M/s. SICOM LTD., MUMBAI V. DCIT Rg. - 3(3), MUMBAI

ITA 1887/MUM/2006

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5708 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 02-12-2013
• Assessment Year: 1997-1998
• Appeal Filed On: 22-03-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS; K C P PATNAIK
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NOS. 1887 & 1888/MUM/2006 ASSESSMENT YEAR: 1997-98 & 1998-99 SICOM LIMITED NIRMAL, 1 ST FLOOR, NARIMAN POINT MUMBAI- 400 021 VS. THE DY. CIT, RANGE3(3) MUMBAI. (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :-AAACS 5524 J APPELLANT BY : SHRI RAJAN R. VORA & NIKHIL TIWARI RESPONDENT BY : SHRI K.C. P. PATNAIK & PITAMBAR DAS DATE OF HEARING : 02.12.2013 DATE OF PRONOUNCEMENT : 31.01.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AG AINST THE ORDERS OF THE LD.CIT(A)- 32, MUMBAI DATED 22.12.2005 & 02.01.2006 CONFIRMING THE PENALTY LEVIED BY THE AO U/S 271(1) (C) OF THE INCOME TAX ACT FOR THE ASSESSMENT YEARS 1997-98 & 1998-99 RESPECTIVELY. SINCE IDENTICAL ISSUES ARE INVOLVED IN BOTH THE ASS ESSMENT YEARS, BOTH THE APPEALS ARE HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER. 2. BRIEFLY STATED, DURING THE YEARS UNDER CONSIDERA TION, PENALTIES WERE LEVIED BY THE AO U/S 271(1) (C) OF THE INCOME TAX ACT ON ACCOUNT OF DISALLOWANCE OF DEDUCTION OF INTEREST AND DIVIDEND INCOME CLAIMED UNDER SECTION 36(1)(VII) AN D DISALLOWANCE OF DEPRECIATION CLAIMED ON LEASED ASSETS MADE BY THE AO DURING THE COURSE OF SCRUTINY ASSESSMENTS PASSED UNDER SECTION 143(3) OF THE ACT. ON APPEAL, THE LD.CIT(A) CONFIRMED THE PENALTY LEVIED BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEDUCTION CLAIMED UND ER SECTION 36(1)(VII). HOWEVER, THE LD.CIT(A), ALLOWED THE RELIEF ON ENTIRE NORMAL LEAS E TRANSACTION AND CONFIRMED THE PENALTY ITA NOS. 1887 & 1888/MUM/2006 SICOM LIMITED ASSESSMENT YEAR: 1997-98 & 1998-99 2 ONLY ON SALE AND LEASE BACK TRANSACTION TO THE EXTE NT WHERE TRANSACTION IS TREATED AS NON GENUINE. AGGRIEVED BY THE IMPUGNED ORDERS, THE ASSE SSEE IS IN APPEAL BEFORE US. 3. HAVING HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL ON RECORD, IT IS PERTINENT TO MENTION THAT AS REGARDS THE DISALLOWANCE OF DEDUCTI ON CLAIMED UNDER SECTION 36(1)(VII), THE ASSESSEE COMPANY WHILE FILING THE RETURN/REVISED RE TURN OF INCOME, CLAIMED DEDUCTIONS UNDER SECTION 36(1)(VII) IN BOTH THE YEARS UNDER CONSIDER ATION. WHILE CLAIMING THE SAID DEDUCTIONS UNDER SECTION 36(1)(VII), THE ASSESSEE TREATED DIVI DEND INCOME AS WELL AS INCOME FROM INTEREST ON DEBENTURES AS INCOME ELIGIBLE FOR DEDUC TION. HOWEVER, THE AO HELD THAT INTEREST INCOME AND DIVIDEND INCOME COULD BY NO STRETCH OF I MAGINATION BE TREATED AS INCOME DERIVED FROM THE BUSINESS OF PROVIDING LONG TERM FINANCE AN D FURTHER HELD THAT THE CLAIM MADE BY THE ASSESSEE WAS NOT CORRECT AND ACCORDINGLY THE AO RED UCED THE CLAIM OF THE ASSESSEE AND DISALLOWED CLAIM OF DEDUCTION. ON APPEAL IN THE QUA NTUM PROCEEDINGS, THE LD.CIT(A) CONFIRMED THE DISALLOWANCE/ADDITIONS MADE BY THE AO AND THE MATTER WAS NOT CONTESTED FURTHER IN THE APPEAL BEFORE THE TRIBUNAL. 3.1 ON THE DECISION OF THE LD.CIT(A) IN CONFIRMING THE PENALTY LEVIED BY THE AO ON ACCOUNT OF THE DISALLOWANCE OF DEDUCTION CLAIMED UN DER SECTION 36(1)(VII), IT IS CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE THAT DEDUCTION UNDE R SECTION 36(1)(VIII) IS AVAILABLE ON INCOME GENERATED FROM LONG TERM FINANCE AS PER VARI OUS DECISIONS OF THE TRIBUNAL WHEREIN IT HAS BEEN HAS HELD THAT DIVIDEND AND INTEREST INCOM E EARNED FROM THE LONG TERM FINANCES WOULD ALSO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. IN THIS REGARDS, THE COUNSEL HAS PLACED RELIANCE ON FOLLOWING DECISIONS IN THE CASES OF CANFIN HOMES LTD. 7 SOT 916 (BANG) WHICH HAS BEEN APPROVED BY KARNATAKA HIG H COURT IN 347 ITR 383, AIG HOME FINANCE INDIA LTD. 47 SOT 275 (CHN) AND NATIONAL CO-OPERATIVE DEVELOPMENT CORPORATION , 36 SOT 445 (DEL). FURTHER, WITHOUT PREJUDICE TO THE ABOVE, IT HAS BEEN SUBMITTED THAT, EVEN IF INTEREST AND DIVIDEND INCOME HAS TO BE EXCLUDED, WHILE COMPUTING DEDUCTING UNDER SECTION 36(1)(VIII) OF THE ACT, ONLY NET INTEREST AND DIVID END INCOME SHOULD BE EXCLUDED (I.E. AFTER REDUCING EXPENSES ON ACCOUNTS OF INTEREST EXPENSES) . IN THIS REGARD, RELIANCE HAS BEEN PLACED ON THE DECISION IN THE CASE OF NATIONAL CO-OPERATIVE DEVELOPMENT CORPORATION 36 SOT 445 (DEL). ALSO RELIANCE HAS BEEN PLACED ON THE DEC ISION OF OF THE HONBLE APEX COURT IN THE CASE OF RELIANCE PETROPRODUCTS P. LTD. 322 ITR 158 (SC). IN VIEW OF THE SAID DECISIONS, T HE LD.COUNSEL HAS ARGUED THAT THOUGH THE ASSESSEE HAS NOT CONTESTED THIS ISSUE IN THE QUANTUM PROCEEDINGS BEFORE HIGHER AUTHORITIES, THERE IS MER IT IN THE CONTENTION OF THE ASSESSEE AND ITA NOS. 1887 & 1888/MUM/2006 SICOM LIMITED ASSESSMENT YEAR: 1997-98 & 1998-99 3 ACCORDINGLY, PENALTY LEVIED BY THE AO OUGHT NOT TO HAVE BEEN CONFIRMED BY THE LD.CIT(A). ON THE OTHER HAND, THE LD.DR HAS PLACED HIS RELIANC E ON THE DECISIONS OF THE DELHI HIGH COURT IN THE CASE OF ZOOM COMMUNICATION (P.) LTD. 327 ITR 510, ESCORTS FINANCE 328 ITR 44 (DEL) AND THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF SANGHVI SWISS REFILLS (P) LTD (2012) 28 TAXMANN.COM 208 (BOM.) TO JUSTIFY THE ORD ER OF THE LD.CIT(A). 3.2 AFTER PERUSING THE ARGUMENTS OF BOTH THE SIDES IN THE LIGHT OF THE DECISIONS CITED, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE OF ALL OWABILITY OF DEDUCTION ON DIVIDEND AND INTEREST INCOME EARNED FROM THE LONG TERM FINANCES UNDER SECTION 36(1)(VIII) OF THE ACT IS A DEBATABLE ONE AND THERE ARE PLETHORA OF DECISIONS T HAT PENALTY CANNOT BE LEVIED ON CASE WHERE TWO VIEW POSSIBLE. ALSO, IT IS PERTINENT TO M ENTION THAT MERELY AN ADDITION HAS BEEN CONFIRMED IN THE QUANTUM PROCEEDINGS, THE PENALTY D OES NOT BECOME AUTOMATICALLY LEVIABLE. MOREOVER, THE HONBLE APEX COURT IN THE CASE OF RELIANCE PETROPRODUCTS P. LTD . (SUPRA) HAS HELD THAT WHEN THE ASSESSEE FURNISHES ALL THE DETAI LS OF ITS EXPENDITURE AS WELL AS ITS INCOME IN THE RETURN OF INCOME, WHICH DETAILS, IN THEMSELV ES, ARE NOT FOUND TO BE INACCURATE OR NOR CAN BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS P ART. IT IS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETURN OR NOT. MERE REJECTION OF C LAIM WILL NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS OR CONCEALMENT OF INCOME AND HENCE, NO PENALTY CAN BE LEVIED UNDER SECTION 271(1)(C) OF THE ACT. CONSIDERING THE TOTAL ITY OF FACTS AND THE LEGAL POSITION ON THIS ISSUE, WE ARE OF THE CONSIDERED OPINION THAT THE CA SE OF THE ASSESSEE DOES NOT ATTRACT THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT AND THER EFORE THE PENALTY LEVIED/CONFIRMED ON THIS COUNT STANDS DELETED. 4. ON THE DECISION OF THE LD.CIT(A) IN CONFIRMING T HE PENALTY LEVIED BY THE AO ON ACCOUNT OF THE DISALLOWANCE OF DEPRECIATION ON THE ASSETS ACQUIRED UNDER SALE AND LEASE BACK TRANSACTION ARE CONCERNED, THE ASSESSEE CLAIMED DEP RECIATION ON CERTAIN ASSETS AS IT HAD PURCHASED SUCH ASSETS AND GIVEN THE SAME ON LEASE. HOWEVER, IN THE ASSESSMENT FRAMED, THE AO AFTER EXAMINING THE LEASE AGREEMENTS AND OTH ER SURROUNDING CIRCUMSTANCES HELD THAT THE TRANSACTION SHOWN AS LEASE TRANSACTION WERE IN FACT NOT LEASE TRANSACTION BUT ONLY FINANCE TRANSACTION AND THEREBY DISALLOWED THE CLAIM OF DEP RECIATION. ON APPEAL IN THE QUANTUM PROCEEDINGS, THE LD.CIT(A) PARTLY CONFIRMED THE DIS ALLOWANCE/ADDITIONS ON THIS COUNT. IN THE FURTHER APPEAL AGAINST THE SAID DECISION OF THE LD. CIT(A), THE TRIBUNAL DELETED THE DISALLOWANCE MADE/CONFIRMED BY THE AUTHORITIES BELO W WITH REGARD TO THE NORMAL LEASE TRANSACTION AND ALLOWED DEPRECIATION ON THE SAME. W ITH REGARD TO THE SALE AND LEASE BACK ITA NOS. 1887 & 1888/MUM/2006 SICOM LIMITED ASSESSMENT YEAR: 1997-98 & 1998-99 4 TRANSACTION, THE MATTER WAS SET ASIDE TO THE FILE O F THE AO TO DECIDE THE MATTER AFRESH IN THE LIGHT OF THE DECISION IN THE CASE OF COSMO FILMS LTD 245 CTR 23 (DEL). 4.1 AFTER NOTING THAT THE TRIBUNAL VIDE ORDER DATED 22 MAY 2013, WITH REGARD TO DISALLOWANCE OF DEPRECIATION ON THE SALE AND LEASE BACK TRANSACTION HAS GIVEN THE RELIEF TO THE ASSESSEE WITH REGARD TO LEASING OF ASSETS TO MA HARASHTRA ESTERS AND KEYTONES PVT. LTD. AND ALLOWED DEPRECIATION ON THE SAME, WE DELETE THE PROPORTIONATE PENALTY LEVIED/CONFIRMED ON ACCOUNT OF THE SAID DISALLOWANCE. 4.1.1 IT IS FURTHER NOTED THAT THE TRIBUNAL IN THE AFOREMENTIONED ORDER HAS RESTORED THE ISSUE OF ALLOWABILITY OF DEPRECIATION ON ASSET GIVE N ON LEASE TO KONKAN RAILWAY CORP. LTD. AND ANDHRA PRADESH STATE ELECTRICITY BOARD TO THE AO AN D DIRECTED TO EXAMINE THE ISSUE OF SALE AND LEASE BACK AGREEMENT AFRESH. WHEN THE SAID ISSU E HAS BEEN RESTORED TO THE FILE OF THE AO, IN OUR CONSIDERED OPINION, THE PENALTY ON THIS ASPECT SHOULD ALSO BE RESTORED TO THE FILE OF AO FOR TAKING A FRESH DECISION IN ACCORDANCE WIT H THE VIEW FINALLY TAKEN BY HIM IN RESPECT OF ADDITION IN QUANTUM PROCEEDINGS. OUR VIEW IS FOR TIFIED BY THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MOHAMMED MOHATRAM FAROOQUI VS. CIT (SC) 2010-TIOL-23- SC-IT. WE, THEREFORE, OVERTURN THE IMPUGNED DECISIO N ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF AO. 5. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF JANUARY, 2014. SD/- SD/- (D. KARUNAKARA RAO) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 31.01.2014. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR G BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.