GE Capital Transportation Financial Services Ltd., V. DCIT, Circle-12(1),

ITA 3160/DEL/2004

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86674 (ITAT-DELHI)
• Duration Of Justice: 10 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-12-2014
• Assessment Year: 1997-1998
• Appeal Filed On: 07-07-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Cost of acquisition; Bad and doubtful debts; Valuation report; Notional interest; Commercial expediency; Revised return; Unabsorbed depreciation; Revenue expenditure
• Section: 43B; 37(1); 12A; 139(5); 145; 56; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : C NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY , JUDICIAL MEMBER ITA NOS. 3159,3160/DEL/2004 ASST T. YEARS 1996-97, 1997-98 M/S. GE CAPITAL TRANSPORTATION FINANCIAL VS. JCIT, SPECIAL RANGE2, SERVICES LTD., NEW DELHI. AIFACS BUILDING, 1 RAFI MARG, NEW DELHI - 110 001. (PAN AAACS000IN) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJEEV SABHARWAL, SR. ADVOC ATE SHRI TUSHA R JARWAL, ADVOCATE, SHRI RAHUL SATEEJA, ADVOCATE, MS. SWATI THAPA, ADVOCATE RESPONDENT : SHRI R.S. GILL, CIT (DR) O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AND ARE DIRECTED AGAINST SEPARATE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL) XV , NEW DELHI DATED 22.2.2004 FOR THE ASSTT. YEAR 1996-97 AND DATED 27.2.2004 FOR THE ASSTT. YEAR 1997-98. AS BOTH THE APPEALS HAVE COMMON ISSUES, FOR THE SAKE OF CON VENIENCE, THEY ARE HEARD TOGETHER AND DISPOSED OFF BY WAY OF THIS COMMON OR DER. THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF LEASING, HIRE PUR CHASE AND FINANCE. IT FILED ITS RETURN OF INCOME, DECLARING A LOSS OF RS. 14,99,82, 025/- ON 30.11.96 FOR THE ASSTT. YEAR 1996-97. THIS RETURN WAS PROCESSED U/S 143(I)( A), VIDE INTIMATION DATED 23.1.98, WHEREIN THE LOSS WAS DETERMINED AT RS. 14, 85,81,522/-, BY MAKING PRIMA- ITA . NOS. 3159,3160/DEL/2004 2 FACIE DISALLOWANCE OF RS. 13,30,503/-. SUBSEQUENTLY THE ASSESSEE ON 21.8.1997, FILED A REVISED RETURN OF INCOME, DECLARING LOSS OF RS. 1 5,89,59,000/- . THIS REVISED RETURN WAS PROCESSED U/S 143(1)(A) WHEREIN A SIMILAR PRIMA FACIE DISALLOWANCE OF RS. 13,30,503/- WAS MADE. 2. FOR THE ASSTT. YEAR 1997-98, THE ASSESSEE FILED ITS RETURN OF INCOME ON 21.8.1997, DECLARING A LOSS OF RS. 11,16,30,770/-. THEREAFTER THE ASSESSEE FILED A REVISED RETURN OF INCOME, CLAIMING CREDIT OF ADDITIONAL TDS AND DE CLARING THE SAME LOSS AS CLAIMED IN THE ORIGINAL RETURN OF INCOME. THIS RETURN WAS P ROCESSED U/S 143(IB). LATER THE ASSESSEE FILED YET ANOTHER REVISED RETURN OF INCOME ON 30 TH MARCH, 1999, DECLARING A REVISED LOSS OF RS. 12,28,97,021/-. 3. FOR THE ASSTT. YEAR 1996-97 THE AO DETERMINED T HE TOTAL INCOME OF THE ASSESSEE AT RS. 4,66,16,331/- INTER ALIA DISALLOWING DEPREC IATION CLAIMED ETC. FOR THE ASSTT. YEAR 1997-98 THE AO DETERMINED THE TOTAL LOSS OF RS . 8,49,37,201/-, AFTER MAKING CERTAIN DISALLOWANCE. AGGRIEVED THE ASSESSEE CARRIE D THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY FOR BOTH THE ASSESSMENT Y EARS. FIRST APPELLATE AUTHORITY GRANTED PART RELIEF. FURTHER AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE US. 4. WE HAVE HEARD THE LD. SENIOR ADVOCATE SHRI SANJ EEV SABHARWAL ON BEHALF OF THE ASSESSEE AND SHRI R.S. GILL LD. CIT(DR) ON BEHALF O F THE REVENUE. 5. GROUNDWISE ARGUMENTS WERE RAISED BY BOTH THE PA RTIES. PAPER BOOKS AND CASE LAWS WERE FILED ALONGWITH WITH DETAILED CHARTS. ITA . NOS. 3159,3160/DEL/2004 3 6. ON A CAREFUL CONSIDERATION OF THE RIVAL CONTE NTIONS, PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW, AS WELL AS CASE LAW CITED WE HOLD AS FOLLOWS :- 7. WE FIRST TAKE UP THE APPEAL FOR THE ASSTT. YEAR 1996-97 7.1 GROUND NO.1 IS GENERAL IN NATURE. 8. GROUND NO. 2 READS AS FOLLOWS :- (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DISALLOWING ADDITIONAL LOSS OF RS. 89,76,9 75/- TO BE CARRIED FORWARD ON ACCOUNT OF REVISED RETURN ON THE ALLEGED GROUND THA T REVISED RETURN WAS NOT FILED WITHIN TIME ALLOWED U/S 139(3) OF THE INCOME TAX ACT. (II) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE REVISED RETURN WAS STRICTLY AS PER PROVISIONS OF SECTION 139 OF THE IN COME TAX ACT. 8.1 THE FACTS ARE BROUGHT OUT AT PARA 2.2 OF CIT( A) ORDER WHICH IS EXTRACTED FOR THE READY REFERENCE : 2.2. THE A.O. DISALLOWED THE LOSS OF RS. 89,76,975/- STATING IN HIS ORDER THAT: RS. 89,76,975/- OVER AND ABOVE THE LOSS OF RS. 14 ,99,12,075/- CANNOT BE ALLOWED TO BE CARRIED FORWARD BECAUSE THE SAME HAS BEEN CLAIMED BY WAY OF A RETURN FILED AFTER DUE DATE PRESCRIBED U/S 139(1) AND IN VIEW OF THE PROVISION OF SECTION 80, NO LOSS CLAIMED BY A RETUR N FILED AFTER DATE PRESCRIBED U/S 139(1) CAN BE ALLOWED TO BE CARRIED FORWARD. HE RE THE ARGUMENT THAT REVISED RETURN FILED U/S 139(5) GETS MERGED WITH RE TURN FILED U/S 139(1) DOES NOT SURVIVE BECAUSE RETURN FILED U/S 139(5) STILL H AS A SEPARATE ENTITY AND ALL THE PROVISIONS LIKE PROCESSING U/S 143(1)(A), TIME LIMIT OF ISSUE OF NOTICE U/S 143(2) ETC. ARE SEPARATELY APPLICABLE WITH REGARD T O A REVISED RETURN. 8.2. FIRST APPELLATE AUTHORITY AT PARA 2.6 OF TH IS ORDER HELD THAT REVISED RETURN OF INCOME CAN BE FILED, ONLY WHERE THE ASSESSEE DISCOV ERS AN OMISSION OR WRONG STATEMENT IN THE RETURN WAS DUE TO A BONAFIDE MISTA KE OR INADVERTENCE BY THE ASSESSEE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HE CAME TO THE ITA . NOS. 3159,3160/DEL/2004 4 CONCLUSION THAT THE REVISED RETURN OF INCOME IS NOT FILED STRICTLY IN TERMS OF SECTION 139(5). THEREAFTER AT PARA 2.8 HELD AS FOLLOWS :- 2.8. THE CONTENTION OF LD. AR THAT RETURN FILED U/ S 139(5) IS AS GOOD AS RETURN FILED U/S 139(3) OF THE I.T. ACT DOES NOT HO LD GOOD. THE LAW HAS UNDERGONE A CHANGE AFTER THE FINANCE ACT 1987 W.E.F . 1.4.1988, WHICH REQUIRES THE LOSS RETURN TO BE FILED WITHIN THE TIM E ALLOWED UNDER SECTION 139(3) BY WAY OF A SPECIFIC ADDITION OF REFERENCE T O SECTION 139(3) IN SECTION 80 FOR THE REQUIREMENT OF THE RIGHT TO CARRY FORWAR D SUCH LOSS, SO THAT THIS DECISION CAN NO LONGER BE OF ANY ASSISTANCE TO THE TAX PAYERS TO DISREGARD THEIR DUTY ENJOINED BY LAW TO FILE THE RETURN IN TI ME, IF THEY WANT TO AVAIL OF THE BENEFIT OF LOSS TO BE CARRIED FORWARD. THE AO I S THEREFORE RIGHT IN DISALLOWING LOSS TO BE CARRIED FORWARD HENCE THIS G ROUND OF APPEAL STANDS REJECTED. 8.3. THE CONTENTIONS OF THE ASSESSEE ARE THAT A S PER SECTION 139 (3), ONCE A RETURN OF LOSS IS FILED WITHIN THE TIME ALLOWED U/S 139(5), ALL THE PROVISIONS OF THE ACT WILL APPLY AS IF , THE RETURN OF LOSS IS A RETURN O F INCOME FILED U/S 139(1) OF THE ACT. THUS IT WAS ARGUED THAT SECTION 139(5) OF THE ACT W ILL APPLY TO THE RETURN OF LOSS FILED U/S 139 (3) OF THE ACT. NEITHER 139(5) 139(3) NOR S ECTION 139(1) NOR SECTION 80 EXCLUDES APPLICABILITY OF SECTION 139(5) TO THE RET URN FILED U/S 139(3) OF THE ACT. 8.4. ON THE OBSERVATIONS OF THE LD. CIT(A) THAT, A REVISED RETURN CAN BE FILED BY THE ASSESSEE, ONLY WHEN THERE IS AN INADVERTENT MISTAKE , THE ASSESSEE SUBMITS THAT, THERE IS NO SUCH REQUIREMENT IN LAW THAT ANY WRONG STATEMENT OR OMISSION CAN BE REVISED U/S 139(5). 8.5. RELIANCE WAS PLACED ON THE FOLLOWING JUDGMEN TS :- 1. DHARMPUR SUGAR MILLS LTD. VS. CIT 90 ITR 236 (ALL- HC) 2. CIT VS. PERIYAR DISTRICT CO-OPERATIVE MILK PRODUCER S UNION LTD. 266 ITR 705 (MAD-HC) ITA . NOS. 3159,3160/DEL/2004 5 3. ORDER DATED 26.7.2004 PASSED BY HONBLE SUPREME COU RT IN SLP NO. 13472/2004 CIT V. PERIYAR DISTRICT- DISMISSING DE PARTMENTS SLP 8.6. LD. DEPARTMENTAL REPRESENTATIVE SUBMITS THAT THE REVISED RETURN OF INCOME ITSELF IS NOT MAINTAINING AND UNDER THOSE CIRCUMSTA NCES THE CLAIM OF THE ASSESSEE IS NOT SUSTAINABLE. HE RELIED ON THE ORDER OF THE FIRS T APPELLATE AUTHORITY. 8.7. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE HOLD AS FOLLOWS :- THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF DHAMAPUR SUGAR MILLS VS. CIT (SUPRA) HELD THAT THE INCOME TAX ACT CONTEMPLAT ES, THE FILING BY THE ASSESSEE OF A CORRECT AND COMPLETE RETURN OF INCOME. THE LAW GI VES HIM A RIGHT TO SUBSTITUTE AND BRING ON RECORD A CORRECT AND COMPLETE RETURN OF IN COME, IF HE DISCOVERS ANY OMISSION OR WRONG STATEMENT IN THE RETURN ORIGINALL Y FILED BY HIM. THE LAW CANNOT CONTEMPLATE MAKING OF ASSESSMENT, ON THE BASIS OF A RETURN, WHICH EVEN THE ASSESSEE CLAIMS CONTAINS A WRONG STATEMENT. WHEN TH E ASSESSEE FILES A REVISED RETURN , HE ADMITS THAT THE ORIGINAL RETURN FILED BY HIM WAS NOT CORRECT OR COMPLETE AND SUBSTITUTES THE SAME BY A REVISED RETURN WHICH ACCORDING TO HIM IS CORRECT AND COMPLETE. THE EFFECTIVE RETURN FOR THE PURPOSE OF A SSESSMENT IS THUS THE RETURN WHICH IS ULTIMATELY FILED BY THE ASSESSEE, ON THE B ASIS OF WHICH HE WANTS HIS INCOME TO BE ASSESSED. 8.8. THE LD. DR COULD NOT CITE ANY CONTRARY JUDG MENT ON THIS ISSUE. UNDER THESE CIRCUMSTANCES WE HOLD THAT THE FINDINGS OF THE FIRS T APPELLATE AUTHORITY THAT THE RETURN FILED U/S 139(5) OF THE ACT IS NOT AS PER TH E PROVISIONS OF LAW, FOR THE REASON THAT THE MISTAKES WERE NOT INADVERTENT IS BAD IN L AW. WE ALSO OBSERVE THAT, THE AO HAS PROCESSED THE REVISED RETURN U/S 143(I)(A). TH E REVISED RETURN HAS NOT BEEN ITA . NOS. 3159,3160/DEL/2004 6 REJECTED BY HIM. UNDER THESE CIRCUMSTANCES, IT IS N OT APPROPRIATE FOR THE CIT(A) TO HOLD OTHERWISE. 8.9. THE SECOND ISSUE IS ON THE RIGHT OF THE ASSES SEE TO CARRY FORWARD OF LOSS. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISI ON OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. PERIYAR DISTRICT CO-OPERATIV E MILK PRODUCERS UNION LTD. THE HONBLE MADRAS HIGH COURT HAS HELD AS FOLLOWS :- A BARE PERUSAL OF SUB-SECTIONS (3) AND (5) OF SECT ION 139 OF THE INCOME-TAX ACT, 1961, MORE PARTICULARLY THE PROVISION CONTAINE D IN SECTION 139(3), MAKES IT CLEAR THAT A RETURN OF LOSS FILED UNDER SECTION 139(3) MAY BE FILED WITHIN THE TIME ALLOWED UNDER SECTION 139(1). ONCE SUCH A RETU RN IS FILED, ALL THE PROVISIONS OF THE INCOME-TAX ACT SHALL APPLY AS IF SUCH RETURN HAS BEEN FILED UNDER SECTION 139(1). THIS POSITION IS CLEAR FROM T HE EXPRESSION... ALL THE PROVISIONS OF THIS ACT SHALL APPLY AS IF IT WERE A RETURN UNDER SUB-SECTION (1). IN OTHER WORDS, A RETURN FILED UNDER SECTION 139(3) IS DEEMED TO BE A RETURN FILED UNDER SECTION 139(1). THE PROVISION CONTAINED IN SECTION 139(3) MAKES IT CLEAR THAT ALL THE PROVISIONS OF THIS ACT SHALL APP LY TO SUCH A RETURN AS IF IT WERE A RETURN UNDER SECTION 139(1). IN VIEW OF SUCH A SP ECIFIC PROVISION, THERE IS NO REASON TO EXCLUDE THE APPLICABILITY OF SECTION 139( 5) TO A RETURN FILED UNDER SECTION 139(3). IN THE FACE OF THE SPECIFIC PROVISI ON CONTAINED IN SECTION 139(3) LAYING DOWN THAT ALL THE PROVISIONS CONTAINE D IN THE ACT SHALL APPLY TO A RETURN UNDER SECTION 139(1), THERE WAS NO FURTHER N ECESSITY IN SECTION 80 TO REFER TO SUCH PROVISIONS. ON THE OTHER HAND, THERE IS NO SPECIFIC PROVISION CONTAINED EITHER IN SECTION 80 OR IN SECTION 139 EX CLUDING THE APPLICABILITY OF SECTION 139(5) TO A RETURN FILED UNDER SECTION 139 (3). ONCE A RETURN OF LOSS IS FILED UNDER SECTION 139(3), IT TAKES THE CHARACTER OF RETURN FILED UNDER SECTION 139(1) IN RESPECT OF WHICH THE ASSESSEE CAN FILE A REVISED RETURN CLAIMING A HIGHER AMOUNT OF LOSS, UNDER SECTION 139(5). 8.10. NO CONTRARY DECISION HAS BEEN CITED BEFORE US BY THE LD. DR. UNDER THESE CIRCUMSTANCES WE RESPECTFULLY FOLLOW THE PROPOSITIO N OF LAW LAID DOWN BY THE HONBLE MADRAS HIGH COURT AND ALLOW THE GROUND OF THE ASSES SEE BY HOLDING THAT THE ASSESSEE CAN FILE A REVISED RETURN CLAIMING A HIGHE R AMOUNT OF LOSS U/S 139(3) OF THE ACT. IN THE RESULT GROUND NO. 2 IS ALLOWED. ITA . NOS. 3159,3160/DEL/2004 7 9. GROUND NO. 3 READS AS FOLLOWS :- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN UPHOLDING THE ORDER OF ASSESSING OFFICER ( AO) THEREBY REDUCING NOTIONAL INTEREST EXPENDITURE FROM THE DIVIDEND FOR CALCULATION OF DEDUCTION U/S 80M. THE FACTS ARE BROUGHT OUT AT PARA 3.1 AND 3.2 O F THE CIT(A) ORDER WHICH IS EXTRACTED FOR READY REFERENCE :- 3.1 DURING THE YEAR UNDER CONSIDERATION THE APPELLANT COMPANY RECEIVED GROSS DIVIDEND INCOME OTHER THAN DIVIDEND INCOME OT HER THAN DIVIDEND INCOME OTHER THAN DIVIDEND ON UNITS OF UTI AMOUNTIN G TO RS. 61.66,625/-. THUS, THE DEDUCTION U/S 80M IS COMPUTE D AS UNDER :- 100% OF DIVIDEND FROM SHARES RS. 61,66,625/- TOTAL AMOUNT ELIGIBLE FOR DEDUCTION U/S 80M RS. 61,66,625/- HOWEVER, AS THE GROSS TOTAL INCOME DECLARED BY THE APPELLANT WAS A NEGATIVE FIGURE, THE APPELLANT DID NOT CLAIM ANY DE DUCTION U/S 80M. 3.2 THE AO OBSERVED THAT INVESTMENTS WERE MADE OUT OF B ORROWINGS AND THEREFORE RELYING ON THE EARLIER YEARS ORDER HE ES TIMATED NOTIONAL INTEREST AND EXPENSES RELATING TO SUCH INVESTMENTS AMOUNTING TO RS. 34,51,733/- AND DEDUCTED THE SAME FROM THE DIVIDEND RECEIVED TO CALCULATE THE DEDUCTION U/S 80M ON NET INCOME BASIS RESULTING IN A DISALLOWANCE OF RS. 34,51,733/-. THE AOS OBSERVATI ONS AT PARA 6 OF THE ASSESSMENT ORDER ARE REPRODUCED AS UNDER :- ASSESSEE HAS NOT ALLOCATED ANY PART OF THE FINANCI AL/INTEREST EXPENSES TOWARDS DIVIDEND INCOME AND DEDUCTION U/S 80M HAS BEEN CLAIMED ON GROSS DIVIDEND INCOME. IN FACT, AS GROSS TOTAL INCOME IS AT NEGATIVE FIGURE, NO DEDUCTION U/S 80M ACTUALLY CLAIMED BY ASSESSEE, BUT ACCORDING TO HIM, DEDUCTIO N OF RS. 61,66,625/- U/S 80M EQUAL TO GROSS DIVIDEND INCOME OTHER THAN UTI DIVIDEND IS AVAILABLE TO HIM. IN EARLIER YEARS, RS. 85,62,623/- OUT OF INTEREST PAID WAS ALLOCATED TOWA RDS INVESTMENT OF AMOUNT OF RS. 34,51,733/- SHALL BE AL LOCATED TOWARDS INVESTMENTS OF RS. 5.5. CRORES IN SHARES AN D THUS NET DIVIDEND INCOME SHALL BE RS. 27,14,892/- (61,66,625 /- - 34,51,733/-). THEREFORE, DEDUCTION U/S 80M SHALL BE AVAILABLE TO MAXIMUM OF RS. 27,14,892/- DEPENDING UPON GROSS TOT AL INCOME. ITA . NOS. 3159,3160/DEL/2004 8 9.1. THE FINDING OF THE FIRST APPELLATE AUTHORITY IN PARA 3.3 WHICH IS EXTRACTED FOR READY REFERENCE :- 3.3 THE LEARNED AR CONTENDED THAT THE UNITS OF UTI WER E HELD BY THE APPELLANT IN COMPLIANCE WITH THE STATUTORY LIQUIDIT Y REQUIREMENTS (SLR) PRESCRIBED UNDER RULE 12 OF THE NBFCS(RBI) DIRECTIO NS, 1997 AND THAT THE DIVIDEND WARRANTS ISSUED BY UTI WERE PAYABLE AT PAR ALL OVER INDIA, HENCE NO DIRECT EXPENSES WERE INCURRED IN REALISING THE DIVIDEND. THE LEARNED AR ALSO CONTENDED THAT THERE IS NO SCOPE FO R ESTIMATION OF EXPENDITURE BEING MADE AND NO NOTIONAL EXPENDITURE CAN BE DEDUCTED FOR THE PURPOSE OF EARNING THE INCOME. 9.2. THE LD. COUNSEL FOR THE ASSESSEE CONTENDS T HAT A) ALL EXPENSES ARE TO BE ALLOWED ON ACTUAL BASIS AND NO DISALLOWANCE CAN BE MADE ON PRESUMPTIVE OR ESTIMATE BASIS , WHILE COMPUTING DEDUCTION OF DIVID END INCOME U/S 80M OF THE ACT. B) INVESTMENTS HAVE BEEN MADE OUT OF INTERNAL ACCRU ALS. THE LD. CIT(A) FOR THE ASSTT. YEAR 1990-91, 1991-92, 1992-93 AND 1993-94, CONSIDERED THE CASH FLOW STATEMENT, INTERNAL ACCRUALS AND ON FACTS HAD DIREC TED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF DIVIDEND U/S 80M, WIT HOUT DEDUCTING ANY EXPENSES ON ACCOUNT OF INTEREST ON BORROWED FUNDS. 9.3. SIMILAR ORDERS WERE PASSED BY COMMISSIONER O F INCOME TAX FOR ASSTT. YEAR 1994-95 AND 1995-96. THIS ORDER OF THE FIRST APPELL ATE AUTHORITY WAS NOT CHALLENGED BY THE REVENUE. 9.4. RELIANCE WAS PLACED ON THE FOLLOWING JUDGE MENTS :- 1. CIT VS. UNITED COLLIERIES LTD. (CALCUTTA HIGH COURT) 203 ITR 857 2. CIT VS. HDFC BANK LTD. ITA NO. 330 OF 2012 (BO MBAY HIGH COURT) 9.5. LD. DR OPPOSED THE CONTENTIONS OF THE ASSES SEE AND SUBMITTED THAT ON FACTS THE FIRST APPELLATE AUTHORITY HAS COME TO THE CONCL USION THAT THE LD. AUTHORISED ITA . NOS. 3159,3160/DEL/2004 9 REPRESENTATIVE HAS NOT BEEN ABLE TO PROVE THAT INVE STMENTS IN UNITS OF UTI WERE MADE OUT OF THE INTERNAL ACCRUALS AND NOT OUT OF TH E BORROWED FUNDS. 9.6 AFTER CONSIDERING RIVAL SUBMISSIONS WE HO LD AS FOLLOWS : THE ASSESSEE HAS PROVIDED A CHART SHOWING ITS SU RPLUS INTERNAL ACCRUALS. ITS CHART IS AT PAGE 5 OF THE CIT (A) ORDER WHICH IS EXTRACTE D FOR READY REFERENCE :- PARTICULAR INTERNAL ACCRUALS INVESTMENTS SURPLUS INTERNAL ACCRUALS AFTER DEDUCTING INVESTMENT 1 2 3 4 A BALANCE AS ON MAY 31, 1987 25,886,701 450,758 25,435,943 B MARCH 31, 1989 69,257,245 8,264,265 60,992,980 C MARCH 31,1990 138,960,982 14,996,392 123,964,490 D MARCH 31, 1991 219,437,407 35,758,971 183,678,436 E MARCH 31, 1992 292,891,077 52,451,305 240,439,772 F MARCH 31, 1993 396,491,000 83,937,000 312,439,772 G MARCH 31, 1994 732,879,000 140,077,000 592,802,00 0 H MARCH 31, 1995 1,006,904,000 500,475,000 506,429, 000 I MARCH 31, 1996 1,819,990,000 400,894,000 1,419,09 6,000 J MARCH 31, 1997 1,949,358,000 475,984,000 1,473,37 4,000 A PERUSAL OF THE CHART DEMONSTRATES THAT THE ANNUAL INTERNAL ACCRUALS ARE MUCH HIGHER THAN THE INVESTMENTS MADE DURING THAT PARTIC ULAR YEAR. UNDER THESE CIRCUMSTANCES THE PRESUMPTION IS THAT THE INVESTMEN TS HAVE BEEN MADE FROM INTERNAL ACCRUALS AND THAT NO BORROWED FUNDS HAVE B EEN MADE FOR THESE INVESTMENTS. THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF HDFC BANK LIMITED IN ITA . NOS. 3159,3160/DEL/2004 10 INCOME TAX APPEAL 330 OF 2012 JUDGMENT DATED 23 RD JULY, 2014 FOLLOWED ITS OWN JUDGMENT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOMBAY) AND PAGE 6 HELD AS FOLLOWS:- IN THE PRESENT CASE UNDISPUTEDLY THE ASSESSEES CA PITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER TH AN THE INVESTMENTS IN THE TAX FREE SECURITIES. IN VIEW OF THIS FACTUAL POSITI ON, AS PER THE JUDGMENT OF THIS COURT IN THE CASE OF RELIANCE UTILITIES AND POWER L TD. (SUPRA) IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENTS MADE BY THE ASSESS EE WOULD BE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. RESPECTFULLY FOLLOWING THE PROPOSITION LAID DOWN , WE ALLOW THIS GROUND OF THE ASSESSEE. 10. GROUND NO. 4 IS REGARDING THE DISALLOWANCE OF THE CLAIM OF THE ASSESSEE, FOR DEDUCTION OF PROVISIONS FOR DOUBTFUL DEBTS, AMOUNTI NG TO RS. 9,55,726/-. AFTER CONSIDERING RIVAL SUBMISSIONS WE FIND THAT THE ISSU E IS COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF HONBLE SUPREME COURT IN THE CAS E OF SOUTHERN TECHNOLOGIES LIMITED VS CIT 320 ITR 577 (SC). RESPECTFULLY FOLLO WING THE SAME THIS GROUND OF THE ASSESSEE IS DISMISSED. 11. GROUND NO. 5 IS ON THE DISALLOWANCE OF ADHOC INTEREST OF RS. 20 LACS, OUT OF TOTAL INTEREST PAID DURING THE YEAR, ON ACCOUNT OF INTEREST FREE LOANS, GIVEN TO COMPANIES. THE FACTS HAVE BEEN RECORDED AS FOLLOWS BY T HE LD. CIT(A) :- 10.1 DURING THE YEAR UNDER CONSIDERATION THE APP ELLANT GAVE ADVANCES AGGREGATING TO RS. 199.38 LACS TO ITS SUBSIDIARY CO MPANY M/S. SRF INVESTCARE LTD. AND RS. 213 LACS TO ITS SUBSIDIARY COMPANY M/S . SRF ASSET MANAGEMENT LTD. IT WAS SUBMITTED BY THE APPELLANT DURING THE C OURSE OF THE ASSESSMENT PROCEEDING THAT THESE SUBSIDIARY COMPANIES WERE INT EGRALLY RELATED TO THE BUSINESS OF THE APPELLANT AND THE ADVANCES WERE GIV EN TO THESE COMPANIES WHOLLY AND EXCLUSIVELY TO PROMOTE THE BUSINESS INTE REST OF THE APPELLANT. ITA . NOS. 3159,3160/DEL/2004 11 10.2 THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTIONS OF THE APPELLANT. HE HELD THAT NO BUSINESS INTEREST OF THE APPELLANT WAS INVOLVED SINCE NO INCOME ACCRUED TO THE APPELLANT FROM SUCH ADVANCES. ACCORDINGLY, HE DISALLOWED A SUM OF RS. 20 LACS BEING THE PROPORTIO NATE INTEREST ON BORROWINGS ON THE GROUND THAT TO THIS EXTENT THE LOANS TAKEN H AVE BEEN DIVERTED FOR NON- BUSINESS PURPOSES. THE FIRST APPELLATE AUTHORITY UPHELD THE ORDER OF T HE AO BY OBSERVING THAT A) THE ASSESSEE HAS NOT DENIED THAT THE COMPANY HAS BORROW ED HUGE FUNDS, ON WHICH HUGE INTEREST HAS BEEN PAID. B) THE BUSINESS EXPEDIENCY IN CREATING NEW ENTITIES IN THE SHAPE OF SUBSIDIARY COMPANIES AND GIVING INTEREST F REE LOANS, WHILE PAYING HUGE INTEREST TO THIRD PARTIES HAS NOT BEEN EXPLAINED. C ) IT IS NOT ESTABLISHED WHETHER LOANS ARE OUT OF SURPLUS FUNDS OR OUT OF BORROWED F UNDS AND THE NEXUS IS NOT ESTABLISHED. AT PARA 10.6 HELD AS FOLLOWS :- 10.6 I HAVE CONSIDERED THE MATTER CAREFULLY. T HE JURISDICTIONAL HIGH COURT IN CIT VS. MOTOR GENERAL FINANCE LTD. (2002) 254 ITR 4 49 POINTED OUT THAT SECTION 114 OF THE INDIAN EVIDENCE ACT, 1870 LEFT NO OPTION TO THE TRIBUNAL EXCEPT TO DECIDE AGAINST THE ASSESSEE ON ITS CLAIM THAT INTER EST FREE LOANS GIVEN TO A SUBSIDIARY COMPANY OUT OF PROPRIETARY FUNDS AND NOT BORROWED FUNDS IN THE FACTS OF THE CASE. WHEN THE AO ASKED THE ASSESSEE TO PROV E THE SAME WITH REFERENCE TO THE BANK ACCOUNTS, THEY WERE NOT PRODUCED. IT IS IN THIS CONTEXT, IT WAS FOUND THAT THE ESTIMATED INTEREST DISALLOWANCE SHOULD HAV E BEEN CONFIRMED BY THE TRIBUNAL. FOLLOWING THE ABOVE DECISION OF THE JURIS DICTIONAL HIGH COURT, I HEREBY UPHOLD THE DISALLOWANCE MADE BY AO. 12. AFTER HEARING RIVAL CONTENTIONS WE FIND THAT THE ASSESSEE HAS PROMOTED AND FORMED THE SUBSIDIARY COMPANIES, TO UNDERTAKE STOCK -BROKING AND ASSET MANAGEMENT ACTIVITIES. THE LD. AR CONTENDED THAT TH E ASSESSEE IS A FINANCIAL SERVICE COMPANY AND IN ORDER TO PROMOTE ITS BUSINESS FURTHE R, IT HAD TO UNDERTAKE THE ENTIRE GAMUT OF FINANCIAL SERVICES, AND HENCE THIS SUBSIDI ARY COMPANIES ARE FORMED, AS THE EXISTING REGULATIONS REQUIRED SEPARATE COMPANIES TO BE SET UP FOR THIS PURPOSE. AT ITA . NOS. 3159,3160/DEL/2004 12 PARA 10.4 OF THE CIT ORDER THE SUBMISSIONS OF THE A SSESSEE THAT THE NET OWNED FUNDS AND INTERNAL ACCRUALS ARE FAR IN EXCESS OF THE INV ESTMENT IN QUESTION IS RECORDED. WE EXTRACT THE SAME FOR YOUR READY REFERENCE. PARTICULAR INTERNAL ACCRUALS INVESTMENTS SURPLUS INTERNAL ACCRUALS AFTER DEDUCTING INVESTMENTS BALANCE AS ON MAY 31, 1987 25,886,701 450,758 25,435,943 MARCH 31, 1989 69,257,245 8,264,265 60,992,980 MARCH 31, 1990 138,960,982 14,996,392 123,964,590 MARCH 31, 1991 219,437,407 35,758,971 183,678,436 MARCH 31, 1992 292,891,077 52,451,305 240,439,772 MARCH 31, 1993 396,491,000 83,937,000 312,554,000 MARCH 31, 1994 732,879,000 140,077,000 592,802,000 MARCH 31, 1995 1,006,904,000 500,475,000 506,429,00 0 MARCH 31, 1996 1,819,990,000 400,894,000 1,419,096, 000 TOTAL 4,702,697,412 1,237,304,691 3,465,392,721 13. A PERUSAL OF THE SAME DEMONSTRATES THAT T HE PROPOSITIONS BASED ON WHICH WE HAD DECIDED GROUND NO. 3 OF THE ASSESSEE ARE APP LICABLE TO THE FACTS OF THE GROUND ALSO. THE ASSESSEE HAS LED EVIDENCE TO PROVE HIS CASE AND HENCE THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF MOT OR GENERAL FINANCE LTD. (SUPRA) IS NOT APPLICABLE AS THE FACTS ARE DIFFERENT. THUS RE SPECTFULLY FOLLOWING THE PREPOSITION LAID DOWN IN THE JUDGMENT OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD.(SUPRA) AND THE P ROPOSITIONS LAID DOWN BY THE ITA . NOS. 3159,3160/DEL/2004 13 JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BH ARTI TELEVENTURE LTD. 331 ITR 502 (DELHI HIGH COURT) WE ALLOW THIS GROUND OF THE ASSESSEE. 14. GROUND NO, 6 IS AGAINST THE DISALLOWANCE OF A CLAIM OF INTEREST AND OLD EXPENSES OF RS. 88,11,147/-, WHICH ARE CLAIMED AS I NCURRED DURING THE YEAR, BUT HAD BEEN DISCLOSED AS DEFERRED REVENUE EXPENDITURE IN T HE BOOKS OF THE ASSESSEE. THE FACTS ARE BROUGHT OUT AT PARA 12.1 AND 12.2 OF THE LD. CIT(A) ORDER WHICH IS EXTRACTED FOR READY REFERENCE :- 12.1 DURING THE YEAR UNDER CONSIDERATION, THE A PPELLANT HAS CLAIMED AN AMOUNT OF RS. 88,11,147/- FOR INTEREST, COMMITME NT CHARGES, SERVICE CHARGES AND OTHER EXPENSES INCURRED FOR OBTAINING S ECURED LOAN FROM IFC WASHINGTON AND FMO NETHERLANDS, WHICH WAS DEFERRED IN THE BOOKS OF ACCOUNT AND WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT OF ASSESSMENT YEAR 1996-97. HOWEVER, AS THE SAME HAS B EEN INCURRED AND ACTUALLY PAID DURING THE CURRENT ASSESSMENT YEAR, T HE APPELLANT CLAIMED THE SAME AS AN ALLOWABLE DEDUCTION IN THE RETURN OF INCOME. 12.2 THE AO REJECTED THE CLAIM OF THE APPELLANT AN D DISALLOWED THE AFORESAID EXPENSES ON THE GROUND THAT THE SAME IS D EFERRED IN THE BOOKS OF ACCOUNT AND HAS NOT BEEN DEBITED IN THE PROFIT A ND LOSS ACCOUNT OF THE ASSESSMENT YEAR 1996-97. 15. AFTER HEARING RIVAL CONTENTIONS WE AGREE WITH THE C ONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THERE IS NO CONCEPT O F DEFERRED REVENUE EXPENDITURE UNDER THE INCOME TAX ACT. IN THE CASE OF CIT VS SBI CARDS & PAYMENT SERVICES PVT. LTD. IN ITA NOS. 603 AND 604 OF 2014 JUDGMENT DATED 29.9.2014 THE HONBLE DELHI HIGH COURT HELD AS FOLLOWS:- 13. THE DELHI HIGH COURT HAS REPEATEDLY HELD THAT ADVERTISEMENT EXPENDITURES IN THE PRESENT DAY CONTEXT SHOULD NORMALLY BE TREAT ED AS REVENUE EXPENDITURE, UNLESS THERE ARE SPECIAL CIRCUMSTANCES AND REASONS TO HOLD THAT THE EXPENDITURE WAS CAPITAL IN NATURE. THE REASON IS THAT THE ADVER TISEMENTS DO NOT HAVE A LASTING AND LONG TERM EFFECT AND THE MEMORY OF THE CUSTOMERS OR TARGETED AUDIENCE IS SHORT LIVED. THE ADVERTISEMENTS FADE AW AY AND DO NOT HAVE AN ENDURING IMPACT. IF THERE IS A LACK OF ADVERTISEMEN T BY ONE, THE VACUUM AND SPACE IS TAKEN OVER BY OTHERS WITH BENEFIT AND ADVA NTAGE TO THE DETRIMENT OF THE ITA . NOS. 3159,3160/DEL/2004 14 FIRST. REFERENCE CAN BE MADE TO CIT VS. SALORA INTE RNATIONAL LTD. (2009) 308 ITR 199 (DELHI) AND THE SUBSEQUENT DECISION IN ITA NO. 597/2014 TITLED CIT VS. M/S. SPICE DISTRIBUTION LTD. DECIDED ON 19 TH SEPTEMBER, 2014. 14. THIS BRINGS US TO ITA NO. 604/2014. ADDITION O F RS. 17,93,59,566/- WAS MADE BY THE COMMISSIONER OF INCOME TAX (APPEALS) AF TER ISSUING NOTICE OF ENHANCEMENT. THE ASSESSING OFFICER HAD NOT MADE THE SAID ADDITION. THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE EXPENDITURE UNDER THE HEAD, CARD ACQUISITION EXPENSES HAD BEEN AMORTISE D OR DIVIDED INTO TWO YEARS IN THE BOOKS OF ACCOUNTS AND ACCOUNTS PREPARED UNDE R THE COMPANIES ACT, 1956. BUT, IN THE PROFITS & LOSS ACCOUNT ETC. PREPA RED FOR THE PURPOSE OF INCOME TAX, THE ENTIRE AMOUNT WAS TREATED AS REVENUE EXPEN DITURE IN ONE ASSESSMENT YEAR. THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE ASSESSEE BEING A COMPANY WAS BOUND TO PREPARE PROFIT AND LOSS ACCOUN TS AND THE BALANCE SHEET WHICH WOULD GIVE TRUE AND FAIR ACCOUNT OF ITS FINAN CIAL AFFAIRS. REFERENCE WAS MADE TO THE PROVISIONS OF THE COMPANIES ACT AND THE ACCOUNTING STANDARD 5, ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI), TO THE EFFECT THAT THE SAME ACCOUNTING POLICY SHOULD BE NORMALLY ADOPTED FOR SIMILAR EVENTS AND TRANSACTIONS IN EACH PERIOD. WITH REFERENCE TO SECTION 145 OF THE ACT, IT WAS OBSERVED THAT CBDT HAS NOTIFIED ACCOUNTING STANDARD S VIDE SO 69(E) DATED 25 TH JANUARY, 1996, WHICH MANDATED AN ASSESSEE TO FOLLOW ACCOUNTING POLICY WHICH REPRESENTS THE TRUE AND FAIR VIEW OF THE STATE OF A FFAIRS OF BUSINESS, PROFESSION ETC. RELYING UPON THE DECISION OF THE SUPREME COURT IN MADRAS INDUSTRIAL INVESTMENT CORP. LTD. VS. CIT (1997) 225 ITR 802 (S C), THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE EXPENDITURE IN QUESTION SHOULD BE TREATED AS DEFERRED REVENUE EXPENDITURE AND RS. 1,70,79,469 /- SHOULD BE ALLOWED IN THE CURRENT ASSESSMENT YEAR AND THE BALANCE AMOUNT OF R S. 17,93,59,566/- SHOULD BE ALLOWED AS EXPENDITURE IN THE NEXT ASSESSMENT YE AR, I.E. 2007-08. 15. THE AFORESAID ADDITION HAS BEEN DELETED BY THE TRIBUNAL AND WE ARE IN AGREEMENT WITH THEIR FINDINGS. BEFORE, WE ELUCIDATE , IT WILL BE RELEVANT AND IMPORTANT TO REPRODUCE THE REPLY OF THE ASSESSEE, W HICH FOR THE SAKE OF CONVENIENCE IS REPRODUCED BELOW : TILL 31 ST MARCH,2005 SALES FORCE COMPENSATION, CARD ACQUISIT ION COST (SALES SERVICE PROVIDER EXPENSES, INCENTIVES RELATE D TO CARD ACQUISITION, CREDIT INVESTIGATION COST, APPLICATION PRINTING COS T), CONSUMPTION OF PLASTIC CARDS, AND DELIVERY CHARGES WERE RECOGNIZED ON AN UPFRONT BASIS. DURING CURRENT YEAR (WITH EFFECT FROM 1 APRIL, 2005 ), THE COMPANY HAS CHANGED ITS POLICY TO RECOGNIZE PRODUCTIVE SALES FO RCE COMPENSATION, CARD ACQUISITION COST, CONSUMPTION OF PLASTIC CARDS AND DELIVERY CHARGES OVER A PERIOD OF ONE YEAR AS THIS MORE CLOSELY REFL ECTS THE PERIOD OF WHICH THE FEE RELATES TO. AS A RESULT OF THIS CHANG E IN ACCOUNTING POLICY, PROFIT BEFORE TAX FOR THE CURRENT YEAR IS HIGHER BY RS. 19,64,39,035/-. 9.2 THIS ACCOUNTING TREATMENT IS BEING EXPLAINED B Y THE UNDER-NOTED ILLUSTRATION. ITA . NOS. 3159,3160/DEL/2004 15 IF CARD-MARKING EXPENSES OF RS. 1000/- HAS BEEN I NCURRED IN THE MONTH OF JULY 2005, THEN AS PER THE ABOVE ACCOUNTING POLI CY, THE AMOUNT TO BE CHARGED TO THE PROFIT & LOSS ACCOUNT FOR THE FINAN CIAL YEAR 2005-06 WOULD BE COMPUTED AS UNDER : =RS. 1000*9/12 = RS. 750 THE BALANCE AMOUNT TO BE DEFERRED & CLAIMED IN THE NEXT FINANCIAL YEAR I.E. 2006-07 WOULD BE CALCULATED AS UNDER : =RS. 1000*3/12 =S. 250 16. IT IS CLEAR FROM THE AFORESAID REPLY AND IS A N ACCEPTED POSITION THAT TILL THE ASSESSMENT YEAR IN QUESTION, SALES FORCE COMPOS ITION, CARD ACQUISITION COSTS ETC. WERE RECOGNISED ON UPFRONT BASIS I.E. IN THE YEAR IN WHICH THEY WERE INCURRED. IN THE CURRENT ASSESSMENT YEAR IN QUESTIO N, I.E. 2006-07, THE ASSESSEE CONSEQUENT TO CHANGE IN POLICY HAD SPREAD OVER OR DIVIDED THE EXPENDITURE OVER A PERIOD OF ONE YEAR IN THE BOOKS OF ACCOUNTS FROM THE DATE THEY WERE INCURRED. IT IS MEANT THAT THE EXPENDITUR E COULD PARTLY FALL IN THE CURRENT YEAR AND PARTLY IN THE NEXT YEAR. THE CHANG E WOULD HAVE IMPERATIVELY IMPACTED THE FIRST ASSESSMENT YEAR. ALBEIT, FROM TH E SECOND YEAR, IT WOULD NOT MAKE MUCH DIFFERENCE, THOUGH THE FIGURES FOR EACH Y EAR WOULD BE DIFFERENT. THE AFORESAID CHANGE OR MODIFICATION WAS RESTRICTED TO THE ENTRIES IN THE BOOKS OF ACCOUNT AND WAS AS PER THE MANDATE OF THE COMPANIES ACT, 1956. HOWEVER, IN THE INCOME TAX RETURN AND TAX ACCOUNTS, THE EARLIER METHOD OR TREATMENT WAS CONTINUED. SECTION 145 POSTULATES THA T ACCOUNTS SHOULD GIVE TRUE AND FAIR PICTURE OF THE FINANCIAL POSITION OR THE INCOME OF THE ASSESSEE. IT IS FURTHER NOTICEABLE THAT THE ACT I.E. THE INCOME TAX ACT, 1961 ONLY REFERS TO CAPITAL OR REVENUE EXPENDITURE. THERE IS NO PROVISI ON IN THE ACT WHICH POSTULATES OR REFERS TO DEFERRED REVENUE EXPENDITUR E. DEFERRED REVENUE EXPENDITURE IS, THEREFORE, NOT AS SUCH RECOGNISED I N THE ACT. THE ACT TO THIS EXTENT IS AT VARIANCE AND DOES NOT ACCEPT DEFERRED REVENUE EXPENDITURE AS A PLAUSIBLE AND ACCEPTABLE METHOD. ACCOUNTING PRINCIP LES OR STANDARDS HAVE TO BE APPLIED AND ADOPTED AND THEY MUST DISCLOSE FAIR AND TRUE FINANCIAL POSITION AND THE INCOME, BUT THEY CANNOT BE CONTRARY TO THE PROVISIONS OR THE MANDATE OF THE ACT. THE ACT WOULD THEN OVERRIDE THE ACCOUN TANCY PRINCIPLES. THERE ARE SEVERAL PROVISIONS IN THE ACT LIKE SECTION 43B WHICH PROVIDE FOR DIFFERENT TREATMENT THAN REQUIRED UNDER THE PROVISIONS OF THE COMPANIES ACT OR THE ACCOUNTING PRINCIPLES OR STANDARDS. REFERENCE CAN B E MADE TO KEDARNATH JUTE MFG. CO. LTD. VERSUS CIT, (1971) 82 ITR 363 WHERE I T WAS HELD, ..., WE ARE WHOLLY UNABLE TO APPRECIATE THE SUGGES TION THAT IF AN ASSESSEE UNDER SOME MISAPPREHENSION OR MISTAKE FAIL S TO MAKE AN ENTRY IN THE BOOKS OF ACCOUNT AND ALTHOUGH UNDER THE LAW, A DEDUCTION MUST BE ALLOWED BY THE INCOME TAX OFFICER, THE ASSESSEE WIL L LOSE THE RIGHT OF CLAIMING OR WILL BE DEBARRED FROM BEING ALLOWED THA T DEDUCTION. WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON TH E VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS NOR CAN THE EXIST ENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONC LUSIVE IN THE MATTER.... ITA . NOS. 3159,3160/DEL/2004 16 IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. CIT (1997) 227 ITR 172 AT PAGE 184, IT WAS OBSERVED, IT IS TRUE THAT THIS COURT HAS VERY OFTEN REFERRE D TO ACCOUNTING PRACTICE FOR ASCERTAINMENT OF PROFIT MADE BY A COMPANY OR VA LUE OF THE ASSETS OF A COMPANY. BUT WHEN THE QUESTION IS WHETHER A RECEIPT OF MONEY IS TAXABLE OR NOT OR WHETHER CERTAIN DEDUCTIONS FROM THAT RECE IPTS ARE PERMISSIBLE IN LAW OR NOT, THE QUESTION HAS TO BE DECIDED ACCORDIN G TO THE PRINCIPLES OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE . ACCOUNTING PRACTICE CANNOT OVERRIDE SECTION 56 OR ANY OTHER PROVISION O F THE ACT. AS WAS POINTED OUT BY LORD RUSSEL IN THE CASE OF B.S.C. FO OTWEAR LTD. (1970) 77 ITR 857, 860), THE INCOME TAX LAW DOES NOT MARCH ST EP BY STEP IN THE FOOTPRINTS OF THE ACCOUNTANCY PROFESSION. IT WAS HELD BY THE BOMBAY HIGH COURT IN COM MISSIONER OF INCOME TAX VERSUS BHOR INDUSTRIES LIMITED (2003) 264 ITR 180, ...IF (SIC, IT) IS WELL SETTLED THAT, ORDINARILY, REVENUE EXPENDITURE, WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES O F BUSINESS, MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED AND IT CANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN THOUGH THE ASSES SEE HAS WRITTEN IT OFF IN ITS BOOKS OVER A PERIOD OF YEARS. IT IS ONLY IN CAS ES OF SPECIAL TYPE OF ASSETS THAT THE SPREAD OVER IS WARRANTED.... JUDGEMENT OF THE SUPREME COURT IN MADRAS INDUSTRIAL INVESTMENT CORP. (SUPRA) WAS CONSIDERED AND DISTINGUISHED IN C IT VS. PANACEA BIOTECH LTD. , ITA NO. 22 & 24/2012 AND CIT VS. CITI FINAN CIAL CONSUMER FIN LTD. (2011) 335 ITR 29 (DEL.), HOLDING THAT THE ASSESEEE S CLAIM TO SPREAD OVER THE EXPENDITURE OVER A PERIOD OF TIME IS TENABLE PR OVIDED IT IS JUSTIFIED AS IN THE CASE OF ISSUE OF BONDS AT A DISCOUNT. HOWEVER, THE SAME PRINCIPLE WOULD NOT APPLY IF THE ASSESSEE TREATS THE SAME AS REVENU E EXPENDITURE AND IN FACT PER SECTION 37(1) OF THE ACT, THE EXPENDITURE IS RE VENUE IN NATURE AND HAS BEEN INCURRED OR HAS ACCRUED. THIS RIGHT TO CLAIM D EFERRED REVENUE EXPENDITURE IS GIVEN TO THE ASSESSEE AND NOT TO THE REVENUE. IN THE FACTS OF THE PRESENT CASE, AS ALREADY NOTICED, THE EXPENDITU RE AS PER THE COMMISSIONER OF INCOME TAX (APPEALS) SHOULD BE PART LY SPREAD OVER TWO YEARS, INSTEAD OF THE YEAR IN WHICH IT WAS INCURRED . BUT IT IS ACCEPTED AND ADMITTED THAT THE EXPENDITURE IN QUESTION WAS REVEN UE IN NATURE. IT HAD ACCRUED AND WAS PAID. NOTHING AND NO ACTS HAD TO BE PERFORMED AND UNDERTAKEN IN FUTURE. IT IS NOT SHOWN HOW AND WHY, IF THE SAID EXPENDITURE WAS ALLOWED IN THE CURRENT YEAR, IT WOULD NOT REFLE CT TRUE AND CORRECT FINANCIAL POSITION OR INCOME OF THE ASSESSEE IN THE CURRENT A SSESSMENT YEAR. WE, THEREFORE, DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE TRIBUNAL AND ISSUE NOTICE IN ITA NO. 604/2014. ITA . NOS. 3159,3160/DEL/2004 17 16. AS THE EXPENDITURE IN QUESTION IS UNDISPUTED LY IN THE REVENUE FIELD WE APPLY THE PRINCIPLES LAID DOWN BY THE JURISDICTIONAL HIGH COURT AND ALLOW THE CLAIM OF THE ASSESSEE. THUS GROUND OF THE ASSESSEE IS ALLOWED. 17. GROUND NO. 7 IS ON THE RESTRICTION OF CLAIM O F DEPRECIATION IN RESPECT OF COMMERCIAL VEHICLES GIVEN ON LEASE, ON THE GROUND T HAT THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS RUNNING TRUCKS ON HIRE. THE FIRST A PPELLATE AUTHORITY HAS REJECTED THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE HAS LEASED THE COMMERCIAL VEHICLES TO VARIOUS TRANSPORT OPERATORS, WHO INTURN USED THESE VEHICLES IN THE BUSINESS OF RUNNING THEM ON HIRE. ADMITTEDLY THIS ISSUE IS COV ERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSTT. YEAR 1994-95 AND FOR THE ASSTT. YEAR 1998-99, WHICH IS REPORTED IN 1 13ITD 22 (DELHI). THE PREPOSITIONS LAID DOWN BY THE TRIBUNAL IN THESE DECISIONS, ARE I N CONSONANCE WITH, THE PROPOSITIONS LAID BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MGF (INDIA) LTD. 285 ITR 142 (DELHI) AND THE JUDGMENT OF THE H ONBLE SUPREME COURT IN THE CASE OF M/S. ICDS VS. CIT REPORTED IN (2013) 350 I TR 527 (SC). 18. HENCE, CONSISTENT WITH THE VIEW TAKEN BY US FO R THE ASSTT. YEAR 1994-95 AND 1998-99 WE ALLOW THIS GROUND OF THE ASSESSEE. 19. GROUND NO. 8 IS ON DISALLOWANCE OF DEPRECIATIO N AMOUNTING TO RS. 8,65,25,609/- ON ASSETS WHICH ARE PURCHASED AND LEASED BACK. THE LD. CIT(A) HAS BROUGHT OUT THE FACTS AT PARA 14.1 TO 14.3 OF HIS ORDER. THE SAME I S REPRODUCED HEREUNDER :- 14.1 THE ABOVE GROUNDS DEAL WITH THE DISALLOWANC E OF DEPRECIATION AMOUNTING TO RS. 4,00,00,000/- ON CERTAIN ASSETS PU RCHASED FROM AND LEASED BACK TO M/S. PSEB AND RS. 3,90,31,359/- (NET OF PRI NCIPAL RECOVERY) ON ASSETS PURCHASED AND LEASED BACK TO SOME OTHER PARTIES. ITA . NOS. 3159,3160/DEL/2004 18 14.2 THE AO DISALLOWED THE CLAIM OF DEPRECIATION ON THE ASSETS LEASED TO M/S. OSWAL SUGAR LTD. AND M/S. PSEB IN VIEW OF THE FOLLOWING :- (1) SAME ASSETS WERE PURCHASED FROM M/S. PSEB AND M/S. OSWAL SUGAR LTD. AND LEASED BACK TO THEM RESPECTIVELY. (2) THE ASSETS INVOLVED ARE OLD AND THESE PARTIES H AD CLAIMED 100% DEPRECIATION ON THESE ASSETS AND THEREFORE THE WDV OF THE ASSETS IN THE BOOKS OF THE PARTIES AT THE TIME OF SALE TO THE APP ELLANT WAS NIL. (3) NO PHYSICAL DELIVERY OF PLANT AND MACHINERY T OOK PLACE AND ONLY TITLE FOR LEASED ASSETS WERE TRANSFERRED AND MERE RAISING OF INVOICE BY THESE PARTIES FOR SALE OF THE ASSETS CANNOT REALLY AMOUNT TO SALE OF THOSE ASSETS. (4) THE ASSETS WERE PART AND PARCEL OF THEIR MANUF ACTURING UNITS AND IF THOSE WERE REMOVED, THE UNITS WITH WHICH THEY WERE ATTACH ED COULD NOT BE RUN. 15.3 IN THE CASE OF TRANSACTIONS WITH THE PARTIES OTHER THAN PSEB AND OSWAL SUGAR LTD. THE AO QUESTIONED THE BUSINESS EXPEDIENC Y ON THE PART OF THE APPELLANT TO FIRST PURCHASE THOSE ASSETS AND TO GIV E THEM BACK ON LEASE TO THE SAME PARTY. THE AO DENIED DEPRECIATION ON THOSE TRA NSACTIONS ALLEGING IT TO BE A DEVICE ADOPTED BY THE PARTIES FOR AVOIDANCE OF THE LEGITIMATE TAX DUE. 14.3 THE LD. AR SUBMITTED THE DETAILS OF DEPRECIATI ON CLAIMED ON THESE ASSETS AND THEIR PRESENT STATUS, WHICH ARE AS FOLLO WS :- PARTY NAME NET OF ASSETS DEPRECIATION CLAIMED DEPRECIATION MINUS PRINCIPAL RECOVERY STATUS AFTER THE EXPIRY OF LEASE TENURE OSWAL SUGA R LTD. NEW DELHI. 25,000,000 25,000,000 22,113,862 RETAINED BY GE PUNJAB STATE ELECTRICITY BOARD 40,000,000 40,000,000 37,277,915 ------ FILATEX INDIA LTD. NEW DELHI 10,000,000 10,000,000 8,952,936 ------- DATAR SWITCHGEAR LTD. NASIK 14,988,500 7,494,250 6,294,250 RETAINED GE PI ONEER ALLOY CASTING LTD. TAMIL NADU 2,500,000 2,500,000 2,256,449 RETAINED GE HIGH TEMP FURNACE LTD. 3,062,717 1,531,359 1,235,495 RETAINED GE ITA . NOS. 3159,3160/DEL/2004 19 BANGALORE 20. AFTER HEARING RIVAL CONTENTIONS, WE FIND TH AT THE GENUINENESS OF THE PURCHASE AND LEASE BACK TRANSACTIONS HAVE BEEN UPHELD BY THE ITAT THE ASSESSEES OWN CASE FOR THE ASSTT. YEAR 1994-95 AND 1995-96. THE DECISI ON OF THE TRIBUNAL, ADMITTEDLY, HAS BEEN ACCEPTED BY THE REVENUE AND NO FURTHER APP EAL HAS BEEN FILED. 21. OUT OF THE SIX SALE AND LEASE BACK TRANSACT ION, EXCEPT IN THE CASE OF PSEB AND OSWAL SUGARS LTD., THE AO DISALLOWED THE DEPRECIATI ON BY QUESTIONING THE COMMERCIAL EXPEDIENCY OF THE TRANSACTION. THIS GROU ND OF DISALLOWANCES IS NOT LEGALLY CORRECT. WHEN THE GENUINENESS OF THE TRANSA CTION IS NOT DOUBTED, DISALLOWANCE OF DEPRECIATION IS NOT WARRANTED. THE AO DOES NOT HAVE THE JURISDICTION TO QUESTION COMMERCIAL EXPEDIENCIES AND THAT TOO IS IN A TRANSACTION BETWEEN UNRELATED PARTIES. AS REGARDS TRANSACTION OF THE PS EB AND OSWAL SUGAR LTD. THE SUBMISSIONS OF THE ASSESSEE COUNSEL ARE EXTRACTED A T PARA 14.4 OF THE CIT(A) ORDER:- 14.4 WITH REGARD TO THE TRANSACTION WITH PSEB A ND OSWAL SUGAR LTD., THE AR SUBMITTED AS FOLLOWS :- THE TRANSACTION IN QUESTION IS ADMITTEDLY A SALE AN D LEASE BACK TRANSACTION WHERE THE LESSEE WAS ALREADY OWNING THE ASSETS WHICH IT SOLD TO THE APPELLANT AND OBTAINED BACK ON LEASE. T HE SALE TOOK PLACE EXCLUSIVELY FOR THE PURPOSE OF LEASEBACK. THE TWO T RANSACTIONS I.E. SALE AND LEASE BACK ARE DISTINCT TRANSACTIONS AND THEREF ORE CANNOT BE TREATED AS ONE TRANSACTION. THE APPELLANT HAD FIRST ENTERED INTO AN AGREEMENT TO PURCHASE THE ASSETS FROM VARIOUS PARTI ES. THE AO HAS FAILED TO TAKE COGNIZANCE OF THE FACT THAT BOTH THE TRANSACTIONS ARE SEPARATE AND INDEPENDENT AND THEREFORE CANNOT BE RE GARDED AS ONE TRANSACTION I.E FINANCE TRANSACTION. - THE FACT OF NO PHYSICAL DELIVERY HAVING BEEN MADE IS OF NO SIGNIFICANCE SINCE THE LEASED GOODS WERE ALREADY WITH THE LESSEE PRIOR TO THE LEASE AND IT WAS A CASE OF CONSTRUCTIVE DELIVERY. ITA . NOS. 3159,3160/DEL/2004 20 - EVEN AS ON THE DATE OF THE TRANSACTION, THE VARIO US ITEMS OF THE EQUIPMENT HAD UNEXPIRED USEFUL LIFE OF APPROXIMATEL Y 10 YEARS AS PER THE VALUATION REPORT IN THE CASE OF AGREEMENT WITH PSEB . - THE LEASE AGREEMENT DID NOT HAVE ANY STIPULA TION FOR PURCHASE OF THE ASSETS AFTER THE EXPIRY OF LEASE TENURE AT ANY PRE- DETERMINED PRICE. - MERELY BECAUSE THE WDV IN THE HANDS OF THE SELLER MAY HAVE BEEN NOMINAL OR EVEN NIL, THE APPELLANT CANNOT BE DENIED THE RIGHT TO CLAIM DEPRECIATION ON THE ASSETS SINCE THE MAIN PURPOSE O F THE TRANSFER OF THE ASSET WAS NOT THE REDUCTION OF A LIABILITY TO INCOME TAX BY CLAIMING DEPRECIATION WITH REFERENCE TO AN ENHANCED COST IN THE HANDS OF THE P URCHASER. IN THIS CASE THERE WAS NO REDUCTION OF INCOME TAX LIABILITY IN T HE HANDS OF THE PURCHASER. 22. THE FIRST APPELLATE AUTHORITY APPROVED THE FI NDING OF THE AO THAT THE TRANSACTION IN QUESTION IS A FINANCE TRANSACTION BUT HAS BEEN G IVEN THE COLOUR OF LEASE TRANSACTION. ON THESE FACTS WE EXAMINE THE LEGAL PO SITION. 23. THE ASSESSEE HAD FILED A VALUATION REPORT IN S UPPORT OF HIS CLAIM FOR DEDUCTION. THE AO WITHOUT CONSIDERING THE SAME, REJECTED THE C LAIM OF THE ASSESSEE. SUCH AN ACT IS AGAINST THE PREPOSITIONS LAID DOWN BY THE HO NBLE GUJARAT HIGH COURT IN THE CASE OF ASHWIN VANASPATI INDUSTRIES VS. CIT (2002) 255 ITR 26 (GUJ). THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. CO SMOS FILMS LTD. 338 ITR 226 (DELHI) AT PARA 20 TO 22 HELD AS FOLLOWS:- 20. WE ALSO NOTE THAT IN INDUSTRIAL DEVELOPMENT CORPORATION OF ORISSA LTD. (2004) 268 ITR 130 (ORISSA), THE ORISSA HIGH COURT WAS DEALING WITH A CASE WHICH WAS SIMILAR TO THE ONE BEFORE US WHERE, IN PL ACE OF THE HARYANA STATE ELECTRICITY BOARD, IT WAS THE ORISSA STATE ELECTRIC ITY BOARD (OSEB). THE SAID HIGH COURT OBSERVED THAT IF THE SALE AND LEASE BACK AGRE EMENT BETWEEN THE ASSESSEE AND THE OSEB INDICATE THAT THE ASSESSEE HAD PURCHAS ED THE PLANT AND MACHINERY FROM THE OSEB FOR A PRICE AND HAD LEASED OUT THE SA ME TO THE OSEB ON LEASE RENT, THE REVENUE DEPARTMENT CANNOT DISCARD THE SAI D SALE AND LEASE BACK AGREEMENT ON THE GROUND THAT THE UNDERLYING MOTIVE OF THE ASSESSEE TO ENTER INTO THE SAID TRANSACTION WAS TO REDUCE ITS INCOME- TAX LIABILITY. THE ORISSA HIGH COURT OBSERVED THAT THE REVENUE COULD, HOWEVER, DIS CARD THE SAID TRANSACTION ONLY IF THERE WERE MATERIALS OR EVIDENCE BEFORE IT TO SHOW THAT THE INTENTION OF THE PARTIES WERE DIFFERENT FROM WHAT HAD BEEN INCOR PORATED IN THE SALE AND LEASE BACK AGREEMENTS AND THAT THE TRANSACTION WAS REALLY A SHAM AND DUBIOUS TRANSACTION AND WAS A COLOURABLE DEVICE. WE ARE IN COMPLETE AGREEMENT WITH ITA . NOS. 3159,3160/DEL/2004 21 THESE OBSERVATIONS OF THE ORISSA HIGH COURT IN THE CASE OF INDUSTRIAL DEVELOPMENT CORPORATION OF ORISSA LTD. (2004) 268 I TR 130 (ORISSA). WE ARE ALSO IN AGREEMENT WITH THE CONCLUSION OF THE SAID H IGH COURT THAT IN SUCH CASES, THE COURT WOULD HAVE TO FIND OUT AS TO WHAT WAS THE REAL INTENTION OF THE PARTIES IN ENTERING INTO THE SALE AND LEASE AGREEMENT AND T HAT SUCH INTENTION HAS TO BE GATHERED FROM THE WORDS IN THE SAID AGREEMENT IN A TANGIBLE AND IN AN OBJECTIVE MANNER AND NOT UPON A HYPOTHETICAL ASSESSMENT OF TH E SUPPOSED MOTIVE OF THE ASSESSEE TO AVOID TAX. WE HAVE ALREADY INDICATED TH AT THE INTENTION GATHERED FROM THE DOCUMENTS ON RECORD SHOWS THAT THE OWNERSH IP AND TITLE OF THE SAID EQUIPMENT HAD BEEN TRANSFERRED TO THE RESPONDENT-AS SESSEE AND THAT AFTER THE SAID TRANSFER, THE LEASE WAS ENTERED INTO AND THE S AID EQUIPMENT WAS LEASED BACK TO THE HSEB. IT HAS NOT AT ALL BEEN ESTABLISHE D ON THE BASIS OF EVIDENCE ON RECORD THAT THE TRANSACTION WAS A COLOURABLE DEVICE ENTERED INTO BY AND BETWEEN THE HSEB AND THE RESPONDENT-ASSESSEE. 21. WE ALSO NOTE THAT A SIMILAR VIEW HAS BEEN T AKEN BY THE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. RAJASTHAN STATE ELECTR ICITY BOARD (2006) 204 CTR (RAJ.) 415 AND THE GUJARAT HIGH COURT IN THE CASE O F CIT VS. GUJARAT GAS CO. LTD. (2009) 308 ITR 243 (GUJ) WHICH FOLLOWED THE DECISIO N OF THE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. RAJASTHAN STATE ELECTR ICITY BOARD (2006) 204 CTR (RAJ) 415. 22. WE FIND THAT THE OBSERVATIONS OF THE SUPREME CO URT IN THE CASE OF ASEA BROWN BOVERI LTD. (2004) 126 COMP CAS 332 (SC) ; AI R 2005 SC 17, WITH REGARD TO THE NATURE OF A FINANCIAL LEASE ARE NOT OF MUCH USE TO THE CASE OF THE REVENUE IN VIEW OF THE FACTUAL BACKDROP THAT, ON FA CTS, THE TRANSACTION IN QUESTION HAS BEEN FOUND TO BE GENUINE. ONCE IT IS E STABLISHED THAT THE OWNERSHIP OF THE SAID EQUIPMENT IS THAT OF THE ASSE SSEE, THEN IT IS CLEAR THAT THE RESPONDENT-ASSESSEE WOULD BE ENTITLED TO CLAIM DEPR ECIATION AS ALLOWED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE INCOME -TAX APPELLATE TRIBUNAL. 24. IN OUR VIEW THE FACTS IN THE CASE ON HAND IS COVERED BY THE PROPOSITION LAID DOWN IN THIS DECISION OF JURISDICTIONAL HIGH COURT. RESPECTFULLY FOLLOWING THE SAME WE UPHOLD THE CONTENTIONS OF THE ASSESSEE AND ALLOW TH IS GROUND. 25. GROUND NO. 9 IS AGAINST THE DISALLOWANCE OF THE CLAIM OF THE ASSESSEE WITH REGARD TO EXCLUSION FROM INCOME OF PRINCIPAL AMOUN T RECOVERED AMOUNTING TO RS. 2,55,39,269/- ON LEASE TRANSACTIONS WHICH WERE EARL IER CONSIDERED AS FINANCE TRANSACTIONS BY THE AO. IN THE EARLIER ASSTT. YEARS , THE ASSESSEE HAD OFFERED TO TAX, THE LEASE RENTAL RECEIVED, INCLUDING THE PRINCIPAL PORTION, BY TREATING THE TRANSACTIONS IN QUESTION AS LEASE TRANSACTIONS. LEASE TRANSACTIO NS WERE CONSIDERED AS FINANCE ITA . NOS. 3159,3160/DEL/2004 22 TRANSACTIONS BY THE AO AND THE DEPRECIATION CLAIMED WAS DISALLOWED. CONSEQUENTLY THE PRINCIPAL PORTION OF THE LEASE TRANSACTIONS, WH ICH WERE OFFERED TO TAX HAD TO BE REVERSED. THE ASSESSEES CLAIM IS THAT SUCH CONSEQU ENTIAL BENEFIT HAS TO BE ALLOWED. THE LD. COUNSEL SUBMITTED THAT, HE IS NOT PRESSING THIS GROUND OF APPEAL. IN VIEW OF OUR DECISION IN GROUND NO. 8 WHERE WE ACCEPTED THIS CLAIM OF THE ASSESSEE THAT THESE TRANSACTIONS ARE LEASE TRANSACTIONS. IN THE RESULT THIS GROUND IS DISMISSED. 26. GROUND NO. 10 IS AGAINST THE FINDING OF THE FIRST APPELLATE AUTHORITY THAT CERTAIN DISALLOWANCE MADE BY THE AO AND CHALLENGED BY THE A SSESSEE BEFORE THE FIRST APPELLATE AUTHORITY, ARE NOT ARISING FROM THE ASSTT . ORDER. THESE ISSUES ARE A) EXCLUSION OF PRINCIPAL RECOVERY AMOUNTING TO RS. 1, 55,70,780/- FROM THE LEASE RENTALS IN RESPECT OF TRANSACTIONS OFFERED AS FINANCE TRANS ACTIONS UNDER THE VOLUNTARY DISCLOSURE OF INCOME SCHEME (VDIS 1997) 2) B) EXCLU SION OF NET INCOME AMOUNTING TO RS. 1,22,77,685/-, WHICH HAD BEEN OFFERED TO TAX UNDER THE VDIS 1997.C) CLAIM OF LONG TERM CAPITAL LOSS AMOUNTING TO RS. 7,66,867/- D) CLAIM OF DEDUCTION OF RS. 77,45,779/- IN RESPECT OF INCOME OF NON-PERFORMING ASSETS, WHICH IS NOT RECOGNISED AS INCOME IN THE BOOKS OF ACCOUNTS, BY FOLLOWING TH E PRUDENTIAL NORMS OF RBI. 27. THE LD. CIT(A) HAD AT PARA 18.3, 19.4 AND 2 0.7 HELD THAT THE ISSUE HAVE NOT BEEN DISCUSSED BY THE AO AND DO NOT EMANATE FROM IN THE ASSTT. ORDER FOR THE YEAR UNDER CONSIDERATION. HE DISMISSED THE SAME. THE LD. COUNSEL FOR THE ASSESSEE PRAYED THAT THESE ARE LEGAL GROUNDS RAISED BY THE A SSESSEE AND THAT THE FACTS ARE RECORDED THAT THE LD. CIT(A) SHOULD HAVE ADJUDICATE D THESE CLAIMS ON MERIT. RELIED ON THE FOLLOWING DECISIONS A) CIT VS. V. NIRBHERAM DALURAM 139 CTR 484 (SC) 2) JUTE CORPORATION OF INDIA 187 ITR 688 (SC). THE LD. DR OPPOSED THESE CONTENTIONS. ITA . NOS. 3159,3160/DEL/2004 23 28. THE HONBLE SUPREME COURT IN THE CASE OF JUT E CORPORATION OF INDIA LTD. (SUPRA) HAS HELD AS FOLLOWS : THE APPELLANT, A GOVERNMENT CORPORATION ENGAGED IN THE JUTE INDUSTRY, HAD NOT CLAIMED ANY DEDUCTION OF PURCHASE TAX LIABILITY IN ITS RETURN FOR THE ASSESSMENT YEAR 1974-75 IN THE BELIEF THAT IT WAS N OT LIABLE TO PURCHASE TAX UNDER THE BENGAL RAW JUTE TAXATION ACT, 1941. LATER ON, THE APPELLANT WAS ASSESSED TO THE PURCHASE TAX, BUT IT DISPUTED THE L IABILITY AND PREFERRED AN APPEAL AND OBTAINED A STAY ORDER. IN AN APPEAL BEFO RE THE APPELLATE ASSISTANT COMMISSIONER, THE APPELLANT RAISED AN ADDITIONAL GR OUND FOR DEDUCTION OF THE PURCHASE TAX ON THE GROUND THAT THE TAX LIABILITY S HOULD BE DEDUCTED IN COMPUTING ITS PROFITS, IN VIEW OF THE DECISION OF T HE SUPREME COURT IN KEDARNATH JUTE MFG. CO. LTD. VS. CIT (1971) 82 ITR 363. THE APPELLATE ASSISTANT COMMISSIONER PERMITTED THE APPELLANT TO R AISE THE ADDITIONAL GROUND AND, AFTER HEARING THE INCOME-TAX OFFICER, ALLOWED THE CLAIM. ON APPEAL, THE APPELLATE TRIBUNAL, PLACING RELIANCE ON THE DECISIO N OF THE SUPREME COURT IN THE CASE OF GURJARGRAVURES P. LTD. (1978) 111 ITR 1 , HELD THAT THE APPELLATE ASSISTANT COMMISSIONER HAD NO JURISDICTION TO ENTER TAIN THE ADDITIONAL CLAIM. BOTH THE TRIBUNAL AND THE HIGH COURT REJECTED THE R ESPECTIVE APPLICATIONS OF THE APPELLANT FOR REFERENCE. ON APPEAL TO THE SUPRE ME COURT. 29. RESPECTFULLY FOLLOWING THESE DECISIONS WE UPHO LD THE CONTENTIONS OF THE ASSESSEE THAT THE LD. CIT(A) SHOULD HAVE CONSIDERED THE CLAIM OF THE ASSESSEE ON MERITS. HENCE WE SET ASIDE THE ORDER TO THE FILE OF THE FIRST APPELLATE AUTHORITY FOR FRESH ADJUDICATION, ON MERITS, IN ACCORDANCE WITH L AW. IN THE RESULT, GROUND NO.10 IS ALLOWED FO R STATISTICAL PURPOSE. HENCE THE APPEAL OF THE ASSESEE IS ALLOWED IN PART. ITA NO. 3160/D/2004 ASSTT. YEAR 1997-98 30. GROUND NO. 1 IS GENERAL IN NATURE. 31. GROUND NO. 2 IS AGAINST THE ADHOC DISALLOWANC E OF RS. 30 LACS OUT OF TOTAL INTEREST PAID DURING THE YEAR, ON THE GROUND THAT I NTEREST FREE LOANS WERE GIVEN TO THE SUBSIDIARY OF THE ASSESSEE COMPANY. A SIMILAR ISSUE ON IDENTICAL FACTS WAS ITA . NOS. 3159,3160/DEL/2004 24 CONSIDERED BY US WHILE DISPOSING OFF GROUND NO. 5 I N ITA NO. 3159/D/09 FOR THE ASSTT. YEAR 2006-07. CONSISTENT WITH THE VIEW TAKEN THEREIN AND FOR THE SAME REASONS WE ALLOW THIS GROUND OF THE ASSESSEE. 32. GROUND NO. 3 IS AGAINST THE RESTRICTION OF C LAIM OF DEPRECIATION ON COMMERCIAL VEHICLES GIVEN ON LEASE TO 25%, AS AGAINST 40% CLAI MED BY THE ASSESSEE. HERE ALSO THE FIRST APPELLATE AUTHORITY FOLLOWED HIS CONCLUSI ONS FOR THE ASSTT. YEAR 1996-97. CONSISTENT WITH THE VIEW TAKEN BY US, WHILE DISPOSI NG OFF GROUND NO. 7 FOR THE ASSTT. YEAR 2006-07. ON THE VERY SAME ISSUE WE ALLOW THIS GROUND OF THE ASSESSEE. 33. GROUND NO. 4 IS CHALLENGING THE DISALLOWANCE O F CLAIM OF DEPRECIATION ON EQUIPMENT WHICH HAS BEEN PURCHASED AND LEASED BACK TO THE SAME PARTIES I.E M/S. DATAR SWITCHGEAR LTD. AND HIGH TEMP FURNANCE LTD. S IMILAR ISSUE HAS BEEN ADJUDICATED BY US WHILE DISPOSING OFF GROUND NO.8 F OR THE ASSTT. YEAR 1996-97. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE ALLOW TH IS GROUND OF THE ASSESSEE. 34. GROUND NO. 5 CHALLENGES THE DECISION OF THE L D. CIT(A) IN NOT ADJUDICATING THE GROUNDS OF THE ASSESSEE ON MERITS FOR THE REASON TH AT THESE ISSUES DID NOT EMANATE FROM THE ORDER OF THE AO. THE ISSUES IN QUESTION AR E (A) DISALLOWANCE OF RS. 1,27,04,732/- AND RS. 71,475/- BEING INTEREST ON IN TEREST TAX U/S 12A AND 12B OF THE INTEREST TAX ACT OF 1974 (B) CARRY FORWARD OF ASSES SED UNABSORBED DEPRECIATION AND LONG TERM CAPITAL LOSS (C) AMENDING THE OPENING WRITTEN DOWN VALUE WHICH AROSE AS RESULT OF DISALLOWANCE OF DEPRECIATION IN EARLIE R YEARS. SIMILAR ISSUE WAS ADJUDICATED BY US, WHILE DISPOSING OFF GROUND NO. 1 0 FOR ASSTT. YEAR 1996-97 IN ITA NO. 3159/D/2004. CONSISTENT WITH THE VIEW TAKEN THE REIN, WE SET ASIDE THE ISSUE WITH THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION ON MERITS IN ACCORDANCE WITH LAW. ITA . NOS. 3159,3160/DEL/2004 25 35. IN THE RESULT BOTH THE APPEALS OF THE ASSES SEE ARE ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JANUARY, 2015. SD/- SD/- (A.T. VARKEY) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30 TH JANUARY, 2015 VEENA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER DEPUTY REGISTRAR