Sapient Corporation Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 5315/DEL/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74334 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 10-02-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 29-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RENUKA JAIN GUPTA
• Keywords: Depreciation; Income from undisclosed sources; Source of fund
• Section: 37(1); 32

Judgement Text

ITA NO. 5315/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI A. D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 5315/DEL/2010 A.Y. : 2002-03 SAPIENT CORPORATION PVT. LTD., SAPIENT TOWER, DLF CYBER GREENS, DLF PHASE-III, SECTOR-25A, GURGAON-122022 (PAN: AAECS6286M) VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 7(1), NEW DELHI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. AJAY VOHRA, ADV., & MS. SHAILY GUPTA, CA DEPARTMENT BY : S MT. RENUKA JAIN GUPTA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS-X), NEW DEL HI DATED 09.8.2010 PERTAINING TO ASSESSMENT YEAR 2002-03. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN SUSTAINING ADDITION OF RS. 2,58,71,588/- ALLEGEDLY BEING THE DIFFERENCE OF THE AMOUNT OF ADDITION OF FIXED ASSETS AS MENTIONED IN FIXED ASSETS SCHEDULE AS PER COMPANIES ACT AND FIXED ASSETS SCHEDULE FOR INCOME TAX PURPOSES, AS UNDISCLOSED INCOME. ITA NO. 5315/DEL/2010 2 1.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAWS IN NOT APPRECIATING THAT THE AFORESAID DIFFERENCE OF RS. 2,58,71,588/- WAS ON ACCOUNT OF ADDITION OF COMPUTERS TAKEN ON LEASE, THE LEASE RENTAL IN RESPECT OF WHICH WAS CLAIMED AS DEDUCTION AND HENCE THE SAID AMOUNT WAS NOT REFLECTED AS PART OF ADDITION IN THE FIXED ASSETS SCHEDULE. 1.2 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T APPRECIATING THAT THE ALLEGED DIFFERENCE OF RS. 2,58,71,588/- WAS ON ACCOUNT OF DIFFERENCE IN THE ACCOUNTING TREATMENT OF COMPUTERS TAKEN ON LEASE UNDER THE COMPANIES ACT AND UNDER INCOME TAX ACT AND THE SAME WAS NOT AN UNDISCLOSED INCOME. THE APPELLANT CRAVES LAVE TO ADD, ALTER, AMEND OR V ARY FROM THE AFORESAID GROUNDS OF APPEAL BEFORE OR AT T HE TIME OF HEARING. 3. ON THIS ISSUE AO NOTED THAT ON PERUSAL OF THE RECORDS FOR A.Y. 2002-03 REVEALS THAT AS PER DEPRECIATION CHART UNDE R COMPANIES ACT, AN ADDITION TO FIXED ASSETS OF RS. 22,21,84,65 5/- WAS MADE. HOWEVER, IN THE DEPRECIATION CHART FOR THE PURPOSE OF INCOME TAX, THE ADDITION IS RS. 19,63,13,067/-. AS A RESULT OF INVENTORY IN THE FIXED ASSETS OF BALANCE SHEET WAS OVERSTATED BY RS. 2,58,71,588/-. HENCE, AO HELD THAT SINCE THE BALANCE SHEET WAS PREPARED AFTER TAKING INTO CONSIDERATION THE FIGURE MENTIONED IN THE INVENTORIES UNDER THE COMPANIES ACT. THE ASSESSEE, THEREFORE, ADJUSTED UNDISCLOSED SOURCE OF INCOME TO THE TUNE OF RS. 2, 58,71,588/- BECAUSE THE BALANCE SHEET WAS TALLIED EVEN AFTER EX CESS EXHIBITION OF FIXED ASSETS OF THE SAID AMOUNT. OMISSION TO DO SO RESULTED IN ITA NO. 5315/DEL/2010 3 UNDER ASSESSMENT OF UNDISCLOSED SOURCES OF INCOME BY RS. 2,58,71,588/-. 4. UPON ASSESSEES APPEAL LD. CIT(A) HELD THAT SIN CE THE COMPUTERS WERE NOT OWNED BY THE ASSESSEE AND HAVE NOT BEEN SHOWN IN THE ASSETS FOR THE PURPOSE OF INCOME TAX, AO WAS CORRECT IN DISALLOWING THE CLAIM OF THE DEPRECIATION AMOUNT ING TO RS. 2,58,71,588/-. ACCORDINGLY, HE UPHELD THE ADDITION MADE BY THE AO. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. WE FIND THAT IN THIS CASE ASSESSEE HAS ADDED A SUM OF RS. 2,58,71,588/- BEING VALUE OF LEASED COMPUTERS IN THE BLOCK OF ASS ETS AND DEPRECIATION UNDER COMPANIES ACT WAS COMPUTED THERE ON AND DEBITED TO THE PROFIT LOSS ACCOUNT. FOR INCOME TAX PURPOSES, THE ASSESSEE ADDED BACK THE DEPRECIATION UNDER THE COMP ANIES ACT WHICH WAS DEBITED TO PROFIT AND LOSS ACCOUNT. IN TH E DEPRECIATION THAT UNDER INCOME TAX ACT, THE ASSESSEE DID NOT INC LUDE RS. 2,58,71,588/- WORTH OF THE COMPUTERS INSTEAD ASSESS EE CLAIMED RS. 85,73,228/- BEING AMOUNT PAID TO THE LESSOR AS LEAS E CHARGES IN TERMS OF SECTION 37(1) OF THE ACT. AS SUCH NO DEPRE CIATION WAS CLAIMED ON SUCH LEASE COMPUTERS UNDER THE PROVISIO NS OF THE INCOME TAX ACT. 6.1 IT HAS BEEN SUBMITTED BY THE LD. COUNSEL OF TH E ASSESSEE THAT NEITHER OF THE AUTHORITIES BELOW HAVE APPRECIATED T HE FACTS IN THEIR CORRECT PERSPECTIVE. IN THIS REGARD, ASSESSEES S UBMISSIONS IS REPRODUCED AS UNDER:- THE AO AND THE CIT(A) HAVE FAILED TO APPRECIATE THA T (I) IN TERMS OF ACCOUNTING STANDARD -19 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, IN CAS E OF ITA NO. 5315/DEL/2010 4 FINANCE LEASE TRANSACTIONS, THE ASSET IS CAPITALIZE D BY THE LESSEE WHO IS ALLOWED DEPRECIATION UNDER THE COMPAN IES ACT, HOWEVER (II) FOR GRANT OF DEPRECIATION UNDER S ECTION 22 OF THE ACT, THERE IS NO DISTINCTION BETWEEN A FI NANCE LEASE OR OPERATING LEASE AND IT IS THE OWNER / LESS OR ONLY WHO IS ENTITLED TO CLAIM DEPRECIATION IN ALL LEASIN G TRANSACTIONS. THE DISTINCTION IN RESPECT OF FINANCE LEASE BETWEEN THE ACCOUNTING TREATMENT PRESCRIBED BY MANDATORY ACCOUNTING STANDARD AS19, ON THE ONE HAND, AND THE TREATMENT UNDER PROVISIONS OF THE ACT, ON THE OTHER , HAS NOT BEEN KEPT IN MIND BY LOWER AUTHORITIES. TO REITERATED, THERE IS UNDISCLOSED INCOME AS ALLEG ED BY THE AO SINCE THE ASSESSEE CAPITALIZED THE ASSET TAK EN ON FINANCE LEASE IN THE SCHEDULE OF ITS ASSETS MAINTAI NED UNDER THE COMPANIES ACT FOLLOWING THE DIKTAT OF THE MANDATORY ACCOUNTING STANDARD 19. THE LD. CIT(A) WRONGLY OBSERVED THAT THE ASSESSEE/ LESSEE HAD WRON GLY CLAIMED DEPRECIATION IN RESPECT OF SUCH LEASED ASSE TS IN THE COMPUTATION OF INCOME. IN THAT VIEW OF THE MAT TER, THE ORDERS OF THE AUTHORITIES BELOW NEED TO BE SET ASIDE ITA NO. 5315/DEL/2010 5 AND THE ADDITION/ DISALLOWANCE MAY BE DIRECTED TO B E DELETED. 6.2 IT IS NOTED THAT AO HAS DISALLOWED A SUM OF R S. 2,58,71,588/- BEING THE DIFFERENCE BETWEEN THE FIXED ASSETS AS PE R THE COMPANIES ACT AND THAT AS PER THE INCOME TAX ACT. THIS HAS B EEN CONSIDERED BY THE AO AS INCOME FROM UNDISCLOSED SOURCES BY TH E ASSESSEE. THIS CONCLUSION BY THE AO IS TOTALLY INCORRECT, IN LIGHT OF THE SUBMISSIONS OF THE ASSESSEE AS ABOVE. FURTHERMORE , LD. CIT(A) HAS HELD THAT THE AO WAS CORRECT IN DISALLOWING THE CLA IM OF DEPRECIATION AMOUNTING TO RS. 2,58,71,588/-. WE FIN D THAT ASSESSEE HAS NOT AT ALL MADE ANY DEPRECIATION CLAIM IN THIS REGARD IN THE INCOME TAX ACT AND AO HAS NOT DISALLOWED ANY DEPREC IATION. HENCE, THE BASIS OF LD. CIT(A)S ADJUDICATION IS WRONG. 6.3 NOW WE FIND THAT IT IS THE ASSESSEES CLAIM IS THAT ASSESSEE HAS TAKEN COMPUTERS ON LEASE AND ACCOUNTING THEREOF HAS BEEN DONE IN ACCORDANCE WITH ACCOUNTING STANDARD 19 ISSUED BY TH E ICAI. IN CASE OF FINANCIAL LEASE TRANSACTION, THE ASSET IS CAPITA LIZED BY THE LESSEE WHO IS ALLOWED DEPRECIATION UNDER THE COMPANIES ACT . HOWEVER, FOR DEPRECIATION U/S. 32 OF THE ACT THERE IS NO DISTINC TION BETWEEN A FINANCE LEASE OR OPERATING LEASE AND IT IS THE OWNE R / LESSOR ONLY WHO IS ENTITLED TO CLAIM DEPRECIATION IN ALL LEASIN G TRANSACTIONS. HENCE, PRINCIPALLY WE ARE IN AGREEMENT WITH THE CON TENTION OF THE LD. COUNSEL OF THE ASSESSEE THAT THE ACCOUNTING OF THE LEASED COMPUTERS HAS BEEN DONE AS PER THE ACCOUNTING STAND ARDS AND PROVISION OF COMPANIES ACT AND INCOME TAX ACT IS CO RRECT. ITA NO. 5315/DEL/2010 6 FURTHERMORE, ASSESSEE HAS NOT CLAIMED ANY DEPRECIAT ION ON THIS LEASE COMPUTERS. HOWEVER, WE FIND THAT THE ABOVE F ACET OF ASSESSEES CONTENTION HAVE NOT BEEN NOTED OR DISCUS SED EITHER IN THE AOS ORDER OR IN THE CITS ORDER. HENCE, THESE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE NEED FACTUAL VERIFI CATION. HENCE, WE REMIT THE ISSUE TO THE FILE OF THE AO TO EXAMINE TH E VERACITY OF THE SUBMISSIONS OF THE ASSESSEE AS ABOVE AND ACCORDINGL Y, ALLOW THE ASSESSEES CLAIM. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14/3/2014. SD/- SD/- [ [[ [A. D. JAIN A. D. JAIN A. D. JAIN A. D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 14/3/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY COPY COPY COPY FORWARDED TO: FORWARDED TO: FORWARDED TO: FORWARDED TO: - -- - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 5315/DEL/2010 7