2015 (11) TMI 587 - AT - Income Tax

Tribunal Validates Assessment Reopening & Disallows Depreciation Set Off

The Tribunal upheld the validity of the assessment reopening under section 147, stating that the Assessing Officer had sufficient 'reason to believe' that ... Depreciation of earlier year was not allowed to be set off against the income offered as unexplained cash deposit made in the account of axis bank - Held that:- As decided in Chandra Kumar v. ACIT [2009 (11) TMI 549 - ITAT MADRAS-A] according to section 71(2A) of the Act, if the net result of computation of income under the head “Profits and gains of business or profession” is a loss, then a set-off of such loss cannot be made against income assessable under the head “Salaries”. Once unabsorbed depreciation us considered as part of current depreciation, the net result of computation under the head “Profits and gains of business or profession” for any given year would be inclusive of such unabsorbed depreciation. Any loss as a result of such computation whether on account of unabsorbed depreciation or not would not be susceptible to set off against income under the had “Salaries” on account of the specific bar contained in sub-section(2A) of section 71 of the Act. Neither section 72 nor section 32(2) of the Act would in any way affect the inter-head adjustments specified under section 71 of the Act nor the application of specific bar contained under subsection (2A) thereof.Assessing Officer as well as the Commissioner(Appeals) were justified in disallowing set off of unabsorbed depreciation from earlier years against salary income. Accordingly, we are of the opinion that the CIT(A) is justified in disallowing set off of unabsorbed depreciation from earlier years against income from other sources. - Decided against assessee. Issues Involved:1. Validity of reopening the assessment under section 147 of the Income Tax Act.2. Set off of unabsorbed depreciation against income assessed under section 69 of the Income Tax Act.Detailed Analysis:1. Validity of Reopening the Assessment under Section 147:Background: The original assessment was completed on 31.12.2009, determining the income at Rs. 20 lakhs. Subsequently, it was noticed that the assessee claimed unabsorbed depreciation losses for the assessment years 1997-98 and 1998-99, which were set off against the income. The Assessing Officer (AO) reopened the assessment under section 147, issuing a notice under section 148 on 13.09.2012, within four years from the end of the relevant assessment year.Assessee's Argument: The assessee contended that there was no tangible fresh material to justify the reopening of the assessment. The original assessment was completed under section 143(3), and reopening it without any new material amounted to a mere change of opinion, which is not permissible. The assessee relied on the Supreme Court's judgment in the case of Kelvinator India Ltd. (320 ITR 561) and the Delhi High Court's decision in CIT v. Orient Craft Ltd. (215 Taxman 28).Tribunal's Findings: The Tribunal noted that the AO had material evidence to form an opinion that income chargeable to tax had escaped assessment. The reasons recorded for reopening indicated that the AO had a cause or justification to believe that income had escaped assessment. The Tribunal emphasized that the AO's action was based on objective material evidence and was not merely a change of opinion. The Tribunal cited the Supreme Court's decision in ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. (291 ITR 500) to support the AO's jurisdiction to issue notice under section 148.Conclusion: The Tribunal upheld the validity of the reopening of the assessment under section 147, stating that the AO had 'reason to believe' that income had escaped assessment, which conferred jurisdiction on him to reopen the assessment.2. Set Off of Unabsorbed Depreciation Against Income Assessed Under Section 69:Background: The assessee claimed set off of unabsorbed depreciation of previous years against unexplained cash deposits assessed under section 69 of the Act. The AO disallowed the set off, and the CIT(A) confirmed the disallowance.Assessee's Argument: The assessee argued that unexplained cash deposits deemed as income under section 69 should be chargeable to tax under the head 'income from other sources,' and therefore, the unabsorbed depreciation should be allowed to be set off against it. The assessee relied on the Tribunal's decision in the case of Shri P. Subramanian v. ITO and the Gujarat High Court's decision in CIT v. Shilpa Dyeing & Printing Mills (P) Ltd. (381 DTR (Guj) 381).Tribunal's Findings: The Tribunal distinguished the case of Shri P. Subramanian v. ITO, stating that it dealt with the set off of business loss against income assessed under section 68, whereas the current issue was the set off of unabsorbed depreciation against income assessed under section 69. The Tribunal referred to section 72 of the Act, which does not permit the set off of accumulated losses and unabsorbed depreciation against any other head of income except 'profits and gains of business or profession.' The Tribunal also cited its own decision in Chandra Kumar v. ACIT (5 ITR (Trib) 540) (Chennai), which supported the disallowance of set off of unabsorbed depreciation against income from other sources.Conclusion: The Tribunal concluded that the CIT(A) was justified in disallowing the set off of unabsorbed depreciation from earlier years against income from other sources, and the appeal of the assessee was dismissed.Final Order: The appeal of the assessee was dismissed, and the order was pronounced on 30th September 2015 at Chennai.