Chemm Finance Limited, Bangalore V. CIT, Bangalore

ITA 693/BANG/2011

• Counselvise Citation: 69321114 RSA 2011
• Duration Of Justice: 3 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-08-2014
• Assessment Year: 1996-1997
• Appeal Filed On: 30-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M K BIJU JCIT SHRI H N KHINCHA
• Keywords: Depreciation; Assessment record; Onus to prove; Capital expenditure
• Section: 143(3); 142(1); 133A; 147; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C : BANGALORE BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE , ACCOUNTANT MEMBER ITA NO S . 680 & 681 / BANG/20 1 1 (ASSESSMENT YEAR S: 1996 - 97 & 1997 - 98 ) DEPUTY COMMISSIONER O F INCOME - TAX, CIRCLE 11(2), BANGALORE. APPELLANT VS. M/S.CHEMM FINANCE LTD. J BLOCK, I FLOOR, UNITY BUILDING, J.C.ROAD, BANGALORE - 560002. RESPONDENT AND ITA NOS.693 & 694/BANG/2011 (ASSESSMENT YEARS: 1996 - 97 & 1997 - 9 8) (BY THE ASSESSEE) ******* REVENUE BY: SHRI M.K.BIJU, JCIT . ASSESSEE BY: SHRI H.N.KHINCHA, CA . DATE OF HEARING : 12 - 08 - 2014 . DATE OF PRONOUNCEMENT: 22 - 08 - 2014 . O R D E R PER SMT. P.MADHAVI DEVI, JM : THESE ARE CROSS APPEALS FILED BOTH B Y THE ASSESSEE AS WELL AS THE REVENUE AGAINST THE CONSOLIDATED ORDER OF THE CIT(A) - I, BANGALORE, DATED 16 - 3 - 2011 FOR THE ASSESSMENT YEARS 1996 - 97 AND 1997 - 98 RESPECTIVELY. ITA NO S . 680, 681, 693 & 694/BANG/2011 M/S.CHEMM FINANCE LTD. PAGE 2 OF 10 2. BRIEF FACTS OF THE CASE ARE THAT FOR BOTH THE ASSESSMENT YEARS THE ASSESSEE - COMPA NY, WHICH IS ENGAGED IN THE BUSINESS OF LEASING, HIRE PURCHASE AND FINANCING, FILED ITS RETURNS OF INCOME . SUBSEQUENTLY, THERE WAS A S URVEY CONDUCTED U/S 133A OF THE INCOME - TAX ACT, 1961[HEREINAFTER REFERRED TO AS 'THE ACT'] AT THE PREMISES OF M/S.BELLARY STEELS & ALLOYS LTD., [ BSAL FOR SHORT] ON 1 - 8 - 2000 WHICH REVEALED THAT NUMEROUS FINANCE COMPANIES INCLUDING THE ASSESSEE HAD ENTERED INTO TRANSACTIONS WITH BSAL WHICH WOULD ENABLE THE ASSESSEE TO CLAIM 100% DEPRECIATION ON ASSETS (ROLLING MILL ROLLERS) WHICH, ACCORDING TO THE DEPARTMENT, DID NOT EXIST AT ALL. IN VIEW OF THE INFORMATION RECEIVED FROM THE DEPUTY DIRECTOR OF INVESTIGATION, HUBLI, ON THE FINDINGS IN THE SURVEY, THE CASE WAS R E - OPENED U/S 147 OF THE ACT AND THE ASSESSMENT WAS COMPLETED DISAL LOWING THE CLAIM OF DEPRECIATION ON ROLLING MILL ROLLERS AND ALSO DISALLOWING HIGHER RATE OF DEPRECIATION AT 40% ON VEHICLES HOLDING THAT THE VEHICLES ARE NOT USED FOR RUNNING ON HIRE BUT ARE ONLY LEASED OUT. THE ASSESSING OFFICER (AO) ALLOWED DEPRECIATIO N ON THE VEHICLES AT THE RATE OF 25% AS APPLICABLE TO PLANT AND MACHINERY. 3. AGGRIEVED, THE ASSESSEE PREFERRED APPEALS BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO AS FAR AS DISALLOWANCE OF DEPRECIATION ON ROLLING MILL ROLLERS IS CONCERNED BUT GRA NTED RELIEF TO THE ASSESSEE BY GRANTING HIGHER RATE OF DEPRECIATION ON LEASED OUT VEHICLES. AGGRIEVED BY THE RELIEF GRANTED BY THE ITA NO S . 680, 681, 693 & 694/BANG/2011 M/S.CHEMM FINANCE LTD. PAGE 3 OF 10 CIT(A), THE REVENUE IS IN APPEAL BEFORE US WHILE THE ASSESSEE IS IN APPEAL AGAINST THE CONFIRMATION OF THE DISALLOWANCE OF D EPRECIATION ON THE ROLLING MILL ROLL ER S AS WELL AS ASSUMPTION OF JURISDICTION U/S 148 OF THE ACT. 4. IN THE APPEAL BEFORE US, THE ASSESSEE HAS RAISED GROUNDS THAT THE AO HAD ERRED IN ASSUMING JURISDICTION U/S 148 OF THE ACT WITHOUT THERE THE CONDITIONS PR ECEDENT FOR THE ISSUE OF NOTICE BEING PRESENT. THUS , ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE NOTICE ISSUED WAS BAD IN LAW AND CONSEQUENTLY THE ASSESSMENT ALSO BECOMES BAD IN LAW WHICH IS LIABLE TO BE QUASHED. 5. AT THE TIME OF HEARING, LEAR NED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REASONS FOR RE - OPENING OF THE ASSESSMENT HAVE NOT BEEN RECORDED BY THE AO NOR HAVE THEY BEEN SUPPLIED TO THE ASSESSEE AND EVEN IF THEY ARE RECORDED, THEY ARE NOT SUFFICIENT TO RE - OPEN THE ASSESSMENT. THE LE ARNED DEPARTMENTAL REPRESENTATIVE HAS FURNISHED THE ASSESSMENT RECORDS BEFORE US AND IT IS SEEN THERE - FROM THAT THE REASONS FOR REOPENING HAVE BEEN DULY RECORDED AND THE ASSESSEE HAS NOT ASKED FOR THE REASONS EITHER AT THE TIME OF ASSESSMENT PROCEEDINGS OR DURING THE APPELLATE PROCEEDINGS. THEREFORE, WE ARE NOT INCLINED TO ACCEPT THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT NO REASONS HAVE BEEN ITA NO S . 680, 681, 693 & 694/BANG/2011 M/S.CHEMM FINANCE LTD. PAGE 4 OF 10 RECORDED FOR REOPENING OF THE ASSESSMENT. AS REGARDS THE SUFFICIENCY OF REASONS FOR REOPENING OF THE ASSESSMENT ALSO, WE FIND THAT THE ASSESSEE HAS NOT RAISED ANY SUCH GROUND BEFORE THE AO OR THE CIT(A) NOR HAS FILED ANY EVIDENCE BEFORE US TO E STABLISH THAT THE REASONS RECORDED ARE NOT SUFFICIENT FOR REOPENING OF THE ASSESSMENT. THE BURDEN TO PROVE T HE CONTENTION OF THE ASSESSEE IS ON THE ASSESSEE AND WITHOUT SUFFICIENT EVIDENCE IN SUPPORT OF THE ASSESSEE S CONTENTION WE ARE NOT INCLINED TO ACCEPT THE CONTENTION OF THE ASSESSEE. THE FURTHER GROUND TAKEN BY THE ASSESSEE IS THAT THE JURISDICTION OF A C OMPANY LIES WITH THE CIRCLE 11 AND 12 WHEREAS IT IS CIRCLE 4(2) WHICH HAS ISSUED THE NOTICES U/S 148 AND THEREFORE THE JURISDICTION IS WRONGLY ASSUMED BY THE DCIT, CIRCLE 4(2). IN REPLY THERETO, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS DRAWN OUR ATTENT ION TO CLAUSE (A) OF SUB - SEC.(3) OF SEC.124 WHEREIN IT IS PROVIDED THAT ASSESSEE SHALL NOT BE ENTITLED TO CALL IN QUESTION THE JURISDICTION OF AN AO WHERE HE HAS MADE A RETURN UNDER SUB - SEC.(1) OF SECTION 139 AFTER THE EXPIRY OF ONE MONTH FROM THE DATE ON WHICH HE WAS SERVED WITH A NOTICE UNDER SUB - SECTION (1) OF SEC.142 OR SUB - SECTION (2) OF SECTION 143 OR AFTER THE COMPLETION OF THE ASSESSMENT, WHICHEVER IS EARLIER. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS NOT QUESTIONED TH E JURISDICTION OF THE AO DURING THE PENDENCY OF THE ASSESSMENT PROCEEDINGS NOR DID HE CHALLENGE THE JURISDICTION IN THE APPELLATE PROCEEDINGS BEFORE THE CIT(A). ITA NO S . 680, 681, 693 & 694/BANG/2011 M/S.CHEMM FINANCE LTD. PAGE 5 OF 10 THEREFORE, HE IS PRECLUDED FROM CHALLENGING THE JURISDICTION OF THE AO AT THIS STAGE BEFORE TH E TRIBUNAL. WE FIND THAT THE ASSESSEE HAS APPEARED IN THE PROCEEDINGS BEFORE THE AO AS WELL AS THE CIT(A) WITHOUT ANY PR OTEST AND THEREFORE IN VIEW OF THE PROVISIONS OF SEC.124(3)(A), WE ARE OF THE OPINION THAT THE ASSESSEE IS NOT ENTITLED TO RAISE THIS Q UESTION AT THIS STAGE. THEREFORE, WE ARE NOT INCLINED TO ENTERTAIN THIS ARGUMENT OF THE ASSESSEE AND REJECT THE SAME. IN VIEW OF THE SAME, GROUND NO.2 RELATING TO VALIDITY OF THE REOPENING OF THE ASSESSMENT U/S 148 OF THE ACT IS REJECTED. 6. THE NEXT GR OUND RAISED BY THE ASSESSEE IS THAT THE NOTICE U/S 143(2) IS BARRED BY LIMITATION. IN THIS CONNECTION, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 11 - 1 - 2001 FOR BOTH THE ASSESSMENT YEARS WHILE THE NOT ICES U/S 142(1) WERE ISSUED ON 25 - 1 - 2001 AND NOTICE U/S 143(2) WAS SERVED ON 4 - 2 - 2002 I.E. WELL BEYOND 12 MONTHS FROM THE END OF THE MONTH OF FILING OF THE RETURN. THUS, ACCORDING TO HIM, THE NOTICE U/S 143(2) IS BARRED BY LIMITATION AND CONSEQUENTLY THE ASSESSMENT COMPLETED U/S 143(3) READ WITH SEC.148 IS INVALID. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, PRODUCED THE ASSESSMENT RECORDS BEFORE US AND SUBMITTED THAT THE NOTICE U/S 143(2) WAS ISSUED ON 31 - 1 - 2002 AND THEREFORE , IT WAS WEL L WITHIN TIME. EVEN OTHERWISE, HE HAS DRAWN ITA NO S . 680, 681, 693 & 694/BANG/2011 M/S.CHEMM FINANCE LTD. PAGE 6 OF 10 OUR ATTENTION TO THE PROVISO TO SEC.148 OF THE ACT WHEREIN IT HAS BEEN PROVIDED THAT WHERE A RETURN HAS BEEN FURNISHED DURING THE PERIOD COMMENCING ON 1 ST DAY OF OCTOBER 1991 AND ENDING ON THE 30 TH DAY OF SEPTEM BER, 2005 IN RESPONSE TO A NOTICE SERVED UNDER SEC.148 AND SUBSEQUENTLY A NOTICE HAS BEEN SERVED UNDER SUB - SECTION (2) OF SEC.143 AFTER THE EXPIRY OF TWELVE MONTHS SPECIFIED IN THE PROVISO TO SUB - SECTION (2) OF SEC.143, AS IT STOOD IMMEDIATELY BEFORE THE A MENDMENT OF SAID SUB - SECTION BY THE FINANCE ACT, 2002 BUT BEFORE THE EXPIRY OF THE TIME LIMIT FOR MAKING THE ASSESSMENT, RE - ASSESSMENT OR RE - COMPUTATION AS SPECIFIED IN SUB - SECTION (2) OF SECTION 153, EVERY SUCH NOTICE REFERRED TO IN THIS CLAUSE SHALL BE D EEMED TO BE A VALID NOTICE. THUS, ACCORDING TO HIM, THE NOTICE U/S 143(2) WAS ISSUED WITHIN THE TIME PERMITTED UNDER LAW AND EVEN IF THE NOTICE WERE TO BE TAKEN AS DATED 4 - 2 - 2002 AS CLAIMED BY THE ASSESSEE THEN IN VIEW OF THE PROVISO TO SEC.148, THE NOTIC ES ARE VALID NOTICES AND THEREFORE THE CONSEQUENTIAL ASSESSMENTS ARE ALSO VALID. 7. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THERE IS NO DISPUTE WITH REGARD TO THE RETURN OF INCOME OF BEING FILED BY THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS PURSUANT TO NOTICES U/S 148 , ON 11 - 1 - 2001. AS PROVIDED UNDER SEC.143 OF THE ACT, THE NOTICE UNDER SUB - SEC.(2) THEREOF HAS TO BE SERVED ON THE ASSESSEE WITHIN A PERIOD OF 12 MONTHS FROM THE END O F THE ITA NO S . 680, 681, 693 & 694/BANG/2011 M/S.CHEMM FINANCE LTD. PAGE 7 OF 10 MONTH OF FILING OF THE RETURN. THE PERIOD OF 12 MONTHS WOULD THEREFORE END ON 3 1 - 1 - 200 2 AND THE NOTICES UNDER SEC.143(2) DATED 4 - 2 - 2002 (ACCORDING TO THE ASSESSEE) AND 31 - 1 - 2002 (ACCORDING TO THE DEPARTMENT) WERE DEFINITELY SERVED ON THE ASSESSEE AF TER EXPIRY OF THE SAID PERIOD. HOWEVER, THESE NOTICES ARE SERVED IN THE YEAR 2002 WHICH PERIOD FALLS BETWEEN PERIOD SPECIFIED UNDER PROVISO TO SEC.148 I.E. 1 - 10 - 2001 TO 30 - 9 - 2005. THEREFORE, THE PROVISO TO SEC.148 CLEARLY APPLIES TO THE FACTS OF THE CASE BEFORE US AND AS PROVIDED UNDER CLAUSE (B) OF THE SAID PROVISO, THE NOTICE WHICH IS U/S 143(2) ISSUED AFTER THE EXPIRY OF 12 MONTHS FROM THE END OF THE MONTH IN WHICH THE RETURN WAS FILED BUT BEFORE THE EXPIRY OF THE TIME LIMIT FOR MAKING THE ASSESSMENT, RE - ASSESSMENT OR RE - COMPUTATION AS SPE CIFIED IN SUB - SEC.(2) OF SEC.153 SHALL BE DEEMED TO BE A VALID NOTICE. IN VIEW OF THESE PROVISIONS OF LAW, WE ARE UNABLE TO ACCEPT THE CONTENTIONS OR ARGUMENTS OF THE ASSESSEE ON THIS ISSUE. IN VIEW OF THE SAME, GROU ND NO.3 IS ALSO REJECTED. 8. AS REGARDS GROUND NO.4 IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE HAS FAIRLY ADMITTED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HON BLE HIGH COURT OF KARNATAKA IN ITA NO.523/2006 DATED 4 - 9 - 2 013 IN THE CASE OF CIT VS. M/S.MAA COMMUNICATION BOZELL LTD. WHEREIN THE HON BLE HIGH COURT HAS, AT PARA 18 OF ITS ORDER, CONCLUDED AS UNDER: 18. IN THE INSTANT CASE THE ASSESSING OFFICER ON THE BASIS OF THE SURVEY CONDUCTED IN THE PREMISES OF BSAL ITA NO S . 680, 681, 693 & 694/BANG/2011 M/S.CHEMM FINANCE LTD. PAGE 8 OF 10 F OUND THAT LEASE HAS BEEN CREATED ON THE BASIS OF THE NON - EXISTING ASSETS. ACCORDINGLY NOTICE HAS BEEN ISSUED. ALL THE ABOVE FACTS GO TO PROVE THAT HIRE PURCHASE AND LEASE TRANSACTION BETWEEN THE ASSESSEE AND KMFL ON ONE HAND AND THE ASSESSEE AND BSAL ON THE OTHER HAND WERE ONLY PAPER TRANSACTION AND THERE WAS NO GENUINE PURCHASE OF LEASE OF ASSETS. BY ENTERING INTO PAPER TRANSACTION, THE ASSESSEE HAS BENEFITTED BY AVAILING DEPRECIATION AT THE RATE OF 100% OF THE VALUE OF THE ASSETS IN QUESTION. HOWEVER, AS THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE OR LEAD ANY EVIDENCE TO THE EFFECT THAT ASSETS IN QUESTION WERE PHYSICALLY LEASED TO BSAL AND THERE WAS NO PHYSICAL MOVEMENT OF ASSETS FROM MUMBAI TO BELLARY. THE SURVEY CONDUCTED UNDER SECTION 133A OF THE ACT ON THE PREMISES OF BSAL AND ON VERIFICATION OF RECORDS, IT WAS FOUND THAT ALL THESE LEASE TRANSACTIONS ARE BOGUS. THE MANAGING DIRECTOR OF BSAL ADMITTED THAT THE COMPANY IS RAISING LEASE FIANC IN RESPECT OF NON - EXISTING ASSETS WITH A VIEW TO RAISE F UNDS FOR THEIR CAPITAL EXPENDITURE. AS SUCH, THE ASSESSEE IS NOT ENTITLED FOR DEPRECIATION. THE ASSESSEE HAS FAILED TO PROVE THE TRANSACTION. 9. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE ASSESSEE IS NOT ELIGIBLE FOR THE CLAIM OF DEPRECIATION ON THE LEASED ASSETS WHICH ARE FOUND TO BE NOT IN EXISTENCE . THE LEARNED COUNSEL FOR THE ASSESSEE, IN ADDITION TO THE ABOVE, HAS RAISED AN ALTERNATIVE CONTENTION THAT IF THE LEASE OF ROLLING MILL ROLLERS WAS HELD TO BE A BOGUS LEASE, THEN INCOME OFFERED BY THE ASSESSEE AS LEASE RENTAL S SHOULD ALSO BE REDUCED AND THE TAX LEVIED ACCORDINGLY. ITA NO S . 680, 681, 693 & 694/BANG/2011 M/S.CHEMM FINANCE LTD. PAGE 9 OF 10 THIS CONTENTION OF THE ASSESSEE APPEARS TO BE REASONABLE. WHEN THE LEASE ITSELF HAS BEEN HELD TO BE ONLY A PAPER TRANSACTION AND A BOGUS TRANSACTION, THEN INCOME THERE - FROM ALSO CANNOT BE ACCEPTED. IN VIEW OF THE SAME, WE DIRECT THE AO TO CONSIDER THE CONTENTION OF THE ASSESSEE AND REDUCE THE LEASE RENTAL INCOME FROM THE TAXABLE INCOME AND LEVY TAX ACCORDINGLY SUBJECT TO THE CONDITION THAT THE ASSESSED INCOME SHALL NOT BE LESS THAN THE RETURNED INCOME. 10. IN THE RESULT, THE ASSESSEE S APPEALS ARE ACCORDINGLY PARTLY ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE REVENUE S APPEALS FOR BOTH THE ASSESSMENT YEARS, THE ONLY ISSUE IS AGAINST THE GRANTING OF HIGHER RATE OF DEPR ECIATION AT 40% ON LEASE D OUT TRUCKS INSTEAD OF 25% ALLOWED BY THE AO TREATING THE LEASE D TRUCKS AS PLANT AND MACHINERY. THE LEARNED DEPARTMENTAL REPRESENTATIVE, RELIED UPON THE ORDER OF THE AO WHILE THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE ORDERS OF THE CIT(A). 12. WE FIND THAT THE CIT(A) HAS APPRECIATED THE CONTENTION OF THE ASSESSEE THAT LEASING IS ALSO A PART OF HIRING AND THEREFORE THERE IS BOUND TO BE HIGHER WEAR AND TEAR DUE TO ROUGH USE AND THE HON BLE MADRAS HIGH COURT IN T HE CASE OF CIT VS. MADAN & CO. ( 254 ITR 445 ) HAS HELD THAT THE ESSENCE OF HIGHER ITA NO S . 680, 681, 693 & 694/BANG/2011 M/S.CHEMM FINANCE LTD. PAGE 10 OF 10 DEPRECIATION ON ASSETS GIVEN ON HIRE IS THAT THERE IS HIGHER WEAR AND TEAR DUE TO ROUGH USE. THE REVENUE HAS NOT BEEN ABLE TO PRESENT BEFORE US ANY DECISION TO THE CONTRARY OR ANY EVIDENCE TO THE CONTRARY. IN VIEW OF THE SAME, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE CIT(A). 13. IN THE RESULT, THE REVENUE S APPEAL S FOR BOTH THE ASSESSMENT YEARS ARE DISMISSED. PRON OUNCED IN THE OPEN COURT ON 22 ND OF AUGUST , 201 4. S D/ - SD/ - ( ABRAHAM P GEORGE ) ( SMT. P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE B Y ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE