TaxTMI 
TaxTMI 
2015 (11) TMI 1064
X X X X Extracts X X X X
X X X X Extracts X X X X
....law and on facts in revising assessment order since merged with order of ld. CIT (A) directing AO to allow set off of brought forward unabsorbed 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 been set off by AO against income from other sources. Ld. CIT failed to appreciate that AO granted set off following order giving effect to appellate order of A Y 2006/07 passed as per provisions of the Income Tax Act. Hence the order of ld. CIT deserves to be quashed. It be so held now. 4. Ld. CIT erred in law and on facts in not appreciating claim of the appellant on merits also that appellant is entitled to set off unabsorbed depreciation carried forward from discontinued business against income from any source. Ld. CIT ought to have held that AO gr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 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 appropriate to reproduce, the provisions of section 57(ii), 32 (1) and 38(2). Section 57(ii) in the case of income of the nature referred to in clauses (ii) and (iii) of sub-section (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 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 professi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 of machinery leased out, it is the lessor who uses the machinery' and not the lessee, it would, therefore, be incorrect to apply the provisions of section 38 to mean 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 est....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed depreciation losses of Rs. 1,64,18,767/- was carried forward to next assessment year. The Assessing Officer, in the assessment order, has allowed set off of unabsorbed depreciation for A.Y. 2006-07 amounting to Rs, 71.53.451/- and total income assessed at Rs. 89,54,023/- without considering the fact that the set off of unabsorbed depreciation of Rs. 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 Head income from business or profession as prescribed under section 14 of the Income-tax Act. The unabsorbed depreciation claimed as set off and carry forward pertains to the period prior to giving the assets on the lease & closure of manufacturing activity. Since, the assessee company has not carried on in any business during the year under consideration, the unab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....' 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 consideration the fact that the unabsorbed depreciation for A. Y. 2006-07 claimed by the assessee and allowed by him without invoking the same provisions which are attracted in this case as unabsorbed depreciation has to be treated as current depreciation as per provisions of section 32(2) of the I. T. Act, 1961 which reads as under:- "[(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (I) in any previous year, owing to there being no 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 par....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aim. Since the said circular is in the nature of explanatory notes on amendments introduced by Finance Act, 2000, whereas as mentioned above the provisions of section 32(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 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. 3.1. Therefore, the assessment order passed by the Assessing Officer is held to be 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(SC) 243ITR 83. 4. Therefore, I set aside the order dated 15/12/2011 pass....