SYNBIOTICS LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE FOUR

Facts

The petitioner, Synbiotics Ltd., filed its income tax return for Assessment Year 2008-09 on March 31, 2010, declaring a total income of Rs. 1.77 Crores. It claimed a set-off of brought forward unabsorbed depreciation of Rs. 4.26 Crores against its long-term capital gains. The Assessing Officer (AO) completed the scrutiny assessment on December 29, 2010, assessing the total income at Rs. 13.52 Crores, but made no disallowance regarding the depreciation set-off. Subsequently, the AO issued a notice dated March 26, 2013, under Section 148 of the Income-tax Act, 1961, to reopen the assessment. The AO's reasons for reopening indicated an excess set-off of depreciation amounting to Rs. 349.47 Lakhs, leading to an under-assessment. The petitioner objected to the reopening, but the AO passed the reassessment order before the petitioner received the order disposing of its objections.

Held

The High Court quashed the notice for reopening. The Court found that the very basis for the AO's belief that income chargeable to tax had escaped assessment lacked validity. The Court referred to its own decision in General Motors India Private Limited, which held that the ground for reopening was not legally tenable. The Court noted that the amendment to Section 32(2) by the Finance Act, 2001, and Circular No. 14 of 2001 clarified that unabsorbed depreciation available on April 1, 2002, would be dealt with under the amended provisions, and the restriction of 8 years for carry forward and set-off was dispensed with. Therefore, unabsorbed depreciation from AY 1997-98 up to AY 2001-02, carried forward to AY 2002-03, became part of it and was available for set-off against subsequent profits without limit. The Court found this interpretation to be purposive and harmonious. The reference to the Supreme Court's order in the General Motors case was deemed of no avail to the revenue, as it only kept the question of law open and did not reverse the High Court's decision. Consequently, the impugned notice was quashed on the ground that the basis for reopening lacked validity.

Key Issues

1. Whether the Assessing Officer (AO) breached the directives of the Supreme Court in GKN Driveshafts (India) Limited by issuing the reassessment order before serving the order disposing of the assessee's objections to the reopening notice? - Assessee's contention: The AO failed to dispose of the objections by a speaking order before finalizing the assessment, and the order disposing of objections was served only after the assessment was framed, thus breaching the Supreme Court's directive. However, the assessee stated it would not pursue this ground and pressed the challenge on the validity of the reopening itself. - Revenue's contention: The AO independently applied his mind and was satisfied that income had escaped assessment before issuing the notice. The notice was issued within four years, and the issue was not examined in the original assessment. 2. Whether the reasons recorded by the AO for reopening the assessment lack validity, particularly concerning the set-off of unabsorbed depreciation? - Assessee's contention: The AO issued the notice at the instance of the audit party, and the reasons recorded were identical to those of the audit party. The assessee relied on the Gujarat High Court's decision in General Motors India Private Limited v. Deputy Commissioner of Income-tax, where reopening on similar grounds was quashed. - Revenue's contention: The AO independently applied his mind. The notice was issued within four years, and the issue was not examined in the original assessment. The revenue argued that the Supreme Court's observation in the General Motors case kept the question of law open.