The Court questioned how, during assessment proceedings for 2011-12, the authorities could examine the business nature and extent of the assessee’s activities dating back to 1999-2000.
In a significant judgment in Kings Infra Ventures Ltd vs. ACIT (ITA No. 28/2023), the Kerala High Court has clarified that, when determining the assessment for a relevant year, an assessing authority cannot reassess previous years without a formal inquiry. The ruling was delivered by Justices A.K. Jayasankaran Nambiar and Syam Kumar V.M., underscoring the limitations on tax authorities’ power to reopen past assessments.
Case Overview
The case involved Kings Infra Ventures Ltd, which filed a nil income tax return for the 2011-12 assessment year, claiming a carried-forward loss of ₹1,52,76,459, inclusive of unabsorbed depreciation spanning the years 1996-97 to 2009-10. However, the Assessing Officer (AO), acting under Section 143(3) of the Income Tax Act, disallowed ₹35,85,037 from this claim.
The First Appellate Authority partially upheld the company’s claim, permitting set-off of unabsorbed depreciation from 1996-97 and 1997-98, but restricted the allowance of depreciation from 1998-99 to 2009-10 to income post-2012-13. Additionally, the authority ordered reopening of assessments for the 2010-11 and 2012-13 assessment years.
Following this, the assessee appealed to the Appellate Tribunal, which confirmed the First Appellate Authority’s findings. Unsatisfied, the assessee took the matter to the Kerala High Court.
High Court’s Key Observations
The High Court took issue with the First Appellate Authority’s approach, as it effectively involved reopening assessments for the years 1999-2000 to 2009-10 without confirming whether the depreciation claims had been assessed or acknowledged by the tax department for those years. The Court questioned how, during assessment proceedings for 2011-12, the authorities could examine the business nature and extent of the assessee’s activities dating back to 1999-2000.
The bench noted that the assessee had filed returns during these years, which were acknowledged by the department, yet no formal assessment orders were issued. The Court expressed that the authorities should not delve into past assessments without establishing whether the claims made in earlier returns had been formally addressed by the department.
Conclusion
By allowing the appeal, the Kerala High Court reaffirmed that assessing authorities must restrict their assessments to the relevant tax year under review and cannot probe previous years without following proper inquiry procedures. This ruling strengthens protections for taxpayers against unauthorized reassessment of past returns, setting a precedent on the limitations of tax authorities in reopening prior assessments without justification.
This case highlights the importance of due process and procedural safeguards in tax assessments, ensuring that authorities respect the statutory limits of their power. It is a significant judgment for taxpayers seeking clarity on the scope of assessing authorities’ powers.
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