2014 (5) TMI 481 - HC - Income Tax

Court Quashes Notices due to Lack of Validity in Assessing Officer's Belief

The court allowed both petitions, quashed the impugned notices, and disposed of the petitions accordingly, based on the lack of validity in the Assessing ... Validity of notice u/s 148 of the Act – Reopening of assessment – Change of opinion - Depreciation not claimed in the current year while set off of unabsorbed business loss - Held that:- The original assessment was not made after scrutiny - It was a case of acceptance of return u/s 143(1) of the Act – Relying upon Assistant Commissioner of Income-Tax Versus Rajesh Jhaveri Stock Brokers P. Limited [2007 (5) TMI 197 - SUPREME Court] - In any case, there would be no case of change of opinion since the AO could not have been stated to have formed any opinion previously - reopening is resorted to u/s 147 of the Act and the basic requirement of the AO having reason to believe that income chargeable to tax had escaped assessment must be fulfilled. The sole ground on which the AO desires to reopen the assessment is that the assessee did not claim depreciation of the current year while seeking set off of the unabsorbed business loss of earlier years – according to the AO, would enable the assessee to claim depreciation selectively and prolong the claim beyond eight years - what the assessee had done was well within thin the legal framework - It was open for the assessee not to claim depreciation till the amendment was made by explanation 5 in section 32(1) of the Act which had the effect only from 1.4.2002 - the very belief of the AO that income chargeable to tax had escaped assessment lacks validity – the notices are set aside - Decided in favour of Assessee. Issues:1. Challenge to notice under section 148 of the Income Tax Act, 1961 for reopening assessment.2. Validity of reasons recorded by the Assessing Officer for issuing the notice.3. Objections raised by the petitioner against the notice.4. Contentions raised by the petitioner's counsel and the department's counsel.5. Interpretation of legal provisions regarding claiming depreciation and set off of business losses.6. Applicability of Explanation 5 to section 32(1) of the Act.7. Analysis of relevant case laws and judgments.8. Decision on the petition challenging the notice for reopening assessment.Analysis:1. The petitioner challenged a notice issued by the Assessing Officer under section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the year 2000-01. The petitioner, a registered company, had filed a return declaring nil income and carrying forward business losses. The notice was challenged on the grounds that the reasons recorded lacked validity.2. The Assessing Officer's reasons for issuing the notice were based on the petitioner not claiming current year depreciation before setting off past losses, potentially allowing selective claiming of depreciation beyond the permissible period. The petitioner raised objections which were rejected, leading to the filing of the petition challenging the notice for reopening.3. The petitioner contended that the Assessing Officer lacked a valid reason to believe that income had escaped assessment, as the requirement to claim current year depreciation before setting off past losses did not exist at the relevant time. The department's counsel argued that the original assessment was not made under scrutiny, allowing latitude for reopening.4. The court considered the legal framework and relevant judgments, including the requirement for the Assessing Officer to have a valid reason to believe income had escaped assessment. It was noted that the Assessing Officer's belief lacked validity based on the legal position clarified by various High Courts regarding claiming depreciation and set off of losses.5. The court analyzed the introduction of Explanation 5 to section 32(1) of the Act, which made claiming depreciation compulsory from a certain date. However, the court held that this compulsion arose only after the introduction of the explanation and did not apply retroactively.6. The court referred to judgments by different High Courts supporting the position that the Assessing Officer's belief was not valid in this case. The court concluded that the petitioner's actions were within the legal framework at the relevant time, and the belief of income escaping assessment lacked validity.7. Consequently, the court allowed both petitions, quashed the impugned notices, and disposed of the petitions accordingly, based on the lack of validity in the Assessing Officer's belief that income had escaped assessment.This detailed analysis covers the issues raised in the legal judgment, providing a comprehensive overview of the court's decision and the reasoning behind it.