TCS e- SERVE LTD ( EARLIER KNOWN AS e-SERVE INTERNATIONAL LTD), MUMBAI V. DCIT RG 9(1), MUMBAI

ITA 3570/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3107 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 15-01-2015
• Assessment Year: 1999-2000
• Appeal Filed On: 18-05-2012
• Court: TRIBUNAL
• Department Lawyers: IS DIRECTED AGAINST SEPARATE
• Assessee Lawyers: ONE APPEAL
• Keywords: Depreciation; Transfer pricing; Business expenditure; Difference of opinion; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 147; 148; 37; 154; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H MUMBAI. BEFORE AMIT SHUKLA , JUDICIAL MEMBER AND SHRI RAMIT KOCHAR , ACCOUNTANT MEMBER ITA NO 3570 /MUM/201 2 ASSESSMENT YEAR: - 1999 - 00 ITA NO 5232 /MUM/201 2 ASSESSMENT YEAR: - 2000 - 01 ITA NO. 5233/M UM/2012 ASSESSMENT YEAR: - 2001 - 02 TATA CONSULTANCY SERVICES LIMITED (UPON MERGER OF TCS E - SERVE LIMITED WITH TAT A CONSULTANCY SERVICES LIMITED) 9 TH FLOOR, NIRMAL BUILDING, NARIMAN POINT MUMBAI 400 021. V. THE ASSISTANT COMMISSIONER OF INCOME TAX (OSD) RANGE 9(1), AAYKAR BHAVAN, M.KARVE ROAD, MUMBAI 400 020. PAN/GIR NO. AAACC4480F APPELLANT RESPONDENT ITA NO. 2841/M UM/201 0 ASSESSMENT YEAR: - 2002 - 03 ACIT RANGE 9(3), AAYKAR BHAVAN, M.K. ROAD, MUMBAI 400020 VS.` TATA CONSULTANCY SERVICES LIMITED (UPON MERGER OF TCS E - SERVE LIMITED WITH TATA CONSULTANCY SERVICES LIMITED) M/S TCS E - SERVE LTD, 233, NESCO COMPOUND, PHASE - IA, BOMBAY EXHIBITION CENTRE, OFF. WESTERN EXPRESS HIGHWAY GOREGAON (E), MUMBAI 400 069. PAN/GIR NO. AAACC4480F APPELLANT RESPONDENT 2 TATA CONSULTANCY SERVICES LIMITED PAGE 2 OF 32 ORDER PER BENCH THESE THREE APPEALS BY THE ASSESSEE COMPANY AND ONE APPEAL BY THE REVENUE IS DIRECTED AGAINST THE SEPARATE ORDERS OF THE C OMMISSIONER OF I NCOME T AX (A PPEALS ) - 20,MUMBAI(HEREINAFTER CALLED THE CIT(A)) FOR ASSESSMENT YEARS 1999 - 2000, 2000 - 01, 2001 - 02 AND 2002 - 03. COMMON GROUNDS ARE RAISED BY THE ASSES SEE COMPANY IN ALL THE THREE APPEALS FILED BY THE ASSESSEE COMPANY . WE ARE FIRST TAKING THE APPEAL OF THE ASSESSEE COMPANY FOR THE ASSESSMENT YEAR 1999 - 2000. THE GROUNDS OF APPEAL RAISED FOR THE ASSESSMENT YEAR 1999 - 2000 IN MEMO OF APPEAL FILED READS AS UNDER: - (1)THE COMMISSIONER OF INCOME TAX (APPEALS) - 20, MUMBAI(CIT(A)) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE PAYMENT OF RS.23, 8 0,000 MADE TO CITICORP INFORMATION TECHNOLOGY SERVICES LIMITED(CITIL) FOR THE PURCHASE OF PROCESSING CONTRA CTS WAS CAPITAL IN NATURE HAVING FAILED TO APPRECIATE THAT THESE CONTRACTS WERE ACQUIRED IN THE ORDINARY COURSE OF BUSINESS AND THEREFORE THE EXPENSES INCURRED ARE REVENUE NATURE ALLOWABLE UNDER SECTION 37 OF THE ACT. (2) THE CIT(A) ERRED ON FACTS AND IN LAW IN DISALLOWING DEPRECIATION OF RS.30,052,849/ - ON CARS GIVEN ON LEASE , TREATING THEM TO BE IN THE NATURE OF ASSESSED BY SHRI P.J. PARADIWALLA & SHRI NIRAJ SHETH ` REVENUE BY SHRI SHRIKANT NAMDEO DATE OF HEARING 12.08.2015 DATE OF PRONOUNCEMENT 3 0 .09.2015 3 TATA CONSULTANCY SERVICES LIMITED PAGE 3 OF 32 FINANCIAL LEASE HAVING FAILED TO APPRECIATE THAT THE TRANSACTIONS UNDERTAKEN BY THE APPELLANTS ARE IN THE NATURE OF OPERATING LEASE AND THEREBY OUGHT TO HAVE DIRECTED THAT AO TO ALLOW DEPRECIATION THEREON. (3) THE CIT(A) OUGHT TO HAVE HELD THAT IN THE EVENT DEPRECIATION ON CARS LEASED IS ALLOWABLE, THE RATE OF DEPRECIATION SHOULD BE 40% ON THE CARS LEASED WHICH WERE PURCHASED AFTER 1.10.1998 AS THEY WERE COVERED BY THE DEFINITION OF COMMERCIAL VEHICLES AND ARE THEREFORE ELIGIBLE FOR DEPRECIATION AT A HIGHER RATE. (4) THE CIT(A) ERRED ON FACTS AND IN LAW IN DISALLOWING DEPRECIATION OF RS.3,288,246/ - ON COMPUTERS GIVEN ON LEASE, TREATING THEM TO BE IN THE NATURE OF FINANCIAL LEASE HAVING FAILED TO APPRECIATE THAT THE TRANSACTIONS UNDERTAKEN BY THE APPELLANTS ARE IN THE NATURE OF OPERATING LEASE AND THEREBY OUGHT TO HAVE DIRECTED THE AO TO ALLOW THE DEPRECIATION THEREON. (5) THE CIT(A) OUGHT TO HAVE HELD THAT DEPRECIATION @40% SHOULD BE ALLOWED ON THE CARS PURCHASED BY YOUR APPELLANT AFTER 1.10.1998 FOR THEIR OWN USE, AS THEY WERE COVERED BY THE DEFINITION OF COMMERCIAL VEHICLES AND ARE THEREFORE ELIGIBLE FOR DEPRECIATION AT A HIGHER RATE. (6) THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF COMPUTER REPAIRS AND MAINTENANCE EXPENSES OF RS.4,40,000 ON AN ADHOC BASIS HAVING FAILED TO APPRECIATE THAT SUCH EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE APPELLANTS. 4 TATA CONSULTANCY SERVICES LIMITED PAGE 4 OF 32 2. BEFORE WE START , I T IS PERTINENT TO MENTION HERE THAT T HE ASSESSMENT U/S 143(3) READ WITH SECTION 14 3(2) OF INCOME TAX ACT,1961 (HEREINAFTER CALLED THE ACT) IN THIS CASE WERE FRAMED AGAINST E - SERVE INTERNATIONAL LIMITED (FORMERLY KNOWS AS CITI CORP SECURITIES & INVESTMENT LTD), THE NAME OF THE AFORE - STATED COM PANY WAS LATER CHANGED TO TCS E - SERVE LTD, AND FINALLY TCS E SERVE GOT MERGED WITH THE T ATA C ONSULTANCY S ERVICES LTD. 3. GROUND NO. 1 RELATES TO THE EXPENDITURE OF RS. 23, 8 0,000/ - INCURRED BY THE ASSESSEE COMPANY FOR PURCHASE OF PROCESSING CONTRACTS CLAIMED AS REVENUE EXPENDITURE U/S 37 OF THE ACT WHICH WAS DISALLOWED AS THE SAME WAS HELD TO BE CAPITAL IN NATURE BY THE ASSESSING OFFICER . 4. THE BRIEF FACTS OF THIS ISSUE IS THAT T HE ASSESSEE COMPANY PAID RS. 85,00,000/ - TO CITI CORP INFORMATION TECHNOLOGY INDUSTRIES LTD ( HEREINAFTER CALLED CI T I L ) FOR PURCHASE OF THEIR PROCESSING DIVISION. THIS AMOUNT WAS AMORTIZED OVER THE PERIOD OF 25 MONTHS BEING BALANCE UNEXPIRED PERIOD OF CONTRACT. THE A SSESSEE COMPANY DULY FILED THE COPY OF ASSIGNMENT AGREEMENT EFFECTIVE FROM 1 ST AUGUST 1998 WITH THE A SSESSING OFFICER . THE ASSESSING OFFICER HELD THAT NO WHERE IT IS MENTIONED IN THE CONTRACT THAT THE SAID AMOUNT IS PAID TO CITIL FOR SURRENDERING THEIR PROCESSING DIVISION. THE PROCESSING SERVICE DIVISION HAS ENTERED INTO SEVERAL CONTRACTS WITH ITS CLIENT S WHICH WERE SECURED BY CITIL IN ITS ORDINARY COURSE OF BUSINESS. THE ASSESSEE COMPANY HAS ALSO TAKEN OVER RIGHTS AND OBLIGATIONS UNDER THE CONTRACT. THE ASSESSING OFFICER HELD THAT THE SAID AMOUNT WAS NOT MENTIONED IN THE AGREEMENT EXECUTED BETWEEN THE ASSESSEE COMPANY AND CITIL. THE ASSESSING OFFICER HELD THAT THE AMOUNT OF RS. 40,80,000/ - PAID FOR THE PERIOD OF 12 MONTHS OUT OF TOTAL 5 TATA CONSULTANCY SERVICES LIMITED PAGE 5 OF 32 PAYMENT OF RS.85,00,000 PAID FOR 25 MONTHS IS TO BE HELD AS CAPITAL EXPENDITURE BEING THE ACQUISITION OF PROCESSING DIVI SION OF THE CITIL AND DISALLOWED AS REVENUE EXPENDITURE AS CLAIMED BY THE ASSESSEE COMPANY . 5. AGGRIEVED BY THE ORDERS OF THE ASSESSING OFFICER , THE ASSESSE E COMPANY FILED THE FIRST APPEAL WITH THE CIT(A) AND CONTENDED THAT SINCE 1992, THE ASSESSEE COMPA NY IS OPERATING AS NON BANKING FINANCIAL COMPANY (NBFC) . THE ASSESSEE COMPANY SUBMITTED THAT DUE TO DOWNTURN IN NBFC BUSINESS DURING THE YEAR ENDED 30.06.1998 AND THE DEFAULTS FACED BY THE COMPANY IN LEASING BUSINESS, THE ASSESSEE COMPANY DECIDED TO REDUC E ITS DEPENDENCE ON VOLATILE SOURCES OF REVENUE AND COMPLEMENT THE EXISTING REVENUE STREAMS WITH GREATER PROPORTION OF REVENUES OF A STABLE AND ANNUITY NATURE , WHICH WAS APPROVED BY THE SHARE HOLDERS AND DIRECTORS OF THE COMPANY AND ACCORDINGLY MEMORANDUM OF ASSOCIATION OF THE COMPANY WAS DULY AMENDED TO INCORPORATE THE ABOVE OBJECTS IN THE OBJECT CLAUSE . THE ASSESSEE COMPANY ENTERED INTO ASSIGNMENT AGREEMENT TO ACQUIRE THE PROCESSING SERVICES DIVISION OF CITIL EFFECTIVE FROM 1.08.1998. THE PROCESSING SERVI CE DIVISION HAS ENTERED INTO SEVERAL CONTRACTS WITH ITS CLIENTS WHICH REQUIRE CITIL TO PROVIDE SERVICES PERTAINING TO CASH MANAGEMENT, CUSTODIAL SERVICES AND TRADE FINANCE AND SUCH CONTRACTS WERE SECURED BY THE CITIL IN THE ORDINARY COURSE OF BUSINESS. THE RIGHTS AND OBLIGATIONS IN THESE CONTRACTS WERE TAKEN OVER BY THE ASSESSEE COMPANY AND RS. 85 LAC S WAS PAID FOR THE ACQUISITION OF THE UNEXPIRED CONTRACTS , WHICH WERE FOR THE UNEXPIRED PERIOD OF 25 MONTHS AND HENCE THE ASSESSEE COMPANY DECIDED TO AMORTIZED THIS COST OVER A PERIOD OF 25 MONTHS BEING THE BALANCE OF UNEXPIRED PERIOD OF THE CONTRACT. THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSING OFFICER HAS DISALLOWED RS. 40,80,000/ - 6 TATA CONSULTANCY SERVICES LIMITED PAGE 6 OF 32 TREATING THE SAME TO BE IN NATURE OF CAPITAL EXPENDITURE WHICH WAS FURTHER AMENDED U/S 154 OF THE ACT BY ORDERS DATED 29.04.2002, WHEREBY THE DISALLOWANCE WAS REDUCED TO 23, 8 0,000/ - AS OUT OF THE UNEXPIRED PERIOD OF THE CONTRACT OF 25 MONTHS , ONLY 7 MONTHS FELL WITHIN THE PREVIOUS YEAR 31 ST MARCH 1999 IE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE COMPANY SUBMITTED THAT BY ACQUIRING THESE CONTRACTS, THE ASSESSEE COMPANY HAS SECURED REVENUE FROM THESE CONTRACTS AS WELL AS THE ASSESSEE COMPANY IS ABLE TO SAVE VARIOUS REVENUE COSTS LIKE COST FOR CANVASSING NEW CLIENTS, ADVERTISING AND MARKETING EXPENDITURE, COST OF PERSONNEL ETC. AND ALSO THE ASSESSEE COMPANY IS ABLE TO ENHANCE THE PROFIT EARNING PROCESS. 6. THE CIT(A) HELD THAT THE ASSESSEE COMPANY HAS ACQUIRED THE PROCESSING SERVICE DIVISION OF CITIL AND THUS THE EXPENDITURE WA S FOR THE PURPOSE OF EXTENSION OF BUSINESS AND HENCE INCOME EARNING ASSET IN THE FORM OF PROCESSING SERVICE DIVISION HAS BEEN ACQUIRED BY THE ASSESSEE COMPANY . THE CIT(A) HELD THAT THIS IS INCURRED FOR PURCHASE OF PROCESSING CONTRACT WHICH IS CAPITAL IN N ATURE BEING INTANGIBLE ASSET TO BE CLASSIFIED AS BUSINESS OR COMMERCIAL RIGHTS AND ENTITLED TO DEPRECIATION AT THE RATE OF 25% . 7. AGGRIEVED BY THE ORDERS OF THE CIT(A) , THE ASSESSEE COMPANY IS IN APPEAL BEFORE US AND REITERATED THE SUBMISSION AS MADE B EFORE THE AUTHORITIES BELOW. THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSEE COMPANY HAS ACQUIRED THESE CONTRACTS BY ASSIGNMENT AGREEMENT EFFECTIVE FROM 01.08.1998 WHEREBY THE CITIL HAS ASSIGNED THE SERVICE AGREEMENTS BETWEEN CITI BANK AND CITIL IN THE F ORM OF CASH MANAGEMENT, PRODUCT AGREEMENT, CUSTODIAL SERVICE AGREEMENT, TRADE FINANCE AGREEMENT VIDE ASS IGNMENT OF AGREEMENT EFFECTIVE 7 TATA CONSULTANCY SERVICES LIMITED PAGE 7 OF 32 FROM 01.08 . 1998 WHICH WAS PRODUCED BEFORE US ALSO . THE ASSESSEE COMPANY ALSO PRODUCED BEFORE US COPY OF DIRECTORS REPORT OF THE ASSESSEE COMPANY FOR THE YEAR ENDING 30.06.1999, WHEREBY IT IS MENTIONED IN THE DIRECTORS REPORT DATED 25 TH SEPTEMBER 1999 ADDRESSED TO THE SHAREHOLDERS OF THE COMPANY THAT THE ASSESSEE COMPANY DURING THE FINANCIAL YEAR ENDED 30 TH JUNE 1999 COMME NCED THE BUSINESS OF PROVIDING TRANSACTION PROCESSING SERVICES IN THE FIELD OF BANKING AND FINANCE TO CITIGROUP ENTITIES. THE ASSESSEE COMPANY S AR MADE STATEMENT BEFORE US THAT THE ASSESSEE COMPANY HAS RECEIVED THE REVENUE OF RS. 9,06,10,908/ - TOWARDS TRA NSACTION PROCESSING AND ADMINISTRATIVE FEES ARISING FORM THE AFORE - STATED ASSIGNMENT AGREEMENT EFFECTIVE FROM 01 - 08 - 1998 WHEREBY TRANSACTION SERVICES CONTRACTS ARE ASSIGNED IN FAVOUR OF THE ASSESSEE COMPANY . THE ASSESSEE COMPANY HAS ALSO SHOWED US THAT THI S PAYMENT OF RS. 85 LAC HAS BEEN TREATED AS DEFERRED REVENUE EXPENDITURE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY . THE A SSESSEE COMPANY ALSO DREW OUR ATTENTION TO THE ORDERS OF THE CIT(A), WHEREBY IT IS WRITTEN THAT THE ASSESSEE COMPANY HAS ACQUIRED THE PROCESSING SERVICE DIVISION WHICH IN THE OPINION OF THE ASSESSING COMPANY IS NOT A CORRECT FINDING OF FACT WHILE THE ASSESSEE COMPANY CONTENDED THAT THE ASSESSEE COMPANY HAS ONLY ACQUIRED THE SERVICES AGREEMENT WHICH IS IN THE FIELD OF REVENUE AND THE TRANSACTION PROCESSING AND ADMINISTRATIVE FEE IS GENERATED OUT OF THIS SERVICE AGREEMENT S ASSIGNED IN FAVOUR OF THE ASSESSEE COMPANY . THE ASSESSEE COMPANYS AR STATED BEFORE US THAT NO SUCH PROCESSING DIVISION IS ACQUIRED BY THE ASSESSEE COMPANY NOR THERE IS ANY SLUMP SALE IN FAVOUR OF THE COMP ANY RATHER IT IS MERELY ASSIGNMENT OF SERVICE AGREEMENTS IN FAVOUR OF THE ASSESSEE COMPANY . THE A SSESSEE COMPANY RELIED UPON THE JUDGMENT OF 8 TATA CONSULTANCY SERVICES LIMITED PAGE 8 OF 32 HON BLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. IBM GLOBAL SERVICES INDIA PVT. LTD. [ (2014) 46 TAXMANN.COM 55 (KAR.) ] 8. THE LD. DR ON THE OTHER HAND, RELIED UPON THE ORDERS OF AUTHORITIES BELO W AND STATED THAT THESE ACTIVITIES REQUIRES HUGE TELECOM AND POWER INFRASTRUCTURE DEVELOPMENT WHICH HAS ALSO B EEN MENTIONED IN THE DIRECTORS REPORT OF THE ASSESSEE COMPANY FOR THE YEAR ENDED 30 TH JUNE 1999 AND HENCE THE LOWER AUTHORITIES HAVE RIGHTLY TREATED THE SAME AS CAPITAL EXPENDITURE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE RE LEVANT MATERIAL ON RECORD AND CASE LAWS RELIED UPON . WE HAVE OBSERVED THAT ASSESSEE COMPANY VIDE ASSIGNMENT AGREEMENT EFFECTIVE FROM 01.08 .1998, HAS ACQUIRED THE SERVICE AGREEMENT ENTERED INTO BETWEEN CITI BANK AND CITIL WHEREBY ALL THE LIABILITIES, RIGHT S AND OBLIGATION AND INTEREST IN THE AFORE - STATED AGREEMENT WERE ACQUIRED BY THE ASSESSEE COMPANY . SINCE THESE ARE SERVICE AGREEMENT FROM WHICH THE REVENUE IS TO BE GENERATED OVER A PERIOD OF UNEXPIRED 25 MONTHS FROM 0 1. 0 8.1998 AND THE ASSESSES COUNSEL H AS DRAWN OUR ATTENTION TO THE AUDITED ACCOUNTS FOR THE YEAR ENDED 30.06.1999 TO THE FACT THAT THE REVENUE OF RS. 9,06,10,908/ - BEING TRANSACTION PROCESSING AND ADMINISTRATIVE FEES IS RECEIVED BY THE ASSSESEE COMPANY OUT OF THESE ASSIGNED AGREEMENT/ CONTRACTS ONLY DURING THE PERIOD ENDED 30 TH JUNE 1999 AND NO PROCESSING DIVISION/ASSETS UNDER THESE AGREEMENTS WAS ACQUIRED NOR THERE IS ANY SLUMP SALE HAPPENING IN FAVOUR OF THE ASSESSEE COMPANY RATHER IT IS MERELY ASSIGNMENT OF AGREEMENT S IN FAVOUR OF THE ASSESSEE COMPANY WHEREBY THE UNEXPIRED PERIOD REVENUE GENERATED CONTRACTS ARE ASSIGNED IN FAVOUR OF THE ASSESSEE COMPANY . THE ENTIRE CONSIDERATION OF RS. 85 LAC IS PAID TO 9 TATA CONSULTANCY SERVICES LIMITED PAGE 9 OF 32 ACQUIRE THE UNEXPIRED PORTION OF THE SERVICE AGREEMENTS WHICH WILL GENERATE R EVENUE FOR THE ASSESSEE COMPANY DURING THE UNEXPIRED PE RIOD OF THIS SERVICE AGREEMENT IE 25 MONTHS FROM 01.08.1998 . KEEPING IN VIEW THE PRINCIPLE OF MATCHING CONCEPTS OF REVENUE AND EXPENDITURE AND ALSO THAT THESE ASSIGNMENT OF AGREEMENTS ARE TOWARDS R EVENUE FIELD , WE HOLD THAT ASSESSEE COMPANY HAS RIGHTLY CHARGED AS REVENUE E XPENSES , 7 MONTHS EXPENSES OUT OF 25 MONTHS UNEXPIRED PERIOD OF CONTRACT BEING RS. 23,80,000/ - AND HENCE ADDITIONS MADE BY THE ASSESSING OFFICER TO THE TUNE OF RS.23,80,000/ - TO THE INCOME OF THE ASSESSEE COMPANY AND AS CONFIRMED BY THE CIT(A) IS HEREBY DELETED . WE ORDER ACCORDINGLY. 10. THE SECOND GROUND OF APPEAL RELATES TO THE DEPRECIATION OF RS. 30,052,849/ - ON CAR LEASED BY THE ASSESSEE COMPANY BEING CHARGED TO REVENUE ACC OUNT WHICH WAS DISALLOWED BY THE ASSESSING OFFICER TREATING IT TO BE IN THE NATURE OF FINANCING AND NOT LEASING TRANSACTIONS. . 11. THE ASSESSEE COMPANY IS DOING BUSINESS OF LEASING OF CARS AND LEASE RENTALS WERE SHOWN AS INCOME BY THE ASSESSEE COMPANY AND THE ASSESSEE COMPANY ALSO CLAIMED DEPRECIATION ON THE LEASED CARS . THE CARS WERE LEASED BY THE ASSESSEE COMPANY TO ITS ASSOCIATED CONCERNS AND NOT TO OUTSIDERS. THE ASSESSING OFFICER HELD THAT THIS IS NOTHING BUT FINANCIAL TRANSACTION FOR PURCHASE OF CAR AND ONLY THE NAME WAS GIVEN BY THE ASSESSEE COMPANY AS LEASING TRANSACTION TO GET THE BENEFIT OF DEPRECIATION AND ALSO GET THE BENEFIT TO ITS ASSOCIATED ENTERPRISES BY WAY OF LEASE RENT PAID AND ALSO CLAIM DEPRECIATION ON CAR LEASED. THE ASSESSING OFF ICER HELD THAT THE LEASE RENTAL IS NOTHING BUT PRINCIPLE COMPONENT PLUS INTEREST COMPONENT WHICH IS SPREAD 10 TATA CONSULTANCY SERVICES LIMITED PAGE 10 OF 32 OVER FOR PARTICULAR MONTHS TO RECOVER THE LOAN AMOUNT ALONG WITH THE INTEREST . THE ASSESSING OFFICER HELD THAT AFTER THE EXPIRY OF LOAN PERIOD, THE ASSESSEE COMPANY IS SELLING THE CARS AT VERY NOMINAL AMOUNT AT RS. 2 000 TO 3 000. THE ASSESSING OFFICER HELD THAT THE MAXIMUM LEASE PERIOD IS 36 MONTHS AND IF THE CAR IS SOLD AFTER COMPLETION OF 36 MONTHS , THEN IT WILL FETCH IN THE MARKET NOT LESS THAN 50 % OF THE ORIGINAL COST. THE ASSESSING OFFICER HELD THAT IN THE HANDS OF LESSOR , ONLY INTEREST COMPONENT WILL BE TAXED AND NO DEPRECIATION WILL BE AVAILABLE AND IN THE HANDS OF THE LESSEE ONLY DEDUCTION WILL BE AVAILABLE IN RESPECT OF INTEREST PAID ON INS TALLMENT AND DEPRECIATION. THE ASSESSING OFFICER HELD THAT THE LESSEE IS CLAIMING LEASE RENTAL CHARGES WHICH CONTAINS PRINCIPLE COMPONENT AND INTEREST COMPONENT AND HAS ALSO CLAIMED DEPRECIATION AND UNLESS AND UNTIL THE PRINCIPAL COMPONENT IS NOT DISALLOW ED OUT OF LEASE RENTAL CHARGES CLAIMED AS DEDUCTION, THE LESSOR WILL ALSO NOT GET ANY DEDUCTION ; THE LESSOR WILL ALSO NOT GET ANY DEDUCTION OF PRINCIPLE AMOUNT OUT OF THE LEASE RENTAL CHARGES CREDITED IN ACCOUNTS AND SHOWN AS INCOME AND HENCE THE DEPRECIA TION OF RS.3,00,52,849/ - CLAIMED ON THE CAR LEASED IS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE COMPANY. 12. AGGRIEVED BY THE ORDERS OF ASSESSING OFFICER , THE ASSESSEE COMPANY CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) AND CONTENDED THAT THE LEASIN G WAS ONE OF THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE COMPANY AS PER THE OBJECT CLAUSE IN MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY . THE ASSESSEE COMPANY CONTENDED THAT THE ASSESSEE COMPANY IS CARRYING OUT LEASING ACTIVITY FOR SEVERAL YEAR S WHICH IS ALLOWED BY THE REVENUE AND IT IS THE FIRST TIME IN THE ASSESSMENT YEAR 1999 - 00, THE DEPRECIATION ON VEHICLE IS DISALLOWED BY THE REVENUE ON THE ALLEGATION THAT THE TRANSACTION IS A FINANCI NG ARRANGEMENT TO 11 TATA CONSULTANCY SERVICES LIMITED PAGE 11 OF 32 AVAIL THE BENEFIT OF DEPRECIATION ON AS SETS GIVEN ON LEASE AND ALSO TO ENABLE THE ASSOCIATED CONCERN S TO TAKE BENEFIT BY WAY OF CLAIM FOR LEASE RENT PAID AS WELL AS DEPRECIATION ON SUCH ASSETS. THE ASSESSEE COMPANY SUBMITTED THAT THEY ARE THE OWNERS OF ASSETS WHICH HAVE BEEN LEASED TO ITS ASSO CIATE CONCERNS A S PER LEASE AGREEMENTS ENTERED, THE COPIES OF MASTER LEASE AGREEMENTS AND ALSO NAME AND ADDRESSES OF THE LESSEES WERE SUBMITTED BEFORE THE CIT(A). THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS: - 1. CIT V. SHAAN FINANCE (P) LTD. (S C) (231 ITR 308) 2. CIT V . MAHARASHTRA APEX CORPORATION LTD. (SC) (254 ITR 98) 3. CIT V . MADAN & CO. (MAD. HC) (254 ITR 445) 4. CIT V. ANNAMALAI FINANCE LTD. (MAD. HC) ( 275 ITR 451) 5. CIT V. MIRZA ATAULLAH BAIG AND ANOTHER (BOM HC) (202 ITR 291) 6. CIT V. COSMO FILMS LIMITED (DEL. HC) (ITA 1404/2008) . 13. THE CIT(A) RELIED UPON THE DECISION OF MUMBAI TRIBUNAL - SPECIAL BENCH IN THE CASE OF INDUS IND BANK LTD. DATED 14 TH MARCH 2012, WHEREBY THE SPECIAL BENCH HAS EXPLAINED THE DIFFERENCE BETWEEN THE FINANCIAL LEASE AND OPERATING LEASE WHEREBY THE SPECIAL BENCH HELD THAT THE FINANCIAL LEASE IS A LOAN FROM THE LESSOR TO LESSEE AND SO NOT ENTITLED FOR DEPRECIATION . THE CIT(A) HELD THAT THE LESSEES HAVE RENTED THE CARS AND THE ASSESSEE COMPANY HAS ONLY PROVIDED FUNDS. THE LE SSEE IS USING THE CARS FOR THE ENTIRE ECONOMIC LIFE AND ALL RISKS AND REWARDS INCIDENTAL TO OWNERSHIP HAS BEEN TRANSFERRED TO THE LESSEE. THE LEASE IS FOR A FIXED PERIOD AND NON CANCELLABLE AND THEREBY HE HELD THAT THE LEASE IS A FINANCIAL LEASE AN D HENCE DEPRECIATION WAS RIGHTLY DISALLOWED BY THE ASSESSING OFFICER KEEPING IN VIEW SPECIAL BENCH DECISION OF MUMBAI TRIBUNAL 12 TATA CONSULTANCY SERVICES LIMITED PAGE 12 OF 32 IN THE INDUS IND BANK LIMITED(SUPRA) AS THE ASSESSEE COMPANY IS NOT OWNER OF THE ASSETS . THE ASSESSEE COMPANY SUBMITTED BEFORE TH E CIT(A), CERTIFICATE FROM THE LESSEES FOR ASSESSMENT YEAR 2000 - 01 THAT THE LESSEES HAVE NOT CLAIMED ANY DEPRECIATION ON THE LEASED ASSETS TO CONTEND THAT THE ASSESSING OFFICER HAS WRONGLY CONCLUDED IN THE ASSESSMENT ORDER THAT THE LESSEES HAVE CLAIMED DEPRECIATION ON THE LEASED CARS. THE CIT(A) CONCLUDED THAT THE ASSESSING OFFICER HAS NO BASIS TO CONCLUDE THAT THE LESSEES HAVE CLAIMED DEPRECIATION ON THE LEASED ASSETS. 14. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE COMPANY IS IN APPEAL BEFORE US. 15. BEFORE US, THE ASSESSEE COMPANY CONTENDED THAT THE ASSESSEE COMPANY HAS LEASED THESE CARS TO ITS ASSOCIATED CONCERNS ON WHICH DEPRECIATION IS BEING CLAIMED. THE A SSESSEE COMPANY CONTENDED THAT THIS IS THE FIRST YEAR ON WHICH THE DEPRECIATION IS DISAL LOWED BY REVENUE ON THESE LEASED CARS WHILE FOR THE EARLIER YEAR, THE SAME WAS ALLOWED BY THE REVENUE . THE ASSESSEE COMPANY STATED THAT THESE CARS ARE PROVIDED TO EMPLOYEE S AND AT THE END OF THE PERIOD CARS ARE SOL D TO THE EMPLOYEES. THE ASSESSEE COMPANY RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF I . C . D . S . LTD. V. CIT (2013) 350 ITR 527 ,(2013) 29 TAXMANN.COM 129 (SC) . THE A SSESSEE COMPANY ALSO RELIED ON THE JUDGMENT OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF DEVELOPMENT CREDIT BANK LTD. V. DCIT (2014) 61 SOT 53 (MUM) AND ALSO ON THE JUDGMENT OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF SICOM LTD. VS. JCIT [ (2013) 40 TAXMANN.COM 469]. 13 TATA CONSULTANCY SERVICES LIMITED PAGE 13 OF 32 1 6 . THE LD. DR ON THE OTHER HAND, CONTENDED THAT THESE ARE FINANCIAL LEASE AND RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 1 7 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE OBSERVED THAT TO CLAIM DEPR ECIATION, THE ASSET SHOULD BE OWNED BY THE ASSESSEE AND IT SHOULD BE USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. IN THIS CASE, THE ASSESSEE COMPANY IS OWNING THE ASSET I.E. CARS TILL THE SAME ARE SOLD TO THE ASSOCIATED CONCERN/EMPLOYEES . THE ASSESSEE COMPANY BY GIVING THESE CARS ON LEASE IS IN FACT USING THE SAME FOR ITS OWN BUSINESS. THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF ICDS LTD (SUPRA) IS DIRECTLY APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND THE ASSESSEE COMPANY HAS RIGHTLY CLAIMED THE DEPRECIATION ON THE CARS LEASED BY THE ASSESSEE COMPANY . THE A SSESSEE COMPANY HAS ALSO STATED THAT IT HAS BROUGHT ON RECORD BEFORE THE CIT(A), THE EVIDENCE THAT NO DEPRECIATION IS CLAIMED BY THE LESSEE ON THESE LEASED CARS AND THE C IT(A) HAS GIVEN FINDING OF THE FACT THAT THERE WAS NO BASIS FOR THE ASSESSING OFFICER TO CONCLUDE THAT THE LESSEES HAVE CLAIMED DEPRECIATION ON THESE LEASED ASSETS I.E. CARS. H ENCE IN VIEW OF THE ABOVE, WE HOLD THAT ASSESSEE COMPANY HAS RIGHTLY CLAIMED T HE DEPRECIAT ION ON THE LEASED ASSETS I.E. CARS AND THE DISALLOWANCE OF DEPRECIATION OF RS.3,00,52,049/ - CLAIMED BY THE ASSESSEE COMPANY ON LEASED ASSET I.E. CARS AS DISALLOWED BY THE ASSESSING OFFICER AND AS CONFIRMED BY THE CIT(A) IS HEREBY DELETED. WE OR DER ACCORDINGLY. 18. GROUND NO. 3 IS WITH RESPECT TO THE DEPRECIATION @ 40% SHOULD BE ALLOWED ON CAR LEASE WHICH WERE PURCHASED AFTER 1.10.1998 BUT BEFORE 01 ST APRIL 1999 AND PUT TO USE BEFORE 1 ST APRIL 1999 . 14 TATA CONSULTANCY SERVICES LIMITED PAGE 14 OF 32 19. T HE A SSESSEE COMPANY HAS CLAIMED DEPRECIATION ON CARS @ 20% ON THE OLD CAR S WHICH WERE GIVEN ON LEASE AND THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATION @40% ON CAR PURCHASED AFTER 1.10.1998, WHICH WERE GIVEN ON LEASE .THE A SSESSEE COMPANY CONTENDED BEFORE THE ASSESSING OFFICER THAT THERE IS AMENDMENT IN SECTION 32 OF THE ACT, AND DEPRECIATION IS ALLOWABLE AT THE RATE OF 40% ON COMMERCIAL VEHICLE WHICH IS USED IN THE BUSINESS OF RUNNING THEM ON HIRE OR FOR TOURISTS. THE ASSESSING OFFICER HELD THAT THESE ARE GIVEN BY THE ASSESSEE COMPANY TO THE ASSOCIATED CONCERNS ON LEASE AND THEY WERE USED FOR THE OFFICE PURPOSE, THEREFORE, DEPRECIATION IS AVAILABLE AT THE RATE OF 20% AND HENCE EXCESS DEPRECIATION CLAIMED IS DISALLOWABLE. 20. AGGRIEVED BY THE ORDERS OF THE ASSESSING OFFICER, THE ASSESSEE COMPANY CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A), WHEREBY, THE ASSESSEE COMPANY CONTENDED THAT DEPRECIATION AT THE RATE OF 40% IS IN ACCORDANCE WITH THE ENTRY III (2) (IIA) OF PART A OF APPENDIX I APPLICABLE TO THE ASSESSMENT YEARS 1998 - 9 9 TO 2002 - 03. THE ASSESSEE COMPANY CONTENDED THAT THE C OMMERCIAL VEHICLES HAVE BEEN DEFINED IN NOTE NO. 3A OF THE APPENDIX I TO RULE 5 BELOW THE TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE WHICH INCLUDES LIGHT MOTOR VEHICLES. THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF GIVING VEHICLES ON LEASE IN THE O RDINARY COURSE OF THE ASSESSEE COMPANYS BUSINESS TO THE ASSOCIATED CONCERN WHICH ARE USED FOR OFFICE PURPOSES BY THE ASSOCIATED CONCERNS . THE A SSESSEE COMPANY CONTENDED THAT THESE ARE COMMERCIAL VEHICLE AND DEPRECIATION AT THE RATE OF 40% IS RIGHTLY CLAIMED FOR THE VEHICLES PURCHASED AFTER 1.10.1998 BUT BEFORE THE 1 ST DAY OF APRIL 1999 , AND , IS PUT TO USE BEFORE THE 1 ST DAY OF APRIL 15 TATA CONSULTANCY SERVICES LIMITED PAGE 15 OF 32 1999 . THE CIT(A) HELD THAT SINCE THE LEASE TRANSACTION OF CARS IS A FINANCIAL LEASE AND THE ASSESSEE IS NOT THE OWNER OF THESE LEASED VEHICLES AND HENCE , THE ASSESSEE COMPANY IS NOT ENTITLED TO DEPRECIATION. 21. AGGRIEVED BY THE DECISION OF THE CIT(A), THE ASSESSEE C OMPANY IS IN APPEAL BEFORE US. 22. BEFORE US, THE ASSESSEE COMPANY REITERATED THE SUBMISSIONS AS MADE BEFORE THE LOWER AUTHORITIES. THE ASSESSEE COMPANY RELIED UPON THE DECISION OF JURISDICTIONAL HONBLE HIGH COURT OF BOMBAY IN ITA NO 828 OF 2010 IN CIT V. BIRLA GLOBAL ASSET FINANCE CO. LIMITED AND SUBMITTED THAT THE INSTANT CASE IS SQUARELY COVERED BY THE SAID DECISION. THE ASSESSEE COMPANY CONTENDED THAT DEPRECIATION AT THE RATE OF 40% IS IN ACCORDANCE WITH THE ENTRY III (2) (IIA) OF PART A OF APPENDIX I APPLICABLE TO THE ASSESSMENT YEARS 1998 - 99 TO 2002 - 03. THE ASSESSEE COMPANY CONTENDED THAT THE C OMMERCIAL VEHICLES HAVE BEEN DEFINED IN NOTE NO. 3A OF THE APPENDIX I TO RULE 5 BELOW THE TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE WHICH INCLUDES LIGHT MOTOR VEHICLES. THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF GIVING CARS ON LEASE IN THE O RDINARY COURSE OF THE ASSESSEE COMPANYS BUSINESS TO THE EMPLOYEES/ ASSOCIATED CONCERN WHICH ARE USED FOR OFFICE PURP OSES BY THE EMPLOYEES/ ASSOCIATED CONCERNS . THE A SSESSEE COMPANY CONTENDED THAT THESE ARE COMMERCIAL VEHICLE AND DEPRECIATION AT THE RATE OF 40% IS RIGHTLY CLAIMED FOR THE VEHICLES PURCHASED AFTER 1.10.1998 BUT BEFORE 1 ST APRIL 1999 AND PUT TO USE BEFORE 1 ST APRIL 1999 . 23. THE LD. DR RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 16 TATA CONSULTANCY SERVICES LIMITED PAGE 16 OF 32 24. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORDS AND RELIED UPON CASE LAWS. AS WE HAVE ALREADY ADJUDICATED IN T HE PRECEDING PARAS THAT THE ASSESSEE COMPANY IS OWNER OF THESE LEASED CARS TILL THEY ARE SOLD TO EMPLOYEES/ASSOCIATED CONCERNS . WE ALSO HELD THAT THE ASSESSEE COMPANY IS ENTITLED FOR DEPRECIATION ON THESE LEASED VEHICLES . S INCE THE ASSESSEE IS ENGAGED I N THE BUSINESS OF LEASING AND THESE CARS HAVE BEEN GIVEN ON LEASE IN THE NORMAL COURSE OF BUSINESS, HENCE, IT IS TO BE HELD THAT THE ASSESSEE COMPANY HAS GIVEN THESE VEHICLES ON LEASE AND THEY ARE COMMERCIAL VEHICLE S ENTITLED FOR DEPRECIATION @ 40% IF PURC HASED AFTER 01.10.1998 BUT BEFORE 1 ST APRIL 1999 AND ARE PUT TO USE BEFORE THE 1 ST DAY OF APRIL 1999 IN ACCORDANCE WITH THE ENTRY III (2) (IIA) OF PART A OF APPENDIX I APPLICABLE TO THE ASSES SMENT YEARS 1998 - 99 TO 2002 - 03 AS PER DEFINITION OF THE C OMMERCIAL VEHICLES WHICH HAVE BEEN DEFINED IN NOTE NO. 3A OF THE APPENDIX I TO RULE 5 BELOW THE TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE WHICH INCLUDES LIGHT MOTOR VEHICLES , FOR THE PURPOSE OF BUSINESS OR PROFESSION AS PER AMENDED PROVISIONS OF SECTION 32 OF THE ACT . W E ORDER ACCORDINGLY. 25. GROUND NO. 4 IS REGARDING DISALLOWANCE OF DEPRECIATION OF RS. 3,288,246/ - ON COMPUTERS LEASED BY THE ASSESSEE COMPANY BEING CHARGED TO REVENUE ACCOUNT WHICH WAS DISALLOWED BY THE ASSESSING OFFICER TREATING IT TO BE IN THE NATURE OF FINANCING AND NOT LEASING TRANSACTIONS.. 26. THE ASSESSING OFFICER HELD THAT THESE LEASED TRANSACTION IS NOTHING BUT FINANCIAL TRANSACTION BETWEEN THE ASSESSEE COMPANY AND THE PARTIES BY WHOM THE COMPUTERS IS PURCHASED AND DEPRECIATION ON COMPUTER LEASED IS ALSO 17 TATA CONSULTANCY SERVICES LIMITED PAGE 17 OF 32 DISALLOWED AND HENCE RS.32,88,246 WAS ADDED TO THE INCOME OF THE ASSESSEE COMPANY. 27 . AGGRIEVED BY THE ORDERS OF THE ASSESSING OFFICER , THE ASSESSEE COMPANY CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT LEASING WAS ONE OF THE MAIN BUSINESS ACTIVITIES OF THE ASSESSEE COMPANY AS EVIDENCED BY THE OBJECTS CLAUSE IN THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY . THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSEE COMPANY IS CARRYING OUT LEASING ACTIVITY FOR THE LAST SEVERAL YEARS AND ONLY FOR THE FIRST TIME IN THE ASSESSMENT YEAR 1999 - 2000, DEPRECIATION ON COMPUTERS WAS DISALLOWED ON THE ALLEGED GROUND THAT THE TRANSACTION IS A FINANCING ARRANGEMENT TO AVAIL THE BENEFIT OF DEPRECIATION ON ASSETS GIVEN ON LEASE. THE ASSESSEE COMPANY PLACED ON RECORDS EVIDENCE REGARDING T HE FACT THAT THE REVENUE HAS ALLOWED DEPREC IATION ON ASSETS GIVE N ON LEASE UPTO ASSESSMENT YEAR 1998 - 99. THE ASSESSEE COMPANY FURTHER SUBMITTED THAT THEY WERE ENTITLED TO DEPRECIATION ON THE LEASED ASSETS. THE A SSESSEE COMPANY PLACED RELIANCE ON THE FOLLOWING DECISIONS: - 1. CIT VS. SHAAN FINANCE (P) LTD. (SC) (231 ITR 30 8) 2. CIT VS. MAHARASHTRA APEX CORPORATION LTD. (SC) (254 ITR 98) 3. CIT VS. MADAN & CO. (MAD. HC) (254 ITR 445) 4. CIT VS. ANNAMALAI FINANCE LTD. (MAD. HC) ( 275 ITR 451) 5. CIT VS. MIRZA ATAULLAH BAIG AND ANOTHER (BOM HC) (202 ITR 291) 6. CIT VS . M/S COSMO FILMS LIMIT ED (DEL. HC) (ITA 1404/2008). 18 TATA CONSULTANCY SERVICES LIMITED PAGE 18 OF 32 WITHOUT PREJUDICE , T HE ASSESEE COMPANY FURTHER SUBMITTED THAT THE ASSESSING OFFICER OUGHT TO HAVE DISALLOWED THE AMOUNT OF DEPRECIATION CLAIMED AT RS. 986,474/ - AS AGAINST RS. 3,288,246/ - BEING THE ADJUSTED WDV OF THE COMP UTERS GIVEN ON LEASE. COMPUTERS FOR GIVING ON LEASE AMOUNTING TO RS. 3,288,246/ - WERE PURCHASED DURING THE YEAR. DEPRECIATION OF RS. 986,474/ - ON LEASED COMPUTERS WAS CLAIMED @ 60% ( IN THIS YEAR AT THE RATE OF 30% SINCE THE ASSETS WERE USED FOR LESS THAN 180 DAYS). THE OPENING WDV IN THE BLOCK OF COMPUTERS ELIGIBLE FOR DEPRECIATION @60% WAS NIL SINCE PRIOR TO THE YEAR UNDER APPEAL, THE COMPUTERS WERE ELIGIBLE FOR DEPRECIATION @ 25% AND WERE INCLUDED IN THE BLOCK OF PLANT AND MACHINERY. IN THIS CONNECTION A TTENTION OF THE CIT(A) IS INVITED TO THE ORDER PASSED UNDER SECTION 154 DATED 29.04.2002, WHEREIN THE ASSESSING OFFICER HAS RECTIFIED THE SAME. THE CIT(A) HELD THAT THESE ARE ALSO THE FINANCIAL LEASE AND ASSESSEE IS NOT THE OWNER OF THESE LEASED COMPUTERS AN D NOT ENTITLED FOR DEPRECIATION AS IN VIEW OF THE CIT(A), THE ISSUE IS SIMILAR TO THE LEASED VEHICLES EXCEPT THAT IN THE INSTANT CASE IT IS LEASED COMPUTERS INSTEAD OF LEASED VEHICLES AND HE HAS ADJUDICATED THE ISSUE OF LEASED VEHICLES IN DETAILS AND TH E SAME SHALL BE APPLICABLE TO THE LEASED COMPUTERS ALSO AND ACCORDINGLY THE APPEAL OF THE ASSESSEE COMPANY WAS DISMISSED BY CIT(A) . 28. AGGRIEVED BY THE DECISION OF THE CIT(A), THE ASSESSEE COMPANY IS IN APPEAL BEFORE US. 29. T HE ASSESSEE COMPANY REITERATED ITS SUBMISSIONS AS MADE BEFORE THE LOWER AUTHORITIES AND RELIED UPON THE ORDER OF HONBLE SUPREME COURT IN THE CASE OF I.C.D.S LTD (SUPRA) . 19 TATA CONSULTANCY SERVICES LIMITED PAGE 19 OF 32 30. THE LD. DR RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 31. WE HAVE CONSIDERED THE RIVAL SUBMISSIO NS AND CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE OBSERVED THAT TO CLAIM DEPRECIATION, THE ASSET SHOULD BE OWNED BY THE ASSESSEE AND IT SHOULD BE USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. IN THIS CASE, THE ASSESSEE COMPANY IS OWNIN G THE ASSET I.E. COMPUTERS WHICH ARE LEASED TO PARTIES . THE ASSESSEE COMPANY BY GIVING THESE COMPUTERS ON LEASE IS IN FACT USING THE SAME FOR ITS OWN BUSINESS. THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF ICDS LTD (SUPRA) IS DIRECTLY APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND THE ASSESSEE COMPANY HAS RIGHTLY CLAIMED THE DEPRECIATION ON THE COMPUTERS LEASED BY THE ASSESSEE COMPANY . H ENCE , IN VIEW OF THE ABOVE, WE HOLD THAT ASSESSEE COMPANY IS ENTITLED FOR THE DEPRECIAT ION ON THE LEASED ASSETS I.E. COMPUTERS @ 60% ( IN THIS YEAR AT THE RATE OF 30% SINCE THE ASSET W ERE USED FOR LESS THAN 180 DAYS) OF RS.9,86,474 ON THE COMPUTERS PURCHASED OF RS.32,88,246/ - DURING THE ASSE SSMENT YEAR AND GIVEN ON LEASE AND THE DISALLOWANCE OF DEPRECIATION ON THE LEASED COMPUTERS AS DISALLOWED BY THE ASSESSING OFFICER AND AS CONFIRMED BY THE CIT(A) IS HEREBY DELETED. WE ORDER ACCORDINGLY. 32. GROUND NO. 5 DISALLOWANCE OF DEPRECIATION OF RS. 64,708/ - CLAIMED ON CARS HELD FOR OWN USE WHICH W ERE PURCHASED AFTER 1.10.1998. 33. THE ASSESSEE COMPANY HAS CLAIMED 40% DEPRECIATION ON THE CAR OWNED BY THE ASSESSEE COMPANY WHICH WERE PURCHASED AFTER 1.10.1998 BUT BEFORE 1 ST 20 TATA CONSULTANCY SERVICES LIMITED PAGE 20 OF 32 DAY OF APRIL 1999 AND PUT TO USE FOR ITS OWN OFFICE PURPOSE BEFORE 1 ST DAY OF APRIL 1999 . THE ASSESSEE COMPANY SUBMITTED BEFORE THE ASSESSING OFFICER THAT DEPRECIATION @40% IS TO BE ALLOWED ON COMMERCIAL VEHICLES PURCHASED AFTER 1.10.1998 BUT BEFORE 1 ST DAY OF APRIL 1999 AND PUT TO USE FOR ITS OWN OFFICE PURPOSE BEFORE 1 ST D AY OF APRIL 1999 AND THERE IS NO STIPULATION THAT THESE COMMERCIAL VEHICLES ARE TO BE USED IN THE BUSINESS OF RUNNING THEM ON HIRE TO FALL UNDER THE HEAD COMMERCIAL VEHICLES AND EVEN IF THE CAR IS USED FOR OWN PURPOSE , IT IS COMMERCIAL VEHICLE ENTITLED FOR HIGHER RATE OF DEPRECIATION AS THE SAME IS USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY . THE ASSESSEE COMPANY CLAIMED DEPRECIATION @ 40% BUT IT WAS RESTRICTED BY THE ASSESSING OFFICER TO 20% AND HENCE THE ASSESSING OFFICER DISALLOWED EXCESS DEPRECIATION OF RS.64,708/ - CLAIMED BY THE ASSESSEE AND ADDED THE SAME TO INCOME OF THE ASSESSEE . 34. AGGRIEVED BY THE ORDERS OF THE ASSESSING OFFICER, THE ASSESSEE COMPANY CARRIED THE MATTER BEFORE THE CIT(A) AND CONTENDED THAT FOR THE COMMERCIAL VEHIC LES PURCHASED AFTER 1.10.1998 BUT BEFORE 1 ST DAY OF APRIL 1999 AND PUT TO USE BEFORE 1 ST DAY OF APRIL 1999 , DEPRECIATION IS ALLOWABLE @ 40% AS PER ENTRY III(2)(IIA) OF PART A OF APPENDIX I , APPLICABLE EVEN IF THE SAME IS USED FOR OWN OFFICE PURPOSES AS THE COMMERCIAL VEHICLES INCLUDE LIGHT MOTOR VEH IC LE AS PER DEFINITION OF MOTOR VEHICLE ACT . THE CIT(A) REJECTED THE CLAIM O F ASSESSEE COMPANY AND HELD THAT HE HAS ALREADY ADJUDICATED THE MATTER THAT THE ASSESSEE COMPANY IS NOT ENTITLED FOR DEPRECIATION AS IN THE CASE OF LEASED ASSET, THE ASSESSEE COMPANY IS NOT OWNER OF THE ASSET AND HENCE NOT ENTITLED FOR DEPRECIATION AND THERE IS NO QUESTION OF HIGHER OR LOWER RATE OF 21 TATA CONSULTANCY SERVICES LIMITED PAGE 21 OF 32 DEPRECIATION AND HENCE APPEAL OF THE ASSESSEE COMPANY ON THIS GROUND WAS REJECTED. 35. AG GRIEVED BY THE DECISION OF THE CIT(A), THE ASSESSEE COMPANY IS IN APPEAL BEFORE US. 36. BEFORE US, THE ASSESSEE COMPANY CONTENDED THAT THE DEPRECIATION SHOULD BE ALLOWED AT THE RATE OF 40% IN VIEW OF AMENDMENT W.E.F 1.10.1998 WHEREBY THE COMMERCIAL VEHIC LE PURCHASED AFTER 1.10.1998 BUT BEFORE 1 ST DAY OF APRIL 1999 AND PUT TO USE BEFORE 1 ST DAY OF APRIL 1999, DEPRECIATION IS ALLOWABLE @ 40% AS PER ENTRY III(2)(IIA) OF PART A OF APPENDIX I, APPLICABLE EVEN IF THE CARS ARE USED FOR OWN OFFICE PURPOSES AS THE COMMERCIAL VEHICLES INCLUDE LIGHT MO TOR VEHICLE AS PER DEFINITION UNDER MOTOR VEHICLE S ACT ,1988 AND THERE IS NO STIPULATION THAT THE SAME IS TO BE GIVEN ON HIRE , THE ASSESSEE COMPANY IS ENTITLED FOR HIGHER DEPRECIATION @40% ON THE SAID CARS 37. THE LD. DR RELIED UPON THE ORDER OF AUTHORITIES BELOW. 38. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE HOLD THAT THE CAR S WHICH ARE PURCHASED BY THE ASSESSEE AFTER 1.10.1998 BUT BEFORE 1 ST APRIL 1999 AND PUT TO USE FOR ITS OWN OFFICE PURPOSES BEFORE 1 ST APRIL 1999 ARE COMMERCIAL VEHICLE AS REFERRED TO IN THE ENTRY III(2)(IIA) OF PART A OF APPENDIX I, UNDER THE DEFINITION OF COMMERCIAL VEHICLE WHICH INCLUDE LIGHT MOTOR VEHICLE AS PER DEFINITION CONTAINED IN MOTOR VEHICLES ACT,1988 AND THERE IS NO SUCH STIPULATION THAT THE CARS ARE TO BE USED FOR PURPOSE OF GIVI NG THEM ON HIRE . THE ASSESSEE COMPANY IS USING THE CAR FOR 22 TATA CONSULTANCY SERVICES LIMITED PAGE 22 OF 32 ITS OWN OFFICE PURPOSE WHICH IS FOR THE PURPOSE OF ITS BUSINESS AND HENCE THE ASSESSEE COMPANY IS EN TITLED FOR HIGHER DEPRECIATION @ 4 0% AND THE DISALLOWANCE OF EXCESS DEPRECIATION OF RS.64,708/ - CLAIMED BY THE ASSESSEE WHICH WAS DISALLOWED BY THE ASSESSING OFFICER AND AS UPHELD BY THE CIT(A) IS HEREBY DELETED. WE ORDER ACCORDINGLY. 39. GROUND NO. 6 IS REGARDING A D - HOC DISALLOWANCE OF EXPENSES INCURRED OF RS. 4 , 40,000 ON COMPUTER REPAIRS AND MAINTENANCE EXPENSES. 40. THE ASSESSEE COMPANY INCURRED EXPENDITURE OF RS. 3,198, 2 07/ - ON REPAIR AND MAINTENANCE OF THE COMPUTERS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY HAS PURCHASED COMPUTER FOR OFFICE AFTE R 1.10.1998 AMOUNTING TO RS. 5,29,709 / - AND BEFORE 1.10.1998 OF RS.51,502, THEREFORE THE TOTAL COST OF COMPUTER USED IN THE OFFICE PREMISES COMES TO RS.5,81,211 / - WHILE COMPUTERS GIVEN ON LEASE WHICH IS PURCHASED AFTER 1.10.1998 AMOUNTING TO RS. 32,88,246/ - WHICH HAS BEEN TREATED AS FINANCE TRANSACTION AND NO REPAIR IS TO BE CARRIED ON BY THE ASSESSEE . THE ASSESSING OFFICER HELD THAT NOBODY WILL INCUR EXPENDITURE ON COMPUTER REPAIR AT RS. 3,198,307/ - OF WHICH THE COST OF COMPUTER IS ONLY 5,81,211/ - AND HE DISALLOWED RS. 30 LAC S OUT OF THE SAID EXPENSE AS IN HIS VIEW NOBODY WILL INCUR REPAIR AND MAINTENANCE EXPENSE ON LEASED COMPUTERS. 41. AGGRIEVED BY THE AFORE - STATED ADDITION MADE IN THE ASSESSMENT ORDER , THE ASSESSEE COMPANY CARRIED THE MATTER TO THE CIT(A) AND CONTENDED THAT THE C OMPANY TRANSITIONED FROM BEING A NBFC TO A PROCESSING COMPANY DURING THE YEAR 1998 - 99. A MAJOR COMPONENT OF THE INCOME OF THE COMPANY IS FROM 23 TATA CONSULTANCY SERVICES LIMITED PAGE 23 OF 32 TRANSACTION PROCESSING BUSINESS DURING THE YEAR 1998 - 99. THEIR AIM WAS TO PROVIDE REMOTE PROCESSING TO CUSTOMERS USING TECHNOLOGY AND TELECOMMUNICATION INFRASTRUCTURE. THIS INVOLVES DOING DATA ENTRY AND PROCESS MANAGEMENT FOR LARGE VOLUME TRANSACTION S SUCH AS CHECKS, BILLS, AUTOMOBILE LOANS, MORTGAGE LOANS, ETC. THIS INVOLVES HAVING A VERY STRONG BACKBONE INFRASTRUCTURE. FURTHER, IN THIS INDUSTRY, WHERE TIME IS OF ESSENCE IT IS VITAL TO ENSURE THAT ALL INFRASTRUCTURE FACILITIES ARE FULLY FUNCTIONAL AT ALL TIME AND ANY LAPSE IN THIS MATTER COULD HAVE A SERIOUS IMPACT ON THE CLIENT SERVICING ABILITY OF THE APPELLANTS. IN ORDER TO QUELL SUCH RISKS THE COMPANY HAD ENTERED INTO CONTRACTS WITH VARIOUS VENDORS WHO WOULD PROVIDE CONTINUOUS SERVICE, BACKUP AND SUPPORT. THIS ALSO INVOLVED HAVING QUALIFIED PERSONNEL BEING DEPUTED TO THE COMPANY PREMISE TO PROVIDE SERVICES. HENCE, IT WAS SUBMITTED THAT IT WOULD BE INCORRECT TO DETERMINE THE REASONABILITY OF THE EXPENSE BY LINKING THE SAME TO THE COST OF COMPUTERS. FURTHER, IT WAS ALSO SUBMITTED THAT SINCE THE ABOVE EXPENSES HAVE BEEN INCURRED TO MAXIMIZE CLIENT SERVICING ABILITIES AND TO ENSURE THE FLOW OF REVENUE, THE SAME SHOULD BE FULLY ALLOWABLE AS A DEDUCTION. IT WAS SUBMITTED THAT TO ENABLE THE ASSESSEE COMPAN Y TO PROVIDE TIMELY SERVICES TO THEIR CUSTOMERS, THEY IN TURN HAVE TO ENSURE THAT THEIR COMPUTER SYSTEMS OPERATE AT THE OPTIMUM CAPACITY AND FOR THIS PURPOSE IT IS ESSENTIAL TO ENTER INTO CONTRACT WITH VARIOUS PARTIES SO THAT THE EQUIPMENT IS SERVICED AT R EGULAR INTERVALS AND ANY CORRECTIVE ACTION REQUIRED TO BE TAKEN IS UNDERTAKEN IN THE SHORTEST POSSIBLE TIME. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE COMPANY, THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS. 4,40,000/ - AFTER HOLDING THAT LAN ADMINIS TRATIVE CHARGES OF RS.9,68,002/ - OUGHT TO BE ALLOWED AS A DEDUCTION BEING IN THE NATURE OF NETWORKING MAINTENANCE CHARGES WHICH IS NOT COMPUTER MAINTENANCE CHARGES AND OF THE 24 TATA CONSULTANCY SERVICES LIMITED PAGE 24 OF 32 BALANCE RS.22,00,000/ - , THE CIT(A) HELD THAT IT WILL BE FAIR TO RESTRICT THE DIS ALLOWANCE TO 20% OF THE REPAIR AND MAINTENANCE CHARGES . 42. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE COMPANY IS IN APPEAL BEFORE US. 43. BEFORE US, THE ASSESSEE COMPANY SUBMITTED THAT AD - HOC DISALLOWANCE HAS BEEN MADE OUT OF TOTAL COMPUTER EQUI PMENT REPAIRS AND MAINTENANCE CHARGES OF RS.31,98,307/ - , WHEREBY RS. 9,68,002/ - HAS BEEN ALLOWED BEING LAN ADMINISTRATIVE CHARGES OUT OF OF RS. 31,98,307/ - , AS IT IS IN THE NATURE OF NETWORKING MAINTENANCE CHARGES WHILE OUT OF BALANCE OF RS. 22 LACS, 20% IS DISALLOWED BY THE CIT(A) AGGREGATING TO RS.4,40,000.00 . THE ASSESSEE COMPANY SUBMITTED THAT THESE ARE AD - HOC DISALLOWANCES WHILE NOT DEFECT HAS BEEN POINTED OUT IN THE BOOKS OF ACCOUNT. THE ASSESSEE COMPANY SUBMITTED THAT THE EXPENSES INCURRED ARE MA INLY LAN ADMINISTRATION CHARGES PAID TO CMS (RS.9,68,002/ - ) , MICROBANKER AMC(RS.1,68,750/ - ) MICROLAND AMC (RS.11,01,267/ - ) AND TONER CARTRIDGE PURCHASES - COMPUTER CONSUMABES (RS.4,82,895/ - ) WHICH AGGREGATES TO RS.27,20,914/ - OUT OF TOTAL EXPENSES OF RS. 31,98,307/ - . THE ASSESSEE COMPANY REITERATED ITS STAND BEFORE US AS CONTENDED BEFORE THE AUTHORITIES BELOW AND CONTENDED THAT THE C OMPANY TRANSITIONED FROM BEING A NBFC TO A PROCESSING COMPANY DURING THE YEAR 1998 - 99. A MAJOR COMPONENT OF THE INCOME OF THE COMPANY I.E. 55% IS FROM TRANSACTION PROCESSING BUSINESS DURING THE YEAR 1998 - 99. THEIR AIM WAS TO PROVIDE REMOTE PROCESSING TO CU STOMERS USING TECHNOLOGY AND TELECOMMUNICATION INFRASTRUCTURE. THIS INVOLVES DOING DATA ENTRY AND PROCESS MANAGEMENT FOR LARGE VOLUME TRANSACTIONS SUCH AS CHECKS, BILLS, AUTOMOBILE LOANS, MORTGAGE LOANS, ETC. THIS INVOLVES HAVING A VERY STRONG BACKBONE 25 TATA CONSULTANCY SERVICES LIMITED PAGE 25 OF 32 INF RASTRUCTURE. FURTHER, IN THIS INDUSTRY, WHERE TIME IS OF ESSENCE IT IS VITAL TO ENSURE THAT ALL INFRASTRUCTURE FACILITIES ARE FULLY FUNCTIONAL AT ALL TIME AND ANY LAPSE IN THIS MATTER COULD HAVE A SERIOUS IMPACT ON THE CLIENT SERVICING ABILITY OF THE APPEL LANTS. IN ORDER TO QUELL SUCH RISKS THE COMPANY HAD ENTERED INTO CONTRACTS WITH VARIOUS VENDORS WHO WOULD PROVIDE CONTINUOUS SERVICE, BACKUP AND SUPPORT. THIS ALSO INVOLVED HAVING QUALIFIED PERSONNEL BEING DEPUTED TO THE COMPANY PREMISE TO PROVIDE SERVICES . HENCE, IT WAS SUBMITTED THAT IT WOULD BE INCORRECT TO DETERMINE THE REASONABILITY OF THE EXPENSE BY LINKING THE SAME TO THE COST OF COMPUTERS. IT WAS ALSO CONTENDED BY THE ASSESSEE COMPANY THAT THE ASSESSING OFFICER HAS TAKEN THE VALUE OF COMPUTER WRONGL Y. THE CORRECT AMOUNT INCLUDED IN THE GROSS BLOCK OF COMPUTERS, STAND AT RS.84,73,945/ - . FURTHER, IT WAS ALSO SUBMITTED THAT SINCE THE ABOVE EXPENSES HAVE BEEN INCURRED TO MAXIMIZE CLIENT SERVICING ABILITIES AND TO ENSURE THE FLOW OF REVENUE, THE SAME SHO ULD BE FULLY ALLOWABLE AS A DEDUCTION AND NOT LINKED TO THE COST OF COMPUTERS . IT WAS SUBMITTED THAT TO ENABLE THE ASSESSEE COMPANY TO PROVIDE TIMELY SERVICES TO THEIR CUSTOMERS, THEY IN TURN HAVE TO ENSURE THAT THEIR COMPUTER SYSTEMS OPERATE AT THE OPTIMU M CAPACITY AND FOR THIS PURPOSE IT IS ESSENTIAL TO ENTER INTO CONTRACT WITH VARIOUS PARTIES SO THAT THE EQUIPMENT IS SERVICED AT REGULAR INTERVALS AND ANY CORRECTIVE ACTION REQUIRED TO BE TAKEN IS UNDERTAKEN IN THE SHORTEST POSSIBLE TIME. 44. LD. DR RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 45. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS DULY INCURRED THESE EXPENSES OF RS. 31,98,307/ - AND NO DEFECT HAS BEEN POINTED OUT 26 TATA CONSULTANCY SERVICES LIMITED PAGE 26 OF 32 BY THE A SSESSING OFFICER OR BY THE CIT(A) IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE COMPANY NOR THE BOOKS OF ACCOUNTS ARE REJECTED BY THE ASSESSING OFFICER OR BY THE CIT(A). WE NOTE THAT DURING THE ASSESSMENT YE AR, THE ASSESSEE C OMPANY TRANSITIONED FROM BEING A NBFC TO A PROCESSING COMPANY. A MAJOR COMPONENT OF THE INCOME OF THE ASSESSEE C OMPANY IS FROM TRANSACTION PROCESSING BUSINESS. THE ASSESSEE COMPANY HAS DULY DEMONSTRATED THAT THESE EXPENSES ARE TO BE INCUR RED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE COMPANY . THE ASSESSEE COMPANY HAS DEMONSTRATED THAT THE EXPENSES INCURRED ARE MAINLY LAN ADMINISTRATION CHARGES PAID TO CMS (RS.9,68,002/ - ) , MICROBANKER AMC(RS.1,68,750/ - ) MICROLAND AMC (RS.11,01,267/ - ) A ND TONER CARTRIDGE PURCHASES - COMPUTER CONSUMABES (RS.4,82,895/ - ) WHICH AGGREGATES TO RS.27,20,914/ - OUT OF TOTAL EXPENSES OF RS.31,98,307/ - AND HENCE CONSTITUTE MAJORITY OF EXPENSES WHILE AS WELL FOR THE REST OF THE EXPENSES THE DETAILS ARE SUBMITTED BY T HE ASSESSEE COMPANY WHICH IS PLACED AT P APER BOOK PAGE NO. 215 STATED TO BE CONNECTED WITH THE COMPUTER EQUIPMENT REPAIRS AND MAINTENANCE . W E , THEREFORE, HOLD THAT THESE EXPENSES ARE TO BE FULLY ALLOWED AS THEY ARE INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY AND HENCE THE DISALLOWANCE OF RS.4,40,000.00 AS UPHELD BY THE CIT(A) IS DELETED . WE ORDER ACCORDINGLY. 46. WE HAVE OBSERVED THE ISSU ES INVOLVED IN THE APPEAL NO. ITA NO 5232/MUM/2012 FOR ASSESSMENT YEAR 2000 - 01 AND APPEAL NO. ITA NO5233/ MUM/2012 FOR ASSESSMENT YEAR 2001 - 02 ARE IDENTICAL ISSUES AS RAISED BY THE ASSESSEE IN THE APPEAL NO. ITA NO.3570/MUM/2012 FOR ASSESSMENT YEAR 1999 - 0 0 WHICH WE HAVE ADJUDICATED IN THE PRECEEDING PARAS AND OUR DECISIONS IN THE APPEAL NO ITA NO. 3570/MUM/2012 FOR ASSESSMENT YEAR 1999 - 00 SHALL 27 TATA CONSULTANCY SERVICES LIMITED PAGE 27 OF 32 APPLY MUTATIS MUTANDIS TO THE IDENTICAL ISSUES RAISED IN THE APPEAL NO. ITA NO 5232/MUM/2012 FOR ASSESSMENT YEAR 2000 - 01 AND APPEAL NO. ITA NO5233/ MUM/2012 FOR ASSESSMENT YEAR 2001 - 02 47. NOW WE SHAL L TAKE UP THE APPEAL OF REVENUE BEARING ITA NO. 284/MUM/2010 FOR ASSESSMENT YEAR 2002 - 03. 48. THE MAIN GROUND OF APPEAL RAISED IN THE MEMO OF APPEAL BY THE REVENUE IN THE AFORE - STATED APPEAL FOR ASSESSMENT YEAR 2002 - 03 IS WITH RESPECT TO THE GRIEVANCE WITH RESPECT TO THE QUASHING OF THE NOTICE DATED 24 TH MARCH 2008 ISSUED U/S 148 OF THE ACT BY THE CIT(A) WHILE THE REST GROUNDS OF APPEAL ARE CONSEQUENTIAL AND SHALL ARISE FOR DETERMINATION IF WE UPHOLD THE VALIDITY OF NOTICE ISSUED U/S 148 OF THE ACT WHICH WAS QUASHED BY THE CIT(A). 49. BEFORE US, THE LD. DR CONTEN DED THAT THE CIT(A) HAS ILLEGALLY QUASHED THE NOTICE DATED 24 TH MARCH 2008 U/S 148 OF THE ACT . HE DREW OUR ATTENTION TO THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT FOR INITIATING PROCEEDINGS U/S 147 OF THE ACT WHICH ARE PRIMARILY CONCERNED WITH F IXED ASSETS PENDING INSTALLATION AS EXISTING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY OF RS.1,12,55,903/ - AND THE CORRESPONDING SECURED LOAN OF RS.1,31,26,833/ - EXISTING IN THE BOOKS OF ACCOUNTS AND THE ALLEGATION BY THE ASSESSING OFFICER THAT SI NCE THE AFORE - STATED SECURED LOANS WERE NOT UTILIZED BY THE ASSESSEE COMPANY FOR EVEN 1 DAY AS AFORE - STATED FIXED ASSETS ARE UNDER INSTALLATION, THE INTEREST EXPENSES OF RS.15,83,080/ - CLAIMED BY THE ASSESSEE COMPANY WAS NOT USED FOR BUSINESS PURPOSES AND THE SAME CANNOT BE TREATED AS BUSINESS 28 TATA CONSULTANCY SERVICES LIMITED PAGE 28 OF 32 EXPENDITURE AND NEEDED TO BE DISALLOWED. HE STATED THAT THE ASSESSEE HAS NOT DULY REPLIED TO THE QUERY RAISED BY THE ASSESSING OFFICER DURING ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT WHEREBY THE ASSESSEE COMPANY HAS NOT FURNISHED ALL NECESSARY FACTS WITH RESPECT TO THE DETAILS OF UTILITY OF LOANS RAISED BY THE ASSESSEE COMPANY AS ALSO THE SO URCES OF INVESTMENT IN FIXED AS SETS AND HENCE THE ASSESSING OFFICER HAS RIGHTLY ISSUED THE NOTICE DATED 24 TH MARCH 2008 U/S 148 OF THE ACT FOR RE - ASSESSMENT AS THE INCOME HAS ESCAPED ASSESSMENT. 50. THE ASSESSEE COMPANY SUBMITTED THAT ORIGINAL ASSESSMENT ORDER U/S 143(3) READ WITH SECTION 143(2) OF THE ACT WAS COMPLETED ON 30.03.2005 AND NOTICE U/S 148 OF THE ACT WAS ISSUED ON 24. 03.2008, WHICH IS BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR I . E . 31 ST MARCH 2003 . THE ASSESSEE COMPANY DREW OUR ATTENTION TO THE REASON RECORDED BY THE ASSESSING OFFICER FOR INITIATING PROCEEDINGS U/S 147 OF THE ACT WHICH ARE PRIM ARILY CONCERNED WITH FIXED ASSETS PENDING INSTALLATION AS EXISTING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY OF RS.1,12,55,903/ - AND THE CORRESPONDING SECURED LOAN OF RS.1,31,26,833/ - EXISTING IN THE BOOKS OF ACCOUNTS AND THE ALLEGATION BY THE ASS ESSING OFFICER THAT SINCE THE AFORE - STATED SECURED LOANS WERE NOT UTILIZED BY THE ASSESSEE COMPANY FOR EVEN 1 DAY AS AFORE - STATED FIXED ASSETS ARE UNDER INSTALLATION, THE INTEREST EXPENSES OF RS.15,83,080/ - CLAIMED BY THE ASSESSEE COMPANY WAS NOT USED FOR BUSINESS PURPOSES AND THE SAME CANNOT BE TREATED AS BUSINESS EXPENDITURE AND NEEDED TO BE DISALLOWED. THE ASSESSEE COMPANY SUBMITTED THAT DURING THE COURSE OF ORIGINA L ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS DULY RAISED THE QUERY REGARDING THE PAYMENT OF INTEREST OF RS. 15,83,080/ - ON THE SECURED 29 TATA CONSULTANCY SERVICES LIMITED PAGE 29 OF 32 LOAN RAISED OF RS. 1,31,26,833/ - WHICH T HE ASSESSEE COMPANY DULY REPLIED TO THE ASSESSING OFFICER VIDE LETTER NO. CORP/E - SERVE/KSV/275 FILED WITH REVENUE ON 13 T H FEBRUARY 2005 THAT THESE SECURED LOANS ARE THE CASH CREDITS, DEMAND LOAN AND PACKING CREDITS WHICH ARE USED FOR MEETING WORKING CAPITAL REQUIREMENT OF THE COMPANY DURING THE COURSE OF THE YEAR AND HENCE THERE IS NO CORRELATION BETWEEN THE SECURED LOAN O F RS.1,31,26,833/ - RAISED BY THE COMPANY AND FIXED ASSETS PENDING CAPITALIZATION OF RS.1,12,55,909/ - .THE SAID REPLY FILED ON 13 TH FEBRUARY 2005 WITH THE ASSESSING OFFICER IS PLACED AT PAGE 41 - 42 OF PAPER BOOK FILED BY THE ASSESSEE COMPANY. THE ASSESSEE COMP ANY ALSO DREW OUR ATTENTION TO ITS AUDITED FINANCIAL STATEMENTS WHEREBY THE SAID LOANS AND THE PURPOSE OF THE SECURED LOAN IS DULY MENTIONED TO BE FOR WORKING CAPITAL PURPOSES. THE LD COUNSEL OF THE ASSESSEE COMPANY MADE STATEMENT BEFORE US THAT THE AFORE - STATED INTEREST IS PAID BY THE ASSESSEE COMPANY ON LOANS RAISED FOR WORKING CAPITAL PURPOSES AND NO PORTION OF LOANS WERE RAISED FOR FUNDING FIXED ASSETS WHICH ARE PENDING INSTALLATION. THE ASSESSEE COMPANY SUBMITTED THAT THE NOTICE U/S 148 IS DATED 24 - 03 - 2008 WHICH IS BEYOND THE PERIOD OF 4 YEARS FROM THE END OF ASSESSMENT YEAR AND THE PROVISIO TO SECTION 147 OF THE ACT IS APPLICABLE AND NO ACTION CAN BE TAKEN U/S 147 OF THE ACT UNLESS THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT DUE TO FAILURE ON T HE PART OF THE ASSESSEE COMPANY TO MAKE A RETURN U/S 139 OF THE ACT OR IN RESPONSE TO NOTICE U/S 142(1) OF THE ACT OR SECTION 148 OR THERE IS A FAILURE ON THE PART OF THE ASSESSEE COMPANY TO FULLY AND TRULY DISCLOSE ALL MATERIAL FACTS NECESSARY FOR ITS ASS ESSMENT , FOR THAT ASSESSMENT YEAR. THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSING OFFICER HAS DULY RAISED THE QUERY WITH RESPECT TO THE INTEREST PAID ON SECURED LOANS RAISED BY THE ASSESSEE COMPANY WHICH WAS DULY REPLIED BY THE ASSESSEE COMPANY DURING COURSE OF ORIGINAL ASSESSMENT 30 TATA CONSULTANCY SERVICES LIMITED PAGE 30 OF 32 PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) AND HENCE NOTICE U/S 148 DATED 24 TH MARCH 2008 OF THE ACT FOR RE - ASSESSMENT IS MERELY CHANGE OF OPINION AND IS BAD IN LAW AND WAS RIGHTLY QUASHED BY THE CIT(A). 51. WE HA VE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE OBSERVED THAT DURING THE ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT, THE ASSESSING OFFICER HAS RAISED SPECIFIC QUERY REGARDING THE INTEREST PAID BY THE ASSESSING COMPANY OF RS. 15,83,080/ - ON THE SECURED LOAN RAISED OF RS. 1,31,26,833/ - WHICH THE ASSESSEE COMPANY DULY REPLIED TO THE ASSESSING OFFICER VIDE LETTER NO. CORP/E - SERVE/KSV/275 FILED WITH REVENUE ON 13 TH FEBRUARY 2005 THAT THESE SECURED LOANS ARE THE CASH CREDITS, DEMAND LOAN AND PACKING CREDITS WHICH ARE USED FOR MEETING WORKING CAPITAL REQUIREMENT OF THE COMPANY DURING THE COURSE OF THE YEAR AND HENCE THERE IS NO CORRELATION BETWEEN THE SECURED LOAN OF RS.1,31,26,833/ - RAISED BY THE COM PANY AND FIXED ASSETS PENDING CAPITALIZATION OF RS.1,12,55,909/ - . WE HAVE OBSERVED THAT THE ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER U/S 143(3) OF THE ACT IN ORIGINAL ASSESSMENT PROCEEDINGS AFTER CONSIDERING THE REPLIES OF THE ASSESSEE COMPANY. TH E ISSUE OF NOTICE U/S 148 OF THE ACT DATED 24 TH MARCH 2008 FOR INITIATING RE - ASSESSMENT PROCEEDINGS U/S 147 OF THE ACT BEYOND FOUR YEAR FROM THE END OF ASSESSMENT CAN BE VALIDLY DONE IF THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT DUE TO FAILURE ON THE PART OF THE ASSESSEE COMPANY TO MAKE A RETURN U/S 139 OF THE ACT OR IN RESPONSE TO NOTICE U/S 142(1) OF THE ACT OR SECTION 148 OR THERE IS A FAILURE ON THE PART OF THE ASSESSEE COMPANY TO FULLY AND TRULY DISCLOSE ALL MATERIAL FACTS NECESSARY FOR ITS AS SESSMENT , FOR THAT ASSESSMENT YEAR.WE HAVE OBSERVED THAT IN THE ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT , 31 TATA CONSULTANCY SERVICES LIMITED PAGE 31 OF 32 THE ASSESSING OFFICER HAS DULY ASKED SPECIFIC QUERY REGARDING PAYMENT OF INTEREST AND DETAILS OF OUTSTANDING SECURED LOANS AND ITS CORR ELATION WITH THE THE FIXED ASSETS PENDING INSTALLATION WHICH THE ASSESSEE DULY REPLIED THAT SECURED LOAN OUTSTANDING OF RS.1,31,26,833/ - RAISED BY THE COMPANY ARE FOR WORKING CAPITAL LOAN BEING CASH CREDIT, DEMAND LOAN AND PACKING CREDIT LOAN RAISED FROM T HE BANK AND FIXED ASSETS PENDING CAPITALIZATION OF RS.1,12,55,909/ - HAS NO CORRELATION WITH THE SECURED LOAN RAISED BY THE ASSESSEE COMPANY AND INTEREST OF RS. 15,83,080/ - IS PAID ON SECURED LOAN RAISED FOR WORKING CAPITAL PURPOSES. THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER U/S 143(3) OF THE ACT AFTER APPLYING HIS MIND TO REPLIES SUBMITTED BY THE ASSESSEE COMPANY AND NOW RE - ASSESSMENT PROCEEDINGS INITIAT ED AFTER FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT IS NOT PERMITTED ON ACCOUNT OF CHANGE OF OPINION AS PROVISIO TO SECTION 147 OF THE ACT IS APPLICABLE AND HENCE, WE HOLD THAT THE CIT(A) HAS RIGHTLY QUASHED THE NOTICE DATED 24.03.2008 ISSUED U/S 148 OF THE ACT. WE UPHOLD THE DECISION OF THE CIT(A) IN QUASHING THE NOTICE DATED 24 TH MARCH 2008 U/S 148 OF THE ACT. WE ORDER ACCORDINGLY. 52 . IN THE RESULT APPEAL S OF THE ASSESSEE ARE ALLOWED AND THAT OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 0 T H DAY OF SEPTEMBER 2015. S D / - S D / - ( AMIT SHUKLA ) ( RAMIT KOCHAR ) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) MUMBAI DATED 3 0 - 0 9 - 2015 SKS SR. P.S 32 TATA CONSULTANCY SERVICES LIMITED PAGE 32 OF 32 COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, J BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI