Bombay High Court Quashes Reassessment: Duty of AO to Check Whether Unabsorbed Depreciation Brought Forward Should Be Adjusted Against Capital Gains

Bombay High Court Quashes Reassessment: Duty of AO to Check Whether Unabsorbed Depreciation Brought Forward Should Be Adjusted Against Capital Gains

The Bombay High Court while quashing the reassessment, observed 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 division judge’s bench of Justices K. R. Shriram and Firdosh P. Pooniwalla noted in the present case 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 scrutinized, and the figures of income, as well as deductions, were worked out carefully by the Assessing Officer (AO).

In the instant matter, 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.

Thereafter, 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.

Noting the facts and submissions of the case, the Court was of the considered view that it was nothing but a clear case of change of opinion, and the Assessing Officer has no jurisdiction to reopen the assessment.

The bench placed reliance on decision of the Supreme Court in the case of Gemini Leather Stores vs. 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 Income Tax Act, 1961, 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.

The Court remarked that whether it is a disclosure or not within the meaning of Section 147 of the Act would depend on the facts and circumstances of each case and nature of document and circumstances in which it is produced.

“The duty of the assessee is to fully and truly disclose all primary facts necessary for the purpose of assessment. It is not part of his duty to point out what legal inference should be drawn from the facts disclosed. It is for the Income Tax Officer to draw a proper inference,” the Court discerned.

Therefore, the Court was satisfied that the petitioner had truly and fully disclosed all material facts necessary for the purpose of assessment. Not only material facts were disclosed by petitioner truly and fully but they were carefully scrutinized and the figures of income as well as deductions were worked out carefully by the Assessing Officer.

Accordingly, the Court quashed the impugned notice and set aside.