AO’s Duty To Adjust Brought Forward Unabsorbed Depreciation: Bombay High Court Quashes Reassessment

The Bombay High Court, while quashing the reassessment, held that the Assessing Officer had in his possession all the primary facts and it was for him to draw a proper inference as to whether the brought forward unabsorbed depreciation should be adjusted against capital gains or profit and gains from business or profession.

The bench of Justice K. R. Shriram and Justice Firdosh P. Pooniwalla has observed that the assessee/petitioner had truly and fully disclosed all material facts necessary for the purpose of assessment. Not only were material facts disclosed by the assessee truly and fully, but they were also carefully scrutinised, and the figures of income, as well as deductions, were worked out carefully by the Assessing Officer.

The petitioner had filed a return of income declaring total income at "Nil". The petitioner also filed, along with the return, a note on the computation of income. In the original return of income, the petitioner computed the total income at "Nil" after claiming the setoff of brought forward unabsorbed depreciation against the long-term capital gains and business income.

The department assessed the income of the petitioner at "Nil" after setting off unabsorbed depreciation.

The petitioner received the reassessment notice. In response to the petitioner’s request and filing of returns, the petitioner was provided with the reasons for reopening.

The petitioner contended that the notice had been issued more than four years after the expiration of the assessment year. Unless any income chargeable to tax has escaped assessment for the assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts, the notice issued would be without jurisdiction.

The court noted that it is nothing but a clear case of change of opinion, and the Assessing Officer has no jurisdiction to reopen the assessment.

The court relied on the decision of the Supreme Court in the case of Gemini Leather Stores v. Income Tax Officer, in which it was held that there cannot be a failure on the part of the assessee to disclose truly and fully all material facts as the Assessing Officer, during the proceedings under Section 143(3) of the Act, had material facts before him when he made the original assessment. The Apex Court held that the Assessing Officer cannot take recourse to reopen to remedy the error.

Case Title: Mukand Limited Versus The Union of India

Case No.: Writ Petition No.10859 Of 2012

Date: 14/07/2023

Counsel For Petitioner: Jas Sanghavi

Counsel For Respondent: Akhileshwar Sharma

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