THE ACIT CIR 3(2), MUMBAI V. M/S. KOTAK MAHINDRA FINANACE LTD., MUMBAI

ITA 5571/MUM/2005

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0357 (ITAT-MUMBAI)
• Duration Of Justice: 12 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 1995-1996
• Appeal Filed On: 29-08-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: ARVIND SONDE
• Keywords: Depreciation; Reassessment proceedings
• Section: 147; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H , MUMBAI BEFORE S HRI R.C. SHARMA (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 5571/MUM/2005 ASSESSMENT YEAR: 1995 - 96 THE ACIT, CIRCLE 3(2), ROOM NO. 608, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 V S. M/S KOTAK MAHINDRA FINANCE LTD., 36 - 38A, NARIMAN BHAVAN, 227, NARIMAN POINT, MUMBAI - 400021 PAN: AAACK4409J (APPELLANT) (RESPONDENT) REVENUE BY : SHRI M.C. OMI NINGSHEN (DR) ASSESSEE BY : SHRI ARVIND SONDE (AR) DA TE OF HEARING: 06/11 /201 7 DATE OF PRONOUNCEMENT: 05 / 02 /201 8 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER DATED 30/03/2005 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) - III , MUMBAI , FOR THE A S S ESSMENT YEAR 1995 - 96 , WHEREBY THE LD. CIT (A) HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 (3) READ WITH SECTION 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE A CT) AND DELETED THE ADDIT ION MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON LEASED ASSETS . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 1995 - 96 DECLARING THE TOTAL INCOME OF RS. 4.48 CRORES. THE ASSESSMENT WAS COMP LETED U/S 143 (3) DETERMINING THE TOTAL INCOME AT RS. 10.13 CRORE. AO ALSO PASSED A SSESSMENT ORDER GIVING EFFECT TO THE CIT (A) ORDER DETERMINING THE TOTAL; INCOME OF THE ASSESSEE AT RS. 13.14 CRORE. SUBSEQUENTLY, ON THE BASIS OF INVESTIGATION REPORT OF DD IT (INV.), UNIT - II, KANPUR , T HE AO REOPENED THE ASSESSMENT AFTER ISSUING NOTICE U/S 148 OF THE 2 ITA NO. 5571 / MUM/2005 ASSESSMENT YEAR: 1995 - 96 ACT. IN RESPONSE THEREOF THE ASSESSEE FILED THE RETURN. DURING THE COURSE OF REAS SESS MENT PROCEEDINGS, THE APPELLANT SUBMITTED THE DETAILS CALLED FOR. THE AO ALS O ISSUED SHOW CAUSE NOTICE SEEKING JUSTIFICATION FOR ALLOWING 100% DEPRECIATION IN RESPECT OF ASSETS GIVEN ON LEASE TO PRAKASH INDUSTRIES LTD. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED COPY OF INVOICE - CUM DELIVERY CHALLAN, TRANSPORTER RE CEIPTS, MATERIAL INWARD NOTE, INSURANCE POLICY, PUT TO USE CERTIFICATES AND OTHER CORRESPONDENCE WITH PRAKASH INDUSTRIES LTD. AND ALSO FURNISHED COPY OF S ITE I NSPECTION R EPORT ALONG WITH THE WRITTEN SUBMISSIONS. AFTER GOING THROUGH THE SUBMISSIONS IN THE L IGHT OF THE DOCUMENTS SUBMITTED BY THE ASSESSEE, THE AO DISALLOWED DEPRECIATION CLAIMED BY THE ASSESSEE HOLDING THE LEASE RENT TRANSACTION BOGUS. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE CARRIED THE MATTER TO THE CIT (A) IN FIRST APPEAL. THE A SSESSEE CHALLENGED THE ASSESSMENT ORDER INTER ALIA ON THE GROUNDS THAT THE RE - OPENING OF ASSESSMENT IS BAD IN LAW AND THE AO HAS WRONGLY DISALLOWED THE DEPRECIATION ON LEASE ASSETS. THE LD. CIT (A) AFTER HEARING THE ASSESSEE JUSTIFIED THE ACTION OF THE AO IN REOPENING OF THE CASE, HOWEVER, ALLOWED THE SECOND GROUND OF APPEAL AND HELD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION OF RS. 3,00,59,875/ - . THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER PASSED BY THE LD. CIT (A) ON THE FOLLOWING EFFECTIVE GROUND : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DELETING THE ADDITION MADE OF RS. 3,00,59,875/ - MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON ASSETS. 4. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYI NG ON THE ASSESSMENT ORDER SUBMITTED THAT THE AO HAS RIGHTLY DISALLOWED THE DEPRECIATION ON ASSETS AS INVESTIGATION CONDUCTED BY THE DEPARTMENT IN THE CASE OF PIONEER ENGINEERING COMPANY HAS REVEALED THAT PIONEER ENGINEERING HA D NOT SUPPLIED ANY AIR POLLUT ION CONTROL EQUIPMENT TO THE ASSESSEE 3 ITA NO. 5571 / MUM/2005 ASSESSMENT YEAR: 1995 - 96 COMPANY. SINCE, T HE ASSESSEE COMPANY HAD NOT PURCHASED ANY SUCH EQUIPMENT NO QUESTION OF LEASING OUT OF THE ASSETS DOES ARISE. DEMAND DRAFTS PURCHASED IN FAVOUR OF PIONEER ENGINEERING CO. WERE DEPOSITED IN THE FAKE ACC OUNTS OPENED IN THE NAME OF PEC BAREILLY CORP. BANK LTD. FARIDABAD AND PUNJAB NATIONAL BANK , SHIVAJI PARK NEW DELHI. THE LEASING COMPANY HAS AVAILED 100% DEPRECIATION ON THE BASIS OF FAKE DOCUMENTS. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE ORDER PASSED BY THE LD. CIT (A) SUBMITTED THAT THERE IS NO MERIT IN THE APPEAL OF THE REVENUE AS THE FINDINGS OF THE LD. CIT (A) ARE BASED ON THE EVIDENCE ON RECORD AND IN ACCORDANCE WITH THE ESTABLISHED PRINCIPLES OF LAW. THE LD. COUNSEL CO NTENDED THAT CONCERNED OFFICIAL/OFFICIALS OF PRAKASH INDUSTRIES APPROACH THE ASSESSEE COMPANY AT DELHI OFFICE FOR TAKING CERTAIN ASSETS ON LEASE FO R THEIR PLANT AT CHAMPA, DISTT. BILASPUR, MAD H YA PRADESH . THE SAID OFFICIALS INFORMED THE ASSESSEE THAT THEY HAVE SELECTED M/S PIONEER ENGINEERING COMPANY, JAMSHEDPUR FO R SUPPLY OF ELECTRO STATIC PRECIPITATOR SYSTEM AND DUST COLLECTOR SYSTEM. ACCORDINGLY, THE ASSESSEE COMPANY ENTERED INTO A LEASE AGREEMENT WITH PRAKASH INDUSTRIES IN SEPTEMBER, 1994. AS PER THE TE RMS OF AGREEMENT, PRAKASH INDUSTRIES REQUESTED FOR PAYMENT OF RS. 2,53,91,250/ - IN FAVOUR OF THE SUPPLIER PIONEER ENGINEERING COMPANY IN THE MONTH OF SEPTEMBER. ACCORDINGLY, THE ASSESSEE ISSUED THE DEMAND DRAFT OF THE SAID AMOUNT IN THE FAVOUR OF PIONEER E NGINEERING AND SENT TO PRAKASH INDUSTRIES. PRAKASH INDUSTRIES SENT PUT TO USE CERTIFICATE IN THE MONTH OF OCTOBER. SIMILARLY, IN THE MONTH OF AUGUST A LETTER WAS SENT FROM DELHI OFFICE BY THE ASSESSEE TO MUMBAI OFFICE WITH THE REQUEST TO SENT PROPOSED LEAS E AGREEMENT FOR L EASING POLLUTION CONTROL SYSTEM. THE ASSESSEE ISSUED A DEMAND DRAT OF RS. 93,37,250/0 IN FAVOUR OF PIONEER ENGINEERING COMPANY AND SAME WAS SENT TO PRAKASH INDUSTRIES. THE ASSESSEE RECEIVED PUT TO USE CERTIFICATE. THE CONCERNED OFFICIALS O F THE ASSESSEE VISITED THE SITE OF PRAKASH INDUSTRIES LTD. IN THE MONTH OF APRIL, 4 ITA NO. 5571 / MUM/2005 ASSESSMENT YEAR: 1995 - 96 1996 AND CARRIED OUT A SITE INSPECTION OF THE ASSETS IN THE PRESENCE OF THE WITNESSES. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE REQUISITE DETAILS WERE SUBMITTED B Y THE ASSESSEE AND AFTER GOING THROUGH THE SAME IN THE LIGHT OF THE CONTENTION OF THE ASSESSEE, ASSESSMENT ORDER WAS COMPLETED U/S 143 (3) IN MARCH, 1998. THE ASSESSEE RECEIVED SHOW CAUSE NOTICE IN THE MONTH OF OCTOBER, 1998. THE LD. COUNSEL FURTHER SUBMI TTED THAT THE ASSESSMENT WAS REOPENED ON THE GROUND THAT A SEARCH ACTION WAS CONDUCTED IN THE MONTH OF MARCH, 1998 IN THE CASE OF RAJENDER GROUP OF COMPANIES AND VARIOUS ESTABLISHMENT OF THE GROUP AT KANPUR, MUMBAI AND RAIPUR AND DURING THE COURSE OF SEARC H IT CAME TO THE NOTICE THE ASSESSEE ENTERED INTO A FAKE LEASE TRANSACTION WITH M/S RAJENDER GROUP OF COMPANIES IN THE F.Y. 1994 - 95 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION IN RELATION TO THE ASSET I.E. FORMING ROLL STAND POSTING AMOUNTING TO RS . 4.96 CRORES AND CLAIMED DEPRECIATION @ 25% CONTRARY TO THE REPORT RECEIVED FROM DDIT (INV.) UNIT - II, KANPUR , THAT LEASED MACHINES WERE NOT FOUND EXISTING IN THE FACTORY PREMISES OF RAJENDER STEEL LTD. AND THE MACHINES FOUND IN THE FACTORY PREMISE S WERE S HOWN AS SELF OWNED BY M/S RAJENDER STEEL LTD. IN THEIR RECORDS. 7. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED COPY OF LEASE AGREEMENT, INVOICE INSURANCE COVER NOTE, INSTALLATION CERTIFICATE, ANNUAL AUDITED ACCOUNTS OF RAJENDER STEEL LTD., ARBITRATION PROCEEDINGS BETWEEN ASS ESSEE AND RAJENDER STEEL LTD., HIGH COURT ORDER PASSED IN ARBITRATION P ETITION NO. 281 OF 1998 AND COURT RECEIVER ORDER. T HE AO AFTER GOING THROUGH THE AFORESAID DOCUMENTS ACCEPTED THE CONTENTION OF THE ASSESS EE DID NOT MAKE ANY ADDITION HOLDING THE TRANSACTION AS GENUINE , HOWEVER, ISSUED SHOW CAUSE NOTICE SEEKING JUSTIFICATION FOR ALLOWING 100% DEPRECIATION IN RESPECT OF ASSETS LEASED TO PRAKASH INDUSTRIES LTD. AND REJECTING THE SUBMISSIONS OF THE ASSESSEE DIS ALLOWED THE CLAIM OF THE ASSESSEE HOLDING THAT 5 ITA NO. 5571 / MUM/2005 ASSESSMENT YEAR: 1995 - 96 THE SAME A SHAM TRANSACTION. IN THE LIGHT OF THE ABOVE FACTS, THE LD. COUNSEL SUBMITTED THAT AFTER HAVING VERIFIED THAT THE ASSETS WHICH WERE ALLEGED TO BE NOT IN EXISTENCE WERE FOUND TO BE IN EXISTENCE, THE A O SHOULD HAVE DROPPED THE PROCEEDING S. SINCE, THERE WAS NO MENTION OF THE OTHER LEASE TRANSACTION IN THE NOTICE ISSUED U/S 148, THE AO HAD NO JURISDICTION TO ENQUIRE ABOUT THE OTHER LEASE TRANSACTION IN REASSESSMENT P ROCEEDINGS. ON MERITS, THE LD. C OUNSEL SUBMITTED THAT SINCE THE COMPLETE DETAILS OF THE LEASE TRANSACTIONS WERE SUBMITTED BY THE ASSESSEE DURING THE PROCEEDINGS THE LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON LEASE ASSETS IN QUESTION . THE LD. COUNSEL FURTHER INVITED OUR ATTENTION TO THE ORDER DATED 15.05.2009 RENDERED BY THE ITAT IN ITA NO 427/DEL/2006 FILED BY THE LESSOR M/S PRAKASH INDUSTRIES LTD. AGAINST THE ORDER OF THE LD. CIT(A) PERTAINING TO THE ASSESSMENT YEAR 1994 - 95. VIDE THE SAID THE H BENCH OF ITAT DELHI HAS ALLOWED THE LEASE RENT CLAIMED BY THE ASSESSEE PAID TO DIFFERENT COMPANIES INCLUDING KOTAK MAHINDRA FINANCE LTD. I.E., THE ASSESSEE IN THE PRESENT CASE. IN VIEW OF THE AFORESAID FACTS THE LD. COUNSEL SUBMITTED THAT THE THERE IS N O MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS LIABLE TO BE DISMISSED . 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL ON RECORD. THE LD. CIT (A) HAS DECIDED THE SOLE GROUND OF THE APPEAL IN FAVOUR OF THE ASSESSEE, AFTER GOING T HROUGH THE ENTIRE EVIDENCE ON RECORD. THE OPERATIVE PART OF THE ORDER OF THE LD. CIT (A) READS AS UNDER: - 3.2 I HAVE GONE THROUGH THE VARIOUS SUBMISSIONS MADE BY THE APPELLANT AND ALSO THE OBSERVATIONS MADE BY THE AO IN THE ASSESSMENT ORDER. THE THRUST OF THE AOS ARGUMENT FOR DISALLOWING THE DEPRECIATION ON THE IMPUGNED ASSETS IS THAT, IN RESPONSE TO A LETTER WRITTEN BY HIM TO THE AO OF LESSEE VIZ. PIL, THE RESPONSE WAS THAT THE LESSEES ASSESSMENT HAD NOT REACHED FINALITY AND WAS SUBJECT TO PHYSICAL V ERIFICATION OF ASSETS AT PILS FACTORY AT CHAMPA, 6 ITA NO. 5571 / MUM/2005 ASSESSMENT YEAR: 1995 - 96 MADHYA PRADESH. HE THEREFORE, CAME TO A SUMMARY CONCLUSION THAT THE TRANSACTION WAS NOT GENUINE. 3.3 ON THE OTHER HAND, THE APPELLANT HAS ARGUED AND PRODUCED EVIDENCE REGARDING THE EXISTENCE OF THE ASSET I N THE FORM OF: INSPECTION REPORTS BY INDEPENDENT CHARTERED ENGINEER AND GOVERNMENT APPROVED VALUER, M/S M.C. JAIN & ASSOCIATES AND WHOSE REPORT DATED 8.3.2001 WAS SUBMITTED DIRECTLY TO THE DIRECTOR OF INCOME TAX (INV) - II, CHHATISGARH. A COPY OF THE REPORT IS AVAILABLE AT PAGE 37 TO 60 OF THE PAPER BOOK. PHOTOGRAPHIC EVIDENCE ALONG WITH SITE INSPECTION CARRIED OUT BY THE REPRESENTATIVES OF THE APPELLANT ON 25.4.1996 CLEARLY DEMONSTRATING THE PHYSICAL EXISTENCE OF THE LEASED ASSETS. 3.4 IN VIEW OF THE ABO VE EVIDENCE AVAILABLE ON RECORD REGARDING THE EXISTENCE OF THE ASSETS, I AM CONVINCED THAT THE ASSETS ARE IN EXISTENCE AND THEREFORE THE APPELLANT IS ENTITLED TO DEPRECIATION OF RS. 3,00,59,875 AND ACCORDINGLY THIS GROUND IS ALLOWED. 9. WE NOTICE THAT TH E LD. CIT (A) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE ON THE BASIS OF DOCUMENTARY EVIDENCE PL ACED ON RECORD BY THE ASSESSEE DURING THE INITIAL ASSESSMENT PROCEEDINGS AS WELL AS DURING THE REASSESSMENT PROCEEDINGS. AS POINTED OUT BY THE LD. CIT (A) THE AO HAS BASED HIS FINDINGS ON THE FACTS THAT THE LESSEES ASSESSMENT HAD NOT REACHED FINALITY AND IT WAS SUBJECT TO PHYSICAL VERIFICATION OF ASSETS AT THE PREMISES OF PRAKASH INDUSTRIES LTD. AT CHAMPA, MADHYA PRADESH. ON THE OTHER HAND, AS PER THE COPY OF ORDER DATED 15.05.2009 RENDERED BY THE ITAT IN THE CASE OF PRAKASH INDUSTRIES LTD. ITA NO. 427/DEL/2006 FOR THE A.Y. 1995 - 96 , PRAKASH INDUSTRIES HAD FILED APPEAL AGAINST THE ORDER OF THE CIT (APPEALS), ROHTAK AGAINST THE ACTION OF AO IN MAKING DISALLOW ANCE OF LEASE RENT PAID TO VARIOUS PARTIES INCLUDING THE PRESENT ASSESSEE. M/S. PRAKASH INDUSTRIES LTD. HAD CLAIMED TO HAVE PAID LEASE RENT OF RS. 16,80,705/ - TO THE ASSESSEE I.E., KOTAK MAHINDRA FINANCE LTD. ON AIR POLLUTION CONTROL EQUIPMENT , TAKEN ON L EASE. THE ITAT BENCH, DELHI AFTER HEARING THE ASSESSEE IN THE LIGHT OF THE EVIDENCE ON RECORD 7 ITA NO. 5571 / MUM/2005 ASSESSMENT YEAR: 1995 - 96 ALLOWED T HE TOTAL LEASE RENT CLAIMED. IN THE SAID CASE, THE ASSESSEE HAS TAKEN THE PLEA THAT SPO T VERIFICATION IN RESPECT OF ALL THE LEASE ASSETS ON THE ASSESSEE PREMISES HAD BEEN CARRIED OUT BY THE DEPARTMENT AND THE ASSETS WERE FOUND ON THE SPOT . SIMILARLY, THE ASSESSEE HAS SUBMITTED THE COPY OF ORDER DATED 24.09.2013 PASSED BY THE D BENCH OF THE ITAT, NEW DELHI IN DEPARTMENTS APPEAL IN ITA NO. 3036/DEL/201 0 FOR THE A.Y. 1996 - 97 FILED AGAINST THE ORDER OF CIT (A), ROHTAK PASSED IN THE APPEAL OF THE ASSESSEE M/S PRAKASH INDUSTRIES LTD. WE NOTICE THAT THE ITAT HAS ALLOWED THE EXPENDITURE ON ACCOUNT OF LEASE RENT PAID BY THE ASSESSEE BY FOLLOWING THE DECISION OF THE TRIBUNAL PASSED IN ASSESSEES APPEAL FOR THE A.YS. 1993 - 94 AND 1995 - 96. ONCE IT IS ESTABLISHED THAT LESSEE M/S PRAKASH INDUSTRIES LTD HAD PAID LEASE RENT TO THE PRESENT ASSESSEE DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION , THERE IS NO REASON TO DECLINE THE CLAIM OF DEPRECIATION ON SUCH ASSETS. SO, IN OUR CONSIDERED VIEW, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION IN QUESTION HOLDING THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE ASSETS IN QUESTION . HENCE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A). A CCORDINGLY , WE UPHOLD THE DECISION OF THE LD. CIT (A) AND DISMISS THE SOLE GROUND OF APPEAL OF THE REVENUE. IN THE RESULT, APPEAL FILED BY THE REVENUE FOR A SSESSMENT YEAR 1995 - 1996 IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH FEBRUARY, 2018 . SD/ - SD/ - ( R.C. SHARMA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 05 / 02 / 20 1 8 ALINDRA, PS 8 ITA NO. 5571 / MUM/2005 ASSESSMENT YEAR: 1995 - 96 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI