M/s. Simpson & General Finance Co Ltd., CHENNAI V. ACIT, CHENNAI

ITA 41/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64679 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-12-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 06-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T N BETGIRI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Reasonable cause; Revised return
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NOS. 36, 37, 38, 39, 40 & 41/MDS/2012 ASSESSMENT YEARS : 2002-03 TO 2007-08 & I.T.A. NO. 105/MDS/2012 ASSESSMENT YEAR : 2008-09 M/S SIMPSON & GENERAL FINANCE CO. LTD., 861/862, ANNA SALAI, CHENNAI - 600 002. PAN : AABCS1868A (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(3), CHENNAI - 600 034. (RESPONDENT) I.T.A. NO. 277/MDS/2012 ASSESSMENT YEAR : 2003-04 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(3), CHENNAI - 600 034. (APPELLANT) V. M/S SIMPSON & GENERAL FINANCE CO. LTD., 861/862, ANNA SALAI, CHENNAI - 600 002. (RESPONDENT) ASSESSEE BY :SHRI R. VIJAYARAGHAVAN, ADVOCATE REVENUE BY :SHRI T.N. BETGIRI, JCIT DATE OF HEARING : 05.12.2012 DATE OF PRONOUNCEMENT : 20.12.2012 O R D E R PER BENCH : THESE ARE APPEALS OF THE ASSESSEE FOR ASSESSMENT Y EARS 2002-03 TO 2008-09 AND CROSS APPEAL OF THE REVENUE FOR ASSE SSMENT YEAR 2003- 2 I.T.A. NOS.36 TO 41/MDS/12 I.T.A. NO. 105/MDS/12 I.T.A. NO. 277/MDS/12 04. APPEALS FOR ASSESSMENT YEARS 2002-03 TO 2007-0 8 ARE DIRECTED AGAINST ORDERS OF COMMISSIONER OF INCOME TAX (APPEA LS)-VI, CHENNAI, WHEREAS, APPEAL FOR ASSESSMENT YEAR 2008-09 IS DIRE CTED AGAINST AN ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-V, CH ENNAI. 2. REVENUES APPEAL FOR ASSESSMENT YEAR 2003-04 IN I.T.A. NO. 277/MDS/2012 WAS DELAYED BY FOUR DAYS. WE ARE SATI SFIED THAT REASONABLE CAUSE HAS BEEN SHOWN BY THE REVENUE FOR THE DELAY IN ITS AFFIDAVIT. NO SERIOUS OBJECTION WAS RAISED BY THE LEARNED A.R. IN THIS REGARD. HENCE, WE CONDONE THE DELAY AND ADMIT THE APPEAL. 3. THE SOLE ISSUE RAISED BY THE ASSESSEE IN ITS APP EALS IS THAT CIT(APPEALS) CONFIRMED TAXING OF THE LEASE RENT INC LUDING THE PRINCIPAL PORTION AS INCOME OF THE ASSESSEE, AND ALLOWING DE PRECIATION. AS PER THE ASSESSEE, LEASE TRANSACTIONS WERE NOTHING BUT F INANCIAL LEASES AND ACCOUNTING STANDARD 19 OF INSTITUTE OF CHARTERED AC COUNTANTS OF INDIA, WOULD CLEARLY APPLY. CONTENTION OF THE ASSESSEE IS THAT THOUGH PRINCIPAL PORTION OF LEASE RENTALS ARE NOT CONSIDERED AS INCO ME, IT WAS STILL ENTITLED TO DEPRECIATION. AS AGAINST THE ABOVE, REVENUE IN ITS CROSS APPEAL FOR ASSESSMENT YEAR 2003-04 IS AGGRIEVED THAT THE CIT(A PPEALS) HELD AMOUNTS RECEIVED ON PRE-CLOSED LEASED CONTRACTS FOR VEHICLES / CARS 3 I.T.A. NOS.36 TO 41/MDS/12 I.T.A. NO. 105/MDS/12 I.T.A. NO. 277/MDS/12 WERE TO BE DEDUCTED, FROM BLOCK OF ASSETS BEFORE CO MPUTING DEPRECIATION. 4. FACTS APROPOS ARE THAT DURING THE PROCEEDINGS FO R ASSESSMENT YEARS 2006-07 TO 2008-09, IT WAS NOTED BY THE ASS ESSING OFFICER THAT LEASING OF VEHICLES WAS ONE OF THE MAIN BUSINESS OF THE ASSESSEE. AS PER THE A.O., THE DETAILS FILED BY THE ASSESSEE SHO WED THAT ONLY A PORTION OF LEASE RENT RECOVERED WAS OFFERED AS INCOME IN TH E PROFIT & LOSS ACCOUNT. PART OF LEASE RENT RECOVERED WAS ADJUSTED AGAINST PRINCIPAL PORTION. ASSESSEE WAS REQUIRED TO EXPLAIN WHY LEAS E RENTAL CONSIDERED AS PRINCIPAL PORTION COULD NOT BE RECKONED AS INCOM E FOR TAXATION. ASSESSING OFFICER ALSO NOTED THAT ASSESSEE HAD NOT CLAIMED ANY DEPRECIATION IN ITS ACCOUNTS, BUT FOR INCOME TAX PU RPOSE, IT WAS CLAIMING DEPRECIATION ON LEASED ASSETS. 5. CONTENTION OF THE ASSESSEE WAS THAT IT WAS FOLL OWING ACCOUNTING STANDARD AS 19, ACCORDING TO WHICH, EVEN IF THE LEA SED ASSETS WERE TREATED AS RENTAL OF ASSETS, A CHARGE OF DEPRECIATI ON COULD BE MADE. AS PER THE ASSESSEE, IT WAS OBLIGED TO FOLLOW ACCOUNTI NG STANDARD 19 AND THE LEASE AMOUNT DUE WERE TREATED AS RECEIVABLE IN ITS BALANCE SHEET. ASSESSING OFFICER, HOWEVER, WAS OF THE OPINION THAT ONLY IF THE TRANSACTIONS WERE CONSIDERED AS OPERATIONAL LEASE, THE LESSOR WOULD BE 4 I.T.A. NOS.36 TO 41/MDS/12 I.T.A. NO. 105/MDS/12 I.T.A. NO. 277/MDS/12 ELIGIBLE FOR DEPRECIATION. NEVERTHELESS, ACCORDING TO HIM, ASSESSEE IN SUCH A CASE WAS OBLIGED TO SHOW ENTIRE LEASE RENT A S ITS INCOME. HERE, THE ASSESSEE ONLY CONSIDERED INTEREST PORTION OF LE ASE RENTAL, WHEREAS, PRINCIPAL PORTION OF LEASE RENTAL WAS NOT RECKONED FOR CALCULATING ITS INCOME. HE, THEREFORE, COMPLETED THE ASSESSMENT FO R ASSESSMENT YEARS 2006-07 TO 2008-09 CONSIDERING THE PRINCIPAL PORTION OF LEASE RENTAL ALSO AS PART OF INCOME OF THE ASSESSEE. 6. ASSESSMENTS FOR ALL OTHER ASSESSMENT YEARS STA RTING FROM 2002-03 AND ENDING UP TO ASSESSMENT YEAR 2005-06 WERE ALSO REOPENED FOR TAXING THE PRINCIPAL OF PORTION OF LEASE RENTAL ALS O AS PART OF INCOME. PURSUANT TO REOPENING NOTICE, ASSESSEE FILED FRESH RETURNS FOR SUCH YEARS IN WHICH THE PRINCIPAL PORTION OF LEASE RENTAL WAS RETURNED AS PART OF INCOME, ALBEIT UNDER PROTEST. THEREAFTER, ASSESSM ENTS WERE COMPLETED AS PER THE REVISED RETURNS, FOR SUCH YEARS STARTING FROM 2002-03 TO 2005- 06. BUT, FOR ASSESSMENT YEAR 2003-04, THERE WAS ONE MORE ADDITION MADE BY THE ASSESSING OFFICER. ACCORDING TO HIM, I N THE REVISED RETURN DID NOT SHOW THE CORRECT LEASE RENTALS RECEIVED BY THE ASSESSEE. THERE WAS A DIFFERENCE OF ` 19,63,956/-. REPLY OF THE ASSESSEE ON THIS ISSUE WAS THAT THE DIFFERENCE WAS DUE TO AMOUNTS RECEIVED ON PRE-CLOSURE OF LEASE CONTRACTS FOR VEHICLES/ CARS. AS PER THE ASS ESSEE, SINCE THE LEASED 5 I.T.A. NOS.36 TO 41/MDS/12 I.T.A. NO. 105/MDS/12 I.T.A. NO. 277/MDS/12 ASSETS WERE ALSO CONSIDERED FOR CLAIMING OF DEPRECI ATION, AMOUNTS RECEIVED ON PRE-CLOSURE WERE ADJUSTED AGAINST THE B LOCK OF ASSETS. THEREFORE, ACCORDING TO THE ASSESSEE, THE AMOUNTS A DJUSTED AGAINST BLOCK OF ASSETS COULD NOT BE CONSIDERED FOR AN ADDI TION. HOWEVER, THIS WAS NOT ACCEPTED. ADDITION WAS MADE FOR ` 19,63,956/- FOR ASSESSMENT YEAR 2003-04. 7. ASSESSEE MOVED IN APPEAL FOR ALL THE YEARS BEFOR E CIT(APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT PRINCIPAL PORTION OF LEASE RENTAL COULD NOT BE CONSIDERED AS INCOME OF THE ASSESSEE. AS PE R THE ASSESSEE, IT WAS DOING ONLY FINANCIAL LEASING AND ACCORDINGLY, I T WAS TREATING THE AMOUNTS DUE FROM LESSEES AS RECEIVABLES. ASSESSEE ALSO POINTED OUT THAT IT HAD NOT CHARGED AS DEPRECIATION IN THE BOOK S, FOR SUCH AMOUNTS. NEVERTHELESS, ACCORDING TO IT, DEPRECIATION CLAIMED IN TAX COMPUTATION COULD NOT BE ADDED BACK, SINCE SUCH DEPRECIATION CO ULD BE CLAIMED EVEN FOR FINANCIAL LEASES. FOR ASSESSMENT YEAR 2003-04, THE ASSESSEE ALSO RAISED A GROUND CHALLENGING THE ADDITION OF ` 19,63,956/- ON THE INCOME RETURNED AS PER THE REVISED RETURN. LD. CIT(APPE ALS) WAS OF THE OPINION THAT PRINCIPAL AMOUNT OF LEASE RENTAL WAS CORRECTLY CONSIDERED BY THE ASSESSING OFFICER AS INCOME OF THE ASSESSEE. HOWEV ER, INSOFAR AS ADDITION OF ` 19,63,956/- MADE FOR ASSESSMENT YEAR 2003-04 WAS CONCERNED, CIT(APPEALS) WAS OF THE OPINION THAT ASS ESSEE HAVING 6 I.T.A. NOS.36 TO 41/MDS/12 I.T.A. NO. 105/MDS/12 I.T.A. NO. 277/MDS/12 ADJUSTED THE VALUE OF THE ASSETS IN THE BLOCK BEFOR E CLAIMING DEPRECIATION, FURTHER ADDITION WAS NOT CALLED FOR. 8. NOW BEFORE US, LEARNED A.R. STRONGLY ASSAILING T HE ORDERS OF CIT(APPEALS), SUBMITTED THAT THERE WAS NO VERIFICAT ION DONE AS TO WHETHER LEASES WERE FINANCIAL OR OPERATING. ACCORD ING TO HIM, TREATMENT THAT WAS REQUIRED TO BE GIVEN FOR FINANCIAL LEASE W AS ENTIRELY DIFFERENT FROM THAT OF AN OPERATIONAL LEASE. RELIANCE WAS PL ACED ON THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF IN DUSIND BANK LTD. V. ADDL. CIT (135 ITD 165). ACCORDING TO HIM, NONE O F THE AUTHORITIES VERIFIED THE LEASE AGREEMENTS BEFORE COMING TO A CO NCLUSION THAT LEASES WERE ONLY FINANCIAL LEASES. THEREFORE, IN HIS OPINI ON, THE MATTER REQUIRED A RE-VISIT. INSOFAR AS ADDITION OF ` 19,63,956/- MADE FOR A.Y. 1993-94, WHICH WAS DELETED BY CIT(APPEALS), LEARNED A.R. SUB MITTED THAT ADMITTEDLY THESE AMOUNTS WERE ADJUSTED IN BLOCK ASS ETS VALUE AND SUCH ADDITION WAS THEREFORE, NO MORE WARRANTED. OR IN OT HER WORDS, HE JUSTIFIED THE ORDER OF THE LD. CIT(A) ON THE ISSUE . 9. PER CONTRA, IN SUPPORT OF REVENUES APPEAL FOR A SSESSMENT YEAR 2003-04, LEARNED D.R. SUBMITTED THAT ASSESSEE HAD C LAIMED DEPRECIATION ON THE ASSETS, BUT IT HAD OMITTED TO S HOW THE FULL AMOUNT OF LEASE RENTALS. FOR OTHER YEARS ALSO LD. D.R SUBMITT ED ASSESSEE COULD 7 I.T.A. NOS.36 TO 41/MDS/12 I.T.A. NO. 105/MDS/12 I.T.A. NO. 277/MDS/12 NOT BE ALLOWED TO CLAIM DEPRECATION, SINCE IT HAD N OT ACCOUNTED THE LEASE RENTALS AS INCOME. IN ANY CASE, ACCORDING TO HIM, EXCEPT FOR ASSESSMENT YEARS 2006-07 TO 2008-09, FOR ALL OTHER YEARS, ASSESSEE ITSELF HAD FILED REVISED RETURNS PURSUANT TO A REOP ENING UNDER SECTION 148 OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') SH OWING THE LEASE RENTALS AS A PART OF ITS INCOME. THEREFORE, IT COULD NOT N OW TURN BACK AND SAY THAT SUCH AMOUNTS INCLUDED IN THE RETURNS FILED SH OULD NOT BE CONSIDERED FOR ASSESSMENTS. 10. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. FOR ASSESSMENT YEARS 2006-07, 2007-08 AND 2008-09, ORIG INAL ASSESSMENTS, WHICH HAVE CULMINATED IN APPEALS BEFOR E US, WERE COMPLETED UNDER SECTION 143(3) OF THE ACT. FOR ALL OTHER YEARS, THE ASSESSMENTS AGAINST WHICH APPEALS ARE BEFORE US, WE RE COMPLETED UNDER SECTION 147 READ WITH SECTION 143 OF THE ACT. ASSESSEE HAD PURSUANT TO REOPENING NOTICE FOR ASSESSMENT YEAR 20 02-03 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 INC OME. 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 AM OUNT OF THE LEASE RENTALS WERE NOT SHOWN. HOWEVER, IN OUR OPINION, A SSESSEE ITSELF HAVING FILED RETURNS FOR ASSESSMENT YEARS 2002-03 TO 2005- 06, PURSUANT TO THE 8 I.T.A. NOS.36 TO 41/MDS/12 I.T.A. NO. 105/MDS/12 I.T.A. NO. 277/MDS/12 NOTICE REOPENING THE ASSESSMENT FOR SUCH YEARS, DE CLARING THE PRINCIPAL PART OF THE LEASE RENTALS ALSO AS ITS INCOME, COUL D NOT NOW BE ALLOWED TO GO BACK TO SAY THAT SUCH INCOME COULD NOT BE CONSID ERED FOR ASSESSMENTS. THERE IS NOTHING IN THE INCOME TAX AC T WHICH ALLOWS AN ASSESSEE TO FILE A RETURN IN PROTEST. IF IT WAS SU RE THAT LEASE RENTALS WERE NOT PART OF ITS INCOME, IT SHOULD NOT HAVE RETURNED SUCH AMOUNTS. ASSESSING OFFICER HAD GONE BY THE REVISED RETURN AN D COMPLETED THE ASSESSMENT FOR THESE YEARS. FOR ASSESSMENT YEARS 2 006-07 TO 2008-09 FOR WHICH PROCEEDINGS 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 DEPRECI ATION. ONCE DEPRECIATION WAS CLAIMED BY THE ASSESSEE ON LEASED ASSETS, IT WAS IMPERATIVE TO SHOW WHOLE OF THE LEASE RENTALS AS IT S INCOME. WHATEVER BE THE ACCOUNTING 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 ASS ETS. IF THE ASSETS BELONG TO THE ASSESSEE, DEPRECIATION WILL HAVE TO B E ALLOWED SINCE LEASE RENTALS ON SUCH ASSETS WILL BE PART OF ITS INCOME. IF THE ASSETS DO NOT BELONG TO ASSESSEE, DEPRECIATION CAN BE CLAIMED ONL Y BY THE LESSEES. THEN LEASE RENTAL, BUT FOR THE FINANCIAL CHARGES MA Y GO TO REDUCE THE DUES FROM LESSEES ON ACCOUNT OF THE PRINCIPAL AMOUN TS DUE. IN OUR 9 I.T.A. NOS.36 TO 41/MDS/12 I.T.A. NO. 105/MDS/12 I.T.A. NO. 277/MDS/12 OPINION, ASSESSEE CANNOT HAVE THE CAKE AND EAT IT T OO. ONCE IT HAD CLAIMED DEPRECIATION, IT WAS NECESSARY FOR IT TO SHOW LEASE RENTALS AS PART OF ITS INCOME. TREATMENT GIVEN BY THE ASSESSI NG OFFICER AND CONFIRMED BY THE CIT(APPEALS) CANNOT BE FAULTED. 11. COMING TO ADDITION OF ` 19,63,956/- MADE FOR ASSESSMENT YEAR 2003-04, WHICH WAS DELETED BY THE CIT(APPEALS), AND ON WHICH REVENUE IS ON APPEAL BEFORE US, SUCH AMOUNTS HAD AD MITTEDLY COME FROM PRE-CLOSURE OF LEASE CONTRACT. ASSESSEE HAVIN G CONSIDERED LEASED ASSETS AS ITS OWN, THE AMOUNTS RECEIVED ON PRE-CLOS URE WERE ADJUSTED AGAINST THE BLOCK OF ASSETS ON WHICH DEPRECIATION WAS CLAIMED. THEREFORE, DEPRECIATION WAS ALLOWED TO IT WAS ONLY AFTER REDUCTION OF SUCH AMOUNTS. THIS BEING THE CASE, CONSIDERING SUC H AMOUNTS AS PART OF ITS LEASE RENTALS, WOULD HAVE RESULTED IN A DOUB LE ADDITION. LD. CIT(APPEALS) HAD RIGHTLY DELETED SUCH DISALLOWANCE. 12. WE ARE, THEREFORE, OF THE OPINION THAT THERE IS NO MERIT IN THE APPEALS FILED BY THE ASSESSEE, NOR IN THE APPEAL FI LED BY THE REVENUE. 13. IN THE RESULT, ALL THE APPEALS FILED BY THE ASS ESSEE AND REVENUE ARE DISMISSED. 10 I.T.A. NOS.36 TO 41/MDS/12 I.T.A. NO. 105/MDS/12 I.T.A. NO. 277/MDS/12 THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 20 TH OF DECEMBER, 2012, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 20 TH DECEMBER, 2012. KRI. COPY TO: ASSESSEE/ASSESSING OFFICER/CIT(A)-VI, CHE NNAI/ CIT(A)-V, CHENNAI-34/CIT-III, CHENNAI/D.R./GUARD FILE