TRINTY BIOTECH LTD( FORMELRY KNOWN AS BAJAJ HIRERS & LESSORS TD), MUMBAI V. DCIT 3(1), MUMBAI

ITA 1386/MUM/2012

• Counselvise Citation: 138619914 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 20-08-2013
• Assessment Year: 2000-2001
• Appeal Filed On: 29-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Wrong claim
• Section: 143(3); 32

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI .. , !'# $ $ $ $ %&. !.'.. $( ) !'# !* BEFORE SHRI P.M. JAGTAP, AM AND DR. S.T.M. PAVALAN, JM !./ I.T.A. NO. 1386 & 1387 /MUM/2012 ( )( , $-, )( , $-, )( , $-, )( , $-, / / / / ASSESSMENT YEARS : 2000-01 & 2003-04) M/S TRINITY BIOTECH LIMITED, (FORMERLY KNOWN AS BAJAJ HIRERS & LESSORS LTD.), MUKTANGAN CO-OP. SOCIETY, 8 TH FLOOR, KAILASH PURI ROAD, UPPER GOVIND NAGAR, MALAD (E), MUMBAI 400 097. ( ( ( ( / VS. DY. COMMISSIONER OF INCOME TAX 3(1), MUMBAI. #. !./ PAN : AAACB4826K ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) ./ 2 3 ! / APPELLANT BY : SHRI SATISH R. MODY 01./ 2 3 ! / RESPONDENT BY : SHRI SHISHIR SRIVASTAVA !($ 2 / // / DATE OF HEARING : 20-08-2013 45- 2 / DATE OF PRONOUNCEMENT : 30-8-13 '6 / O R D E R PER P.M. JAGTAP, A.M. : .. , !'# THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECTE D AGAINST TWO SEPARATE ORDERS PASSED BY THE LD. CIT(A) - 7, MUMBA I ON 08-11-2011 CONFIRMING THE PENALTY OF RS. 12,90,515/- AND RS. 8 ,20,255/- IMPOSED BY THE ITA 1386 & 1387/M/12 2 A.O. U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT) FOR ASSESSMENT YEARS 2000-01 AND 2003-04. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF LEASING AND HIRE PURCHASE, FINANCE AND SOFTWARE DEVELOPMENT. IN BOTH THE YEARS UNDER CONSIDERATION, DEPRECIATION CL AIMED BY THE ASSESSEE AMOUNTING TO RS. 33,51,987/- AND RS. 22,31,987/- FO R ASSESSMENT YEARS 2000-01 AND 2003-04 RESPECTIVELY ON THE LEASED ASSE TS WAS DISALLOWED BY THE A.O. ON THE GROUND THAT THE RELEVANT LEASE TRANSACT IONS WERE ACTUALLY FINANCE LEASE AND THE ASSESSEE WAS NOT THE REAL OWNER OF TH E ASSETS GIVEN ON LEASE. ON CONFIRMATION OF THE DISALLOWANCE OF DEPRECIATION BY THE LD. CIT(A) IN THE QUANTUM PROCEEDINGS, THE A.O. INITIATED PENALTY PRO CEEDINGS U/S 271(1)(C) OF THE ACT FOR BOTH THE YEARS UNDER CONSIDERATION AND SINCE HE WAS NOT SATISFIED WITH THE EXPLANATION OFFERED BY THE ASSESSEE IN REP LY TO SHOW CAUSE NOTICES ISSUED DURING THE COURSE OF SUCH PROCEEDINGS, THE A .O. IMPOSED PENALTY U/S 271(1)(C) OF THE ACT IN BOTH THE YEARS UNDER CONSID ERATION MAINLY FOR THE FOLLOWING IDENTICAL REASONS GIVEN IN THE PENALTY OR DERS PASSED BY HIM:- 1. HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE A SSESSEE IN CONNECTION WITH LEVY OF PENALTY AS ALSO THE CASE RE CORDS, APPELLATE ORDER AND THE DECISION OF HONBLE SUPREME COURT. FIRSTLY, THE ASSESSEES CONTENTION THAT THE APPEAL FILED AGAINST ORDER U/S. 143(3) R.W.S. 147 DATED 16/2/2006 IS PENDING IS FOUND TO BE NOT CORRE CT. THE LD. CIT(A) HAS ALREADY DISPOSED OFF THE APPEAL VIDE HIS ORDER DATED 3/4/2008 IN APPEAL NO. CIT(A)XXVII/ ITO.3(1)(2)/IT. 199/05-06 A ND CONFIRMED THE DISALLOWANCE OF DEPRECIATION MADE BY THE ASSESSING OFFICER. ON MERITS OF THE ISSUE, IT IS NOTICED THAT AS PER THE TERMS O F THE AGREEMENT BY WHICH THE ASSESSEE HAS LEASED ITS ASSETS, THE TRANS ACTION INVOLVED IS ONLY A FINANCIAL LEASE. THE ASSETS ARE BASICALLY IN THE NATURE OF SECURITY FOR LOAN GIVEN BY THE ASSESSEE COMPANY. THE EFFECTI VE OWNERSHIP IS NOT WITH THE ASSESSEE COMPANY AND THE INCOME IN THE HAN DS OF ASSESSEE IS IN THE NATURE INTEREST INCOME. THEREFORE, IT WAS PA TENTLY FALSE ON THE PART OF THE ASSESSEE TO CLAIM DEPRECIATION ON THE A SSETS. THE ASSESSEE HAS RESORTED TO A COLOURABLE DEVICE WITH A VIEW TO MAKE FALSE CLAIM FOR THE DEPRECIATION TO EVADE THE PAYMENT OF LEGITIMATE TAX DUES. THE ASSESSEE HAS WORKED OUT AN ARRANGEMENT FOR THE PURP OSE OF TAX EVASION. NOWHERE IN THE RETURN OF INCOME, THE ASSES SEE HAD DISCLOSED THAT THE TRANSACTION OF LEASING OUT OF ASSETS IS IN THE NATURE OF FINANCIAL ITA 1386 & 1387/M/12 3 LEASE ONLY. THE ASSESSEE HAS MADE THE CLAIM OF DEPR ECIATION ON LEASED ASSETS, WHICH WAS NOT IN ACCORDANCE WITH PROVISIONS OF LAW. THE ISSUE INVOLVED IS NOT DEBATABLE IN NATURE. IT IS A CASE I N WHICH TWO VIEWS ARE NOT POSSIBLE CONSIDERING THE FACTS OF THE ISSUE INV OLVED. THE FACTS & CIRCUMSTANCES INVOLVED IN THE CASES ON WHICH THE AS SESSEE HAS PLACED RELIANCE ARE DIFFERENT FROM THE INSTANT CASE AND T HUS NOT APPLICABLE. THE APPELLATE AUTHORITIES HAVE CONFIRMED THE ADDITI ONS MADE BY THE ASSESSING OFFICER. HAD THE CASE NOT BEEN SCRUTINIZ ED BY THE DEPARTMENT, THE EVASION OF THE TAX IN THIS CASE WOU LD NOT HAVE BEEN DETECTED. THUS, IT IS A CASE IN WHICH THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME, LEADING TO THE CO NCEALMENT OF INCOME. 3. THE PENALTIES IMPOSED BY THE A.O. U/S 271(1)(C) OF THE ACT FOR ASSESSMENT YEARS 2000-01 AND 2003-04 WERE CHALLENG ED BY THE ASSESSEE IN APPEALS FILED BEFORE THE LD. CIT(A) WHO DISMISSED T HE SAID APPEALS EX PARTE AND CONFIRMED THE PENALTY IMPOSED BY THE A.O. U/S 2 71(1)(C) FOR BOTH THE YEARS UNDER CONSIDERATION FOR THE FOLLOWING SIMILAR REASONS GIVEN IN HIS IMPUGNED ORDER:- 5.5 I HAVE CONSIDERED THE A.O.S ORDER AS WELL AS THE FACTS AVAILABLE ON RECORD. IN MY VIEW, AS PER THE TERMS OF THE AGRE EMENT BY WHICH THE APPELLANT COMPANY HAD LEASED ITS ASSETS, THE TRANSA CTION INVOLVED IS ONLY A FINANCIAL LEASE. THE ASSETS ARE BASICALLY IN THE NATURE OF SECURITY FOR LOAN GIVEN BY THE APPELLANT COMPANY, THE EFFECT IVE OWNERSHIP OF WHICH DOES NOT VEST WITH THE APPELLANT COMPANY AND THE INCOME IN THE HANDS OF APPELLANT IS IN THE NATURE OF INTEREST INC OME. THUS, IT IS CLEAR THE APPELLANT COMPANY IS NOT ENTITLED FOR ANY DEPRE CIATION AND HENCE THE DEPRECIATION CLAIMED BY THE APPELLANT IN RESPEC T OF LEASED ASSETS IS PATENTLY FALSE. CONSIDERING THE FACTS OF THE CASE, THE ISSUE INVOLVED IS VERY CLEAR AND NOT DEBATABLE IN NATURE AS HELD BY T HE A.O. I AM IN AGREEMENT WITH THE A.O.S VIEW IN HOLDING THAT THE APPELLANT COMPANY HAS FILED INACCURATE PARTICULARS OF INCOME AS ENVIS AGED U/S.271(1)(C) OF THE ACT. THE DECISION OF HONBLE SUPREME COURT IN T HE CASE OF RELIANCE PETRO PRODUCTS PVT. LTD. RELIED UPON BY THE APPELLA NT COMPANY IS DISTINGUISHABLE FROM THE FACTS OF THE APPELLANTS C ASE. ACCORDINGLY, I FIND IT PROPER AND APPROPRIATE TO HOLD THAT THE A.O . WAS COMPLETELY JUSTIFIED IN HIS ACTION IN LEVYING THE PENALTY OF R S.12,90,515/-. THE ACTION OF THE A.O. IS CONFIRMED. THUS, APPELLANTS THIS GROUND OF APPEAL IS DISMISSED. ITA 1386 & 1387/M/12 4 AGGRIEVED BY THE ORDERS OF THE LD. CIT(A) CONFIRMIN G THE PENALTIES IMPOSED BY THE A.O. FOR BOTH THE YEARS UNDER CONSIDERATION, TH E ASSESSEE HAS PREFERRED THESE APPEALS BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY C ONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, THE ISSUE AS TO WHETHER THE PARTI CULAR LEASE TRANSACTIONS ARE FINANCE LEASE OR NOT IS A HIGHLY DEBATABLE ISSUE AN D EVEN THE CONSEQUENTIAL ISSUE AS TO WHETHER THE ASSESSEE AS A LESSOR IS ENT ITLED TO DEPRECIATION ON THE LEASED ASSETS GIVEN UNDER FINANCE LEASE BEING DEBAT ABLE, PENALTY U/S 271(1)(C) OF THE ACT CANNOT BE IMPOSED IN RESPECT OF ADDITION MADE TO THE TOTAL INCOME OF THE ASSESSEE ON SUCH DEBATABLE ISSUE. THIS CONT ENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS FULLY SUPPORTED BY THE LATEST D ECISION OF HONBLE SUPREME COURT IN THE CASE OF I.C.D.S. VS. CIT & ANOTHER (20 13) 350 ITR 527 (SC) WHEREIN THE ASSESSEE WAS A NON-BANKING FINANCE COMP ANY ENGAGED, INTER ALIA, IN THE BUSINESS OF HIRE PURCHASE AND LEASING. IT P URCHASED VEHICLES AGAINST DIRECT PAYMENT TO THE MANUFACTURERS AND AS A PART O F ITS BUSINESS, LEASED OUT THESE VEHICLES TO ITS CUSTOMERS AND THEREAFTER HAD NO PHYSICAL AFFILIATION WITH THE VEHICLES. THE LESSEES WERE REGISTERED AS THE O WNERS OF THE VEHICLES. IN ITS RETURN OF INCOME, THE ASSESSEE HAD CLAIMED DEPRECIA TION IN RELATION TO THE VEHICLES FINANCED BY THE ASSESSEE BUT REGISTERED IN THE NAME OF THIRD PARTIES. THE A.O. DISALLOWED THE CLAIMS OF THE ASSESSEE FOR DEPRECIATION BUT THE LD. CIT(A) AND TRIBUNAL ALLOWED THE SAME. ON APPEAL, T HE HONBLE HIGH COURT HELD AGAINST THE ASSESSEE. ON FURTHER APPEAL, THE HONBLE SUPREME COURT REVERSED THE DECISION OF THE HONBLE HIGH COURT AND UPHELD THE DECISION OF THE TRIBUNAL BY HOLDING AS UNDER:- (I) THAT THE ASSESSEE WAS A LEASING COMPANY WHICH LEASED OUT THE TRUCKS THAT IT PURCHASED. THEREFORE, ON A COMBINED READING OF SECTION 2(13) AND (24) OF THE ACT THE INCOME DERIVED FROM L EASING OF THE TRUCKS WOULD BE BUSINESS INCOME, OR INCOME DERIVED IN THE COURSE OF BUSINESS, AND HAD BEEN SO ASSESSED. HENCE, IT FULFILLED THE R EQUIREMENT OF SECTION 32 OF THE ACT, THAT THE ASSET MUST BE USED IN THE C OURSE OF BUSINESS. ITA 1386 & 1387/M/12 5 THE ASSESSEE DID USE THE VEHICLES IN THE COURSE OF ITS LEASING BUSINESS. THE FACT THAT THE TRUCKS THEMSELVES WERE NOT USED B Y THE ASSESSEE WAS IRRELEVANT FOR THE PURPOSE OF THE SECTION. (II) THAT A SCRUTINY OF THE MATERIAL FACTS AT HAND RAISED A PRESUMPTION OF OWNERSHIP IN FAVOUR OF THE ASSESSEE. THE VEHICLE, A LONG WITH ITS KEYS, WAS -DELIVERED TO THE ASSESSEE UPON WHICH, THE LEAS E AGREEMENT WAS ENTERED INTO BY THE ASSESSEE WITH THE CUSTOMER. THE FACT THAT AT THE END OF THE LEASE PERIOD, THE OWNERSHIP OF THE VEHICLE W AS TRANSFERRED TO THE LESSEE AT A NOMINAL VALUE DID NOT MAKE THE ASSESSEE IN EFFECT A FINANCIER. NO INFERENCE COULD BE DRAWN FROM THE REG ISTRATION CERTIFICATE AS TO OWNERSHIP OF THE LEGAL TITLE OF THE VEHICLE. IF THE LESSEE WAS IN FACT THE OWNER, HE WOULD HAVE CLAIMED DEPRECIATION ON TH E VEHICLES, WHICH, AS SPECIFICALLY RECORDED IN THE ORDER OF THE TRIBUN AL, WAS NOT THE CASE. (III) THAT THE ENTIRE LEASE RENT RECEIVED BY THE AS SESSEE WAS ASSESSED AS BUSINESS INCOME IN ITS HANDS AND THE ENTIRE LEASE R ENT PAID BY THE LESSEE HAD BEEN TREATED AS DEDUCTIBLE REVENUE EXPEN DITURE IN THE HANDS OF THE LESSEE. THIS REAFFIRMED THE POSITION THAT TH E ASSESSEE WAS IN FACT THE OWNER OF THE VEHICLE, IN SO FAR AS SECTION 32 O F THE ACT IS CONCERNED. (IV) THAT, THEREFORE, THE ASSESSEE WAS THE OWNER OF THE VEHICLES. AS THE OWNER, IT USED THE ASSETS IN THE COURSE OF ITS BUSI NESS, SATISFYING BOTH REQUIREMENTS OF SECTION 32 OF THE ACT AND, HENCE, W AS ENTITLED TO CLAIM DEPRECIATION IN RESPECT OF ADDITIONS MADE TO THE TR UCKS, WHICH WERE LEASED OUT. (V) THAT FOR PURPOSES OF THE ASSESSEES CLAIM TO TH E HIGHER RATE OF DEPRECIATION, THE INTERPRETATION OF THE TERM PURPO SES OF BUSINESS, USED IN THE -SECOND PROVISO TO SECTION 32(1) OF THE ACT WOULD NOT BE ANY DIFFERENT FROM THAT ASCRIBED TO IT UNDER SECTION 32 (1) OF THE ACT. THEREFORE, THE ASSESSEE FULFILLED EVEN THE REQUIREM ENTS FOR A CLAIM OF A HIGHER RATE OF DEPRECIATION AND WAS -ENTITLED THERE TO. 6. KEEPING IN VIEW OF THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF I.C.D.S. LTD. (SUPRA), WE AGREE WITH THE CO NTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE RELATING TO THE ASS ESSEES CLAIM FOR DEPRECIATION ON THE LEASED ASSETS IS HIGHLY DEBATABLE ISSUE AND PENALTY U/S 271(1)(C) OF THE ACT CANNOT BE IMPOSED IN RESPECT OF ADDITION MADE T O THE TOTAL INCOME OF THE ASSESSEE ON SUCH HIGHLY DEBATABLE ISSUE. ACCORDING LY WE CANCEL THE PENALTY IMPOSED BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) FOR BOTH THE YEARS UNDER CONSIDERATION AND ALLOW THESE APPEALS FILED BY THE ASSESSEE. ITA 1386 & 1387/M/12 6 7. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON30TH AUG. 2013 . . '6 2 45- 7'(8 30-8-13 5 2 SD/- SD/- (DR. S.T.M. PAVALAN) (P.M. JAGTAP ) ) !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 7'( DATED 30-8-13 $.)(.!./ RK , SR. PS '6 2 0)9: ;:- '6 2 0)9: ;:- '6 2 0)9: ;:- '6 2 0)9: ;:-/ COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. < () / THE CIT(A)- 35, MUMBAI 4. < / CIT 25, MUMBAI 5. :$? 0))( , , / DR, ITAT, MUMBAI E BENCH 6. %, @ / GUARD FILE. '6(! '6(! '6(! '6(! / BY ORDER, !1: 0) //TRUE COPY// A A A A/ // /!B !B !B !B ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI