2008 (2) TMI 354 - HC - Income Tax

Writ Petition filed seeking to quash the orders passed by the respondents u/s 154 and 264 as they deny the petitioner s right to set-off unabsorbed depreciation power of IT Officer to amend the assessment in consequence of decision in an appeal, revision, reference or by HC or the SC was not traceable to s. 154 but was inherent and traceable to s. 143 & 144 so limitation contained in s. 154(7) would not apply to passing of such an order petition allowed

Issues Involved:

1. Validity of orders dated 22.2.2007 and 7.9.2007 under Sections 154 and 264 of the Income Tax Act.
2. Petitioner's right to set-off unabsorbed depreciation.
3. Limitation period for rectification under Section 154.
4. Interpretation of Section 32(2) of the Income Tax Act regarding unabsorbed depreciation.

Issue-wise Detailed Analysis:

1. Validity of Orders Dated 22.2.2007 and 7.9.2007 under Sections 154 and 264 of the Income Tax Act:

The petitioner sought to quash the orders denying the set-off of unabsorbed depreciation. The facts reveal that the petitioner had claimed set-off for brought forward losses and unabsorbed depreciation from the merged Devangere Cotton Mills Limited. The assessment orders for the years 1992-93, 1993-94, and 1994-95 were challenged, leading to various appeals and rectification orders. The petitioner argued that the orders dated 22.2.2007 and 7.9.2007 were erroneous as they misinterpreted the provisions of the Act.

2. Petitioner's Right to Set-off Unabsorbed Depreciation:

The petitioner contended that unabsorbed depreciation from previous years should be set off against the income for the assessment year 1994-95. The petitioner relied on Section 32(2) of the Act as it stood for the relevant assessment year, which allowed unabsorbed depreciation to be set off against income under any head. The respondents initially accepted this but later issued notices under Section 154 to rectify the orders, claiming that the set-off was wrongly allowed.

3. Limitation Period for Rectification under Section 154:

The respondents argued that the rectification order dated 9.6.2006 was beyond the statutory period of limitation under Section 154(7). The petitioner countered that the order was not a rectification under Section 154 but a consequence of the appellate order, thus not subject to the limitation period. The court agreed with the petitioner, referencing the judgment in Caltex Oil Refining (India) Ltd. v. CIT, which held that orders giving effect to appellate decisions are part of the assessment under Section 143 or 144 and not limited by Section 154(7).

4. Interpretation of Section 32(2) of the Income Tax Act Regarding Unabsorbed Depreciation:

The court examined whether unabsorbed depreciation could be set off against income from other heads for the assessment year 1994-95. The respondents misinterpreted Section 32(2), claiming that the provision allowing such set-off applied only from the assessment year 1997-98 onwards. The court clarified that for the assessment year 1994-95, unabsorbed depreciation could indeed be set off against income under any head, as per the unamended Section 32(2).

Conclusion:

The court found that the orders dated 22.2.2007 and 7.9.2007 were erroneous. The rectification order dated 9.6.2006 was valid and not barred by limitation. The petitioner was entitled to set off unabsorbed depreciation against income for the assessment year 1994-95, except for the unabsorbed investment allowance of Rs.31,58,423. The petition was allowed in these terms.

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