Bajaj Auto Finance Limited, Pune V. Addl. CIT, Pune

ITA 1092/PUN/2010

• Counselvise Citation: 109224514 RSA 2010
• Duration Of Justice: 3 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 25-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 29-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Keywords: Depreciation
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE: SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 576 / P N/ 20 09 ASSESSMENT YEAR S : 2004 - 05 BAJAJ AUTO FINANCE LIMITED, C/O BA JAJ AUTO LIMITED, BOMBAY PUNE ROAD, AKURDI, PUNE VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE - 8, PUNE (APPELLANT) (RESPONDENT) PAN NO. AABCB1518L ITA NO. 577 /PN/20 09 ASSESSMENT YEAR S : 2005 - 06 BAJAJ AUTO FINANCE LIMITED, C/O BAJAJ AUTO LIMITED, BO MBAY PUNE ROAD, AKURDI, PUNE VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE - 8, PUNE (APPELLANT) (RESPONDENT) PAN NO. AABCB1518L ITA NO. 1092 /PN/20 10 ASSESSMENT YEAR S : 2006 - 07 BAJAJ AUTO FINANCE LIMITED, 4 TH FLOOR, SURVEY # 208/1 - B, VIMAN NAGAR, PU NE VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE - 8, PUNE (APPELLANT) (RESPONDENT) PAN NO. AABCB1518L APPELLANT BY: SHRI KIRIT KAMDAR RESPONDENT BY: SMT. M.S. VERMA DATE OF HEARING : 28 - 11 - 2013 DATE OF PRONOUNCEMENT : 29 - 11 - 2013 ORDER PER BENCH : - THESE THREE APPEALS WERE ORIGINALLY DISPOSED OF BY THE TRIBUNAL VIDE ORDER DATED 31 - 08 - 2012 . S UBSEQUENTLY , THE ASSESSEE MOVED THE MISCELLANEOUS APPLICATION IN ALL THE THREE YEARS WITH PRAYER TO RECALL THE 2 ITA NOS. 576 & 577/PN/2006 & 1092/PN/2010, BAJAJ AUTO FINANCE LIMITED, PUNE ORDERS THE GROUND OF DISALLOWANCE OF DEP RECIATION ON THE ASSETS GIVEN ON LEASE BY THE ASSESSEE UNDER THE FINANCIAL LEASE AGREEMENT . THE COMMON ISSUE IS TO BE DECIDED IN ALL THESE APPEALS IS WHETHER THE LD. CIT(A) HAS JUSTIFIED IN HOLDING THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE ASS ETS GIVEN ON LEASE UNDER FINANCIAL AGREEMENT. THE ORDER DATED 31 - 08 - 2012 IS RECALLED FOR ADJUDICATING ONLY ABOVE ISSUE. 2. THE FACTS PERTAINING TO THE ISSUE ARE AS UNDER. THE ASSESSEE IS A NON - BANKING FINANCE COMPANY WHICH IS ENGAGED IN THE BUSINES S OF HIRE PURCHASE, LEASING, REAL ESTATE, ETC. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD GIVEN THE CONSUMER DURABLES, I.E. SOLAR WATER HEATERS AND COMPUTERS ON FINANCIAL LEASE . THE ASSESSEE HAD CLAIMED THE OWNERSHIP OF THOSE ASSETS WH ICH HAD BEEN LEASED OUT TO DIFFERENT CUSTOMERS AND HAD ACCORDINGLY CLAIMED DEPRECIATION ON THE LEASE D ASSETS. AFTER CONSIDERING THE TERMS AND CONDITIONS OF THE L EASE A GREEMENTS, THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE COULD NOT BE CONSTRUED AS T HE O WNER OF THAT ASSET AND THAT THE ASSESSEE WAS MERELY A FINANCIER OF GOODS AND IN REALITY THE CUSTOMERS ARE THE TRUE OWNERS AS THE GOODS NEVER CAME BACK TO THE ASSESSEE COMPANY. 3. AS NOTED BY THE ASSESSING OFFICER THE ASSESSEE HAS CLAIMED THE DEPRE CIATION @ 80% ON THE SOLAR HEATERS AND 60% ON THE COMPUTERS. THE ASSESSEE STATED BEFORE THE ASSESSING OFFICER THAT IT HAS UNDERTAKEN LEASING TRANSACTION IN THE NATURE OF FINANCIAL LEASING. THE ASSESSEE ALSO EXPLAINED THE BASIC CONDITIONS IN THE FINANCIAL LEASING TRANSACTIONS. THE ASSESSING OFFICER HELD THAT THE ASSESSEE CANNOT BE TREATED AS AN OWNER OF THE ASSETS AS PER THE TERMS OF THE LEASE AGREEMENT AND THE ASSESSE COMPANY MERELY A FINANCIER OF THE GOODS. THE REASONS GIVEN BY THE ASSESSING OFFICER AR E AS UNDER: THE TERMS OF THE CONTRACT AS REGARDS RIGHTS AND OBLIGATIONS OF THE LESSEE AS HIGHLIGHTED ABOVE, MAKE THE INTENTION OF THE COMPANY VERY CLEAR THAT AS A LESSOR THE COMPANY 1 WAS BASICALLY INTERESTED IN 3 ITA NOS. 576 & 577/PN/2006 & 1092/PN/2010, BAJAJ AUTO FINANCE LIMITED, PUNE EARNING THE LEASE INCOME ON THE ASSETS AND NOT ON ACQUIRING THE ASSET AS OWNER AND USING THEM FOR THE PURPOSE OF THEIR LEASE BUSINESS AND CLAIMING DEPRECIATION ON THE LEASED ASSETS. IT IS ABUNDANTLY CLEAR THAT THE ASSESSEE COMPANY WAS ACTUALLY ENGAGED IN FINANCING TRANSACTION WHICH WERE DESCRIBED A S LEASE TRANSACTION. AS PER THE SCHEME OF THE BUSINESS OF THE ASSESSEE COMPANY, IT IS SEEN THAT THE ASSESSEE COMPANY MERELY USED TO ARRANGE PURCHASE OF COMPUTERS AND SOLAR HEATERS FOR THE WILLING CUSTOMERS AND USED TO FINANCE THEM. THE ENTIRE COST OF THE G OODS ALONG WITH THE INTEREST IS TO BE RECOVERED IN THE FORM OF LEASE RENT. THERE WAS NO OBLIGATION TO RETURN THE GOODS TO THE ASSESSEE COMPANY IN THE SCHEME OF THE THINGS. THE CUSTOMER IN THIS CASE CHOOSE TO PURCHASE GOODS (COMPUTERS AND SOLAR HEATERS) FOR WHICH THE ASSESSEE COMPANY MERELY PROVIDED FINANCE AND ON COMPLETION OF THE INSTALLMENTS, THE CUSTOMERS BECAME THE OWNERS AND THE GOODS NEVER CAME BACK TO THE ASSESSEE COMPANY FOR LEASING THEM TO ANY OTHER PERSON IN VIEW OF THESE FACTS, THE ASSESSEE COMPA NY CANNOT BE HELD TO BE OWNER OF THE ASSETS AS PER THE TERMS OF LEASE AND THE ASSESSEE COMPANY IS MERELY A FINANCIER OF GOODS. 4. THE ASSESSING OFFICER FURTHER HELD THAT THE ASSESSEE COMPANY CLAIMED DEPRECIATION ON CONSUMER DURABLES LIKE TV, VCR, REFRI GERATOR, SCOOTER, ETC. STATED TO HAVE BEEN LEASED TO VARIOUS CUSTOMERS. THE A SSESSEE COMPANY WAS ACTUALLY ENGAGED IN FINANCING TRANSACTIONS WHICH WERE DESCRIBED AS LEASE TRANSACTION S . THE ASSESSEE COMPANY USED TO ARRANGE PURCHASE OF CONSUMER GOODS BY THE W ILLING CUSTOMERS AND USED TO FINANCE THEM. THE ENTIRE COST OF THE GOODS ALONG WITH THE INTEREST IS TO BE RECOVERED IN THE FORM OF LEASE RENT. THERE WAS NO OBLIGATION TO RETURN THE GOODS TO THE ASSESSEE COMPANY. THE ASSESSING OFFICER HAS NOTED THAT THE TRAN SACTIONS WERE IN FACT NOT LEASE TRANSACTION BUT THOSE OF SALE OF GOODS ON INSTALLMENTS BASIS. THE CUSTOMER IN THIS CASE CHOOSE TO PURCHASE GOODS FOR WHICH THE ASSESSEE COMPANY MERELY PROVIDED FINANCE AND ON COMPLETION OF THE INSTALLMENTS , THE CUSTOMERS BEC AME THE OWNERS AND THE GOODS NEVER CAME BACK TO THE ASSESSEE COMPANY FOR LEASING THEM TO ANY OTHER PERSON. AFTER NOTING ABOVE FACTS IT IS HELD THAT 4 ITA NOS. 576 & 577/PN/2006 & 1092/PN/2010, BAJAJ AUTO FINANCE LIMITED, PUNE THE ASSESSEE COMPANY CANNOT BE HELD TO BE OWNER OF THE ASSETS AS PER THE TERMS OF LEASE AND THE COMPANY IS M ERELY A FINANCIER OF GOODS. ACCORDINGLY, IT WAS HELD THAT THE ASSESSEE COMPANY WAS NOT ENTITLED TO CLAIM THE DEPRECIATION ON THE LEASED ASSETS . 5. IN SUM AND SUBSTANCE THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION ON THE ASSETS WHICH ARE GIVEN UNDER THE FINANCIAL LEASE AGREEMENT AS UNDER: A.Y. AMOUNT OF THE DEPRECIATION DISALLOWED 2004 - 05 RS.67,576,696/ - 2005 - 06 RS.38,33,53,029/ - 2006 - 07 RS.48,76,86,683/ - 6. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE LD. CIT(A), WHO CONFIRMED THE ORD ER OF THE LD. CIT(A). WHEN THE MATTER REACHED BEFORE THE TRIBUNAL , THE TRIBUNAL CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY FOLLOWING THE DECISION OF THE ITAT, SPECIAL BENCH, MUMBAI IN THE CASE OF M/S. INDUS IND BANK LIMITED VS. ADD. CIT, 135 ITD 165 (MUM) (SB). 7. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. IN THIS CASE, THERE IS NO DISPUTE ABOUT THE FACTS THAT THE NATURE OF TRANSACTION BETWEEN THE ASSESSEE AND ITS CUSTOMERS AS PER THE TERMS OF THE AGREEMENT WITH ITS CUSTOMERS/CLIENTS IS IN NATURE OF THE FINANCIAL LEASING. NOW THE ISSUE STAND S COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF I.C.D.S. LTD. VS. CIT 350 ITR 527 (SC). IN THE SAID CASE THE ASSESSEE IS NON - BANKING FINANCE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF HIRE PURCHASE, LEASING, REAL ESTATE, ETC. THE ASSESSEE COMPANY AS A PART OF ITS BUSINESS LEASED OUT ITS VEHICLES TO THE CUSTOMERS AND HAS NO PHYSICAL AFFILIATION 5 ITA NOS. 576 & 577/PN/2006 & 1092/PN/2010, BAJAJ AUTO FINANCE LIMITED, PUNE WITH THE VEHICLES. IN FACT, LESSEES WERE REGISTERED AS THE OWNERS OF THE VEHICLES, IN THE CERTIFICATE OF REGISTRATION ISSUE UNDER THE MOTOR VEHICLES ACT, 1988. THE ASSESSEE COMPANY CLAIMED THE DEPRECIATION ON THE VEHICLES WHICH WERE CLAIMED TO HAVE BEEN LEASED OUT AND FINANCE BY THE ASSESSE. MOREOVER, THE DEPREC IATION WAS ALSO CLAIMED AT HIGHER RATE BY TAKING THE STAND THAT THE VEHICLES WERE USED IN THE BUSINESS OF RUNNING THEM ON HIRE. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE DEPRECIATION ON THE LEASE D VEHICLES. 8. WHEN THE MATTER REACHED BEFORE THE HON'BLE SUPREME COURT IT IS HELD THAT THE ASSESSEE D ID USE THE VEHICLES IN THE COURSE OF ITS LEASING BUSINESS AND THE TRUCKS WERE NOT USED BY THE ASSESSEE IS NOT RELEVANT FOR THE PURPOSE OF SEC. 32 OF THE INCOME - TAX ACT. ON THE REQUIREMENT OF THE ISSUE OF THE OWNERSHIP , THE HON'BLE SUPREME COURT HELD THAT THE ASSESSEE IS THE OWNER OF THE VEHICLES AND AS THE OWNER, IT USE THE ASSETS IN THE COURSE OF ITS BUSINESS AND SATISFY BOTH THE REQUIREMENTS OF SEC. 32 OF THE ACT AND IS ENTITLED TO CLAIM DEPRECIATION IN RESPECT OF ADDITIONS MADE TO THE TRUCKS WHICH WERE LEASED OUT. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT DISPUTE D THE NATURE OF THE TRANSACTION S BETWEEN THE ASSESSEE COMPANY AND ITS CUSTOMERS ARE FINANCE LEASE . M OREOVER AS PER THE TERMS OF T HE AGREEMENT , THE OWNERSHIP IS RETAINED BY THE ASSESSEE COMPANY. WE ALSO FIND THAT THERE IS A CLAUSE IN THE AGREEMENT THAT - DURING THE SUBSISTENCE OF THIS LEASE AGREEMENT AND TILL THE ASSET IS DELIVERED BACK TO THE LESSOR IN GOOD ORDER AND CONDITION, TH E LESSEE SHALL KEEP THE ASSETS IN THE EXCLUSIVE CONTROL AND POSSESSION OF THE LESSEE AND SHALL BE OPERATED BY AUTHORIZED/TRAINED PERSONS. IN OUR OPINION THE ISSUE STAND S COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE SUPREME COURT IN TH E CASE OF I.C.D.S. LTD. VS. CIT (SUPRA). WE, ACCORDINGLY, ALLOW THE RELEVANT GROUNDS TAKEN BY THE ASSESSEE. 6 ITA NOS. 576 & 577/PN/2006 & 1092/PN/2010, BAJAJ AUTO FINANCE LIMITED, PUNE 9. THE FINAL RESULTS OF THE APPEAL S AFTER ALLOWING THE ISSUE OF THE DEPRECIATION IN FAVOUR OF THE ASSESSEE ARE AS UNDER. THE APPEAL BEING ITA NO. 576/PN/2009 (A.Y. 2004 - 05) IS ALLOWED. THE APPEAL BEING ITA NO. 577/PN/2009 (A.Y. 2005 - 06) AND ITA NO. 1092/PN/2010 (A.Y. 2006 - 07) ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 29 - 11 - 20 1 3 SD/ - SD/ - ( R.K. PAND A ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 29 TH NOVEMBER, 20 1 3 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - III & V , PUNE 4 THE CIT - III & V , PUNE 5 THE DR, ITAT, A BENCH, PUN E . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE