ITAT upholds set off of unabsorbed depreciation, invalidating assessment reopening

The ITAT dismissed the Revenue's appeal, affirming the allowance of set off of unabsorbed depreciation beyond the statutory period. The court held that the reopening of assessment based on this ground was invalid, citing judicial precedents from the High Courts of Delhi and Gujarat. The decision emphasized the permissibility of carrying forward depreciation beyond 8 years under amended provisions of section 32(2).

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Issues:
1. Allowability of set off of unabsorbed depreciation beyond the statutory period.
2. Validity of reopening assessment based on unabsorbed depreciation claim.

Issue 1: Allowability of set off of unabsorbed depreciation beyond the statutory period:
The appeal by the Revenue challenged the deletion of the addition of &8377; 6,78,59,423/- on account of unabsorbed depreciation claimed for A.Y 1997-98. The Assessing Officer disallowed the claim, citing the limitation of carrying forward unabsorbed depreciation to a maximum of 8 years. The CIT(A) allowed the claim based on various judicial decisions, including the Hon'ble High Court of Delhi in the case of Motor & General Finance Ltd, which held that the set off of unabsorbed depreciation beyond 8 years is permissible under the amended provisions of section 32(2) w.e.f. 1.4.2002. The ITAT upheld the CIT(A)'s decision, stating that the issue is settled in favor of the assessee by the judicial precedents.

Issue 2: Validity of reopening assessment based on unabsorbed depreciation claim:
The completed assessment was reopened after four years to deny the set off of unabsorbed depreciation beyond the statutory period. The Hon'ble High Court of Delhi in the case of Motors & General Finance Ltd decided in favor of the assessee, holding that the reassessment notice was invalid as there was no tangible material to justify reopening the assessment. The Court emphasized that the amendment to Section 32(2) removed the previous limitation on carrying forward depreciation beyond 8 years. The ITAT, following the Delhi High Court's decision, held the notice u/s 148 as bad in law and quashed the consequent assessment under section 147.

In conclusion, the ITAT dismissed the appeal by the Revenue, upholding the allowance of set off of unabsorbed depreciation beyond the statutory period and declaring the reopening of assessment based on this ground as invalid. The judgment relied on judicial precedents from the Hon'ble High Courts of Delhi and Gujarat to support the decisions made.

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