Global Trust Bank Ltd., Secunderabad V. Addl. CIT, Hyderabad

ITA 222/HYD/2001

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7217 (ITAT-DELHI)
• Duration Of Justice: 14 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 1997-1998
• Appeal Filed On: 28-03-2001
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Depreciation; Valuation report
• Section: 143(3); 133(6); 32

Judgement Text

1 ITA NOS. 331, 222,443,301 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.- 222/HYD/2001 A.Y 1997-98 GLOBAL TRUST BANK LIMITED, 303,-48-3, SARDAR PATEL ROAD, SECUNDERABAD-500003 (APPELLANT) VS ADDL. COMMISSIONER OF INCOME TAX (ASSESSMENTS) SPECIAL RANGE-2 HYDERABAD (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 31/1/2001 PASSED BY LD. CIT(A)S III, HYDERABAD. 2. THE CONCISE GROUNDS OF APPEAL FILED BY THE ASSES SEE ARE AS FOLLOWS:- 1. THE LD. CIT(A) HAS ERRED IN UPHOLDING THE DISA LLOWANCE OF DEPRECATION ON ASSETS PURCHASED FROM PUNJAB STATE ELECTRICITY BOARD AND LEASED BACK TO THEM. THE APP ELLANT CONTENDS THAT IT IS THE OWNER OF THE SAID ASSETS AN D HAS BEEN USED IN THE BUSINESS OF LEASING AND THEREFORE ENTITLE FOR CLAIM OF DEPRECIATION WHICH SHOULD BE ALLOWED. APPELLANT BY SH. K.V. S. R. KRISHNA, CA RESPONDENT BY SH. SUNIL CHANDER SHARMA, CIT DR DATE OF HEARING 16.12.2015 DATE OF PRONOUNCEMENT 28.01.2016 2 ITA NOS. 331, 222,443,301 2. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDIT ION OF RS.7,49,13,665/- BEING INTEREST ON GOVT. SECURITIES WHICH HAS NOT FALLEN DUE. THE APPELLANT HAS BEEN CONSIST ENTLY OFFERING INTEREST ON GOVT. SECURITIES ON THE RESPEC TIVE DUE DATES TO TAX. HENCE, THE ADDITION MADE IS WRONG AN D BAD IN LAW AND HAS TO BE DELETED. 3. THE ASSESSEE ENTERED INTO A LEASE TRANSACTION WI TH PSEB ON 27/9/1996 WHEREIN THE TOTAL LEASE RENTAL PAYABLE WA S FIXED AT RS.23,24,54,200/- PAYABLE IN QUARTERLY INSTALLMENTS BETWEEN THE MONTH OF SEP 1996 AND 27/6/2006. THE PSEB HAS GIVE N TO THE BANK A SECURITY DEPOSIT WHICH IS RETURNABLE IMMEDIA TELY ON THE TERMINATION OF THE LEASE AGREEMENT. THE BANK HAS U NCONDITIONAL LIEN FOR ANY PAYMENTS DUE OR FOR ANY PAYMENT DUE UN DER THE LEASE AGREEMENT AS WELL AS TOWARDS THE POSSIBLE LOSS ON A CCOUNT OF DAMAGE TO THE EQUIPMENT ETC. FURTHER THEY HAVE REF ERRED TO THE VALUATION OF THE REGD. VALUER, SRI VK GROVER, A CHA RTERED ENGINEER WHO HAD GIVEN THE VALUE OF THE PLANT & MACHINERY AF TER PROPER INSPECTION ACCORDING TO THE ASSESSEE AND THE SAME W AS FURNISHED BEFORE THE ASSESSING OFFICER. 4. AFTER PHYSICAL INSPECTION OF THE ASSETS, THE COR PORATE BANKING DEPT. REPORTED THAT THE EQUIPMENT WAS INSTALLED BY THE PSEB AT GURU GOBIND SUPER POWER THERMAL STATION AT ROPAR AN D THAT THE SAME WAS IN A GOOD WORKING CONDITION. THE ASSESSEE SUBMITTED THAT THEY ARE THE REAL OWNER OF THE ASSETS. REFERE NCE WAS ALSO DRAWN TO THE MEMORANDUM OF UNDERSTANDING AND ARTICL ES OF ASSOCIATION WHERE LEASING HAS BEEN TERMED AS ONE OF THE MAIN OBJECTIVE OF THE ASSESSEE. PRIOR TO FEB. 1994, BAN KS COULD NOT 3 ITA NOS. 331, 222,443,301 UNDERTAKE PARA-BANKING ACTIVITY LIKE LEASING, HIRE PURCHASE ETC. DIRECTLY AND AFTER A REVIEW, THEY WERE NOW GIVEN AN OPTION TO UNDERTAKE LEASING AS ONE OF THEIR MAIN ACTIVITIES. 5. THE A.O NOTICED THAT IN THE BALANCE SHEET OF PSE B THERE WAS A HEAVY LOSS WHICH IT HAD PLANNED TO SET OFF BY PLEDG ING ITS ASSETS. THE CLAUSES SET OUT IN THE AGREEMENT BETWEEN THE AS SESSEE AND THE PSEB HAS BEEN WRONGLY READ IN ISOLATION. FOR EXAMPL E, THE PSEB SHOULD NOT TRANSFER THE ASSETS DURING THE PENDENCY OF THE LEASE AS WELL AS ON THE LESSOR NOT TO ASSIGN THE RIGHTS UNDE R THE AGREEMENT WHICH ARE INTERPRETED TO MEAN THAT THERE WAS NO INT ENTION TO TRANSFER THE SUBJECT MATTER OF LEASE TO THE ASSESSE E. 6. FINALLY, THE A.O CONCLUDED THAT IT IS A FINANCI AL LEASE AS AGAINST THE ASSESSEES SUPPOSITION TO BE AN OPERAT ING LEASE. THE AO HAD REFERRED TO THE INTERNATIONAL ACCOUNTING STA NDARD NO. 17 WHICH RECOMMENDS THAT LEASE BE ACCOUNTED FOR ON THE BASIS OF SUBSTANCE AND FINANCIAL REALITY. TAKING REFERENCE TO THE SUPREME COURT JUDGMENT IN THE CASE OF MCDOWELLS, THE AO HE LD THAT IT WAS A COLOURABLE DEVICE AND THEREFORE THE ASSESSEE WOULD NOT BE ENTITLED FOR THE DEPRECIATION. IN VIEW OF THE VARIOUS COURT S DECISIONS, AO HELD THAT THE ASSESSEE HAS NOT PURCHASED AND UTILIZ ED THE ASSETS FOR THE PURPOSE OF ITS BUSINESS. THE SO CALLED LEASING TRANSACTIONS ARE HELD TO BE SHAM TO REDUCE THE TAX LIABILITY WHICH I S IN CONSONANCE WITH THE TAX PLANNING MENTIONED BY THE DIRECTORS IN THEIR ANNUAL REPORT OF 1996-97. THE ABOVE TRANSACTION WAS IN TH E NATURE OF ADVANCING MONEY IN THE GUISE OF SALE AND LEASE BACK OF ASSETS OF 4 ITA NOS. 331, 222,443,301 PSEB AND SINCE IT WAS A FINANCIAL TRANSACTION, NO D EPRECIATION CAN BE ALLOWED U/S 32 OF THE INCOME TAX ACT, 1961 AS PE R THE A.O. ACCORDINGLY RS.39.25 CRORE WAS DISALLOWED ON DEPREC IATION ON LEASED ASSETS BY THE ASSESSING OFFICER. 4. THE LD. AR SUBMITTED THAT THE PRESENT APPEAL IS RELATED TO ERSTWHILE GLOBAL TRUST BANK LTD. WHICH HAS BEEN AMA LGAMATED INTO ORIENTAL BANK OF COMMERCE, A PUBLIC SECTOR BANK, W. E.F. 14/8/2004 U/S 45(7) OF THE BANKING REGULATION ACT, 1949 BY A GOVERNMENT OF INDIA NOTIFICATION. THEREFORE THIS APPEAL IS PROSEC UTED BY ORIENTAL BANK OF COMMERCE. IN THIS APPEAL BY THE ASSESSEE T HERE ARE TWO GROUNDS RAISED:- 1. ALLOW-ABILITY OF CLAIM OF DEPRECIATION ASSETS PURCH ASED FROM PUNJAB STATE ELECTRICITY BOARD (PSEB) AND LEASED BA CK TO THEM FOR USE. 2. DELETION OF RS.7,49,13,665/- BEING INTEREST ON GOV ERNMENT SECURITIES WHICH HAS NOT FALLEN DUE. 5. THE LD. AR SUBMITS THAT BOTH THE GROUNDS ARE COV ERED IN FAVOUR OF THE ASSESSEE. IN RESPECT OF GROUND NO. 1 THE LD. AR SUBMITS THAT IT IS ALSO COVERED IN FAVOUR OF ASSESS EE BY THE FOLLOWING ORDERS: A). JUDGMENT OF HONBLE PUNJAB AND HARYANA HIGH CO URT IN CIT VS. PSEB [2010] 320 ITR 469 (P &H). P. B PAGES 18 TO 21 SUBMITTED ON 5/3/2013. 5 ITA NOS. 331, 222,443,301 B). ORDER OF LD. CIT(A) DATED 12/12/2002 IN ASSESSE ES OWN CASE OF ASSESSMENT YEAR 1996-97 COPIES AT PAGE NO. 41 TO 70 OF THE P.B SEE RELEVANT PAGE 52 AND 53. C). ORDER OF COD DATED 25/2/2008 REFUSING PERMISSIO N TO DEPARTMENT FOR APPEAL TO ITAT AGAINST ABOVE ORDER O F LD. CIT(A). D). ORDER OF LD. CIT(A) DATED 31/1/2002 IN ASSESSEE S OWN, FOR ASSESSMENT YEAR 1998-99. E). COD HAS REFUSED PERMISSION TO DEPARTMENT TO APP EAL BEFORE ITAT IN 1998-99. 6. APART FROM THE ABOVE JUDGMENTS SUPPORTING THE AL LOWABILITY OF DEPRECIATION CLAIM ON ASSETS PURCHASED AND LEASED P SEB, LD. AR DRAWS ATTENTION TO THE FOLLOWING: 1) CERTIFICATE FROM PSEB DATED 11/12/98 CERTIFYING ASSETS AGGREGATING TO VALU RS.39.25 CRORES SOLD TO GLOBAL TRUST BANK LTD. (PAGE 39). 2) IN THE SAME CERTIFICATE IT IS ALSO MENTIONED THA T THE SAID ASSETS HENCEFORTH ARE REMOVED FROM THE BLOCK OF ASS ETS. 3) COPY OF THE LETTER OF PSEB DATED 30 TH SEPTEMBER 1996 (PAGE 32) CERTIFYING THE ORIGINAL COST/WDV AS PER T HE BOOKS OF ACCOUNTS SOLD TO GLOBAL TRUST BANK. THE L ETTER ALSO DESCRIBES THE ASSETS AND ITS LOCATION. 6 ITA NOS. 331, 222,443,301 4) COPY OF THE VALUATION REPORT DATED 27 TH SEPTEMBER 1996 VALUING THE PLANT AND MACHINERY. PL. SEE PAGE NO. 29 WHEREIN THE RESIDUAL LIFE IN YEARS IS CERTIFIED BY THE APPROVED VALUER. 5) COPY OF THE OFFICE NOTE SUBMITTED BY THE EXECUTI VE DIRECTOR OF THE BANK DATED 18 TH MARCH 1998 OF HAVING VISITED THE GURU GOBIND SINGH SUPER THERMAL POWER STATION LOCATED AT ROPAR, PUNJAB AND THAT LEASED AS SETS ARE IN GOOD WORKING CONDITION (PAGES 23,24). 6) ASSESSING OFFICERS ORDER U/S 143(3) DOES NOT DI SPUTE THE RESIDUAL LIFE OF THE ASSETS LEASED. 7) COPY OF THE LEASE AGREEMENT DATED 27 TH SEPTEMBER 1996 ( PAGES 5 TO 16) WHEREIN THE BANK IS THE LESSER AND T HE OWNER OF THE ASSETS AND THE ASSET HAS BEEN LEASED F OR USE TO PSEB. 8) THE LD. CIT(A) FOR THE A.Y 1996-97 HAS ALSO DEAL T WITH ASSESSING OFFICER S ORDER FOR ASSESSMENT YEAR 1997 -98, AND HAS REFERRED TO INDEPENDENT DEPARTMENTS ENQUIRY U/S 133(6) WHEREIN PSEB HAS CONFIRMED THE SALE OF ASSETS DIRECTLY TO DEPARTMENT (SEE PAGES 52, 53 OF THE PAPER BOOK). AFTER DETAILED DISCUSSION AT PAGE 63, 64 & 65 THE LD. CIT(A) HAS CATEGORICALLY HELD THE LEASE TO BE AN OPERATIONAL LEASE, ASSETS ARE DETACHABLE AND INDEPE NDENT OF USER, ASSESSEE CAN EXERCISE RIGHTS AS AN OWNER. 7 ITA NOS. 331, 222,443,301 9) THE ORDER OF LD. CIT(A) DATED 12/12/2002 FOR TH E ASSESSMENT YEAR 1996-97 IS AFTER THE ORDER OF LD. C IT(A) DATED 31/1/2001 FOR A.Y 1997-98. 10) ASSESSEE HAS GIVEN COMPLETE REBUTTAL TO THE ASS ESSING OFFICER S DOUBTS WHICH ARE AT PAGES 40 TO 62, FILE D ALONG WITH THE APPEAL DOCUMENT TO CLEAR ALL APPREHENSIONS OF THE A.O. 7. WITH REGARD TO THE GROUND RELATING TO ALLOWABILI TY OF CLAIM OF DEPRECIATION IN RESPECT OF ASSETS PURCHASED FROM PU NJAB STATE ELECTRICITY BOARD (PSEB) AND LEASED TO THEM, THE AS SESSEE CLARIFIES THE FOLLOWING: I. IN THE AGREEMENT FOR LEASE OF EQUIPMENT DATED 2 7 TH SEPT. 196 GLOBAL TRUST BANK LTD. IS CALLED THE LES SOR AND PSEB AS THE LESSEE. II. THE LEASE DEED IS SIGNED ONLY BY GLOBAL TRUST BANK AS THE LESSOR AND PSEB AS THE LESSEE. THERE IS NO 3 RD PARTY INVOLVED. III. THE LESSOR IS DULY ACCOUNTING FOR THE LEASE R ENTALS AS ITS INCOME AND ASSESSED AS SUCH AS BUSINESS INCO ME. IV. PSEB HAS RAISED INVOICE DATED 27 TH SEPT. 1996 IN THE NAME OF GLOBAL TRUST BANK LTD. FOR SALE OF ASSE TS DESCRIBED THEREIN AS AIR POLLUTION CONTROL EQUIPMEN T AND 8 ITA NOS. 331, 222,443,301 ENERGY SAVING DEVICES FOR RS.39.25 CRORES. (SEE PA PER BOOK VOL. 4 DATED 1 ST AUG. 2014). V. UPON THE COMPLETION OF THE LEASE PERIOD IN SEPT . 2006 THE PRESENT BANK I.E. ORIENTAL BANK OF COMMERC E HAS SOLD THE EQUIPMENT FOR ITS RESIDUAL VALUE ON 29 TH SEPT. 2006 AND HAS BOOKED PORIFT ON SALE OF ASSETS FOR A SUM OF RS.15.70 CRORES AND OFFERED FOR TAX. (PAPER BOOK VOL. 3 FILED ON 5 TH DEC. 2014-PAGES 1 TO 4). VI. COPY OF THE NOTE RELATING TO DEPOSIT OF VAT ON ACCOUNT OF 4% VAT ON THE SALE OF THE LEASED ASSETS (PAGE 16 & 17 OF THE PAPER BOOK-VOL. 4). VII. PHOTO COPY OF THE VOUCHER PASSED BY THE REGIO NAL OFFICE, PATIALA ON 18/10/2006 SHOWING THE DEPOSIT O F VAT OF RS.62,80,000/- BY DEBITING SUSPENSE ACCOUNT. (COPY NOW ENCLOSED). 8. FROM THE ABOVE EVIDENCES PLACED ON RECORD, THE L D. AR SUBMITS THAT IT WILL BE CLEAR THAT GLOBAL TRUST BAN K WAS THE LESSOR AND THE OWNER OF THE ASSETS, THE LEASE RENTALS WAS DULY ACCOUNTED FOR AS ITS INCOME AND AT THE END OF THE LEASED PERI OD, THE ASSETS WERE SOLD AFTER PAYING VAT. THUS THE OWNERSHIP AND USE FOR BUSINESS OF LEASING HAVING ESTABLISHED, THE CLAIM O F DEPRECIATION MAY BE ALLOWED. 9. THE LD. AR FURTHER SUBMITS THAT AS RELATES TO GR OUND NO. 2, THE SAME IS COVERED BY THE LATEST ORDER OF HONBLE ITAT DATED 9 ITA NOS. 331, 222,443,301 24/5/2013 IN ITA NO. 331, 443, AND 301/DEL/2000 FOR ASSESSMENT YEAR 1996-97, 99-00 AND 2000-01. THE LD. AR REFERR ED PAGES 6, 7, 8 AND PARA 7 ONWARDS OF THE ORDER ARE THE RELEVANT PARAGRAPHS OF THE PAPER BOOK. REFERENCE IS ALSO MADE TO EARLIER YEARS ORDERS IN FAVOUR OF ASSESSEE IN THE ASSESSMENT ORDER. 10. THE LD. DR SUBMITS THAT THE ASSESSEE HAS NOT PR OPERLY SPELT OUT THE LEASE AGREEMENT AS TO WHETHER IT IS A FINAN CIAL LEASE OR THAT OF OPERATIONAL LEASE. THIS FACTUAL ASPECT NEEDS TO BE VERIFIED. THE LD. DR FURTHER POINTED OUT THAT IT WAS NOT CLEAR AS TO WHAT IS THE ROLE OF WGF IN RESPECT OF THE LEASE AGREEMENT AND T HE MANDATE DATED 21/9/1996 GIVEN BY LESSEE TO WGF SECURITIES L TD. 11. WE HAVE PERUSED ALL THE RECORDS AND PROCEEDINGS AND HEARD BOTH THE PARTIES. BARE PERUSAL OF THE EARLIER ASSES SMENT ORDERS AND ITA WILL NOT HELP THE ASSESSEE BY SAYING THAT THE I SSUES ARE COVERED BY VARIOUS JUDGMENT. THE FACTS ARE DIFFERENT AND TH E SAME IS POINTED OUT BY THE LD. DR FROM THE RECORDS WHICH NE EDS TO BE LOOKED INTO. FROM PERUSAL OF THE LEASE AGREEMENT, I T CAN BE SEEN THAT THE SAME WAS NOT CLEAR AS TO WHAT IS THE ROLE OF WGF IN RESPECT OF THE LEASE AGREEMENT AND THE MANDATE DATED 21/9/1 996 GIVEN BY LESSEE TO WGF SECURITIES LTD. IN LIGHT OF THIS THE ASSESSING OFFICER AS WELL AS THE LD. CIT (A) SHOULD HAVE VERIFIED THIS F ACT. THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS NOT LOOKED INTO T HE ASPECT OF WHETHER THE AGREEMENT IS A FINANCIAL LEASE OR OPERA TIONAL LEASE. THE SAME WAS NOT VERIFIED BY THE CONCERNED AUTHORITIES. IN RESULT, WE REMAND BACK THIS MATTER TO THE ASSESSING OFFICER AN D TO VERIFY ALL 10 ITA NOS. 331 ,222,443,301 THE FACTS RELATED TO THE LEASE AGREEMENT AND GIVE A FRESH FINDING. NEEDLESS TO SAY, THE ASSESSEE MAY BE GIVEN PROPER O PPORTUNITY TO BE HEARD. 12. IN RESULT, THE APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28 TH OF JANUARY, 2016. SD/- SD/- (S. V. MEHROTRA) (SUCHI TRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28/01/2016 *R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 16.12.2015 PS 11 ITA NOS. 331 ,222,443,301 2. DRAFT PLACED BEFORE AUTHOR 17.12.2015 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .01.2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. .01.2016 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS .01.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON .01.2016 PS 7. FILE SENT TO THE BENCH CLERK 01.02.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 12 ITA NOS. 331 ,222,443,301