ASST.CIT V. WALTERMAN INTERNATIONAL LTD.

TAXAP/1069/2006

AI Insights

The case involves the Revenue appealing against the decision of the ITAT, which upheld the CIT(A)'s partial allowance of the assessee's appeal regarding the carry forward of unabsorbed depreciation. The assessee, Walterman International Ltd., had declared a 'NIL' income in its returns, which was accepted by the AO but with a disallowance of the claim for unabsorbed depreciation based on findings from a Block Assessment. The Tribunal's decision favored the assessee, leading to the Revenue's appeal to the High Court. The core legal issue was whether the Tribunal was correct in allowing the carry forward of unabsorbed depreciation despite the assessee's earlier surrender of bogus depreciation during Block Assessment proceedings under Section 158BC of the I.T. Act.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 737924 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-12-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S N DIVATIA
• Assessee Lawyers: K M PARIKH
• Keywords: Assessment Order; Block assessment; Income Tax Return; Unabsorbed depreciation; Bogus assets
• Section: 143(3); 158BC; 158B(a)

Judgement Text

"O/TAXAP/1069/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1069 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ ASST.CIT....Appellant(s) Versus WALTERMAN INTERNATIONAL LTD.....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 MR SN DIVATIA, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 19/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. This is an appeal by the appellant- Revenue, seeking to challenge the order of the learned ITAT, Ahmedabad Bench ‘A’ (for short, Page 1 of 7 O/TAXAP/1069/2006 JUDGMENT ‘the Tribunal’), Dated : 28.10.2005, rendered in Tax Appeal No. 3464/Ahd/2002 for A.Y. 1996-97, whereby, the Tribunal dismissed the aforesaid appeal filed by the Revenue. 2. The brief facts of the case are that the assessee-respondent, herein, filed its return of income for the year under consideration on 28.11.1996, declaring total income at Rs. ‘NIL’. It appears that on 02.05.1997, the assessee, revised the return filed by it due to change in depreciation, wherein, also the assessee declared income at Rs. ‘NIL’. Then, on 20.11.1997, the assessee filed second return due to change in deferred revenue expenditure, declaring its total income at Rs. ‘NIL’. The case of the assessee, then, came to be processed and at the end of assessment proceedings, the concerned AO, though, accepted the return of the assessee, declaring income at Rs.’NIL’, he observed in the Assessment Order that same has no bearing on the block assessment and that the assessee is not allowed to carry forward the unabsorbed depreciation and business loss as claimed in the revised return of income, in view of the finding of the block assessment. The assessee, hence, approached the learned CIT(A) by way of an appeal, which came to be allowed in part. Being aggrieved with the same, the Revenue carried the matter before the Page 2 of 7 O/TAXAP/1069/2006 JUDGMENT Tribunal, wherein, the Tribunal passed the impugned order. Hence, the present appeal. 3. At the time of admitting the present appeal, this Court framed the following question of law; “(A) Whether the Hon’ble ITAT was right in law and on facts in directing the AO to allow carry forward unabsorbed depreciation in respect of Bogus and Non-existent assets, in spite of the fact that the Assessee itself in return of income for block period has surrendered the bogus depreciation under Bock Assessment proceedings u/s. 158BC of the I.T. Act?” 4. Mr. Parikh, learned Advocate for the appellant-Revenue, submitted that the Tribunal erred in law and on facts in holding that the assessee may be allowed to carry forward the unabsorbed depreciation and business losses as claimed in the revised return of income. He, further, submitted that the CIT(A) as well as the Tribunal ought to have appreciated the fact that the assessee claimed depreciation on bogus assets during different years. He, then, submitted that the Tribunal erred in deciding the issue of unabsorbed depreciation and loss that the unabsorbed depreciation determined in earlier years cannot be changed during A.Y. 1996-97. He, therefore, prayed that the present appeal be Page 3 of 7 O/TAXAP/1069/2006 JUDGMENT allowed. 5. On the other hand, Mr. Divatia, learned Advocate for the respondent-assessee, submitted that there being concurrent findings of the CIT(A) and the Tribunal in favour of the assessee, present appeal be dismissed. 6. Heard learned Counsels for the parties and perused the material, including the orders of the CIT(A) and the Tribunal. Before proceeding with the matter, here, it would be relevant to refer to the provisions of Section 158B(a) of the Income Tax Act, 1961, which reads as under; “158B. In this chapter, unless the context otherwise requires,- (a) “block period” means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted under section 132 or any requisition was made under section 132A and also includes the period up to the date of the commencement of such search or date of such requisition in the previous year in which the said search was conducted or requisition was made: Provided that where the search is initiated or the requisition is made before the 1st day of June, 2001, the provisions of this clause shall have effect as if for the words “six assessment years”, the words “ten Page 4 of 7 O/TAXAP/1069/2006 JUDGMENT assessment years” has been substituted.” 7. From the record it appears that, though, the returns of income filed by the assessee for the year under consideration, declaring total income at Rs. NIL, were accepted by the concerned AO, the concerned AO disallowed the claim of the assessee towards unabsorbed depreciation, which was carried forward from earlier years, on the ground of findings recorded in the Block Assessment of the assessee. It is a known position of law that the assessment proceedings carried out under Section 143(3) of the Act and the Block Assessment are separate and distinct proceedings and that one does not affect the other. Though, the concerned AO disallowed the claim of the assessee in respect of carried forward unabsorbed depreciation on the basis of the findings recorded in the Block Assessment in the case of very assessee, the AO does not specify or narrate as to what were those findings. From the record it also appears that the depreciation brought forward from the earlier years is quantified at Rs.8,19,840/- and that the AO had substituted the amount of Rs.5,64,030/- due to some disallowances made by the concerned A.O. for the A.Y. 1996-97. However, it appears that no such exercise was undertaken by the concerned AO for the subsequent years. We are, Page 5 of 7 O/TAXAP/1069/2006 JUDGMENT therefore, of the view that, since, AO had not undertaken any exercise, as stated above, for the year under consideration, the Tribunal was justified in observing that the AO ought not to have disturbed the figure of unabsorbed depreciation, without dealing with the earlier assessment orders. Since, unless the earlier orders of assessment are rectified, the unabsorbed depreciation will continue to stand at the figure determined in the respective assessment orders. We are, therefore, of the opinion that the Tribunal committed no error in confirming the order of the CIT(A), holding that the assessee cannot be denied the benefit of carry forward unabsorbed depreciation, since, same is based on past record. This appeal, hence, deserves dismissal. 8. In the result, present appeal fails and is DISMISSED, as being without merit. We held that the Tribunal is right in law and on facts in directing the AO to allow carry forward unabsorbed depreciation. The question framed in this appeal is answered in FAVOUR of the respondent-assessee and AGAINST the appellant- Revenue, accordingly. (K.S.JHAVERI, J.) Page 6 of 7 O/TAXAP/1069/2006 JUDGMENT (K.J.THAKER, J) UMESH Page 7 of 7 "