ACIT, CHENNAI V. Baghmar Finance Ltd., CHENNAI

ITA 1244/CHNY/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68645 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 06-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NOS. 1244 & 1257/MDS/2013 (ASSESSMENT YEARS : 2008-09 & 2009-10) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(2), CHENNAI - 600 034. (APPELLANT) V. M/S BAGHMAR FINANCE LTD., NEW NO.4, OLD NO.49, LAXMI NIVAS, ERULAPPAN STREET, SOWCARPET, CHENNAI - 600 079. PAN : AAACB 3597 Q (RESPONDENT) APPELLANT BY : SH. GURU BASHYAM, JCIT RESPONDENT BY : NONE DATE OF HEARING : 20.08.2013 DATE OF PRONOUNCEMENT : 23.08.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THESE APPEALS OF THE REVENUE, COMMON GRIEVANCE RAISED IS THAT CIT(APPEALS) DELETED DISALLOWANCE OF DEPRECIAT ION ON WINDMILL, WINDMILL BUILDING AND WINDMILL ROAD. AS PER THE RE VENUE, THE TRIBUNAL ORDERS IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2006-07 AND 2007-08, WHICH WERE RELIED ON BY THE CIT(APPEALS), HAVE NOT BEEN I.T.A. NOS. 1244 & 1257/MDS/13 2 ACCEPTED BY THE DEPARTMENT AND APPEALS WERE PENDING BEFORE HON'BLE JURISDICTIONAL HIGH COURT. 2. ASSESSEE HAD CLAIMED DEPRECIATION ON WINDMILL, W INDMILL BUILDING AND WINDMILL ROAD FOR THE IMPUGNED ASSESSM ENT YEARS. IN THE PRECEDING ASSESSMENT YEAR 2006-07, SIMILAR CLAI M ON SAME WINDMILL, WINDMILL BUILDING AND WINDMILL ROAD WERE DISALLOWED BY THE ASSESSING OFFICER FOR A REASON THAT THE ASSET WAS N OT IN ASSESSEES NAME. HOWEVER, IN THE SAID YEAR, ON ASSESSEES APP EAL, CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE. ON FURTHER APPEAL FILED BY THE REVENUE, THIS TRIBUNAL HELD AT PARA 5 OF ITS ORDER, AS UNDER:- 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT THE OUTSET, A PERUSAL OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR UNDER APPEAL BEING 2006-07 AS ALSO THE ASSESSMENT YEAR 2 007-08, IN THE COLUMN: NATURE OF BUSINESS, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MENTIONED THAT THE ASSESSEE IS ALSO HAV ING THE BUSINESS OF OPERATING WINDMILL. A PERUSAL OF THE AS SESSMENT ORDER FOR THE ASSESSMENT YEAR 2006-07 SHOWS THAT THE ASSE SSING OFFICER HAS DISALLOWED THE CLAIM OF THE DEPRECIATIO N BY TREATING THE TRANSACTION BETWEEN THE ASSESSEE AND M/S. SURAN A INDUSTRIES LTD. AS A SHAM TRANSACTION AND AT BEST I T COULD ONLY BE A FINANCE TRANSACTION. IF FOR A MOMENT, WE ARE TO A SSUME THAT THERE IS NO PURCHASE OF WINDMILL OF 80% SHARE OF T HE WINDMILL BY THE ASSESSEE AND IT IS ASSUMED THAT 8.10 CRORES WAS A FINANCE ARRANGEMENT BETWEEN THE ASSESSEE AND M/S. SURANA IN DUSTRIES LTD. IS A FINANCE TRANSACTION, IT IS WELL KNOWN THA T THE FINANCE CHARGES NORMALLY RUN BETWEEN THE RATE OF 18% TO 24% . THIS ITSELF I.T.A. NOS. 1244 & 1257/MDS/13 3 WOULD MEAN INTEREST BURDEN ON M/S. SURANA INDUSTRIE S LTD. AT A MINIMUM OF 1.20 CRORES PER ANNUM. EVEN ASSUMING THAT THE RATE OF INTEREST WOULD BE 10% THE FINANCE BURDEN WOULD B E 80.00 LAKHS MINIMUM. THE REPAYMENT OF PRINCIPLE IS ADDITI ONAL. HOWEVER, A PERUSAL OF THE INCOME GENERATED BY THE ASSESSEE F ROM THE OPERATION OF THE WINDMILL SHOWS THAT THE INCOME OF THE ASSESSEE IS VARYING BETWEEN 43.00 LAKHS TO 60.00 LAKHS BETWEEN THE ASSESSMENT YEARS 2007-08 AND 2010-11. OBVIOUSLY, N O BUSINESSMAN DOING THE FIANC WOULD LEND MONEY TO EA RN SUCH A LOW INTEREST EVEN ASSUMING THAT THE ASSESSEE IS LIABLE TO GET THE BENEFIT OF DEPRECATION AT 100%, WHICH WOULD RESULT IN THE REDUCTION OF THE INCOME OF THE ASSESSEE IN THE PRES ENT CASE OVER A PERIOD OF 2 YEARS BY 8.10 CRORES. IT WOULD BE OF NO BENEFIT TO THE ASSESSEE IN SO FAR AS WHEN THE WINDMILL IS SOLD AT ANY POINT OF TIME THE WINDMILL WILL BE DEPRECIATED ASSET AND THE INCOME WOULD BE TAXABLE AS A SHORT TERM CAPITAL GAIN DUE TO APPL ICABILITY OF SECTION 50 OF THE INCOME TAX ACT. FURTHER, THE EXI STENCE OF THE WINDMILL IS NOT IN DISPUTE BY THE REVENUE. THE PAY MENT BY M/S. SURANA INDUSTRIES LTD. TO THE ASSESSEE IN REGARD TO THE QUANTUM AND THE METHOD OF COMPUTATION OF QUANTUM IS ALSO NO T IN DISPUTE. AS PER THE SALE AGREEMENT, THE ASSESSEE IS ENTITLED TO 80% OF THE NET INCOME AS GENERATED. THE SALE AGREEMENT DO ES NOT FIX THE CONSIDERATION PAYABLE TO THE ASSESSEE. IN THE GROUND OF APPEAL, THE REVENUE HAS ALSO RAISED A GROUND ALLEGI NG THAT THERE HAS BEEN SEARCH CONDUCTED BY THE CB-CID IN THE CASE OF ONE M/S. VINAYAKA VYAPAR LTD., WHO HAD SOLD THAT WINDMI LL TO M/S. SURANA INDUSTRIES LTD. IN RESPECT OF WHICH THE ASSE SSING OFFICER IN THE LETTER TO THE CIT-DR HAS MENTIONED THAT THER E IS SOME LETTER FROM THE SUPERINTENDENT OF POLICE, CB-CID, N ORTH ZONE, CHENNAI, WHO HAS SOUGHT ASSESSMENT PARTICULARS OF M /S. VINAYAK VYAPAR LTD. IN RESPECT OF THE SALE OF EIGHT WINDMI LL TO M/S. SURANA INDUSTRIES LTD. HOW, THIS WOULD EFFECT THE CASE OF THE ASSESSEE IS NOT EXPLAINED. AS FAR AS THE ASSESSEE IS CONCERNED, THE ASSESSEE HAS PAID M/S. SURANA INDUSTRIES LTD. 8.10 CRORES FOR 80% SHARE IN ONE WINDMILL, WHICH HAS ALSO BEN I DENTIFIED BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER AS WI NDMILL BEARING NO. WEG HT.SC.NO.1588 LOCATED AT SF NO. & V ILLAGE 425/4, 5A(P), 5B(P) OF RADHAPURAM VILLAGE, TIRUNELV ELI DISTRICT. IN THESE CIRCUMSTANCES, THE WINDMILL AND LOCATION O F THE WINDMILL I.T.A. NOS. 1244 & 1257/MDS/13 4 ALSO STANDS IDENTIFIED. AS PER THE LETTER OF THE A SSESSING OFFICER TO THE LD. CIT-DR, IT IS MENTIONED THAT THE RE IS EVERY REASON TO DOUBT THAT THE TRANSACTION WITH M/S. VINA YAKA VYAPAR LTD. BY M/S. SURANA INDUSTRIES LTD. IS NOT GENUINE. HERE ALSO IT IS NOTICED THAT IT IS A DOUBT AND A DOUBT CANNOT BE A FOUNDATION FOR ASSESSMENT. IN FACT, M/S. SURANA INDUSTRIES LTD. H AS SPECIFICALLY REPORTED TO THE ASSESSING OFFICER THAT THERE HAS BE EN NO SEARCH ON THE PREMISES OF M/S. SURANA INDUSTRIES LTD. BY T HE CB-CID. M/S. SURANA INDUSTRIES LTD. AS ON 15.10.09 HAS ALSO WRITTEN TO THE ASSESSEE AGAIN CONFIRMING THAT IT HAS SOLD 80% SHARE IN ONE OF THE WINDMILL AND THE ASSESSEE HAS TAKEN FINANCE FOR PURCHASING 80% SHARE AND THE INCOME PERTAINING TO THE WINDMILL CO-OWNED BY THE ASSESSEE OF M/S. SURANA INDUSTRIES LTD. HAS BEE N PAID TO THE ASSESSEE AND M/S. SURANA INDUSTRIES LTD. HAS NOT CL AIMED DEPRECIATION ON THE 80% SHARE OF THE WINDMILL SOLD TO THE ASSESSEE. A PERUSAL OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF PODAR CEMENTS LTD (SUPRA) ALSO SHOWS THAT AS PER THE SAID DECISION, THE TERM OWNER FOR THE PURPOSE OF INCOME TAX ACT IS A PERSON WHO RECEIVES OR IS ENTIT LED TO RECEIVE THE INCOME FROM THE PROPERTY IN HIS OWN RIGHT. HER E AS PER AGREEMENT WITH M/S. SURANA INDUSTRIES LTD. AND AS A LSO CONFIRMED BY M/S. SURANA INDUSTRIES LTD. THE ASSESS EE IS THE OWNER OF 80% SHARE IN ONE WINDMILL AND THE ASSESSEE HAS RECEIVED INCOME FROM HIS 80% SHARE OF THE WINDMILL AND THE INCOME HAS ALSO BEEN OFFERED TO TAX THE INCOME RECEIVED BY THE ASSESSEE IS QUANTIFIED ON THE BASIS OF THE SALE AGREEMENT AS AL SO THE MOU ENTERED INTO BY THE ASSESSEE WITH M/S. SURANA INDU STRIES LTD. FURTHER, THE REVENUE HAS NOT BEEN ABLE TO SHOW THAT THE INCOME RECEIVED BY THE ASSESSEE FROM ITS SHARE OF 80% IN THE WINDMILL IS NOT ON THE BASIS OF THE AGREEMENT AND THE MOU EN TERED INTO BY THE ASSESSEE WITH M/S. SURANA INDUSTRIES LTD. J UST BY MAKING A BLUNT STATEMENT THAT THE TRANSACTION IS SHAM AND COULD BE CONSIDERED AS A FINANCIAL ARRANGEMENT WITHOUT ANY C ALCULATION OR REASONING OR CORROBORATIVE EVIDENCE TO SHOW THAT TH E SAME IS A FINANCE ARRANGEMENT OR WITHOUT ANY EVIDENCE REBUT T HE CLAIM OF THE ASSESSEE THAT IT IS THE OWNER OF THE 80% SHARE IN THE WINDMILL, THE CLAIM OF THE ASSESSEE THAT IT IS THE OWNER OF THE 80% SHARE OWNER IN THE WINDMILL CANNOT BE REJECTED. UNDER THESE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE ASS ESSEE IS NOT I.T.A. NOS. 1244 & 1257/MDS/13 5 THE OWNER OF THE WINDMILL. ACCORDINGLY, WE ARE OF THE VIEW THAT THE FINDING OF THE LD. CIT(A) THAT THE ASSESSEE IS THE OWNER OF THE WINDMILL IS ENTITLED TO DEPRECIATION IS FOUND T O BE ON RIGHT FOOTING AND THE SAME IS UPHELD. 3. WE FIND FROM THE ASSESSMENT ORDERS THAT DEPRECIA TION CLAIMED BY THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEARS W ERE ALSO ON THE VERY SAME ASSETS. THEREFORE, CIT(APPEALS) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE FOLLOWING EARLIE R YEAR ORDERS OF THIS TRIBUNAL. WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(APPEALS). 4. IN THE RESULT, APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER WAS PRONOUNCED IN THE COURT ON FRIDAY, THE 23 RD OF AUGUST, 2013, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 23 RD AUGUST, 2013. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-VI, CHENNAI (4) CIT-I, CHENNAI (5) D.R. (6) GUARD FILE