Simpson & General Finance Co. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 344/CHNY/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68668 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 06-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 25-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Revised return
• Section: 143(3); 14A; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO.344/MDS/2013 ASSESSMENT YEAR 2009-10 M/S. SIMPSON & GENERAL FINANCE CO. LTD., 861/862, ANNASALAI, CHENNAI 600 002. [PAN : AAACT2935J] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(3), CHENNAI 600 034. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE RESPONDENT BY : SHRI N. MADHAVAN, JCIT DA TE OF HEARING : 06.08.2013 DATE OF PRONOUNCEMENT : 22.08.2013 O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) V, CHENNAI DATED 15.11.2012 FOR THE ASSESSMENT YEAR 2009-10. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN ADMITTING TOTAL INCOME OF ` .1,25,73,330/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ASSESSING INCOME OF THE ASSESSEE AS ` .1,66,78,172/- I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.344 344344 344/MDS/13 /MDS/13 /MDS/13 /MDS/13 2 BY DISALLOWING THE PRINCIPAL PORTION OUT OF ENTIRE LE ASE RENT OF ` .39,65,437/- AND DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D AT ` .1,39,405/-. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE TH E LD. CIT(APPEALS). 4. THE LD. CIT(APPEALS) HAS OBSERVED THAT THE ASSESSING O FFICER DURING THE SCRUTINY ASSESSMENT EXAMINED THE INCOME FROM LEASING A CTIVITY. HE FOUND THAT THE ASSESSEE COMPANY HAD SHOWN INCOME OF ` .8,45,246/- FROM THE LEASING BUSINESS OUT OF THE TOTAL LEASE RENT, RECOVE RED ` .48,10,683/- CONSISTING INTEREST PORTION OF ` .8,45,246/- AND PRINCIPAL PORTION OF ` .39,65,437/-, THEREBY OFFERING ONLY THE INTEREST POR TION AS ITS INCOME. THE ASSESSING OFFICER UNDERSCORED THE FACT THAT THOUGH THE ASSESSE E COMPANY HAS NOT CLAIMED ANY DEPRECIATION IN THE ACCOUNTS INCONSISTE NT WITH ACCOUNTING STANDARD 19, IN THE COMPUTATION OF INCOME F OR INCOME TAX PURPOSE, BUT IT IS CLAIMING DEPRECIATION AS PER INCOME TAX RULES ON THE LEASE ASSETS. FOR THE REASON THAT THE ASSESSEE COMPANY DID NOT MAKE ANY ADJUSTMENT FOR RENTAL INCOME FROM LEASED ASSETS FOR INCOM E TAX PURPOSES AND IN ESSENCE THE ASSESSEE COMPANY HAS OFFERED ONLY THE IN TEREST PORTION OF THE LEASE RENT FOR INCOME TAX PURPOSE AND AT THE SAM E TIME CLAIMED DEPRECIATION RESULTING IN DOUBLE BENEFIT BROUGHT TO T AX THE ENTIRE AMOUNT OF ` .48,10,683/- IN CONSISTENT WITH THE STAND TAKEN FOR THE ASSESSMENT YEAR 2006-07 AFTER ELABORATE DISCUSSION IN THE ASSESSMENT ORDE R FOR THE ASSESSMENT YEAR 2006-07. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.344 344344 344/MDS/13 /MDS/13 /MDS/13 /MDS/13 3 5. THE LD. CIT(APPEALS), BY FOLLOWING HIS OWN ORDER IN ASSESSEES OWN CASE FOR IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2008- 09 IN ITA NO. 101/10-11 VIDE ORDER DATED 29.11.2011 DECIDED THE ISSU E RELEVANT TO THE ASSESSMENT YEAR 2009-10 AGAINST THE ASSESSEE AND RELEVANT E XTRACT IS REPRODUCED AS UNDER: ' .. 3.2.1 DURING THE APPELLATE PROCEEDINGS THE LEARNED AR RELIED ON THE STATEMENT OF FACTS AND THE GROUNDS OF APPEAL AND REITERATED THE SUBMISSIONS MADE BEFORE THE AO. THE AR ALSO RELIED ON THE DECISIONS OF THE HON'BLE APEX COURT IN THE CASES OF CIT VS WOODWARD GOVERNOR INDIA (P) LTD 312 ITR 254 AND CIT VS BILAHARI INVESTMENTS P LTD 299 ITR 1 TO SUBMIT THAT THE APPELLANT HAS BEEN FOLLOWING THE METHOD OF ACCOUNTING MANDATED BY AS 19 AND HENCE CHANGES IN METHOD OF ACCOUNTING IN LINE WITH AS 19 SHOULD BE ACCEPTED. THE AR FURTHER SUBMITTED THAT AS PER AS 19, DEPRECIATION HAS TO BE CLAIMED BY THE LESSEE AND IN ALL THE CASES OF LEASE ENTERED INTO BY THE APPELLANT COMPANY THE LESSEES HAVE NOT CLAIMED DEPRECIATION ON THE LEASED ASSETS. CONSEQUENT TO ACCOUNTING STANDARDS ISSUED BY ICAL, THE CBDT ISSUED CIRCULAR NO.2 DATED 9 TH FEBRUARY 2001 CLARIFYING THAT LEASED ASSETS ARE CAPITALIZED IN THE BOOKS OF LESSEE IN FINANCIAL LEAS E TRANSACTION BY ITSELF WILL HAVE NO IMPLICATION ON THE ALLOWANCE OF DEPRECIATION ON THE ASSETS UNDER THE PROVISIONS OF THE ACT. AS THE LESSEES HAVE NOT CLAIMED DEPRECIATION, ACCORDING TO LEARNED AR THE CBDT CIRCULAR PERMIT LESSORS TO CLAIM DEPRECIATION EVEN UNDER FINANCE LEASE AND HENCE THE APPELLANT CLAIMED DEPRECIATION IN THEIR MEMO OF INCOME. THE AR ALTERNATIVELY SUBMITTED THAT IF AT ALL T HE DEPRECIATION CLAIMED BY THE COMPANY ON THE GROUND THAT THE LESSEES HAVE NOT CLAIMED DEPRECIATION AND ON THE BASIS OF INTERPRETATION OF THE CBDT CIRCULAR CAN BE WITHDRAWN. 3.2.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LEARNED AR AND THE DECISION RELIED UPON BY HIM. I HAVE PERUSED THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2006-07. THE AO IN PAGE 3 OF THE ASSESSMENT ORDER FOR AY 2006-07 HIGHLIGHTED THE FEATURES OF THE LEASE TRANSACTIONS OF THE APPELLANT COMPANY AFTER ANALYSIS OF SAMPLE COPIES OF LEASE AGREEMENT WHICH ARE AS UNDER: I. THE LEASE IS NORMALLY FOR A PERIOD OF 36 MONTHS. II. THE LEASE RENT IS RECEIVED BY THE ASSESSEE IN EQUAL MONTHLY INSTALMENTS. III. ALL THE DAY TO DAY EXPENSES RELATING TO THE EQUIPMENT (VEHICLE) INCLUDING INSURANCE AND REPAIRS ARE BORNE BY THE LESSEE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.344 344344 344/MDS/13 /MDS/13 /MDS/13 /MDS/13 4 3.2.3 IN VIEW OF THE ABOVE I AM UNABLE TO AGREE WITH THE SUBMISSION OF THE LEARNED AR THAT TREATMENT OF THE TRANSACTION IN BOOKS AS PE R AS19 WOULD OUTWEIGH THE CONTRACT OF LEASE ENTERED INTO WITH THE LESSEE. AS HELD BY THE HON'BLE ITAT MUMBAI IN THE CASE OF JM SHARES AND STOCK BROKERS VS. DCIT 311 ITR (AT) 115 THE OWNERSHIP RIGHT COULD NOT BE INFERRED FOR THE ASSESSEE WHO HAD RECEIVED 50% OF THE COST AS SECURITY DEPOSIT AND THE BALANCE IN 36 INSTALLMENTS, DEPRECIATION CANNOT BE ADMISSIBLE. WHEREAS IN THE CASE OF THE APPELLANT IT IS THE OWNER OF THE ASSET AND ALSO CLAIMED DEPRECIATION IN THAT CAPACITY AND FURTHER THE LEASE RENTAL ARE RECEIVED NORMALLY IN 36 INSTALLMENTS WITHOUT ANY LUMP SUM UPFRONT PAYMENT. THEREFORE THE APPELLANT HAS COMPLIED WITH THE PROVISIONS OF THE ACT WITH REGARD TO LEASED ASSET AS BEING THE OWNER AND ALSO USED THE ASSET IN ITS BUSINESS. HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SHAAN FINANCE PVT. LTD. 231 ITR 308 HELD THAT LEASING COMPANY WOULD NOT ONLY GET DEPRECIATION BUT INVESTMENT ALLOWANCE AS WELL. THE COURT ALSO HELD THAT AS PER LAW THE LESSOR IS ENTITLED TO DEPRECIATION IF HE CARRI ES ON LEASING BUSINESS AND THE ASSET LEASED IS DEEMED TO BE USED FOR ITS BUSINESS THOUGH IT MAY BE IN THE PHYSICAL POSSESSION AND ACTUAL USE OF THE LESSEE. AS THE AO HAS NOT DISPUTED THE FACT THAT THE LEASING BUSINESS CARRIED ON BY THE APPELLANT COMPANY IS A BONA FIDE LEASE THE CLAIM OF DEPRECIATION IS ELIGIBLE AND HENCE THE ALTERNATE CLAIM THAT DEPRECIATION CLAIM COULD BE WITHDRAWN IS NOT LEGALLY TENABLE AND HENCE I HOLD THAT THE ENTIRE LEASE RENT RECEIVED IS TO BE TAXED IN C ASE OF THE APPELLANT AND THE AO HAS CORRECTLY BROUGHT TO TAX THE LEASE RENT AND ALLOWED DEPRECIATION. IN VIEW OF THE ABOVE, I CONFIRM THE ORDER OF THE AO AND THIS GROUND OF THE APPEAL IS DISMISSED. ' 6.2 SINCE THE ISSUE UNDER CONSIDERATION IN THE YEAR UNDER CONSIDERATION IS THE SAME AS WAS IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR 2008-09 AND THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE PR ESENT YEAR AS COMPARED TO ASSESSMENT YEAR 2008-09, FOR THE DETAILED REASONS AND DISCUSSION IN MY ORDER IN ITA NO. 101/10-11 DATED 29.11.2011 IN APPELLANT'S OWN CASE FOR THE ASSESSMENT YEAR 2008-09, I CONFIRM THE ACTION OF THE AO IN BRINGING TO TAX THE ENTIRE LEASE RENT RECEIVED BY THE APPELLANT AND ALL OWING ELIGIBLE DEPRECIATION ON THE ASSETS. THIS GROUND OF APPEAL, THEREFORE, IS DISMISSED. 6. ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.344 344344 344/MDS/13 /MDS/13 /MDS/13 /MDS/13 5 7. AT THE TIME OF HEARING, THE LD. DR HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS COVERED AGAINST THE ASSESSEE BY ASSESSEE S OWN CASE IN I.T.A. NO. 36 TO 41/MDS/2012 & I.T.A. NO. 105/MDS/201 2 FOR THE ASSESSMENT YEARS 2002-03 TO 2007-08 & 2008-09 VIDE ORDER DATED 20.12.2012. 8. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS FAIRLY AGREED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE. HOWEVER, H E HAD RELIED ON THE DECISION OF CIT V. THE INSTALMENT SUPPLY LTD. 2012 -TIOL-339-HC-DEL-IT. 9. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON R ECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ISSUE IN VOLVED IN THIS APPEAL IS SIMILAR TO THE ASSESSMENT YEARS 2006-07, 2007-08 AND 20 08-09 AND IN ALL THREE YEARS, THE TRIBUNAL HAS CONSIDERED AND PASSED DETAI LED ORDER AND RELEVANT PORTION IS EXTRACTED AS UNDER: 10. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. FOR ASSESSMENT YEARS 2006-07, 2007-08 AND 2008-09, ORIGINAL ASSESSMENTS, WHICH HAVE CULMINATED IN APPEALS BEFORE US, WERE COMPLETED UNDER SECTION 143(3) OF THE ACT. FOR ALL OTHER YEARS, THE ASSESSMENTS AGAINST WHICH APPEALS ARE BEFORE US, WERE COMPLETED UNDER SECTION 147 READ WITH SECTION 143 OF THE ACT. ASSESSEE HAD PURSUANT TO REOPENING NOTICE FOR ASSESSMENT YEAR 2002-03 TO 2005-06, FILED RETURNS AND IN SUCH RETURNS, IT HAD BY ITSELF RETURNED THE PRINCIPAL PORTION OF LEASE RENTALS ALSO AS A PART OF ITS INCOME. NO DOUBT, FOR ASSESSMENT YEAR 2003-04, A FURTHER ADDITION OF ` .19,63,956/- WAS MADE BY THE ASSESSING OFFICER, FOR A REASON THAT FULL AMOUNT OF THE LEASE RENT ALS WERE NOT SHOWN. HOWEVER, IN OUR OPINION, ASSESSEE ITSELF HAVING FILED RETURNS FOR ASSESSMENT YEARS 2002-03 TO 2005-06, PURSUANT TO THE NOTICE REOPENING THE ASSESSMENT FOR SUCH YEARS, DECLARING THE PRINCIPAL PART OF THE LEASE RENTALS ALSO AS ITS INCOME, COULD NOT NOW BE ALLOWED TO GO BACK TO SAY THAT SUCH INCOME COULD NOT BE CONSIDERED FOR ASSESSMENTS. THERE IS NOTHING IN THE INCOME TAX ACT WHICH ALLOWS AN ASSESSEE TO FILE A RETURN IN PROTEST. IF IT WAS SURE THAT LEASE RENTALS WERE NOT PART OF ITS INCOME, IT SHOULD NOT HAVE RETURNED SUCH AMOUNTS. ASSESSING OFFICER HAD GONE BY THE REVISED RETURN AND COMPLETED THE ASSESSMENT FOR THESE YEARS. FOR ASSESSMENT YEARS 2006-07 TO 2008-09 FOR WHICH PROCEEDINGS I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.344 344344 344/MDS/13 /MDS/13 /MDS/13 /MDS/13 6 WERE COMPLETED UNDER SECTION 143(3) OF THE ACT, WITHOUT DOUBT, ASSESSING OFFICER HAD CONSIDERED THE WHOLE OF THE LEASE RENTALS AS INCOME BUT ALLOWED THE CLAIM OF DEPRECIATION. ONCE DEPRECIATION W AS CLAIMED BY THE ASSESSEE ON LEASED ASSETS, IT WAS IMPERATIVE TO SHOW WHOLE OF THE LEASE RENTALS AS ITS INCOME. WHATEVER BE THE ACCOUN TING STANDARD FOLLOWED BY THE ASSESSEE, IT CANNOT SAY THAT LEASE RENTALS WERE NOT TO BE CONSIDERED AS INCOME, AND AT THE SAME TIME, DEPRECIATION HAD TO BE ALLOWED ON LEASED ASSETS. IF THE ASSETS BELONG TO THE ASSESSEE, DEPRECIATION WILL HAVE TO BE ALLOWED SINCE LEASE RENTALS ON SUCH ASSE TS WILL BE PART OF ITS INCOME. IF THE ASSETS DO NOT BELONG TO ASSESSEE, DEPRECIATION CAN BE CLAIMED ONLY BY THE LESSEES. THEN LEASE RENTAL, BUT FOR THE FINANCIAL CHARGES MAY GO TO REDUCE THE DUES FROM LESSEES ON ACCOUNT OF THE PRINCIPAL AMOUNTS DUE. IN OUR OPINION, ASSESSEE CANNOT HAVE THE CAKE AND EAT IT TOO. ONCE IT HAD CLAIMED DEPRECIATION, IT WAS NECESSARY FOR IT TO SHOW LEASE RENTALS AS PART OF ITS INCOME. TRE ATMENT GIVEN BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(APPEALS) CANNOT BE FAULTED. 10. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS ALREADY FILED AN APPEAL BEFORE THE HONBLE JURISDICTIO NAL HIGH COURT, WHICH IS PENDING FOR ADJUDICATION. IN VIEW OF THE ABOVE, WE, R ESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSE SSMENT YEARS 2006-07, 2007-08 AND 2008-09, DISMISS THE GROUND RAISE D BY ASSESSEE. 11. THE NEXT ISSUE RAISED IN THE APPEAL IS RELATING TO DISALLOWANCE OF EXPENSES OF ` .1,39,405/- RELATABLE TO EARNING DIVIDEND INCOME IN ACCORDANCE WITH RULE 8D. 12. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS AD MITTED INCOME FROM DIVIDEND TO THE EXTENT OF ` .4,01,600/- AND HAS CLAIMED EXEMPTION OF THE ENTIRE AMOUNT UNDER SECTION 10(34) R/W/S/ 115 O OF THE INCOME TAX ACT. THE ASSESSEE, VIDE ORDER SHEET ENTRY DATED 14.12.2011, WAS GIV EN AN OPPORTUNITY TO EXPLAIN AS TO WHY PROPORTION EXPENDITU RE SHOULD NOT BE DISALLOWED UNDER SECTION 14A OF THE INCOME TAX ACT R.W. RULE 8D. THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.344 344344 344/MDS/13 /MDS/13 /MDS/13 /MDS/13 7 ASSESSEE HAS NOT GIVEN ANY REPLY TO THE SHOW CAUSE NOTICE AN D THE ASSESSING OFFICER CAME TO CONCLUSION THAT SINCE THE ASSESSEE HAS NOTHING TO SAY IN THIS REGARD. THEREFORE, THE ASSESSING OFFICER WO RKED OUT THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D TO BE ` .1,39,405/- AGAINST ASSESSEES INVESTMENTS OF ` .2,07,48,725/- AS ON 31.03.2009 AND ` .3,50,13,125/- AS ON 01.04.2008. 13. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE T HE LD. CIT(APPEALS) AND THE LD. CIT(APPEALS) CONFIRMED THE ORDER OF THE A SSESSING OFFICER. 14. ON BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL B EFORE THE TRIBUNAL AND BY REFERRING ANNUAL REPORT AT PAGE 14, THE LD. COUNSEL FOR THE ASSESSEE HAS POINTED OUT THAT THE ACTUAL COST OF SALE AS ON 3 1.03.2009 OF ` .43,25,300/- AND AS ON 31.03.2008, IT WAS ` .32,92,900/- AND THE MARKET VALUE OF THE SHARES AS ON 31.03.2009 WAS ` .2,07,48,725/- AND AS ON 31.03.2008, IT WAS ` .3,50,13,125/-. HE HAS FURTHER SUBMITTED THAT THE ACT UAL PRICE FOR WHICH THE ASSESSEE HAS INVESTED HAS TO BE TAKEN I NTO CONSIDERATION AND NOT THE MARKET PRICE FOR WHICH THE SHARES ARE SALEA BLE, IN FACT, THE ASSESSEE HAS NOT SOLD THE SHARES AT ALL. WE FIND THAT THE RE IS MERIT IN THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE AND THE ASSES SING OFFICER HAS TAKEN THE MARKET VALUE OF QUOTED INVESTMENT AND NOT THE VALUE FOR WHICH THE ASSESSEE HAS ACQUIRED THE SHARES. WE, THEREFORE, SET ASIDE T HE ORDER PASSED BY THE LD. CIT(APPEALS) AND REMIT THE MATTER BA CK TO THE ASSESSING OFFICER AND DECIDE THE ISSUE AFRESH IN VIEW OF OUR ABOVE OBSERVATION AND CALCULATE THE DISALLOWANCE IN ACCORDANCE WITH PROVISIONS OF LAW. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.344 344344 344/MDS/13 /MDS/13 /MDS/13 /MDS/13 8 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THURSDAY, THE 22 ND OF AUGUST, 2013 AT CHENNAI. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (V.DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 22.08.2013 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.