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2012 (11) TMI 285 - AT - Income TaxReopening the assessment - disallowance on account of unabsorbed depreciation - Held that - There was no escapement of any income because unabsorbed depreciation allowance by operation of the provisions of section 32(2), as it stood prior to 1.4.1997, was deemed to be part of the allowance for the previous year relevant to A.Y. 1997-98 and for all intends and purposes the unabsorbed depreciation for A.Ys.1993-94 to 1996-97 was deemed to be the depreciation allowances for A.Y. 1997-98. Subsequently sub-section(2) of section 32 was substituted w.e.f.1.4.97, whereby the earlier years unabsorbed depreciation deemed to be the part of the depreciation of the following previous year was no longer continued and further that the unabsorbed depreciation was granted to be carried forward for the period of eight years, thus it can be said that AO had overlooked the fact that in the line of the operation of section 32(2) as it stood to prior to 1.4.1997, the unabsorbed depreciation of A.Ys.1993-94 to 1996-97 already formed part of the depreciation allowance for the previous year relevant to A.Y. 1997-98. Thus, it was concluded that the assumption of the jurisdiction by the AO u/s.147 was invalid - This although the reopening was made within four years from the end of the assessment year, but still that was nothing but simplistic change of opinion because in the first round the original assessment was made u/s.143(3) that too after duly considering the claim of depreciation as per the statement of income furnished by the assessee, hence on those very facts there did not exist any reason to believe for escapement of assessment - in favour of assessee. Claim of depreciation - Held that - As decided in Karnataka Co-operative Milk Producers Federation Ltd. Versus Deputy Commissioner of Income-tax (Asst.), Special Range-5, Bangalore 2006 (5) TMI 423 - ITAT BANGALORE that prior to the amendment introduced during 1996-97, it was permissible to carry forward the unabsorbed depreciation and from 1993-94 to 1996-97, the unabsorbed depreciation has been carried forward. The amendment introduced limiting the time for carrying forward for a period of eight years has to be reckoned not from 1993-94 but from 1996-97 and the same was carried forward and by the year 2006-07 since again there is an amendment introduced during 2002 making this period of eight years as unlimited, from 2002 onwards even till 2006-07, it is permissible to carry forward the unabsorbed depreciation in view of the change in position of law - thus assessee is eligible for the claim of depreciation as per law for the year under consideration - in favour of assessee. Non deduction of TDS - Held that - The provisions of section 40(a)(ia) were wrongly invoked under the facts and circumstances of the case where it was proved that the payment was merely reimbursement of the petty expenses - in favour of assessee. Exclusion of excise duty in closing stock valuation - Held that - As decided in CIT Versus PARRY CONFECTIONARY LTD 2007 (6) TMI 161 - MADRAS HIGH COURT the excise duty being not depicted to Profit & Loss account, therefore not assessable in the hands of the assessee - in favour of assessee.
Issues Involved:
1. Validity of reopening the assessment under Section 148. 2. Justification for issuing notice under Section 147. 3. Disallowance of unabsorbed depreciation for A.Y. 1997-98. 4. Applicability of amendments made by Finance Act 2001 regarding unabsorbed depreciation. 5. Deletion of addition made under Section 40(a)(ia) for non-deduction of TDS. 6. Exclusion of excise duty in closing stock valuation. Issue-Wise Detailed Analysis: 1. Validity of Reopening the Assessment under Section 148: The assessee challenged the reopening of the assessment, arguing that the Assessing Officer (A.O.) had already considered all relevant facts during the original assessment under Section 143(3). The Tribunal observed that the A.O. had indeed examined the claim of depreciation in the original assessment, and there was no new material to justify reopening. The Tribunal referenced the case of Devesh Metcast Ltd., where it was held that reopening based on an erroneous interpretation of Section 32(2) was invalid. The Tribunal concluded that the reopening was merely a change of opinion and thus invalid. Ground Nos. 1 & 2 were allowed. 2. Justification for Issuing Notice under Section 147: The Tribunal noted that the original assessment was made under Section 143(3) after due consideration of the claim of depreciation. It was emphasized that reopening an assessment within four years requires "reason to believe" that income has escaped assessment, which was not evident in this case. The Tribunal cited precedents, including Kaira District Cooperative Milk Producers' Union Ltd. and Jindal Photo Films Ltd., to support the view that reopening without new material constitutes a change of opinion. The reopening was held invalid, and Ground Nos. 1 & 2 were allowed. 3. Disallowance of Unabsorbed Depreciation for A.Y. 1997-98: The Tribunal examined the amendments to Section 32(2) and the relevant CBDT Circular No. 762. It was noted that unabsorbed depreciation from A.Y. 1996-97 could be carried forward and deemed part of the allowance for A.Y. 1997-98, with an eight-year limitation starting from A.Y. 1997-98. Further amendments by the Finance Act, 2001, effective from A.Y. 2002-03, allowed for the carry forward of unabsorbed depreciation without the eight-year limitation. The Tribunal held that the assessee was eligible for the claim of depreciation as per law. Ground Nos. 3 & 4 were allowed. 4. Applicability of Amendments Made by Finance Act 2001: The Tribunal discussed the amendments made by the Finance Act, 2001, which restored the earlier law allowing unabsorbed depreciation to be carried forward without the eight-year limitation. The Tribunal referenced the Karnataka High Court decision in Karnataka Co-operative Milk Producers' Federation Ltd., which supported the view that the amendment applied to unabsorbed depreciation from earlier years. The Tribunal held that the assessee was eligible for the claim of depreciation as per the amended law. Ground Nos. 3 & 4 were allowed. 5. Deletion of Addition Made under Section 40(a)(ia) for Non-Deduction of TDS: The Tribunal examined the facts regarding payments made to Aashita International, a Clearing & Forwarding Agent (CFA). It was noted that the payments included reimbursements for various expenses, on which no TDS was deducted, and service charges, on which TDS was deducted. The Tribunal referenced precedents, including ITO vs. Dr. Willmar Schwabe India P. Ltd., which held that TDS was not required on reimbursements. The Tribunal upheld the CIT(A)'s decision to delete the addition, confirming that the provisions of Section 40(a)(ia) were not applicable. Revenue's appeal for A.Y. 2008-09 was dismissed. 6. Exclusion of Excise Duty in Closing Stock Valuation: The Tribunal addressed the issue of excluding excise duty from the closing stock valuation. The assessee argued that purchases were shown net of excise duty, and the unutilized duty was shown as an asset. The Tribunal referenced decisions, including CIT vs. Indo Nippon Chemicals Co. Ltd., which supported the view that excise duty not depicted in the Profit & Loss account was not assessable. The Tribunal confirmed the CIT(A)'s decision to exclude excise duty from the closing stock valuation. Revenue's appeal for A.Y. 2009-10 was dismissed. Summary of Results: (i) Assessee's appeal, ITA No.1125/Ahd/2012, was allowed. (ii) Revenue's appeals, ITA Nos.1077 & 1349/Ahd/2012, were dismissed.
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