2017 (5) TMI 637 - HC - Income Tax

Validity of reopening of assessment - Held that - In the absence of any tangible material, which can be the only basis for reopening a completed assessment, the Revenue could not have issued the impugned notice. As to the applicability of General Motors India Private Limited s case (2012 (8) TMI 714 - GUJARAT HIGH COURT ), the court is of the opinion that the view taken is sound and an added factor inhibited the Revenue from reopening the assessment. The benefit of carrying forward the depreciation was, in one sense, limited by the pre-existing ruling that can be done for eight years. All that amendment did with effect from April 1, 2002 was to remove the cap which meant that the previously limited benefit was now not subjected to such restrictions. In the light of the foregoing discussion, the impugned notice cannot be sustained. It is hereby quashed along with all proceedings emanating therefrom. - Decided in favour of assessee.

Summary

Issues:
Challenge to reassessment notice under sections 147/148 of the Income-tax Act, 1961 for reopening completed assessment for AY 2010-11 based on unabsorbed depreciation set off from AY 2001-02.

Analysis:
The petitioner challenged the reassessment notice, arguing that the "reasons to believe" did not meet the standards set by the Supreme Court in CIT v. Kelvinator of India Ltd. The petitioner contended that the reassessment notice was unsustainable as it implied that set off of unabsorbed depreciation from past assessments was not permissible under the pre-amendment Section 32(2) of the Act. Citing the Gujarat High Court ruling in General Motors India Pvt. Ltd. v. Deputy CIT, the petitioner claimed the notice was invalid.

The Revenue defended the reassessment, stating it was prompted by an audit objection. It argued that as per the law applicable at the time, depreciation could only be carried forward for eight years, which had expired before AY 2010-11. Hence, the Revenue asserted that the reassessment notice was valid and should not be challenged.

The court analyzed the situation, noting that the assessee had indeed claimed a set off under the pre-amendment Section 32(2) of the Act for AY 2010-11. The court agreed with the Assessing Officer's interpretation, supported by subsequent judgments, that the carry forward of depreciation was not restricted by the pre-amendment Section 32(2) which was no longer in force post-April 1, 2002.

Consequently, the court found that the Revenue lacked tangible material to support the reopening of the assessment. The court upheld the view from General Motors India Private Limited's case that the amendment removed the previous limitation on carrying forward depreciation beyond eight years. Therefore, the court quashed the reassessment notice and all related proceedings, allowing the writ petition in favor of the petitioner.