TMI Blog2015 (11) TMI 1064X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 32(2) depreciation claim, it is not necessary that the business carried on in the following previous year should be the same as it was carried on the preceding previous year. And also that there are no words to that effect in the relevant statutory provision as well. The jurisdictional high court is of the view that an assessee need not carry on any business or profession for availing this benefit in the following year. The Revenue fails to point out any exception thereto. We accordingly accept assessee’s latter two arguments on merits and hold it entitled for the impugned depreciation benefit. Its legal plea of merger principle (supra) is rendered infructuous. The CIT’s order under challenged passed u/s.263 of the Act stands reversed accordingly. - Decided in favour of assessee. - ITA. No. 1244/Ahd/2014 - - - Dated:- 21-10-2015 - SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER For The Assessee : Shri S. N. Soparkar with Urvashi Shodhan, A.R. For The Revenue : Shri Sanjay Agrawal, CIT D.R. ORDER PER S. S. GODARA, JUDICIAL MEMBER This assessee s appeal for assessment year 2009-10, arises from order of the CIT - IV, Ahmeda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s already set off against income for A. Y. 2007/08 2008/09. Ld CIT ought to have directed AO to consider ₹ 10,73, 834/- only as unabsorbed depreciation claimed for set off against income from other sources in consequential proceedings. It be so held now. 3. The assessee company derives lease rental income from renting out machinery, plants and buildings etc. It earned lease rental income of ₹ 2,09,54,980/- in the relevant previous year. The assessee filed its return on 26.09.2009 admitting nil income after claiming set off of unabsorbed depreciation and losses of ₹ 87,26,902/- relating to A.Y. 2006-07. The Assessing Officer framed a regular assessment on 15.12.2011 computing its gross income as ₹ 1,61,07,474/- thereby disallowing a sum of ₹ 73,80,572/- qua depreciation claim of plant and machinery to be set off against assessee s lease rental income declared under the head other sources. The assessee s total income accordingly stood assessed as ₹ 89,54,023/- after allowing set off of ₹ 71,53,451/- on account of the above stated unabsorbed depreciation. The Assessing Officer observed in para 4.12 of assessment order that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilding, machinery, plant or furniture for the purposes of the business or profession. An examination of provisions of section 56(2)(ii) show that the income from letting on hire machinery, plant or furniture which is not chargeable under the head profit and-gains of business-or profession shall be charged under the head income from Other sources. Further, the provisions of section 57(ii) provides that in case of income referred, to in 56(2)(ii), the deductions u/s. 32(1) subject to the provision of section 38 shall be allowed. Further examination of section 32(1) show that it is a deduction on account of depreciation on certain assets owned by the assessee and used for the purpose of business or profession. Section 38 restrict the depreciation, in case it / is not exclusively used for the purpose of business or profession and the deduction eligible as per the provisions of section 32 shall be restricted to a fair proportionate part. Therefore, if the appellant is able to Drove that the machinery is owned by him. it is leased out and none of the part of the machinery is used by him or not used for the purpose of business; the claim of the appellant shall be allowed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ITAT, Chennai Bench in the J. Farm House [ITA No. 310 to 313/MDS/2011] also supports the above view. In view of the above discussion, the correct interpretation of section 57(ii) would be that, to the extent, assets are leased and wholly used by the assessee, depreciation, on such assets would be fully allowable and only if such assets are also partly used by the assessee for personal purposes other than the purpose of hiring, a portion of depreciation can be disallowed. Therefore, the appellant is entitled for depreciation as claimed by him and the disallowance made by him and the disallowance made by the A.O. is directed to be deleted: The grounds of appeal are accordingly allowed. 3. The ground No.6 of the appeal relates to non-granting the set off of the brought forward depreciation as claimed by the appellant. This ground being consequential, the A.O. is directed to allow set off of brought forward depreciation in accordance with the provisions of Law. The ground of appeal is treated as allowed for statistical purpose. The first round of assessment proceedings seems to have attained finality accordingly. 4. We proceed further and find that the CIT form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut application of correct provisions of the income-tax. Therefore, the assessment order passed by the Assessing Officer is erroneous in so far as it is 'prejudicial to the interest of Revenue'. In this regard reliance is placed on the judgment of the Supreme Court in the case of Malabar Industrial Co. Ltd Vs CIT(A) (SC) 243 ITR 83. I, therefore, propose to revise the said order u/s. 263 of the Act. 5. The assessee filed its reply on 18.03.2014 inter alia reiterating the above stated factual position, above stated CIT(A) s order allowing its set off of brought forward losses and sought to invoke merger principle. The CIT rejects the said pleas in the order under challenge as follows: 2.3. The submission filed by the assessee is considered vis-a-vis facts of the case and is not found tenable. On perusal of the case records, following facts emerge which are relevant to deciding the issue on hand:- (i) It is seen that, assessee is earning its income by way of lease rent on movable and immovable properties. The gross lease rent received is ₹ 2,09,54,980/- for the year under consideration against which assessee has claimed mainly two expenses namely; inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried on by the assessee and entire manufacturing facility has been given on lease. In the circumstances, the unabsorbed depreciation does not pertain to the business carried on by the assessee during the year under consideration and hence not allowable as deduction u/s,57(ii) of the Act against Income under the head Income from other sources. 2.4. From the above, it Is clear that the unabsorbed depreciation claimed by assessee as deduction against Income chargeable to tax under the head income from other sources pertained to business of manufacturing of fabrics from grey yarn which in me year under consideration is no longer in existence, since the said manufacturing facility has been entirely leased out for the full period of year under consideration. Since the provisions of section 32(2) of the Act read with section 72(2) of the Act lay down that any depreciation of previous year remaining unabsorbed and carried forward to next year can be set off against income of subsequent year provided the same business is continued during the said subsequent year. Hence, on plain reading of the provisions of section 32(2) of the Act read with section 72(2) of the Act, assessee is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the CIT(A) has already accepted its depreciation set off claim in the above extracted findings. The CIT accordingly ought not to have invoked Section 263 revision proceedings. The assessee s second argument is that its income from other sources in question comes u/s. 56(2)(iii) of the Act which in turn is entitled for Section 32(1) (2) depreciation claim as per Section 57 (ii) of the Act. The assessee s third argument challenges CIT s finding that it had derived income from other sources only in the impugned assessment year and its business of manufacturing of fabrics from grey yan was no longer in existence since entire manufacturing stood leased out for the full period of the year under consideration. Case law of (2002) 260 ITR 207 (Gujarat) CIT vs. Fabriquip Pvt. Ltd. is quoted in support. The assessee accordingly prays for acceptance of its appeal. 7. The Revenue draws strong support from the CIT s order under challenge passed u/s.263 of the Act. 8. We have heard both the parties and perused the case file. Relevant facts stand narrated in preceding paragraphs. The same are not repeated for the sake of brevity. We come to merits of the case first. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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