2018 (2) TMI 267 - AT - Income Tax

Reopening of assessment - granting set off of unabsorbed depreciation brought forward from the AY 1997-98 in the present assessment year - Held that - Unabsorbed depreciation of the AY 1995-96 and 1996-97 would become deprecation of the AY 2002-03 after amendment, because 8 years have not expired upto the AY 2002-03. This amount will become deprecation of AY 2002-03, and thereafter it would be carried forward for subsequent years and will be set off against profit and gains of subsequent years without any limitation of alleged 8 years. We have extracted the finding of the AO where the ld.AO has applied this limitation of 8 years from the AY 1997-98 and held that it will expire in AY 2004-05. AO has committed an error by taking the limit in this manner. He has to compute 8 years upto the AY 02-03, and thereafter it would become current unabsorbed depreciation in the AY 2002-03 which will be available for set off in subsequent year without any restriction of limitation of years. Thus, the issue is squarely covered in favour of the assessee. We do not find any error in the order of the ld.CIT(A) as far as second fold of contention is concerned. We find that notice under section 148 was issued on 13.2.2012 i.e. after expiry of 4 years from the end of the assessment year. There was a scrutiny assessment under section 143(3) of the Act. Proviso appended to section 147 puts a restriction on the powers of AO to reopen the assessment by issuance of notice under section 148 in the cases where 4 years have expired and scrutiny assessment under section 143(3) was made. The income of the assessee has escaped from the assessment on account of failure of the assessee to disclose all material facts fully and truly, no notice under section 148 could be issued. All these facts were also in the knowledge of the AO when he passed the assessment under section 143(3). There is no failure at the end of the assessee. - Decided against revenue

Summary

Issues Involved:
1. Quashing of reopening of assessment.
2. Granting of set-off of unabsorbed depreciation brought forward from the Assessment Year 1997-98 in the present assessment year.

Issue-Wise Detailed Analysis:

1. Quashing of Reopening of Assessment:

The Revenue appealed against the order of the CIT(A) which quashed the reopening of the assessment for the Assessment Year (AY) 2006-07. The notice under section 148 was issued on 13.02.2012, after the expiry of four years from the end of the assessment year. The original assessment was completed under section 143(3). According to the proviso to section 147, reopening of assessment after four years is restricted unless the income has escaped assessment due to the failure of the assessee to disclose all material facts fully and truly. In this case, all relevant facts were already in the knowledge of the Assessing Officer (AO) during the original assessment. Therefore, the CIT(A) held that the reopening was invalid. The Tribunal upheld this decision, noting that there was no failure on the part of the assessee to disclose material facts, thus making the reopening of the assessment bad in law.

2. Granting Set-off of Unabsorbed Depreciation:

The second issue involved the set-off of unabsorbed depreciation from AY 1997-98 in AY 2006-07. The AO reopened the assessment on the basis that the unabsorbed depreciation could only be carried forward for eight years, as per the amendment by the Finance Act, 2001. This would mean that the unabsorbed depreciation from AY 1997-98 could only be carried forward up to AY 2005-06. However, the assessee argued, and the CIT(A) agreed, that this issue was resolved by the jurisdictional High Court in the case of General Motors India Ltd. (354 ITR 244). The High Court had held that any unabsorbed depreciation available as of 01.04.2002 (AY 2002-03) would be governed by the amended section 32(2) and could be carried forward indefinitely.

The Tribunal noted that the AO's interpretation was contrary to the High Court's decision. The High Court had clarified that unabsorbed depreciation from earlier years up to AY 2001-02 would become part of the depreciation for AY 2002-03 and could be carried forward without any time limit. The Tribunal concluded that the AO erred in limiting the carry forward to eight years from AY 1997-98. Thus, the Tribunal upheld the CIT(A)'s decision allowing the set-off of unabsorbed depreciation in AY 2006-07.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order on both counts: the reopening of the assessment was quashed as it was done beyond the permissible period without any failure on the part of the assessee to disclose material facts, and the set-off of unabsorbed depreciation from AY 1997-98 was allowed in AY 2006-07 based on the jurisdictional High Court's interpretation of section 32(2). The appeal of the Revenue was dismissed in its entirety.