Gujarat State Financial Corporation, Gandhinagar V. The Dy.CIT, Circle-2(1)(1),, Ahmedabad

ITA 522/AHD/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5622 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 10-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PF JAIN
• Keywords: Depreciation; Set aside
• Section: 143(3); 32

Judgement Text

ITA 522, 523/AHD/2015 ASSESSMENT YEAR 2002-03, 03-04 1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO. 522/AHD/2015 AY : 2002-03 ITA NO. 523/AHD/2015 AY : 2003-04 GUJARAT STATE FINANCIAL CORPORATION, BLOCK NO. 10, SECTOR 11, UDHYOG BHAVAN, GANDHINAGAR. VS ACIT, CIRCLE-4, AHMEDABAD. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI P.F. JAIN, AR RESPONDENT BY: SHRI S.K. DEV, SR. DR DATE OF HEARING : 24.06.2019 DATE OF PRONOUNCEMENT: 01.10.2019 ORDER PER SUDHANSHU SRIVASTAVA, J.M.: THESE TWO APPEALS ARE FILED BY THE ASSESSEE AND I NVOLVE IDENTICAL ISSUES. ITA NO. 522/AHD/2015 PERTAINS TO ASSESSMENT 2002-03 AND ITA NO. 523/AHD/2015 PERTAINS TO ASSESS MENT YEAR 2003-04. BOTH THE APPEALS WERE HEARD TOGETHER AND THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA 522, 523/AHD/2015 ASSESSMENT YEAR 2002-03, 03-04 2 2.0 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FINANCE CORPORATION AND IT HAD STARTED LEASE FINANC ING ACTIVITY IN THE YEAR 1994-95. THE ASSESSEE CORPORATION PURCHASE S MACHINERIES ON BEHALF OF THE LOANEES AND THE PLANT AND MACHINERY WERE INSTALLED AT THE PREMISES OF VARIOUS LOANEES. IT HAS BEEN CLAIMED BY THE ASSESSEE THAT THE OWNERSHIP OF THE PLANT AND MACHINERY HAS ALWAYS REMAINED WITH THE ASSESSEE CORPORATION. THE ASSESSEE CORPORATION HAD CLAIMED D EPRECIATION ON SUCH PLANT AND MACHINERY LEASED OUT TO THE BORRO WERS AND DEPRECIATION HAD BEEN ALLOWED AS DEDUCTION SINCE TH E YEAR 1994- 95. HOWEVER, THE LEASING AND LOANING ACTIVITY WAS S HUT DOWN SINCE OCTOBER, 2001 AND THERE WERE NO NEW MACHINERI ES GIVEN ON LEASE IN ASSESSMENT YEARS 2002-03, 2003-04 AND EVEN IN EARLIER THREE YEARS. IT IS ALSO THE ASSESSEES CLAIM THAT T HERE WAS NO BUY- BACK AGREEMENT ENTERED INTO WITH ANY OF THE BORROWE RS AND THE TRANSACTION BETWEEN THE ASSESSEE CORPORATION AND TH E BORROWERS WAS A SIMPLE LEASE TRANSACTION. 2.1 IN ASSESSMENT YEAR 2002-03 THE RETURN OF INCO ME WAS FILED DECLARING A LOSS OF RS. 79,71,58,470/- AN D THE SCRUTINY ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961 (HEREINAFTER CALLED THE ACT) AFTER MAKING C ERTAIN ITA 522, 523/AHD/2015 ASSESSMENT YEAR 2002-03, 03-04 3 DISALLOWANCES WHICH INCLUDED DISALLOWANCE ON ACCOUN T OF DEPRECIATION ON LEASED ASSETS TO THE TUNE OF RS. 69 ,98,367/-. THE ASSESSEE PREFERRED FIRST APPEAL BEFORE THE LD. CIT (APPEALS) AND THE MATTER WAS FURTHER TAKEN TO THE ITAT ON THE ISS UE OF DEPRECIATION ON LEASED ASSETS. THE ITAT SET ASIDE T HE ISSUE OF DEPRECIATION TO THE FILE OF THE ASSESSING OFFICER ( AO) TO DETERMINE AS TO WHETHER THE LEASE WAS FINANCE LEASE OR OPERAT ING LEASE VIDE ORDER DATED 12.10.2012 IN ITA NO. 481/AHD/2011. 2.2 IN THE SET ASIDE PROCEEDINGS, THE AO HELD THA T THE NATURE OF LEASE AGREEMENT WAS A FINANCE LEASE AGREE MENT AND, THEREFORE, NO DEPRECIATION WAS TO BE ALLOWED TO THE ASSESSEE. ACCORDINGLY, THE DEPRECIATION ON LEASED ASSETS TO T HE TUNE OF RS. 69,98,367/- WAS AGAIN DISALLOWED. 2.3 SIMILARLY, IN ASSESSMENT YEAR 2003-04 THE QUANTUM OF DEPRECIATION UNDER DISPUTE AMOUNTED TO R S. 52,48,755/- AND THE DISPUTE RELATING TO THIS DISALL OWANCE TRAVELLED UP TO THE ITAT AND THE ITAT SET ASIDE THI S ISSUE TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS FOR DETERMIN ING AS TO WHETHER THE LEASE WAS A FINANCE LEASE OR OPERATING LEASE VIDE ORDER DATED 12.10.2012 IN ITA NO. 482/AHD/2011. ITA 522, 523/AHD/2015 ASSESSMENT YEAR 2002-03, 03-04 4 2.4 IN SET-ASIDE PROCEEDINGS FOR ASSESSMENT YEAR 2003-04 THE AO AGAIN HELD THAT THE NATURE OF LEASE WAS FINANCE LEASE AND PROCEEDED TO AGAIN DISALLOW DEPRECIATION TO THE TUNE OF RS. 52,48,755/-. 2.5 THE ASSESEES APPEALS BEFORE THE LD. CIT (A) FOR BOTH THE YEARS UNDER CONSIDERATION WERE DISMISSED A ND NOW THE ASSESSEE IS BEFORE THIS TRIBUNAL AGAIN CHALLENGING THE ACTION OF THE LOWER AUTHORITIES IN TREATING THE TRANSACTION A S A FINANCE LEASE TRANSACTION. 3.0 THE LD. AUTHORISED REPRESENTATIVE (AR) SUBMIT TED THAT THE LOWER AUTHORITIES HAD WRONGLY TREATED THE TRANSACTION AS A SALE AND A FINANCE LEASE TRANSACTION BECAUSE THIS WAS A WRONG CONCLUSION REACHED BY THE LOWER AUTHORITIES. IT WAS FURTHER SUBMITTED THAT IN EARLIER YEARS AND SUBSEQUENT YEAR S NO SUCH DISALLOWANCE HAS BEEN MADE ON ACCOUNT OF DEPRECIATI ON ON LEASED OUT ASSETS. IT WAS SUBMITTED THAT THE ASSESSEE WAS REGULARLY SHOWING INCOME FROM LEASE AND THE PROFIT AND LOSS A CCOUNTS ALSO REFLECTED INCOME FROM LEASE. HE DREW OUR ATTENTION TO THE PROFIT AND LOSS ACCOUNT TO DEMONSTRATE THE SAME. 3.1 IT WAS FURTHER SUBMITTED THAT THE TWO INGREDI ENTS VIZ. OWNERSHIP OF ASSETS AND PUT TO USE BOTH WE RE SATISFIED IN ITA 522, 523/AHD/2015 ASSESSMENT YEAR 2002-03, 03-04 5 THE CASE OF ASSESSEE. OUR ATTENTION WAS ALSO DRAWN TO THE VARIOUS CLAUSES OF THE LEASE AGREEMENT TO DEMONSTRATE THAT THE OWNERSHIP CONTINUED TO VEST WITH THE OWNER-LESSOR I.E. THE AS SESSEE CORPORATION. 3.2 THE LD. AR FURTHER SUBMITTED THAT RELIANCE WA S BEING PLACED ON CIRCULAR NO. 2/2001 ISSUED BY THE C ENTRAL BOARD OF DIRECT TAXES DATED 9.2.2001 WHEREIN IT HAD BEEN PROVIDED THAT UNDER THE PROVISIONS OF INCOME TAX ACT, IN ALL LEAS ING TRANSACTIONS, THE OWNER OF THE ASSETS WAS ENTITLED TO DEPRECIATION IF THE SAME WAS USED IN BUSINESS U/S 32 OF THE INCO ME TAX ACT. IT WAS FURTHER SUBMITTED THAT THE SAID CIRCULAR PROVID ED THAT THE OWNERSHIP OF THE ASSETS WAS TO BE DETERMINED BY THE TERMS OF THE CONTRACT BETWEEN THE LESSOR AND LESSEE. 3.3 THE LD. AR PLACED RELIANCE ON JUDGMENT OF HONBLE APEX COURT IN THE CASE OF ICDS LTD. VS. CIT MYSORE (2013) REPORTED IN 350 ITR 527 (SC) WHEREIN THE HON BLE APEX COURT HAS HELD THAT SECTION 32 OF THE ACT REQUIRED USE OF ASSET FOR THE PURPOSE OF BUSINESS AND IT DID NOT MANDATE USAG E OF ASSET BY THE ASSESSEE ITSELF. IT WAS SUBMITTED THAT IN THIS CASE THE HONBLE APEX COURT HAS HELD THAT EVEN THOUGH MOTOR VEHICLES WERE ITA 522, 523/AHD/2015 ASSESSMENT YEAR 2002-03, 03-04 6 REGISTERED IN THE NAME OF THE LESSEE, THE LESSOR WO ULD BE ENTITLED TO DEPRECIATION. 3.4 THE LD. AR ALSO SUBMITTED THAT THE RELIANCE B Y THE DEPARTMENT IN THE CASE OF ASEA BROWN BOVERI LTD . VS INTERNATIONAL FINANCE CORPORATION OF INDIA REPORTED IN 2006 154 TAXMAN512 (SC) WAS MISPLACED AS NO ISSUE OF DEPRE CIATION WAS INVOLVED IN THIS CASE AND, THEREFORE, THE SAME HAD BEEN WRONGLY RELIED UPON BY THE LOWER AUTHORITIES. 4.0 IN RESPONSE THE LD. SR. DR PLACED HEAVY RELIA NCE ON THE FINDINGS AND OBSERVATIONS OF THE LD. CIT (A) . THE LD. SR. DR VEHEMENTLY ARGUED THAT THE LD. CIT (A) HAD CORRE CTLY ARRIVED AT THE CONCLUSION THAT THE IMPUGNED TRANSACTION WAS IN THE NATURE OF A FINANCE LEASE AND DEPRECIATION COULD NO T BE CLAIMED ON SUCH LEASED OUT ASSETS. LD. SR. DR ALSO SUBMITTE D THAT THE LD. CIT (A) HAD DULY CONSIDERED THE RATIO OF JUDGMENT I N THE CASE OF ICDC LTD. VS CIT (SUPRA) AND ASEA BROWN BOVERI LTD. VS IFCI (SUPRA) AND HAD, THEREAFTER, ARRIVED AT THE CONCLUS ION WHICH WAS BOTH FACTUALLY AS WELL AS LEGALLY CORRECT. THE LD. SR. DR PRAYED THAT THE ASSESSEES APPEALS BE DISMISSED. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE MATERIAL ON RECORD AND THE ONLY QU ESTION TO BE ITA 522, 523/AHD/2015 ASSESSMENT YEAR 2002-03, 03-04 7 DETERMINED BY US IN BOTH THE YEARS UNDER CONSIDERAT ION IS AS TO WHETHER ON THE FACTS OF THE CASE, DEPRECIATION ON L EASED OUT ASSETS IS TO ALLOWABLE TO THE ASSESSEE OR NOT. IT H AS BEEN THE ASSESSEES CONTENTION THAT THE IMPUGNED TRANSACTION IS A LEASE TRANSACTION SIMPLICITER AND THE OWNERSHIP OF THE AS SETS CONTINUED TO VEST WITH THE ASSESSEE THROUGHOUT THE PERIOD OF LEASE AND, THEREFORE, THE ASSESSEE WAS ENTITLED TO THE CLAIM O F DEPRECIATION ON THE SAME. ON THE OTHER HAND, IT IS THE DEPARTMEN TS CONTENTION THAT THE IMPUGNED TRANSACTION IS A SALE AND BUY-BACK TRANSACTION OR A FINANCE LEASE AND, THEREFORE, NO D EPRECIATION IS ALLOWABLE ON SUCH ASSETS. 5.1 ALTHOUGH THE LOWER AUTHORITIES HAVE TAKEN A VI EW THAT THE IMPUGNED TRANSACTION IS A FINANCE LEASE TRANSA CTION, WE ARE NOT IN AGREEMENT WITH THE SAME DUE TO THE FOLLOWING REASONS :- (1) WE HAVE PERUSED A COPY OF THE LEASE ARRANGEMENT BETWEEN THE ASSESSEE AND M/S. ADD-LIFE PHARMA LTD. AND IT IS SEEN THAT THE AGREEMENT PROVIDES THAT THE ASSETS ARE OWNED BY THE ASSESSEE CORPORATION AND AF TER THE PERIOD OF EXPIRY OF LEASE, THE LEASED ASSETS AR E RESTORED TO THE LESSOR. IT IS ALSO SEEN THAT THE IN SURANCE POLICIES ARE TAKEN IN THE NAME OF LESSOR BY THE LES SEE ITA 522, 523/AHD/2015 ASSESSMENT YEAR 2002-03, 03-04 8 AND THE LESSEE IS ALSO REQUIRED TO AFFIX A SIGN ON THE ASSETS INDICATING THAT ASSETS BELONG TO THE LESSOR. (2) IT IS FURTHER SEEN THAT THE LESSEE USES THE E QUIPMENT LEASED OUT TO IT FOR BUSINESS PURPOSE WHICH IS MANDATORY CONDITION FOR ALLOWANCE OF CLAIM OF DEPRECIATION. (3) A PERUSAL OF THE LEASE AGREEMENT ALSO SHOWS TH AT THE LESSEE IS REQUIRED TO KEEP THE LEASED OUT ASSETS IN ITS POSSESSION ALL THE TIME AND IS NOT PERMITTED TO REM OVE THE SAME WITHOUT PRIOR WRITTEN PERMISSION OF THE LESSOR. (4) THE LEASE AGREEMENT ALSO PROVIDES THAT THE LES SEE HAS TO HOLD THE EQUIPMENT AS THE BAILOR OF THE LESSOR A ND IS NOT ENTITLED TO CLAIM ANY TITLE OR INVEST IN THE AS SETS AND THAT THE LESSOR WOULD BE THE SOLE AND EXCLUSIVE OWNER OF THE ASSETS. 5.2 THUS A PERUSAL OF THE ABOVE MENTIONED COVENAN TS WOULD CLEARLY GO TO ESTABLISH THAT THE LESSOR I.E. THE ASSESSEE IS THE SOLE AND EXCLUSIVE OWNER OF THE LEASED OUT ASSE TS. ALTHOUGH THE DEPARTMENT HAS REACHED THE CONCLUSION THAT THE IMPUGNED ITA 522, 523/AHD/2015 ASSESSMENT YEAR 2002-03, 03-04 9 TRANSACTION IS IN THE NATURE OF THE FINANCE LEASE, THE FACTS INDICATE OTHERWISE. 5.3 THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF ICDS LTD. VS. CIT, MYSORE (SUPRA) ALSO COMES TO THE AID OF THE ASSESSEE FOR ADVANCING THE ASSESSEES CLAIM OF DEPR ECIATION IN AS MUCH AS IN THIS CASE THE HONBLE APEX COURT HAS HEL D THAT SECTION 32 OF THE ACT REQUIRES THAT FOR THE PURPOSE OF CLAIMING DEPRECIATION THE ASSESSEE MUST USE THE ASSETS FOR T HE PURPOSE OF BUSINESS AND THE SAME DOES NOT MANDATE USAGE OF ASS ETS BY THE ASSESSEE ITSELF. THE HONBLE APEX COURT WENT ON TO HOLD THAT AS LONG AS THE ASSETS WERE UTILISED FOR THE PURPOSE OF BUSINESS, THE REQUIREMENT OF SECTION 32 WOULD STAND SATISFIED NOT WITHSTANDING THE NON USAGE OF THE ASSETS BY THE ASSESSEE. IN THI S CASE THE ASSESSEE WAS A LEASING COMPANY WHICH LEASED OUT TRU CKS THAT IT PURCHASED AND THE HONBLE APEX COURT HELD THAT THE INCOME DERIVED FROM LEASING OF THE TRUCKS WOULD BE BUSINES S INCOME AND, THEREFORE, THE REQUIREMENT OF SECTION 32 I.E. THE A SSETS MUST BE USED IN THE COURSE OF BUSINESS STOOD FULFILLED. IN THE PRESENT CASE ALSO IT IS UNDISPUTED THAT THE ASSESSEE IS EARNING INCOME FROM LEASING ACTIVITIES AND THE LEASED OUT ASSETS ARE BE ING USED BY THE LESSEES FOR THEIR BUSINESS PURPOSES. A PERUSAL OF T HE PROFIT AND ITA 522, 523/AHD/2015 ASSESSMENT YEAR 2002-03, 03-04 10 LOSS ACCOUNT ALSO SHOWS THAT THE ASSESSEE HAS BEEN EARNING INCOME FROM LEASE BUSINESS. 5.4 WE FURTHER NOTE THAT CIRCULAR NO. 2/2001 ISSUE D BY THE CBDT ON 9.2.2011 EXPLICITLY PROVIDES THAT UNDER THE INCOME TAX ACT, IN ALL LEASING TRANSACTIONS, THE OWNER OF THE ASSETS IS ENTITLED TO DEPRECIATION IF THE SAME IS USED IN THE BUSINESS. 5.5 WE ALSO DULY TAKE NOTE OF THE FACT THAT THE AS SESSEE WAS BEING ALLOWED THE BENEFIT OF DEPRECIATION PRIOR TO THE TWO ASSESSMENT YEARS UNDER CONSIDERATION. COPIES OF ASS ESSMENT ORDERS FOR ASSESSMENT YEARS 2004-05 AND 2005-06 ALS O SHOW THAT THE ASSESSEES CLAIM WITH RESPECT TO DEPRECIATION W AS ALLOWED. THUS, IT IS APPARENT THAT THERE HAS BEEN NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND, THEREFORE, THERE IS NO COGENT REASON FOR THE DEPARTMENT TO DEVIATE FROM ITS EARLI ER STAND. ALTHOUGH IT IS SETTLED LAW THAT PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS, IT IS ALSO SETTLED LAW THAT WITHOUT A CHANGE IN CIRCUMSTANCES AND FACTS THE ACC EPTED POSITION BY BOTH THE DEPARTMENT AS WELL AS THE ASSE SSEE SHOULD NOT BE DISTURBED. 5.6 WE ALSO NOTE THAT THE DEPARTMENTS RELIANCE ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF A SEA BROWN ITA 522, 523/AHD/2015 ASSESSMENT YEAR 2002-03, 03-04 11 BOVERI LTD. (SUPRA) IS MISPLACED IN AS MUCH AS THE ISSUE UNDER CONSIDERATION IN THAT CASE WAS THE CHALLENGE TO THE DIRECTION TO HAND OVER THE POSSESSION OF CERTAIN 56 CARS TO THE CUSTODIANS WHICH HAS BEEN SO DIRECTED BY THE SAID COURT. 5.7 THEREFORE, FOR THE REASONS CITED ABOVE, WE FIN D OURSELVES UNABLE TO PERSUADE OURSELVES TO AGREE TO THE CONCLUSIONS REACHED BY THE LOWER AUTHORITIES AND, T HEREFORE, FOR BOTH THE YEARS UNDER CONSIDERATION, WE SET ASIDE TH E ORDER OF LD. CIT (A) AND DIRECT THE AO TO ALLOW THE BENEFIT OF D EPRECATION TO THE ASSESSEE CORPORATION. 6.0 IN THE FINAL RESULT, BOTH THE APPEALS OF THE A SSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 01.10.2019 SD/- SD/- (AMARJIT SINGH) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 01 ST OCTOBER, 2019 VEENA COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER ASSTT. REGISTRAR ITAT, NEW DELHI