2017 (9) TMI 2034 - AT - Income Tax

AO cannot disallow electricity charges based on assumptions without evidence; unabsorbed depreciation adjustable against other income under section 32(2)

The ITAT Amritsar allowed the assessee's appeal regarding ad hoc disallowance of electricity charges, finding the AO made additions based on mere ... Assessment u/s. 143(3) - Ad hoc disallowance under the head electricity charge - HELD THAT:- As regards the first grievance of the assessee, we find that AO has completed assessment u/s. 143(3) of the Act and nowhere in the assessment order, the AO has rejected the books of account. He has made the addition on ad hoc basis by just imagining that assessee might have used the electricity of assessee in its other units. AO has not brought on record any material other than his assumption. The disallowance was not warranted, therefore ground No. 1 and 2 of the appeal is allowed. Unabsorbed depreciation - We find that the unabsorbed depreciation claim relates to the assessment year 1997-98 and 2002-03. For the first year of 1997-98, the period of limitation as per the original provisions expires in assessment year 2005-06 which is after the date of amendment of section 32(2) with effect from 01.04.2002. As per the amended provisions of section 32(2) the unabsorbed depreciation of earlier year becomes the part of depreciation of current year and therefore is eligible for adjustment against the other income. This aspect has been examined in the case of Income Tax Officer Vs. Suraj Solvent and Vanaspati Industries Ltd. [2008 (10) TMI 663 - ITAT AMRITSAR] and wherein has held that brought forward depreciation becomes part of current year depreciation and can be adjusted against other source of income. Similar findings has been made by the Hon'ble High Court of Gujarat in the case of Special Civil Application No. 1773 in the case of General Motors India (P) Ltd. [2012 (8) TMI 714 - GUJARAT HIGH COURT] We hold that assessee was eligible for adjustment of unabsorbed depreciation for the assessment year 1997-98 to 2002-03. We further find that assessee at its own had filed revised depreciation chart and wherein it had surrendered the unabsorbed depreciation related to these years. However we are of the view that while completing the assessment, the AO has to pass order and allow deductions as per the provisions of law. The quantum of unabsorbed depreciation was not verified by AO - Therefore we deem it appropriate to remit this issue back to the office of the Assessing Officer who in the light of our observations and on the basis of record available will examine at the quantum of unabsorbed depreciation related to these years and will allow accordingly as per law. In view of the ground No. 2 is allowed for statistical purposes. Issues Involved:1. Ad hoc disallowance of Rs. 6,81,920/- under the head electricity charge.2. Disallowance of unabsorbed depreciation of Rs. 33,65,948/-.Issue-wise Detailed Analysis:1. Ad hoc Disallowance of Rs. 6,81,920/- under the Head Electricity Charge:The appellant contested the ad hoc disallowance of Rs. 6,81,920/- made by the Income Tax Officer under the head electricity charge. The appellant argued that the Assessing Officer (AO) made this disallowance without rejecting the books of account, which were fully vouched, and without invoking Section 145(3) of the Income Tax Act, 1961. The appellant relied on several case laws, including 'The Batala Co-op Sugar Mills Ltd. Vs. The DCIT' and 'Alumaunium Industries (Private) Ltd. Vs. CIT,' to support the argument that such an ad hoc disallowance was not warranted without rejecting the books of account.The respondent, on the other hand, argued that the appellant must have used the electricity connection from the meter installed at the appellant's premises for two other units belonging to the appellant, thus justifying the addition.Upon reviewing the material on record, the Tribunal observed that the AO completed the assessment under Section 143(3) of the Act and did not reject the books of account. The AO made the addition on an ad hoc basis, merely assuming that the appellant might have used the electricity in its other units without any supporting material. The Tribunal referred to the case of 'M/s. Batala Co-operative Sugar Mills Ltd. Vs. DCIT,' where it was held that the AO cannot make any estimate addition without rejecting the books of account. Respectfully following this precedent, the Tribunal concluded that the disallowance was not warranted and allowed ground No. 1 and 2 of the appeal.2. Disallowance of Unabsorbed Depreciation of Rs. 33,65,948/-:The appellant claimed unabsorbed depreciation amounting to Rs. 33,65,948/- for the years 1997-98 to 2002-03, which the AO disallowed. The appellant argued that, as per the amended provisions of Section 32(2) of the Act, the unabsorbed depreciation of earlier years becomes part of the depreciation of the current year and is eligible for adjustment against other income. The appellant cited case laws, including 'ITO Vs. Suraj Solvent and Vanaspati Industries Ltd.' and 'General Motors India (P) Ltd. Vs. DCIT,' to support this claim.The respondent countered that the appellant had filed a revised chart of unabsorbed depreciation before the AO and surrendered the claim for the years 1997-98 to 2002-03, justifying the disallowance.The Tribunal reviewed the facts and judicial precedents, including the case of 'General Motors India (P) Ltd.,' where it was held that the unabsorbed depreciation available on 1st April 2002 would be governed by the amended provisions of Section 32(2) and could be carried forward indefinitely. The Tribunal concluded that the appellant was eligible for the adjustment of unabsorbed depreciation for the years 1997-98 to 2002-03. However, since the quantum of unabsorbed depreciation was not verified by the AO, the Tribunal remitted the issue back to the AO for verification and adjustment as per the law.Conclusion:The appeal filed by the appellant was partly allowed. The Tribunal allowed the grounds related to the ad hoc disallowance of electricity charges and remitted the issue of unabsorbed depreciation back to the AO for verification and adjustment. The order was pronounced in the open court on 11.09.2017.