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2014 (5) TMI 440 - HC - Income TaxValidity of notice u/s 148 of the Act Claim of set off of brought forward unabsorbed depreciation allowance against income from long term capital gains Held that - Following GENERAL MOTORS INDIA PVT. LTD Versus DEPUTY COMMISSIONER OF INCOME-TAX 2012 (8) TMI 714 - GUJARAT HIGH COURT - while providing for a mechanism for supplying the reasons recorded for reopening the assessment has further provided that the assessee would be entitled to file objections to issuance of notice and the AO would be bound to dispose of the same by passing a speaking order - the AO was required to dispose of the objections of the assessee before finalizing the assessment. The very basis for the AO to upheld a belief that income chargeable to tax had escaped assessment lacks validity - On this ground itself, the notice is set aside - The reference to the order of Supreme Court would be of no avail to the revenue since in such order all that was provided was that the question of law was kept open This does not mean that the decision of the Court was reversed or that the decision by a cognate Bench would not continue to bind Decided in favor of Assessee.
Issues Involved:
1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961. 2. Compliance with the directives of the Supreme Court in GKN Driveshafts (India) Limited v. Income Tax Officer. 3. Independent application of mind by the Assessing Officer versus reliance on the audit party's opinion. 4. Legality of setting off brought forward unabsorbed depreciation beyond eight years. Issue-wise Detailed Analysis: 1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961: The petitioner challenged the notice dated 26th March 2013 issued by the respondent-Assessing Officer under Section 148 of the Income-tax Act, 1961. The notice aimed to reopen the assessment for the Assessment Year 2008-09 on the grounds that there was an excess setoff of unabsorbed depreciation amounting to Rs. 349.47 lakhs, which resulted in underassessment. The court found that the reasons recorded by the Assessing Officer lacked validity. The court referred to a similar issue in General Motors India Private Limited, where it was held that unabsorbed depreciation could be carried forward and set off beyond eight years without any time limit. Consequently, the court quashed the notice for reopening on the basis that the Assessing Officer's belief that income chargeable to tax had escaped assessment was not valid. 2. Compliance with the directives of the Supreme Court in GKN Driveshafts (India) Limited v. Income Tax Officer: The petitioner argued that the Assessing Officer breached the directives of the Supreme Court in GKN Driveshafts (India) Limited, which requires the Assessing Officer to dispose of the objections raised by the assessee before finalizing the assessment. In this case, the Assessing Officer passed the reassessment order on 22nd January 2014 and disposed of the objections by an order dated 17th January 2014, but the copy was served on the petitioner only on 23rd January 2014. The court noted that this action denied the assessee an opportunity to study the grounds of rejection and take further measures. However, the petitioner chose not to press this ground further and focused on the challenge to the reopening itself. 3. Independent application of mind by the Assessing Officer versus reliance on the audit party's opinion: The petitioner contended that the notice for reopening was issued at the instance of the audit party and that the Assessing Officer did not independently apply his mind. The court did not find it necessary to delve into this issue, as the primary ground for quashing the notice was the invalidity of the reasons recorded by the Assessing Officer. 4. Legality of setting off brought forward unabsorbed depreciation beyond eight years: The court referred to its decision in General Motors India Private Limited, where it was held that unabsorbed depreciation could be carried forward and set off beyond eight years without any time limit. The court emphasized that the amendment to Section 32(2) of the Act by the Finance Act, 2001, allowed for such carry forward and set off. The court also cited the CBDT Circular No. 14 of 2001, which clarified that the restriction of eight years for carry forward and set off of unabsorbed depreciation had been dispensed with. Based on this, the court concluded that the Assessing Officer's belief that the setoff claimed was irregular lacked validity. Conclusion: The court quashed the impugned notice dated 26th March 2013 and all consequential actions, allowing the petition. The decision was primarily based on the invalidity of the reasons recorded by the Assessing Officer for reopening the assessment. The court also highlighted the importance of complying with the directives of the Supreme Court in GKN Driveshafts (India) Limited and the legality of setting off brought forward unabsorbed depreciation beyond eight years.
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