NARANGS INTERNATIONAL HOTELS P.LTD, MUMBAI V. DCIT RG 1(2), MUMBAI

ITA 1383/MUM/2013

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2283 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-11-2015
• Assessment Year: 1994-1995
• Appeal Filed On: 18-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution; Principle of natural justice; Opportunity of cross examination; Additional evidence; Question of law; Bad and doubtful debts; Third party statement; Validity of assessment; Tax effect; Set aside; Liquidation
• Section: 143(3); 80HHC; 133A; 80G; 201; 131; 27; 154

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA ( A M) & SHRI SANDEEP GOSAIN (JM) I.T.A. NO. 1383 /MUM/ 201 3 (ASSESSMENT YEAR 1994 - 95 ) I.T.A. NO. 7371/MUM/2016 (ASSESSMENT YEAR 1994 - 95) NARANGS INTERNATIONAL HOTELS PVT. LT D. AMBASSADOR HOTEL CHURCHGATE MUMBAI - 400 020. V S . DCIT S R - 27 /DCIT CENTRAL CIRCLE - 36 AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) I.T.A. NO. 7549 /MUM/2016 (ASSESSMENT YEAR 1994 - 95) DCIT - 1(2)(2) AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. V S . NARANGS INTERNATIONAL HOTELS PVT. LTD. AMBASSADOR HOTEL CHURCHGATE MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) PAN : AAACN2084L ASSESSEE BY SHRI JITENDRA JAIN DEPARTMENT BY SHRI ASHISH KUMAR DATE OF HEARING 23.7 . 201 9 DATE OF PR ONOUNCEMENT 27 . 8 . 201 9 O R D E R PER SHAMIM YAHYA (AM) : - ITA NO. 7371 & 7549/MUM/2016 THESE ARE CROSS APPEALS BY THE ASSESSEE AND REVENUE ARISING OUT OF THE ORDER OF LEARNED CIT(A) DATED 21.12.2012 AND PERTAINING TO A.Y. 1994 - 95. 2. T HE GROUNDS O F APPEAL RAISED BY THE REVENUE READ AS UNDER : - '1. 'WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION ON LEASE RENTALS TO 18% OF THE VALUE OF THE ASSET BY RELYING ON THE DECISION OF HON'BL E APEX COURT IN THE CASE OF AVASARALA TECHNOLOGIES LTD. (CIVIL APPEAL NO.2996 OF 2004) WITHOUT APPRECIATING THAT ASSESSEE HAS ITSELF SHOWN RECEIPT OF LEASE INCOME IN THE FORM OF LEASE RENTAL OFRS.5,33,10,533/ - ?' 2 2. 'WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN PARTLY ALLOWING THE APPEAL OF THE ASSESSEE BY APPLYING THE DECISION OF HON'BLE APEX COURT IN THE CASE OF AVASARALA TECHNOLOGIES LTD. (CIVIL APPEAL NO.2996 OF 2O04) WITHOUT BRINGING OUT THE SIMILARITY OF F ACTS OF THAT CASE WITH THE PRESENT CASE AND ALSO WITHOUT GIVING DIRECTIONS FOR INCLUSION OF SIMILAR INCOME OF 18% OF THE VALUE OF ASSET IN OTHER YEARS TILL THE AMOUNT OF COST OF NON - EXISTENT ASSET WAS RETURNED BACK TO THE ASSESSEE? 3. THE GROUNDS OF APPEA L RAISED IN ASSESSEES APPEAL READ AS UNDER : - 1 . VALIDITY OF THE ORDER : (I) ON THE FACTS AND IN THE CIRCUMSTANCES AND IN LAW, THE ORDER DTD. 1.8.2016 PASSED BY THE ID. COMMISSIONER OF INCOME TAX (APPEAL) [CIT(A)J IS ABINITIO VOID, ILLEGAL AND BAD IN L AW INSOFAR AS IT IS PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. (II) THE ID. CIT(A) ERRED IN NOT GIVING ANY OPPORTUNITY TO THE APPELLANT TO CROSS EXAMINE THE LESSEES DESPITE SPECIFIC DIRECTIONS DTD. 6.10.2015 GIVEN BY THE CIT(A) IN THE PRE SENT APPELLATE PROCEEDINGS TO THE A.O. TO GIVE 'PROPER OPPORTUNITY TO CROSS EXAMINE THE LESSEES' AND THE ID. CIT(A) FURTHER ERRED IN IGNORING HIS OWN SPECIFIC REQUIREMENT TO COMPLY WITH THE LAW.(RELIANCE ON H. R. MEHTA V ACIT (BOM) ITA NO. 58 OF 2001 DTD. 30.6.2016). 2. THE IMPUGNED ORDER IS ALSO VOID AND NOT SUSTAINABLE IN LAW INSOFAR AS THE ID. CIT(A) ERRED IN FAILING TO APPRECIATE THAT IN THE LEASING AGREEMENTS WITH AGRTIECH HATCHERIES, PATHEJA FORGINGS AND KEDIA DISTILLERIES (A) ASSESSEE'S CASE IS THAT OF OPERATING LEASE AS AVERTED ON AFFIDAVIT BEFORE THE BOMBAY HIGH COURT CLAIMING ABSOLUTE OWNERSHIP IN THE LEASED EQUIPMENTS AND FOR THEIR REPOSSESSION, (B) NO NEW MATERIAL WAS BROUGHT ON RECORD TILL THE DATE OF PASSING THE APPELLATE ORDER UNDER APPEAL ON 1.8.2016 TO CONTRAVERT THE FINDINGS OF THE ID. CIT(A) IN THE ORDER DTD. 26.3.2002 WHO ALLOWED THE APPEAL AND STILL THE A.O. AND THE ID. CIT(A) MADE THE ORDERS BASED ON THE FINDINGS OF THE A.O. IN THE ORIGINAL ASSESSMENT ORDERS, WHICH STOOD REJECTED IN THE ORDER DATED 26.3.2002, (C) AFTER A LAPSE OF 22 YEARS, THE ASSESSEE SHOULD NOT BE PLACED UPON THE RACK, AND (D) THE ORDER IS AGAINST THE PRINCIPLES OF 'LEX NOT COGIT IMMPOSSIBILE' AND 'IMPOSSIBILUM NULLA OBLIGNTO EST'. THE APPELLANT SUBMITS THAT ON THIS G ROUND ALONE THE ORDER IS A NULLITY AND NOT SUSTAINABLE IN LAW. 3. DISALLOWANCE OF DEPRECIATION ON ASSETS LEASED TO AGRITECH HATCHERIES & FOOD LTD . I) THE ID. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 1,10,36,000 / - MADE BY THE A.O. AND THUS DIS ALLOWING DEPRECIATION ON THE LEASED EQUIPMENTS AND HOLDING THE LEASE AGREEMENTS AS BOGUS. II) THE ASSESSEE'S CASE IS SUPPORTED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF M/S ANDAMAN TIMBER INDUSTRIES VS. COM. OF CENTRAL EXCISE, KOLKATA - 11 , DTD. 2 .9.2015. 3 III) THE ID. CIT(A) ERRED IN RELYING ON THE FINDINGS OF THE A.O. IN THE EARLIER ORDERS DTD. 26.3.1997 AND 30.3.2000 WHICH WERE REJECTED BY THE ID. CIT(A) IN THE ORDER DTD. 26.3.2002 AND NO NEW MATERIAL WAS BROUGHT ON RECORD IN THE SET ASIDE ASSES SMENT TO TAKE A DIFFEREN T VIEW FROM THAT OF LEARNED CIT(A). IV) THE LEARNED CIT(A) ERRED IN FAILING TO APPRECIATE THAT : - A) THE ITAT DIRECTED THE A.O. TO RECONSIDER THE TRANSACTION OF LEASING IN THE LIGHT OF ADDITIONAL EVIDENCE AFFIRMED ON AFFIDAVITS FI LED BY THE ASSESSEE IN THE BOMBAY HIGH COURT AVERTING ABSOLUTE OWNERSHIP IN THE LEASED EQUIPMENTS AND FOR THEIR RETURN TO IT, AND THE FINDINGS OF THE ID. CIT(A) IN THE ORDER DATED 26.3.2002 NOT DISTURBED; B) IN THE RESTORED ASSESSMENT, THE A.O. DID NOT B RING ANY NEW MATERIAL TO DISPROVE THE CLAIM OF DEPRECIATION, EARLIER ALLOWED BY THE ID. CIT(A), AND THE ASSESSEE HAVING AVERTED ON AFFIDAVIT ABSOLUTE OWNERSHIP AND PRAYED FOR RE - POSSESSION OF THE LEASED EQUIPMENTS IN THE HIGH COURT, THE A.O. OUGHT TO HAVE FOLLOWED THE CIT(A) ORDER; C) THE RELIANCE ON THE ORDER OF ITAT, SMC BENCH MUMBAI IN SHREE ANAND IMPEX PVT. LTD. IS MISPLACED, WHEREIN THERE IS NO REFERENCE OF THE APPELLANT. THE APPELLANT DID NOT RELY ON IT AS INCORRECTLY RECORDED; D) THE ASSESSEE'S C LAIM OF DEPRECIATION IN THE CASE OF OPERATING LEASE AND THE RELIANCE OF THE ID. CIT(A) ON THE DECISION IN THE CASE OF AVASARIA TECHNOLOGIES LTD. IS ERRONEOUS. 4. DISALLOWANCE OF DEPRECIATION ON THE ASSETS LEASED TO PATHEJA FORGINGS & AUTO PARTS MFG. LTD . I) THE ID. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 1,99,93,250 / - MADE BY THE A.O. FOR THE GROUNDS TAKEN IN THE CASE OF AGRITECH, AND DISALLOWING DEPRECIATION ON THE LEASED EQUIPMENTS ALSO BY HOLDING THAT THE TRANSACTION IS A MERE FINANCIAL ONE. II) THE ID. CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT FILED ADDITIONAL EVIDENCE IN THE BOMBAY HIGH COURT DULY AFFIRMED AVERTING ABSOLUTE OWNERSHIP AND PRAYING FOR RETURN OF THE LEASED EQUIPMENTS, AND THE A.O. NOT HAVING BROUGHT ANY EVIDENCE TO DISPR OVE THE CLAIM OF DEPRECIATION, OUGHT TO HAVE FOLLOWED THE ORDER OF THE CIT(A) DATED 26.3.2002 IN EARLIER APPELLATE PROCEEDINGS. III) THE ASSESSEE'S CLAIM OF DEPRECIATION IS ON THE BASIS OF OPERATING LEASE AND THE RELIANCE OF THE ID. CIT(A) ON THE DECISIO N IN THE CASE OF AVASARAL TECHNOLOGIES LTD. IS ERRONEOUS. 5. D ISALLOWANCE OF DEPRECIATION ON THE ASSETS LEASED TO KEDIA DISTILLERIES LTD. 4 I) THE ID. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 1,51,50,000 / - MADE BY THE A.O. FOR THE GROUNDS TAKEN I N THE CASE OF AGRTIECH AND DISALLOWING DEPRECIATION ON THE LEASED EQUIPMENTS ALSO BY HOLDING THAT THE TRANSACTION IS A MERE FINANCIAL ONE. II) THE ID. CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT FILED ADDITIONAL EVIDENCE IN THE BOMBAY HIGH COURT DULY A FFIRMED AVERTING ABSOLUTE OWNERSHIP AND PRAYING FOR RETURN OF THE LEASED EQUIPMENTS, AND THE A.O. FAILED TO BRING ANY EVIDENCE TO DISPROVE THE CLAIM OF DEPRECIATION, HE OUGHT TO HAVE FOLLOWED THE EARLIER ORDER OF THE CIT(A) DATED 26.3.2002. 6. DISALLOWANC E OF CLAIM FOR DEDUCTION U/S 80HHC I) THE ID. CIT(A) ERRED IN NOT ALLOWING A DEDUCTION U/S 80HHC OF THE PROFITS ATTRIBUTABLE TO THE COMPANY'S EXPORT SALES EFFECTED FROM THE FLIGHT KITCHENS BY SUPPLY OF COOKED FOOD IN BULK TO VARIOUS INTERNATIONAL AIRLINES . II) THE APPELLANT'S CLAIM OF DEDUCTION U/S 80HHC, IS SUPPORTED BY THE ORDER DTD. 27.8.2007 OF THE ITAT, MUMBAI 'D' BENCH IN THE CASE OF INDIAN HOTELS CO. LTD., FOR A.Y. 1997 - 98 WHEREIN THE FACTS ARE IDENTICAL. 7. DISALLOWANCE OF CLAIM FOR DEDUCTIO N U/S 80HHD : THE ID. CIT(A) ERRED IN NOT ALLOWING A DEDUCTION U/S 80HHD OF A SUM OF PROFITS DERIVED FROM THE SERVICES RENDERED TO FOREIGN TOURISTS BY THE APPELLANT'S HOTELS TO WHICH THE APPELLANT WAS ENTITLED, AND ALLOWED IN EARLIER YEARS IN ACCORDANCE WIT H LAW FOR WHICH REQUISITE AUDIT REPORT AND AUDITED ACCOUNTS WERE FILED DURING ASSESSMENT PROCEEDINGS. 8. DISALLOWANCE OF CLAIM U/S 80G : THE ID. CIT(A) ERRED IN NOT ALLOWING A DEDUCTION OF RS. 1,33,000/ - U/S . 80G ON THE DONATIONS GIVEN BY THE APPELL ANT TO THE APPROVED CHARITABLE INSTITUTIONS. 9. DEDUCTION OF CLAIM OF LEASE EXPENSES THE ID. CIT(A) ERRED IN DISALLOWING RS. 2,20,720/ - OUT OF LEASE EXPENSES, INSOFAR AS THE DISALLOWANCE WAS MADE MERELY ON SURMISES AND CONJECTURES. 10. DISAL LOWANCE OF DEPRECIATION ON PLANT AND MACHINERY OF AURANGABAD HOTEL: THE ID. CIT(A) ERRED IN DISALLOWING RS. 1,30,310/ - FOR DEPRECIATION ON THE PLANT AND MACHINERY AT AURANGABAD HOTEL, EACH ITEM COSTING LESS THAN RS. 5,000 / - . 4. APROPOS GROUND NO. 1 TO 6 OF ASSESSEES APPEAL AND THE REVENUES APPEAL. 5 . BRIEF FACTS OF THE CASE ARE AS UNDER : - 5 THE FACTS OF THE CASE ARE THAT IN THE PREVIOUS YEAR ENDED 31.3.1994 THE APPELLANT COMPANY BESIDES HOTELIERING BUSINESS, ENTERED INTO LEASING BUSINESS AND FOR THAT PURCHASED CERTAIN EQUIPMENTS AND LEASED OUT TO 3 LESSEES VIZ. (1) PATFIEJ A F OR EGINGS & AUTO PARTS MFG. LTD., (2) KEDIA DISTILLERIES LTD., AND (3) AGRITECH HATCHERIES & FOOD LTD. FOR WHICH IT ENTERED INTO LEASE AGREEMENTS. IN TERMS OF THE LEASE AGREEMENTS T HE APPELLANT RECEIVED CHEQUES TOWARDS PAYMENTS OF THE LEASE RENTALS IN THE YEAR 31.3.1994 AND FOR THE BALANCE RECEIVED CHEQUES OVER THE PERIOD OF THE LEASE FROM THE YEARS ENDING 31.3.1994 TO 31.3.1998. THE SUMMARIZED POSITION IS ASUNDER: - LESSEES AGREEMENT DATED EQUIPMENTS LEASED COST OF EQUIPMENT AND DEPRECIATION CLAIMED - A.Y. 1994 - 95 LEASE RENTALS TAXED PATHEJA 02.02.1994 STEEL BINS 1,99,93,250 2,37,51,972 FORGINGS 25.03.1994 DRUMS, ETC. 1,51,50,000 1,68,45,089 KEDIA DISTILLERIES 18.3 .1994 CRATES 1,10,36,000 1,27,13,472 RS. 4,61,79,250 ---------------- 5,33,10,533 --------------- AGRITECH HATCHERIES 6. THE ASSESSEE HAVING TITLE IN THE EQUIPMENTS AS THE OWNER WAS ELIGIBLE FOR DEPRECIATION @ 100% OF THE C OST U/S 32((I)(II) FIRST PROVISO (DELETED W.E.F. FROM 1.4.1996) LEASED OUT AS THE COST OF EACH ITEM WAS LESS THAN RS. 5,000/ - . THE ASSESSEE FILED ITS RETURN OF TOTAL INCOME ON 30.11.1994 DECLARING LOSS OF RS. 83,46,669/ - .THE ORIGINAL ASSESSMENT WAS MADE U/ S 143(3) VIDE ORDER DTD. 26.3.1997, WHEREIN THE A.O. DISALLOWED DEPRECIATION ON THE LEASED EQUIPMENTS BY HOLDING THAT THE LEASE AGREEMENTS WERE ONLY PAPER AGREEMENTS WITHOUT ANY UNDERLYING ASSETS BY REFERRING TO STATEMENTS OF THIRD PARTIES. WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSEE FOR CROSS EXAMINATION OF THE LESSEES IN SPITE OF REQUESTS. THE A.O. IN ORDER DATED 26.3.1997 ON ONE HAND DISALLOWED DEPRECIATION OF RS. 4,61,79,250/ - AND AT THE SAME TIME TREATED LEASE RENTALS 6 AMOUNTING TO RS. 5,33,10,533/ - AS TAXABLE INCOME OVER THE PERIOD OF LEASE. IN THE APPEAL FILED BY THE ASSESSEE , THE CIT(A) SET - ASIDE THE ASSESSMENT O RDER DATED 26.3.1997 BY HOLDING IN THE ORDER DTD. 6.10.1997 (PARA 17) AS UNDER: - '17. I AGREE WITH THE APPELLANT 'S CONTENTION THAT A GO BY OF THE RULE OF NATURAL JUSTICE CANNOT RESULT INTO AN ASSESSMENT WHICH IS VALID AND FAIR IN THE EYE OF LAW. IN THE INTEREST OF JUSTICE AND FAIR - PLAY, I HAVE TO SET ASIDE THE ASSESSMENT, DIRECTING THE A.O. TO REFRAME THE SAME AFTER GRANTING NECESSARY O PPORTUNITIES AND AFTER FULLY IMPLYING THE PROVISIONS ENSHRINED IN THE RULE OF NATURAL JUSTICE.' 7. PURSUANT TO THE DIRECTIONS OF THE CIT(A), THE A.O. IN THE SET ASIDE ASSESSMENT ISSUED SUMMONS TO THE 3 LESSEES VIZ. (I) PATHEJA FORGINGS., (2) KEDIA DISTILL ERIES, (3) AGRITECH HATCHERIES, WHICH WERE DULY COMPLIED WITH BY THEM. THE A.O. IN THE SET ASIDE ORDER DTD. 30.3.2000 U/S 143(3) AGAIN DISALLOWED DEPRECIATION OF RS. 4,61,79,250/ - ON THE EQUIPMENTS LEASED AND AT THE SAME TIME ASSESSED RS. 5,33,10,533/ - IN A.Y.S 1994 - 95 TO 1998 - 99 AS INCOME . THE ASSESSEE WENT IN APPEAL AGAINST THE SECOND ASSESSMENT ORDER DTD. 30.3.2000. THE CIT(A) IN THE ORDER DTD. 26.3.2002, AFTER CONSIDERING THE EVIDENCES IN SUPPORT OF THE CLAIM OF DEPRECIATION ALLOWED DEPRECIATION AGGREGA TING TO RS. 4,61,79,250/ - . 8 . THE DEPARTMENT AS WELL AS THE ASSESSEE FILED APPEALS AGAINST THE ORDER OF THE CIT(A) IN ITAT. THE 1TAT BENCH, MUMBAI VIDE ORDER DTD. 2.8.2006 DISPOSED OFF THE CROSS APPEAL AND ADMITTED THE ADDITIONAL EVIDENCE AFFIRMED AFFIDA VITS BY THE ASSESSEE (PARA (IV) AND (V) OF THE ORDER), BY HOLDING AS UNDER: - '(IV) CERTAIN COURT PROCEEDINGS TO SHOW THAT THE ASSESSEE IS PERSUING THE MATTER OF RECOVERY OF LEASE RENTALS DUE UNDER THE LEASE AGREEMENTS WITH KEDIA DIST., AGRITECH HATCHERIES AND PATHEJA FORGINGS . (V) NOTICE OF MOTION TAKEN BEFORE THE BOMBAY HIGH COURT FOR REPOSSESSION OF THE LEASED EQUIPMENTS FROM KEDIA DIST; AGRITECH HATCHERIES; AND PATHEJA FORGINGS . AND PASSED THE ORDER AS UNDER (PARA 9] '9. AII THESE GROUNDS PER TAIN TO LEASING TRANSACTIONS AND DISALLOWANCE OF DEPRECIATION ON THE ASSETS LEASED. WE HAVE ALREADY ADMITTED EVIDENCE, WHICH IS RELEVANT FOR DECIDING THESE ISSUES AND THEREFORE, 7 THE SAME ARE RESTORED BACK TO THE ASSESSING OFFICER WITH THE DIRECTION THAT TH E RELEVANT LEASING TRANSACTIONS MAY BE RECONSIDERED IN THE LIGHT OF THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE AND AFTER ALLOWING ADEQUATE OPPORTUNITY TO THE ASSESSEE.' 9. THE A.O. TO GIVE EFFECT TO THE DIRECTIONS OF THE ITAT MADE THE ORDER DTD. 27.9. 2007, WITHOUT ISSUING ANY SUMMON TO THE LESSEES AND AGAIN DISALLOWED DEPRECIATION OF RS. 4,61,79,250/ - WITHOUT BRINGING ANY NEW MATERIAL ON RECORD TO TAKE A DIFFERENT VIEW FROM THE FINDINGS OF THE CIT(A) GIVEN IN THE ORDER DATED 26.3.2002, ON THE BASIS OF WHICH THE CIT[A) HAD ALLOWED DEPRECIATION. THE A.O. DID NOTE THAT THE 3 LESSEES WHICH WERE PUBLIC LIMITED COMPANIES WERE ALREADY IN LIQUIDATION IN THE PROCEEDINGS BEFORE THE BOMBAY HIGH COURT, AT THE RELEVANT TIME WHEN THE IMPUGNED ORDER WAS MADE BY THE A. O. ON 27.9.2007, AND THE LESSEE COMPANIES DID NOT EXIST IN LAW, AND THE COURT RECEIVER WAS ALREADY IN POSSESSION OF THE LEASED EQUIPMENTS. FOR RE - POSSESSION OF THE LEASED EQUIPMENTS, THE ASSESSEE AS THE ABSOLUTE OWNER TOOK OUT THREE NOTICES OF MOTION DTD. 23.11.2005 DULY AFFIRMED ON AFFIDAVIT AND FILED BEFORE THE BOMBAY HIGH COURT DURING THE PROCEEDINGS. IN VIEW OF THE 3 LESSEE COMPANIES BEING WOUND UP AND NOT EXISTING IN LAW, A SITUATION HAD ARISEN WHERE IT WAS IMPOSSIBLE FOR FURTHER COMPLIANCES. 10. AGAI NST THE ABOVE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WAS IN APPEAL BEFORE LEARNED CIT(A). AS REGARDS THE ASSESSEES CHALLENGE TO THE VALIDITY OF THE ASSESSMENT LEARNED CIT(A) NOTED THE SUBMISSIONS OF THE ASSESSEES COUNSEL AS UNDER : - THE AUTHORISED REPRESENTATIVE SUBMITTED THAT THE APPEAL RELATED TO THE YEAR 1994 I.E. 22 YEARS OLD DURING WHICH PERIOD ASSESSMENT ORDERS HAVE BEEN MADE 3 TIMES DATED 26.3.1997, 30.3.2000 AND 27.9.2007. HE FURTHER SUBMITTED THAT THE APPELLANT ENTERED INTO LEASE AGREEMENT S IN THE PREVIOUS YEAR ENDED 31.3.1994 WITH ( 1 ) PATHEJA FORGINGS, (2) KEDIA DISTILLERIES, (3) AGRITECH HATCHERIES ALL PUBLIC LTD. CO. WHICH COMPANIES HAVE SINCE THEN BEEN TAKEN IN LIQUIDATION IN THE PROCEEDINGS BEFORE THE BOMBAY HIGH COURT AND COURT RECEIV ER HAS TAKEN POSSESSION OF THE LEASED EQUIPMENTS AND THE LESSEES DO NOT EXIST IN LAW. HE FURTHER SUBMITTED THAT THE ORIGINAL ASSESSMENT ORDER WAS SET A SIDE BY THE CIT(A) AS THE A.O. DID NOT ISSUE SUMMONS TO THE PARTIES FOR CROSS EXAMINATION BY THE APPELLAN T . DURING THE SECOND ASSESSMENT PROCEEDINGS THE A.O. ISSUED SUMMONS U/S 131 TO THE 3 LESSEES, WHICH WERE DULY SERVED WHICH WERE FULLY COMPLIED WITH AND THE LESSEES ALSO APPEARED BEFORE THE COURTS IN THE 8 PROCEEDINGS TAKEN OUT BY THE APPELLANT AND CONFIRMED THE LEASE TRANSACTIONS, EXISTENCE OF THE LEASED EQUIPMENTS AND AGREED TO RETURN THE LEASED EQUIPMENTS TO THE APPELLANT, BUT INSPITE OF REQUESTS BY THE APPELLANT, NO OPPORTUNITY FOR CROSS EXAMINATION WAS GIVEN BY THE A.O. AS REQUIRED IN LAW. THE AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT THE A.O.'S FAILURE TO GIVEN AN OPPORTUNITY TO THE APPELLANT WAS AGAINST THE PRINCIPLES OF NATURAL JUSTICE INSOFAR AS NO INFERENCE CAN BE DRAWN AGAINST THE ASSESSEE WITHOUT FOLLOWING DUE PROCESS OF LAW AND THUS THE ORDE R IS VOID, AB - INITIO. FURTHER, IN VIEW OF THE ASSESSMENT BEING 22 YEARS OLD AND A SITUATION HAD ARISEN WHERE IT WAS IMPOSSIBLE FOR FURTHER COMPLIANCE WITH THE PROVISIONS OF LAW, THE IMPUGNED ORDER WAS AB - INITIO, VOID, ILLEGAL AND BAD IN LAW. IT WAS FURTHER SUBMITTED THAT THIS VIEW WAS SUPPORTED BY THE ORDERS DATED 6.10.1997 AND 26.3.2002 OF THE FIRST APPELLATE AUTHORITY. HE REFERRED TO PARA 17 OF THE ORDER OF THE CIT(A) DATED 6.10.1997, READING AS UNDER: '17.1 AGREE WITH THE APPELLANT'S CONTENTION THAT A G O BY OF THE RULE OF NATURAL JUSTICE CANNOT RESULT INTO AN ASSESSMENT WHICH IS VALID AND FAIR IN THE EYE OF LAW. IN THE INTEREST OF JUSTICE AND FAIR - PLAY, I HAVE TO SET ASIDE THE ASSESSMENT, DIRECTING THE A.O. TO REFRAME THE SAME AFTER GRANTING NECESSARY OP PORTUNITIES AND AFTER FULLY IMPLYING THE PROVISIONS ENSHRINED IN THE RULE OF NATURAL JUSTICE. THE AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT THE ABOVE PROPOSITION OF LAW WAS FULLY SUPPORTED BY THE DECISIONS OF THE COURTS AND WERE RIGHTLY APPLIED BY THE FIRST APPELLATE AUTHORITY, AND THAT THE APPELLANT'S CASE IS FULLY SUPPORTED BY THE DECISIONS OF THE SUPREME COURT IN THE CASE IN 45 ITR 206(SC), 49 ITR 112(SC) AND 159 ITR 78(SC). THE APPELLANT THEREFORE, SUBMITTED THAT THE ASSTT. ORDER IS AB - INITIO, V OID AND ILLEGAL AND IS LIABLE TO BE CANCELLED . 1 1 . HOWEVER, LEARNED CIT(A) DISMISSED THE SAME SUMMARILY BY HOLDING AS UNDER : - II) I DO NOT AGREE WITH THE SUBMISSIONS OF THE APPELLANT, AS ON SIMILAR GROUND THE CIT(A) VIDE ORDER DATED 26.3.2002 DISMISSED SIMILAR GROUND BY HOLDING IN PARA 4.4. AS UNDER: '4.4 THEREFORE, FAILURE ON THE PART OF THE A.O. TO FOLLOW THE DIRECTIONS ON A FEW AMONGST SEVERAL OF APPEAL CANNOT MAKE THE ENTIRE ASSESSMENT VOID AB - INITIO. THIS GROUND OF APPEAL IS THEREFORE DISMISSED . 1 2 . AS REGARDS CHALLENGE OF THE ASSESSEE TO THE DECISION OF DEPRECIATION ON THE ASSETS LEASED TO AGRITECH HATCHERIES AND FOODS LTD., PATHEJA FORGINGS & AUTO PARTS MFG. LTD. AND KEDIA DISTILLERIES LTD., LEARNED CIT(A) ELABORATELY NOTED THE SUBMISSIONS OF T HE ASSESSEE. 9 1 3 . LEARNED CIT(A) REJECTED THE ASSESSEES SUBMISSION THAT THERE IS FAILURE OF THE PRINCIPLE OF NATURAL JUSTICE IN AS MUCH AS ASSESSEE HAS NOT BEEN GIVEN ADEQUATE OPPORTUNITY FOR CROSS EXAMINATION OF THE LESSEES. LEARNED CIT(A) IN THIS REGARD NOTED AS UNDER : - 8.1 I H AVE CONSIDERED THE SUBMISSIONS MADE BY THE AUTHORISED REPRESENTATIVE. I FIND THAT IN THE PREVIOUS YEAR ENDED 31.3.1994 THE APPELLANT HAD PURCHASED EQUIPMENTS THE VALUE OF EACH ITEM WAS BELOW RS. 5,000/ - AND CLAIMED DEPRECIATION AT 100% OF THE EQUIPMENTS COSTING RS. 4,61,79,350/ - AND LEASED THEM TO THE THREE LESSEES VIZ. 1 ) AGRITECH HATCHERI ES, 2) PATHEJA FORGINGS AND 3) K EDIA DISTILLERIES. IT IS SEEN THAT THE ASSESSMENT RELATES TO PREVIOUS YEAR ENDED 31.3.1994, I.E. 22 YEARS OLD. T HE APPELLANT REPEATEDLY ARGUES THAT NO CROSS EXAMINATION WAS ALLOWED DURING THE COURSE OF ASSESSMENT. FURTHER, HON BLE ITAT ALSO VIDE ITS ORDER DATED 02/08/2006 DIRECTED THE AO TO GIVE NECESSARY OPPORTUNITY TO THE APPELLANT AFTER CONSIDERING EVIDENCES FILE D BEFORE THE HON'BLE BOMBAY HIGH COURT AND DO THE ASSESSMENT AFRESH. THE LD. AO HAS REPORTED IN THE ASSESSMENT ORDER THAT NECESSARY SUMMONS WERE ISSUED TO THE LESSEE HOWEVER NO ONE HAS RESPONDED. AS DIRECTED BY THE HON'BLE ITAT, A LETTER DATED 06.10.2015 WAS ISSUED TO THE CONCERNED AO ACIT 1(2) THAT THE APPELLANT COMPANY PLEADS THAT THE PRINCIPLE OF NATURAL JUSTICE HAS NOT BEEN FOLLOWED AND ADEQUATE OPPORTUNITY FOR CROSS EXAMINATION OF LESSEES M/S PATHEJA FORGINGS, KEDIA DISTILLERIES AND AGRITECH HATCHERIE S. ACCORDINGLY, DIRECTED THE AO TO ISSUE NECESSARY SUMMONS TO THE LESSEES TO CARRY OUT NECESSARY ENQUIRY AND GIVE OPPORTUNITY FOR CROSS EXAMINATION OF THE LESSEES. IN RESPONSE TO THE ABOVE LETTER, THE DCIT 1(2J(2) VIDE HIS LETTER DATED 25/07/2016 FILED A C OPY OF THE LETTER ADDRESSED TO THE AO ACIT 1(2) BY THE APPELLANT COMPANY EXPRESSING ITS INABILITY TO TRACE THE LESSEES SINCE 22 YEARS HAS ALREADY BEEN PASSED AND LESSEES MAY NOT BE AVAILABLE IN THE OLD ADDRESSES. THE RELEVANT PORTION IS AS UNDER : - '5. YO U WILL ALSO PLEASE APPRECIATE THAT THE ABOVE LESSEES MAY NOW NOT BE AVAILABLE AT THEIR OLD ADDRESSES AS THE MATTER RELATES TO THE PERIOD PAST OVER 22 YEARS AND NOW ARE NOT CONCERNED WITH THE LEASE TRANSACTION AS PRESENTLY THE BOMBAY HIGH COURT IS IN SEIZED OF THE MATTERS, BESIDES THE FACT THAT LESSEE NO.L IS IN LIQUIDATION, LESSEE NO.2 IS ABSCONDING AND POLICE WARRANTS ARE ISSUED BY THE BOMBAY POLICE FOR THE ARREST OF THE MG. DIRECTOR OF PATHEJA AND LESSEE NO.3 HAS SETTLED THE ASSESSEE'S CLAIM BY MAKING PAY MENTS TOWARDS ARREARS OF LEASE RENTAL BY CONFIRMING THE LEASE TRANSACTION AS GENUINE AND THE EXISTENCE OF THE LEASED EQUIPMENTS.' SO AS PER THE DIRECTION OF HON'BLE ITAT, EFFORTS WERE MADE TO GIVE PROPER OPPORTUNITY TO THE APPELLANT FOR CROSS EXAMINATION OF LESSEES AND IT IS A KNOWN FACT THAT THIS IS A CASE PENDING FOR MORE THAN 22 YEARS BUT NO FRUITFUL RESULT IS GOING TO COME. ACCORDINGLY, THE APPEAL IS DECIDED ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 10 1 4 . THEREAFTER LEARNED CIT(A) DEALT WITH THE MER ITS OF DISALLOWANCE. AS REGARDS THE CASE OF AGRITECH HATCHERIES, LEARNED CIT(A) REFERRED TO THE INQUIRIES MADE IN THE CASE OF ALPHA ENGINEERS AND M/S. AGRITCH HATCHERIES. HE NOTED THAT THERE WAS A SEARCH ACTION AGAINST THEM WHERE MR. JEHANGIR DAMANIA, PROP RIETOR OF ALPHA ENGINEERS AND ALSO VICE PRESIDENT OF M/S. AGRITECH HATCHERIES, CONFESSED UNDER OATH THAT NO BUSINESS HAD EVER BEEN DONE BY M/S. ALFA ENGINEERS AND NO SUCH ASSETS HAD EVER BEEN SUPPLIED BY THAT CONCERN. WHEN THIS IS BROUGHT TO THE NOTICE OF THE ASSESSEE - COMPANY, ASSESSEE COMPANY ASKED FOR THE CROSS EXAMINATION OF MR. JEHANGIR DAMANIA . HOWEVER, THE ASSESSEE COMPANY WAS ONLY GIVEN INFORMATION ABOUT THE SURVEY CONDUCTED AND THE ASSESSING OFFICER REJECTED THE ASSESSEES CLAIM ON THE BASIS OF SEAR CH AND STATEMENT FROM MR. JEHANGIR DAMANIA. THE ASSESSING OFFICER HAD NOTED THAT THE ASSESSEE HAD NOT BEEN ABLE TO FURNISH ANY EVIDENCE IN THE FORM OF TRANSPORTATION RECEIPTS, OCTROI RECEIPTS, GATE PASS ETC. TO SHOW THAT SUCH CRATES WERE ACTUALLY PURCHASED AND DELIVERED TO M/S. AGRITECH HATCHERIES. THE ASSESSEE HAD ARGUED THAT ALL THE LEASE TRANSACTIONS ARE N OTED IN THEIR BOOKS OF ACCOUNT. THE ASSESSEE HAS PAID LEASE TAX ALSO AND IT WAS PLEADED THAT LEASE TRANSACTIONS ENTERED WITH M/S. AGRITECH HATCHERIES A RE GENUINE AND NECESSARY DEPRECIATION SHOULD BE ALLOWED. LEARNED CIT(A) IN THIS CONNECTION, REFERRED TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF AVASARALA TECHNOLOGIES LTD. VS. JCIT, BANGALORE IN CIVIL APPEAL NO. 2996/2004 DATED 30.3.3015, WHER EIN ASSESSEES CLAIM WAS DISMISSED AND HON'BLE SUPREME COURT UPHELD THE DISALLOWANCE ON THE GROUND THAT TRANSACTION WAS SHAM. HON'BLE SUPREME COURT WHILE DISMISSING THE APPEAL HELD THAT THESE ARE PURE FINDINGS OF FACTS RECORDED BY THE AUTHORITIES BELOW. N O QUESTION OF LAW ARISES . THEREAFTER LEARNED CIT(A) REFERRED TO THE ITAT SMC BENCH DECISION IN THE CASE OF SHREE ANAND IMPLEX PVT. LTD. (ITA NO. 3139/MUM/2002 DATED 29.11.2004) WHERE THE ASSESSEE HAD PURCHASED CRATES FROM M/S. ALPHA ENGINEERS AND LEASED T O M/S. AGRITECH HATCHERIES FOODS P. LTD. AND CLAIMED DEPRECIATION. THE SMC BENCH REFERRING THE STATEMENT RECORDED FROM MR. JEHANGIR DAMANIA AND STATEMENT RECORDED FROM MR. SHANTILAL JAIN, DIRECTOR OF SHREE ANAND IMPLEX P. LTD., 11 UPHELD THE DISALLOWANCE. CON SIDERING THESE DECISIONS LEARNED CIT(A) RELYING UPON THE STATEMENT OF MR. JEHANGIR DAMANIA, HELD THAT THE ASSESSEE COMPANY IS NOT ELIGIBLE TO CLAIM DEPRECIATION ON THE LEASED GOODS TO A G RITECH HATCHERIES. HE NCE, ADDITION MADE OF RS. 1,10,36,000/ - BY THE AS SESSING OFFICER WAS CONFIRMED. 1 5 . THEREAFTER LEARNED CIT(A) DEALT WITH THE ASSESSEES GROUND NO. 7 PERTAINING TO ADDITION OF LEASE RENTAL INCOME. REFERRING TO ITAT DECISION IN ITA NO. 3139/MUM/2002 DATED 14.12.2005 IN THE CASE OF SHREE ANAND IMPLEX P. LTD. , LEARNED CIT(A) HELD THAT FOLLOWING THE ABOVE DECISION, HE HELD THAT LEASE INCOME FOUND TO BE RECEIVED FROM AGRITECH HATCHERIES FOODS P. LTD. CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE. 1 6 . HOWEVER, LEARNED CIT(A) HELD THAT THE ASSESSEE GAVE FIN ANC E TO THE EXTENT OF RS. 1,10,36,000/ - AND THEREBY EARNED OTHER INCOME I.E. INTEREST INCOME. IN THIS REGARD HE REFERRED TO THE STATEMENT RECORDED OF MR. JEHANGIR DAMANIA. HE ALSO NOTED THAT THE ASSESSEE HAS NOT DISPUTED THE FACT THAT HE HAS PAID MONEY TO M/S . ALPHA ENGINEERS AND MONEY WAS REPAID TO THE ASSESSEE COMPANY BY ALPHA GROUP - COMPANY. LEARNED CIT(A) ALSO REFERRED TO THE SUBMISSION THAT ASSESSEE COMPANY HAS FILED VARIOUS SUITES IN HON'BLE BOMBAY HIGH COURT FOR RECOVERY OF BALANCE DUE TO THEM. THEREAFTE R LEARNED CIT(A) HELD THAT THE TRANSACTION WAS FINANCIAL TRANSACTION. HE HELD AS UNDER : - FURTHER THE SUMMARY SUIT BEFORE THE HON'BLE HIGH COURT MUMBAI VIDE SUMMARY SUIT NO. 929 OF 1998 DATED NIL BETWEEN AGRITECH HATCHERIES AND FOODS LTD. & ORS AND THE PL AINTIFF NARANG INTERNATIONAL HOTELS P. LTD. I.E. THE APPELLANT CLAIMED PRINCIPLE SUM OF RS.51,82,475/ - ALONGWITH INTEREST IN THE SUM OF RS.34,02,291/ - I.E. TOTAL SUM OF RS.85,84,766/ - FROM DEFENDANT AGRITECH HATCHERIES AND FOODS LTD. & ORS CLEARLY INDICATE S THE FINANCIAL TRANSACTION AND NOT LEASE TRANSACTIONS. '13. THE PLAINTIFF SUBMIT S THAT THE DEFENDANT HAVE NO DEFENCE TO THE SUIT AND THE DEFENDANTS ARE LIABLE TO PAY TO THE PLAINTIFF THE PRINCIPLE SUM OFRS. 51,82,47S/ - ALONGWITH INTEREST IN THE SUM OF RS. 34,02,291/ - I.E. TOTAL SUM OF RS.85,84,766/ - IN TERMS OF P ARTICULARS OF CLAIM EXHIBIT 'I'. THE PLAINTIFF THEREFORE SUBMITS THAT THIS HON'BLE COURT BE PLEASED TO ORDER AND DECREE THE DEFENDANTS TO PAY TO THE PLAINTIFF THE AFORESAID PRINCIPLE SUM OF R S. 51,82,475/ - ALONGWITH ACCRUED INTEREST IN THE 12 SUM OF RS.34,Q2,29L/ - ALONGWITH FURTHER INTEREST @ 24% P.A. FROM THE DATE OF FILING OF THE SUIT TILL PAYMENT AND OR REALIZATION.' 9.3 CONSIDERING THE ABOVE FACT ON RECORD, MODUS OPERANDI OF THE APPELLAN T COMPANY WHICH IS IN THE BUSINESS OF HOTELERING AND I AM OF CONSIDERED OPINION THAT THE APPELLANT COMPANY ENTERED INTO THE FINANCIAL TRANSACTION WITH AGRITECH HATCHERIES FOODS P.LTD. (AHFL) AND THEREBY EARNED INTEREST INCOME AND THEREFORE WHATEVER INCOME OFFERED BY THE APPELLANT COMPANY IN THIS TRANSACTION IS VERY WELL BE TREATED AS INCOME FROM OTHER SOURCES I.E. INTEREST INCOME. RESPECTFULLY FOLLOWING THE HON'BLE SUPREME COURT DECISION GIVEN IN THE CASE OF AVASARAL TECHNOLOGIES LTD. 2996/2004 DTD. 30.03.2 015, THE INTEREST INCOME @ 18% ON THE COST OF MACHINERY TREATING IT AS INCOME AND THEREFORE RESPECTFULLY RELYING ON THE HON'BLE SUPREME COURT'S DECISION IN CITED ABOVE. I DIRECT THE AO TO ASSESS 18% INTEREST ON COST OF MACHINERY WHICH WAS PASSED TO PATHEJA GROUP IN THE FORM OF FINANCE. CONSIDERING THE HON'BLE SUPREME COURT DECISION IN THE CASE OF AVASARAL TECHNOLOGIES LTD. [2996/2004 {SC} DTD. 30.03.2015], I AM CONSTRAINED NOT TO GIVE FULL RELIEF. THE JURISDICTIONAL HON'BLE 1TAT SMC BENCH 1TA NO. 3139/MUM/ 2002 DATED 29.11.2004 AND 14.12.2005 HAS GIVEN RULING IN FAVOUR OF THE APPELLANT COMPANY. LEASE TRANSACTION OF M/S. PATHEJA FORGINGS & AUTO SPAREPARTS LTD. 1 7 . LEARNED CIT(A) IN THIS REGARD REFERRED TO THE FINDINGS OF THE ASSESSING OFFICER AS UNDER : - 'IN VESTIGATIONS CARRIED OUT BY VARIOUS DEPARTMENTAL AUTHORITIES HAVE SHOWN THAT A LARGE NUMBER OF LEASE TRANSACTIONS SHOWN TO HAVE ENTERED INTO BY M/S PATHEJA FORGINGS ARE FICTITIOUS LEASE, AS THERE WERE NO ASSETS IN EXISTENCE.' 'ENQUIRIES CARRIED OUT BY INS PECTORS AT THE ADDRESSES GIVEN IN RESPECT OF PRUDENT AUTO ACCESSORIES AND M/S KAYSON ENGINEERS REVEALED THAT NO SUCH CONCERNS WERE EVER AVAILABLE AT THOSE ADDRESSES. FURTHER ENQUIRIES COULD NOT GET ANY CLUE AS TO THE WHEREABOUTS OF THE COMPANIES. SIMILARLY THE ADDRESS GIVEN OF THE THIRD CONCERN M/S APEX INDL. CASTING PVT. LTD. WAS ACTUALLY FOUND TO BE THE MAIN OFFICE ADDRESS OF M/S PATHEJA FORGINGS. BANK STATEMENT OF M/S PRUDENT AND M/S KAYSONS ENGINEERS HAD BEEN OBTAINED BY THE ASSESSING OFFICERS BY TRACIN G OUT THE CHEQUES ISSUED BY THE ASSESSEES. THESE STATEMENTS SHOWED THAT THE ACCOUNTS WERE OPERATED BY SHRI PARANJITSINGH PATHEJA WHO WAS A AUTHORIZED SIGNATORY AND ALSO DIRECTOR OF M/S PATHEJA FORGINGS. A SURVEY U/S 133A HAD BEEN CARRIED OUT ON 18.10.95 TH ROUGH THE INVESTIGATION WING AT PUNE IN THE CASE OF M/S PATHENA FORGINGS. IT WAS FOUND AT THE TIME OF SURVEY THAT THERE WERE ONLY ABOUT 59000 BINS AVAILABLE AT THE PREMISES. AT THE SAME TIME CREDITS IN THE BANK A/C OF M/S PRUDENT AND M/S KAYSONS DURING TH E F.Y. 93 - 94 AND UPTO 18.10.95 ARE FOUND TO BE ABOUT RS 4 O CRORES. IT HAS BEEN STATED BY SHRI PARAMJITSINGH PATHEJA IN A LETTER TO THE CBDT GROUP AND HAD SHOWN TO HAVE BEEN SOLD M.S. BINS TO VARIOUS PARTIES WHICH WERE IN 13 TURN LEASED OUT TO M/S PATHEJA FORG INGS.' WITH THE ABOVE FINDINGS, THE AO CAME TO THE FOLLOWING CONCLUSION : - (A) THE CONCERNS M/S APEX INDL. CASTING P. LTD. , M/S KAYSONS ENGINEERS AND M/S PRUDENT AUTO ACCESSORIES WHICH ARE SHOWN TO BE COMPANIES OF PATHEJA GROUP DID NOT EVER CARRY OUT ANY BUSINESS ACTIVITIES. IN FACT THE COMPANIES WERE NOT FOUND TO BE IN EXISTENCE AT THE ADDRESSES GIVEN. (B)NO EVIDENCE IN THE FORM OF TRANSPORT RECEIPTS ETC. WHICH COULD PROVE THE PHYSICAL EXISTENCE OF THE ASSETS HAS BEEN FURNISHED BY THE ASSESSEE IN SPITE O F REPEATED OPPORTUNITIES. (C) NO EVIDENCE OF ACTUAL PAYMENTS MADE FOR PURCHASE OF THE ASSETS HAS BEEN FURNISHED BY THE ASSESSEE. ON THE CONTRARY THE BANK STATEMENTS OF M/S PRUDENT AND M/S KAYSONS ENGINEERS DO NOT SHOW ANY CREDITS OF AMOUNTS WHICH ARE STAT ED TO HAVE BEEN PAID BY THE ASSESSEE TO THESE CONCERNS; (D) THE NUMBER OF BINS ACTUALLY FOUND DURING THE COURSE SURVEY IN THE CASE OF PATHEJA FORGINGS WAS MUCH LESS THAN THE TOTAL QUANTITY OF BINS SHOWN TO HAVE BEEN SOLD DURING THE RELEVANT PERIOD BY M/S PRUDENT AUTO ACCESSORIES P. LTD. AND M/S KAYSONS ENGINEERS. IN VIEW OF THE ABOVE EVIDENCE, IT IS CLEAR THAT 4215 M.S. BINS SHOWN TO HAVE BEEN PURCHASED BY THE ASSESSEE FROM THREE COMPANIES WERE ACTUALLY NEVER PURCHASED AND NO SUCH ASSETS WERE IN EXISTENCE AND CONSEQUENTLY THE LEASE TRANSITION DONE WITH M/S PATHEJA FORGINGS IS A PAPER TRANSACTION. THE PURPOSE OF LEASE TRANSACTION IS OBVIOUSLY TO ALLOW PATHEJA FORGINGS TO AVAIL OF WORKING CAPITAL FINANCE AND ENABLE THE ASSEESSEE TO REDUCE ITS TAXABLE INCOME BY CLAIMING 100% DEPRECIATION. ACCORDINGLY, THE DEPRECIATION OF RS. 1,99,93,250/ - CLAIMED IN RESPECT OF THE ALLEGED LEASE TRANSACTION WITH M/S PATHEJA FORGINGS IS DISALLOWED.' 1 8 . LEARNED CIT(A) HELD THAT THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE C ASE OF AGRITECH HATCHERIES & FOODS PVT. LTD. AND RELYING ON THE SAME CASE LAW AS ABOVE, HE UPHELD THE DISALLOWANCE IN THIS CASE ALSO. 19 . SIMILAR TO HIS FINDING IN THE CASE OF AGRITECH HATCHERIES , IN THIS CASE ALSO LEARNED CIT(A) HELD THAT TRANSACTION TO BE A FINANCE TRANSACTION BY HOLDING AS UNDER : - THE APPELLANT COMPANY HAD FILED SUMMARY SUITS BEFORE THE HON'BLE HIGH COURT, MUMBAI AS UNDER: - IN THE CASE OF PATHEJA FORGINGS & AUTO PART P. LTD. SUMMARY SUIT FILED BEFORE THE HON'BJE HIGH COURT MUMBAI VI DE SUMMARY SUIT NO. 5803 OF 1998 DATED 30 . 11.1998 WHEREIN THE PLAINTIFF NARANG INTERNATIONAL HOTELS P. LTD. I.E. THE 14 APPELLANT CLAIMED PRINCIPLE SUM OF RS.27,58,662/ - ALONGWITH INTEREST IN THE SUM OF RS.3,58,040/ - FROM DEFENDANT PATHEJA FORGINGS & AUTO PAR T P. LTD CLEARLY INDICATES THE FINANCIAL TRANSACTION AND NOT LEASE TRANSACTIONS. '9. THE PLAINTIFF SUBMIT THAT THE DEFENDANT HAVE NO DEFENCE TO THE SUIT AND THE DEFENDANTS ARE LIABLE TO PAY TO THE PLAINTIFF THE PRINCIPLE SUM OF RS.27,58,662/ - ALONGWI TH INTEREST IN THE SUM OF RS.3,58 F 040/ - IN TERMS OF PARTICULARS OF CLAIM EXHIBIT 'J' AND THE CONSENT TERMS DATED 5.12 . 1997. THE PLAINTIFF THEREFORE SUBMITS THAT THIS HON'BLE COURT BE PLEASED TO ORDER AND DECREE THE DEFENDANTS TO PAY TO THE PLAINTIFF THE AF ORESAID PRINCIPLE SUM OF RS.27,58,662/ - ALONGWITH ACCR U ED INTEREST IN THE SUM OF RS.3,58,040/ - ALONGWITH FURTHER INTEREST @ 12% P.A. FROM THE DATE OF FILING OF THE SUIT TILL PAYMENT AND OR REALIZATION.' 9.6 CONSIDERING THE PRAYER OF THE APPELLANT COMPAN Y NOT TO ASSESS THE LEASED INCOME OFFERED BY IT WHEN DEPRECIATION DENIED TO THEM, AS PER RATIO FOLLOWED IN THE CASE OF SHREE ANAND IMPEX PVT LT D. [ITA NO. 3139/MUM/2002 DATED 29.11.2004 AND 14.12.2005] NOT BEEN CONSIDERED FOR THE FOLLOWING REASON : - AS CI TED ABOVE THE HON'BLE SUPREME COURT IN THE CASE OF AVASARAL TECHNOLOGIES LTD. [2996/2004 (SC) DTD. 30.03.2015] TREATED 18% OF THE COST OF MACHINERY TREATED AS INTEREST INCOME FOR ASSESSMENT PURPOSE, I AM CONSTRAINED TO GIVE PART RELIEF TO THE APPELLANT AND THEREFORE THIS GROUND OF APPEAL IS PARTLY ALLOWED. LEASE TRANSACTION WITH KEDIA DISTRILLERIES LTD. 2 0 . HERE ALSO LEARNED CIT(A) REFERRED TO THE ASSESSMENT ORDER DATED 26.3.1997 AS UNDER : - 'THE ASSESSEE WAS INFORMED THAT AS A RESULT OF EXTENSIVE INVESTIG ATION CARRIED OUT BY THE DEPARTMENT IN THE CASE M/S KEDIA DISTILLERIES LTD., IT HAD BEEN FOUND THAT THIS GROUP HAD FLOATED A NUMBER OF FROND COMPANIES WHICH WERE SHOWN TO HAVE SUPPLIED VARIOUS ASSETS TO A LARGE NUMBER OF COMPANIES WHO IN TURN HAD SHOWN TO HAVE LEASED OUT ASSETS TO M/S KDL. IN THE PROCESS OF M/S KDL AVAILED OF FINANCE AND WORKING CAPITAL AND THE COMPANY WHICH HAD SHOWN TO HAVE PURCHASED THE ASSETS AND LEASED OUT TO M/S KDL GOT BENEFIT OF 100% DEPRECIATION' 'COPIES OF LETTERS 10.10.96 AND 28 .11.96 FROM M/S KDL AND M/S KCDIL ADDRESSED TO THE DEPARTMENT WERE FURNISHED ALONGWITH THE LETTER AND IN THESE LETTERS THE KEDIA GROUP HAD NOT ONLY EXPLAINED THE MODUS OPERAND/, BUT ALSO SPECIFICALLY MENTIONED THIS PARTICULAR TRANSACTION WITH THE ASSESSEE AS ONE OF THE FICTITIOUS LEASE TRANSACTION' AND FURTHER THE AR OF THE APPELLANT REITERATED THE ARGUMENT THAT ASSETS WERE PURCHASED FROM KEDIA CASTLE & DELLEON INDUSTRIES LTD, AND THE LESSESSEE HAVE CONFIRMED THAT THE ASSETS WERE IN EXISTENCE AND NO FURTHE R EVIDENCES WAS FURNISHED BY THE ASSESSEE. 15 IN THE LIGHT OF THE ABOVE, THE AO CAME TO THE FOLLOWING CONCLUSION (A) THE ASSESSEE HAS SHOWN TO HAVE PURCHASED VARIOUS ITEMS COSTING RS.1.51 CRORESFROM M/S KEDIA CASTLE DELLEON INDS. LTD. ON 25.03.94; (B) THE ASSESSEE HAS SHOWN TO HAVE LEASED OUT THESE ASSETS TO M/S KEDIA DISTILLERIES LTD. BY AN AGREEMENT OF THE SAME DATE; (C) BOTH M/S KDL AND M/S KCDIL HAVE SUBMITTED WRITTEN CONFESSIONS TO THE INVESTIGATION WING OF THE DEPARTMENT STATING THAT THEY HAD ENTERED INTO AND HAD ARRANGED VARIOUS FICTITIOUS LEASE TRANSACTIONS IN ORDER TO OBTAIN WORKING CAPITAL. THE RELEVANT TRANSACTION WAS ONE OF THE TRANSACTIONS SPECIFICALLY MENTIONED BY THE KEDIA GROUP IN THESE CONFESSIONS; (D) NO EVIDENCE TO PROVE PHYSI CAL EXISTENCE O F THE ASSETS HAS BEEN FURNISHED BY THE ASSESSEE. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE SAID LEASE AGREEMENT DT 25.03.94 IS ONLY A PAPER AGREEMENT WITHOUT ANY UNDERLYING ASSETS.' 2 1 . FOLLOWING HIS EARLIER DECISION AND CASE LAWS, HE HEL D THAT THE ASSESSEE COMPANY IS NOT ELIGIBLE TO CLAIM DEPRECIATION ON LEASED ASSETS. HENCE, HE UPHELD THE DISALLOWANCE OF DEPRECIATION. HE ALSO UPHELD THE TRANSACTION AS FINANCE TRANSACTION AS UNDER : - WITH REGARD TO THE GROUND NO. 7 , THE ARGUMENT OF THE APPELLANT IS THAT WHEN THE ASSETS ARE NOT ACCEPTED TO BE EXISTING ONE, LEASE INCOME THEREON ALSO CANNOT BE ACCEPTABLE, THE ARGUMENT OF THE AR OF THE APPELLANT IS NOT FOUND TO BE SOUND FOR THE FOLLOWING REASONS : - THE APPELLANT COMP ANY HAD FILED SUMMARY SUITS BEFORE THE HON'BLE HIGH COURT, MUMBAI AS UNDER: IN THE CASE OF KEDIA DISTILLERIES, THE SUMMARY SUIT FILED BEFORE THE HON'BLE HIGH COURT MUMBAI VIDE SUMMARY SUIT NO. 5778 OF 1998 DATED 01.12.1998 BETWEEN THE KEDIA DISTILLERIES L TD. AND THE PLAINTIFF NARANG INTERNATIONAL HOTELS P. LTD. I.E. THE APPELLANT CLAIMED PRINCIPLE SUM OF RS. 61,28,625/ - ALONGWITH INTEREST IN THE SUM OF RS. 32,51,279/ - FROM DEFENDANT KEDIA DISTILLERIES CLEARLY INDICATES THE FINANCIAL TRANSACTION AND NOT LEA SE TRANSACTIONS. '14. THE PLAINTIFF SUBMIT THAT THE DEFENDANT HAVE NO DEFENCE TO THE SUIT AND THE DEFENDANTS ARE LIABLE TO PAY TO THE PLAINTIFF THE PRINCIPLE SUM OF RS.61,28,625/ - ALONGWITH INTEREST IN THE SUM OF RS.32,51,279.59 IN TERMS OF PARTICULARS OF CLAIM EXHIBIT 'E'. THE PLAINTIFF THEREFORE SUBMITS THAT THIS HON'BLE COURT BE PLEASED TO ORDER AND DECREE THE DEFENDANTS TO PAY TO THE PLAINTIFF THE AFORESAID 16 PRINCIPLE SUM OF RS.61,28,625/ - ALONGWITH ACCURED INTEREST IN THE SUM OF RS32,51,279,59 ALONGWIT H FURTHER INTEREST @ 24% P.A. FROM THE DATE OF FILING OF THE SUIT TILL PAYMENT AND OR REALIZATION.' 9.9 CONSIDERING THE PRAYER OF THE APPELLANT COMPANY NOT TO ASSESS THE LEASED INCOME OFFERED BY IT WITH DEPRECIATION DENIED TO THEM, AS PER RATIO FOLLOWED I N THE CASE OF SHREE ANAND IMPEX PVT. LTD. [ITA NO. 3139/MUM/2002 DATED 29.11.2004 AND 14.12.2005] NOT BEEN CONSIDERED FOR THE FOLLOWING REASON : AS CITED ABOVE THE HON'BLE SUPREME COURT IN THE CASE OF AVASARAL TECHNOLOGIES LTD. [2996/2004 (SC) DTD. 30.03. 2015] TREATED 18% OF THE COST OF MACHINERY TREATED AS INTEREST INCOME FOR ASSESSMENT PURPOSE, I AM CONSTRAINED TO GIVE PART RELIEF TO THE APPELLANT AND THEREFORE THIS GROUND OF APPEAL IS PARTLY ALLOWED. 2 2 . AGAINST THE ABOVE ORDER THE ASSESSEE AND REV E NUE ARE IN CROSS APPEALS. 2 3 . WRITTEN SUBMISSIONS OF LEARNED COUNSEL OF THE ASSESSEE IN THIS REGARD ARE AS UNDER : - A. OUR SUBMISSIONS, IN ALTERNATIVE AND WITHOUT PREJUDICE TO EACH OTHER ON THE DISALLOWANCE OF DEPRECIATION ARE AS UNDER: A. AT THE OUTSET, IT IS SUBMITTED THAT THE CIT(A) AT PGS 35 AND 38 OF HIS ORDER IS NOT JUSTIFIED IN PLACING RELIANCE ON THE ASSESSMENT ORDER DATED 26 TH MARCH 1997 SINCE THE SAID ORDER WAS SET ASIDE BY CIT(A) ON 6 TH OCTOBER 1997. (SEE PG 22, 32 - 34 OF THE PAPER BOOK.) RELIANCE IS PLACED ON THE DECISION OF CALCUTTA HIGH COURT REPORTED IN 252 ITR 693. B. THE CIT(A) AT PG 26 OF HIS ORDER WAS NOT JUSTIFIED IN RELYING UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF AVASARALA TECHNOLOGIES LTD. SINCE THE SAID DECISION ON LY STATES THAT APPRECIATION OF EVIDENCE DOES NOT GIVE RISE TO ANY QUESTION OF LAW AND THEREFORE SAME CANNOT BE RELIED UPON AS PRECEDENT FOR DECIDING THE ISSUE IN THE PRESENT APPEAL. C. THE CIT(A) WAS ALSO NOT JUSTIFIED IN RELYING UPON THE DECISION OF SMC BENCH IN THE CASE OF SHRI ANAND IMPEX PVT. LTD. IN THE SAID CASE ANAND IMPEX AND ALPHA ENGINEERS BOTH HAD CONFESSED THAT THE TRANSACTION OF LEASE IS NOT GENUINE WHEREAS IN THE PRESENT CASE THE ASSESSEE HAS FROM BEGINNING TAKEN A STAND THAT THE TRANSACTION OF LEASE IS A GENUINE TRANSACTION. FURTHERMORE, THE STATEMENT OF JEHANGIR DAMANIA OF ALPHA ENGINEERS AND AGRITECH HATCHERIES HAS BEEN RELIED UPON IN THE SAID ORDER OF ITAT. HOWEVER, THE PRESENT ASSESSEE HAS NOT BEEN GIVEN THE OPPORTUNITY TO CROSS EXAMINE M R. JEHANGIR DAMANIA AND THEREFORE STATEMENT OF JEHANGIR DAMANIA CANNOT BE RELIED UPON. RELIANCE IS PLACED ON DECISION OF BOMBAY HIGH COURT IN THE CASE OF H.R. MEHTA REPORTED IN 72 TMC 110. D. IT IS SUBMITTED THAT THE REVENUE IS RELYING UPON THE STATEMENTS OF THE LESSEES FOR DISALLOWING THE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE. IT IS, THEREFORE, INCUMBENT UPON THE REVENUE TO PRODUCE THESE PARTIES FOR CROSS 17 EXAMINATION BY EXERCISING ALL THE POWERS UNDER THE INCOME TAX ACT READ WITH CPC. THE REVENUE CAN TRACE THESE PARTIES FOR CONDUCTING SEARCH AND SURVEY PROCEEDINGS AND THEREFORE IT IS NOT CORRECT ON THE PART OF THE REVENUE NOT TO PRODUCE THESE PARTIES FOR THE PRESENT PROCEEDINGS FOR CROSS EXAMINATION BY THE ASSESSEE. THESE PARTIES ARE THE WITNESS OF TH E REVENUE AND THEREFORE THE ONUS IS ON THE REVENUE TO PRODUCE THE SAME. IN THE ABSENCE OF CROSS EXAMINATION OF THESE PARTIES BY THE ASSESSEE, NO DISALLOWANCE OF DEPRECIATION CAN BE MADE AS HELD BY THE BOMBAY HIGH COURT IN THE CASE OF H.R. MEHTA REPORTED IN 72 TAXMANN.COM 110. IT IS ALSO IMPORTANT TO NOTE THAT THE REVENUE IN THE COURSE OF THE APPEAL HAS ACCEPTED THAT THE THREE LESSEE'S ARE THE WITNESS OF THE DEPARTMENT SINCE THE DISALLOWANCE IS MADE BASED ON THE ENQUIRY MADE BY THE DEPARTMENT ON THESE THREE LESSEE'S. HOWEVER, THE DR STATED THAT THE ONUS OF PRODUCING THESE PARTIES ARE ON THE ASSESSEE. IT IS SUBMITTED THAT THIS IS AGAINST THE BASIC PRINCIPLE OF DISCHARGE OF ONUS. E. IT IS ALSO IMPORTANT TO NOTE THAT THE AO HIMSELF HAS AFTER DISALLOWING THE DEPR ECIATION HAS NOT EXCLUDED THE RENTAL INCOME OF RS.15,54,449/ - OFFERED BY THE ASSESSEE. THE AO HAS ALSO REFUSED TO RECTIFY ON THIS ISSUE WHICH IS THE SUBJECT MATTER OF APPEAL IN ITA NO.L383/M/2013. THIS PROVES THAT THE DEPARTMENT IS BLOWING HOT AND COLD AT THE SAME TIME. THE DEPARTMENT CANNOT SAY ON ONE HAND THAT THE LEASE RENTAL IS TO BE TAXED AND WITH THE SAME BREATH SAY THAT THE TRANSACTION ON WHICH THE LEASE RENT IS EARNED IS NOT GENUINE. F. THE REVENUE HAS TAXED THE LEASE RENTAL ARISING FROM THE AFORE SAID TRANSACTION WITH THESE 3 PARTIES FOR A.Y. 1995 - 96, 1996 - 97 AND 1997 - 98 (PGS 269 - 286 OF THE PAPER BOOK). THE SAID ASSESSMENTS HAVE BECOME FINAL. THE REVENUE HAVING ACCEPTED THE LEASE RENTAL ARISING FROM THE AFORESAID TRANSACTION CANNOT TURNAROUND AND D ENY THE DEPRECIATION ON THE GROUND THAT THE TRANSACTIONS ARE NOT GENUINE. G. THE AO OF THE PRESENT ASSESSEE HAS NOT CONDUCTED ANY INDEPENDENT INQUIRY FOR DECIDING THE ISSUE BUT HAS MERELY RELIED UPON THE INQUIRIES CONDUCTED BY THE INVESTIGATION WING AND O THER ASSESSMENT OFFICERS FOR DISALLOWING THE DEPRECIATION. H. THESE 3 PARTIES HAVE CONFIRMED THE EXISTENCE OF THE ASSETS BEFORE THE HIGH COURTS IN THE PROCEEDINGS TAKEN BY THE ASSESSEE FOR RECOVERY OF THE LEASE RENTAL. IT IS SUBMITTED THAT STATEMENT MADE ON OATH BEFORE THE HON'BLE HIGH COURT CANNOT BE BRUSHED ASIDE BY THE AO. THE RELEVANT PAGES OF THE PAPER BOOK WHEREIN THE PARTIES HAVE ADMITTED THE EXISTENCE OF ASSETS ARE 107 TO 109, 125 TO 141, 97, 117 AND 118, 237 - 238, 242, 255, 140, 171, 173 TO 175, 15 4, 155, 179 AND 180. RELIANCE IS PLACED ON THE DECISION OF THE BOMBAY HIGH COURT REPORTED IN 79 TAXMANN.COM 186. I. ASSUMING THE REVENUE CAN RELY UPON THE STATEMENT OF THESE 3 PARTIES THEN IT IS RESPECTFULLY SUBMITTED THAT THESE PARTIES CANNOT BE RELIAB LE WITNESS FOR THE PURPOSE OF MAKING DISALLOWANCE OF DEPRECIATION BECAUSE THESE VERY PARTIES AS STATED ABOVE HAVE ADMITTED EXISTENCE OF ASSETS BEFORE THE HIGH COURT. RELIANCE IS PLACED ON THE DECISION OF THE CALCUTTA HIGH COURT REPORTED IN 210 ITR 103 AND MADRAS HIGH COURT REPORTED IN 315 ITR 105 WHEREIN 18 SUCH WITNESSES WHO SHIFT THEIR STAND HAVE BEEN HELD TO BE NOT RELIABLE WITNESSES FOR MAKING ADDITION. J. IT IS SUBMITTED THAT THERE IS NO ALLEGATION THAT THE ASSESSEE RECEIVED ANYTHING MORE THAN LEASE RE NTALS OF RS.5.33 CR FROM LESSEE'S. FURTHER THE RATE OF 18% TAKEN BY CIT(A) IS ONLY A NOTIONAL PERCENTAGE. THUS, EVEN IF THE TRANSACTION IS ASSUMED AS FINANCE TRANSACTION THEN ALSO THE TOTAL AMOUNT RECEIVED FROM LESSEE I.E. PRINCIPLE PLUS INTEREST AGGREGATE S TO RS.5.33 CR ONLY. IF ONE DOES THE ANALYSIS OF THE TAX EFFECT BY ACCEPTING THE TRANSACTION AS GENUINE LEASE TRANSACTION AND BY TREATING THE SAID TRANSACTION AS A FINANCE TRANSACTION, IT WILL BE EVIDENT THAT THERE IS NO GAIN ON ACCOUNT OF TAX WHICH THE A SSESSEE HAS AVAILED BY ENTERING INTO THE SO - CALLED ALLEGED TRANSACTION. THIS IS PROVED BY THE STATEMENT ATTACHED HEREWITH AND EVEN ON THIS ACCOUNT THE CASE OF THE REVENUE FALLS TO GROUND. 6. IN VIEW OF ABOVE, IT IS RESPECTFULLY SUBMITTED THAT THE ASSESSEE IS ENTITLED TO THE DEPRECIATION ON ASSETS LEASED TO AGRITECH, PATHEJA AND KEDIA DISTILLERIES. 2 4 . LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND SUPPORTED THE ORDER OF ASSESSING OFFICER. 2 5 . UPON CAREFUL CONSIDERATION, WE NOTE THAT THE ASSESSEE HA S ENTERED INTO LEASE AGREEMENT WITH THREE PARTIES FOR LEASE OF EQUIPMENTS. LEASE RENTALS HAVE BEEN DULY ACCOUNTED FOR AND THE SAME HAS BEEN ACCEPTED AND BROUGHT TO TAX ACCORDINGLY. HOWEVER, DEPRECIATION ON THE LEASE EQUIPMENTS HAS BEEN DENIED ON THE GROUN D THAT IN SURVEY PROCEEDINGS STATEMENTS WERE OBTAINED FROM THE LESSEES AND THEIR PERSONNEL THAT NO BUSINESS WAS ACTUALLY DONE. THE ASSESSEE REQUESTED FOR CROSS EXAMINATION OF THE PERSONS WHOSE STATEMENTS ARE THE BASIS OF ADVERSE INFERENCE AGAINST THE ASSES SEE. THIS REQUEST OF THE ASSESSEE WAS NOT ACCEDED TO BY THE ASSESSING OFFICER. IN ONE OF THE EARLIER ROUND, LEARNED CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON THE GROUND THAT NOT PROVIDING THE ASSESSEE AN OPPORTUNITY TO CROSS EXAMINE THESE P ERSONS WAS A FATAL ERROR. SUBSEQUENTLY, THE ITAT NOTING CERTAIN ADDITIONAL EVIDENCE HAS REMITTED THE MATTER BACK TO THE ASSESSING OFFICER TO CONSIDER THE MATTER AFRESH AFTER ALLOWING ADEQUATE OPPORTUNITY TO THE ASSESSEE. HOWEVER, IN THE LATEST ASSESSMENT P ROCEEDINGS ALSO NO OPPORTUNITY TO THE ASSESSEE WAS PROVIDED TO CROSS EXAMINE THE PERSONS WHOSE STATEMENTS WERE THE BASIS OF DRAWING ADVERSE INFERENCE AGAINST THE ASSESSEE. L EARNED CIT(A) IN HIS ORDER NOTED THAT AS PER THE DIRECTION OF THE ITAT EFFORTS WERE MADE TO GIVE PROPER OPPORTUNITY TO 19 THE ASSESSEE FOR CROSS EXAMINATION OF THE LESSEE BUT SINCE IT WAS VERY OLD MATTER NO FRUITFUL RESULT WAS GOING TO COME. HENCE, HE REJECTED THIS ASPECT OF THE CHALLENGE OF THE ASSESSEE. IN THIS REGARD WE NOTE THAT HON'BLE APEX COURT IN THE CASE OF ANDMAN TIMBER INDUSTRIES VS. CCE VIDE ORDER DATED 2.9.2015 HAS HELD THAT SUCH ACTION BY THE AUTHORITIES BELOW IS A SERIOUS FLAW WHICH RENDERS THE ORDER A NULLITY. W E NOTE THAT IN THE SAID CASE ALSO THE APPELLATE AUTHORITIES HAV E HELD THAT NO USEFUL PURPOSE WOULD BE SERVED BY GIVING THE OPPORTUNITY TO CROSS EXAMINE. HOWEVER, HON'BLE APEX COURT FOUND THIS MISTAKE TO BE FATAL AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. WE MAY GAINFULLY REFER TO THIS CASE AS UNDER : - THE ASSES SEE RAISED A PLEA THAT IT WAS NOT ALLOWED TO CROSS - EXAMINE THE DEALERS WHOSE STATEMENTS WERE RELIED UPON BY THE ADJUDICATING AUTHORITY IN PASSING THE ORDER. HOWEVER, THE TRIBUNAL REJECTED THE PLEA ON THE BASIS THAT THE PLEA OF NO CROSS EXAMINATION GRANTED TO THE VARIOUS DEALERS WOULD NOT HELP THE APPELLANT CASE SINCE THE EXAMINATION OF THE DEALERS WOULD NOT BRING OUT ANY MATERIAL WHICH WOULD NOT BE IN THE POSSESSION OF THE APPELLANT THEMSELVES TO EXPLAIN AS TO WHY THEIR EX FACTORY PRICES REMAIN STATIC. ON APPEAL BY THE ASSESSEE TO THE SUPREM E COURT HELD ALLOWING THE APPEAL. NOT ALLOWING THE ASSESSEE TO CROSS - EXAMINE THE WITNESSES BY THE ADJUDICATING AUTHORITY THOUGH THE STATEMENTS OF THOSE WITNESSES WERE MADE THE BASIS OF THE IMPUGNED ORDER IS A SERIOUS F LAW WHICH MAKES THE ORDER NULLITY INASMUCH AS IT AMOUNTED TO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE BECAUSE OF WHICH THE ASSESSEE WAS ADVERSELY AFFECTED. IT IS TO BE BORNE IN MIND THAT THE ORDER OF THE COMMISSIONER WAS BASED UPON THE STATEMENTS GIVEN B Y THE AFORESAID TWO WITNESSES. EVEN WHEN THE ASSESSEE DISPUTED THE CORRECTNESS OF THE STATEMENTS AND WANTED TO CROSS - EXAMINE, THE ADJUDICATING AUTHORITY DID NOT GRANT THIS OPPORTUNITY TO THE ASSESSEE. IT WOULD BE PERTINENT TO NOTE THAT IN THE IMPUGNED ORDE R PASSED BY THE ADJUDICATING AUTHORITY HE HAS SPECIFICALLY MENTIONED THAT SUCH AN OPPORTUNITY WAS SOUGHT BY THE ASSESSEE. HOWEVER, NO SUCH OPPORTUNITY WAS GRANTED AND THE AFORESAID PLEA IS NOT EVEN DEALT WITH BY THE ADJUDICATING AUTHORITY. AS FAR AS THE TR IBUNAL IS CONCERNED, WE FIND THAT REJECTION OF THIS PLEA IS TOTALLY UNTENABLE. THE TRIBUNAL HAS SIMPLY STATED THAT CROSS - EXAMINATION OF THE SAID DEALERS COULD NOT HAVE BROUGHT OUT ANY MATERIAL WHICH WOULD NOT BE IN POSSESSION OF THE APPELLANT THEMSELVES TO EXPLAIN AS TO WHY THEIR EX - FACTORY PRICES REMAIN STATIC. IT WAS NOT FOR THE TRIBUNAL TO HAVE GUESS WORK AS TO FOR WHAT PURPOSES THE APPELLANT WANTED TO CROSS - EXAMINE THOSE DEALERS AND WHAT EXTRACTION THE APPELLANT WANTED FROM THEM. 26 . WE NOTE THIS CASE LAW IS FULLY APPLICABLE TO THE FACTS OF THE PRESENT CASE. DESPITE THE ASSESSEES REPEATED REQUEST, ASSESSEE HAS NOT BEEN ALLOWED OPPORTUNITY TO CROSS EXAMINE THE PERSONS WHOSE STATEMENT S ARE THE BASIS OF 20 DRAWING ADVERSE INFERENCE AGAINST THE ASSESSEE THAT LEAD TO DOUBTING THE EXISTENCE OF LEASED EQUIPMENTS AND CONSEQUENT DENIAL OF DEPRECIATION THEREUPON . IN THIS VIEW OF THE MATTER, IN OUR CONSIDERED OPINION THE ASSESSEE DESERVES TO SUCCEED ON THIS ACCOUNT. 27 . MOREOVER, THIS IS ALSO TO BE SEEN IN CONJ UN CT ION WITH THE FACT THAT LEASE RENTALS HAVE DULY ACCOUNTED FOR BY THE ASSESSEE AND THE SAME HAS BEEN BROUGHT TO TAX BY THE ASSESSING OFFICER. HERE WE FIND THAT LEGAL PRINCIPLE OF APPROBATE A ND REPROBATE SUPPORTS THE CASE OF THE ASSESSEE . THE REVENUE CANNOT A CCEPT AND REJECT ED SAME TRANSACTION . W HILE TAXING LEASE RENTAL , I T IS ACCEPTING THE LEASE AGREEMENT AND THE TRANSACTION BUT WHILE DISALLOWING DE PRECIATION ON LEASE EQUIPMENTS , IT IS REJECTING THE LEASE AGREEMENT AND THE TRANSACTION. 2 8 . SUCH SHIFTING STA ND IS NOT SUSTAINABLE ON THE PRINCIPLE OF APPROBATE AND REPROBATE. HON'BLE APEX COURT IN THE CASE OF S.P. SUITING P. LTD. VS. OFFICIAL LIQUIDATOR HAS RECENTLY DWELT UPON THIS PRINCIPLE VIDE ORDER DATED 8.10.2018 IN CIVIL APPEAL NO. 10322 OF 2017. HON'BLE A PEX COURT OBSERVED THAT A PARTY CANNOT BE PERMITTED TO APPROBATE AND REPROBATE ON THE SAME FACTS AND TAKE SHIFTING STAND. WE NOTE THAT THE REVENUE HERE IS ACTUALLY ENGAGED INTO APPROBAT E AND REPROBAT E . IT IS ACCEPTING LEASE TRANSACTION FOR TAXING THE LEASE RENTAL . B UT TAKING A SHIFTING STAND AND DISALLOWING DEPRECIATION ON THE SAME LEASE D EQUIPMENTS. ON THE TOUCHSTONE OF THE ABOVE LEGAL PRINCIPLE AND HON'BLE APEX COURT EXPOSITION SUCH SHIFTING STAND IS NOT PERMISSIBLE. HENCE, THE REVENUE FAILS ON THIS COUNT ALSO. 29 . THE D ECISION OF SMC BENCH OF THE ITAT IN THE CASE OF ANAND IMPEX PVT. LTD. (SUPRA), WHICH HAS BEEN REFERRED BY LEARNED CIT(A) IS THE CASE WHERE ASSESSEE HAS HIMSELF AGREED THAT THE TRANSACTION WAS NOT GENUINE. HENCE, THIS CASE LAW DOES NOT SUP PORT THE CASE OF THE REVENUE. DECISION OF AVSARAL TECHNOLOGIES LTD. (SUPRA) RELIED UPON BY LEARNED CIT(A) CANNOT SUPPORT THE CASE OF THE REVENUE IN AS MUCH AS IN THE SAID TRANSACTION THERE WAS FINDING 21 THAT THIS TRANSACTION WAS SHAM AND HON'BLE APEX COURT F OUND THAT THESE WERE PURE FINDING OF FACT RECORDED BY THE AUTHORITIES BELOW. IN THE PRESENT CASE AS WE HAVE NOTED ABOVE EXCEPT FOR THIRD PARTY STATEMENT THAT THESE WERE NOT ACTUALLY LEASE TRANSACTION, THE REVENUE HAS NO OTHER COGENT MATERIAL. AS NOTED EARL IER DESPITE REQUEST THE ASSESSEE HAS NOT BEEN GRANTED OPPORTUNITY TO CROSS EXAMINE THESE PERSONS. THIS IS VIOLATION CARDINAL PRINCIPLE OF NATURAL JUSTICE THAT THIRD PARTY STATEMENT CANNOT BE TAKEN FOR DRAWING ADVERSE INFERENCE AGAINST THE ASSESSEE WITHOUT GIVING THE ASSESSEE OPPORTUNITY TO CROSS EXAMINE THE SAME. 30. AS REGARDS REVENUES RELIANCE UPON THE DECISION OF ANAND IMPEX PVT. LTD. (SUPRA) , WHICH WE HAVE ALREADY DEALT WITH ABOVE, WE ALSO NOTE THAT IN THIS CASE IT WAS ALSO HELD THAT SINCE TRANSACTION WAS SHAM LEASE RENTAL SHOULD ALSO NOT BE TAXED. IF THIS ORDER IS PROPERLY FOLLOWED THEN THERE IS A SUBMISSION OF LEARNED COUNSEL OF THE ASSESSEE THAT THE ASSESSEES TOTAL CLAIM OF DEPRECIATION IS RS. 4,61,79,750/ - . AS AGAINST THIS TOTAL LEASE RENTAL OFFER ED FOR TAX IS RS. 5,33,10,533/ - . HENCE, IT IS THE SUBMISSION OF LEARNED COUNSEL OF THE ASSESSEE THAT IF THIS PRINCIPLE IS FULLY APPLIED I.E. DEPRECIATION IS DISALLOWED AS WELL AS LEASE RENTALS ARE NOT TAKING INTO CONSIDERATION THE RESULT WOULD SHOW THAT T HE ASSESSEE HAS PAID EXCESS TAX. HENCE FULL APPLICATION OF THIS CASE LAW MAKE THE REVENUE CASE AS HAVING NO LEGS TO STAND. 3 1 . IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS E RRED IN DISALLOWING DEPRECIATION IN THIS CASE. 3 2 . AS REGARDS THE ISSUE OF LEARNED CIT(A) HOLDING TRANSACTION TO BE FINANCE TRANSACTION, WE NOTE THAT IN VIEW OF OUR ABOVE DECISION IN WHICH WE HAVE UPHELD THE ASSESSEES PLEA FOR ALLOWANCE OF DEPRECIATION THIS PLANK OF ADJUDICATION BY LEARNED CIT(A) IS NOT SUSTAINABLE. LEARNED CIT(A) HAS ONLY REFERRED TO THE SUIT BY THE ASSESSEE AGAINST THE LESSEE FOR RECOVERY OF SUMS. WE NOTE THAT ITAT HAS ADMITTED ADDITIONAL EVIDENCES BY OBSERVING THAT THESE RELATE 22 TO SUI T BY THE ASSESSEE FOR RECOVERY OF LEASE RENTAL AND ALSO CLAIM LODGED FOR REPOSSESSION OF LEASED EQUIPMENTS. IN THIS REGARD, WE NOTE THAT THE SUIT FOR RECOVERY OF SUMS BY THE ASSESSEE FROM LESSEE IPSO FACTO CANNOT CHANGE THE TRANSACTION TO BE A FINANCE TRAN SACTION. LEARNED CIT(A) HERE CONVENIENTLY OMITS TO CONSIDER THE ITAT REMAND REGARDING THE EVIDENCE OF CLAIM OF ASSESSEE FOR REPOSSESSION OF LEASED EQUIPMENTS BY NOTICE OF MOTION TAKEN BEFORE HON'BLE BOMBAY HIGH COURT. IN FACT LEARNED CIT(A) IS GETTING INTO THE SHOES OF HON'BLE HIGH COURT AND DECIDING THAT THE SUIT FOR RECOVERY OF LEASE RENTAL AND CLAIM FOR REPOSSESSION OF LEASED EQUIPMENT IS SH A M , WITHOUT THE HON'BLE HIGH COURT MAKING ANY SUCH ORDER. HENCE, LEARNED CIT(A) HOLDING THAT IT IS FINANCE TRANSACT ION IS NOT SUSTAINABLE. MOREOVER, SUC H A STAND WOULD ONLY BE HELPING THE ASSESSEE TO CLAIM BAD DEBTS AGAINST RECOVERY OF AMOUNTS WITHOUT TH E ASSESSEE MAKING SUCH A PLEA. THIS LIMB OF ADJUDICATION ACTUALLY FAVOUR S THE ASSESSEE AND TO THE PREJUDICE OF REVENU E S CASE AND HENCE NOT SUSTAINABLE. 3 3 . IN GROUND NO. 9 THE ISSUE RELATES TO LEARNED CIT(A) DISALLOWING RS. 2,20,720/ - OUT OF LEASE EXPENSES, WHICH WAS DISALLOWED ON THE PREMISE THAT LEASE TRANSACTION WAS SHAM. SINCE IN OUR ABOVE SAID ADJUDICATION, WE HAV E ALREADY REJECTED THIS PLEA OF THE REVENUE, THE IMPUGNED DISALLOWANCE IS NOT SUSTAINABLE AND HENCE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE. 3 4 . THE ABOVE ADJUDICATION TAKES CARE OF GROUND NO. 1 TO 5 AND 9 OF ASSESSEE S APPEAL AND A LSO GROUNDS RAISED IN REVENUES APPEAL. 3 5 . APROPOS GROUND NO. 6 TO 10, THE SUBMISSION OF LEARNED COUNSEL OF THE ASSESSEE IN THIS REGARD ARE AS UNDER : - 7. IN SO FAR AS GROUND NO.6, 7 AND 8 IS CONCERNED, THE SAME WOULD NOT ARISE IF THE GROUNDS NO. 1 TO 5 AN D 9 ARE ALLOWED. THIS IS SO BECAUSE THE ASSESSED INCOME OF THE ASSESSEE, IF DEPRECIATION IS ALLOWED, WOULD BECOME A LOSS AND THEREFORE THE QUESTION OF CLAIMING DEDUCTION U/S 80HHC, 80HHD AND 80G WOULD NOT ARISE. 23 8. WITHOUT PREJUDICE TO ABOVE AND IN THE E VENT DISALLOWANCE OF DEPRECIATION IS CONFIRMED THEN THE HON'BLE TRIBUNAL WOULD HAVE TO ADJUDICATION UPON GROUND NO.6 TO 9. 9. WITH RESPECT TO GROUND NO.6 RELATING TO DEDUCTION U/S 80HHC IS CONCERNED, IN THE ASSESSEE'S OWN CASE FOR EARLIER YEAR THE SAID IS SUE WAS DECIDED AGAINST THE ASSESSEE BY THE HON'BLE TRIBUNAL AND THE ASSESSEE'S APPEAL TO THE HIGH COURT ON THIS ISSUE HAS BEEN DISMISSED. THE AO HAS DISCUSSED THIS ISSUE AT PAGE 7 OF HIS ORDER AND CIT(A) AT PAGE 41 OF HIS ORDER(COPY OF THE HIGH COURT ORDE R IS ANNEXED TO THE SUBMISSION). 10. WITH RESPECT TO THE CLAIM UNDER SECTION 80HHD IS CONCERNED THE AO HAS DISCUSSED THIS ISSUE AT PAGE 9 OF HIS ORDER AND CIT(A) AT PAGE 43 OF HIS ORDER. THE CIT(A) HAS DIRECTED THE AO TO ALLOW DEDUCTION U/S 80HHD PROVIDED THE APPELLANT HAS CREATED THE RESERVE AS STIPULATED U/S 80HHD(L)(B)(II). THE ASSESS E E SUBMITS THAT THE AO HAS NOT GIVEN ANY EFFECT TO THE SAID FINDING. IT IS FURTHER SUBMITTED THAT THE CIT(A) ERRED IN INVOKING SECTION 80HHD(L)(B) FOR DECIDING THIS ISSUED. IT IS SUBMITTED THAT SECTION 80HHD(L)(B) IS IN ADDITION TO QUANTUM ARRIVED AT 80HHD(L)(A). IT IS THE CASE OF THE ASSESSE THAT IN SO FAR AS 80HHD(L)(A) IS CONCERNED THERE IS NO REQUIREMENT OF CREATING A RESERVE BUT THE DEDUCTION IS CALCULATED AT 80% OF THE PROFIT DERIVED FROM SERVICES PROVIDED TO FOREIGN TOURIST. IT IS, THEREFORE, SUBMITTED THAT THE APPROPRIATE DIRECTION IS GIVEN TO THE AO TO GRANT DEDUCTION U/S 80HHD OF THE ACT TO THE APPELLANT. 3 6 . ACCORDINGLY, G ROUND NO. 6,7 &8 OF THE REVENUE ARE CONSEQ UENTIAL AND IN VIEW OF THE SUBMISSIONS AS ABOVE, THERE ADJUDICATION IS NOW ONLY OF ACADEMIC INTEREST. 3 7 . AS REGARDS THE CLAIM OF SECTION 80HHD, WE NO TE THAT THE ASSESSEES SUBMISSION IS THAT THE ASSESSING OFFICER HAS NOT FOLLOWED LEARNED CIT(A)S DIR E CTI ON. 3 8 . WE NOTE THAT LEARNED CIT(A) HAS ADJUDICATED THIS ISSUE AS UNDER : - 11.1 T HE AUTHORISED REPRESENTATIVE SUBMITTED THAT THE APPELLANT WAS ENTITLED TO A DEDUCTION U/S 80HHD OF THE ACT IN RESPECT OF PROFITS ATTRIBUTABLE TO HOTEL SERVICES TO FOREIGN TOU RISTS. IT WAS FURTHER SUBMITTED THAT THE APPELLANT'S HOTELS AT MUMBAI, AURANGABAD AND CHENNAI ARE APPROVED BY THE GOVERNMENT OF INDIA FOR THIS PURPOSE, AND THAT THE CLAIM U/S 80 HHHD HAS ALL ALONG BEEN ALLOWED IN EARLIER YEARS. UNDER SEC. 80HHD, AN ASSESSE E IS REQUIRED TO MAKE A RESERVE EQUIVALENT TO 50% OF SUCH PROFITS TO BE ELIGIBLE FOR DEDUCTION. AS THE BOOK PROFIT FOR Y.E. 31.3.1994 DID NOT RESULT INTO PROFITS, NO RESERVE WAS CREATED, BY THE APPELLANT. IT IS TO BE NOTED THAT IN THE I.T. ASSESSMENT THE A PPELLANT'S INCOME WAS COMPUTED AT POSITIVE AMOUNT CONSEQUENT UPON THE DISALLOWANCE OF DEPRECIATION, AND, THEREFORE, IT WAS NECESSARY TO CREATE A RESERVE TO COMPLY WITH THE PROVISIONS OF SEC. 80HHD. 24 HOWEVER SEC. 80HHD PROVIDES THAT AN ASSESSEE IS ENTITLED T O THE DEDUCTION U/S 80HHD EQUIVALENT TO 50% OF THE PROFITS COMPUTED U/S 80HHD EVEN WITHOUT CREATING THE RESERVE. IT WAS SUBMITTED THAT ON THE BASIS OF THE CHARTERED ACCOUNTANT'S CERTIFICATE DATED 29.6.2005 (PG. 123 - 124) FILED BEFORE THE ITAT WHICH WAS ADMI TTED BY THE ITAT IN THE ORDER 2.8.2006 AS EVIDENCE IN SUPPORT OF THE CLAIM, THE APPELLANT WAS ENTITLED TO THE DEDUCTION OF RS. 68,06,067/ - U/S 80HHD IF RESERVE TO THAT EXTENT WAS CREATED, AND UPTO 50% THEREOF, WITHOUT CREATING SUCH A RESERVE. IN SUPPORT OF THE CLAIM FOR DEDUCTION U/S 80HHD, THE APPELLANT FILED ALONGWITH THE LETTER DATED 4.12.2008 TO CIT(A) AUDITORS' CERTIFICATE U/S 80HHD DATED 29.6.2005 AND COPIES OF APPROVAL LETTERS DATED 26.2.1990 FROM THE GOVT. OF INDIA, DEPT. OF TOURISM (HOTEL & RESTAUR ANT DIVISION), NEW DELHI CERTIFYING THAT THE THREE HOTELS VIZ. THE AMBASSADOR BOMBAY, HOTEL AJANTA AMBASSADOR AURANGABAD AND HOTEL AMBASSADOR PALLAVA, MADRAS HAVE BEEN ON THE APPROVAL LIST OF THE DEPARTMENT OF TOURISM W.E.F. 20.3.1989 IN RELATION TO SEC. 8 0HHD OF THE I.T. ACT 1961. 11.2 THE AO HAS DENIED 80HHD DEDUCTION PRECISELY, THE APPELLANT HAS NOT CREATED ANY RESERVE WHEREAS THE AR OF THE APPELLANT ARGUES THAT AS THE COMPANY INCURRED LOSS AND HENCE IT HAS NOT CREATED ANY RESERVE AND IN THE EVENT DISAL LOWING THE DEPRECIATION CLAIMED BY THE APPELLANT, THE LOSS BECOME INCOME AND ACCORDINGLY IT CAN CREATE RESERVE. SO CONSIDERING THE AR OF THE APPELLANT'S ARGUMENT, I AM OF THE CONSIDERED OPINION THAT THE AO IS DIRECTED TO ALLOW SUCH DEDUCTION U/S. 80HHD PRO VIDED THE APPELLANT HAS CREATED RESERVE AS STIPULATED IN SECTION 80HHD(L)(B)(II), HENCE FOR STATISTICAL PURPOSE, IT IS ALLOWED. 39 . SINCE ASSESSEES PLEA IS THAT THE ASSESSING OFFICER HAS NOT FOLLOWED THE DIRECTION OF LEARNED CIT(A), INTEREST OF JUSTICE D EMANDS THAT THE ASSESSING OFFICER BE DIRECTED TO FOLLOW THE SAME. WE DIRECT ACCORDINGLY. ITA NO. 1383/MUM/2013 4 0 . THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF LEARNED CIT(A) DATED 21.12.2012 AND PERTAINS TO A.Y. 1994 - 1995. GROUNDS OF APPEAL READ AS UNDER : - ON THE FACTS AND IN LAW: GR. NO. 1. VALIDITY OF ASSESSMENT U/S 154 THE IMPUGNED ORDER IS AB - INITI O, NULL, VOID AND BAD IN LAW, INSOFAR AS IT DOES NOT CONFORM TO THE DIRECTIONS OF THE HON'BLE ITAT. GR. NO. 2. ADDITION OF RS. 15,54,44 9/ - RESULTING INTO TAXING THE SAME AMOUNT TWICE: 25 THE ID. CIT(A) ERRED IN NOT DELETING RS. 15,54,4497 - FOR RECEIPT TAKEN CREDIT FOR LEASE RENTAL, IN THE EVENT DEPRECIATION ON THE LEASED ASSET IS NOT ALLOWABLE. GR. NO. 3. LEVY OF INTEREST U/S 220(2) I) THE ID. CIT(A) ERRED IN NOT DELETING INTEREST LEVIED U/S 220(2), INSOFAR AS INTEREST U/S 220(2) IS NOT LEVIABLE IN A SET - ASIDE ASSESSMENT AND IN NOT FOLLOWING THE DECISION OF THE SUPREME COURT IN THE CASE OF VIKRANT TYRES LTD. (2001) 247 ITR 821 (SC). II) WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT SUBMITS THAT IN THE ABSENCE OF DIRECTIONS BY THE A.O. IN THE ORDER DATED 27.9.2007 TO LEVY INTEREST U/S 220(2) SOUGHT TO BE RECTIFIED, IT IS NOT CAPABLE OF BEING RECTIFIED U/S 154 OF THE ACT, NOW LEVY ING INTEREST U/S 220(2), BEING A DEBATABLE ISSUE. GR. NO. 4. LEVY OF INTEREST U/S 234D: THE ID. CIT(A) ERRED IN NOT DIRECTING THE A.O. TO DELETE INTEREST LEVIED U/S 234D INSOFAR AS SEC. 234D DOES NOT APPLY TO AN ASSESSMENTS MADE FOR YEARS PRIOR TO A .Y. 2004 - 05. 4 1 . GROUND NO. 2 ABOVE, LEARNED CIT(A) DIRECTED THE ASSESSING OFFICER TO VERIFY RECORDS AND DETERMINE TOTAL INCOME CORRECTLY AS PER ORDER OF THE ITAT AND LEARNED CIT(A). 4 2 . AS REGARDS GROUND NO. 4, LEARNED CIT(A) REFERRED TO THE ITAT MUMBA I DECISION IN THE CASE OF M/S. HINDALCO INDUSTRIES LTD. (4 SOT 757). LEARNED CIT(A) HELD THAT HE FULLY AGREED WITH ITAT MUMBAI. HE DIRECTED THE ASSESSING OFFICER TO WORK OUT THE INTEREST U/S. 220(2) AS PER GUIDELINES CONTAINED IN ITAT DECISION AS ABOVE. 4 3 . AS REGARDS GROUND NO. 5 RELATING TO INTEREST CHARGED U/S. 234D LEARNED CIT(A) WRITE TO THE ASSESSING OFFICER DIRECTED TO VERIFY PROCEEDINGS IN WHICH REFUND GRANTED TO THE ASSESSEE WAS WITHDRAWN, WAS PASSED AFTER 1.6.2003. I F IT IS SO, THE ASSESSING OFF ICER WAS DIRECTED TO CHARGE INTEREST U/S.234D. 4 4 . AS REGARDS GROUND NO. 6 RELATING TO INTEREST CHARGED U/S. 220 ( 2 ) AND 234D. L EARNED CIT(A) REJECTED THE ASSESSEES SUBMISSION THAT THESE ARE DEBATABLE ISSUE AND CANNOT BE CONSIDERED U/S. 234. 26 4 5 . AS REGAR DS ASSESSEES CLAIM TO REFUND U/S. 234A, LEARNED CIT(A) DIRECTED THE ASSESSING OFFICER TO VERIFY THE RECORDS AND IF ANY REFUND WAS THERE, ASSESSING OFFICER WAS DIRECTED TO GRANT REFUND AND INTEREST U/S. 234A AS PER LAW. 4 6 . WITH REG A RD TO THE ABOVE SAID ORDER OF LEARNED CIT(A), THE ASSESSEE IS IN APPEAL AND SUBMISSION OF LEARNED COUNSEL OF THE ASSESSEE ARE AS UNDER : - 1. THE SAID APPEAL ARISES OUT OF THE ORDER GIVING EFFECT TO THE TRIBUNAL'S ORDER DT.02.08.2006, PG 88 OF THE PAPER BOOK FILED. 2. W ITH RESPECT TO GROUND NO. 1 AND 2, THE ASSESSEE SUBMITS THAT THE AO AFTER HAVING HELD THAT THE ASSESSEE IS NOT ENTITLED TO THE DEPRECIATION ON THE ASSETS LEASED THEN THE AO CANNOT TAX THE LEASE RENTAL OF RS.15,54,449/ - . THIS WOULD AMOUNT TO DOUBLE TAXATION ONCE BY DISALLOWING THE DEPRECIATION AND AGAIN BY TAXING THE LEASE RENTAL. 3 . IT IS, THEREFORE SUBMITTED THAT IF GROUND NO. 1 TO 5 AND 9 OF ASSESSEE'S APPEAL IN ITA NO.7371/M/2016 IS ALLOWED THEN THE AFORESAID GROUND BECOMES INFRUCTUOUS AND IF THE GROUND N O. 1 TO 5 AND 9 ARE DISMISSED THEN THE AO BE DIRECTED TO EXCLUDE THE LEASE RENTAL. 4. WITH RESPECT TO GROUND NO.3 AND 4 SAME ARE CONSEQUENTIAL RELATING TO INTEREST U/S 220 AND 234D AND HENCE CONSEQUENTIAL. 4 7 . SINCE WE HAVE ALREADY ALLOWED GROUND NO. 1 T O 5 & 9 OF ASSESSEES APPEAL IN ITA NO. 7371/MUM/2016, THE ISSUES RAISED HERE ARE CONSEQUENTIAL. 48. IN THE RESULT, ASSESSEE APPEAL IN ITA NO. 7371/MUM/2016 IS PARTLY ALLOWED, REVENUES APPEAL IS DISMISSED. ASSESSEES APPEAL IN ITA NO. 1383/MUM/2013 IS TREATED INFRUCTUOUS BEING CONSEQUENTIAL. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 27 . 8 . 201 9 . SD/ - SD/ - (SANDEEP GOSAIN ) (SH A MIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 27 / 8 / 20 1 9 27 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR ) PS ITAT , MUMBAI