2014 (6) TMI 149 - HC - Income Tax

Validity of reopening of assessment Mere change of opinion - Carry forward of unabsorbed depreciation beyond eight years Assessee contended that allowing the depreciation pertaining to earlier years had remained unabsorbed was examined by the AO during the course of original scrutiny assessment - Any attempt on his part to revisit the issue would be based on mere change of opinion - Held that - Following General Motors India P. Ltd. v. Deputy CIT 2012 (8) TMI 714 - GUJARAT HIGH COURT - carry forward of unabsorbed depreciation and set off would be permissible without reference to any time limit - notice was issued beyond the period of four years from the end of the relevant AY - depreciation is deductible in the first place from the income of the business to which it relates - If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee - If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year - In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof - there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year - any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 - once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997- 98 upto the A.Y.2001- 02 got carried forward to the AY 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever - when the ground on which notice is founded is held to be invalid in law, thus, the very foundation for issuance of notice would not survive Decided in favour of Assessee.

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Validity of carrying forward unabsorbed depreciation beyond eight years.
3. Examination of the original assessment by the Assessing Officer.
4. Legal precedents and their applicability.
5. Procedural directions for handling reopening of assessments.

Detailed Analysis:

Reopening of Assessment:
The petitioner, a co-operative society, challenged the notice dated 25.3.2013 for reopening the assessment for the year 2008-09. The notice was issued within four years from the end of the relevant assessment year. The reasons provided by the Assessing Officer were based on the observation that the petitioner was allowed to carry forward unabsorbed depreciation beyond the permissible period of eight years, which was contrary to Section 72(3) and Section 32(2)(iii)(b) of the Income Tax Act, 1961.

Validity of Carrying Forward Unabsorbed Depreciation:
The petitioner argued that the issue of carrying forward unabsorbed depreciation beyond eight years was examined during the original scrutiny assessment. They cited the case of General Motors India P. Ltd. v. Deputy CIT, (2013) 354 ITR 244 (Guj.), where it was held that such carry forward and set off would be permissible without any time limit. The court found merit in this argument, noting that the issue had been decided in favor of the assessee in the General Motors case, which allowed unabsorbed depreciation to be carried forward indefinitely post the amendment by the Finance Act, 2001.

Examination of Original Assessment:
The court observed that the issue of permitting set off of unabsorbed depreciation beyond eight years was not scrutinized by the Assessing Officer in the original assessment. The petitioner had claimed unabsorbed depreciation, but there were no specific queries or representations regarding the carry forward beyond eight years. Thus, the court concluded that the reopening was not based on any new information but rather on a change of opinion, which is not permissible.

Legal Precedents:
The court heavily relied on the precedent set by the General Motors India P. Ltd. case, which clarified that the unabsorbed depreciation available on 1st April 2002 would be governed by the amended Section 32(2) of the Income Tax Act, allowing indefinite carry forward. The court reiterated that the legislative intent was to enable the industry to conserve funds for replacing plant and machinery, thus dispensing with the eight-year restriction.

Procedural Directions:
The court issued several procedural directions to streamline the process of reopening assessments:
1. The Assessing Officer must supply the reasons for reopening within 30 days of the assessee filing a return in response to a notice under Section 148.
2. The assessee should raise objections within 60 days of receiving the reasons.
3. The Assessing Officer should dispose of these objections within four months.
4. These directions aim to ensure that sufficient time is available for proper scrutiny before the assessment becomes time-barred.

The court emphasized the importance of these procedures to avoid last-minute rushes and ensure thorough scrutiny, thus preventing unnecessary appeals and strain on the judicial system.

Conclusion:
The notice for reopening the assessment was quashed based on the precedent that allowed indefinite carry forward of unabsorbed depreciation post the Finance Act, 2001. The court also provided detailed procedural guidelines to improve the handling of such cases in the future, ensuring timely and efficient processing of objections and assessments.

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