2015 (1) TMI 565 - HC - Income Tax

Carry forward unabsorbed depreciation in respect of Bogus and Non-existent assets - Held that - AO ought not to have disturbed the figure of unabsorbed depreciation, without dealing with the earlier assessment orders. Since, unless the earlier orders of assessment are rectified, the unabsorbed depreciation will continue to stand at the figure determined in the respective assessment orders. We are, therefore, of the opinion that the Tribunal committed no error in confirming the order of the CIT(A), holding that the assessee cannot be denied the benefit of carry forward unabsorbed depreciation, since, same is based on past record. This appeal, hence, deserves dismissal. - Decided in favour of assessee.

Summary

Issues involved:
Challenge to order of the ITAT regarding carry forward unabsorbed depreciation and business losses.

Analysis:

Issue 1: Challenge to ITAT order
The appellant-Revenue appealed against the ITAT order dated 28.10.2005, which dismissed the appeal filed by the Revenue regarding the carry forward of unabsorbed depreciation and business losses claimed by the assessee. The ITAT order was challenged on the grounds that the assessee claimed depreciation on bogus assets in different years and that the unabsorbed depreciation determined in earlier years cannot be changed during the assessment year 1996-97.

Issue 2: Legal question framed by the Court
The Court framed a legal question regarding whether the ITAT was correct in directing the AO to allow carry forward unabsorbed depreciation in respect of Bogus and Non-existent assets, despite the assessee surrendering the bogus depreciation under Block Assessment proceedings. This question formed the crux of the appeal before the Court.

Issue 3: Interpretation of Section 158B(a) of the Income Tax Act
The Court referred to Section 158B(a) of the Income Tax Act, 1961, which defines the "block period" concerning search and requisition activities. This provision was crucial in understanding the context of the case and the assessment proceedings carried out under it.

Court's Decision and Analysis:
The Court analyzed the facts of the case, noting that the AO disallowed the claim of the assessee towards unabsorbed depreciation carried forward from earlier years based on findings in the Block Assessment. However, the Court emphasized that assessment proceedings under Section 143(3) and Block Assessment are distinct and one does not affect the other. The Court found that the AO did not specify the findings affecting the claim of unabsorbed depreciation and that the AO did not undertake a similar exercise for subsequent years. Therefore, the Tribunal was justified in holding that the AO should not disturb the figure of unabsorbed depreciation without dealing with earlier assessment orders. The Court upheld the Tribunal's decision, stating that the assessee should not be denied the benefit of carry forward unabsorbed depreciation based on past records. Consequently, the appeal was dismissed, affirming the Tribunal's order to allow carry forward unabsorbed depreciation.

In conclusion, the Court's detailed analysis and interpretation of relevant legal provisions led to the dismissal of the appeal and the affirmation of the Tribunal's decision regarding the carry forward of unabsorbed depreciation and business losses for the assessee.