ACIT, CIRCLE- 1, LTU, NEW DELHI V. INDIAN RAIL FINANCE CORP. LTD., NEW DELHI

ITA 5577/DEL/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 4317 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 01-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S KRISHNAN
• Keywords: Depreciation
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DLEHI BEFORE SHRI G.S. PANNU, VICE-PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.5577/DEL/2017 ASSESSMENT YEAR: 2014-15 ACIT, CIRCLE-1, LTU, VS. INDIAN RAIL FINANCE CORPN . LTD., NEW DELHI. EAST TOWER, UG FLOOR, NBCC PLACE, BHISAM PITAMAH MARG, LODHI ROAD, NEW DELHI. PAN : AAACI0681C (APPELLANT) (RESPONDENT) APPELLANT BY : MS. RAKHI VIMAL, SR. DR RESPONDENT BY: SH. S. KRISHNAN, ADVOCATE DATE OF HEARING: 09.02.2021 DATE OF ORDER : 09.02.2021 ORDER PER K. NARASIMHA CHARY, J.M. AGGRIEVED BY THE ORDER DATED 6/6/2017 PASSED IN AP PEAL NO. 178/16-17/CIT (A)-22, NEW DELHI PASSED BY THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS)-22, NEW DELHI (LD. CIT(A)) IN THE CASE OF M/S INDIAN RAILWAY FINANCE CORPORATION (THE ASSESSEE) FOR THE ASSESSMENT YEAR 2014-15, REVENUE PREFERRED THIS APPEAL. 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE, AS CO ULD BE CULLED OUT FROM THE RECORD, ARE THAT THE ASSESSEE COMPANY, A GOVT. OF 2 INDIA UNDERTAKING, DEALS IN LEASING AND FINANCE ACT IVITY EXCLUSIVELY FOR INDIAN RAILWAYS; THAT THE ASSESSEE COMPANY WAS ENGAGED IN LEASING ROLLING STOCK ASSETS TO THE MINISTRY OF RAI LWAYS ON A SINGLE CLIENT RELATIONSHIP BASIS; THAT THE ASSESSEE RAISES FUNDS BY WAY OF ISSUE OF TAXABLE/TAX-FREE BONDS AND THROUGH LOANS F ROM BANKS ETC.; AND THAT THE ASSESSEE EARNS INCOME FROM LEASE RENT AND INCOME ON DEPOSITS AND INVESTMENTS. 3. FOR THE YEAR 2014-15 THE ASSESSEE FILED RETURN O F INCOME ON 30/9/2014 DECLARING A TOTAL LOSS OF RS. 20, 41, 23, 99, 810/-UNDER THE NORMAL PROVISIONS AND A BOOK PROFIT OF RS. 15, 72, 40, 76, 600/- UNDER SECTION 115 JB OF THE INCOME TAX ACT, 1961 (F OR SHORT THE ACT). ASSESSMENT UNDER SECTION 143(3) OF THE ACT W AS COMPLETED BY ORDER DATED 14/12/2016 AFTER MAKING VARIOUS ADDI TIONS UNDER THE NORMAL PROVISIONS OF THE ACT AS WELL AS UNDER SECTI ON 115JB OF THE ACT. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE TH E CIT-(A), WHO PARTLY ALLOWED THE APPEAL. AGGRIEVED, THE REVENUE F ILED APPEAL. 4. ONLY ISSUE THAT ARISES FOR OUR CONSIDERATION IN THIS APPEAL RELATES TO THE LEASE RENTALS INCOME TO THE TUNE OF RS.46,25,94,11,517/-, WHICH THE LEARNED ASSESSING O FFICER RECORDS THAT IT IS IN TUNE WITH THE SIMILAR ADDITIONS MADE IN THE ASSESSMENT YEARS 2004-05 TO 2013-14. LEARNED ASSESSING HELD TH E LEASE TRANSACTION AS OPERATING LEASE AND MADE SUCH AN ADD ITION ON ACCOUNT OF CAPITAL RECOVERY OF THE ASSETS TO LEASE INCOME, TREATING IT AS ON OPERATING LEASE. THE LD. CIT-(A) FOLLOWED THE ORDERS OF HIS PREDECESSOR AND ALSO THE TRIBUNAL FOR THE ASSESSMEN T YEAR 2010- 11 AND HELD THAT LEASE TRANSACTION AS FINANCE LEASE AND ALLOWED THE APPEAL OF THE ASSESSEE. 3 5. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT ISSUE IN DISPUTE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE DELHI HIGH COURT FOR ASSESS MENT YEAR 2001-02, 2007-08, 2008- 09 AND 2009-10. ON THE OTHE R HAND, THE LD. CIT DR, THOUGH RELIED ON THE ORDER OF THE ASSES SING OFFICER, HOWEVER, COULD NOT CONTROVERT THE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE. 6. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS MADE ON EITHER SIDE. THE ISSUE THAT ARI SES FOR OUR CONSIDERATION IN THIS APPEAL IS DIRECTLY AND SUBSTA NTIALLY DEALT WITH AND DECIDED BY A COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11 IN ITA NO. 3992/DEL/2014. WHILE HOLDING THE ISSUE IN FAVOUR OF THE ASSESSEE, THE TRIBUNAL PLACED RELIANCE ON THE ADDITION OF OTH ER COORDINATE BENCHES IN ASSESSEES OWN CASE FOR THE EARLIER ASSE SSMENT YEARS, AND FOR COMPLETENESS WE DEEM IT JUST AND NECESSARY TO REFER TO THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THE ORDER DATED 24/7/2017, WHICH READS AS FOLLOWS: - 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE LD. CIT-(A) , FOLLOWING THE DIRECTION OF THE ITAT (IN SHORT THE TRIBUNAL) IN EARLIER YE ARS, ACCEPTED THE LEASE TRANSACTION OF THE ASSESSEE AS FINANCE LEASE TRAN SACTION AND RESTORED THE MATTER TO THE ASSESSING OFFICER FOR VERIFICATIO N OF FACTS OF LEASE CHARGES. THE RELEVANT FINDING OF THE LD. CIT-(A) IS REPRODUCED AS UNDER: 5.3 FROM THE STATEMENT OF FACTS AND THE APPELLANT S ARGUMENTS, IT IS SEEN THAT THE ABOVE ISSUE HAS BEEN DECIDED BY HONBLE ITAT IN ITA NOS. 699, 359,3357 AND 2109/DEL/2004 FOR THE ASSESSMENT YEAR 1997-98, 1998-99, 1999- 2000 AND 2000-01 VIDE THEIR ORDER DATED 08.08.2008 BY OBSERVING AS UNDER: 4 'THE CHART FOR 30 YEARS OF OPENING BALANCE IN TH E PRESENT YEAR I.E. A. Y. 1997-98 IS SUBMITTED BY THE LD. A.R. OF THE ASSESSEE. AS PER THE SAME, OPENING BALANCE O F LEASED ASSETS IS RS.126,256.37 LACS, RATE OF DEPREC IATION AS PER COMPANIES ACT IS 4.75%, AND RATE OF INTEREST IS 14.97%. THE TOTAL FOR 30 YEARS OF DEPRECIATION IS RS.126,256.42 LACS AND FINANCE INCOME IS RS.157,820 .46 LACS. TOTAL OF CAPITAL RECOVERY IS RS.126,256.37 LA KHS AND TOTAL OF LEASE EQUALIZATION IS NIL. SINCE, IN THE P RESENT CASE ALSO, AS PER THIS CHART, EVEN AFTER DEDUCTION OF FINANCE INCOME 14.97% PA., THE FULL VALUE OF THE CO ST OF ASSETS I.E., RS.162,256.37 LACS IS FULLY RECOVERED IN LEASE PERIOD OF 30 YEARS AND HENCE, IT IS A CASE OF FINAN CE LEASE AS PER THE GUIDELINES ISSUED BY ICAI. IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS CITED BY LD. A.R. OF THE AS SESSEE, WE FIND NO REASON FOR NOT ACCEPTING THE BASIS AS SUGGESTED BY ICAI IN THESE GUIDELINES FOR DECIDING THE CHARACTER OF LEASE IN THE PRESENT CASE AS FINANCE L EASE. HOWEVER, THE ASSESSEE COMPANY HAS GIVEN THIS CHART FOR OPENING VALUE OF LEASE ASSETS IN THE ASSESSMENT YEA R 1997-98, WHICH IS EXAMINED BY US. SIMILAR CHART FOR ASSETS GIVEN ON LEASE DURING A.Y. 1997-98 AND IN SUBSEQUEN T YEARS IS NOT FURNISHED TO US. HENCE, THE A.O. SHOUL D VERIFY THOSE CHARTS AND IF THIS CONDITION IS SATISFIED, AL L THOSE TRANSACTIONS SHOULD ALSO BE ACCEPTED AS FINANCE LEA SE TRANSACTIONS' SIMILARLY, IT IS SEEN THAT THIS ISSUE HAS BEEN DEAL T BY THE HON'BLE ITAT DELHI BENCH-C IN THE ITA NOS. 982 & 1714/DEL/20 11 FOR ASSESSMENT YEAR 2003-04 AND 2005-06 WHEREIN THE SIM ILAR DIRECTIONS HAVE BEEN GIVEN TO A.O. 5.4 SINCE IN THE CURRENT YEAR, THE FACTS ARE SAME A S IN EARLIER YEARS, HENCE FOLLOWING THE DIRECTIONS OF HON'BLE IT AT IN THE MATTER, I RESTORE BACK THIS ISSUE TO THE FILE OF AO WITH THE DIRECTIONS TO VERIFY THE CHART OF LEASE AS FOR ASSE SSMENT YEAR 1997-98 AND IF IT IS SIMILAR, THEN THE TRANSACTION SHOULD BE ACCEPTED AS FINANCE LEASE TRANSACTION. GROUND NO. L IS THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 9. THE HONBLE DELHI HIGH COURT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2001-02 REPORTED IN 362 ITR 548 (DE LHI) CONSIDERED THE 5 LEASE TRANSACTION AS FINANCE LEASE. THE RELEVANT FI NDINGS OF THE HONBLE DELHI HIGH COURT ARE REPRODUCED AS UNDER: 6. TO UN DERSTAND AND APPRECIATE THE CONTENTIONS, CERTAIN UNDISPUTED FACT S AND THE LEGAL POSITION MAY BE NOTICED. AS NOTICES IN VIRTUAL SOFT SYSTEMS LTD. (SUPRA), LEASE TRANSACTIONS MAY TAKE VARIOUS HUES AND COLO URS. IN THE PRESENT CASE, WE ARE CONCERNED ONLY WITH FINANCIAL LEASES A ND NOT WITH AN OPERATIONAL LEASE. IN SUCH CASES, THE LEASE RENT IN CLUDES THE CAPITAL AS WELL AS PURCHASE PRICE AND AT THE END OF THE LEASE TENURE THE LESSEE ACQUIRES/TAKES THE ASSET AS THE OWNER. THE INCOME E ARNED BY WAY OF LEASE RENTAL WAS THE INTEREST (REVENUE EARNING) AND THE AMOUNT FINANCED (CAPITAL FINANCED) BUT DURING THE TERMS OF THE LEAS E, AS THE RESPONDENT CONTINUED TO BE THE OWNER HE ALSO ENJOYED AND CLAIM ED THE BENEFIT OF DEPRECIATION (AN UNDISPUTED POSITION AS THE CLAIM O F DEPRECIATION WAS NOT QUESTIONED). DEPRECIATION WAS DULY DEBITED AND ACCOUNTED IN THE PROFIT AND LOSS ACCOUNT. 10. FURTHER, IN PARA-14 OF THE DECISION, THE HONBL E HIGH COURT HELD THAT LEASE EQUALIZATION CHARGES SHOULD NOT BE DISALLOWED . THE RELEVANT FINDING OF THE UNABLE HIGH COURT IS REPRODUCED AS U NDER: 14. A PERUSAL OF THE BALANCE-SHEET AND THE PROFIT AND LOSS ACCOUN T FOR THE ASSESSMENT YEAR 2000-01 REFLECTS THE SAID POSITION. IN THE SAI D YEAR, THE ASSESSEE HAD RECEIVED LEASE RENTALS OF RS. 2,700.48 CRORES, FROM WHICH LEASE EQUALIZATION ACCOUNT OF RS.142,03 CRORES WAS REDUCE D. THE PAID UP CAPITAL OF THE RESPONDENT COMPANY HELD BY THE PRESI DENT OF INDIA AND HIS NOMINEES WAS RS. 232 CRORES. THE ADDITION OF THE FI XED ASSETS IN THE SAID YEAR WAS RS. 2,273 CRORES WHICH IS REFLECTIVE AS TH E ADDITION TO THE QUANTUM OF ROLLING STOCK. IF THE PURCHASE PRICE OF THE ROLLING STOCK STANDS SUBJECTED TO REVENUE DEDUCTION, WOULD HAVE ITS OWN CONSEQUENCES AND LEAD TO ABNORMAL FINANCIAL RESULTS AND ABSURDITIES. THE BALANCE-SHEET RECORDS THAT THE TOTAL ROLLING STOCK AGGREGATE WAS RS. 19,771.35 CRORES. THE DEPRECIATION CLAIMED (WHICH MAY INCLUDE CERTAIN FIXED ASSETS ALSO WHICH WERE NOT SUBJECT MATTER OF FINANCE LEASES) WA S RS. 5,352.57 CRORES. CLEARLY, THEREFORE, THE PURCHASE VALUE OF T HE LEASED ASSETS DID NOT FIND REFLECTION OR DEDUCTION IN THE PROFIT AND LOSS ACCOUNT. LEGAL RATIO OF VIRTUAL SOFT SYSTEMS LTD. (SUPRA) IS THAT AS LONG A S THE ASSESSEE DOES NOT INDULGE IN ANY MANIPULATION OF THE FIGURES AND THE CAPITAL COST, IRR, ETC., ARE COMPUTED IN ACCORDANCE WITH THE ACCOUNTANCY STA NDARDS AND NO ERROR OR CAN BE FOUND, LEASE EQUALIZATION CHARGE SH OULD NOT BE DISALLOWED. 11. RESPECTFULLY, FOLLOWING THE ABOVE DECISION OF T HE HONBLE HIGH COURT AND THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE, WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO ERROR IN THE OR DER OF THE LD. CIT-(A). 6 WE ORDER ACCORDINGLY. THUS, THE GROUNDS OF THE APPE AL OF THE REVENUE ARE DISMISSED AND THE GROUNDS OF THE CROSS OBJECTIO N OF THE ASSESSEE ARE ALLOWED. 7. IT IS, THEREFORE, BEYOND DISPUTE THAT THE ISSUE INVOLVED IN THIS APPEAL IS NO LONGER RES INTEGRA AND COVERED BY THE DECISIONS OF THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURT RIGHT FR OM THE AY 2001-02. WE ARE, THEREFORE, OF THE CONSIDERED OPINION THAT, IN THE ABSENCE OF ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE O R LAW, SUCH A CONSISTENT VIEW TAKEN FOR A LONG PERIOD CANNOT BE D ISTURBED. WHILE RESPECTFULLY FOLLOWING THE ESTABLISHED VIEW IN THIS CASE BY THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURT, WE HOLD THE ISSUE I N FAVOUR OF THE ASSESSEE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS THE 09 ND DAY OF FEBRUARY, 2021 IMMEDIATELY AFTER THE CONCLUSION OF THE HEARING OVER VIRTUAL MODE. SD/- SD/- (G.S. PANNU) (K. NARASIMHA CHARY) VICE-PRESIDENT JUDICIAL MEMBER DATED: 09/02/2021 AKS