The Serendipity Apparels Pvt. Ltd., Ahmedabad V. The CIT-IV, Ahmedabad

ITA 1244/AHD/2014

• Counselvise Citation: 124420514 RSA 2014
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 28-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Principle of natural justice; Unabsorbed depreciation
• Section: 143(3); 32; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER, AND SHRI S. S. GODARA, JUDICIAL MEMBER. ITA. NO. 1244/AHD/2014 (ASSESSMENT YEAR:2009-10) THE SERENDIPITY APPARELS PVT. LTD. ARVIND MILLS PREMISES, NARODA ROAD, AHMEDABAD APPELLANT VS. CIT - IV, C BLOCK, 3 RD FLOOR, PRATYAKSHA KAR BHAVAN, AMBAWADI, AHMEDABADI RESPONDENT PAN: AAACT7017K / BY ASSESSEE : SHRI S. N. SOPARKAR WITH URVASHI SHODHAN, A.R. / BY REVENUE : SHRI SANJAY AGRAWAL, CIT D.R. /DATE OF HEARING : 28.08.2015 /DATE OF PRONOUNCEMENT : 21.10.2015 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009-10, ARISES FROM ORDER OF THE CIT - IV, AHMEDABAD, DATED 24.03. 2014 PASSED ITA NO.1244/AHD/2014 (THE SERENDIPITY APPARELS P. L TD. VS. CIT) A.Y. 2009-10 - 2 - 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 PR OVISIONS OF SECTION 263 OF THE ACT SEEKING TO REVISE SCRUTINY ASSESSMENT U/S 1 43 (3) OF THE ACT HOLDING IT AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE ORDER OF CIT DIRECTING AO TO REVISE OR DER THAT IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST O F REVENUE IS UNJUST, UNTENABLE AND AGAINST PRINCIPLES OF NATURAL JUSTICE THAT DESERVES TO BE QUASHED. IT BE SO HELD NOW. 2. LD CIT ERRED IN LAW AND ON FACTS IN REVISING ASS ESSMENT ORDER SINCE MERGED WITH ORDER OF LD. CIT (A) DIRECTING A O 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 A O TO QUANTIFY CLAIM OF SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATI ON OF BUSINESS DISCONTINUED BY THE ASSESSEE AND FURTHER TO DISALLO W THE SAME WHICH HAD BEEN SET OFF BY AO AGAINST INCOME FROM OT HER SOURCES. LD. CIT FAILED TO APPRECIATE THAT AO GRANTED SET OF F FOLLOWING ORDER GIVING EFFECT TO APPELLATE ORDER OF A Y 2006/ 07 PASSED AS PER PROVISIONS OF THE INCOME TAX ACT. HENCE THE ORD ER OF LD. CIT DESERVES TO BE QUASHED. IT BE SO HELD NOW. 4. LD. CIT ERRED IN LAW AND ON FACTS IN NOT APPRECI ATING CLAIM OF THE APPELLANT ON MERITS ALSO THAT APPELLANT IS ENTITLED TO SET OFF UNABSORBED DEPRECIATION CARRIED FORWARD FROM DISCON TINUED BUSINESS AGAINST INCOME FROM ANY SOURCE. LD. CIT OU GHT TO HAVE HELD THAT AO GRANTED SET OFF AFTER PROPER VERIFICAT ION AND CORRECT INTERPRETATION OF PROVISIONS OF SECTION 32(2) AND 7 2 (2) OF THE ACT FURTHER CLARIFIED BY CBDT CIRCULAR DISPENSING WITH THE CONDITION OF CONTINUATION OF THE SAME BUSINESS FOR THE PURPOS E OF CLAIMING UNABSORBED DEPRECIATION. IT BE SO HELD NOW. 5. WITHOUT PREJUDICE TO CHALLENGING REVISIONARY ACT ION OF LD. CIT THE SET OFF OF UNABSORBED DEPRECIATION AGAINST INCOME F ROM OTHER SOURCES AFTER GIVING EFFECT TO APPELLATE ORDER REMA INS ONLY TO THE EXTENT OF RS.10,73,834/- SINCE BUSINESS LOSS OF RS . 60,79, 451/- WAS ALREADY SET OFF AGAINST INCOME FOR A. Y. 2007/0 8 & 2008/09. LD CIT OUGHT TO HAVE DIRECTED AO TO CONSIDER RS. 10 ,73, 834/- ONLY AS UNABSORBED DEPRECIATION CLAIMED FOR SET OFF AGAINST INCOME FROM OTHER SOURCES IN CONSEQUENTIAL PROCEEDI NGS. IT BE SO HELD NOW. ITA NO.1244/AHD/2014 (THE SERENDIPITY APPARELS P. L TD. VS. CIT) A.Y. 2009-10 - 3 - 3. THE ASSESSEE COMPANY DERIVES LEASE RENTAL INCOM E FROM RENTING OUT MACHINERY, PLANTS AND BUILDINGS ETC. I T EARNED LEASE RENTAL INCOME OF RS.2,09,54,980/- IN THE RELEVANT P REVIOUS YEAR. THE ASSESSEE FILED ITS RETURN ON 26.09.2009 ADMITTI NG NIL INCOME AFTER CLAIMING SET OFF OF UNABSORBED DEPRECIATION A ND LOSSES OF RS.87,26,902/- RELATING TO A.Y. 2006-07. THE ASSES SING OFFICER FRAMED A REGULAR ASSESSMENT ON 15.12.2011 COMPUTING ITS GROSS INCOME AS RS.1,61,07,474/- THEREBY DISALLOWING A SU M OF RS.73,80,572/- QUA DEPRECIATION CLAIM OF PLANT AND MACHINERY TO BE SET OFF AGAINST ASSESSEES LEASE RENTAL INCOME D ECLARED UNDER THE HEAD OTHER SOURCES. THE ASSESSEES TOTAL INC OME ACCORDINGLY STOOD ASSESSED AS RS.89,54,023/- AFTER ALLOWING SET OFF OF RS.71,53,451/- ON ACCOUNT OF THE ABOVE STATE D UNABSORBED DEPRECIATION. THE ASSESSING OFFICER OBSERVED IN PA RA 4.12 OF ASSESSMENT ORDER THAT THE ASSESSEE HAD EARNED INCOM E FROM OTHER SOURCES AND ITS DEPRECIATION CLAIMED WAS NOT ALLOWABLE AS ASSETS IN QUESTION HAD NOT BEEN USED FOR THE PURPOS E OF BUSINESS U/S.32(1) R.W.S. 38(2) R.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 T HE SUBMISSIONS GIVEN BY THE APPELLANT. THE ASSESSING O FFICER HAS DISALLOWED THE CLAIM OF DEPRECIATION FROM INCOME FR OM OTHER SOURCES U/S. 56(2)(III) AS IT WAS HELD BY HIM THAT THE ASSE TS WERE NOT USED FOR THE PURPOSE OF BUSINESS OF THE APPELLANT AFTER APPL YING 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 APPRECIA TE 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 APPROPRI ATE TO REPRODUCE, THE PROVISIONS OF SECTION 57(II), 32 (1) AND 38(2). ITA NO.1244/AHD/2014 (THE SERENDIPITY APPARELS P. L TD. VS. CIT) A.Y. 2009-10 - 4 - 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) O F CLAUSE (A) AND CLAUSE; (C) OF SECTION 30, SECTION 31 AND SUB-SECTI ONS (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, BE ING TANGIBLE ASSETS (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LI CENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMIL AR 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 SH ALL BE ALLOWED SECTION 38 (2) WHERE ANY BUILDING, MACHINERY, PLANT OR FURNITURE I S NOT EXCLUSIVELY USED FOR THE PURPOSES OF THE BUSINESS O R PROFESSION, THE DEDUCTIONS UNDER SUB-CLAUSE (II) OF. CLAUSE (A) AND CLAUSE (C) OF SECTION 30, CLAUSES (I) AND (II) OF SECTION 31 AND CLAUSE ( II) OF SUBSECTION (1) OF SECTION 32 SHALL BE RESTRICTED TO A FAIR PROPORTION ATE PART THEREOF WHICH THE ASSESSING OFFICER MAY DETERMINE, HAVING REGARD TO. THE USER OF SUCH BUILDING, MACHINERY, PLANT OR FURNITURE FOR THE PUR POSES OF THE BUSINESS OR PROFESSION. AN EXAMINATION OF PROVISIONS OF SECTION 56(2)(II) S HOW THAT THE INCOME FROM LETTING ON HIRE MACHINERY, PLANT OR FUR NITURE WHICH IS NOT CHARGEABLE UNDER THE HEAD PROFIT AND-GAINS OF BUSIN ESS-OR PROFESSION SHALL BE CHARGED UNDER THE HEAD INCOME FROM OTHER S OURCES. FURTHER, THE PROVISIONS OF SECTION 57(II) PROVIDES THAT IN C ASE 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 O N CERTAIN ASSETS OWNED BY THE ASSESSEE AND USED FOR THE PURPOSE OF B USINESS OR PROFESSION. SECTION 38 RESTRICT THE DEPRECIATION, I N CASE IT / IS NOT EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS OR PRO FESSION AND THE DEDUCTION ELIGIBLE AS PER THE PROVISIONS OF SECTION 32 SHALL BE RESTRICTED TO A FAIR PROPORTIONATE PART. THEREFORE, IF THE APP ELLANT IS ABLE TO DROVE THAT THE MACHINERY IS OWNED BY HIM. IT IS LEASED OU T AND NONE OF THE PART OF THE MACHINERY IS USED BY HIM OR NOT USED FO R THE PURPOSE OF BUSINESS; THE CLAIM OF THE APPELLANT SHALL BE ALLOW ED. THE FACTS SHOW THAT THE APPELLANT HAS LEASED OUT TH E PLANT AND MACHINERY TO SOME OTHER PERSON. THE INCOME IS NOT A SSESSED TO TAX ITA NO.1244/AHD/2014 (THE SERENDIPITY APPARELS P. L TD. VS. CIT) A.Y. 2009-10 - 5 - 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 ASSE SSEE'S BUSINESS OF PROFESSION. HE HAS INTERPRETED THAT THE DEPRECIATIO N CLAIMED WOULD BE ALLOWABLE, IF THE ASSET IS OWNED BY THE APPELLANT AND USED FOR THE PURPOSE OF ASSESSEE'S BUSINESS OR PROFESSION. IN M Y OPINION, THE INTERPRETATION TAKEN BY THE A.O. IS NOT JUSTIFIED. BY INTERPRETING THE PROVISIONS OF SECTION 38 IN THIS MANNER, THE VERY P URPOSE OF BRINGING THE INCOME FROM MACHINERY, PLANT AND FURNITURE UNDER TH E HEAD INCOME FROM OTHER SOURCES AND PROVIDING DEDUCTION ON ACCOUNT OF DEPRECIATION ON IT WILL BE DEFEATED. THE APPELLANT HAS LET OUT THE MAC HINERY AND THE ASSET HAS BEEN USED FOR THE PURPOSE OF BUSINESS BY THE LE SSEE AND NO PART OF THE LEASED OUT ASSETS HAVE BEEN USED BY THE ASSESSE E FOR HIS USE OR FOR NON - BUSINESS PURPOSE. IT IS EVIDENT THAT THE ASSE TS HAVE BEEN USED FOR THE PURPOSE OF HIRING BY THE ASSESSEE AND THE LESSE R HAS USED IT FOR ITS BUSINESS. I AM INCLINED TO AGREE WITH THE EXPLANATI ON GIVEN BY THE APPELLANT FOR THE TERM 'SO FAR AS MAY BE' TO MEAN T HAT 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 PROV ISIONS 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 BUSIN ESS. 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 DEPRECIATION CANNOT BE ALLOWED, IF THE ASS ETS ARE USED FOR HIRE OR LEASED OUT. THE RELIANCE PLACED BY THE APPELLANT ON THE JUDGMEN T 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 VI EW. IN VIEW OF THE ABOVE DISCUSSION, THE CORRECT INTERP RETATION 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 U SED BY THE ASSESSEE FOR PERSONAL PURPOSES OTHER THAN THE PURPOSE OF HIR ING, A PORTION OF DEPRECIATION CAN BE DISALLOWED. THEREFORE, THE APPE LLANT 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 T HE APPELLANT. THIS ITA NO.1244/AHD/2014 (THE SERENDIPITY APPARELS P. L TD. VS. CIT) A.Y. 2009-10 - 6 - 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 STAT ISTICAL PURPOSE. THE FIRST ROUND OF ASSESSMENT PROCEEDINGS SEEMS TO HAVE ATTAINED FINALITY ACCORDINGLY. 4. WE PROCEED FURTHER AND FIND THAT THE CIT FORMED REASONS TO BELIEVE THAT ABOVE STATED REGULAR ASSESSMENT FRAMED IN ASSESSEES CASE WAS ERRONEOUS 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 15/12/201 1, YOUR INCOME WAS ASSESSED AT RS. 89,54,020/- AS AGAINST N IL RETURNED INCOME. ON PERUSAL OF THE CASE RECORDS, IT IS SEEN THAT YOU HAVE SHOWN LEASE INCOME DURING THE YEAR UNDER CONSIDERATION AN D HAS DISCLOSED NIL TOTAL INCOME IN THE RETURN OF INCOME. THE SAID NIL INCOME WAS ARRIVED AT AFTER SET OFF OF UNABSORBED DEPRECIATION LOSS OF RS. 87,26,902/- FOR A.Y. 2006-07 AGAINST CURRENT YEAR I NCOME UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AND THE BALANCE UN ABSORBED DEPRECIATION LOSSES OF RS. 1,64,18,767/- WAS CARRIE D FORWARD TO NEXT ASSESSMENT YEAR. THE ASSESSING OFFICER, IN THE ASSE SSMENT 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 UN ABSORBED DEPRECIATION OF RS. 71.53.451/- AGAINST INCOME UNDER THE HEAD 'I NCOME 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 FABRI CS 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 SIN CE THEN I.E. 1ST OCTOBER 2006, YOU HAVE NOT EARNED ANY INCOME CHARGE ABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AS PRESCRIB ED UNDER SECTION 14 OF THE INCOME-TAX ACT. THE UNABSORBED DEPRECIATI ON CLAIMED AS SET OFF AND CARRY FORWARD PERTAINS TO THE PERIOD PRIOR TO GIVING THE ASSETS ON THE LEASE & CLOSURE OF MANUFACTURING ACTIVITY. SINC E, THE ASSESSEE COMPANY HAS NOT CARRIED ON IN ANY BUSINESS DURING T HE YEAR UNDER CONSIDERATION, THE UNABSORBED DEPRECIATION CLAIMED AS PART OF CURRENT DEPRECIATION AS PER SECTION 32(2) OF THE ACT, IS NO T ALLOWABLE AS DEDUCTION U/S.57(II) OF THE ACT AGAINST INCOME UNDE R THE HEAD INCOME FROM OTHER SOURCES. ITA NO.1244/AHD/2014 (THE SERENDIPITY APPARELS P. L TD. VS. CIT) A.Y. 2009-10 - 7 - 2. FROM THE ABOVE IT IS EVIDENT THAT THE ASSESSING OFFICER HAS NOT VERIFIED THE ABOVE ISSUE AND ALLOWED YOUR LEGALLY A ND FACTUALLY INCORRECT CLAIM OF SET OFF AND CARRY FORWARD OF UNABSORBED DE PRECIATION WITHOUT APPLICATION OF MIND AND WITHOUT APPLICATION OF CORR ECT PROVISIONS OF THE INCOME-TAX. THEREFORE, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS 'PREJUDICIA L 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, ABOV E STATED CIT(A)S ORDER ALLOWING ITS SET OFF OF BROUGHT FORWARD LOSSE S AND SOUGHT TO INVOKE MERGER PRINCIPLE. THE CIT REJECTS THE SAI D PLEAS IN THE ORDER UNDER CHALLENGE AS FOLLOWS: 2.3. THE SUBMISSION FILED BY THE ASSESSEE IS CONS IDERED 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 DECIDI NG 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 RS.2,09,54,980/- FOR THE YEAR UNDE R CONSIDERATION AGAINST WHICH ASSESSEE HAS CLAIMED MAINLY TWO EXPEN SES NAMELY; INTEREST OF RS.52,30,162/- AND DEPRECIATION OF RS. 73,80,572/-. THE GROSS TOTAL INCOME FOR THE YEAR UN DER CONSIDERATION HAS BEEN WORKED OUT AT RS.82,95,115/- AND THE TOTAL INCOME HAS BEEN DISCLOSED AT NIL AFTER CLAIMI NG SET OFF OF UNABSORBED DEPRECIATION FOR A.Y. 2006-07 TO THE EXT ENT OF INCOME AVAILABLE. (II) ASSESSEE ITSELF HAS TREATED THE INCOME F ROM LEASE RENT AS INCOME FROM OTHER SOURCES, BUT THE TDS CERTIFICATES THEMSELVES ALSO REFLECT THE NATURE OF RECEIPT TO BE 'RENT'. SI MILAR MENTION IS MADE IN THE TAX AUDIT REPORT IN CLAUSE 8(B) OF FORM 3CD FILED FOR THE YEAR UNDER CONSIDERATION THAT 'THIS YEAR THE CO MPANY HAS LEASED ITS MOVABLE AND IMMOVABLE ASSETS'. (III) ALTHOUGH, THE ASSESSING OFFICER DISALL OWED ASSESSEE' CLAIM FOR DEPRECIATION FOR THE YEAR UNDER CONSIDERA TION AGAINST INCOME OFFERED TO TAX UNDER THE HEAD 'INCOM E FROM OTHER SOURCES' BY INVOKING PROVISIONS OF SECTION 38 R.W. SECTION 32(1) AND (2) OF THE INCOME TAX ACT, HE FAI LED TO TAKE INTO CONSIDERATION THE FACT THAT THE UNABSORBED DEPRECIATION FOR A. Y. 2006-07 CLAIMED BY THE ASSES SEE AND ITA NO.1244/AHD/2014 (THE SERENDIPITY APPARELS P. L TD. VS. CIT) A.Y. 2009-10 - 8 - ALLOWED BY HIM WITHOUT INVOKING THE SAME PROVISIONS WHICH ARE ATTRACTED IN THIS CASE AS UNABSORBED DEPRECIATION HAS TO BE TREATED AS CURRENT DEPRECIAT ION AS PER PROVISIONS OF SECTION 32(2) OF THE I. T. ACT, 1 961 WHICH READS AS UNDER:- '[(2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FUL L 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, THE N, SUBJECT TO THE PROVISIONS OF SUBSECTION (2) OF SECT ION 72 AND SUB-SECTION (3) OF SECTION 73, THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN, A S THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIO US YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THER E IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR THAT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS.]' (IV) IT IS NOT DISPUTED BY THE ASSESSEE THAT UNABSO RBED DEPRECIATION PERTAINS TO THE BUSINESS OF MANUFACTUR ING OF FABRICS FROM GREY YARN ON JOB WORK BASIS WHICH WAS CONTINUED UP TO 30/09/2005 I.E. A. Y. 2006-07 AND SUBSEQUENTLY NO SUCH BUSINESS HAS BEEN CARRIED ON B Y THE ASSESSEE AND ENTIRE MANUFACTURING FACILITY HAS BEEN GIVEN ON LEASE. IN THE CIRCUMSTANCES, THE UNABSORBED DEPRECIATION DOES NOT PERTAIN TO THE BUSINESS CARRI ED ON BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AN D HENCE NOT ALLOWABLE AS DEDUCTION U/S,57(II) OF THE ACT AGAINST INCOME UNDER THE HEAD INCOME FROM OTHER SOU RCES. 2.4. FROM THE ABOVE, IT IS CLEAR THAT THE UNABSORBE D DEPRECIATION CLAIMED BY ASSESSEE AS DEDUCTION AGAINST INCOME CHA RGEABLE 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 DEPRECIA TION OF PREVIOUS YEAR REMAINING UNABSORBED AND CARRIED FORWARD TO NEXT YE AR CAN BE SET OFF AGAINST INCOME OF SUBSEQUENT YEAR PROVIDED THE SAME BUSINESS IS CONTINUED DURING THE SAID SUBSEQUENT YEAR. HENCE, O N PLAIN READING OF THE PROVISIONS OF SECTION 32(2) OF THE ACT READ WIT H SECTION 72(2) OF THE ACT, ASSESSEE IS NOT ELIGIBLE FOR SET OFF OF THE UN ABSORBED DEPRECIATION PERTAINING TO THE BUSINESS OF MANUFACTURING AGAINST INCOME FROM LEASE RENT CHARGEABLE TO TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. ITA NO.1244/AHD/2014 (THE SERENDIPITY APPARELS P. L TD. VS. CIT) A.Y. 2009-10 - 9 - 2.5. NOW COMING TO VARIOUS DECISIONS CITED BY THE A SSESSEE IN FAVOUR ITS CONTENTION THAT UNABSORBED DEPRECIATION OF ANY BUSI NESS CAN BE SET OFF AGAINST ANY INCOME CHARGEABLE TO TAX, IT IS FOUND T HAT THESE DECISIONS ARE NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE SINCE THESE DECISIONS HAD BEEN DELIVERED WITH RESPECT TO THE PROVISIONS O F SECTION 32(2) OF THE ACT PRIOR TO THE AMENDMENT; BY THE FINANCE ACT, 200 1 W.E.F. 1/4/2002. SIMILAR IS THE SITUATION WITH RESPECT TO THE CIRCUL AR NO. 794 OF 2000 OF CBDT RELIED UPON BY THE ASSESSEE IN SUPPORT OF ITS CLAIM. SINCE THE SAID CIRCULAR IS IN THE NATURE OF EXPLANATORY NOTES ON A MENDMENTS INTRODUCED BY FINANCE ACT, 2000, WHEREAS AS MENTIONED ABOVE TH E PROVISIONS OF SECTION 32(2) OF THE ACT HAVE BEEN AMENDED BY FINAN CE ACT, 2001 W.E.F. 1/04/2002. HENCE, THE RELIANCE PLACED BY THE ASSESS EE ON THE SAID CIRCULAR IS FOUND TO BE MISPLACED. 3. FROM THE ABOVE IT IS EVIDENT THAT THE ABOVE IT I S EVIDENT THAT THE ASSESSING OFFICER HAS NOT VERIFIED THE ISSUE REGARD ING ELIGIBILITY FOR CLAIM OF SET OFF OF UNABSORBED DEPRECIATION OF DISC ONTINUED BUSINESS AGAINST INCOME CHARGEABLE TO TAX UNDER THE HEAD INC OME FROM OTHER SOURCES AND THEREBY ALLOWED ASSESSEE'S LEGALLY AND FACTUALLY INCORRECT CLAIM OF SET OFF AND CARRY FORWARD OF UNABSORBED DE PRECIATION WITHOUT APPLICATION OF MIND AND WITHOUT APPLICATION OF CORR ECT 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 'PREJUDICIA L 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 15/12/201 1 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 SE T OFF AND CARRY FORWARD OF UNABSORBED BROUGHT FORWARD DEPRECIATION OF DISCONTINUED BUSINESS AND DISALLOW THE SAME WHICH HAS BEEN SET O FF 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 OF F CLAIM IN THE ABOVE EXTRACTED FINDINGS. THE CIT ACCORDINGLY OUGH T NOT TO HAVE INVOKED SECTION 263 REVISION PROCEEDINGS. THE ASSE SSEES SECOND ARGUMENT IS THAT ITS INCOME FROM OTHER SOURCES IN Q UESTION COMES U/S. 56(2)(III) OF THE ACT WHICH IN TURN IS E NTITLED FOR SECTION 32(1) & (2) DEPRECIATION CLAIM AS PER SECTI ON 57 (II) OF THE ITA NO.1244/AHD/2014 (THE SERENDIPITY APPARELS P. L TD. VS. CIT) A.Y. 2009-10 - 10 - ACT. THE ASSESSEES THIRD ARGUMENT CHALLENGES CIT S FINDING THAT IT HAD DERIVED INCOME FROM OTHER SOURCES ONLY IN TH E IMPUGNED ASSESSMENT YEAR AND ITS BUSINESS OF MANUFACTURING OF FABRICS FROM GREY YAN WAS NO LONGER IN EXISTENCE SINCE ENTI RE MANUFACTURING STOOD LEASED OUT FOR THE FULL PERIOD OF THE YEAR UNDER CONSIDERATION. CASE LAW OF (2002) 260 ITR 2 07 (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 CITS ORDER UNDER CHALLENGE PASSED U/S.263 OF THE ACT. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE C ASE FILE. RELEVANT FACTS STAND NARRATED IN PRECEDING PARAGRAP HS. THE SAME ARE NOT REPEATED FOR THE SAKE OF BREVITY. WE COME TO MERITS OF THE CASE FIRST. THE ASSESSEE HAS DERIVED ITS LE ASE RENTAL INCOME UNDER THE HEAD FROM OTHER SOURCES. THERE IS NO D ISPUTE THAT THE SAME IS COVERED U/S.56(2)(III) OF THE ACT. THI S IS FOLLOWED BY SECTION 57 STIPULATING ALLOWABILITY OF CORRESPONDIN G DEPRECIATION RELIEF U/S.32(1) & (2) OF THE ACT. THE CIT HOLDS T HAT THE ASSESSEES BUSINESS AS IT EXISTED EARLIER OF MANUFACTURING IS NO LONGER IN EXISTENCE OR THE SAME IS NOT BEING CARRIED OUT IN T HE IMPUGNED ASSESSMENT YEAR SO AS TO CLAIM DEPRECIATION RELIEF U/S.32(1) & (2) OF THE ACT. WE NOTICE FROM CASE LAW OF FABRIQUIK ( SUPRA) THAT THEIR LORDSHIPS CONSIDER EARLIER DECISIONS OF (1987 ) 168 ITR 773 CIT VS. DEEPAK TEXTILE INDUSTRIES LTD. (GUJARAT) AN D (1995) 216 ITR 607 (GUJARAT) CIT VS. VIRMANI INDUSTRIES PVT. L TD. HOLDING THAT IN ORDER TO AVAIL SECTION 32(2) DEPRECIATION C LAIM, IT IS NOT NECESSARY THAT THE BUSINESS CARRIED ON IN THE FOLLO WING PREVIOUS ITA NO.1244/AHD/2014 (THE SERENDIPITY APPARELS P. L TD. VS. CIT) A.Y. 2009-10 - 11 - YEAR SHOULD BE THE SAME AS IT WAS CARRIED ON THE PR ECEDING PREVIOUS YEAR. AND ALSO THAT THERE ARE NO WORDS TO THAT EFFECT IN THE RELEVANT STATUTORY PROVISION AS WELL. THE JURI SDICTIONAL HIGH COURT IS OF THE VIEW THAT AN ASSESSEE NEED NOT CARR Y 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 ASSESSEES LATTER TWO ARGUMENTS ON MERITS AND HOLD IT ENTITLED FOR THE IMPUGNED DEPRECIATION BENE FIT. ITS LEGAL PLEA OF MERGER PRINCIPLE (SUPRA) IS RENDERED INFRUC TUOUS. THE CITS ORDER UNDER CHALLENGED PASSED U/S.263 OF THE ACT STANDS REVERSED ACCORDINGLY. 5. THIS ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 21 ST DAY OF OCTOBER, 2015. SD/- SD/- (PRAMOD KUMAR) (S . S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 21/10/2015 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )* + ,--. . /0 / DR, ITAT, AHMEDABAD 1 + 23 4 5 / GUARD FILE. BY ORDER / . // . /0