ITAT allows spill-over additional depreciation under section 32(1)(iia) in search assessments without incriminating material

The ITAT Mumbai ruled in favor of the assessee regarding disallowance of spill-over additional depreciation under section 32(1)(iia) in assessment under sections 153C/153A. The tribunal held that since the original assessment under section 143(3)/144C(13) had allowed the depreciation claim and became final before the search, the AO could not reverse this decision without incriminating material found during search. For assessment year 2008-09, being an un-abated assessment, the AO's action of withdrawing previously allowed claims without seized materials was legally unsustainable. The CIT(A)'s decision was upheld.

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Issues Involved:
1. Validity of the assessment orders under section 153C read with section 153A of the Income Tax Act.
2. Disallowance of spill-over additional depreciation under section 32(1)(iia).
3. Disallowance of excess negative realization on sale of Sulphuric Acid.

Summary of the Judgment:

Issue 1: Validity of the Assessment Orders under Section 153C r.w.s. 153A
The assessee contested the validity of the assessment orders under section 153C read with section 153A, arguing that the assessments for the years under consideration had attained finality and did not abate. The Tribunal admitted the additional grounds raised by the assessee, noting that it was a purely legal issue not requiring new facts examination. The Tribunal emphasized that for un-abated assessments, no new additions or disallowances could be made without incriminating materials found during the search. The Tribunal cited several precedents, including the Hon'ble Supreme Court's decision in the case of PCIT Vs. Abhisar Buildwell (P.) Ltd., to support this view.

Issue 2: Disallowance of Spill-over Additional Depreciation
The assessee claimed additional depreciation under section 32(1)(iia) for assets put to use for less than 180 days in the preceding year. The AO disallowed this claim in the reassessment order under section 153C, but the Tribunal found that there was no incriminating material to support this disallowance. The Tribunal upheld the CIT(A)'s decision, which allowed the claim based on the Karnataka High Court's ruling in CIT Vs. Rittal India Pvt. Ltd. and the Madras High Court's decision in CIT Vs. Shri T.P. Textiles Pvt. Ltd. The Tribunal concluded that the AO's action of disallowing the spill-over additional depreciation without any incriminating material was legally unsustainable.

Issue 3: Disallowance of Excess Negative Realization on Sale of Sulphuric Acid
For AY 2009-10, the AO disallowed an amount for excess negative realization on the sale of Sulphuric Acid. The Tribunal found that this disallowance was also made without any incriminating material. The Tribunal upheld the CIT(A)'s decision to delete this disallowance, reiterating that no additions could be made in un-abated assessments without incriminating materials.

Conclusion:
The Tribunal dismissed the appeals of both the revenue and the assessee. It upheld the CIT(A)'s decisions, confirming that the AO's actions of making disallowances without incriminating materials in un-abated assessments were not legally sustainable. The Tribunal also noted that the pending appeals related to additions/disallowances made in the original assessments would be decided by the CIT(A) in accordance with the law.

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