NIIT Ltd., New Delhi V. DCIT, Central circle-20, New Delhi

ITA 6779/DEL/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7507 (ITAT-DELHI)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 26-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Business income; Depreciation; Business expenditure; Principle of natural justice; Corroborative evidences; Revised return; Capital expenditure
• Section: 142(1); 234B; 37(1); 143(1); 32

Judgement Text

1 ITA NO. 6778, 6779/DEL/2018 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 6778/DEL/2 018 (A.Y 2012-13) AND I.T.A. NO. 6779/DEL/2018 (A.Y. 2014-15) M/S. NIIT LIMITED 8, BALAJI ESTATE, 1 ST FLOOR, GURU RAVI DAS MARG, KALKAJI NEW DELHI, DELHI, INDIA, 110019 (APPELLANT) VS DCIT CENTRAL CIRCLE-20, NEW DELHI (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDER DATED 16.08.2018 PASSED BY CIT(A)-27, NEW DELHI FOR ASSES SMENT YEAR 2012-13 AND 2014-15. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO. 6778/DEL/2018 (A.Y 2012-13) 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE ORDER DATED 16.08.2018 PASSED BY THE LEARNED COMMISSIONER OF IN COME-TAX (APPEAL) (HEREIN AFTER REFERRED TO AS LD. CIT(A) IS BAD IN LAW AND ON FACTS. 2. THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 1,99,66,749/- MADE BY THE LD. AO ON ACCOUNT OF DISA LLOWANCE OF PRINCIPAL PORTION OF THE FINANCIAL LEASE EXPENSES AND TREATIN G THE SAME AS CAPITAL EXPENDITURE. APPELLANT BY SH. AJAY WADHWA, ADV. RESPONDENT BY MS. RINKU SINGH, SR. DR DATE OF HEARING 16 .07.2019 DATE OF PRONOUNCEMENT 26.07.2019 2 ITA NO. 6778, 6779/DEL/2018 2.1 THAT THE LD. CIT(A) AS WELL AS LD. AO HAVE FAIL ED TO CONSIDER THAT THE FINANCE LEASE EXPENSES ARE PERIODIC LEASE RENTA LS TOWARDS USE OF ASSET FOR NORMAL BUSINESS OPERATIONS AND ARE REVENUE IN N ATURE AND THEREFORE IS AN ELIGIBLE BUSINESS EXPENDITURE U/S 37(1) OF THE I NCOME TAX ACT, 1961. FURTHER REVENUE AND INCOME EARNED BY ASSESSEE BY US ING THESE ASSETS HAS BEEN OFFERED FOR TAX. 2.2 THAT THE ACCOUNTING TREATMENT OF SUCH EXPENDIT URE CANNOT AFFECT THE TREATMENT OF THE SAME UNDER THE ACT FOR THE PUR POSE OF COMPUTING THE TOTAL INCOME. 3. THAT THE LD. CIT(A) HAS SUSTAINED THE ADDITION W ITHOUT CONSIDERING THE SUPPORTING EVIDENCES IN THE FORM OF INVOICES, CONFI RMATION, RENTAL SCHEDULES AND SCHEDULE CONTAINING THE DETAIL OF ASSETS. 4. THAT THE LD. CIT(A) HAS NOT CONSIDERED THE FACT THAT THE LESSOR, M/S. SREI EQUIPMENT FINANCE PVT. LTD. HAS ITSELF OFFERED THE ENTIRE AMOUNT OF LEASE RENTAL RECEIVED FROM THE ASSESSEE FOR TAX AND ADDITION OF THE SAME AMOUNT IN THE HANDS OF THE ASSESSEE TANTAMOUNT TO D OUBLE TAXATION. 5. THAT THE LD. CIT(A) HAS NOT CONSIDERED THE UNDER TAKING GIVEN BY THE LESSOR STATING THAT THEY HAD CAPITALIZED THE ASSET GIVEN ON LEASE TO THE ASSESSEE AND CLAIMED DEPRECIATION U/S 32 OF THE INC OME TAX ACT, 1961, WHILE FILING THE RETURN OF INCOME FOR AY 2012-13. 6. WITHOUT PREJUDICE TO THE AFORESAID GROUNDS, THE LD. CIT(A) OUGHT TO HAVE ALLOWED THE DEPRECIATION U/S 32 OF THE ACT ON IMPUG NED ADDITION OF RS. 1,99,66,749/- IF HE TREATED THE SAME AS CAPITAL IN NATURE. 7. THAT THE LD. CIT(A) HAS NOT CONSIDERED THE CIRCU LAR NO. 2 OF 2001 DATED 9.2.2001: 247 ITR (ST.) 53, ISSUED BY THE CENTRAL B OARD OF DIRECT TAXES (CBDT) WHICH CLARIFIES THAT THE DISTINCTION BETWE EN OPERATING LEASE AND FINANCE LEASE UNDER ACCOUNTING PRINCIPLES HAVE NO I MPLICATIONS UNDER THE PROVISIONS OF THE ACT. 8. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 9. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND, SUBSTITUTE, DELETE AND MODIFY ANY OR ALL THE GROUNDS OF APPEAL, WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER, BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. ITA NO. 6779/DEL/2018 (A.Y. 2014-15) 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE ORDER DATED 16.08.2018 PASSED BY THE LEARNED COMMISSIONER OF IN COME-TAX (APPEAL) (HEREINAFTER REFERRED TO AS 'LD. CIT (A)') IS BAD I N LAW AND ON FACTS. 2. THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 2,67,38,822/- MADE BY THE ID. AO ON ACCOUNT OF DISA LLOWANCE OF PRINCIPAL PORTION OF THE FINANCIAL LEASE EXPENSES AND TREATIN G THE SAME AS CAPITAL EXPENDITURE. 3 ITA NO. 6778, 6779/DEL/2018 2.1 THAT THE ID. CIT (A) AS WELL AS ID. AO HAVE FAILED TO CONSIDER THAT THE FINANCE LEASE EXPENSES ARE PERIODIC LEASE RENTA LS TOWARDS USE OF ASSET FOR NORMAL BUSINESS OPERATIONS AND ARE REVENUE IN N ATURE AND THEREFORE IS AN ELIGIBLE BUSINESS EXPENDITURE U/S 37(1) OF THE I NCOME TAX ACT 1961. FURTHER REVENUE AND INCOME EARNED BY THE ASSESSEE B Y USING THESE ASSETS HAS BEEN OFFERED TO TAX. 2.2 THAT THE ACCOUNTING TREATMENT OF SUCH EXPENDITURE C ANNOT AFFECT THE TREATMENT OF THE SAME UNDER THE ACT FOR THE PUR POSE OF COMPUTING THE TOTAL INCOME 3. THAT THE LD. CIT (A) HAS SUSTAINED THE ADDITION WITHOUT CONSIDERING THE SUPPORTING EVIDENCES IN THE FORM OF INVOICES, CONFI RMATION, RENTAL SCHEDULES AND SCHEDULE CONTAINING THE DETAIL OF ASSETS. 4. THAT THE LD. CIT (A) HAS NOT CONSIDERED THE FACT TH AT THE LESSOR, M/S SREI EQUIPMENT FINANCE PVT. LTD. HAS ITSELF OFFERED THE ENTIRE AMOUNT OF LEASE RENTAL RECEIVED FROM THE ASSESSEE FOR TAX AND ADDITION OF THE SAME AMOUNT IN THE HANDS OF THE ASSESSEE TANTAMOUNT TO D OUBLE TAXATION. 5. THAT THE LD. CIT(A) HAS NOT CONSIDERED THE UND ERTAKING GIVEN BY THE LESSOR STATING THAT THEY HAD CAPITALIZED THE ASSET GIVEN ON LEASE TO THE ASSESSEE AND CLAIMED DEPRECIATION U/S 32 OF THE INC OME TAX ACT 1961, WHILE FILING THE RETURN OF INCOME FOR AY 2014-15. 6. WITHOUT PREJUDICE TO THE AFORESAID GROUNDS, THE ID. CIT(A) OUGHT TO HAVE ALLOWED THE DEPRECIATION U/S 32 OF THE ACT ON IMPUG NED ADDITION OF RS. 2,67,38,822/- IF HE TREATED THE SAME AS CAPITAL IN NATURE. 7. THAT THE LD. CIT(A) HAS NOT CONSIDERED THE CIRC ULAR NO. 2 OF 2001 DATED 9.2.2001: 247 ITR (ST.) 53, ISSUED BY THE CENTRAL B OARD OF DIRECT TAXES ('CBDT') WHICH CLARIFIES THAT THE DISTINCTION BETWE EN OPERATING LEASE AND FINANCE LEASE UNDER ACCOUNTING PRINCIPLES HAVE NO I MPLICATIONS UNDER THE PROVISIONS OF THE ACT. 8. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 9. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND, SUBSTITUTE, DELETE AND MODIFY ANY OR ALL THE GROUNDS OF APPEAL, WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER, BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3. THE FACTS AND ISSUES CONTESTED IN THE APPEAL FOR BOTH THE ASSESSMENT YEARS ARE IDENTICAL; THEREFORE, WE ARE TAKING UP TH E FACTS OF A.Y. 2012-13. THE ASSESSEE IS ENGAGED IN BUSINESS OF INFORMATION TECHNOLOGY EDUCATION AND KNOWLEDGE SOLUTIONS. THE ASSESSEE FILED ITS RET URN OF INCOME FOR ASSESSMENT YEAR 2012-13 ON 30.11.2012 SHOWING TOTAL INCOME OF RS. 1,45,41,52,677/-. THE ASSESSEE FILED REVISED RETURN ON 31.03.2014 SHOWING TOTAL INCOME OF RS. 1,45,51,19,445/-. THE SAME WAS PROCESSED U/S 143(1) 4 ITA NO. 6778, 6779/DEL/2018 OF THE INCOME TAX ACT, 1961. THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICE U/S 143(2) OF THE ACT WAS ISSUED O N 19.08.2015 AND SERVED UPON THE ASSESSEE. NOTICE U/S 142(1) OF THE ACT ALO NG WITH DETAIL QUESTIONNAIRE WAS ISSUED ON 19.08.2015. IN RESPONSE TO THE SAID NOTICES CA OF THE ASSESSEE APPEARED AND ATTENDED THE ASSESSMEN T PROCEEDINGS FROM TIME TO TIME. THE ASSESSEE HAS SHOWN INCOME UNDER T HE HEAD INCOME FROM BUSINESS OR PROFESSION, INCOME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER OBSERVED THAT THE A SSESSEE HAS CLAIMED DEDUCTION OF RS. 1,99,66,749/- IN A.Y. 2012-13 ON A CCOUNT OF PAYMENTS OF PRINCIPAL AMOUNTS OF FINANCE LEASE. THE ASSESSEE BE FORE THE ASSESSING OFFICER SUBMITTED THAT THE COMPANY HAS TAKEN ASSETS AND VEHICLES ON LEASE AND THE ACCOUNTING TREATMENT IN THE BOOKS OF ACCOUN TS IS DONE AS PER ACCOUNTING STANDARD-19 ISSUED BY ICAI WHERE FINANCE LEASE ARE CONSIDERED AS FINANCIAL ARRANGEMENTS AND THE LEASED ASSETS ARE CAPITALIZED AT AN AMOUNT EQUAL TO PRESENT VALUE OF FUTURE LEASE PAYME NTS AND A CORRESPONDING AMOUNT IS RECOGNIZED AS LIABILITY. TH E ASSESSEE FURTHER EXPLAINED THAT THE LEASE PAYMENTS ARE APPORTIONED B ETWEEN FINANCE CHARGE AND REDUCTION OF OUTSTANDING LIABILITY IN RELATION TO THE FINANCE LEASED ASSETS AND SINCE DEPRECIATION ON SUCH ASSETS IS NOT ALLOWE D AND NORMAL PERIODIC PAYMENTS ARE ALLOWED AS DEDUCTION FOR TAX PURPOSES, THE LEASE PAYMENTS CLAIMED BY THE ASSESSEE IN THE INCOME TAX RETURN SH OULD BE ALLOWED AS BUSINESS EXPENDITURE. IN SUPPORT OF ITS CONTENTION ASSESSEE RELIED ON CIRCULAR NO. 2 OF 2001 DATED 09.02.2001 OF CBDT AND ALSO RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN CASE OF ICDS L TD. VS. CIT 350 ITR 527. THE ASSESSING OFFICER MADE DISALLOWANCE OF RS. 1,99 ,66,749/- ON ACCOUNT OF FINANCE LEASE EXPENSES. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER THE ASSE SSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED APPEAL OF THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT THE TRANSACTION ENTER INT O BY THE ASSESSEE WITH M/S. SREI EQUIPMENT FINANCE LTD. IS A SIMPLE S ALE AND LEASE BACK TRANSACTION. THERE IS INVOLVEMENT OF TWO PARTIES ON LY I.E. M/S. NIIT LTD. 5 ITA NO. 6778, 6779/DEL/2018 (LESSEE) AND M/S. SREI EQUIPMENT FINANCE LTD. (LESS OR) IN RESPECT OF TRANSACTION FOR SALE AND LEASE. THE LD. AR FURTHER SUBMITTED THAT THE ASSETS INVOLVED IN THE SAID TRANSACTION ARE INTANGIBLES, T HE EXISTENCE OF WHICH CAN BE ESTABLISHED THROUGH FINANCIAL STATEMENT OF COMPA NY CAPITALIZING THE COST OF ASSETS DEVELOPED BY THE COMPANY, COPYRIGHT CERTI FICATES ISSUED BY THE REGISTRAR OF COPYRIGHTS GOVERNMENT OF INDIA, CD O F THE SOFTWARE, INVOICES RAISED BY NIIT TO ITS VARIOUS CUSTOMERS WHO USES TH ESE SOFTWARES; VARIOUS INDIRECT TAXES LEVIED ON THE TRANSACTION OF SALE AN D RENTING OF SOFTWARE. THE LD. AR SUBMITTED THAT SINCE THE COMPANY STARTED DEV ELOPING THESE CAPITAL IPRS IN FINANCIAL YEAR 2007-08 USING ITS INTERNAL RESOURCES, HAD THE COMPANY NOT CAPITALIZED THE SALARY COST, THE SAME W OULD HAVE BEEN CLAIMING THE BONAFIDE EXPENDITURES IN THE YEAR WHE N THESE WERE INCURRED, BUT THE ASSESSEE COMPANY CLAIMED LEASE RENT OVER TH E LEASE PERIOD. IN THE ENTIRE TRANSACTION, THE COMPANY FOLLOWED ALL DIRECT AS WELL AS INDIRECT TAX COMPLIANCES WHICH SHOWS BONAFIDE INTENTION OF THE C OMPANY RATHER THAN INDULGING IN TAX EVASION. THE LD. AR SUBMITTED THAT IT IS AN UNDISPUTED FACT THAT THE LESSEE HAD BEEN USING THE ASSETS FOR HIS B USINESS AND TRANSACTION WAS DULY RECOGNIZED THROUGH LEASE DEED. THE LD. AR SUBMITTED THAT INTEREST PORTION HAS BEEN ALLOWED BY THE CIT(A) ON THE SAME TRANSACTION. THE LD. AR POINTED OUT THAT IN THE YEAR OF INTANGIBLES BY THE ASSESSEE TO M/S. SREI EQUIPMENT FINANCE LTD. THE ASSESSEE HAD DULY PAID T HE CAPITAL GAIN TAX AROSE ON CONVERSION THE CWIP INTO STOCK IN TRADE WH ICH WAS DULY ACCEPTED BY THE REVENUE. AS REGARDS FINDING OF THE CIT(A) TH AT THE AGREEMENT IS UNSIGNED, THE SAME WAS FILED BEFORE THE CIT(A) WITH THE SIGNATURE OF BOTH PARTIES. THUS, THE AGREEMENT WAS GENUINE. SINCE THE INTANGIBLES WERE TAKEN ON LEASE UNDER THE MASTER OPERATING LEASE AGREEMENT , THE DESCRIPTION OF ASSETS WERE NOT MENTIONED IN THE MASTER AGREEMENT. THE MASTER AGREEMENT WAS OMNIBUS AGREEMENT OBVIATING THE NEED TO REPEATE D AGREEMENTS TO BE ENTERED INTO IN FUTURE. THE SALE AGREEMENT OF THE I NTANGIBLES FILED BEFORE THE CIT(A) DULY DESCRIBED THE ASSETS IN ITS SCHEDULE 1 AND SCHEDULE 2 WHICH ARE SOLD TO THE LESSOR AND TAKEN BACK ON LEASE BY THE A SSESSEE ALSO THE INVOICES RAISED BY THE LESSOR FOR LEASE RENTALS DESCRIBED TH E ASSETS ON WHICH RENT WAS RECEIVED. THE LD. AR SUBMITTED THAT NO RENTAL SCHED ULE WAS FIXED BY THE 6 ITA NO. 6778, 6779/DEL/2018 AGREEMENT IN RESPECT OF NON-EXISTING ASSETS GIVEN O N LEASE WHICH IS AN ABSURD OBSERVATION BY THE ASSESSING OFFICER. THE IN TANGIBLES WERE TAKEN ON LEASE UNDER THE MASTER OPERATING LEASE AGREEMENT TH E SAME WAS DECIDED BY THE LESSOR AND LESSEE THROUGH RENTAL SCHEDULE. M/S. SREI EQUIPMENT FINANCE LTD. WAS NOT HAVING ANY ASSETS FOR THE PURP OSE OF GIVING ON LEASE TO THE ASSESSEE AT THE TIME OF AGREEMENT, THIS OBSERVA TION OF THE CIT(A) IS NOT PROPER. THE MASTER OPERATING LEASE AGREEMENT WAS EX ECUTED ON 22.12.2009 WHICH COVERS ALL FUTURE LEASES OF EQUIPMENTS WITH M /S. SREI EQUIPMENTS AND THE ASSETS WHICH WERE TAKEN UNDER THE MASTER AG REEMENT AND THE SAME WERE SOLD BY THE ASSESSEE TO THE LESSOR VIDE A GREEMENT DATED 29.12.2009. THE LD. AR SUBMITTED THAT THE TRANSACTI ON INVOLVED IS A SALE OF LEASE BACK TRANSACTION AND THE ASSETS INVOLVED ARE INTANGIBLES. THE ASSETS WERE INTERNALLY DEVELOPED BY THE ASSESSEE ITSELF AN D SOLD TO THE LESSOR. THE ASSETS WERE DEVELOPED BY THE ASSESSEE AND THE SAME ARE CUSTOMIZE TO THE PECULIAR REQUIREMENTS OF THE ASSESSEE WHICH ENABLED IT TO OPERATE ITS BUSINESS ACROSS THE COUNTRY. ANY MODIFICATION IN TH E ASSETS COULD HAVE HAMPERED THE ENTIRE BUSINESS OF THE ASSESSEE AND RE SULTING INTO HUGE LOSES. THE ASSETS INVOLVED IN THE TRANSACTION ARE INTANGIB LES WHICH DO NOT REQUIRE ANY PHYSICAL DELIVERY/ MOVEMENT. DELIVERY OF PASSWO RDS, MANUALS, CONTENTS, AUTHORIZATION ETC. WAS DULY MADE WHICH WA S SUFFICIENT TO COMPLY WITH THE REQUIREMENT OF SALE. THE ASSESSEE WAS NOT HAVING ANY INTENTION TO REDUCE ITS TAX BURDEN. THE LEASE AGREEMENT IN WHICH ASSESSEE ENTERED INTO FOR TAKING THE ASSETS BACK ON LEASE IS AN OPERATING LEASE AGREEMENT. LESSOR IS THE OWNER OF THE SOFTWARE LICENSE AND ALL RIGHTS TO USE THE SOFTWARE; LESSEE SHALL NOT HAVE ANY TITLE TO THE SOFTWARE; ONCE THE LEASE PERIOD EXPIRED, LESSEE TO DISABLE AUTHORIZATIONS, RETURN ALL MANUALS, PASS WORDS ETC. THE UPDATES EFFECTED BY THE LESSEE TO BECOME THE PROPERTY OF TH E LESSOR ON TERMINATION OF LEASE. THE LD. AR SUBMITTED THAT TO HOLD THE TRANSA CTION OF OPERATING OR FINANCE LEASE ONE SHOULD SCRUTINIZE THE AGREEMENT E NTERED INTO BETWEEN THE PARTIES. THE LD. AR RELIED UPON THE VARIOUS DECISIO NS OF THE HONBLE SUPREME COURT, VARIOUS HIGH COURTS, AND TRIBUNALS. THE LD. AR ALSO DISTINGUISHED DECISION OF THE SUPREME COURT IN CASE OF VIRTUAL SOFT SYSTEMS LTD. 404 ITR 409. IN ALTERNATE, THE LD. AR SUBMITTE D WITHOUT PREJUDICE TO 7 ITA NO. 6778, 6779/DEL/2018 GROUND NO. 1 THAT IF IT IS HELD THAT FINANCE LEASE EXPENSES IS NOT ALLOWABLE AS DEDUCTION THE DEPRECIATION U/S 32 OF THE ACT IT ALLOWED OF TOTAL COST / VALUE OF ASSETS TAKEN ON FINANCE LEASE. AS REGARDS GROUND NO. 3, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER ERRED IN NOT G RANTING CREDIT FOR THE TAX DEDUCTED AT SOURCE IN INCOME TAX COMPUTATION FORM I N NAME OF THE ASSESSEE AS CLAIMED BY THE RETURN OF INCOME. AS REG ARDS GROUND NO. 4 LEVY OF INTEREST U/S 234A, 234B AND 234C THE ASSESSEE DE NIES ITS LIABILITY TOWARDS SUCH INTEREST. AS REGARDS GROUND NO. 5, THE SAME IS CONSEQUENTIAL. 6. THE LD. DR SUBMITTED THAT THE STARTING POINT OF TH E CLAIM OF ASSESSEE IS THE LEASE AGREEMENT DATED 22.12.2009 WHICH IN IT SELF IS A SHAM AGREEMENT BEING UNSIGNED BY OTHER PARTY M/S. SREI E QUIPMENT FINANCE PVT. LTD. AND WITHOUT HAVING ANY ASSETS TO BE GIVEN ON LEASE AND WITHOUT FIXING THE RENTAL SCHEDULE. THE ASSETS WHICH WERE G IVEN ON LEASE HAVE ALSO BEEN PROVIDED BY THE ASSESSEE ONLY BY SELLING THE S OFTWARE / PROGRAMS VIDE AGREEMENT DATED 29.12.2009 WITH THE CONDITION THAT THE PURCHASER PARTY WOULD NEITHER MODIFY, REVERSE, ENGINEER THE PRODUCT , ALTER, ADOPT COPY OF THE PRODUCT AND MAKE DERIVATIVE WORKS OUT OF THE PRODUC T NOR WOULD SALE OR GIVE LICENSE OF THE PRODUCT TO ANY COMPETITOR OF N IIT THE NATURE OF SOFTWARE / PROGRAMMERS SOLD BY THE ASSESSEE AND TAKEN BACK O N LEASE ALSO REFLECTS AND ALSO ADMITTED BY THE ASSESSEE ALSO THAT THEY AR E PURCHASED AND DEVELOPED BY THE ASSESSEE ONLY EXCLUSIVELY FOR ITS UN USES. EFFECTIVELY THE SOFTWARE HAVE BEEN PURCHASED / DEVELOPED AND USED B Y THE ASSESSEE AND AFORESAID AGREEMENTS AND OTHER DOCUMENTS HAVE BEEN PREPARED / MANUFACTURED JUST TO GIVE THE COLOUR OF FINANCE LEA SE AND TO CLAIM THE VARIOUS EXPENSES / DEDUCTIONS BY BOTH THE PARTIES B Y REDUCING THEIR TAXABLE INCOMES. THE LD. DR SUBMITTED THAT IN ALL PRACTICAL SENSE, THE CUSTOMIZE SOFTWARE PURCHASED AND DEVELOPED BY THE ASSESSEE RE MAIN WITH IT ONLY AND NEVER MOVED FROM ITS POSSESSION, BUT ALL THE PAPER WORK REGARDING SALE AND LEASE BACK HAS BEEN DONE TO CLAIM THE DEDUCTIONS BY BOTH THE PARTIES. THE ASSESSEE CLAIMED THE COST OF ASSETS AS INSTALLATION S AND ADDITIONALLY TREATED IT AS THE INTEREST AMOUNT AND THUS CLAIMED THE DEDU CTIONS MORE THAN THE COST OF ASSETS. ON THE OTHER HAND, THE CORRESPONDIN G PARTY I.E. M/S. SREI 8 ITA NO. 6778, 6779/DEL/2018 EQUIPMENT FINANCE PVT. LTD. CLAIMED THE DEPRECIATIO N ON THESE ASSETS AT 60% IN THEIR ACCOUNTS BY REDUCING THEIR TAXABLE INC OME. THUS, BOTH THE PARTIES HAVE TAKEN BENEFIT OF DEDUCTIONS AGAINST TH E TAXABLE INCOMES ON THE BASIS OF SHAM AGREEMENTS AND MANIPULATING THE TRANS ACTIONS IN GUISE OF FINANCE LEASE. THUS, THE LD. AR SUBMITTED THAT THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF ICDS LTD. VS. CIT 350 ITR 527 AS WELL AS CIT VS. VIRTUAL SOFTWARE SYSTEMS LTD. 404 ITR 409 ARE APPLI CABLE IN THE PRESENT CASE. THE LD. DR SUBMITTED THAT THE CIT(A) AS WELL AS THE ASSESSING OFFICER RIGHTLY MADE ADDITION OF FINANCE LEASE EXPENSES IN ASSESSMENT YEAR 2012- 13 AND 2014-15. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELE VANT MATERIAL AVAILABLE ON RECORD. FROM THE RECORDS IT CAN BE SEE N THAT IT IS AN UNDISPUTED FACT THAT THE LESSEE HAD BEEN USING THE ASSETS FOR HIS BUSINESS PURPOSE AND TRANSACTION WAS DULY RECOGNIZED THROUGH LEASE DEED. THOUGH THE CIT(A) MENTIONED THAT THE LEASE DEED IS UNSIGNE D YET THE ASSESSEE PRODUCED THE SIGNED COPY OF THE LEASE DEED BEFORE U S WHICH IS GENUINE. THUS, THE AGREEMENT CANNOT BE TREATED AS SHAM AND B OGUS AS STATED BY THE LD. DR DURING THE HEARING. IN FACT, INTEREST PORTIO N HAS BEEN ALLOWED BY THE CIT(A) ON THE SAME TRANSACTION. IN THE YEAR OF INTA NGIBLES BY THE ASSESSEE TO M/S. SREI EQUIPMENT FINANCE LTD. THE ASSESSEE HAD D ULY PAID THE CAPITAL GAIN TAX AROSE ON CONVERSION OF THE CWIP INTO STOCK IN TRADE WHICH WAS DULY ACCEPTED BY THE REVENUE. FROM THE SALE AGREEME NT OF THE INTANGIBLES FILED BEFORE THE CIT(A), THE ASSETS WERE DULY DESCR IBED IN SCHEDULE 1 AND SCHEDULE 2 WHICH WERE SOLD TO THE LESSOR AND TAKEN BACK ON LEASE BY THE ASSESSEE. THE ASSESSEE ALSO RAISED THE INVOICES FOR LEASE RENTALS DESCRIBING THEREIN THE ASSETS ON WHICH RENT WAS RECEIVED. THE INTANGIBLES WERE TAKEN ON LEASE UNDER THE MASTER OPERATING LEASE AGREEMENT THE SAME WAS DECIDED BY THE LESSOR AND LESSEE THROUGH RENTAL SCHEDULE. M /S. SREI EQUIPMENT FINANCE LTD. WAS NOT HAVING ANY ASSETS FOR THE PURP OSE OF GIVING ON LEASE TO THE ASSESSEE AT THE TIME OF AGREEMENT, THIS OBSERVA TION OF THE CIT(A) IS CONTRARY TO THE RECORDS AVAILABLE BEFORE US. THE MA STER OPERATING LEASE AGREEMENT WAS EXECUTED ON 22.12.2009 WHICH COVERS A LL FUTURE LEASES OF 9 ITA NO. 6778, 6779/DEL/2018 EQUIPMENTS WITH M/S. SREI EQUIPMENTS AND THE ASSETS WHICH WERE TAKEN UNDER THE MASTER AGREEMENT AND THE SAME WERE SOLD B Y THE ASSESSEE TO THE LESSOR VIDE AGREEMENT DATED 29.12.2009. THE ASSETS WERE DEVELOPED BY THE ASSESSEE AND THE SAME ARE CUSTOMIZE TO THE PECULIAR REQUIREMENTS OF THE ASSESSEE WHICH ENABLED IT TO OPERATE ITS BUSINESS A CROSS THE COUNTRY. THUS, THE SUBMISSION OF THE LD. AR THAT ANY MODIFICATION IN THE ASSETS COULD HAVE HAMPERED THE ENTIRE BUSINESS OF THE ASSESSEE AND RE SULTING INTO HUGE LOSSES IS CORRECT. THE CIT(A) SHOULD HAVE LOOKED IN TO THE TOTAL INSTALLMENT AMOUNT WHICH SHOULD HAVE BEEN ALLOWED TO THE ASSESS EE DURING THE FIRST APPELLATE PROCEEDINGS WHICH WAS NOT DONE BY THE ASS ESSING OFFICER AS WELL AS BY THE CIT(A). FOLLOWING EXPENSES WERE CLAIMED B Y IT AS THE PRINCIPAL AMOUNT DURING THE YEAR IN THE PROFIT/LOSS ACCOUNT: FINANCIAL YEAR MONTH PRINCIPAL OUTSTANDING INTEREST INSTALLMENT PRINCIPAL REPAID 2011-12 APR-11 9,43,03,120 27,50,420 75,63,555 48,1 3,135 -DITTO- MAY-11 8,94,89,985 -DITTO- JUNE-11 8,94,89,985 -DITTO- JULY-11 8,94,89,985 26,39,982 75,63,555 49, 23,573 -DITTO- AUG-11 8,45,66,412 -DITTO- SEP-11 8,45,66,412 -DITTO- OCT-11 8,45,66,412 25,23,174 75,63,555 50,4 0,381 -DITTO- NOV-11 7,95,26,031 -DITTO- DEC-11 7,95,26,031 -DITTO- JAN-12 7,95,26,031 23,73,896 75,63,555 51,8 9,659 -DITTO- FEB-12 7,43,36,372 -DITTO- MAR-12 7,43,36,372 TOTAL 1,02,87,472/- 3,02,54,220/- 1,99,66,310/- THE RELIANCE OF THE HONBLE SUPREME COURT DECISION IN CASE OF VIRTUAL SOFT SYSTEMS WILL NOT BE APPLICABLE IN THE PRESENT CASE AS IN THE SAID CASE IT IS AN ADMITTED CASE OF FINANCE LEASE TRANSACTION AND T HE DEPARTMENT WAS DISPUTING THE ACCOUNTING TREATMENT. BUT THE FACTS A RE DIFFERENT IN THE PRESENT CASE. IN THE PRESENT CASE THE LEASE RENTALS CONSTITUTES THE REAL BUSINESS INCOME WHICH WAS NOT DISPUTED BY THE REVEN UE. THEREFORE, THE CIT(A) AS WELL AS THE ASSESSING OFFICER WERE NOT CO RRECT IN MAKING ADDITION 10 ITA NO. 6778, 6779/DEL/2018 OF RS. 1,99,66,749/- ON ACCOUNT OF DISALLOWANCE OF PRINCIPAL PORTION OF THE FINANCIAL LEASE EXPENSES AND TREATING THE SAME AS C APITAL EXPENDITURE. THUS, THE ASSESSEE BE GRANTED THE BENEFIT OF THE FI NANCIAL LEASE EXPENSES ON THE AMOUNT OF RS. 3,02,54,220/-. GROUND NO. 1, 2, 2 .1, 2.2 ARE ALLOWED. 8. AS REGARDS GROUND NO. 3, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER ERRED IN NOT GRANTING CREDIT FOR THE TAX DE DUCTED AT SOURCE IN INCOME TAX COMPUTATION FORM IN NAME OF THE ASSESSEE AS CLA IMED BY THE RETURN OF INCOME. THE ISSUE IS NOT ADJUDICATED UPON BY THE AS SESSING OFFICER THEREFORE, WE REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION AS PER THE RECORDS PRODUCED BEFORE THE ASSESSING OFFICER BY THE ASSESSEE. NEEDLESS TO SAY, THE ASSESSEE BE GIVE N OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. THUS, G ROUND NO. 3 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 9. AS REGARDS GROUND NOS. 4 AND 5, SINCE THE ISSUES AR E CONSEQUENTIAL, HENCE, THE SAME IS NOT ADJUDICATED UPON AT THIS JUN CTURE. 10. AS REGARDS APPEAL FOR A.Y. 2014-15, THE GROUNDS CON TESTED THEREIN ARE ALSO IDENTICAL TO THAT OF A.Y. 2012-13, THEREFORE, ITA NO. 6779/DEL/2018 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE FOR THE SAME REASONING. 11. IN RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PAR TLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JULY, 2019 . SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBE R DATED: 26/07/2019 *BINITA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 11 ITA NO. 6778, 6779/DEL/2018 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 1 6 .07.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 1 7 .07.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK