ACIT CIR 1 (2), MUMBAI V. INDIAN PETROCHEMICALS CORPORATION LTD ( NOW MERGED WITH RELIANCE INDS.LTD ), BARODA

ITA 3919/MUM/2009

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88426 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 11-02-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 18-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Keywords: Depreciation; Tangible material; Difference of opinion; Change of opinion; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 142(1); 80HHC; 115JB; 37(1); 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI .. ! , ' # $ %, !, ' BEFORE S/SHRI N K BILLAIYA, AM & AMIT SHUKLA, JM ./ ITA NOS.3919 & 3920/MUM/2009 ( ')( / ASSESSMENT YEARS 2003-04 & 2004-05 THE ACIT -LTU, MUMBAI / ACIT CIRCLE 1(2), BARODA VS. M/S. INDIAN PETROCHEMICALS CORPORATION LTD. (NOW MERGED WITH RELIANCE INDS. LTD.) P.O. PETROCHEMICALS DIST. BARODA - 391346 PAN: AAACR5055K ( *+ /APPELLANT) ( ,-*+ /RESPONDENT) APPELLANTS BY : SHRI KISHAN VYAS RESPONDENT BY : SHRI FARROKH IRANI ' . #/ / DATE OF HEARING :11.02.2015. 01) . #/ / DATE OF PRONOUNCEMENT : 18.02.2015 $ $ $ $ / O R D E R PER N K BILLAIYA, AM: THESE TWO APPEALS BY THE REVENUE ARE PREFERRED AGA INST TWO SEPARATE ORDERS OF THE CIT(A)-I, BARODA PERTAINING TO A YS 2003-04 AND 2004-05 DATED 26.03.2009. THE COMMON GROUND IN BOTH THE YEARS IS THAT THE CIT (A) ERRED IN DELETING THE DISALLOWANCE OF LEASE RENT WHICH HAS BEEN TREATED B Y THE AO AS FINANCE TRANSACTION AND NOT AS LEASE RENT. THE REVENUE IS FURTHER AGGR IEVED BY THE DIRECTION OF THE CIT(A) IN ALLOWING DEDUCTION U/S. 80HHC WHILE COMPU TING THE BOOK PROFIT U/S. 115JB OF THE ACT. ITA NO.3919 & 3920/MUM/2009 2 2. AT THE VERY OUTSET, THE COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE HAS CHALLENGED THE RE-OPENING OF THE ASSESSMENT BEFORE THE CITA) WHICH GROUND HAS BEEN DECIDED AGAINST THE ASSESSEE. SINCE THE CIT(A ) HAS ALLOWED THE APPEAL BY DELETING THE QUANTUM ADDITIONS, THE ASSESSEE HAS A RIGHT TO SUPPORT THE ORDER ON ANY GROUND WHICH HAS BEEN DECIDED AGAINST HIM UNDER RULE 27 OF THE INCOME TAX APPELLATE RULES 1963. THE LEARNED DR FAIRLY CONCED ED TO THIS. 3. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE C LAIM MADE BY THE LEARNED COUNSEL, WE ARE OF THE OPINION THAT RULE 27 OF THE APPELLATE TRIBUNAL RULES SQUARELY APPLY. ON THE FACTS OF THE CASE, THE COUNSEL IS AL LOWED TO CHALLENGE THE GROUND DECIDED AGAINST HIM. SINCE THE FACTS OF BOTH THE A PPEALS UNDER CONSIDERATION ARE IDENTICAL, WE ARE TAKING UP THE FACTS OF A.Y. 2003- 04. 4. IN THIS CASE THE ORIGINAL RETURN OF INCOME WAS F ILED ON 29.11.2003. THE ORDER U/S. 143(3) WAS PASSED ON 28.02.2006. THEREAFTER N OTICE U/S. 148 OF THE ACT WAS ISSUED ON 30.05.2007. THE REASONS FOR THE RE-OPENI NG OF THE ASSESSMENT READ AS UNDER: IN ITS RETURN OF INCOME THE ASSESSEE FOR THE ASSES SMENT YEAR 2003- 04, THE ASSESSEE HAD ADDED BACK FINANCE CHARGES ON THE SO CALLED LEASED ASSETS AMOUNTING TO RS.73.20 CRORES AND HAD CLAIMED DEDUCTION FOR LEASE RENT OF RS.102,03,00,000/-. ON PERUSAL OF THE FACTS IN RESPECT OF THIS CLAIM, IT WAS OBSERVED THA T THE ASSESSEE HAD CONTRACTED WITH M/S DODSAL INFRASTRUCTURE (P) LTD. IN TERMS OF AGREEMENT DTD. FEBRUARY, 2000 FOR LAYING OF A PIPEL INE FACILITY FOR TRANSPORTATION OF ITS GAS AND GAS PRODUCTS BETWEEN DAHEJ AND HAZIRA. THIS PIPELINE FACILITY WAS COMMISSIONED IN FEBRUARY 2002. AS STATED ABOVE, THE ASSESSE HAS CLAIMED LEASE RENTALS TO THE TUNE OF RS.102,03,00,000/- IN THE COMPUTATION OF INCOME RED UCING FINANCE CHARGES OF RS.73,20,00,000/- WHILE DOING SO THE AS SESSEE COMPANY HAD SUPPLEMENTED ITS CLAIM WITH A NOTE STATING THAT THE ASSESSEE HAD TAKEN ON LEASE PLANT & MACHINERY AFTER 1.4.2001 AND AS PER ACCOUNTING STANDARD 19 ISSUED BY ICAI, THE SAID PLANT AND MACH INERY HAS BEEN CAPITALIZED IN THE BOOKS OF THE ASSESSEE (LESSEE) A ND THAT IN ITS COMPUTATION OF INCOME HOWEVER IT HAS ADDED FINANCE CHARGES PERTAINING TO THE AFORESAID LEASE AS DEBITED IN THE ACCOUNTS AND CLAIMED DEDUCTION FOR LEASE RENT PAID AS PER CONTRA CTUAL AGREEMENT WITH THE LESSOR, ADDING FURTHER THAT, IT HAD NOT CL AIMED ANY DEPRECIATION IN RESPECT OF SUCH LEASED ASSETS. ITA NO.3919 & 3920/MUM/2009 3 ON PERUSAL OF THE SAID AGREEMENT BETWEEN THE ASSES SEE AND M/S. DODSAL INFRASTRUCTURE (P) LTD. DTD. FEBRUARY, 2000, AND FROM THE IMPORT OF THE VARIOUS RECITALS MENTIONED THEREIN, I T IS CLEAR THAT THE ROLE OF M/S. DODSAL INFRASTRUCTURE (P) LTD WAS MERE LY THAT OF A FINANCING AGENT AND THOUGH IT IS TERMED AS LEASE AG REEMENT, IT IS THE FINANCE AGREEMENT IN SUBSTANCE WITH THE ASSESSEE CO MPANY BEING BENEFICIAL OWNER OF THE ASSETS. IT SEEMS THAT THE ENTIRE ARRANGEMENT HAS BEEN MADE TO RENDER THE FINANCE AGREEMENT TO AP PEAR AS LEASE AGREEMENT. THUS THERE WAS NO COMPLETED SALE OF GOO DS TO THE LESSOR ANTERIOR TO THE INDEPENDENT OF SUBSEQUENT LEASING. HENCE, THE OWNERSHIP OF THE ASSETS IN QUESTION I.E. PIPELINE F ACILITY RESTED WITH THE ASSESSEE IN SUBSTANCE AND EFFECT AS SETTLED BY THE SUPREME COURT IN THE CASE OF SUNDARAM FINANCE LTD. VS. STATE OF KERA LA 1966 AIR SC 1178. 5. IN ADDITION TO THE ABOVE FACTS, IT IS CLEAR FROM NOTE 4 THE COMPUTATION OF INCOME IN THE BOOKS OF ACCOUNTS THAT THE LEASE TRANSACTION HAS BEEN TREATED AS FINANCE TRANSACTION BY THE ASSESSEE ITSELF AND THE AMOUNT DEBITED AS FINANCE CHARGES WA S THE INTEREST COMPONENT COMPRISED IN REPAYMENT SCHEDULE WHICH WAS IN CONFORMITY WITH INTERNATIONAL ACCOUNTANT STANDARD- 17 SINCE RE COGNIZED BY ACCOUNTANT STANDARD -19 (AS-19) AND MADE MANDATORY WITH EFFECT FROM 01.04.2001. DESPITE CORRECTLY ACCOUNTING FOR THE TRANSACTIONS AS FINANCE TRANSACTION IN THE BOOKS OF ACCOUNTS, HOWEV ER IN THE COMPUTATION OF INCOME THE ASSESSEE TREATED THE SAME AS LEASE TRANSACTION. THE ACCOUNTING SYSTEM FOLLOWED BY THE ASSESSEE IS IN CONFORMITY WHICH ESTABLISHED ACCOUNTING PRACTICE AS SANCTIFIED BY AS- 19. THIS PRACTICE BEING BASED ON THE SUBSTANCE AS OPPOSED TO FORM OF THE TRANSACTION , IT IS IN ACCORDANCE WITH THE PRIN CIPLES OF THE INCOME TAX ACT. IN SUCH A SITUATION, WHERE THERE NO CONFLI CT BETWEEN THE ACCOUNTING PRACTICE AND THE PRINCIPLES OF THE INCOM E TAX ACT, THE PROFIT HAS TO BE COMPUTED IN ACCORDANCE WITH SUCH ACCOUNTI NG PRACTICE. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS (A) P M MOHMMED MEERAKHAN VS CIT 73 ITR 735 (SC) (B) CIT VS U P INDUSTRIAL DEVELOPMENT CORPORATION (1977) 225 ITR 703 (SC) (C) TUTICORIN ALKALIES CHEMICALS & FERTILIZERS LTD V/S CIT 227 ITR 172 (SC) 6. IN RESPECT OF SIMILAR TRANSACTION FORMULATED AS FINANCE LEASE, IN THE FOLLOWING DECISIONS, IT WAS HELD THAT IN SUBSTA NCE AND EFFECT IT WAS A FINANCE TRANSACTION FOR THE PURPOSE OF THE INCOME TAX ACT. I) GAURISHANKAR FINANCE LTD VS. CIT 166 CTR 137 (KE R) II) AVASAARALA AUTOMOBILES LTD. VS. JCIT 266 ITR 17 6 (KAR) ITA NO.3919 & 3920/MUM/2009 4 III) SUJAL LEASING LTD. VS ACIT 266 ITR 639 (P & H) IV) CENTRE FOR MONITORING OF INDIAN ECONOM (CMIE) V S. DCIT IN ITA NO. 3820/BOM/1990 DTD. 29.04.1996 (MUM TRIB) AN D V) MID EAST PORTFOLIO MANAGEMENT LTD. VS. DCIT 271 ITR (AT) 87 (SB) MUM 7. IN VIEW OF THE AFOREGOING, I HAVE REASON TO BELI EVE THAT INCOME CHARGEABLE TO THE TUNE OF RS.102,03,00,000/- HAS ES CAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT AS AME NDED W.E.F. 1-4- 1989 AND AS INTERPRETED BY JURISDICTIONAL HIGH COUR T IN THE CASE OF PRAFUL C PATEL V/S. ACIT 236 ITR 832. THEREAFTER, THE ASSESSEE ATTENDED RE-ASSESSMENT PRO CEEDINGS AND FILED REPLY TO EACH AND EVERY QUERY RAISED DURING THE COURSE OF SA ID PROCEEDINGS. THE AO FINALLY COMPLETED THE REASSESSMENT PROCEEDINGS BY MAKING TH E DISALLOWANCE ON ACCOUNT OF LEASE RENT AT RS.9.21 CRORES. AGGRIEVED BY THE RE- OPENING AND THE ADDITIONS, THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE RE- OPENING BUT DELETED THE ADDITION MADE BY THE AO. B EFORE US, THE COUNSEL FOR THE ASSESSEE IS AGAINST THE DECISION OF THE CIT(A) IN N OT QUASHING THE REASSESSMENT PROCEEDINGS. THE COUNSEL FOR THE ASSESSEE STATED T HAT DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD MADE FULL DISCLOSURE AND EVERY SPECIFIC QUERY WAS REPLIED. THEREFORE, THE RE-OPENING IS NO THING BUT CHANGE OF OPINION WITHOUT BRINGING ANY NEW TANGIBLE MATERIAL ON RECOR D. THE COUNSEL STRONGLY RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN 3 20 ITR 521 AND HONBLE BOMBAY HIGH COURT IN 346 ITR 361 AND ON THE DECISIO N OF THE HONBLE HIGH COURT OF BOMBAY IN WP NO. 2639 OF 2007 DATED 06.01.2015. IT IS THE SAY OF THE COUNSEL THAT SINCE THOROUGH INVESTIGATION WAS DONE BY THE AO DUR ING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, THERE WAS NO REASON FOR REO PENING OF THE ASSESSMENT. PER CONTRA, THE DR STRONGLY SUPPORTED THE ASSESSMENT OR DER. 5. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD. WE HAVE ALSO CONSIDERED THE JUDICIAL DECISIONS RELIED UPON BY BOTH THE SIDES. IN THE STATEMENT OF TOTAL INCOME REVISED FOR THE YEAR ENDED ON 31.03.2003 UNDER THE HEAD INCOME FROM BUSINESS, ITA NO.3919 & 3920/MUM/2009 5 THE ASSESSEE HAS SHOWN FINANCE CHARGES ON LEASED AS SETS DEBITED IN ACCOUNTS AMOUNTING TO RS.73,20,00,000/-. FURTHER UNDER THE HEAD ADMISSIBLE DEDUCTIONS, THE ASSESSEE HAS SHOWN EXPENDITURE INCURRED ON CONTRACT UAL PAYMENTS MADE TO DODSAL LTD AT RS.102,03,00,000/-. IN THE NOTES TO ACCOUNT , THE ASSESSEE HAD EXPLAINED THAT THE COMPANY HAS TAKEN ON LEASE PLANT AND MACHINERY AFTER 2001 AND AS PER THE ACCOUNTING STANDARD 19 OF INSTITUTE OF CHARTERED AC COUNTANTS OF INDIA, THIS PLANT AND MACHINERY HAS BEEN CAPITALIZED IN THE BOOKS OF THE LESSEE. HOWEVER, THE COMPANY IN ITS COMPUTATION OF INCOME, AS PER CIRCUL AR NO.2 DATED 09.02.2001 ISSUED BY CBDT, HAS ADDED THE FINANCE CHARGES PERTAINING T O THE AFORESAID LEASE AS DEBITED IN THE ACCOUNTS AND CLAIMED DEDUCTION FOR LEASE REN T PAID AS PER CONTRACTUAL AGREEMENT WITH THE LESSOR. THE COMPANY HAS NOT CLA IMED DEPRECIATION IN RESPECT OF SAID LEASED ASSETS. FURTHER IN ITS NOTES TO ACCOUN T IT IS MENTIONED THAT DURING THE YEAR, THE COMPANY HAS PAID A SUM OF RS.102.03 CRORE S TO DODSAL LTD AS PER CONTRACT ENTERED INTO WITH THEM. SUCH EXPENDITURE IS ALLOWA BLE AND HAS BEEN CLAIMED AS REVENUE EXPENDITURE U/S. 37(1) OF THE ACT. 6. IN THE QUESTIONNAIRE SERVED UPON THE ASSESSEE DU RING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS U/S. 142(1) OF THE ACT, AT Q UESTION NO.11 THE AO HAS ASKED THE ASSESSEE TO PRODUCE THE DETAILS OF DEFERRED REV ENUE EXPENDITURE ALONG WITH THE ITEMS AND TO THE YEAR TO WHICH IT PERTAINS. THE AS SESSEE WAS ALSO ASKED TO PRODUCE THE DETAILS OF EXPENDITURE INCURRED ON CONTRACTUAL PAYMENTS MADE TO DODSAL LTD., ALONG WITH THE COPY OF AGREEMENT ENTERED INTO THIS RESPECT. AT QUESTION NO.17, THE ASSESSEE WAS ASKED TO PRODUCE DETAILS OF LEASED ASS ETS SPECIFYING WHETHER IT WAS OPERATIONAL LEASE OR FINANCIAL LEASE AND THE AMOUNT CLAIMED/OFFERED IN RESPECT OF BOTH THE ASSETS. AT QUESTION NO. 18 THE ASSESSEE W AS ASKED TO PRODUCE DETAILS OF LEASED ASSETS CAPITALIZED DURING THE YEAR AND CLAIM OF DEPRECIATION THEREON. THE ASSESSEE, VIDE LETTER DATED 16.11.2005, FILED A DET AILED REPLY IN RESPECT OF QUESTIONS RAISED VIDE NOTICE U/S. 142(1). THE QUERY RAISED A ND THE DETAILS SOUGHT BY THE AO WERE PROPERLY ANSWERED AND RELEVANT DETAILS/DOCUMEN TS WERE FURNISHED. CONSIDERING ALL THESE FACTS IN TOTALITY, IN OUR CON SIDERED OPINION THE AO HAD VERIFIED THE IMPUGNED TRANSACTIONS THOROUGHLY, HAS EXAMINED THE DETAILS FURNISHED TO HIS SATISFACTION AND COMPLETED THE ASSESSMENT. FOR THE SAME SET OF QUERIES AND FOR THE ITA NO.3919 & 3920/MUM/2009 6 SAME SET OF FACTS, THE AO HAS RE-OPENED THE ASSESSM ENT, WHICH IS NOTHING BUT A CHANGE OF OPINION AND IN THE GARB THE AO HAS PROCEE DED BY REVIEWING HIS OWN ORDER. THERE IS NO NEW TANGIBLE MATERIAL ON THE BA SIS OF WHICH THE AO HAS REOPENED THE ASSESSMENT. THE FACTS ARE SQUARELY CO VERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LTD. 320 ITR 561 AND ALSO BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF NKY LINE (INDIA) LTD. 346 ITR 361. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GKN SINTER METALS IN WP NO. 2639 OF 2007 AT PARA 13 OF ITS ORDER HAS OBSERVED AS UNDER: 13. IN THE PRESENT FACTS, THE PETITIONER HAD ALONG WITH ITS RETURN OF INCOME FILED ITS COMPUTATION OF INCOME WHEREIN CLAI M FOR DEDUCTION UNDER SECTION 80IA/IB OF THE ACT WAS MADE. BESIDES THE AUDITORS CERTIFICATE AS REQUIRED UNDER SECTION 80IA(8) OF TH E ACT TO CLAIM TO DEDUCTION WAS ALSO FILED ALONG WITH A NOTE INDICATI NG THE BASIS OF ALLOCATION OF EXPENDITURE AMONGST ITS THREE MANUFAC TURING UNITS WAS ALSO FILED. THESE WERE ALL PRIMARY DOCUMENTS WHICH WOULD NOT NORMALLY ESCAPE EXAMINATION DURING THE SCRUTINY PRO CEEDINGS. THIS IS ALSO EVIDENT FROM THE FACT THAT DURING THE ASSESSME NT PROCEEDINGS, THE ASSESSING OFFICER HAD BY LETTER DATED 27 TH DECEMBER, 2004 CALLED UPON THE PETITIONER TO FURNISH DETAILS WITH REGARD TO IT S CLAIM FOR DEDUCTION UNDER SECTION 80IA/IB OF THE ACT INCLUDING THE METH OD /MANNER OF ALLOCATION OF EXPENDITURE AMONGST ITS THREE MANUFAC TURING UNITS. THE PETITIONER BY ITS LETTER DATED 25 TH JANUARY, 2005 SUBMITTED VARIOUS DETAILS OF ALLOCATION OF EXPENSES SUPPORTING ITS NO TE ALONG WITH THE RETURN OF INCOME THAT THE EXPENDITURE HAD BEEN ALLO CATED ACTUAL BASIS, TURN OVER BASIS AND TIME SPENT BASIS AMONGST THE THREE MANUFACTURING UNITS. THE AFORESAID ALLOCATION OF E XPENSES ON DIFFERENT BASIS WAS ON THE BASIS OF THE NATURE OF EXPENDITURE . THE ASSESSING OFFICER WAS SATISFIED WITH THE PETITIONERS RESPONS E AND CONSEQUENTLY IN THE ASSESSMENT ORDER DATED 9 TH MARCH, 2005 UNDER SECTION 145(3) OF THE ACT ACCEPTED THE PETITIONERS CLAIM FOR DEDUCTI ON UNDER SECTION 80IA/IB OF RS.2.08 CRORES. THIS ESTABLISHES THAT A N OPINION WAS FORMED IN RESPECT OF ALLOCATION OF EXPENSES AMONGST THE THREE MANUFACTURING UNITS FOR DEDUCTION UNDER SECTION 80I A/IB OF THE ACT WHILE PASSING AN ORDER OF ASSESSMENT ON 9 TH MARCH, 2005. CONSIDERING THE FACTS IN THE LIGHT OF THE JUDICIAL DECISION DISCUSSED HEREINABOVE, OBJECTIONS RAISED BY THE COUNSEL UNDER RULE 27 ARE ALLOWED AND CONSEQUENTLY WE QUASH THE RE-ASSESSMENT PROCEEDINGS. ITA NO.3919 & 3920/MUM/2009 7 7. SINCE WE HAVE QUASHED THE REASSESSMENT PROCEEDIN GS, WE DO NOT FIND IT NECESSARY TO DECIDE THE ISSUE ON MERITS OF THE CASE AS RAISED BY THE REVENUE IN ITS APPEALS FOR ASSESSMENT YEARS UNDER CONSIDERATION. 8. IN THE RESULT, APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF FEBRUARY, 2015 SD/- SD/- (AMIT SHUKLA) (N K BILLAIYA) ! /JUDICIAL MEMBER ! ! ! ! / ACCOUNTANT MEMBER MUMBAI; 2 DATED :18 TH FEBRUARY, 2015. SA $ $ $ $ . .. . ,# ,# ,# ,# 3)# 3)# 3)# 3)# / COPY OF THE ORDER FORWARDED TO : 1. *+ /THE APPELLANTS. 2. ,-*+ / THE RESPONDENT. 3. 4 ( ) / THE CIT(A), MUMBAI. 4. 4 / CIT 5. '56 ,# , , / DR, I BENCH, ITAT, MUMBAI $ / BY ORDER, -# ,# //TRUE COPY// / 7 8 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI