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The Serendipity Apparels Pvt. Ltd. Versus CIT - IV, Ahmedabadi

Revision u/s 263 - depreciation set off claim - assessee’s 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) - Held that:- The assessee has derived its lease rental income under the head from “other” sources. There is no dispute that the same is covered u/s.56(2)(iii) of the Act. This is followed by Section 57 stipulating allowability of corresponding depreciation .....

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Industries Pvt. Ltd. [1995 (10) TMI 1 - SUPREME Court] holding that in order to avail Section 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 t .....

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AL 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, Ahmedabad, dated 24.03.2014 passed in proceedings u/s.263 of the Income Tax Act, 1961, hereafter the Act . 2. This appeal raises the following grounds: 1. Ld. CIT erred in law and on facts in invoking provisions of section 263 of the Act seeking to .....

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bsorbed depreciation claimed by the appellant in accordance with law. Ld. CIT ought not to have revised assessment order no linger in existence and also for the fact that department accepted finding of appellate order having not preferred appeal before Hon'ble ITAT. It be so held now. 3. Ld. CIT erred in law and on facts in directing AO to quantify claim of set off of brought forward unabsorbed depreciation of business discontinued by the assessee and further to disallow the same which had b .....

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me from any source. Ld. CIT ought to have held that AO granted set off after proper verification and correct interpretation of provisions of section 32(2) and 72 (2) of the Act further clarified by CBDT Circular dispensing with the condition of continuation of the same business for the purpose of claiming unabsorbed depreciation. It be so held now. 5. Without prejudice to challenging revisionary action of ld. CIT the set off of unabsorbed depreciation against income from other sources after givi .....

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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 .....

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.w.s. 57(iii) of the Act. The assessee preferred appeal. The CIT(A) accepted its relevant grounds in order dated 10.07.2012 as under: 2.3 Decision: I have carefully perused the assessment order and the submissions given by the appellant. The Assessing Officer has disallowed the claim of depreciation from income from other sources u/s. 56(2)(iii) as it was held by him that the assets were not used for the purpose of business of the appellant after applying the provisions of section 32(1) of the A .....

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n (2) of section 56, deductions, so far as may be, in accordance with the provisions of sub-clause (ii) of clause (a) and clause; (c) of section 30, section 31 and sub-sections (1) and (2) of section 32 and subject to the provisions of section 38 ; Section 32(1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being i .....

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ction 32 shall be restricted to a fair proportionate part thereof Which the Assessing Officer may determine, having regard to. the user of such building, 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. Furth .....

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ion 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 facts show that the appellant has leased out the plant and machinery to some other person. The income is not assessed to tax under the head business or professi .....

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en by the A.O. is not justified. By interpreting the provisions of section 38 in this manner, the very purpose of bringing the income from machinery, plant and furniture under the head income from other sources and providing deduction on account of depreciation on it will be defeated. The appellant has let out the machinery and the asset has been used for the purpose of business by the lessee and no part of the leased out assets have been used by the assessee for his use or for non - business pu .....

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n that the assessee or the lessor should use the leased out machinery. The purpose of section 38 is to restrict the depreciation to the extent it was not used for the purpose of business. In present case, it would have been applicable if it was established that the machineries were used by the lessor for some purpose other than business. By applying the provisions of section 38, the A.O. has made the provisions of section 57 (ii) redundant as in accordance with this interpretation/the claim of d .....

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, 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 bro .....

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s causing prejudice to interest of the Revenue. He issued Section 263 notice seeking to revise the same as under: By an order u/s. 143(3) of the Act dated 15/12/2011, your income was assessed at ₹ 89,54,020/- as against NIL returned income. On perusal of the case records, it is seen that you have shown lease income during the year under consideration and has disclosed NIL total income in the return of income. The said NIL income was arrived at after set off of unabsorbed depreciation loss .....

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of ₹ 71.53.451/- against income under the head "income other sources" was factually incorrect as per provisions of Section 72(2) of the Act. 2. Further, it is noticed from the record-that you have already stopped business activity of manufacturing of fabrics from grey yarn on job work basis and from 1st October 2006, you Have given your assets to M/s. Arvind Mills under lease agreement arid since then i.e. 1st October 2006, you have not earned any income chargeable under the Hea .....

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) of the Act against income under the head income from other sources. 2. From the above it is evident that the Assessing Officer has not verified the above issue and allowed your legally and factually incorrect claim of set off and carry forward of unabsorbed depreciation without application of mind and without 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 Re .....

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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; interest of & .....

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ention is made in the tax audit report in Clause 8(b) of Form 3CD filed for the year under consideration that 'this year the company has leased its movable and immovable assets'. (iii) Although, the Assessing Officer disallowed assessee' claim for depreciation for the year under consideration against income offered to tax under the head 'income from other sources' by invoking provisions of section 38 r.w. section 32(1) and (2) of the Income Tax Act, he failed to take into con .....

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profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of subsection (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for th .....

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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 .....

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tion 32(2) of the Act read with section 72(2) of the Act, assessee is not eligible for set off of the unabsorbed depreciation pertaining to the business of manufacturing against income from lease rent chargeable to tax under the head 'Income from other sources'. 2.5. Now coming to various decisions cited by the assessee in favour its contention that unabsorbed depreciation of any business can be set off against any income chargeable to tax, it is found that these decisions are not applic .....

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2) of the Act have been amended by Finance Act, 2001 w.e.f. 1/04/2002. Hence, the reliance placed by the assessee on the said circular is found to be misplaced. 3. From the above it is evident that the above it is evident that the Assessing Officer has not verified the issue regarding eligibility for claim of set off of unabsorbed depreciation of discontinued business against income chargeable to tax under the head income from other sources and thereby allowed assessee's legally and factuall .....

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dated 15/12/2011 passed u/s. 143 (3) of the Act by the Assessing Officer ACIT(OSD), Circle - 8, Ahmedabad with a direction to quantify assessee's claim of set off and carry forward of unabsorbed brought forward depreciation of discontinued business and disallow the same which has been set off against income from other sources. 6. The assessee raises three arguments. The first one is merger plea based on Section 263 (1)(c). Its case is that the CIT(A) has already accepted its depreciation set .....

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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 .....

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