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D.C.I.T., Circle – 4 (1) (2) , Ahmedabad Versus The Serendipity Apparels Pvt. Ltd.

2018 (1) TMI 327 - ITAT AHMEDABAD

Entitlement for depreciation relating to its leased assets - Held that:- Learned Departmental Representative fails to dispute all the intervening developments during the pendency of instant lis. We therefore adopt consistency to affirm CIT(A)’s findings under challenge in both these assessment years holding the assessee entitled for depreciation relating to its leased assets. The relevant issue is adjudicated in assessee’s favour accordingly. - Carry forward MAT credit of earlier years - It .....

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.- Decided against revenue - ITA No. 3345/Ahd/2015, ITA Nos. 3429/Ahd/2015 - Dated:- 3-1-2018 - Shri Pramod Kumar, Accountant Member And Shri S. S. Godara, Judicial Member By Revenue : Shri V. K. Singh & Shri Prasoon Kabra, Sr. D.R. By Assessee : Bandish Soparkar, A.R. ORDER Per S. S. Godara, Judicial Member These two Revenue s appeals for assessment years 2011-12 & 2012-13 arise against the CIT(A)-XIV & 8, Ahmedabad s order dated 18.09.2014 & 27.10.2015, in case nos. CIT(A)-XIV/ .....

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x Act, 1961, hereinafter the Act . Heard both the parties. Case file(s) perused. We heard these two cases in D & C bench on 18/12/2017 & 01/01/2018; respectively. There is no dispute that similar issues are involved in both cases. Therefore, we dispose of these appeals by the instant common order for the sake of convenience and brevity. 2. We come to the former issue of depreciation disallowance. This assessee is a company earning income from lease rent pertaining to its leased movable a .....

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said assets are being used for its business purposes. He therefore disallowed assessee s above depreciation claims. 3. The CIT(A) reverses Assessing Officer s action in former assessment year as under: 5.1 Ground No. 1 to 7 (Ground No. 1 to 5 in concise ground) are interlinked and against the disallowances of depreciation of ₹ 54,57,582. (a) In the grounds appellant contended that (i) Appellant was owner of the assets and leasing out of such assets cannot be held as assets not used, for ap .....

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t income and leased out assets, it cannot be held that assets are not used for the purpose of business of appellant. (iv) The A.O. has not commented on various case laws relied on by appellant. Further A.O. relied on irrelevant case laws. The appellant relied on Hon'ble Supreme Court judgement in the case of Mysore Minerals (Supra) (v) In earlier years, on the same issue and similar facts & contention, disallowances of depreciation were made but ld. CIT(A) in the order for A.Y. 09-10 &am .....

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Ltd. (AMI) for eight years and regularly reflecting lease rent income under the head 'Income from other sources'. The books of accounts are audited and appellant submitted tax audit report as required U/S.44AB of the Act in Form 3CB & 3CD, where tax auditor computed such eligible deduction of depreciation. It is only from A.Y. 2009-10 that depreciation so claimed were disallowed in view of provisions of section 57(ii) of the Act. read with section 32 and 38 of the Act. The major cont .....

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rom appellant (Already discussed at para 4A above) held that the assessee is not the real owner of the assets which has been leased out because all such assets were initially owned/ purchased by M/s AMI and M/s. AMI given finance to appellant to purchase these asset and taken back on lease in the form of transaction of "Sale & lease back". The A.O. relied on Hon'ble ITAT Mumbai order in the case of M/s. Indusind Bank Ltd (Supra) to emphasize that lessor has to provide only fina .....

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etting out of assets. The A.O. thereafter considered provisions of section 57(ii) of the Act and section 38 of the Act and disallowed the depreciation. (c) In appeal processing's, appellant reiterated contention as that were submitted before A.O( Already discussed at para 4B). Since during previous year apart from the contention taken in earlier years and adjudicated in appeal for this issue, there were contention of A.O. for transaction of lease in the nature 'Sale & lease back' .....

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of Textile Park in Village Vadsar, Mr. Kathrej Chokdi, Tal. Kalol, Dist. Gandhinagar to attract the investment by other entrepreneurs and enable them to setup textile units who shall exclusively take up the manufacturing process either on job work basis for the requirement of the lessee (M/s Arvind Mill Ltd.) or offer such manufacturing facilities on operating lease basis to be utilised by the lessee." This reflect that M/s Arvind Mill Ltd. being one of the leading textile manufacturer and .....

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ark that either they manufacture for M/s Arvind Mills Ltd. on jobs work basis or leased out such facility on "operating lease basis". In the said deed, it is clear that appellant company was in possession & ownership of factory building, plant & machinery, pipes, fitting, furniture & fixture with other such rights as available for the "Textile weaving unit". (ii) As per terms & conditions of lease deed, the deed was for 8 years for a monthly rent of ₹ 8, .....

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d adhoc basis, the lessee shall release an "on account" monthly additional rent, if any, only if the preceding months utilisation of the Textile weaving unit had exceeded 84 percent usage." (iii) Appellant submitted a letter dt. 02/02/2006 from Export Import Bank of India (Ref. No. EOU:D-18:33) for sanctioning of loan (Rupee Term Loan) of ₹ 7.68 crore under Technology Upgradation Funds Scheme (TUFS) to the Serendipity Apparels Pvt. Ltd. Ahmedabad (SAPL) i.e. appellant for pa .....

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s linked to lease rent. Further such loan was sanctioned under govt. plan & policy for TUF scheme as well as promotion to export oriented unit. As per special conditions for sanction of such loan for imported weaving machines (looser), the Exim Bank requested to have a Tripartite Agreement between appellant, Arvind Mills Ltd. and Exim Bank whereby both appellant and AML under take not to terminate the lease during the subsistence of the loan facility and on request from Exim Bank the base re .....

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Mill Ltd. as high sea purchase. Other plant & machinery were purchased by appellant from other parties. From the above details it can be concluded that appellant established its own weaving unit for which it has borrowed the money from Exim Bank. But for viability of this unit, the Exim Bank ensure that there be leasing out of this unit to M/s Arvind Mill Ltd. so that realisation of loan can be ensured. On the other hand, for upgradation of technology, M/s Arvind Mill Ltd. negotiated for imp .....

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Ltd. as relied on by A.O. was inter-alia based on the Hon'ble Supreme Court judgment in the case of Asian Brown Boveri where Hon'ble Supreme court observed that such lease first to be examined from the view point of finance lease or operation lease. In the case of fiance lease or transaction of sale & lease back, the "lessee" either having plant & machinery (assets) as ownership but for finance sold the same & take back on lease i.e. the assets are remained with &qu .....

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are missing. The appellant borrowed the money for purchase of assets and established the unit i.e. not having finance capacity. On the other hand M/s Arvind Mills Ltd. was not the owner of such assets but initiated certain actions, deeds and things for setting up a project in the nature of Textile park so that uninterrupted supply of raw material at cheeper cost is available for its exports. As discussed above, such vertical and horizontal integration of ancillary units to boost export as well a .....

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other sources u/s. 56(2) (ii) 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 Act r.w. section 38(2) of the Act. The appellant has submitted that the appellant has failed to appreciate the correct factual and legal position. The provisions of section 38(2) are not applicable in the case of the appellant and entire depreciation claim should be allowed. To understand the controversy, it would be .....

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t or furniture, being tangible assets; (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- Section 38(2) Where any building, machinery, plant or furniture is not exclusively used for the purposes of the busi .....

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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 t .....

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d. 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 profession and the asset has been used for the purpose of business or profession. The claim of the appellant is, therefore, apparently allowable. The A. O. has interpreted the provisions of section 38 to mean that the asset must be used for the purpose of assessee's business of profession. He has interpreted that the depreciation claim .....

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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 purpose. It is evident that the assets have been used for the purpose of hiring by the assessee and the lesser has used it for its business. I am inclined to agree with the explanation given by the appellant for the term 'so far as may be' to mean that the provisions may be generally followed to the extent possible. In case o .....

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. 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 depreciation cannot be allowed, if the assets are used for hire or leased out. The reliance placed by the appellant on the judgment of Honourable ITAT, Pune in the case of Kasat Textiles Pvt. Ltd. [61 TTJ 724] and the decision of ITAT, Chennai Bench in the J. Farm House [ITA No.310 to 313/MDS/2011] also supports the above view. Reliance .....

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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 it. In view of these facts and respectfully following the decision of my predecessor for A. Y. 2009-10, the disallowance made by the A.O. is deleted. The grounds of appeal are accordingly allowed. (iii) It is therefore, I am not inclined with A.O. that depreci .....

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ot be held that M/s. AML is defacto owner of these assets. It is therefore, such disallowances of ₹ 54,57,582 are directed to be allowed. The A.O. is directed to delete the addition so made. All the grounds are treated as allowed. 4. We have heard both the parties reiterating their respective stands and in support of the CIT(A) s order deleting the impugned depreciation disallowance as reproduced hereinabove. There is no dispute that the very issue had arisen in the past as well in assessm .....

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and (iii) of the Act, which reads as under:- (ii) Income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head Profits and gains of business or profession ; (iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the building is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not char .....

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utation of income under the head Profits and gains of business or profession . 12. We find that Under Clauses (ii) and (iii) of Section 57 in cases of income arising out of hiring of machinery, plant and furniture, the Legislature intended to confer the same benefit on the same terms as was available in respect of income under the head Profits and gains of business or profession on account of certain specified items of expenditure or deduction. The scheme appeared to be not to allow all deductio .....

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ant and machinery arose under the head "Profits and gains of business or profession" or "Income from other sources", the intention of the Legislature was to confer the same benefits on account of expenditure directly connected with the plant and machinery. Under Section 57, the applicability of Section 32 was not restricted to Sub-section (i) of the said latter section. Sub-section (2) of Section 32 was also specifically included. By reason of the express provision of Section .....

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uch importation would be not to construe, but to amend, the statute. Even if there be a casus omissus the defect can be remedied only by legislation and not be judicial interpretation. 14.The Hon ble Supreme Court in the case of Padmasundara Rao and Others in 255 ITR 147 has held The court cannot read anything into a statutory provision which is plain and unambiguous. A statute is the edict of the Legislature. The language employed in a statute is the determinative factor of legislative intent. .....

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Carriers 259 ITR 449 PP 465 has held The provision of one section of the statute cannot be used to defeat those of another unless it is impossible to effect reconciliation between them. Thus a construction that reduces one of the provisions to a useless lumber or dead letter is not a harmonized construction. To harmonise is not to destroy. 16. Coming back to the allowability of depreciation from the income taxed under the head Income from other sources in the light of the afore-stated discussio .....

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The ratios laid down by the Hon ble Supreme Court mentioned elsewhere squarely apply to this issue also. We accordingly held that the assessee is entitled for additional depreciation and the A.O. is directed accordingly. Learned Departmental Representative fails to dispute all these intervening developments during the pendency of instant lis. We therefore adopt consistency to affirm CIT(A) s findings under challenge in both these assessment years holding the assessee entitled for depreciation r .....

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ore than its MAT liability. It is evident in this backdrop that the CIT(A) s directions under challenge read as under: 5.2 Ground No. 8 is (Ground No. 6 in concise ground) is in respect of non granting of brought forward MAT credit for A.Y. 07-08 to A.Y. 10-11 in view of the provisions of section 115 JAA of the IT. Act claimed by the appellant in IT. Return. The impugned asstt.order is silent on this issue because after computing total income at ₹ 1,36,56,9007- under normal provisions , th .....

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