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10-01-2020, Narshi Nenshi & Sons, Section 78(2), Tribunal Mumbai

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6 months 2 weeks ago #12047 by amit
Section - 78(2)
Order Date - 10-01-2020
Favouring - Assessee Partly
Court - Tribunal Mumbai
Appellant - ITO
Respondent - Narshi Nenshi & Sons
Justice - C.N. PRASAD JM & RAJESH KUMAR AM
Citation - 120Taxpundit111
Appeal No. - ITA No. 1169/MUM/2018
Asstt. Year - 2014-15

Order

PER : C.N. PRASAD (JM)

1. These appeals and cross objection are filed by the revenue and assessee against different orders of the Learned commissioner of Income-tax (Appeals) – 28, Mumbai [hereinafter for short “Ld. CIT(A)] for the A.Ys. 2012-13 to 2014-15.

2. The revenue in its appeals raised the following common grounds for all the assessment years i.e., A.Y. 2012-13 to 2014-15.

1. "On the facts & circumstances of the case and in law, the learned CIT(A) has incorrectly allowed the set off of unabsorbed depreciation of the deceased person in the hands of the legal heirs based on section 78(2) of the I. T Act whereas, under section 78(2) of the Act only losses are allowed to set off and not any unabsorbed depreciation in the hands of the legal heirs."

2. "On the facts & circumstances of the case and in law, the learned CIT(A) has wrongly applied the Hon'ble Supreme Court Judgement in the case of Saroj Aggarwal vs. CIT (1985) 156 ITR 497 (SC), wherein the judgement does not apply to the facts of the case, as it talks about only carry forward and set off of losses and not unabsorbed depreciation.

3. "On the facts & circumstances of the case, the order of Ld.CIT(A) is perverse and deserves to be cancelled."

4. "The appellant prays that the order of the A.O. should be restored and order of the CIT(A) should be set aside."

3. The speaking order of the Ld. CIT(A) is for the A.Y. 2013-14 which was followed for the A.Y. 2012-13 and 2014-15. Thus, we take up the appeal for the A.Y. 2013-14 for the sake of convenience.

4. Briefly stated the facts are that, the assessee is a partnership firm engaged in the business of transportation, filed return of income for the A.Y. 2013-14 on 26.09.2013 declaring NIL income after claiming setoff of unabsorbed depreciation. The Assessing Officer while completing the assessment observed that assessee claimed setoff of unabsorbed depreciation pertaining to A.Y. 2007-08 to A.Y. 2011-12 and the assessee was required to give justification for the same, since according to the Assessing Officer assessee has already claimed setoff of unabsorbed depreciation for the A.Y. 2012-13. In response to the query raised by the Assessing Officer the assessee vide letter dated 08.02.2016 furnished its reply stating that Late Mr. Virchand Narshi Soni expired on 08.12.2008. He was carrying on the business under the name and style of Narshi Nanshi & Sons as a proprietor. Assessee submitted that after his demise his legal heirs continued the same business as a partnership firm w.e.f. 09.12.2008 under the same trade name using the same place of business, telephone lines etc. It was also submitted that business recoveries are affected in the firm’s name and the subsisting transactions are cleared and the assets of the business are utilized in clearing the liabilities by the heirs in the process of carrying on the business as successors through partnership firm. Therefore, it was contended that as per the provisions of the section 78(2) of the Act the unabsorbed depreciation and business loss of proprietary concern is to be setoff against the income of the partnership firm. Accordingly, the unabsorbed depreciation and business loss of the erstwhile proprietary concern has been carried forward by the successor partnership firm and setoff against income of the firm.

5. Not convinced with the reply the Assessing Officer disallowed claim for set off of unabsorbed depreciation/business loss observing that unabsorbed depreciation cannot be carried forward for set off by another person other than the person who has incurred depreciation on his fixed assets. The assessee carried the matter before the Ld. CIT(A) and the Ld. CIT(A) following the decision of the Hon'ble Supreme Court in the case of the CIT v. Madhukant M. Mehta [247 ITR 805] allowed the claim of the assessee. Further, reliance was also placed by the Ld. CIT(A) on the decision of the Hon'ble Supreme Court in the case of the Saroj Aggarwal v. CIT [156 ITR 497].

6. Ld. DR vehemently supported the orders of the Assessing Officer and whereas the Ld. Counsel for the assessee strongly placed reliance on the decision of the Hon'ble Supreme Court in the case of the CIT v. Madhukant M. Mehta (supra) and also supported the order of the Ld.CIT(A).

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