M/s Seal Financial Service Ltd., New Delhi V. The ACIT, 3(1), Bhopal

ITA 30/IND/2011

• Counselvise Citation: 3022714 RSA 2011
• Duration Of Justice: 1 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 27-10-2011
• Assessment Year: 1996-1997
• Appeal Filed On: 02-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KESHAVE SAXENA
• Keywords: Business income; Depreciation; Speculation loss
• Section: 43B; 143(3); 260A; 12A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AAACS0202K I.T.A.NO. 155 /IND/2011 A.Y. : 1996 - 97 ACIT, 3(1), BHOPAL VS M/ S. SIEL FINANCIAL SERVICES LTD, 12, KASTURBA GANDHI MARG, NEW DELHI APPELLANT RESPONDENT I.T.A.NO. 30 /IND/2011 A.Y. : 1996 - 97 M/S.SIEL FINANCIAL SERVICES LTD, 12, KASTURBA GANDHI MARG, NEW DELHI VS ACIT, 3(1), BHOPAL APPELLANT RESPONDENT DEPARTMENT BY : S HRI KESHAVE SAXENA, CIT DR ASSESSEE BY : SHRI HITESH CHIMNANI, C. A. DATE OF HEARING : 02 .0 7 .2012 DATE OF PRONOUNCEMENT : 04 . 0 9 .201 2 -: 2: - 2 O R D E R PER R. C. SHARMA, A.M. THESE ARE CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 22.02.20 11 FOR THE 1996-97, IN THE MATTER OF ORDER PASSED U/S 143(3)/154/147 OF THE INCOME-TAX ACT, 1961. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. THE ASSESSEE IS A LEASING FINANCING AND HI RE PURCHASE COMPANY. DURING THE COURSE OF ASSESSMENT, ASSESSEE CLAIMED DEPRECIATION OF RS. 6,33,49,041/- IN RESPECT OF ASSETS OF LEASING TRANSACTIONS ENTERED I N TO BY THE ASSESSEE COMPANY IN ASSESSMENT YEAR 1994-95 AND 19 95- 96 WHICH WERE CONSIDERED BY THE ASSESSING OFFICER I N THE YEAR TO BE FINANCING TRANSACTIONS. THE ASSESSING OF FICER IN THE ASSESSMENT ORDER HAS OBSERVED THAT DURING ASSES SMENT YEAR 1994-95, THREE PURCHASE AND LEASE BACK TRANSAC TIONS MADE BY THE ASSESSEE WITH M/S. ORIENT FACTORS COMME RCIAL CO. LTD., M/S. PRAKASH INDUSTRIES LIMITED AND M/S. UNITECH LIMITED WERE HELD TO BE PURE AND SIMPLE FIN ANCING TRANSACTIONS AND DEPRECIATION THEREON AMOUNTING TO RS. -: 3: - 3 1,53,29,374/- CLAIMED @ 100% WAS DISALLOWED VIDE OR DER U/S 143 DATED 25.2.1997. THE CIT(A)-V, NEW DELHI VI DE HER APPELLATE ORDER DATED 30.11.98 IN APPEAL NO.16/87-8 8 FOR ASSESSMENT YEAR 1994-95 HAS UPHELD THE ACTION OF TH E ASSESSING OFFICER BUT HAS, HOWEVER, DIRECTED TO ALL OW TO THE ASSESSEE THE CAPITAL COST EMBEDDED IN THE LEASE R ENTALS RECEIVED AGAINST THESE ASSETS. SIMILARLY, DURING AS SESSMENT YEAR 1995-96, THE ASSESSEE HAD ENTERED INTO THREE M ORE PURCHASE AND LEASE BACK TRANSACTIONS WITH M/S. SPAR TEX CERAMICS INDIA LIMITED, M/S. MAHALAKSHMI SUGAR MILL CO. LTD. AND M/S. WESTERN PAQUES INDIA LIMITED AND HAD CLAIMED DEPRECIATION @ 100% ON THE LEASED ASSETS AMOUNTING TO RS. 7,30,96,250/-. VIDE ORDER DATED 25.3.1998 PASSED U/S 143(3) FOR ASSESSMENT YEAR 199 5-96, THE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE AGAI NST THE AFORESAID LEASED BACK ASSETS WAS DISALLOWED BY HOLD ING THE TRANSACTIONS AS PURE FINANCING TRANSACTIONS. THE PE RUSAL OF ASSESSMENT ORDER FOR ASSESSMENT YEAR 1995-96 REVEAL THAT THE FINDINGS WERE ARRIVED AT AFTER IN DEPTH ENQUIRI ES AND INVESTIGATIONS INTO THE SO CALLED LEASING TRANSACTI ONS -: 4: - 4 ENTERED INTO BY THE ASSESSEE IN THAT YEAR. THE ASSE SSEE HAD FILED A DECLARATION UNDER THE KAR VIVAD SAMADHAN SC HEME 1998-90 OPTING TO PAY THE TAX ARREARS ON THE DIS PUTED INCOME OF ASSESSMENT YEAR 1995-96. THE ASSESSING O FFICER STATED THAT THE FACTS AND CIRCUMSTANCES FOR THE YEA R UNDER CONSIDERATION ARE THE SAME AS IN ASSESSMENT YEAR 19 94-95 AND 1995-96. HENCE, STAND TAKEN IN THOSE ASSESSMENT YEARS IS FOLLOWED IN THIS YEAR ALSO. THE ASSESSEE HAS CLAIMED TOTAL DEPRECIATION OF RS 6,38,49,810/- DURI NG THE YEAR. OUT OF THIS, DEPRECIATION AMOUNTING TO RS 6,33,49,041/- HAS BEEN CLAIMED IN RESPECT OF PURCHA SE AND LEASE BACK ASSETS AND REMAINING DEPRECIATION OF RS 5,00,769/- IS CLAIMED ON THE ASSETS USED BY THE ASS ESSEE IN ITS OWN BUSINESS. SEPARATE DEPRECIATION STATEMENTS HAVE BEEN FILED. IT IS NOTED THAT THE DEPRECIATION OF RS 6,33,49,041/- IS CLAIMED @ 100% ON THE ASSETS WHICH WERE PURCHASED BY THE ASSESSEE DURING A Y 1995-96 AND LE ASED BACK TO THE SAME PARTIES IN THAT YEAR. SINCE, THE A SSETS HAD BEEN PURCHASED AND USED FOR LESS THAN 180 DAYS DURI NG A. Y. 1995-96, THE ASSESSEE HAD CLAIMED THE DEPRECI ATION IN -: 5: - 5 THAT YEAR AT HALF OF THE NORMAL PRESCRIBED RATE I.E . 50%. HENCE, THE DEPRECIATION OF RS 6,33,49,041/- CLAIMED IN THIS YEAR @ 100% IS ON THE CARRIED FORWARD BALANCES / WD V AS ON 1.4.95. AS THE ASSESSEE HAD CLAIMED HALF OF THE DEPRECIATION IN A Y 1995-96, REMAINING HALF OF THE DEPRECIATION I.E. RS 6,33.44.041/- HAS BEEN CLAIMED IN THIS YEAR WHICH IS 50% OF TOTAL COST OF ASSETS. THIS IS IN RESPECT OF TWO TRANSACTIONS ENTERED INTO BY THE ASSESSEE DU RING A Y 1995-96. HOWEVER, ONE TRANSACTION ON WHICH DEPRECIA TION OF RS 3,49,041/- HAS BEEN CLAIMED DURING THE YEAR R ELATES TO AY 1994-95 IN WHICH IT WAS TREATED AS FINANCING TRANSACTION. THE RATES OF DEPRECIATION AGAINST THES E ASSETS ARE 25% IN RESPECT OF PLANT & MACHINERY AND 10% IN RESPECT OF FURNITURE AND FIXTURE. DURING THE YEAR, THE ASSESSEE HAS CLARIFIED THAT IT HAS NOT ENTERED INTO ANY FRESH LEASE TRANSACTION. THE DETAILS OF PURCHASE AND LEAS ED BACK TRANSACTIONS ON WHICH DEPRECIATION HAS BEEN CLAIMED IN THIS YEAR ARE AS UNDER :- -: 6: - 6 NAME OF THE LESSEE YEAR OF W.D.V.AS RATE OF AMOUNT OF LEASING ON 1.4.95 DEPRECIATION DEPRECIATION ORIENT FACTORS AY 1994 - 95 COMMERCIAL CO. PLANT & MACHINERY 12,65,543 25% 3,16,386 LTD FURNITURE & FIXTURES 3,26,569 10% 32,656 WESTERN PAQUES AY 1995 - 96 6,00,00,000 100% 6,00,00,000 (INDIA) LTD MAHALAKSHMI SUGAR A.Y.1995 - 96 30,00,000 100% 30,00,000 MILLS CO.LTD TOTAL 6,33,49,041 1. THE AO STATED THAT ALL THE ABOVE TRANSACTIONS HAVE ALREADY BEEN TREATED AS PURE FINANCING TRANSACTIONS DURING A Y 1994-95 AND 1995-96 AS DISCUSSED. THESE ASSETS WERE SECOND HAND ASSETS AND WERE LEASED BACK TO THE SAME PARTIES FROM WHOM THESE WERE PURCHASED. AS PER EXPLANATION 3 TO SECTION 43 OF TH E 1.T ACT 1961, THE WDV AS ON 1.4.95 OF THESE ASSETS WERE TAKEN AT NIL FOR THE DETAILED AND ELABORATE REASONS, DISCUSSIONS MADE IN ASSESSMENT ORDERS FOR AY 1994-95 AND 1995-96 AND AS CONFIRMED BY THE CIT(A)-V, NEW DELHI FOR AY 1994-95. THE CONTENTION OF THE ASSESSEE THAT THESE ARE PENDING LEASE TRANSACTIONS AND DEPRECIATION CLAIMED THEREON -: 7: - 7 SHOULD BE ALLOWED. HOWEVER, THE ASSESSING OFFICER REJECTED THE SAME. TO AVOID REPETITION THE REASONS ELABORATED IN ASSESSMENT ORDERS FOR A Y 1994-95 AND 1995-96 WERE FOLLOWED BY ASSESSING OFFICER AS THERE WAS NO CHANGE IN THE CIRCUMSTANCES PREVAILING DURING THE YEAR AND BECAUSE THE DEPRECIATION CLAIME D THIS YEAR RELATE TO CARRIED FORWARD BALANCES FROM A Y 1994-95 AND 1995-96 IN WHICH THE TRANSACTIONS WERE HELD TO BE FINANCING ONES. 3. BY THE IMPUGNED ORDER, THE LD. CIT(A) HELD AS UNDER :- I HAVE CAREFULLY GONE THROUGH THE OBSERVATIONS/FINDINGS OF THE AO AS MENTIONED IN THE ASSESSMENT ORDER. I HAVE ALSO CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT. I RELY ON THE HON'BLE IT AT ORDER DATED 28/9/07 PASSED IN I T A NO.685/DEL/1999 FOR THE ASSESSMENT YEAR 1994-95 IN THE APPELLANT'S OWN CASE WHEREIN PARA 12 ONWARDS, IT HAS BEEN HELD AS UNDER:- 'ORIENT FACTORS COMMERCIAL COMPANY LIMITED -: 8: - 8 PURCHASED VARIOUS ASSETS WORTH RS 25,92,244/- VIDE BILL DATED 31.3.1994 AND DEPRECIATION CLAIMED ON FURNITURE @ 5% HALF OF 10% OF COST OF RS 3,81,953/- AT RS 19,098/-. REGARDING PLANT AND MACHINERY @ 12.5% (HALF OF 25%) OF COST OF RS 19,28,435/- AT RS 2,41,054/-. PLANT AND MACHINERY @ 100% (COST BEING LESS THAN RS 5,000/- EACH) (COST RS 2,81,856/-), THUS CLAIMED AT RS 2,81,856/-. BILLS OF THE ABOVE ITEMS AVAILABLE AT PAGE 50 TO 58 OF THE PAPER BOOK. CERTIFICATE OF SIEL AIRCON LIMITED (FORMERLY) ORIEN T FACTORS COMMERCIAL COMPANY LIMITED AND ASSOCIATE CONCERNS STATING THAT ITEMS OF SUNDRY PLANT AND MACHINERY WORTH RS 20,75,925/-) AND ELECTRIC EQUIPMENT WORTH RS 3,89,662/- WERE PURCHASED DURING THE YEAR AND NO DEPRECIATION WAS CLAIMED. THE BOILER WAS SOLD AT ITS WDV AT RS 1,26,656/- AS PER PAGE 49 THE PAPER BOOK, HYPOTHECATED WITH ICICI BANK BY THE LESSER IN FEBRUARY, 1995, AS OWNERS OF THE ASSETS PLACED AT PAGE 33 & 38 OF THE PAPER BOOK. AUDITED ACCOUNTS ARE ON PAGES 59 TO 79, PROFIT -: 9: - 9 SHOWN AT RS 11.51 LACS. BUSINESS OF THE COMPANY IS THAT ALL ROOM AIR CONDITIONERS, GEYSERS, CONDITIONE RS, WATER HEATER ETC. AS PER PAGE 69 OF THE PAPER BOOK. EXPLANATION 3 TO SECTION 43(1) APPLIES, WHERE ASSET IS USED BY THE SELLER AND DEPRECIATION IS CLAIMED THEREON BEFORE THE ASSETS IS SOLD AND GOT IT LEASED BACK TO IT AND NOT IN OTHER CASES. IN SUCH CASE, MARKET VALUE OF THE ASSETS SOLD AND LEASED BACK HAS TO BE DETERMINED WITH THE PREVIOUS APPROVAL OF THE CIT(A). FURTHER, THE AO MUST BE SATISFIED THAT THE SAID TRANSACTION WAS DONE BY THE LESSER WITH A VIEW TO AVOID TAX BY CLAIMING HIGHER DEPRECIATION ON THE ENHANCED COST. NO SUCH CASE MADE OUT IN THE CASE OF THE ASSESSEE. EXPLANATION 4-A, SECTION 43(1) IS NOT RETROSPECTIVE AS PER DECISION OF BERLIA CHEMICALS, MUMBAI, 76 TTJ 974 AND KARAMCHAND THAPAR, 61 TTJ 5786 (CAL). AS PER THIS EXPLANATION ALSO, THE ASSET MUST HAVE BEEN USED BY THE SELLER AND DEPRECIATION CLAIMED THEREON. IN SUCH A SITUATION I N SPITE OF THE EXPLANATION 3, DEPRECIATION TO THE LESSOR -: 10: - 10 SHALL BE ON THE WDV OF THE SELLER. IN THIS CASE, NEITHER EXPLANATION 4A HAS BEEN INVOKED BY THE ASSESSING OFFICER NOR DOES EXPLANATION 3 APPLY TO THE CASE OF THE ASSESSEE, SINCE THE ASSETS WERE NOT USED BY THE SELLER AND NO DEPRECIATION WAS CLAIMED BY HIM. IN SUPPORT OF HIS CONTENTION, WE HAVE GONE THROUGH THE CASE LAWS OF HON'BLE GAUHATI HIGH COURT REPORTED IN 265 ITR 626, ALTHOUGH DELIVERY OR POSSESSION IS AN ESSENTIAL INGREDIENT OF SALE OF IMMOVABLE PROPERTY, ACTUAL DELIVERY OR POSSESSION DOES NOT MEAN THAT THE POWER SHOULD TAKE AWAY THE ASSETS AFTER DELIVERY AND ACKNOWLEDGEMENT OF THE POWER OF DELIVERY SUFFICE. WHAT HAS TO BE CONSIDERE D IS VALIDITY OF THE TRANSACTION, WHICH IS IMPORTANT. HE FURTHER PLACED RELIANCE REPORTED IN 76 TTJ 974 (MUMBAI). WHEN A LESSEE WANTS TO ACQUIRE AN ASSET ON LEASE, IT IS NOT ALWAYS FEASIBLE, ESPECIALLY IN CASE OF HEAVY MACHINERY THAT THE LESSOR SHOULD TAKE DELIVERY OF THE ASSETS AND THEN HAND OVER THE SAME TO THE LESSEE. IN SUCH CASES, THE DELIVERY OF THE -: 11: - 11 LEASED ASSETS IS GIVEN LESSEE DIRECTLY. EVEN GLASS BOTTLES IN THE ASSESSMENT YEAR 1993-94, LEASED OUT BY THE ASSESSEE WERE DIRECTLY DELIVERED TO THE LESS EE AND THE DEPRECIATION WAS ALLEGED BY THE LD. CIT(A) (PAGE NOS. 85 & 86 OF THE PAPER BOOK). THE HON'BLE HIGH COURT WHILE RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN AJADI BACHAO ANDOLAN, 263 ITR 706 (SC) DISCUSSED THE EFFECT OF THEIR EARLIER DECISION IN MCDOWELL & CO L TD 154 ITR 148 (SC) HELD THAT EVERY ATTEMPT AT TAX PLANNING IS ILLEGITIMATE AND MUST IGNORED IS NOT CORRECT. FURTHER RELIANCE PLACED ON THE CASE OF SAM E VIEW WAS TAKEN BY MUMBAI BENCH IN THE CASE OF BOMBAY BURMA TRADING CORPORATION, 76 TTJ 983 (MUMBAI), WHEN INCOME HAS ALREADY ASSESSED IN THE HANDS OF THE LESSEE IN THE CASE OF SALE AND LEASED BACK TRANSACTION THE SAME VALUE HAS TO BE ACCEPTED, OTHERWISE IT WILL AMOUNT TO DOUBLE TAXATION OF THE SALE INCOME. SINCE THE SALE PRICE O F THE ASSETS SOLD IS ALREADY ACCOUNTED FOR IN THE -: 12: - 12 BOOKS OF THE LESSEE. IN VIEW OF THE ABOVE, THE HON'BLE CIT(A) HAS ERRE D IN UPHOLDING THAT THREE TRANSACTIONS OF THE APPELLANT COMPANY ENTERED DURING THE COURSE OF BUSINESS WERE NOT LEASING. THE TRANSACTIONS IN QUESTION ARE SATISFACTORILY PROVED BY THE ASSESSEE TO BE LEASING TRANSACTION. IN VIEW OF THE ABOVE DISCUSSION AND MATERIAL ON RECORD, THE ASSESSEE HAS BEEN ABLE TO PROVE THAT IT OWNED ASSETS IN QUESTION AND GIVEN GENUINELY ON LEASE ON WHICH NO DEPRECIATION IS CLAIMED BY THE LESSEE. THEREFORE, THE ASSESSEE IS ENTITLED FOR DEPRECIATION. ' THEREFORE, AS FAR AS DEPRECIATION IN RESPECT OF A SSETS LEASED TO M/S.ORIENT FACTORS COMMERCIAL CO. LTD, ON PLANT & MACHINERY OF RS 3,16,386/- AND ON FURNITURE AND FIXTURES AT RS. 32,656/- TOTALING TO RS.3,49,041/-. I ALSO RELY ON THE JUDGEMENTS OF THE HON'BLE JURISDICTIONAL M.P. HIGH COURT IN THE CASE OF AGRAWAL WAREHOUSING AND LEASING LTD. VS. CIT REPORTED IN 257 ITR 235 AS WELL AS IN THE CASE OF -: 13: - 13 GOVINDRAM SAKSERIA CHARITY TRUST VS. ITO REPORTED IN 168 ITR 387 WHEREIN IT WAS HELD THAT THE ORDERS PASSED BY THE TRIBUNAL ARE BINDING ON ALL THE REVENUE AUTHORITIES FUNCTIONING UNDER THE JURISDICTION OF THE TRIBUNAL. I FIND THAT IN THE ASSESSMENT ORDER FOR A Y 1995- 96, DEPRECIATION OF RS 7,85,67,980/- WAS DISALLOWED ON THE GROUND THAT THE LEASING TRANSACTIONS ENTERED INTO BY THE APPELLANT DURING THE YEAR WERE FINANCIN G TRANSACTIONS AND NOT LEASING TRANSACTIONS. THEREAFTER, THE APPELLANT OPTED FOR KAR VIVAD SAMADHAN SCHEME 1998 AND THEREFORE ACCEPTED THE STAND OF THE DEPARTMENT TO TREAT THE LEASING TRANSACTIONS AS FINANCING TRANSACTIONS. FURTHERMORE, THE AO WHILE PASSING THE ASSESSMENT ORDER FOR A Y 1995-96 HAS CATEGORICALLY PROVED WITH EVIDENCE THAT THE TRANSACTIONS WERE FINANCIAL IN NATURE WHICH HAVE BEEN MENTIONED IN ABOVE PARAS -: 14: - 14 AND THE APPELLANT PREFERRED NO APPEAL AGAINST THE SAME. THEREFORE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, SINCE THE TRANSACTIONS HAVE BEEN ACCEPTED AS FINANCIAL TRANSACTION AND NOT LEASING TRANSACTION, THE APPELLANT IS NOT ENTITLED TO CLAIM OF DEPRECIATION OF RS 6,30,00,000/- ON THE ASSETS LEASED TO M/S. WESTERN PAQUES (INDIA) LTD AND M/S. MAHALAKSHMI SUGAR MILLS CO LTD PERTAINING TO THE CURRENT ASSESSMENT YEAR. ACCORDINGLY, THE APPELLANT GETS RELIEF OF RS 3,49,041/- AND DISALLOWANCE OF RS 6,30,00,000/- IS HEREBY CONFIRMED. 4. AGAINST THE ABOVE ORDER OF CIT(A), BOTH ASSESSEE AN D REVENUE ARE IN APPEAL BEFORE US. 5. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE AND REVENUE :- GROUNDS TAKEN BY THE ASSESSEE :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE ID.CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS 6,30,00,000/- ON ASSETS PURCHASE D AND -: 15: - 15 LEASED BACK. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE ID.CIT(A) ERRED IN GIVING CONSEQUENTIAL DIRECTIONS TO THE LD AO TO EXCLUDE THE LEASE RENTALS FROM THE TAXABLE PR OFITS AFTER ADJUSTING THEREFROM THE INTEREST COMPONENT OF THE A LLEGED FINANCE TRANSACTIONS. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD CIT(A) ERRED IN MAINTAINING THE DISALLOWANCE ON ACC OUNT OF INTEREST TAX PAYABLE OF RS 16,55,461/- (COMPRISI NG OF INTEREST TAX OF RS 14,27,347/- AND INTEREST U/S 12A AND 12B OF THE INTEREST TAX ACT OF RS 2,28,114/-). 4. GROUNDS TAKEN BY THE REVENUE :- 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(APPEAL) HAS ERRED IN:- 1. ALLOWING CLAIM OF DEPRECIATION OF RS. 3,49,041/- IN RESPECT OF M/S ORIENT FACTORS -: 16: - 16 COMMERCIAL COMPANY LTD. WHILE CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS. 6,30,00,000/- IN RESPECT OF WESTERN PAQUES(LNDIA) LTD. AND M/S MAHALAXMI SUGAR MILLS LTD. PARTICULARLY WHEN THE SAID THREE TRANSACTIONS WERE HELD IT TO BE FINANCING ACTIVITIES AND ALSO CONFIRMED BY THE CIT(A)-V, NEW DELHI FOR A.Y.-1994-95. 2. DIRECTING THE AO TO EXCLUDE THE PRINCIPAL COMPONENT OF LEASE TRANSACTIONS ENTERED IN A.Y.-1995-96 AND ALSO DIRECTING THE AO TO RECOMPUTE THE DEDUCTION OF PRINCIPAL COMPONENT IN LEASE RENTALS ALLOWED AT RS. 1,99,62,255/-IN THE ASSESSMENT ORDER TAKING INTO CONSIDERATION THE LEASE RENTAL INCOME CREDITED TO THE PROFIT AND EFFECT OF ORDERS OF A. Y.1994-95 & 1995-96 FOLLOWING THE DECISION OF THE ITAT IN ITA NO.- 685/DE1/1999 DATED 28.09.2007 FOR THE A.Y.-1994-95, WHEREAS THE SAID DECISION OF -: 17: - 17 THE IT AT HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN APPEAL U/S 260A IS PENDING BEFORE THE HON'BLE HIGH COURT AT JABALPUR. 3. ALLOWING A RELIEF OF RS. 7,07,638/- MADE BY THE AO ON ACCOUNT OF SHARE ISSUE EXPENDITURE WHICH WAS SHOWN BY THE ASSESSEE COMPANY ONLY IN BALANCE SHEET AND SAME WAS NEITHER CHARGED TO PROFIT AND LOSS ACCOUNT NOR DEDUCTION FOR THE SAME WAS CLAIMED IN THE COMPUTATION OF TAXABLE INCOME. 4. HOLDING THAT THE ASSESSEE IS ENTITLED TO SET OFF OF LOSS ON PURCHASE/SALE OF SHARES OF RS. 29,29,232/- AGAINST NORMAL BUSINESS INCOME AND SUCH LOSS SHALL NOT BE TREATED AS SPECULATIVE LOSS, AND THAT THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF EXPLANATION TO SECTION 73 OF I . T. ACT, 1961.' -: 18: - 18 6. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. WE HAD ALSO GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1994-95 DATED 28.9.2007 RELIED ON BY THE LD.CIT(A). IN RESPECT OF DEPRECIATION CLAIMED IN RESPECT OF MACHINERY, FURNITURE LEASED T O M/S. ORIENT FACTORS COMMERCIAL COMPANY LIMITED, THE CIT( A) OBSERVED THAT THE TRIBUNAL IN ITS ORDER HAVE FOUND THE TRANSACTION OF LEASE AS A GENUINE TRANSACTION AND N OT MERELY FINANCIAL TRANSACTION, THEREFORE, RELYING ON THE OR DER OF TRIBUNAL, HE ALLOWED ASSESSEES CLAIM OF DEPRECIATI ON ON THE WDV OF PLANT AND MACHINERY AND FURNITURE. RESPECTFU LLY FOLLOWING THE DECISION OF THE TRIBUNAL DATED 28.9.2 007, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR A LLOWING CLAIM OF DEPRECIATION OF RS. 3,49,041/- IN RESPECT OF ASS ETS LEASED TO M/S. ORIENT FACTORS COMMERCIAL COMPANY LIMITED. 7. WITH RESPECT TO CLAIM OF DEPRECIATION ON ASSETS LEA SED TO M/S. WESTERN (INDIA) LIMITED AND MAHALAXMI SUGAR MILLS COMPANY LIMITED, THE ASSESSEE ITSELF HAS ACCEPTED T HE DISALLOWANCE OF DEPRECIATION IN THE ASSESSMENT YEAR 1995-96, ON THE GROUND THAT TRANSACTION WAS HELD TO BE FINAN CIAL -: 19: - 19 TRANSACTION AND NOT LEASING TRANSACTION. ACCORDINGL Y, THE ASSESSEE HAS OPTED FOR KVSS 1998, THEREBY ACCEPTED THE STAND OF THE DEPARTMENT TO TREAT THE LEASING TRANSACTION AS FINANCIAL TRANSACTION, ACCORDINGLY, WE DO NOT FIND ANY INFIRM ITY IN THE ORDER OF CIT(A) FOR DISALLOWING CLAIM OF DEPRECIATI ON OF RS. 6,30,00,000/- ON THE ASSETS LEASED TO M/S. WESTERN PAQUES AND M/S. MAHA LAXMI SUGARS. 8. WITH REGARD TO ASSESSEES CLAIM FOR DEDUCTION OF INTEREST TAX PAYABLE, THE CIT(A) HAS CONFIRMED THE DISALLOWANCE AFTER HAVING THE FOLLOWING OBSERVATIONS :- I HAVE CAREFULLY GONE THROUGH THE OBSERVATIONS/FI NDINGS OF THE ASSESSING OFFICER AS MENTIONED IN THE ASSESS MENT ORDER. I HAVE ALSO CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT. I FIND THAT THE RELIANCE PLACED BY T HE APPELLANT ON PROVISIONS OF SECTION 18 OF THE INTERE ST TAX ACT FOR CLAIMING DEDUCTION OF INTEREST LIABILITY PA YABLE AS DETERMINED IN THE INTEREST TAX ASSESSMENT ORDER IS NOT CORRECT. I FIND THAT AS PER PROVISIONS CONTAINED IN SECTION 43B OF THE INCOME-TAX ACT ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE BY WHATEV ER -: 20: - 20 NAME CALLED UNDER ANY LAW FOR THE TIME BEING IN FOR CE SHALL BE ALLOWED ONLY IN THE PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID. THE APPELLANT HAS NOT PRODUCE D ANY EVIDENCE WITH RESPECT TO PAYMENT OF INTEREST TAX LI ABILITY. SINCE THE APPELLANT IS CLAIMING DEDUCTION OF INTERE ST TAX LIABILITY DETERMINED BUT NOT PAID, THE SAME IS NOT ALLOWABLE UNDER THE INCOME-TAX ACT. THIS GROUND OF APPEAL RAISED BY THE ASSESSEE APPELLANT IS DISMISSE D. 9. IT IS CLEAR FROM THE FINDINGS RECORDED BY THE LD.CI T(A) THAT INTEREST TAX PAYABLE WAS NOT ACTUALLY PAID DUR ING THE YEAR, THEREFORE, NO FAULT CAN BE FOUND IN THE ORDER OF TH E ASSESSING OFFICER FOR DISALLOWING THE SAME U/S 43B OF THE INC OME-TAX ACT, 1961. ACCORDINGLY, GROUND TAKEN BY THE ASSESSE E IS DISMISSED. 10. WITH REGARD TO THE GROUND TAKEN BY THE REVENUE FOR ALLOWING RELIEF OF RS. 7,07,638/- IN RESPECT OF SHA RE ISSUE EXPENSES, WE FOUND THAT CIT(A) HAS DELETED THE ADD ITION AFTER HAVING FOLLOWING OBSERVATIONS :- I HAVE GONE THROUGH THE OBSERVATIONS OF THE ASSESSING OFFICER MENTIONED IN THE ASSESSMENT -: 21: - 21 ORDER. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT. I FIND THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING SHARE ISSUE EXPENDITURE OF RS. 7,07,638/- IN THE CURRENT YEAR AS THE APPELLANT HAS NEITHER CLAIMED DEDUCTION IN THE COMPUTATION OF TOTAL INCOME NOR THE SAID EXPENDITURE HAS BEEN CHARGED TO THE PROFIT AND LOSS ACCOUNT FOR FINANCIAL YEAR ENDED 31.3.1996. SINCE THE APPELLANT HAS ACCOUNTED FOR THE SAID EXPENDITURE UNDER MISC. EXPENDITURE (TO THE EXTENT NOR WRITTEN OFF OR ADJUSTED), IN THE BALANCE SHEET AS ON 31.3.1996, NO DISALLOWANCE OF RS. 7,07,638/- IS CALLED FOR. THUS, THE APPELLANT GETS THE RELIEF OF RS. 7,07,638/- AND THE GROUND OF APPEAL IS ALLOWED. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FOUND FROM RECORD THAT THE ASSESSEE HAS NOT CLAIMED SHARE ISSUE EXPENDITURE IN ITS PROFIT AND LOSS ACCOUNT NOR IN T HE COMPUTATION OF TOTAL INCOME, ACCORDINGLY, THERE IS NO INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE ADDITION OF RS. 7,07,038/-. -: 22: - 22 12. WITH REGARD TO SET OFF OF LOSSES ON SALE OF SHARES AGAINST THE NORMAL BUSINESS INCOME, THE CIT(A) HAS ALLOWED THE SAME AFTER HAVING THE FOLLOWING OBSERVATIONS :- I HAVE CAREFULLY GONE THROUGH THE OBSERVATIONS/FINDINGS OF THE ASSESSING OFFICER IS MENTIONED IN THE ASSESSMENT ORDER. I HAVE ALSO CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT. IT IS NOT DISPUTE THAT THE APPELLANT COMPANY IS CARRYING ON PRINCIPAL OF BUSINESS OF MERCHANT BANKING GRANTING LOANS, ADVANCES, DEPOSITS, LEASING TRANSACTIONS ETC. THE APPELLANTS INCOME ALSO RELAT E TO THE ABOVE BUSINESS. I FIND THAT THE ASSESSING OFFICER HAS MISINTERPRETED THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE INCOME-TAX ACT. TH E EXPLANATION EXCLUDES A COMPANY WHOSE PRINCIPAL BUSINESS IS THAT OF BANKING OR THE GRANTING OF LOAN S AND ADVANCES. THE DEEMING PROVISIONS OF EXPLANATION TO SECTION 73 ARE NOT APPLICABLE TO SUC H FINANCIAL/INVESTMENT COMPANY. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING -: 23: - 23 PROVISIONS OF EXPLANATION TO SECTION 73 IN THE CASE OF THE APPELLANT COMPANY WHEN HE HAS HIMSELF STATED IN THE ASSESSMENT ORDER THAT THE APPELLANT IS CARRYING ON BUSINESS OF MERCHANT A BANKING OR GRANTING OF LOANS AND ADVANCES. ACCORDINGLY, THE APPELLANT IS ENTITLED TO SET OFF OF LOSS ON PURCHASE/SALE OF SHARES OF RS. 29,29,232/- AGAINST NORMAL BUSINESS INCOME AND SUCH LOSS SHALL NOT B E TREATED AS SPECULATIVE LOSS. THUS, THIS GROUND OF APPEAL RAISED BY THE APPELLANT IS ALLOWED. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FOUND FROM RECORD THAT THE ASSESSEE WAS CARRYING ON PRINC IPAL BUSINESS OF MERCHANT BANKING GRANTING OF LOANS AND ADVANCES LEASING TRANSACTIONS ETC. UNDER EXPLANATION TO SECT ION 73, WHERE PRINCIPAL BUSINESS OF ASSESSEE IS THAT OF BAN KING OR GRANTING OF LOANS AND ADVANCES, THE SAME IS EXCLUDE D FROM THE MISCHIEF OF EXPLANATION TO SECTION 73. AS PER THE F INDING RECORDED BY THE CIT(A), WHICH IS AS PER MATERIAL ON RECORD, SINCE THE ASSESSEE IS MAINLY INVOLVED IN THE BUSINE SS OF GRANTING OF LOANS AND ADVANCES, THERE WAS NO REASON TO INVOKE -: 24: - 24 EXPLANATION TO SECTION 73 AND THEREBY DECLINE CLAIM OF SET-OFF OF LOSSES ON SALE OF SHARES AGAINST THE NORMAL BUSI NESS INCOME. 14. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND REVENUE ARE DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 4 TH SEPTEMBER, 2012. SD/ - SD/ - (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 4 TH SEPTEMBER, 2012. CPU* 2.3.7,3.5.9