ACIT Cir.-1, Aurangabad V. Nath Pulp & Paper Mills Ltd., Aurangabad

ITA 1226/PUN/2009

• Counselvise Citation: 122624514 RSA 2009
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-10-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 14-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO 1226/PN/09 (ASSTT. YEAR: 1999-2000) ASSTT. COMMISSIONER OF INCOME-TAX, .. APPELLANT CIR.1, AURANGABAD VS. NATH PULP & PAPER MILLS LTD., .. RESPONDENT NATH HOUSE, NATH ROAD, AURANGABAD APPELLANT BY: SHRI S K AMBASTA RESPONDENT BY: WRITTEN SUBMISSIONS DATE OF HEARING : 20.10.2011 DATE OF PRONOUNCEMENT : 21.10.2011 ORDER PER G.S. PANNU, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE OR DER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), AURANGABAD DATED 23.7.2009 WHICH IN TURN HAS ARISEN FROM THE ORDER OF THE ASSESSING OFFICER DATED 8.3.2002 PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SH ORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 1999-2000. 2. THE ONLY ISSUE IN THIS APPEAL RELATES TO A DISALLOWAN CE MADE BY THE ASSESSING OFFICER OF RS 44,60,132/- OUT OF LEASE RENTALS, W HICH HAS SINCE BEEN DELETED BY THE COMMISSIONER OF INCOME-TAX (APPEALS). 3. IN BRIEF, THE FACTS ARE THAT THE ASSESSEE COMPANY HAD PAID TOTAL LEASE RENT AMOUNTING TO RS 4,31,84,696/- TO SIX PARTIES OUT OF W HICH A SUM OF RS 1,88,55,031/- WAS CLAIMED AS AN EXPENDITURE IN THE PRO FIT & LOSS ACCOUNT AND THE BALANCE OF RS 2,43,29,665/- WAS TREATED AS PREPAID REN TALS. AS PER THE ASSESSING OFFICER, THE CALCULATION OF LEASE RENT RELATABLE TO T HE YEAR UNDER CONSIDERATION AMOUNTING TO RS 1,88,55,031/- WAS NOT LOGICAL. AS PER HIM, THE ENTIRE LEASE RENT 2 PAYABLE BY THE COMPANY SHOULD BE SPREAD OVER THE YEARS FOR WHICH THE ASSETS CAN BE USED. ACCORDING TO HIM, THE LIFE OF THE ASSETS TAKEN ON LEASE WAS THREE YEARS AND, ACCORDINGLY, HE ALLOWED 1/3 RD OF RS 4,31,84,696/- AS AN ALLOWABLE DEDUCTION AND DISALLOWED THE BALANCE OF RS 44,60,132/- . 4. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (AP PEALS), IT WAS CONTENDED BY THE ASSESSEE THAT IT HAD TAKEN CERTAIN ASSETS ON THE FINANCE LEASE BASIS FROM SIX PARTIES AND SAID LEASE ARRANGEMENTS WERE E NTERED INTO BY THE ASSESSEE DURING THE FINANCIAL YEAR 1995-96 ON THE SPECIFI ED TERMS AND CONDITIONS WITH THE AVERAGE CURRENCY OF THE LEASE BEING 5 YEARS. LIFE OF THE ASSETS TAKEN ON LEASE WAS MUCH LONGER AND THE SAME WAS 15 YEARS ON AN A VERAGE. IT WAS FURTHER SUBMITTED THAT IN CONFORMITY WITH THE ACCOUNTING STANDAR DS IN RESPECT OF LEASED ASSETS, THE LEASE RENTALS PAYABLES WERE BIFURCATED INTO COST OF THE ASSETS AND INTEREST COMPONENTS. IT WAS ALSO POINTED OUT THAT LEASE RENT CHARGED TO PROFIT & LOSS ACCOUNT IN EARLIER YEARS WERE ACCEPTED BY THE DEPARTM ENT ON THE SAME BASIS. IT WAS SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ESTIMATING LIFE OF THE ASSETS FOR THREE YEARS AND MAKING AN ADDITIO N OF RS 44,60,132/-. THE COMMISSIONER OF INCOME-TAX (APPEALS) CALLED FOR A REMA ND REPORT FROM THE ASSESSING OFFICER AND, AFTER CONSIDERING THE DETAILED SUBM ISSIONS OF THE ASSESSEE AS WELL AS THE REMAND REPORT OF THE ASSESSING OFFICE R, THE COMMISSIONER OF INCOME-TAX (APPEALS) DELETED THE DISALLO WANCE OF RS 44,60,132/- MADE BY THE ASSESSING OFFICER BY HOLDING AS FOLLOWS: I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMISSI ON OF THE AR & POSITION OF LAW. IN MY OPINION, APPELLANT DESERVES TO SUCCEED. THERE IS NO DISPUTE REGARDING THE FACT THAT THE AP PELLANT HAS ACQUIRED CERTAIN ASSETS ON FINANCE LEASE BASIS FROM SIX COMPANIES. T HE NATURE OF TRANSACTION IS OF SALE AND LEASEBACK AGREEMENT FOR THE PURPOSE OF RAISING FINANCE AND TOTAL LEASE RENTAL PAID BY THE APPELLANT COMPANY FOR FIVE YEARS IS EQUIVALENT TO THE MONEY RAISED THE APPELLANT COMPANY ALONG WITH THE FINANCE COST. HE LEASE RENT DEBITED BY THE APPELLANT COMPANY TO THE P&L ACCOUNT AGGREGATING TO RS 1,88,55,031/- IS IN LINE WITH THE ACCEPTED ACCOUNTING STANDARD AND IS CALCULATED ON THE BASIS OF THE LIFE OF THE ASSETS TAKEN ON FINANCE LEASE BASIS BY THE COMPANY WHICH, IN THE INSTANT CASE IS 15 YEARS. AS PER THE REVISED GUIDELINES ON ACCOUNTING OF LEASE THE INSTRUCTION I N RESPECT OF ACCOUNTING FOR FINANCE LEASE IN THE BOOKS OF LESSEE IS PROVIDED IN PARA 25 WHICH READS AS UNDER: LEASE RENTALS SHOULD BE ACCOUNTED FOR ON ACCRUAL B ASIS OVER THE LEASE DONE SO AS TO RECOGNIZE AN APPROPRIATE CHARGE IN THIS RESPE CT IN THE PROFIT & LOSS ACCOUNT WITH A SEPARATE DISCLOSURE THEREOF. THE APPROPRIATE CHARGE SHOULD BE WORKED OUT WITH REFERENCE TO THE TERMS OF LEASE AGREEMENT, TYP E OF THE ASSET, PROPORTION OF 3 THE LEASE PERIOD TO THE LIFE OF THE ASSET AS PER TH E TECHNICAL/COMMERCIAL VALUATION AND SUCH OTHER CONSIDERATIONS. THE EXCESS OF LEASE RENTAL PAID OVER THE AMOUNT ACCRUED IN RESPECT THEREOF SHOULD BE TREATED AS PRE PAID LEASE RENTAL AND VICE- VERSA. IN THE APPELLANTS CASE, AO ADDED THE AMOUNT OF RS 44,60,132/- ON PRESUMPTION THAT LIFE OF THE ASSETS TAKEN ON LEASE IS FOR THREE YEARS. TH ERE IS NO BASIS FOR AFORESAID AD HOC ESTIMATION BY THE AO. AO WAS NOT JUSTIFIED IN MAKIN G THE AFORESAID ADDITION WHEREIN APPELLANTS CLAIM ON ACCOUNT OF LEASE RENTAL IS IN CONFORMITY WITH ACCOUNTING STANDARDS AND METHOD OF ACCOUNT IS FOLLOWED BY THE APPELLANT S COMPANY. MOREOVER, THE CLAIM MADE BY THE APPELLANT IS NOT PREJUDICIAL TO THE INT EREST OF REVENUE. IN VIEW OF ABOVE, I DELETE THE ADDITION OF RS 44,6 0,132/- MADE BY THE AO ON THIS ACCOUNT. APPELLANTS GROUND IS THEREBY ACCEPTED. 5. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE , APPEARING FOR THE REVENUE, SUPPORTED THE ORDER OF THE ASSESSING OFFICER. I T WAS CONTENDED THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED I N CONSTRUING THE LEASE AS A FINANCE LEASE, WHILE THE SAID LEASE WAS AN OPERATI NG LEASE. ACCORDING TO HIM, THE ASSESSEE COULD HAVE CLAIMED EXPENDITURE UPTO T HE WHOLE AMOUNT OF RENTAL LEASE DIVIDED BY THE DURATION OF LEASE. THE D URATION OF LEASE IS FIVE YEARS AND, THEREFORE, ACCORDING TO THE DEPARTMENT, ASSESSEE CAN CLAIM 1/5 TH OF RENTAL LEASE AND THE BALANCE PERIOD OF LEASE IS THREE YEARS ON LY. NONE APPEARED FOR THE ASSESSEE. HOWEVER, THE ASSESSEE HAS FILED WRITTEN SUBMISSION S, INTER ALIA, SUPPORTING THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS). 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LEA RNED DEPARTMENTAL REPRESENTATIVE AS WELL AS THE WRITTEN SUBM ISSIONS OF THE ASSESSEE. AFTER GOING THROUGH T1HE ORDERS OF THE AUTHORITIES BE LOW, WE ARE OF THE CONSIDERED VIEW THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HA S TAKEN A CORRECT VIEW OF THE MATTER AND, THERE IS NO INFIRMITY IN HIS ORDER, WHICH WARRANTS OUR INTERFERENCE. IN PARTICULAR, THE REVENUE HAS NOT BROUGHT ANY COGENT REASONING OR MATERIAL TO NEGATE THE FINDING OF THE COMMISSIONER OF INCOME-TAX ( APPEALS) THAT THE CLAIM MAE BY THE ASSESSEE IS NOT PREJUDICIAL TO THE INTERESTS OF REVENUE. IN THIS REGARD, IT MAY BE NOTED THAT THE LEASE RENTALS IN QUESTION AR E IN TERMS OF LEASE ARRANGEMENTS ENTERED BY THE ASSESSEE IN THE FINANCIAL YEA R 1995-96 RELEVANT TO THE ASSESSMENT YEAR 1996-97 AND THE CURRENCY OF LEASE PER IOD IS 5 YEARS. THOUGH THE AVERAGE CURRENCY OF LEASE AGREEMENTS IS OF 5 YEARS, THE ASSESSEE 4 HAS TAKEN EXPENDITURE ON ACCOUNT OF LEASE RENTALS CONSIDERI NG THE USEFUL LIFE OF THE ASSETS AT 15 YEARS ON AN AVERAGE. THE SAME HAS BEEN ACCEPTED IN THE EARLIER ASSESSMENT YEARS, THE INSTANT ASSESSMENT YEAR BEING THE THIR D YEAR OF SUCH CLAIM. THE ASSESSING OFFICER HAS ESTIMATED THE LIFE OF TH E ASSETS AT THREE YEARS. QUITE CLEARLY IN THIS BACKGROUND, THE COMMISSIONER OF IN COME-TAX (APPEALS) HAS CONCLUDED THE CLAIM OF EXPENDITURE ON LEASE RENTALS MAD E BY THE ASSESSEE IS NOT PREJUDICIAL TO THE REVENUE IN THE CONTEXT OF ESTIMATI ON OF LIFE OF THE ASSETS AT 3 YEARS BY THE ASSESSING OFFICER. IN FACT, THERE IS ALSO NO BASIS ADVANCED BY THE ASSESSING OFFICER TO TREAT THE USEFUL LIFE OF THE ASSET AT THREE YEARS. NOTWITHSTANDING THE AFORESAID, IN THE TOTALITY OF CIRCU MSTANCES, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS UNWARRANTED AND DEVOID O F MERITS AND THE COMMISSIONER OF INCOME-TAX (APPEALS) MADE NO MISTAKE IN DELETING THE SAME. WE ACCORDINGLY AFFIRM THE DECISION OF THE COMMISSIONER OF INCOME-TAX (APPEALS). REVENUE THUS FAILS ON THIS GROUND OF APPEAL. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. DECISION PRONOUNCED IN THE OPEN COURT ON THE 21 ST DAY OF OCTOBER, 2011. SD/- SD/- (I C SUDHIR) (G .S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEM BER PUNE, DATED: 21 ST OCTOBER, 2011 B COPY TO:- 1) APPELLANT 2) RESPONDENT 3) THE CIT (A) AURANGABAD 4) CIT,AURANGABAD 5. DR, A BENCH, ITAT, PUNE. 6) GUARD FILE TRUE COPY BY ORDER ASST. REGISTRAR, I.T.A.T., PUNE 5