Unabsorbed depreciation carry-forward beyond eight years upheld; reassessment based solely on that view struck down

After the amendment to section 32(2), unabsorbed depreciation from earlier years may be carried forward and set off without the earlier eight-year restriction, in line with binding High Court authority. On that basis, the claim for set-off of brought forward depreciation was accepted. Reassessment under sections 147 and 148, founded only on the view that the depreciation claim had crossed the earlier limit, could not be sustained in the absence of tangible material, and the reopening was treated as invalid. The assessee was also permitted to rely on the reassessment ground under rule 27, and the relief granted by the first appellate authority was sustained.

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Issues: (i) Whether unabsorbed depreciation pertaining to earlier years could be carried forward and set off beyond the earlier eight-year limit after the amendment to section 32(2); (ii) whether the reassessment initiated under sections 147 and 148 was valid in law.

Issue (i): Whether unabsorbed depreciation pertaining to earlier years could be carried forward and set off beyond the earlier eight-year limit after the amendment to section 32(2).

Analysis: The amended framework of section 32(2) was applied in the light of binding High Court authority holding that the post-amendment provision removes the earlier cap and permits set off of unabsorbed depreciation without being restricted by the prior eight-year period. The matter was treated as settled in favour of the assessee, and the lower appellate authority's view granting relief was found consistent with that law.

Conclusion: The claim for set off of brought forward unabsorbed depreciation beyond eight years was allowed in favour of the assessee.

Issue (ii): Whether the reassessment initiated under sections 147 and 148 was valid in law.

Analysis: The reassessment was founded only on the view that the depreciation claim had crossed the earlier eight-year period. In the absence of tangible material and in view of the binding precedent on the amended scope of section 32(2), the reopening could not be sustained. The assessee was also permitted to support the order on the reassessment ground under rule 27.

Conclusion: The notice under section 148 and the consequential reassessment under section 147 were held to be invalid and quashed.

Final Conclusion: The Revenue's appeal failed, the assessee's objections were accepted, and the assessment relief granted by the first appellate authority was sustained.

Ratio Decidendi: After the amendment to section 32(2), unabsorbed depreciation is not confined by the earlier eight-year limit, and reassessment cannot be sustained merely on that basis in the absence of tangible material.

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