessment year 1999-2000, and the remaining unabsorbed depreciation was carried forward for set-off in subsequent years. The Assessing Officer (AO) scrutinized the return under section 143(3) but later issued a notice dated 21st March 2012 for reassessment. The AO's reason for reopening centered on the unabsorbed depreciation loss of Rs. 35,47,23,077 from assessment years 1997-98 and 1998-99, which, according to the AO, should be set off within eight succeeding assessment years, as per the amended Section 32(2)(iii)(b) of the Act.

The petitioner objected to the reassessment proceedings, citing various judicial pronouncements and urging the AO to drop the notice. However, the AO disposed of the objections, stating that they were incorrect in both facts and law, and proceeded with the reassessment.

2. Validity of Carrying Forward Unabsorbed Depreciation Beyond Eight Years:

The core issue was whether the unabsorbed depreciation from assessment years 1997-98 and 1998-99 could be carried forward beyond eight years. The petitioner relied on the Gujarat High Court's decision in General Motors India Pvt. Ltd. v. Deputy Commissioner of Income-tax, which clarified that any unabsorbed depreciation available on 1st April 2002 (A.Y. 2002-03) would be governed by the provisions of Section 32(2) as amended by the Finance Act, 2001. This amendment allowed the unabsorbed depreciation to be carried forward indefinitely, without the eight-year limitation.

The Revenue contended that the impugned notice was issued before the General Motors judgment and that the applicability of this judgment could be examined during reassessment. They also argued that the case involved business loss carried forward from 1996-97, which, under Section 72(3), could not be carried forward beyond eight years.

The court examined the relevant judicial pronouncements, particularly the General Motors case, which held that the amended Section 32(2) allowed unabsorbed depreciation from A.Y. 1997-98 to be carried forward indefinitely. The court noted that the AO's basis for reopening the assessment was the incorrect application of the eight-year limitation, which was no longer applicable post-amendment.

Judgment:

The court concluded that the judicial pronouncement on the subject was clear, allowing the carry forward of unabsorbed depreciation beyond eight years without any time limit. The reopening of the assessment based on the incorrect application of the eight-year limitation was unjustified. Consequently, the court quashed the impugned notice and the reassessment proceedings.

Result:

The petition was allowed, and the impugned notice and subsequent proceedings were quashed. The rule was made absolute with no order as to costs.