2016 (3) TMI 1411 - AT - Income Tax

Validity of reopening of assessment u/s 147 - notice beyond the period of four years - assessee had claimed deduction by way of carry forward of unabsorbed depreciation beyond the period of eight years - HELD THAT - We do not find it necessary to interfere with the orders of the CIT (A) because it came to the notice of the AO that the assessee had claimed the benefit of carry forward of unabsorbed depreciation beyond the period of eight years which was not permissible during the intervening few assessment years. AO had a valid reason to believe that income had escaped to be taxed in the hands of the assessee. Hence we uphold the decision of the Revenue on this issue. Withdrawing the benefit of set off of unabsorbed depreciation beyond the period of eight years - HELD THAT - As relying on M/S. BEST CROMPTON ENGINEERING LTD. 2015 (3) TMI 977 - ITAT CHENNAI hereby direct the learned Assessing Officer to allow the benefit of carry forward unabsorbed depreciation beyond the period of eight years.

Summary

Issues Involved:
1. Validity of reopening of assessment under section 143(3) r.w.s 147 of the Act.
2. Withdrawing the benefit of set off of unabsorbed depreciation amounting to ? 23,69,592/-.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 143(3) r.w.s 147 of the Act:

The primary issue addressed in this judgment is whether the reopening of the assessment by the Assessing Officer (AO) under section 147 was valid. The AO noticed that the assessee had claimed the carry forward of unabsorbed depreciation loss beyond the permissible eight-year period, which is contrary to the provisions of the Act. The Commissioner of Income Tax (Appeals) upheld the reopening, citing that it came to the AO's knowledge that the assessee had claimed a deduction that was not permissible. The Tribunal concurred with the Commissioner of Income Tax (Appeals) and found no reason to interfere with the decision. The Tribunal noted that the AO had a valid reason to believe that income had escaped assessment, thus justifying the reopening of the assessment.

2. Withdrawing the Benefit of Set Off of Unabsorbed Depreciation Amounting to ? 23,69,592/-:

The second issue concerns the AO's withdrawal of the benefit of unabsorbed depreciation set off beyond the period of eight years. The AO relied on the decision of the Special Bench of the Mumbai Tribunal in the case of DCIT Vs. Times Guarantee. The Commissioner of Income Tax (Appeals) upheld this decision. However, the Tribunal referenced its own decision in the case of M/s. Western Crompton Engineering Ltd. Vs. ACIT, where it had ruled in favor of the assessee. The Tribunal also considered the decision of the Hon’ble Gujarat High Court in the case of General Motors India Pvt. Ltd. Vs. DCIT, which held that unabsorbed depreciation from 1997-98 to 2001-02 could be carried forward and set off without any time limit, following the amendment by the Finance Act, 2001. The Tribunal concluded that the unabsorbed depreciation available on 1st April 2002 would be governed by the amended provisions of section 32(2) and could be carried forward indefinitely.

In light of the above, the Tribunal directed the AO to allow the benefit of carry forward unabsorbed depreciation beyond the period of eight years, amounting to ? 23,69,592/-. Consequently, the appeal of the assessee was partly allowed.

Conclusion:

The Tribunal upheld the reopening of the assessment under section 147 as valid but ruled in favor of the assessee regarding the set off of unabsorbed depreciation, allowing it to be carried forward beyond the eight-year period based on the amended provisions of section 32(2) and relevant judicial precedents. The appeal was thus partly allowed.