TATA Moters Ltd. Vs DCIT (ITAT Mumbsi)
In this case Impugned assets underlying lease agreements were very much in existence, purchase consideration of assets was discharged by assessee through banking channels, and lease transactions were completed as per legally prescribed procedures, assessee was a rightful owner of leased assets and lessees had confirmed the ownership of assets, and they had not claimed depreciation in their books of account for purchase and lease of assets. Also, lease rentals earned by assessee was offered to tax and same was assessed by AO in the year under consideration as well as in subsequent assessment years. Therefore, disallowance of depreciation by AO was not justified.
FULL TEXT OF THE ITAT JUDGMENT
These are the appeals filed by the assessee and the revenue pertaining to the Assessment Years 1994-95, 1996-97, 1997-98 and 1998-99. Vide ITA No. 3524/Mum/2013, the assessee has challenged the impugned order passed by the Ld. CIT (A) – 6, Mumbai, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) read with section 147 of the Income Tax Act, 1961 (for short ‘the Act’). Vide ITA No. 4462/Mum/2014 the assessee has challenged the impugned order dated 19/03/2014 passed by the Ld. CIT (A)-6, Mumbai, whereby the Ld. CIT (A) has partly allowed the appeal of the assessee filed by the assessee against assessment order passed u/s 143 (3) read with section 254 of the Income Tax Act. Third appeal i.e. ITA No. 1722/Mum/2012 has been preferred by the revenue against the order dated 30/12/20111 passed by the Commissioner of Income Tax (Appeals)-6, Mumbai, whereby the Ld. CIT (A) has partly allowed the filed by the assessee against order giving effect to the ITAT order passed in ITA No. 4417 and 4314/Mum/2005 dated 29/11/2009. Vide ITA NO. 1488/Mum/2012 the assessee has challenged the impugned order passed by Commissioner of Income Tax (Appeals)-6, Mumbai, whereby the Ld. CIT (A) has dismissed the appeal filed by the assessee against order giving effect to ITAT order passed in ITA No. 4417 and 4314/Mum/2005, section 143 (3) read with section 254 of the I.T. Act. Since, all the four appeals pertain to the same assessee for the different assessment years, all the appeals were clubbed, heard together and are being disposed of by this common and consolidated order for the sake of convenience.
ITA No. 3524/Mum/2013 (Assessment Year: 1994-95)
Brief facts of the case are that the ITAT restored the appeal of the assessee pertaining to the assessment year 1994-95 to the file of the CIT(A) for fresh adjudication as the assessee had raised additional ground of appeal challenging the validity of reopening of the assessment. In pursuance thereof the Ld. CIT (A) passed impugned order and dismissed the said ground and reiterated its findings already given on the other issues. The assessee challenged the said order before the CIT(A). The Ld. CIT(A) affirmed the action of the AO. Against the said order the assessee is in appeal before the Tribunal.
2. The assessee has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
1. Proceedings initiated under section 147 is invalid and bad in law:
1.1 The learned CIT (A) has erred in law and on facts in confirming the validity of the proceedings under section 147 of the Act. The learned CIT (A) ought to have appreciated based on the facts and circumstances of the case and in law that the reassessment proceedings under section 147 is bad in law, illegal and without and/or in excess of jurisdiction.
1.2 The learned CIT (A) has erred in law and on facts in confirming the validity of the proceeding under section 147 of the Act disregarding the facts that the information regarding claim of depreciation on assets given on lease was already available on records and hence the reassessment proceeding under section 1147 is invalid and bad in law being based on same set of facts and material already on records.
2. Without prejudice to Ground No. 1 above:
2.1 The learned CIT (A) has erred in law and on facts in confirming the disallowance of depreciation simply based on the earlier order dated 30/11/2004 passed by the then CIT (A). The CIT (A) ought to have examined the facts and considered the submissions of the appellant and decided the issue afresh on merits.
2.2 Disallowance of depreciation on assets given on lease to Sahney Krikwood Pvt Ltd.:
2.2.1 The learned CIT (A) has erred in law and on facts of the case in confirming the disallowance of depreciation of Rs. 20,00,000 on assets acquired from M/s Sahney Krikwood Pvt. Ltd. and leased back to them on presumption that the captioned transaction of sale and lease back was only a finance transaction.
2.2.2 The CIT (A) has erred in law and on facts in confirming disallowance of depreciation on assets leased to Sahney Krikwood Pvt. Ltd. disregarding the information, documents and submissions filed by the appellant.
2.3 Disallowance of depreciation on assets given on lease to PABST Cola Co. Ltd.:
2.3.1 The CIT (A) has erred in law and on fact in confirming the disallowance of depreciation of Rs. 14,18,250/- on assets purchased from Kempsberg Breweries Pvt. Ltd. and leased to PABST Cola Co. Ltd. on the presumption that the assets were not in existence and the transaction was merely a finance transaction.
2.3.2 The CIT (A) has erred in law and on facts in confirming the disallowance of depreciation disregarding the fact that the AO has disallowed the depreciation for the reason that supplier of the goods, Kempsberg Breweries Pvt. Ltd., have not responded to the notice of the AO. The CIT (A) ought to have considered the information, documents and submissions filed by the appellant.
2.3.3 The CIT (A) has erred in law and on facts on confirming the disallowance of depreciation disregarding the information, documents and submissions filed by the appellant.”
3. Before us, the Ld. counsel for the assessee submitted that the assessee does not want to press ground No. 1 of the appeal. Hence, this ground of appeal is dismissed as not pressed.
4. Ground No. 2 pertains to disallowances of depreciation of Rs. 20,00,000/- on assets acquired from M/s Sahney Krikwood and leased back and Rs. 14,18,25/- on assets purchased from Kempsberg Breweries Ltd. and leased to PABST Cola Co. (total Rs. 34,18,250/-) The Ld. counsel for the assessee submitted that this issue is covered by the order dated 12/06/2017 passed by the ITAT in the appellant’s own case for the assessment years 1994-95 to 1997-98 in ITA Nos. 1484 to 1487/Mum/2012 and 7166 to 7168/Mum/2010, order dated 06/01/2017 passed by the ITAT in the assessee’s own case for the assessment years 1997-1998 and 1998-99 in ITA No. 6214/Mum/03 and 7148/Mum/04, order dated 25/06/2014 passed by the ITAT in the case of Sheba Properties (assessee’s wholly owned subsidiary companies) for A.Y. 1998-99, 2006-07 and 2008-09 and order dated 16/06/2008 passed by the ITAT in the case of Sheba Properties for the assessment years 1996-97 and 1997-98. The Ld. counsel further submitted that apart from the decisions of the ITAT, this issue is covered by the judgment of the Hon’ble Supreme Court passed in ICDS Ltd. Vs. CIT (350 ITR 527 SC) and the Hon’ble High Court of Bombay passed in CIT vs. Apollo Finvest Investment Ltd. ITA No. 2298 of 2013 Bom. Therefore, this ground of the appeal is liable to be dismissed being devoid of any merit.
5. On the other hand, the Ld. Departmental Representative (DR) did not controvert the submissions of the Ld. counsel, however, relied on the order passed by the Ld. CIT (A).
6. We have heard the rival submissions and also carefully gone through the material on record including the cases relied upon by the Ld. Counsel for the assessee. We notice that the assessee had raised the identical issue in ITA No. 1484/Mum/2012 for the A.Y. 1994-95. In the said year, the return of the assessee was completed u/s 143 (3) of the Act. The Assessing Officer disallowed depreciation on lease assets. The Ld. CIT (A) confirmed the action of the AO. In second appeal, the ITAT restored the matter back to the file of AO with the direction to examine the issue of disallowance of depreciation of lease assets de novo in the light of the various judicial pronouncements. The AO in set aside proceedings again disallowed the depreciation in the order passed u/s 143 (3) read with section 254 of the Act. The action was again challenged before the Ld. CIT (A). The Ld. CIT (A) further confirmed the order passed by the AO. Against the said order, appeal was filed before the ITAT in the second round. Similar disallowances were made by the AO, which were sustained by CIT (A) for the A.Y. 1997-98 and 1998-99 and the assessee filed appeal before the Tribunal and the Tribunal decided the issue in favour of the assessee and deleted the addition. The Ld. counsel further relied upon the decision of Tribunal in assesee’s own wholly owned subsidiary company in Sheba Property Ltd. vs. DCIT (supra). It was further argued that Hon’ble Gujarat High Court in the case of ACIT vs. Gujarat Lease Finance Ltd. (2008) 174 Taxmann 28, allowed the similar disallowances. The assessee further relied upon the decision of Hon’ble Supreme Court in the case of ICDS Ltd. vs. CIT (supra). After hearing the rival contentions the co-ordinate Bench of the Tribunal decided this issue in favour of the assessee. The findings of the Tribunal are reproduced herein below:-
“5. We have considered the rival submission of the parties and perused the material available on record carefully. Besides the year under consideration, the ld. CIT (A) sustained the similar disallowance of depreciation of leased asset for AYs 1995-96, 1996-97, 1997-98 and 1998-99. The assessee has filed appeal before the ITAT Vide ITA No. 6214/Mum/2003 for A Y 1997-98 and ITA No. 7148/Mum/2004 for AY 1198-99 and the Tribunal passed the follower order:-
“18.15. We have heard the rival submissions and perused the material before us. We find that impugned assets underlying lease agreements were very much in existence, that purchase consideration of assets was discharged by the assessee through banking channels, that copies of the cheques were also produced, that the lease transactions were completed as per all legally prescribed procedures, that it was a rightful owner of leased assets that the lessees had confirmed the ownership of assets, that they had not claimed depreciation in their books of account for purchase and lease of assets, that lease rentals earned by the assessee was offered to tax and same was assets by the AO.s in the year under consideration as well as in the subsequent AY.s. Here, we would like to discuss the matter of I.C.D.S. Ltd. (supra). In that case the Hon’ble Apex Court has held as under:-
The provision on depreciation in the Income-tax Act, 1961, reads that the asset must be ‘owned, wholly or partly, by the assessee and used for the purposes of the business.
Therefore, it imposes a twin requirement of “ownership” and usage for business” for a successful claim under section 32 of the Act. The section requires that the assessee must use the asset for the purpose of business . It does not mandate usage of the asset by the assessee itself. As long as the asset is utilized for the purpose of business of the assessee, the requirement of section 32 will stand satisfied, notwithstanding non-usage of the asset itself by the assessee.
The definitions of ‘ownership’ essentially make ownership of function of legal right or title against the rest of th world. However, it is “nomen generalissimum”, and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied. As long as the assessee has a right to retain the legal title against the rest of the world, it would be the owner of the asset in the eyes of law.
As the assessee was the owner of the assets leased out to different parties, so , it was entitled to claim depreciation. The FAA had gone through the lease agreements, confirmation letters and other relevant material. As the existence of assets and their use is in doubt, so, the AO in our opinion was not justified in denying the claim of depreciation made by assessee. We also find that FAA had allowed depreciation @ 50%, as the assets were used for less than 180 days during the year under consideration. It is also a fact that two of the lessees are state electricity boards i.e. APSEB and RSEB. Both of them have confirmed the lease transaction and installation of machinery assets. The FAA had observed that it could not be alleged that govt. undertakings had colluded with the assessee to mislead and defraud the govt. of its revenue by giving wrong confirmations. So, we do not see any infirmity in the order of the FAA. Confirming his order, we decide the Ground No. 11 against the AO.
6. Thus, considering the decision of Tribunal in assessee’s own case on identical grounds of appeal, which was decided on the identical fact, we find that this ground of appeal is covered in favour of assessee and against the revenue. The coordinate bench decided the identical ground of appeal on the basis of decision of Apex Court in case of ICDS Ltd. (supra). Thus, respectfully following the decision of Tribunal the ground No. 1 of appeal raised by assessee is allowed.”
7. We further notice that this ground of appeal is identical to ground No. 5 of appeal of the assessee pertaining to the A.Y. 1997-98 before the ITAT. The coordinate Bench after hearing the assessee decided the issue in favour of the assessee. We further notice that in Seba Properties Ltd. (assessee’s wholly owned subsidiary company) ITA No. 1954/Mum/2003 for the A.Y. 1998-99, the revenue challenged the action of CIT (A) in deleting the disallowance of Rs. 65,19,510/- made by the AO being the claim of depreciation on lease assets. The coordinate Bench relying on the various decisions of the Hon’ble High Courts and the Hon’ble Supreme Court including the case of ICDS (supra) decided the identical issue in favour of the assessee and dismissed this ground of appeal of the revenue. Similarly, in Seba Properties Ltd., ITA No. 4913/Mum/2000 for the A.Y. 1996-97 and ITA No. 6805/Mum/2002 A.Y. 1997-98, the coordinate Bench has decided the identical issue in favour of the assessee. We further notice that the coordinate Benches have followed the principles of law laid down by the Hon’ble Supreme Court in ICDS (supra).
8. Since, the identical issue has been decided by the coordinate Bench in favour of the assessee in the assessee’s own cases as well as the assessee’s wholly owned Subsidiaries Company, we respectfully following the decision of the co-ordinate Bench set aside the findings of the Ld. CIT (A) and decide this issue in favaour of the assessee. Hence, we allow ground No. 2-1, 2.2 and 2.3 of the assessee’s appeal.
ITA No. 4462/MUM/2014 (Assessment Year: 1996-97)
Facts of the case in brief are that the assessee filed its return of income for the relevant assessment year declaring the total loss of Rs. 1,93,96,000/-. However, the AO determined the total income of the assessee at Rs.14,53,78,180/-. In the first appeal, the Ld. CIT(A) granted partial relief to the assessee. In further appeal before the Tribunal, the Bench remitted the matter back to the AO on the issue of disallowance of depreciation on assets purchased leased back by the assessee. In pursuance thereof, the AO passed assessment order u/s 143(3) read with section 254 of the Act and disallowed depreciation on the assets given on lease by holding the lease as non genuine. The assessee challenged the said order before the CIT(A). The Ld. CIT(A) affirmed the action of the AO. Against the said order the assessee is in appeal before the Tribunal.
2. The assessee has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
1. “Disallowance of depreciation on leased assets of Rs. 3,05,73,735
1.1 The Learned CIT (A) has erred in law and on facts in upholding the disallowance of depreciation aggregating to Rs. 3,05,73,735 on assets acquired and leased during the year.
1.2 The Learned CIT (A) has erred in disregarding submissions and facts of the case and holding that the transaction of lease of assets acquired and leased during the year was not a genuine lease transaction but merely a loan transaction and consequently not eligible for depreciation under section 32 of the Act.
1.3 The Learned CIT (A) has erred in law and on facts in not following decision of the Hon’ble Supreme Court in the case of M/s I.C.D.S. Ltd. vs. CIT [350 ITR 527].
1.4 The Learned CIT (A) has erred in law and on facts in not following decision of the Hon’ble Jurisdictional Special Bench’s decision in the case of IndusInd Bank Ltd. vs. Addl. CIT [135 ITD 165 (Mumbai) (SB)] wherein Hon’ble special bench has observed that depreciation is allowable to lessor in sale and lease back transaction.
2. Interest u/s 220 (2)
2.1 The learned CIT (A) has erred in law and on facts in holding the levy of interest under section 220(2) of the Act as consequential in nature.
2.2 The learned CIT (A) ought to have appreciated that interest under section 220 (2) of the Act should be levied only from end of 30 days from service of fresh demand notice pursuant to order giving effect to Hon’ble Tribunal’s order setting aside the matter for fresh adjudication by the AO.”
3. Ground No. 1 of this appeal is identical to Ground No. 2.2 of the assessee’s appeal ITA No. 3524/Mum/2013 for the A.Y. 1994-95. Since, we have allowed this ground of appeal in the assessee’s appeal for the A.Y. 1994-95, consistent with our own findings, we allow this ground of appeal of the assessee in the present case for the reasons recorded in the order pertaining to the assessment year 1994-95.
4. The second issue pertains to interest u/s 220 (2) of the Act. The Ld. counsel pointed out that in the revenue’s appeal against the order of the Ld. CIT (A) in assessee’s case ITA No. 6004/Mum/2013 for the A.Y. 1997-98, the ITAT has decided the identical issue in favour of the assessee and dismissed the ground of the appeal of the assessee. The Ld. counsel for the assessee contended that the interest u/s 220 (20) should be calculated from the date of fresh assessment when the assessment is de novo set aside and the interest could not be calculated from the date of original assessment order, which is very clear from the CBDT Circular No. 334 dated 3/04/1982. The coordinate Bench has decided the issue in favour of the assessee holding as under:-
“On a careful consideration of the above observations and findings of the CIT (A), we do not find any reason to reverse the findings of the CIT (A) as the decision of the CIT (A) is in conformity with the decision of the Hon’ble Bombay High Court in the case of CIT vs. Chika Oversees P. Ltd. and also in conformity with the circular of the CBDT. Hence, we affirm the action of order of the CIT (A) in deleting interest levied u/s 220 (2) of the Act. Since, we have deleted the interest u/s 220 (2) affirming the orders of the CIT (A) the cross objection will not survive.”
5. Respectfully following the view taken by the coordinate Bench, we direct the AO to recomputed interest accordingly. Hence, we allow this ground of appeal of the assessee.
ITA No. 1722/MUM/2012 (Assessment Year: 1997-98)
Brief facts of the case are that the Ld. CIT (A) dismissed the ground regarding disallowance of depreciation on assets given on lease treating the same as long transaction holding that this issue has been examined in detail in the case of assesse’s appeal for the A.Y. 2000-01 and grounds relating to claim of 100% depreciation during the A.Y. 1994-95, 1995-96, 1996-97, 1997-98 and 1998-99. So far as the ground without prejudice that the AO has erred in facts and law in not granting deduction of capital recovery out of lease rent with regard to the assets on which depreciation had been denied, the Ld.CIT (A) directed the AO not to consider principle amount of capital recovery as income in the present year for the reason that the AO has not considered principle amount of capital recovery as income of the appellant in the A.Ys. 1994-95, 1995-96, 1996-97 and 2001-02.
2. The revenue has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
1. “On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in giving the direction that not to consider principal amount of capital recovery as income, when the assessee has not withdrawn his claim of depreciation and the issue has not reached finality.
2. Without prejudice to above, on the facts and circumstances of the case and in law, the Ld. CIT (A) failed to appreciate that as the amount of capital recovery stands credited to assessee’s accounts, therefore represents assessee’s income till the accounting entries are reversed.
