2012 (8) TMI 714 - HC - Income Tax

Reassessment Quashed for Ignoring Section 148 Objection and Misapplying Section 32(2) on Depreciation Carry Forward

The HC held the writ petition maintainable as the AO failed to decide the objection under section 148 separately before passing the reassessment order, ... Maintainability of the writ petition challenging the notice u/s 148 and the reassessment order - alternative remedies available - Reassess income/recompute loss/ depreciation allowance - directions from Dispute Resolution Panel (DRP) - Held that:- Writ petition under Article 226 of the Constitution of India is maintainable where no order has been passed by the AO deciding the objection filed by the assessee u/s 148 and assessment order has been passed or the order deciding an objection u/s 148 has not been communicated to the assessee and assessment order has been passed or the objection filed has been decided along with the assessment order, thus it was not open to the AO to decide the objection to notice under section 148 by a composite assessment order - AO was required to, first decide the objection of the assessee filed u/s 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 AO, therefore, the order on the objection to the notice u/s 148 and the assessment order passed under the Act deserves to be quashed - in favour of assessee. Re-opening of assessment - non application of provisions of Section 32(2) by AO - Held that:- Once the AO 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, therefore,that in a situation where the AO during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any 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 - If on the facts disclosed by the assessee, a wrong legal inference is taken by the AO at the time of original assessment then it would not confer any power on him u/s 147 to commence reassessment proceedings - in favour of assessee. Treatment for Unabsorbed depreciation pertaining to A.Y. 1997-98 - allowed to be carried forward and set off after a period of eight years OR governed by Section 32 as amended by Finance Act 2001? - Held 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, thus 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 - writ petition allowed in favour of assessee. Issues Involved:1. Maintainability of the writ petition challenging the notice under Section 148 and the reassessment order.2. Whether the Assessing Officer can reopen an assessment on the ground of incorrect application of Section 32(2) of the Act.3. Interpretation of Section 32(2) regarding the carry forward and set off of unabsorbed depreciation.Issue-wise Detailed Analysis:1. Maintainability of the Writ Petition:The court examined whether the writ petition challenging the notice under Section 148 and the reassessment order is maintainable. It was argued that the petitioner had alternative remedies available, such as filing a statutory appeal. The court referred to the decision in Parixit Industries (P.) Ltd. v. Assistant Commissioner of Income-tax, which held that if the Assessing Officer fails to dispose of the objections to the notice under Section 148 before passing the reassessment order, a writ petition is maintainable. The court emphasized that the Assessing Officer must first decide the objections and communicate the decision to the assessee before proceeding with the reassessment. The court concluded that the writ petition is maintainable as the Assessing Officer did not follow the mandated procedure.2. Reopening of Assessment on Incorrect Application of Section 32(2):The court considered whether the Assessing Officer could reopen the assessment on the ground that the unabsorbed depreciation was incorrectly allowed to be set off. The court referred to the Supreme Court's decision in Commissioner of Income Tax v. Kelvinator of India Limited, which stated that reassessment cannot be based on a mere change of opinion and must be supported by tangible material. The court found that the assessee had fully disclosed all material facts, and the original assessment allowed the unabsorbed depreciation after due scrutiny. The reopening of the assessment was based on the same material without any new tangible evidence, amounting to a change of opinion. The court held that the reassessment was not justified and quashed the notice and reassessment order.3. Interpretation of Section 32(2) Regarding Unabsorbed Depreciation:The court examined whether the unabsorbed depreciation for the assessment year 1997-98 could be carried forward and set off beyond eight years as per the amended Section 32(2) by the Finance Act, 2001. The court referred to the CBDT Circular No.14 of 2001, which clarified that the restriction of eight years for carrying forward unabsorbed depreciation was removed to enable the industry to conserve funds for replacing plant and machinery. The court concluded that the unabsorbed depreciation available on 1st April 2002 would be governed by the amended provisions, allowing it to be carried forward indefinitely. The court held that the unabsorbed depreciation from assessment years 1997-98 to 2001-02 became part of the depreciation for the assessment year 2002-03 and could be carried forward without any time limit.Conclusion:The court allowed the writ petition, quashing the notice under Section 148 and the reassessment order. The court emphasized the importance of following the mandated procedure for disposing of objections before reassessment and held that reopening the assessment based on a change of opinion was not permissible. The court also clarified that the amended Section 32(2) allowed indefinite carry forward of unabsorbed depreciation from assessment years 1997-98 to 2001-02.