M/s Yashik Finlease Pvt. Ltd., Ambala V. ACIT, Ambala

ITA 39/CHANDI/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5073 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-03-2010
• Assessment Year: 1994-1995
• Appeal Filed On: 11-01-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: INOSHI SHARMA
• Keywords: Depreciation
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES (A) BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND MS.SUSHMA CHOWLA, JUDICIAL MEMBER ITA 39 TO 43/CHD/2010 A.Y.: 1994-95, 95-96, 96-97,98-99 & 99-2000 M/S YASHIK FINLEASE P.LTD., V A.C.I.T., AMBALA. AMBALA. PAN : AAACY-1353R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NEERAJ JAIN RESPONDENT BY: SMT. INOSHI SHARMA ORDER PER G.S.PANNU, AM THESE ARE A GROUP OF FIVE APPEALS BY THE ASSESSEE AGAINST THE RESPECTIVE ORDERS OF THE CIT(APPEALS) D ATED 16.11.2009 PERTAINING TO THE ASSESSMENT YEARS 1994- 95 TO 1996-97, 1998-99 AND 1999-2000. SINCE CERTAIN COMM ON ISSUES ARE INVOLVED, AND THE APPEALS RELATE TO THE SAME ASSESSEE, WE FIND IT EXPEDIENT TO PASS A COMMON ORD ER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. A COMMON ISSUE INVOLVED IN ALL THE APPEALS RELAT ES TO THE ACTION OF THE CIT(APPEALS) IN TREATING THE LEASE AG REEMENTS AS HIRE PURCHASE AGREEMENTS AND CONSEQUENTLY DENYING T HE ASSESSEE'S CLAIM OF DEPRECIATION ON LEASED ASSETS. 3. BRIEFLY PUT, THE FACTS ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 2 AND IS ENGAGED IN THE BUSINESS OF FINANCING OF VEHI CLES. THE ASSESSEE DECLARED INCOME UNDER HIRE PURCHASE CHARGE S AND LEASE CHARGES FROM THE VEHICLE FINANCING BUSINESS. WITH RESPECT TO THE VEHICLES GIVEN ON HIRE PURCHASE, ASS ESSEE DID NOT CLAIM DEPRECIATION, SINCE IT WAS NOT THE OWNER OF THE VEHICLES BUT IN RELATION TO THE VEHICLES GIVEN UNDE R LEASE AGREEMENTS, DEPRECIATION WAS CLAIMED AGAINST LEASIN G INCOME FOR THE REASON THAT THE ASSESSEE WAS OWNER OF SUCH ASSETS. WITH RESPECT TO THE LATTER AGREEMENTS, THE CLAIM OF DEPRECIATION HAS BEEN DISALLOWED FOR THE REASON THAT THE LEASE A GREEMENTS WERE IN THE NATURE OF HIRE PURCHASE AGREEMENT BECAU SE FOR ALL INTENTS AND PURPOSES, OWNERSHIP OF THE VEHICLES STO OD TRANSFERRED TO THE LESSEE, AT THE START OF LEASE AG REEMENT ITSELF. AGAINST SUCH DECISION, THE ASSESSEE IS IN APPEAL BE FORE US. 4. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE HAS VEHEMENTLY SUBMITTED THAT THE LEASE AGREEMENTS HAVE BEEN WRONGLY TREATED AS HIRE PURCHASE AGREEMENTS AND IN THIS CONNECTION, IT HAS BEEN ARGUED THAT VARIOUS CLAUSE OF THE LEASE AGREEMENTS CLEARLY SHOW THAT THEY WERE NOT IN THE N ATURE OF HIRE PURCHASE AGREEMENT. AT THE TIME OF HEARING, L EARNED COUNSEL FOR THE ASSESSEE WAS CONFRONTED WITH THE PO SITION THAT THE LOWER AUTHORITIES HAVE HELD THAT IN THE PRESENT CASE, IT IS THE SUBSTANCE WHICH HAS TO GOVERN THE FIELD AND NOT FORM OF THE AGREEMENTS. AS PER CIT(APPEALS), THOUGH THE LEASE AGREEMENTS CONTAINED CLAUSES WHICH SHOW IT AS A LEA SE ARRANGEMENT, BUT IN ACTUALITY, THE OWNERSHIP OF THE VEHICLES STOOD TRANSFERRED TO THE LESSEES ON THE DATE OF LEA SE AGREEMENT ITSELF AND THEREFORE, LEASE AGREEMENTS HAVE TO BE C ONSTRUED AS 3 MERE HIRE PURCHASE AGREEMENTS. IT WAS POINTED OUT THAT THE FINDINGS OF THE CIT(APPEALS) IN PARA 9.2 WHICH ARE AS UNDER : 9.2 ON CAREFUL CONSIDERATION OF THE ABOVE FACTS AN D SUBMISSIONS, I FIND THE ARGUMENTS OF THE COUNSEL FO R THE APPELLANT DEVOID OF ANY MERIT AND THE SAME ARE REJECTED. THE ARGUMENTS OF THE COUNSEL ARE MAINLY THAT LEASE AGREEMENTS HAS BEEN ENTERED INTO BY THE APPELLANT AND THEY DO NOT HAVE ANY OPTION TO BUY AN D THAT THE LESSEES SIGNED THE AGREEMENTS AS LEASE AGREEMENTS AND THE APPELLANT METICULOUSLY MAINTAINE D DISTINCTION BETWEEN HIRE PURCHASE AGREEMENT AND LEASE AGREEMENT. THESE ARGUMENTS CARRY NO WEIGHT SINCE WHAT IS IMPORTANT IN THE PRESENT CASE IS THE ACTUAL CONDUCT OF THE APPELLANT AND NOT WHAT IS EXISTING IN THE WRITTEN AGREEMENTS. THE CASE LAW RELIED UP ON BY THE COUNSEL ALSO DOES NOT HELP HIM. THE ASSESSING OFFICER HAS CLEARLY DRAWN CONCLUSION AFTER MAKING INQUIRIES FROM THE LESSEES AND THE TRANSPORT AUTHORITIES THAT THE LEASE ARRANGEMENTS A RE ACTUALLY HIRE PURCHASE ARRANGEMENTS. THE CONCLUSIO N DRAWN BY THE ASSESSING OFFICER WHICH HAVE BEEN DISCUSSED EARLIER ARE THAT THE DELIVERY OF THE VEHI CLES IS MADE BY THE LESSEE, REGISTRATION CERTIFICATE IS ISSUED IN THE NAME OF THE LESSEE, NO VEHICLE HAS EV ER BEEN TAKEN BACK BY THE APPELLANT AT THE EXPIRY OF T HE LEASE, THE VEHICLES HAVE BEEN RETAINED BY THE LESS EE AFTER THE EXPIRY OF LEASE AGREEMENT AND THE APPELLA NT DID NOT MAKE ANY SALE OF THE VEHICLES BUT PASSED A BOOK ENTRY SHOWING ADJUSTMENT OF LEASED SECURITY AS FULL CONSIDERATION RECEIVED ON TRANSFER OF VEHICLES . ON THE BASIS OF THESE FINDINGS, THE A.O. RIGHTLY REACH ED THE CONCLUSION THAT THE LEASE ARRANGEMENTS WERE NOT GENUINE AND IN FACT WERE IN THE NATURE OF HIRE PURCHASE ARRANGEMENTS AND THE OWNERSHIP OF THE VEHICLES FOR ALL INTENTS AND PURPOSES STOOD TRANSFE RRED TO THE LESSEE ON THE DATE OF LEASE AGREEMENT ITSELF . IN THE PRESENT CASE, THE FACTS AS THEY ACTUALLY EXIST ARE 4 DIFFERENT FROM THE ARRANGEMENT AS PER THE AGREEMENT AND HENCE IT IS THE SUBSTANCE WHICH HAS TO GOVERN T HE FIELD AND NOT THE FORM. THE A.O. HAS RIGHTLY CONCLUDED THAT THE LEASE AGREEMENTS ARE IN FACT IN THE NATURE OF HIRE PURCHASE AGREEMENTS AND OWNERSHIP OF THE ASSET DOES NOT LIE WITH THE APPELLANT. THE DEPRECIATION HAS BEEN RIGHTLY DISALLOWED BY THE ASSESSING OFFICER AND THE SAME IS UPHELD. HOWEVER, I FIND FORCE IN THE ALTERNATE ARGUMENT OF THE COUNSEL THAT IN CASE THE LEASE CHARGES ARE TO BE CONVERTED INTO HIRE PURCHASE CHARGES THEN THE CAPITAL COST RECOVERY SHOULD BE REDUCED TO ARRIVE AT THE NET INCOME OTHERWISE IT WOULD AMOUNT TO DOUBLE TAXATION . THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE INCOME BY ALLOWING THE MARGIN OF CAPITAL COST RECOV ERY FROM THE HIRE PURCHASE CHARGES. THIS GROUND OF APPEAL IS PARTLY ALLOWED. CLEARLY ESTABLISH THAT IN ACTUAL TERMS, THE AGREEME NT BETWEEN THE ASSESSEE AND THE LESSEES IS OF HIRE PURCHASE NA TURE. IT WAS SPECIFICALLY ASKED FROM THE COUNSEL, IF THE ASSESSE E WOULD ESTABLISH THAT AT THE END OF THE LEASE PERIOD, THE LEASED VEHICLES WERE ACTUALLY POSSESSED BACK AND SOLD. THE APPELLANT WAS REQUIRED TO FURNISH EVIDENCE OF SALE OF SUCH VE HICLES AT THE EXPIRY OF THE LEASE AGREEMENTS, MAY BE TO THE LESSE ES. LEARNED COUNSEL FAIRLY CONCEDED THAT THOUGH THE VEH ICLES HAVE BEEN SOLD, BUT THE ASSESSEE HAS NO EVIDENCE TO PROV E THAT THE SAME WERE RE-SOLD AFTER THE EXPIRY OF THE LEASE PER IOD AND NOR IS THERE EVIDENCE OF THE ASSESSEE HAVING RE-POSSESS ED THE VEHICLE FROM THE LESSEE AT THE END OF THE LEASE AGR EEMENT. IN THIS BACKGROUND OF THE MATTER, WE SUMMARIZE THE CON CLUSIONS DRAWN BY THE ASSESSING OFFICER, ON FACTS AFTER MAKI NG ENQUIRIES 5 FROM THE LESSEES AND FROM THE REGISTRATION AUTHORIT IES AS UNDER : A) IN TERMS OF THE ARRANGEMENT, THE MANUFACTURER O F THE VEHICLE WAS EFFECTING DELIVERY TO THE LESSEE DIRECTLY AND NOT TO THE ASSESSEE/LESSOR. B) THE SELECTION OF THE VEHICLES WAS LEFT TO THE CHOICE OF THE LESSEE. C) THE REGISTRATION CERTIFICATE ISSUED BY THE TRANSPORT AUTHORITIES REFLECTED THE NAME OF THE LESSEE AS REGISTERED OWNER. D) ALTHOUGH AS PER THE LEASE AGREEMENT THE LEASED VEHICLES WERE TO REVERT BACK TO THE LESSOR/ASSESSEE BUT IN FACT NO VEHICLE WAS EVER TAKEN BACK AT THE EXPIRY OF THE LEASE. E) THE VEHICLES WERE RETAINED BY THE LESSEE EVEN AFTER THE EXPIRY OF THE LEASE AGREEMENT WITHOUT AFFECTING ANY FORMAL PURCHASE FROM THE ASSESSEE. F) THE ASSESSEE LESSOR DID NOT MAKE ANY SALE BUT PASSED A BOOK ENTRY SHOWING THE ADJUSTMENT OF THE LEASED SECURITY AMOUNT AS FULL AND FINAL CONSIDERATION RECEIVED FOR THE TRANSFER OF THE VEHICLE. 5. ON THE BASIS OF THE AFORESAID, IN OUR VIEW, HAVI NG REGARD TO THE FACTUAL FINDINGS RECORDED BY THE CIT(APPEALS ), THE ASSESSEE HAS TO FAIL IN ITS PLEA. THE CIT(APPEALS) RIGHTLY CONCLUDED THAT THE LEASE AGREEMENTS ARE, INFACT IN THE NATURE OF HIRE PURCHASE AGREEMENTS. ACCORDINGLY, DEPRECIATIO N OF THE SAME HAS BEEN RIGHTLY DENIED. THUS, ON THIS ASPECT , THE ASSESSEE HAS TO FAIL. 6. ANOTHER COMMON ISSUE FOR THE CAPTIONED ASSESSMEN T YEARS EXCEPT THE ASSESSMENT YEAR 1999-2000 IS REGAR DING THE INITIATION OF PROCEEDINGS U/S 147/148 OF THE ACT. AS PER THE APPELLANT, THE ASSESSING OFFICER WRONGLY ISSUED NOT ICES U/S 148 OF THE ACT AND ACCORDINGLY, THE CONSEQUENTIAL ASSES SMENTS MADE ARE BAD IN LAW. IN THIS REGARD, A REFERENCE W AS MADE TO 6 THE FACTUAL POSITION IN THE ASSESSMENT YEAR 1994-95 , SINCE ALL THE YEARS INVOLVE IDENTICAL CIRCUMSTANCES. THE RET URN OF INCOME FOR THE ASSESSMENT YEAR 1994-95 WAS FILED ON 31.08. 1994 AND WAS PROCESSED AS SUCH ON 31.01.1995. THE ASSESSING OFFICER REOPENED THE ASSESSMENT BY ISSUANCE OF NOTICE U/S 1 48 OF THE ACT ON 03.04.2000 ON THE GROUND THAT THE DEPRECIATI ON IS NOT ALLOWABLE ON LEASED ASSETS. IN THE ASSESSMENT FINAL IZED U/S 143(3) READ WITH SECTION 148 ON 31.01.2002, ONLY AD DITION OF RS.1500 BEING DISALLOWANCE OF EXPENSES OF PERSONAL NATURE WAS MADE AND DEPRECIATION OF LEASED ASSETS WAS ALLOWED AFTER PROPER VERIFICATION BY THE ASSESSING OFFICER. 7. IT IS FURTHER POINTED OUT BY THE LEARNED COUNSEL THAT THE RE-OPENING WAS MADE ON THE BASIS OF THE ASSESSMENT OF ASSESSMENT YEAR 1997-98 FINALIZED ON 13.3.2000 WHER EIN THE LEASE AGREEMENTS WERE TREATED AS HIRE PURCHASE AGRE EMENTS. NOW, IT IS CONTENDED BY THE LEARNED COUNSEL THAT IN THE ASSESSMENT FINALIZED, NO ADDITION HAS BEEN MADE FOR THE REASONS RECORDED, NAMELY THE DISALLOWANCE OF DEPREC IATION ON LEASED ASSETS AND THEREFORE, ASSESSING OFFICER DOES NOT RETAIN JURISDICTION TO MAKE ANY FURTHER ADDITION IN THE IM PUGNED ASSESSMENT. THUS, THE ASSESSEE SEEKS QUASHING OF TH E IMPUGNED ASSESSMENT. 8. ON THE OTHER HAND, LEARNED DR HAS DEFENDED THE ASSUMPTION OF JURISDICTION BY PLACING RELIANCE ON T HE REASONING ADVANCED BY THE CIT(APPEALS) IN THE IMPUGNED ORDER. IT IS FURTHER POINTED OUT BY THE LEARNED DR THAT CONSEQUE NT TO THE APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE ASSESSMENT DATED 30.01.2002, THE CIT(APPEALS) ENHAN CED THE 7 INCOME IN AS MUCH AS HE TREATED THE LEASE ARRANGEME NTS AS HIRE PURCHASE ARRANGEMENTS AND CONSEQUENTLY, THE DEPRECIATION WHICH WAS ALLOWED BY THE ASSESSING OFF ICER, STOOD DISALLOWED. THEREFORE, ACCORDING TO THE LEARNED DR , THIS CLEARLY ESTABLISHES ADDITIONS EVEN FOR THE REASONS RECORDED AT THE TIME OF ISSUANCE OF NOTICE U/S 148 OF THE ACT. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. IN OUR VIEW, IN THIS CASE THE ASSUMPTION OF JURISDICTI ON BY THE ASSESSING OFFICER U/S 147/148 IS VALID AND PROPER. FIRSTLY, THE CIT(APPEALS) HAS OBSERVED THAT IT WAS ONLY AFTER TH E FINALIZATION OF ASSESSMENT FOR ASSESSMENT YEAR 1999-2000 THAT TH E ASSESSING OFFICER CAME ACROSS THE ISSUE OF EXAMININ G THE LEASE AGREEMENTS AND HIRE PURCHASE AGREEMENTS. IN OUR VI EW, THIS CONSTITUTED A VALID INFORMATION AND THEREFORE, BASE D ON JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF A CIT V RAJESH JHAVERI STOCK BROKERS P.LTD., 291 ITR 500 (SC), THERE WAS ENOUGH CAUSE AND JUSTIFICATION TO REOPEN THE AS SESSMENT FOR THE OTHER CAPTIONED ASSESSMENT YEARS. THE PLEA OF THE ASSESSEE IS THAT WHILE FINALIZING ASSESSMENT, SUBSE QUENT TO THE ISSUANCE OF NOTICE U/S 148, THE ASSESSING OFFICER D ID NOT MAKE ANY ADDITION WITH RESPECT TO THE POINTS ON WHICH AS SESSMENTS WERE REOPENED AND THEREFORE, HE DOES NOT RETAIN JUR ISDICTION TO MAKE AN ASSESSMENT THEREAFTER. IN THIS REGARD, IN OUR VIEW, THE SAID POSITION CANVASSED BY THE ASSESSEE CANNOT BE A CCEDED TO AFTER EXPLANATION (3) BELOW SECTION 148 OF THE ACT HAS BEEN INSERTED BY THE FINANCE (NO.2) ACT, 2009 W.R.E.F. 1 .4.1989, WHICH READS AS UNDER : 8 EXPLANATION 3.-FOR THE PURPOSE OF ASSESSMENT OR RE-ASSESSMENT UNDER THIS SECTION, THE ASSESSING OFFICER MAY ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISSUE, WHICH HAS ESCAPED ASSESSMENT, AND SUCH ISSUE COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, NOTWITHSTANDING THAT THE REASONS FOR SUCH ISSUE HAVE NOT BEEN INCLUDED IN THE REASONS RECORDED UNDER SUB-SECTION (2) OF SECTION 148. 10. HAVING REGARD TO THE AFORESAID EXPLANATION, IN OUR VIEW THE ASSESSING OFFICER WAS JUSTIFIED IN PASSING THE IMPUGNED ASSESSMENT AND THERE IS NO INFIRMITY IN ASSUMPTION OF JURISDICTION BY ISSUANCE OF NOTICE U/S 148 OF THE A CT. EVEN OTHERWISE, AT THE TIME OF INITIATION OF PROCEEDINGS U/S 147/148 OF THE ACT, WHAT IS REQUIRED IS ONLY A PRIMA-FACIE OPINION AND NOT A FOOL PROOF CASE THAT ANY INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. AS PER THE HON'BLE SUPREME COU RT IN THE CASE OF RAYMOND WOOLLEN MILLS LTD., 236 ITR 34 (S.C ), THE SUFFICIENCY OR CORRECTNESS OF THE MATERIAL IS NOT A THING TO BE CONSIDERED AT THE STAGE OF INITIATION OF PROCEEDING S AND IT IS ENOUGH THAT THERE IS SOME PRIMA FACIE MATERIAL ON T HE BASIS OF WHICH THE DEPARTMENT COULD REOPEN THE CASE. IN THI S CASE, THERE WAS GOOD PRIMA FACIE MATERIAL TO REOPEN THE A SSESSMENT AND THE ULTIMATE DECISION OF THE ASSESSING OFFICER NOT TO MAKE AN ADDITION, DOES NOT VITIATE THE SUBSEQUENT ASSESS MENT. THEREFORE, FOR ASSESSMENT YEARS 1994-95 TO 1996-97 AND 1998-99, THE PLEA OF THE ASSESSEE FOR QUASHING THE ASSESSMENT ON ACCOUNT OF LACK OF JURISDICTION IS HEREBY DISMIS SED. 11. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE DISMISSED. 9 ORDER PRONOUNCED IN THE OPEN COURT ON 30.06.2010. SD/- SD/- (SUSHMA CHOWLA) ( G.S.PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED : 30 TH JUNE, 2010. POONAM COPY TO : THE APPELLANT/THE RESPONDENT/THE CIT (A)/ THE CIT/THE DR.