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TMI Blog2012 (8) TMI 714X X X X Extracts X X X X X X X X Extracts X X X X ..... res (net of excise) during the year on which net profit was shown at Rs.55.02 Crores. The total taxable income was declared at Rs.NIL under e-filing. The case of the assessee was taken up for scrutiny by issuing notice on 17.12.2007 under Section 143(2) of the Income-tax Act, 1961 (in short the Act). Thereafter, a notice under Section 143(2) along with notice under Section 142(1) was issued with detailed questionnaire. In response Chartered Accountants of the assessee attended from time to time and filed details as called for. Since there were large number of transactions of import, royalty payment, management fee etc., the Assessing Officer after considering the volume of such transactions referred the return to Transfer Pricing Officer under Section 92CA(1) of the Act after obtaining approval of Commissioner of Income Tax-3, Baroda. The Transfer Pricing Officer, namely, the Additional Commissioner of Income Tax (TPO-1), Ahmedabad passed an order under Section 92CA(3) of the Act on 29.10.2009 and directed the Assessing Officer to make an addition of Rs.53.15 Crores to the total income of the assessee. 3. The additions of Rs.53.15 Crores proposed in the income returned by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; 2. Unabsorbed losses of A.Y.2001-02 11,31,11,045/- 3. Unabsorbed Depreciation of A.Y.97-98 43,60,22,158/- 4. Unabsorbed Depreciation of A.Y. 1999-2000 45,35,67,710/- 5. Unabsorbed Depreciation of A.Y. 2000-01 37,89,38,433/- 6. Unabsorbed Depreciation of A.Y. 2001-02 27,45,43,908/- 1,91,69,64,986/- Total Income NIL * The following are allowed to be carried forward to the succeeding years 1. Unabsorbed depreciation of A.Y. 2001-02 Rs. 7,75,83,948/- 2. Unabsorbed depreciation of A.Y. 2002-03 Rs.14,89,50,584/- 3. Unabsorbed depreciation of A.Y. 2003-04 Rs.33,87,96,543/- 13. Assessed u/s. 143(3) read with section 144C of the IT Act. Calculate tax. Give credit of prepaid taxes. Issue Demand notice accordingly. Issue show cause notice u/s. 274 read with section 271(1)(c) of the IT Act for the reasons discussed above in para-5.4." 6. The Assessing Officer on 29.3.2011 issued notice under Section 148 of the Act wherein it was stated that he had reason to believe that income chargeable to tax for the A.Y. 2006-07 had escaped assessment within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objections was filed by the assessee on 7.12.2011. Therefore, the Assessing Officer was first required to dispose of the objection of the assessee by a reasoned and speaking order and thereafter, he could proceed to pass the assessment order under Section 143(3) read with Section 147 of the Act. It is vehemently urged that it was not open to the Assessing Officer to pass an assessment order under Section 143(3) read with Section 147 of the Act on 27.12.2011 and reject the objection filed by the assessee dated 7.12.2011 in the same assessment order. According to the petitioner, the order passed by the Assessing Officer is in violation of the decision of the Apex Court in GKN Driveshafts (India) Limited (infra), therefore, it is urged that the composite assessment order dated 27.12.2011 is illegal, without jurisdiction and is liable to be quashed. 11. The other argument of learned Senior Counsel for the assessee is that the impugned notice issued under Section 148 of the Act is contrary to law and it amounts to change of opinion by the Assessing Officer, thus, the notice is bad in law. When the earlier assessment order was passed on 20.9.2010, all material facts were truly and fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee lies in filing a statutory appeal which is available to the assessee and is required to be exhausted by the assessee. In the alternative, he has urged that if this writ petition is entertained, provisions of appeal would be rendered redundant as every assessee would prefer to approach this Court bye-passing the statutory remedy of appeal. In support of his argument, he placed reliance on the decisions in Arvind Mills Ltd. (infra) and GKN Driveshafts (INDIA) Ltd. (infra). 15. Mr. Parikh has further urged that the unabsorbed depreciation for the A.Y. 1997-98 can be carried forward upto maximum period of 8 years from the year in which it was first computed. Thus, brought forward depreciation for the A.Y. 1997-98 was eligible for being carried forward and set off against the income for A.Y. 2005-06 only and unabsorbed depreciation of Rs.43,60,22,158/- for the A.Y. 1997-98 was not eligible for being carried forward and set off against income of A.Y. 2006-07. Therefore, the unabsorbed depreciation for the A.Y. 1997-98 was wrongly carried forward and set off against the income for the A.Y. 2006-07. Therefore, income to the extent has escaped assessment and the Assessing Officer ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 32(2) of the I.T. Act as amended by the Finance Act No.2, 1996 w.e.f. A.Y. 97-98, the unabsorbed depreciation for A.Y. 97-98 can be carried forward upto maximum period of 8 years from the year in which it was first computed. Thus brought forward depreciation for A.Y. 97-98 was eligible for carried forward and set off against the income for A.Y. 2005-06 only. Therefore, the unabsorbed depreciation of Rs.43,60,22,158/- for A.Y. 97-98 was not eligible for carried forward and set off against the income for A.Y. 2006-07 and therefore, the unabsorbed depreciation for A.Y. 97-98 was wrongly carried forward and set off against the income for A.Y. 2006-07. Therefore, the income to the extent has escaped assessment. I have therefore reason to believe that income of Rs.43,60,22,158/- being wrong set off of unabsorbed depreciation for A.Y. 97-98 has escaped assessment within the meaning of Section 147 of the Act. Issue notice u/s. 148 of the I.T. Act. Date :- 29.03.2011 Sd/- Place :- Godhra Deputy Commissioner of Income-tax Panchmahals Circle, Godhra." 19. The first question which arises for consideration is whether the writ petition filed by the petitioner challenging the notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d considered the decisions of other High Courts in Ispat Industries Ltd. v. Dy. CIT [2002] 253 ITR 474 (Cal), Tolin Rubbers (P.) Ltd. v. Asstt. CIT [2003] 264 ITR 439 (Kerala) and Dishman Pharmaceuticals & Chemicals Ltd. v. Dy. CIT [2011] 45 SOT 37 (Ahd) (URO). The Division Bench held in paragraph 18 that where the Assessing Officer had reopened the proceedings merely on the ground that from the material available, the view earlier adopted by him was erroneous one, such fact cannot be a good ground for reassessment. The Division Bench has further held that if reasons for issuing notice under Section 148 is demanded by the assessee which is provided to the assessee and instead of deciding the objection of the assessee, the Assessing Officer passes an assessment order, a writ petition would be maintainable in view of the law laid down by the Apex Court in Mafatlal Industries Ltd. v. Union of India [1997] 5 SCC 536. The Division Bench in paragraph 31 held as under :- "From the above observation it is clear that the Supreme Court in the case of Mafatlal Industries Ltd. (supra), has specifically recognized the power of this court to entertain a writ-application by pointing out that suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid five assessment years." 22. A Division Bench of this Court in Arvind Mills Ltd. v. Assistant Commissioner of Wealth Tax (No.2), [2004] 270 ITR 469 after considering the decision of this Court in Garden Finance Ltd. v. ACIT, (2004) 268 ITR 48 (Guj.) held in the majority opinion as under :- ".......What the Supreme Court has now done in the GKN case (2003) 259 ITR 19 is not to whittle down the principle laid down by the Constitution Bench of the Apex Court in Calcutta Discount Co. Ltd. case (1961) 41 ITR 191 but to require the assessee first to lodge preliminary objection before the Assessing Officer who is bound to decide the preliminary objections to issuance of the re-assessment notice by passing a speaking order and, therefore, if such order on the preliminary objections is still against the assessee, the assessee will get an opportunity to challenge the same by filing a writ petition so that he does not have to wait till completion of the re-assessment proceedings which would have entailed the liability to pay tax and interest on re-assessment and also to go through the gamut of appeal, the second appeal before Income-tax Appellate Tribunal and then reference/tax appeal to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 148 and supply or communicate it to the assessee. The assessee gets an opportunity to challenge the order in a writ petition. Thereafter, the Assessing Officer may pass the reassessment order. We hold that it was not open to the Assessing Officer to decide the objection to notice under section 148 by a composite assessment order. The Assessing Officer was required to, first decide the objection of the assessee filed under section 148 and serve a copy of the order on assessee. And after giving some reasonable time to the assessee for challenging his order, it was open to him to pass an assessment order. This was not done by the Assessing Officer, therefore, the order on the objection to the notice under section 148 and the assessment order passed under the Act deserves to be quashed. 24. The second question which arises for consideration in this petition is whether an assessment order can be reopened on the ground that in the original assessment order, the Assessing Officer had not correctly applied the provisions of Section 32(2) of the Act? The assessee filed his return of income for the A.Y. 2006-07 on 29.12.2006 declaring his total taxable income at Rs.NIL under e-filing. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome chargeable to tax had escaped assessment. 26. The Apex Court in Commissioner of Income Tax v. Kelvinator of India Limited [2010] 320 ITR 561 (SC) has explained the law that the Assessing Officer while exercising powers of reassessment cannot reopen an assessment on mere change of opinion. The power of reassessment could be exercised by the Assessing Officer provided there was some "tangible material" to come to the conclusion that there was escapement of income from reassessment. Reason must have a link with the formation of the brief. The relevant part of the judgment is extracted below :- "On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those grounds which are recorded in the reasons, but also with respect to entire original assessment, of course at the hands of the revenue. This obviously would lead to considerable hardship and uncertainty. It is precisely for this reason that even while recognizing such powers, in special requirements of the statute, certain safeguards are provided by the statute which are zealously guarded by the courts. Interpreting such statutory provisions courts upon courts have held that an assessment previously framed cannot be reopened on a mere change of opinion. It is stated that power to reopening cannot be equated with review. 42. Bearing in mind these conflicting interests, if we revert back to central issue in debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in the return filed, has some doubt about eligibility of such a claim and therefore, raises queries, extracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever. Whether the Assessing Officer allows such a claim, rejects such a claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reason for not making addition." The Assessing Officer has the power to reopen the assessment proceedings if some tangible material had come to his knowledge. However, he cannot reopen the assessment merely because on the same documents considered earlier by him, another inference was possible. The reassessment can only take place if the conditions laid down under Section 147 are fulfilled otherwise under the garb of change of opinion, the Assessing Officer may review his earlier assessment order. 28. The Apex Court in Kelvinator of India Limited (supra) has observed that the concept of change of opinion is an in-built test to check abuse of power by the Assessing Officer. The Assessing Officer has wide power to reopen the assessment proceedings with effect from 1.4.1989 provided there was some tangible material to come to the conclusion that there was escapement of income from assessment and the reasons under Section 147 must have a link with the formation of the belief. The tangible material must have nexus to the escapement of income from being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d fully and truly all material facts necessary for his assessment for the year and in response to the queries of the Assessing Officer, the assessee had placed entire material demanded by the Assessing Officer. And on the material on record, the Assessing Officer applied his mind and allowed unabsorbed depreciation for the year A.Y. 1997-98 and other assessment years, to be carried forward and set off against the income of A.Y. 2006-07, then merely because the Assessing Officer did not give reasons for allowing the claim of unabsorbed depreciation in the original assessment order would not make the assessment order illegal. The Assessing Officer, in law, must be deemed to have formed an opinion that the assessee's claim deserves to be accepted. Thus, in such a situation, the original assessment order cannot be reopened as it would amount to change of opinion by the Assessing Officer and the reassessment order is liable to be set aside. 30. The last question which arises for consideration is that whether the unabsorbed depreciation pertaining to A.Y. 1997-98 could be allowed to be carried forward and set off after a period of eight years or it would be governed by Section 32 as ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (ii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year; (iii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i) and Clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year and- (a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (b) if the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed: Provided that the time limit of eight assessment years specified in subclause (b) shall not apply in case of a company for the assessment year begi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 8 years for carry forward and set off of unabsorbed depreciation. The Act has also clarified that in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. 30.3 Under the existing provisions, no deduction for depreciation is allowed on any motor car manufactured outside India unless it is used (i) in the business of running it on hire for tourists, or (ii) outside in the assessee's business or profession in another country. 30.4 The Act has allowed depreciation allowance on all imported motor cars acquired on or after 1st April, 2001. 30.5 These amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years." 37. The CBDT Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that 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. And 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 assessment year 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. 39. For the aforesaid rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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