JCIT, Bangalore V. M/s H.P. India Sales Pvt. Ltd., Bangalore

ITA 316/BANG/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9501 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-07-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 06-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR CITIII
• Keywords: Capital asset; Depreciation; Business expenditure; Question of law; Cost of acquisition; Wrong claim
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE S HRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER I.T . A. NO. 316 /BANG/20 14 (ASSESSMENT YEAR : 20 04 - 05 ) JOINT COMMISSIONER OF INCOME TAX, LTU, BANGALORE . . APPELLANT. VS. M/S. H P INDIA SALES PVT. LTD., 24, SALARPURIA ARENA, HOSUR MAIN ROAD, ADUGODI, BANGALORE - 30 . PAN AAACC 9862F .. RESPONDENT. APPELLANT BY : SHRI SANJAY KUMAR, CIT - III (D.R) R E SPONDENT BY : SHRI SHARATH RAO, C.A. DATE OF H EARING : 18.07.2016. DATE OF P RONOUNCEMENT : 11 . 8 .201 6 . O R D E R PER SHRI VIJAY P AL RAO, J .M . : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DT.6.6.2013 OF COMMISSIONER OF INCOME TAX (APPEALS) , LTU, BANGALORE ARISING FROM PENALTY ORDER PASS ED UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') FOR THE ASSESSMENT YEAR 2004 - 05. 2 IT A NO. 316 /BANG/201 4 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1. THE ORDER OF LEARNED CIT (APPEALS) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE CI T (APPEALS) ERRED IN DELETING THE PENALTY IMPOSED BY THE ASSESSING OFFICER ON THE ISSUE OF CLAIM OF DEPRECIATION ON FINANCED LEASED ASSETS, EVEN THOUGH THE CIT (APPEALS) AS WELL AS ITAT HAS UPHELD THE ADDITION MADE IN THE ASSESSMENT ORDER ON THE ISSUE. 3. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. 3. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT ON 29.12.2006 THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEPRECIATION IN RESPECT OF LEASE ASSETS ON T HE GROUND THAT THE DEPRECIATION CAN BE ALLOWED ONLY ON THE CAPITAL ASSET PURCHASED AND PUT TO USE IN THE BUSINESS OF THE ASSESSEE AND NOT ON THE ASSET THE COST OF WHICH HAS BEEN ALLOWED AS BUSINESS EXPENDITURE. THE ASSESSING OFFICER HELD THAT IT IS A CASE OF FINANCE LEASE AND LESSEE IS THE OWNER OF THE ASSET AND THE LESSOR (THE ASSESSEE) WHO HAS SOLD THE ASSET THROUGH FINANCE LEASE CANNOT CLAIM DEPRECIATION ON THE MACHINERY THAT WAS SOLD. THE ASSESSING OFFICER FURTHER NOTED T HAT A SIMILAR ISSUE WAS INVOLV ED IN THE ASSESSMENT YEAR 2004 - 05 AND DEPRECIATION WAS DISALLOWED BY TREATING THE TRANSACTION AS FINANCE LEASE. THE ACTION OF THE ASSESSING OFFICER WAS UPHELD BY THE CIT 3 IT A NO. 316 /BANG/201 4 (APPEALS) AND FURTHER BY THIS TRIBUNAL. IN THE MEANTIME THE ASSESSING OFFICER INITIA TED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AND LEVIED A MINIMUM PENALTY OF RS.2,54,46,736 VIDE ORDER DT.6.5.2013. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE CIT (APPEALS). THE CIT (APPEALS) DELETED THE PENALTY BY HOLDING THAT THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE MATERIAL FACT AND THEREFORE NO INACCURATE PARTICULARS WERE FURNISHED BY THE ASSESSEE NOR THERE WAS ANY CONCEALMENT OF PARTICULARS TO JUSTIFY THE CHARGE OF CONCEALMENT UNDER SEC TION 271(1)(C) OF THE ACT. 4. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE TRIBUNAL HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER IN DISALLOWING THE CLAIM OF DEPRECIATION ON THE LEASE ASSET. HE HAS FURTHER REFERRED TO THE OBSERVATION OF THE ASSESSING OFFICER THAT WHEN THE ASSESSEE HAS ALREADY CLAIMED THE ENTIRE PURCHASE COST AS BUSINESS EXPENDITURE THEN THE CLAIM OF DEPRECIATION IS A BOGUS CLAIM BY THE ASSESSEE AND THEREFORE THE ASSESSING OFFICER IS JUSTIFIED IN LEVYI NG THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT. HE HAS RELIED UPON THE ORDER 4 IT A NO. 316 /BANG/201 4 OF THE ASSESSING OFFICER AS WELL AS THE ORDER OF THE TRIBUNAL IN THE CLAIM APPEAL. 5. ON THE OTHER HAND, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBM ITTED THAT THE CIT (APPEALS) HAS DELETED THE PENALTY BY NOTING THE FACT THAT THE ASSESSEE HAS DISCLOSED ALL THE MATERIAL FACTS IN THE ASSESSMENT PROCEEDINGS AND THEREFORE THERE IS NO CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS BY THE ASSESSEE. HE H AS FURTHER CONTENDED THAT FOR THE ASSESSMENT YEAR 2002 - 03 THE TRIBUNAL HAS ALLOWED THE CLAIM OF THE ASSESSEE. HE HAS FURTHER CONTENDED THAT THE HON'BLE JURISDICTIONAL HIGH COURT HAS ADMITTED THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THIS TRI BUNAL IN QUANTUM APPEAL FOR THE YEAR UNDER CONSIDERATION AND THEREFORE THE SUBSTANTIAL QUESTION OF LAW HAS BEEN ADMITTED BY THE HON'BLE JURISDICTIONAL HIGH COURT WHICH SHOWS THAT THE ISSUE OF DISALLOWANCE OF DEPRECIATION ON LEASE ASSET IS A DEBATABLE ISSU E ON WHICH THE PENAL PROVISIONS OF SECTION 271(1)(C) OF THE ACT CANNOT BE ATTRACTED. THE LEARNED AUTHORISED REPRESENTATIVE HAS FURTHER POINTED OUT THAT THE ASSESSEE FILED A PETITION UNDER SECTION 154 OF THE ACT AND POINTED OUT THAT THE ASSESSING OFFICER W HILE DISALLOWING 5 IT A NO. 316 /BANG/201 4 THE CLAIM OF DEPRECIATION HAD MADE DOUBLE ADDITION AS THE ASSESSEE HAS ALREADY OFFERED THE ENTIRE LEASE RENTAL TO TAX WHEREAS IF THE TRANSACTION IS TREATED BY THE ASSESSING OFFICER A S FINANCE LEASE AND DISALLOWED THE CLAIM OF DEPRECIATIO N THEN ONLY THE INTEREST COMPONENT IN THE LEASE AMOUNT CAN BE TAXED AS INCOME OF THE ASSESSEE. THUS THE LD. AR HAS SUBMITTED THAT EVEN OTHERWISE IF THE CORRECT INCOME OF THE ASSESSEE IS COMPUTED BY CONSIDERING ONLY INTEREST COMPONENT IN THE LEASE RECEIPT S THEN THERE WILL BE NO FURTHER ADDITION IN THE INCOME OF THE ASSESSEE DUE TO THE DISALLOWANCE OF CLAIM OF DEPRECIATION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THOUGH IN THE BOOKS OF ACCOUN TS THE ASSESSEE HAS GIVEN THE TREATMENT TO THIS TRANSACTION AS PURCHASE OF THE ASSET AS WELL AS SALE OF THE ASSET. THEREFORE ONLY BY TAKING THE ENTRIES IN THE BOOKS OF ACCOUNTS THE ASSESSING OFFICER OBSERVED THAT THE ENTIRE COST OF ASSET HAS BEEN CLAIMED BY THE ASSESSEE AS BUSINESS EXPENDITURE. WE NOTE THAT IN THE COMPUTATION OF INCOME THE ASSESSEE HAS GIVEN THE TREATMENT OF THIS TRANSACTION AS LEASE TRANSACTION AND ADDED TO THE INCOME THE ENTIRE AMOUNT OF LEASE RECEIPTS AND PER CONTRA CLAIM ED THE 6 IT A NO. 316 /BANG/201 4 DEPREC IATION ON THE LEASE ASSETS. IT IS NOT A DISPUTED FACT THAT THE ASSESSEE HAS PURCHASED THE MACHINERY IN QUESTION FROM THIRD PARTY AND THEREA FTER LEASED OUT TO OTHER PARTY. T HEREFORE , IT IS NOT A CASE OF PURCHASE AND LEASE BACK OF THE MACHINERY TO THE SAM E PARTY. FURTHER THE INVOICE OF PURCHASE OF MACHINERY IS IN THE NAME OF THE ASSESSEE AND DOCUMENT UNDER WHICH THE MACHINERY HAS BEEN GIVEN TO THE LESSEE IS LEASE AGREEMENT. EVEN THOUGH THE ASSESSING OFFICER TREATED T HE TRANSACTION AS FINANCE LEASE AND CO NSEQUENTLY H E HAS DISALLOWED THE CLAIM OF DEPRECIATION BUT THE SAME WILL NOT IPSO FACTO LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME OR CONCEALED THE PARTICULARS OF INCOME. THE CIT (APPEALS) HAS RECORDED THE FAC TS IN PARA 5 OF THE IMPUGNED ORDER AS UNDER : 5. BEFORE ME IN APPEAL IT WAS SUBMITTED THAT SECTION 271(1)(C) OF THE ACT CAN BE RELIED UPON IN A CASE ONLY WHERE THE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICUL ARS OF SUCH INCOME. IT WAS ARGUED THAT THE APPELLANT HAD MADE FULL DISCLOSURE IN ITS AUDITED FINANCIAL STATEMENT AND TAX AUDIT REPORT FOR THE SUBJECT PERIOD WITH RESPECT TO ITS ACCOUNTING POLICY ON FINANCE LEASE TRANSACTION, AND THE ACCOUNTING AND TAX TRE ATMENT IN THE BOOKS OF ACCOUNT AND RETURN OF INCOME RESPECTIVELY. IT WAS POINTED OUT THAT THE FOLLOWING DISCLOSURES WERE AVAILABLE ON RECORD BEFORE THE ASSESSING OFFICER WHO COULD NOT HAVE, THEREFORE, APPLIED SECTION 271(1)(C) IN THIS MATTER - 7 IT A NO. 316 /BANG/201 4 * SCHEDUL E 16(F) OF THE SIGNIFICANT ACCOUNTING POLICIES WHICH IS AN INT4EGRAL PART OF THE AUDITED FINANCIAL STATEMENT OF THE COMPANY FOR THE SUBJECT AY DISCLOSES THE ACCOUNTING POLICIES OF THE COMPANY WITH RESPECT TO FINANCE LEASE TRANSACTIONS. * POINT NUMBER 27( B) OF THE NOTES TO ACCOUNTS WHICH IS AN INTEGRAL PART OF THE AUDITED FINANCIAL STATEMENT OF THE COMPANY FOR THE SUBJECT A.Y DISCLOSES THE STATUS OF FINANCE LEASE TRANSACTIONENTERED BY THE COMPANY FOR THE SUBJECT A.Y DISCLOSES THE STATUS OF FINANCE LEASE TR ANSACTION ENTERED BY THE COMPANY ON OR AFTER APRIL 1, 2001 WHICH IS REQUIRED TO BE DISCLOSED IN COMPLIANCE TO THE ACCOUNT STANDARD 19 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. * CLAUSE 13(D) OF THE TAX AUDIT REPORT FOR THE SUBJECT A.Y DIS CLOSES THE LEASE RENTAL RECEIVED DURING THE A.Y. * NOTE TO TAX AUDIT REPORT DISCLOSES THE ACCOUNTING AND TAX TREATMENT OF ASSETS LEASED ON FINANCE LEASE BASIS AND DEPRECIATION THEREOF. FURTHER, THE AUDITED FINANCIAL STATEMENTS ALONG WITH THE AUDITED TAX AUDIT REPORT FOR THE SUBJECT A.Y. WAS FURNISHED DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(2) OF THE ACT IN ADDITION TO THE ALL FACTS MATERIAL RELATING TO THE COMPUTATION OF THE TOTAL INCOME OF THE COMPANY AND INFORMATION REGARDING THE ADJUSTMENT S MADE IN THE ASSESSMENT ORDER HAVE ALSO BEEN SUBMITTED. IT IS, THEREFORE, APPARENT THAT AS ALL FACTS AND EXPLANATIONS RELEVANT TO THE ASSESSMENT WERE APPROPRIATELY FURNISHED AND DISCLOSED AND AS THERE IS NO INCOME OR PORTION THEREOF WHICH WAS NOT RE PORTED, IT CANNOT BE SAID THAT THERE HAS BEEN ANY ATTEMPT HPISPL TO CONCEAL PARTICULARS OF ITS INCOME. THE FACT THAT SOME BONA FIDE EXPLANATIONS SUBMITTED BY HPISPL WERE NOT ACCEPTED BY THE DEPARTMENT, CANNOT RESULT IN A SITUATION WHERE HPISPL HAS CONCEAL ED PARTICULARS OF ITS INCOME. 8 IT A NO. 316 /BANG/201 4 7. IT IS MANIFEST FROM THE RECORD THAT THE ASSESSEE HAS DULY DISCLOSED THE ACCOUNTING POLICY WHICH IS PART OF THE AUDITED FINANCIAL STATEMENT. THEREFORE THE ASSESSEE EXPLAINED THE TAX TREATMENT OF THE ASSET LEASED ON FI NANCE LEASED TO THE THIRD PARTY. EVEN OTHERWISE WE NOTE THAT THE ASSESSING OFFICER WHILE DISALLOWING THE DEPRECIATION HAS NOT EXCLUDED THE CAPITAL / PRINCIPLE COMPONENT IN THE LEASE RENTALS WHICH ARE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. IF THE A SSESSING OFFICER HAS TAKEN A VIEW THAT THE TRANSACTION IN QUESTION IS A FINANCE LEASE AND DEPRECIATION ON SUCH ASSET IS NOT ALLOWABLE TO THE ASSESSEE THEN ONLY THE INTEREST COMPONENT IN THE LEASE/REPAYMENT AMOUNT RECEIVED BY THE ASSESSEE CAN BE ASSESSED TO TAX INSTEAD THE ENTIRE LEASE AMOUNT. THEREFORE WE FIND THAT THE ASSESSING OFFICER WHILE DISALLOWING THE CLAIM OF THE ASSESSEE ON ACCOUNT OF DEPRECIATIO N OF RS.7,27,04,961 HAS NOT EXCLUDED THE PRINCIPLE COMPONENT IN THE LEASE RENTAL OF RS.14,84,88,074. IF THE ASSESSING OFFICER WOULD HAVE COMPUTED THE CORRECT INCOME OF THE ASSESSEE THEN DESPITE BEING DISALLOWANCE OF THE DEPRECIATION THE TOTAL INCOME OF THE ASSESSEE WOULD HAVE BEEN MUCH LESS THAN THE TOTAL INCOME BY ALLOWING THE CLAIM OF DEPRECIATION. WE NOTE THAT THE ASSESSEE HAS INCLUDED IN THE 9 IT A NO. 316 /BANG/201 4 TOTAL INCOME A SUM OF RS.17,63,40,728 BEING LEASE RENTALS WHICH INCLUDES PRINCIPLE AS WELL AS FINANCE CHARGES. 8. THEREFORE IN VIEW OF THE ABOVE FACTS WHEN THE ASSESSING OFFICER WHILE DISALLOWING THE CLAIM O F DEPRECIATION HAS NOT CONSIDERED THE EXCLUSION OF THE PRINCIPLE COMPONENT OF THE LEASE RENTAL CLEARLY SHOWS THAT THE PENAL PROVISIONS OF SECTION 271(1)(C) OF THE ACT CANNOT BE ATTRACTED IN THIS CASE. EVEN OTHERWISE, IT IS A CASE OF DIFFERENCE OF OPINIO N ON AN ISSUE OF ALLOWABILTY OF DEPRECIATION O N LEASE ASSETS WHEREIN THE ASSESSING OFFICER HAS NOT ACCEPTED THE VIEW AND BELIEF OF THE ASSESS EE WHICH HAS BEEN CONFIRMED BY THIS TRIBUNAL H OWEVER , IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF ICDS LTD. VS. CIT 350 ITR 527, THIS ISSUE IS A DEBATABLE ISSUE AND IF THE ASSESSEE HAS CLAIMED DEPRECIATION ON LEASED ASSET WHICH IS A P OSSIBLE VIEW THEN DISALLOWING OF SAID CLAIM OF THE ASSESSEE WOULD NOT IPSO FACTO AMOUNT TO CONCEALMENT OF INCOME OR F URNISHING OF INACCURATE PARTICULARS OF INCOME. ACCORDINGLY, IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE CIT (APPEALS). 10 IT A NO. 316 /BANG/201 4 9 . IN THE RESULT, THE REVENUE S APPEAL IS DISMISSED. ORDER PRONOUNC ED IN THE OPEN COURT ON THE 11TH DAY OF AUG., 20 1 6 . SD/ - ( INTURI RAMA RAO ) ACCOUNTANT MEMBER SD/ - ( VIJAY PAL RAO ) JUDICIAL MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE