The Kerala High Court stated that the assessing authority cannot investigate the nature of a business from previous assessment years during the current assessment year proceedings.
The Kerala High Court partially accepted an Income Tax Appeal and stated that both the Assessing Authority and the First Appellate Authority could not investigate the type and scale of business conducted by the appellant-Company in earlier assessment years during their review of the relevant assessment years. This appeal was against a decision made by the Income Tax Appellate Tribunal for the assessment year 2011-12. The Division Bench, consisting of Justice Dr. A.K. Jayasankaran Nambiar and Justice Syam Kumar V.M., noted that these findings were similar to reopening assessments for the years 1999-2000 to 2009-10 without addressing whether the appellant’s claims for depreciation and unabsorbed depreciation were accepted by the tax department.
The appellant-Company, which operates in aqua farm culture and sells its products, changed its name to M/s. Kings Infra Ventures Limited and also entered the construction sector. For the assessment year 2011-12, the appellant reported no income in its tax return. In this return, the appellant claimed a carried forward loss of Rs.1,52,76,459, which included depreciation losses. This total loss was set off against a taxable income of Rs.35,85,037 for the assessment year 2011-12, resulting in a taxable income of zero. The carried forward depreciation claim was based on depreciation claims made in the returns for the previous assessment years from 1996-97 to 2009-10.
The assessing authority rejected the claim for a loss set off amounting to Rs.35,85,037 and taxed it for the assessment year 2011-12 under Section 143(3) of the Income Tax Act. Consequently, the appellant appealed to the First Appellate Authority, which partially accepted the appeal. It allowed the set-off for unabsorbed depreciation from the assessment years 1996-97 and 1997-98 against the taxable income for the years 2010-11, 2011-12, and later years. The First Appellate Authority also instructed the assessing authority to reopen the assessment for 2010-11 and from 2012-13 onwards to deny the set-off for unabsorbed depreciation calculated from 1998-99.
The appellant submitted a rectification application, but the First Appellate Authority only allowed the carry forward of unabsorbed depreciation for the assessment year 1998-1999. Later, the Appellate Tribunal upheld the First Appellate Authority’s findings. The appellant’s Income Tax Appeal was resolved by a judgment that annulled the Tribunal’s order and instructed it to reassess all aspects related to the First Appellate Authority’s directions for reopening assessments for 2010-2011 and 2012-13 onwards. The appellant then filed the current appeal, dissatisfied with the First Appellate Authority’s dismissal of the appeal.
The Bench believed that the First Appellate Authority had effectively allowed the set-off of unabsorbed depreciation from the assessment years 1996-97, 1997-98, and 1998-99 against the income for 2011-12. The appellant argued that returns were filed during those years, acknowledged by the department, but no formal assessment orders were issued.
The Bench stated, “In this situation, we do not see how the assessing authority and the First Appellate Authority could investigate the nature and extent of the appellant’s business from 1999-2000 to 2009-10 while reviewing the assessment for the year 2011-12.” The Bench further noted, “Without resolving the assessments from 1999-2000 to 2009-10, the question of allowing a claim for depreciation or a set-off for unabsorbed depreciation from previous years should not have been addressed by the First Appellate Authority.” Therefore, the Bench annulled the Tribunal’s order that upheld the First Appellate Authority’s directions concerning the assessment years 2010-11 and beyond, as well as the findings on the disallowance of unabsorbed depreciation losses from 1999-2000 to 2009-2010. While allowing the Income Tax Appeal in this regard, the Bench chose not to challenge the Tribunal’s decision that supported the First Appellate Authority’s conclusions for the assessment year 2011-12.
Cause Title: Kings Infra Ventures Ltd. v. The Assistant Commissioner of Income Tax [Neutral Citation: 2024:KER:80349]