2019 (5) TMI 1726 - AT - Income Tax

Set off of unabsorbed depreciation beyond the period of 8 years - HELD THAT - We find that the issue in now well settled in favour of the assessee and against the revenue by the decision of the Hon ble High Court of Delhi in the case of Motor General Finance Ltd 2017 (5) TMI 637 - DELHI HIGH COURT while allowing the claim of unabsorbed depreciation held that in view of the amended provisions of section 32(2) w.e.f. 1.4.2002 the assessee s claim for set off of unabsorbed depreciation beyond the period of 8 years has to be allowed. Reopening of assessment u/s 147 - HELD THAT - Facts on record show that completed assessment was reopened after four years to deny claim of set off of unabsorbed depreciation while drawing support from the amendment by the Finance (No. 2) Act 1996 by which the carry forward was allowed upto a maximum period of 8 years from the year in which the unabsorbed depreciation was first computed. On identical set of facts the Hon ble High Court of Delhi in the case of Motors General Finance Ltd supra has decided this issue in favour of the assessee and against the revenue.

Summary

Issues:
1. Allowability of set off of unabsorbed depreciation beyond the statutory period.
2. Validity of reopening assessment based on unabsorbed depreciation claim.

Issue 1: Allowability of set off of unabsorbed depreciation beyond the statutory period:
The appeal by the Revenue challenged the deletion of the addition of &8377; 6,78,59,423/- on account of unabsorbed depreciation claimed for A.Y 1997-98. The Assessing Officer disallowed the claim, citing the limitation of carrying forward unabsorbed depreciation to a maximum of 8 years. The CIT(A) allowed the claim based on various judicial decisions, including the Hon'ble High Court of Delhi in the case of Motor & General Finance Ltd, which held that the set off of unabsorbed depreciation beyond 8 years is permissible under the amended provisions of section 32(2) w.e.f. 1.4.2002. The ITAT upheld the CIT(A)'s decision, stating that the issue is settled in favor of the assessee by the judicial precedents.

Issue 2: Validity of reopening assessment based on unabsorbed depreciation claim:
The completed assessment was reopened after four years to deny the set off of unabsorbed depreciation beyond the statutory period. The Hon'ble High Court of Delhi in the case of Motors & General Finance Ltd decided in favor of the assessee, holding that the reassessment notice was invalid as there was no tangible material to justify reopening the assessment. The Court emphasized that the amendment to Section 32(2) removed the previous limitation on carrying forward depreciation beyond 8 years. The ITAT, following the Delhi High Court's decision, held the notice u/s 148 as bad in law and quashed the consequent assessment under section 147.

In conclusion, the ITAT dismissed the appeal by the Revenue, upholding the allowance of set off of unabsorbed depreciation beyond the statutory period and declaring the reopening of assessment based on this ground as invalid. The judgment relied on judicial precedents from the Hon'ble High Courts of Delhi and Gujarat to support the decisions made.