MEECON P. LTD, MUMBAI V. DCIT RG 3(2),

ITA 7132/MUM/2008

• Counselvise Citation: 713219914 RSA 2008
• Duration Of Justice: 4 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 18-07-2013
• Assessment Year: 1997-1998
• Appeal Filed On: 16-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Depreciation; Additional evidence; Valuation report; Reassessment proceedings
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 7132/MUM/2008 ASSESSMENT YEAR: 1997-98 M/S. MEECON P. LTD. C/O. N. VARMA & ASSOCIATES 56- B, MITTAL TOWER 210, NARIMAN POINT MUMBAI- 400 021 PAN: AAACM 2676 F VS. DCIT RG 3(2) AAYAKAR BHAVAN MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. K. SHIV A RAM & SHRI RAHUL HAKANI REVENUE BY : SH RI V.V. SHASTRI DATE OF HEARING : 18/07/2013 DATE OF PRONOUNCEMENT : 28 / 08 /2013 O R D E R PER B. RAMAKOTAIAH, AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER OF THE CIT(A)- III, MUMBAI DATED 17.09.2008. THE ISSUE IN THIS APP EAL IS ABOUT CLAIM OF DEPRECIATION ON THE LEASED ASSETS BY VIRTUE OF LEAS E AGREEMENT ENTERED INTO BY THE ASSESSEE WITH M/S. SOL LTD. 2. ASSESSEE IS CONTESTING THE FINDING OF AO AND CIT (A) IN THE REASSESSMENT PROCEEDINGS, CONSEQUENT TO SETTING ASI DE THE ORIGINAL ASSESSMENT ORDER IN VIEW OF THE ADDITIONAL EVIDENCE FILED BEFORE ITAT. THE ASSESSEE FILED REVISED GROUNDS OF APPEAL WHICH ARE AS UNDER: 2 REVISED GROUND NO. 1 : ORIGINAL GROUND NOS. 1.1 & 1.2 1. THE LEARNED COMMISSIONER OF INCOME-TAX (A) ERRE D IN CONFIRMING THE ORDER OF A.O. DISALLOWING DEPRECIATION OF RS. 1 ,06,42,500/- CLAIMED ON LEASE TRANSACTION WITH M/S. SOL LTD. IN RESPECT OF 3 BOILERS WITHOUT APPRECIATING THAT ALL EVIDENCE NECESSARY PROVE HAVE THE GENUINENESS OF THE LEASE TRANSACTION WERE PRODUCED BY THE APPELLANT AN D HENCE THE DEPRECIATION OF RS. 1,06,42,500/- CLAIMED BY THE AP PELLANT MAY BE ALLOWED. REVISED GROUND NO. 2: ORIGINAL GROUND NO. 1.3 2. WITHOUT PREJUDICE TO ABOVE, IF THE LEASE TRA NSACTION IS TREATED AS NON-GENUINE OR FINANCE TRANSACTION THEN LEASE RENTA LS MAY NOT BE TAKEN AS INCOME FOR THE RELEVANT AND SUBSEQUENT YEARS AND DI RECTIONS MAY BE ACCORDINGLY GIVEN. REVISED GROUND NO. 3: ORIGINAL GROUND NOS. 2.1 & 2. 2 3. THE LEARNED COMMISSIONER OF INCOME-TAX (A) ERRE D IN CONFIRMING THE ORDER OF A.O. LEVYING INTEREST U/S 220(2) OF RS . 31,18,046/- WITHOUT APPRECIATING THAT DEMAND BECOMES DUE ONLY ON THE MA KING OF FRESH ASSESSMENT AND NOT FROM THE ORIGINAL ASSESSMENT ORD ER WHICH WAS SET ASIDE AND HENCE THE INTEREST LEVIED U/S 220(2) MAY BE DELETED. 3. BRIEFLY STATED, ASSESSEE CLAIMED DEPRECIATION AT 100% ON 3 STEAM BOILERS STATED TO HAVE BEEN LEASED TO M/S. SOL LTD. , NEW DELHI. WHEN ENQUIRED, THE ASSESSEE FILED THE LEASE ASSESSMENT, INVOICES FOR PURCHASE OF STEAM BOILERS FROM M/S. CHEMCOM INDUSTRIES WHICH IS A PROPRIETARY CONCERN OF ONE MR.RAJESH GROVER AND DETAILS OF PAYM ENTS MADE TO M/S. CHEMCOM AND DEPOSIT RECEIVED FROM M/S. SOL LTD . IN SUPPORT, ASSESSEE ALSO FILED LEDGER COPIES OF M/S. CHEMCO M INDUSTRIES, M/S. SOL LTD. AND LEASE HIRE RECEIVED FROM M/S. SOL LTD. ASSESSING OFFICER ISSUED SUMMONS TO ENQUIRE THE GENUINENESS OF LEASE AND PURCHASE OF EQUIPMENT (3 BOILERS). THESE SUMMONS WERE RETURNED UNSERVED AS THE SAID PARTIES WERE NOT AVAILABLE. ASSESSEE ON 9,11/1 2/1999 SENT ITS INTERNAL AUDITOR MR. CHETAN C. SHAH CHARTERED ACCOU NTANT WHO VISITED FACTORY OF M/S. SOL LTD. TO VERIFY GENUINENESS OF T HE TRANSACTION. THE FACTORY WAS LOCKED AS THE OFFICIAL LIQUIDATOR, DELH I HAD TAKEN THE POSSESSION OF THE ASSETS OF THE COMPANY. ON ENQUIRY , THE ASSISTANT 3 LIQUIDATOR PRODUCED FOR INSPECTION, VALUATION REPOR T DATED 31/12/1996 PREPARED BY M/S. POTDAR CONSULTANTS WHEREIN THE EQU IPMENT WAS MENTIONED AT ITEM NO.1 (OF THE GHEE SECTION) OF THE SAID REPORT AND ALSO VALUATION REPORT OF M/S. CHOPRA & CHOPRA DATED 24/6 /1999 WHEREIN EQUIPMENT WAS AT ITEM NO.5 (OF GHEE SECTION) OF THE REPORT. ON BASIS OF DOCUMENTS PRODUCED BY THE OFFICIAL LIQUIDATOR, MR. CHETAN C. SHAH PREPARED AN AFFIDAVIT DATED 4/01/2000 RECORDING ABO VE. AO DID NOT ACCEPT AS MR. CHETAN C SHAH HAS NO LOCUS STANDI . ASSESSING OFFICER VIDE HIS ORDER U/S. 143(3) DATED 1/2/2000 HELD THE LEASE TRANSACTION TO BE NOT GENUINE AS ACCORDING TO AO THE MANUFACTURER AND LESSEE WERE NON- EXISTENT. HOWEVER AO HELD THAT IF THE TRANSACTION I S TREATED AS GENUINE IT MUST BE HELD TO BE A FINANCE LEASE. BEFORE THE CIT (A) THE ASSESSEE FILED THE LETTER ADDRESSED TO OFFICIAL LIQUIDATOR AND MA RKET QUOTATION OF M/S. SOL LTD. IT ALSO RELIED ON CIVIL APPLICATION 1273/ 2000 BEFORE HIGH COURT OF DELHI BY ASSESSEE COMPANY. CIT(A), HOWEVER, NOT ICING CERTAIN DISCREPANCIES, REJECTED THE SUBMISSIONS AND CONFIRM ED THE ACTION OF AO. 3.2 BEFORE THE ITAT, ASSESSEE FILED ADDITIONAL E VIDENCE AND THE ITAT VIDE THE ORDER DATED 11.04.2005 ADMITTED THE SAME AND THE MATTER WAS RESTORED TO AO FOR FRESH CONSIDERATION. ASSESSING OFFICER BY HIS ORDER U/S. 143(3) R.W.S. 254 RELIED ON THE FINDINGS OF EA RLIER ORDER OF CIT(A) (WHICH WAS SET ASIDE IN FIRST ROUND) AND AGAIN CONF IRMED THE ADDITION WITHOUT GIVING ANY SPECIFIC FINDING ON THE FRESH EV IDENCE AND RATHER SATING THAT FRESH EVIDENCE GO AGAINST ASSESSEE. LD.CIT(A), HOWEVER AFTER EXAMINING THE REPORTS RELIED ON BY ASSESSEE, GAVE A FINDING THAT THE ASSETS STATED IN VALUATION REPORT OF M/S POTDAR CO NSULTANTS ARE NOT SAME AS SPECIFIED IN PURCHASE INVOICES AND LEASE DE ED. HE CONFIRMED THE ORDER OF AO. HENCE, THE PRESENT APPEAL. 4. LD. COUNSEL REFERRING TO THE VALUATION REPORT OF THE M/S POTDAR CONSULTANTS, M/S CHOPRA & CHOPRA OBTAINED BY OFFICI AL LIQUIDATOR 4 SUBMITTED THAT ASSESSEE PURCHASED 3 BOILERS, PAID A MOUNT BY CHEQUE, ACCOUNTED FOR LEASE RENTS. EXISTENCE OF BOILERS IS PROVED BY REPORT OF POTDAR CONSULTANTS, AND CHOPRA & CHOPRA AND FURTHER INSTALLATION CERTIFICATE BY M/S.SOL LTD. WAS ALSO ON RECORD. HE FURTHER SUBMITTED THAT LD.CIT(A) REJECTED THE CONTENTIONS ON THE BASIS OF CALCULATIONS FOR WHICH HE IS NOT COMPETENT. IT WAS FURTHER SUBMI TTED THAT BOTH VALUATION REPORTS REFER TO ONLY 3 BOILERS AND NOT T O ANY OTHER. IT WAS FURTHER SUBMITTED THAT LEASE IS NOT A FINANCE LEASE AND REFERRED TO CLAUSES IN LEASE AGREEMENT. WITHOUT PREJUDICE, IT WAS SUBMI TTED THAT DEPRECIATION IS ALLOWABLE ON FINANCE LEASE AS ASSESSEE IS OWNER OF THE ASSET AND HAS RIGHT TO REPOSSESS THE ASSET AND IS USED FOR BU SINESS PURPOSES. LD. COUNSEL RELIED ON THE FOLLOWING CASE LAW. A. ICDS LTD VS. CIT 350 ITR 527(SC) B. DEVELOPMENT CREDIT BANK LTD. VS DCIT IN ITA NO. 3006/M/01 DATED 20.03.13 C. ACIT VS GMAC FINANCIAL SERVICES INDIA LTD. 16 I TR (TRIB) 422 CHENNAI IT WAS FURTHER SUBMITTED THAT IF TRANSACTION WAS HE LD AS FINANCE LEASE, CONSEQUENTIAL DEDUCTION MAY BE GIVEN TO TAX ONLY I NTEREST COMPONENT OF LEASE RENTALS IN CURRENT AND SUBSEQUENT YEARS FOLLO WING CIBA OF INDIA LTD. VS. CIT, 202 ITR 1(BOM). 5. LD. DR IN REPLY SUBMITTED THAT THE CASE WAS ADJOURN ED NUMBER OF TIMES ON THE REASON THAT SPECIAL BENCH IN THE CASE OF INDUS IND BANK WAS PENDING AND RELIED ON THE PRINCIPLES LAID DOWN THEREIN. HE REFERRED TO VARIOUS FINDINGS THERE IN THE ORDERS. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND EXA MINED THE DOCUMENTS ON RECORD. EACH OF THE ISSUES/CONTENTIONS REQUIRES DETAILED FINDINGS SO AS TO APPLY THE RELEVANT CAS E LAW. 5 6.1 THE LEASE AGREEMENT . ASSESSEE ENTERED INTO AN AGREEMENT DATED 09.09.96 FOR EQUIPMENT LEASE IN THE STANDARD FORMAT. HOWEVER, THE ENCLOSUR E TO THE LEASE AGREEMENT INDICATE HAND WRITTEN ENTRIES, MOSTLY E NDORSED BY THE MD OF THE ASSESSEE COMPANY WHO INITIALED AT EACH OF THE ENTRY INCLUDING CORRECTIONS AND SURPRISINGLY DATED SEPTEMBER 9 TH 1997,AS CAN BE NOTICED FROM PAGE16 OF AGREEMENT (PAPER BOOK PAGE 66). THIS INDICATES THAT THE AGREEMENT WAS PRE-DATED TO 09.09.96, WHEN IN FACT THE SAME WAS ENTERED IN 1997. THIS VIEW GETS SUPPORT FROM THE F ACT THAT ALL THE PAYMENTS RELATING TO THE TRANSACTIONS HAPPENED IN M ARCH 1997, (PURCHASE PAYMENT AND TAKING DEPOSITS FROM M/S. SO L ETC.). IN FACT ASSESSEE OFFERED INCOME OF RS. 60,000/- FOR A PERI OD OF SIX DAYS ONLY, WHEREAS IT HAS TO OFFER ABOUT 2 QUARTER LEASE I.E. MORE THAN RS.18 LAKHS IF IT WERE TO FROM THE SO CALLED DATE OF AGREEMENT. E VEN RS.9.00 LAKHS WAS TAKEN INTO LEDGER ACCOUNT AS ADVANCE RENT, OUT OF T HE DEPOSIT, BUT TRANSFERRED ONLY RS.60,000/- TO P&L ACCOUNT. NO EX PLANATION WAS OFFERED WHY ONLY RS.60,000/- WAS TAKEN TO P & L ACC OUNT WHEN ENQUIRED INTO BY AO. ANOTHER INTERESTING ASPECT OF THE LEAS E WAS THAT THE SCHEDULE OF LEASE PAYMENTS INDICATE YEAR WISE PAYMENT EVERY QUARTER. FOR THE YEAR 1997, RS.9 LAKHS FOR EACH QUARTER WAS STATED. LIKEWISE, FOR YEAR 1998. IN THE YEAR 1999, IT WAS RS. 3 LAKHS FOR EACH QUAR TER. THEREFORE, FOR A PERIOD OF 36 MONTHS, RS. 84 LAKHS WAS STATED AS LEA SE INCOME. HOWEVER, IN THE SCHEDULE TO THE AGREEMENT PERIOD OF 36 MONT HS WAS MODIFIED TO 42 MONTHS I.E. @ RS. TWO LAKHS PER MONTH. CONTRAST TO THIS, WHAT THE ASSESSEE STATED TO HAVE OFFERED IS AS UNDER: YEAR ENDING AMOUNT 31.3.97 RS. 60,000 31.3.98 RS. 36,00,000 31.3.99 RS. 35,60,000 31.3.2000 RS. 11,80,000 ----------------- RS. 84,00,000 ============= 6 EVEN THOUGH THE TOTAL AMOUNT TALLIES, THE RATE AND PERIOD VARIES FROM THE AGREEMENT. EVEN THOUGH ASSESSEE PAID RS.1,06,42,500 /- FOR THE PURCHASE OF EQUIPMENT TO M/S. CHEMCON INDUSTRIES, THE SAME WAS TRANSFERRED IMMEDIATELY TO THE ACCOUNT OF M/S. SOL LTD. OPENED IN FORT, BOMBAY IN MARCH 1997 (THE FINDING OF CIT(A) IN FIRS T ROUND OF ASSESSMENT WHICH ARE NOT CONTRADICTED) AND ASSESSEE RECEIVED BACK AN AMOUNT OF RS. 96,00,000/- FROM THE M/S. SOL LTD. AS SECURITY DEPOSIT. IT WAS ALREADY ESTABLISHED BY AO THAT M/S. CHEMCON IND USTRIES DOES NOT EXIST AND ASSESSEE DID NOT FURNISH ANY EVIDENCE WI TH REFERENCE TO THE SAME SO FAR. WHETHER THE SAID CONCERN EXISTS AND MANUFACTURED THE 3 BOILERS IS STILL A MYSTERY. THUS THE WHOLE ARRANGE MENT, INDICATE THAT THE SAME WAS ENTERED ONLY TO CLAIM DEPRECIATION AND RED UCE TAX LIABILITY. 6.2 M/S POTDAR CONSULTANT REPORT. AT PAGE 132 OF THE PAPER BOOK ASSESSEE PLACED THE VALUATION CERTIFICATE OF M/S. POTDAR CONSULTANTS, AGRA BEING A CHARTER VALUER IN SUPPORT OF EXISTENCE OF 3 BOILERS. THIS VALUATIO N CERTIFICATE WAS FOR VALUATION AS ON 31.12.1996. ON THE INVITATION BY MANAGEMENT OF M/S.SOL LTD. THE VALUE OF LAND WAS ESTIMATED A T RS.1.48 CRORES, BUILDING AT RS.3.55 CRORES, WHEREAS THE VALUE OF M ACHINERY WAS AT RS. 11.56 CRORES TOTALING TO RS.16.59 CRORES. THE REPO RT INDICATES THAT THERE WAS AN EXISTING DAIRY UNDER THE NAME AND STYLE GOM TI PRODUCTS LTD. THE EXISTING PLANT & MACHINERY INCLUDING STRUCTURES WE RE TAKEN OVER BY M/S.SOL LTD. AND THEREAFTER THE ENTIRE PLANT, LAND & BUILDING WAS MODERNIZED. AS ON THAT DATE, THE REPORT REFERS THAT THE PLANT WAS READY FOR TAKING PRODUCTION. THE THREE BOILERS IN GHEE S ECTION WERE NOTED AS 1200 KG CAPACITY AND SELF FABRICATED. THIS REPORT I NDICATED THAT THE THREE BOILERS WERE EXISTING AS ON THE DATE OF 31.12.96. B UT THEY ARE STATED TO BE SELF FABRICATED AND NOT PURCHASED FROM M/S. CHEMCON INDUSTRIES. THEREFORE, THE INVOICE IN SUPPORT OF PURCHASE FROM M/S. CHEMCON CAN ONLY BE CONSIDERED AS BOGUS IN THE LIGHT OF THE FACT THAT ASSESSEE 7 COULD NOT ESTABLISH ANYTHING WITH REFERENCE TO THE PURCHASES FROM M/S. CHEMCON. SINCE THE BOILERS SEEM TO BE SELF FABRICAT ED BY M/S. SOL LTD. AS PART OF MODERNIZATION, THE PURCHASE FROM M/S. CH EMCON DOES NOT ARISE AND THE SO CALLED INVOICES SEEM TO BE FABRICA TED TO CLAIM PURCHASE OF BOILERS FROM THIRD PARTY. 6.3 CHOPRA & CHOPRA REPORT. THIS REPORT AT THE INSTANCE OF OFFICIAL LIQUIDATOR WAS DATED 25.9.99 (COLUMN 2 IN FORM 1). THIS REPORT TAKEN THE TOTAL V ALUE OF LAND, BUILDING AND MACHINERY AT RS.5,34,79,500/- AND SPECIFICATIO N ARE, AS ANALYSED BY LD. CIT(A), IN THE ORDER. THIS REPORT TAKES THE VALUE OF ENTIRE GHEE SECTION AT RS. 9 LAKHS INCLUDING THE BOILERS-3-LO CAL MAKE. AN INTERESTING ASPECT OF THE REPORT WAS THAT ENTIRE MACHINERY WAS NOT PUT TO USE EXCEPT FOR TRIAL RUN. 6.4 PRAYER BEFORE HONBLE DELHI HIGH COURT IT WAS THE SUBMISSION THAT LD.CIT(A) WRONGLY RELIE D ON FINDINGS OF DELHI HIGH COURT IN THE CASE OF 367/99 INSTEAD OF 1273/2000 OF THE ASSESSEE. THE PRAYER IN 1273/2000 IS AS UNDER: IT IS, THEREFORE, MOST RESPECTFULLY PRAYED THAT TH IS HONBLE COURT MAY BE PLEASED TO: (A) DIRECT THE OFFICIAL LIQUIDATOR TO FURNISH COPIES OF THE VALUATION REPORT DATED 31 ST DECEMBER, 1996, PREPARED BY M/S. POTDAR CONSULTANT S, VALUERS AND ANOTHER VALUATION REPORT DATED 24 TH JUNE, 1999 PREPARED BY M/S. CHOPRA AND CHOPRA, VALUERS IN COMPANY PETITION NO. 152 OF 1998 AS WELL AS COPIES OF THE LATEST ANNUAL REPORT OF SOL LIMITED A ND THE RELEVANT EXTRACT OF THE APPLICANTS ACCOUNT IN THE BOOKS OF THE COMPANY . (B) DIRECT THE OFFICIAL LIQUIDATOR TO CONFIRM THAT THE BOILERS MENTIONED IN THE LEASE AGREEMENT DATED 9 TH SEPTEMBER, 1996 ARE IN POSSESSION OF THE OFFICIAL LIQUIDATOR: (C) PASS SUCH OTHER AND FURTHER ORDER(S) AS THIS HONBL E COURT MAY DEEM FIT AND PROPER IN THE FACTS AND CIRCUMSTANCES OF THE PR ESENT CASE. 8 ON THE ABOVE PRAYER, THE HONBLE. JUDGE PASSED THE ORDER DATED 15/11/2000 AS UNDER: CA 1273/2000 LEARNED COUNSEL FOR THE O.L. SEEKS TIME TO FILE RE PLY. REPLY, IF ANY BE FILED WITHIN THREE MONTHS. REJOINDER, IF ANY, BE FILED WITHIN FOUR WEEKS THEREAFTER. THE APPLICANT IS DIRECTED TO BE PRESENT AT THE FACT ORY PREMISES AT BULANDSHAHAR ON 11 TH DECEMBER, 2000 AT 11:00 AM FOR IDENTIFYING THE BOILERS IN QUESTION. RENOTIFY ON 9 TH APRIL, 2001. ORDER MAY BE GIVEN DASTI THE INTERESTING ASPECT OF THE PRAYER IS THAT ASSESS EE NEVER ASKED FOR POSSESSION OF THE EQUIPMENT WHEREAS THE OTHER PETIT IONER WHO HAS ALSO ENTERED INTO SIMILAR LEASE AGREEMENT HAS SPECIFICAL LY PRAYED FOR POSSESSION AND THE ORDERS ARE DIFFERENT IN THESE CA SES. ASSESSEE HAS ONLY ASKED FOR EXISTENCE OF BOILERS AND CONFIRMATION THE REON, FOR WHICH ASSESSEE WAS ASKED TO BE PRESENT THERE AS DIRECTED. WHAT HAPPENED SUBSEQUENTLY WAS NOT BROUGHT ON RECORD FOR THE REAS ONS BEST KNOWN TO ASSESSEE. 6.5 ALL THIS INDICATE THAT THE ASSESSEE HAS NOT ENT ERED INTO EITHER FINANCIAL LEASE OR OPERATING LEASE AND THE ENTIRE T RANSACTION IN MARCH 1997 WAS ONLY TO CLAIM DEPRECIATION ON BOILERS AT 1 00%, WHICH MAY BE EXISTING OLD/RENOVATED ASSETS OF M/S. SOL LTD. IN T HE SCHEDULE OF PLANT AND MACHINERY, WHICH WERE NOT ISSUED FOR ANY PRODU CTION (AS PER THE REPORT). SINCE THE GENUINENESS OF LEASE TRANSACTION WAS NOT ESTABLISHED THE CLAIM OF DEPRECIATION CANNOT BE ALLOWED. 6.6 THE SPECIAL BENCH OF ITAT IN THE CASE OF INDUS IND BANK 135 ITD165 (MUMBAI) HAS CONSIDERED SIMILAR FACTS AND HE LD AS UNDER: 9 7.10 THE LAW PERMITS TAX PLANNING AND NOT TAX AV OIDANCE. IF WITHIN THE FOUR CORNERS OF LAW A PERSON ARRANGES ITS AFFAI R IN SUCH A WAY THAT HIS OVERALL TAX LIABILITY IS REDUCED, THERE CANNOT BE A NY EMBARGO ON SUCH TAX PLANNING. IF HOWEVER DUBIOUS MEANS ARE ADOPTED TO R EDUCE THE INCIDENCE OF TAX BY ARTIFICIALLY INFLATING EXPENSES OR REDUCING INCOME, IT CANNOT BE DESCRIBED AS ANYTHING OTHER THAN TAX AVOIDANCE. THE LAW PERMITS ONLY TAX PLANNING AND NOT TAX AVOIDANCE. WHEN WE CONSIDER TH E REALITY OF THE SITUATION IN THE PRESENT CASE, IT BECOMES ABUNDANTL Y MANIFEST THAT A SIMPLE LOAN TRANSACTION WAS MADE TO ADORN THE GARB OF LEASE TO AVOID THE RIGHTFUL TAX DUE TO THE EXPLORER. WE, THEREFORE, RE FUSE TO ACCEPT THE VERY GENUINENESS OF THE SO CALLED LEASE AGREEMENT ITSELF AND HOLD THAT IT IS NOT EVEN A CASE OF FINANCE LEASE. IN OUR CONSIDERED OP INION, THE AUTHORITIES BELOW WERE FULLY JUSTIFIED IN REFUSING TO GRANT DEP RECIATION TO THE ASSESSEE IN BOTH THE YEARS UNDER CONSIDERATION. 8. IN VIEW OF THE ABOVE DISCUSSION, WE ANSWER QUEST ION NO.1 IN NEGATIVE BY HOLDING THAT THE AGREEMENT IN QUESTION CANNOT BE CALLED AS A FINANCIAL LEASE AGREEMENT. IT IS SO FOR THE REASONS DISCUSSED ABOVE THAT IT IS A SIMPLE CASE OF ADVANCING OF LOAN BY THE ASSESS EE TO THE LEASE AND THE SO CALLED LEASE AGREEMENT, IN THE FACTS AND CIRCUMS TANCES OF THE PRESENT CASE, HAS BEEN ATTEMPTED TO BE USED AS A DEVICE TO REDUCE TAX LIABILITY OF ASSESSEE. ACCORDINGLY, THE SECOND QUESTION IS ALSO ANSWERED IN NEGATIVE BY HOLDING THAT THE ASSESSEE LESSOR IS NOT ENTITLED TO DEPRECIATION. 9. WE, THEREFORE, SUM UP OUR CONCLUSION AS UN DER:- (I) IF THE CONDITIONS AS LAID DOWN IN THE JUDGMENTS OF ASEA BROWN BOVERI LIMITED (SUPRA) AND ASSOCIATION OF LEASING & FINANCIAL SERVICES COMPANIES (SUPRA) ARE SATISFIED IN A LEASE AGREEME NT, IT WILL BE A CASE OF FINANCE LEASE AND NOT OPERATING LEASE. (II) ONLY THE LESSEE CAN BE TREATED AS OWNER OF THE ASSET IN CASE OF A FINANCE LEASE. IT IS HE WHO IS ENTITLED TO CLAIM DE PRECIATION AS PER LAW. NO DEPRECIATION CAN BE ALLOWED TO THE LESSOR IN SUCH A CASE OF A GENUINE FINANCE LEASE. (III) THE FACTS AND CIRCUMSTANCES OF THE PRESENT CA SE SHOW THAT IT WAS A CASE OF MERE ADVANCING OF LOAN BY THE ASSESSEE TO I NDO GULF FERTILIZERS. THERE WAS, IN FACT, NO GENUINE LEASING OF BOILER, NEITHER OPERATING NOR FINANCE. IN THAT VIEW OF THE MATTER ALSO NO DEPREC IATION IS ADMISSIBLE TO THE ASSESSEE-LESSOR. 10 6.7 RESPECTFULLY, FOLLOWING THE SAME, WE HOLD THAT THE TRANSACTION IS NEITHER OPERATING LEASE NOT FINANCIAL LEASE. THEREF ORE, THE CLAIM OF DEPRECIATION CANNOT BE ALLOWED. IN THE COURSE OF AR GUMENTS WHEN QUESTIONED WHY ONLY SIX DAYS LEASE WAS OFFERED, LD . COUNSEL FAIRLY ADMITTED THAT ASSESSEE MAY BE ENTITLED FOR 50% OF T HE DEPRECIATION CLAIM AS PER THE PROVISIONS. IN CASE, AT ANY POINT OF TIM E, THE FINDINGS GIVEN BY US IN THIS ORDER ARE TO BE MODIFIED, AS THE CLAIM B EFORE HONBLE DELHI HIGH COURT IN LIQUIDATION PROCEEDINGS SEEMS PENDING , THEN ASSESSEE IS ENTITLED FOR ONLY 50% OF THE DEPRECIATION CLAIM AN D NOT FULL, AS THE ASSETS ARE USED FOR LESS THAN 180 DAYS DURING THE YEAR. IN FACT, THE USAGE OF ASSET ADMITTEDLY BY LESSOR IS ITSELF DOUBTFUL, BUT AS ASSESSEE OFFERED LESSEE RENT TO THAT EXTENT USAGE ISSUE IS NOT MATER IAL AS PER THE JUDICIAL PRONOUNCEMENTS ON THE ISSUE OF USE. WITH THESE OB SERVATIONS, THE GROUND 1 IS ACCORDINGLY REJECTED. 7. GROUND NO. 2 IN THIS GROUND THE ASSESSEE CLAIMS THAT IF FOR ANY REASON THE LEASE TRANSACTION IS TREATED AS NON-GENU INE OR FINANCE TRANSACTION THEN LEASE RENTALS MAY NOT BE TAKEN AS INCOME FOR THE RELEVANT OR SUBSEQUENT YEAR AND DIRECTIONS MAY BE A CCORDINGLY GIVEN. THIS PRAYER OF ASSESSEE CAN NOT BE ALLOWED AS THE A SSESSEE IS NOT CLEAR WHETHER THE INCOME OFFERED IS LEASE INCOME OR INTER EST INCOME. AS STATED, THE ONLY AMOUNT OFFERED WAS ONLY RS. 60,000/- IN TH IS YEAR STATED TO BE SIX DAYS LEASE. EVEN THOUGH ASSESSEE ACCEPTED 96 LA KHS DEPOSIT BUT ACCOUNTED RS.84 LACS AS LEASE RENTAL RECEIVABLE AND NINE LAKHS AS ADVANCE RECEIVED IN THE BOOKS. SINCE THE AGREEMENT ITSELF IS NOT GENUINE AS DISCUSSED EARLIER, WE CANNOT DIRECT THE AO TO EXAMINE THE SAME TO DETERMINE THE PRINCIPLE AND INTEREST OUT OF THIS AM OUNT. SINCE THE ENTIRE EXERCISE IS TO CLAIM DEPRECIATION AT 100%, NO SUCH DIRECTION CAN BE GIVEN IN THE FACTS OF THE CASE, IN OTHER YEARS WHICH ARE NOT BEFORE US. ASSESSEE HAS TO TAKE NECESSARY STEPS IN RELEVANT YEARS OR TO FACE THE CONSEQUENCES OF ITS ACTIONS. GROUND NO. 2 IS ACCORDINGLY REJECTE D. 11 8. GROUND NO. 3 IS WITH REFERENCE TO LEVY OF INTER EST U/S 220(2). ASSESSING OFFICER HAS CHARGED INTEREST FROM THE DAT E ON WHICH ORIGINAL ASSESSMENT ORDER WAS PASSED. ASSESSEE IS CLAIMING T HAT INTEREST IS CHARGEABLE ONLY FROM THE DATE ON WHICH PRESENT ASSE SSMENT ORDER UNDER APPEAL WAS PASSED. FACTS ARE THAT THE ORIGINAL ORDE R OF ASSESSMENT WAS PASSED ON 25.03.2001. ASSESSEE PREFERRED APPEALS TO CIT(A) THEN ITAT. FINALLY THE ASSESSING OFFICER PASSED ORDER U/S. 143 (3) R.W.S. 254, AND HAS CHARGED INTEREST U/S 220(2) WITH REFERENCE TO T HE DUE DATE FOR PAYMENT OF DEMAND AS PER THE ORIGINAL NOTICE OF DEM AND. THE ASSESSEE HAD RELIED UPON CIRCULAR NO. 334 DATED 3 RD APRIL, 1982 AND IT WAS CONTENDED THAT AS PER THE CBDT CIRCULAR INTEREST CA N BE CHARGED ONLY AFTER EXPIRY OF 45 DAYS FROM THE DATE OF SERVICE OF NOTICE PURSUANT TO THE FRESH ASSESSMENT ORDER. 8.2 THIS ISSUE IS COVERED BY THE CO-ORDINATE BENC H DECISION IN THE CASE OF NARAD IVESTMENTS & TRADING P. LTD, ITA NO. 3360/ MUM/2010 DT. 19.10.2011 WHEREIN ON SIMILAR FACTS, THE ISSUE IS C ONSIDERED ELABORATELY AND HELD AS UNDER: 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED TH E RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING LEVY OF INTERES T U/S. 220(2) OF THE INCOME TAX ACT, 1961. UNDER THE SAID SECTION, INTER EST AT A SPECIFIED RATE IS CHARGEABLE IN CASE THE DEMAND RAISED ON THE ASSESSE E AS PER THE DEMAND NOTICE IS NOT PAID WITHIN THE TIME ALLOWED IN THE N OTICE. THE ISSUE RAISED IN THIS GROUND IS AS TO WHEN THE ORIGINAL ASSESSMENT H AS BEEN SET ASIDE BY TRIBUNAL AND FRESH ASSESSMENT HAS BEEN MADE BY THE A.O., THE PERIOD FOR LEVY OF INTEREST U/S.220(2) SHOULD BE RECKONED FROM THE DATE OF DEFAULT AS PER THE ORIGINAL ASSESSMENT ORDER OR AS PER THE FRE SH ASSESSMENT ORDER. WE FIND THAT THIS ISSUE HAS ALREADY BEEN EXAMINED B Y THE CBDT WHO HAD CLARIFIED THE ISSUE VIDE CIRCLE NO.334 DT.3.4.1982, THE RELEVANT PORTION OF WHICH IS REPRODUCED BELOW FOR READY REFERENCE : (2) THESE ISSUES WERE COMPREHENSIVELY EXAMINED IN CONSULTATION WITH THE MINISTRY OF LAW AND THE BOARD HAS BEEN ADVISED : (I)WHERE AN ASSESSMENT ORDER IS CANCELLED UNDER SEC TION 146 OR CANCELLED / SET ASIDE BY AN APPELLATE / REVISIONAL AUTHORITY AN D THE CANCELLATION / SETTING ASIDE BECOMES FINAL (I.E. IT IS NOT VARIED AS A RESULT OF FURTHER 12 APPEALS / REVISIONS), NO INTEREST UNDER SECTION 220 (2) CAN BE CHARGED PURSUANT TO THE ORIGINAL DEMAND NOTICE. THE NECESSA RY COROLLARY OF THIS POSITION WILL BE THAT EVEN WHEN THE ASSESSMENT IS R EFRAMED, INTEREST CAN BE CHARGED ONLY AFTER THE EXPIRY OF 35 DAYS FROM TH E DATE OF SERVICE OF DEMAND NOTICE PURSUANT TO SUCH FRESH ASSESSMENT ORD ER. (II)WHERE THE ASSESSMENT MADE ORIGINALLY BY THE INC OME TAX OFFICER IS EITHER VARIED OR EVEN SET ASIDE BY ONE APPELLATE AU THORITY BUT, ON FURTHER APPEAL, THE ORIGINAL ORDER OF THE INCOME TAX OFFICE R IS RESTORED EITHER IN PART OR WHOLLY, THE INTEREST PAYABLE UNDER SECTION 220(2) WILL BE COMPUTED WITH REFERENCE TO THE DUE DATE RECKONED FROM THE OR IGINAL DEMAND NOTICE AND WITH REFERENCE TO THE TAX FINALLY DETERMINED. T HE FACT THAT DURING AN INTERVENING PERIOD, THERE WAS NO TAX PAYABLE BY THE ASSESSEE UNDER ANY OPERATIVE ORDER WOULD MAKE NO DIFFERENCE TO THIS PO SITION. (3) THE FOREGOING LEGAL POSITION WILL APPLY MUTATIS MUTANDIS TO THE PROCEEDINGS UNDER OTHER DIRECT TAXES ALSO. 3.3 IN VIEW OF THE CIRCULAR NO.334 DT.3.4.1982 OF C BDT, IN CASE, THE ASSESSMENT IS SET ASIDE BY CIT(A) AND SETTING ASIDE BECOME FINAL, INTEREST UNDER SECTION 220(2) HAS TO BE CHARGED ONLY AFTER E XPIRY OF 35 DAYS FROM THE DATE OF SERVICE OF DEMAND NOTICE PURSUANT TO THE FRESH ASSESSMENT ORDER. BUT IN CASE THE ORDER OF CIT(A) I S SUBJECT MATTER OF FURTHER APPEAL AND THE TRIBUNAL HAS RESTORED THE OR DER OF ASSESSING OFFICER EITHER IN PART OR WHOLLY, THE INTEREST PAYABLE UNDE R SECTION 220(2) WILL BE COMPUTED WITH REFERENCE TO THE DUE DATE RECKONED FR OM ORIGINAL DEMAND NOTICE AND WITH REFERENCE TO THE TAX FINALLY DETERM INED IN THE ASSESSMENT. IN THE PRESENT CASE, THE ORIGINAL ORDER OF ASSESSME NT WAS CONFIRMED BY CIT(A) BUT ON FURTHER APPEAL, THE TRIBUNAL SET ASID E THE ORDER OF CIT(A) AND THE ISSUE RESTORED TO THE ASSESSING OFFICER. THEREF ORE IN TERMS OF THE CIRCULAR OF CBDT (SUPRA), THE INTEREST UNDER SECTIO N 220(2) HAS TO BE CHARGED ONLY IN RESPECT OF DEMAND RAISED AS PER THE FRESH ASSESSMENT ORDER. THE CIT(A) FOLLOWING CERTAIN JUDGMENTS HAS H ELD THAT INTEREST UNDER SECTION 220(2) HAS TO BE LEVIED FROM DATE OF DEFAUL T OF DEMAND NOTICE ISSUED AS PER THE ORIGINAL ASSESSMENT ORDER. WE HAV E PERUSED THE JUDGMENTS CITED BY CIT(A) AND THE SAME ARE FOUND TO BE DISTINGUISHABLE. IN CASE OF PITAMBER DAS DULI (SUPRA), HON'BLE HIGH COU RT OF MADHYA PRADESH HAS HELD THAT IN CASE THE ORDER OF CIT(A) IS SET AS IDE AND THE ORDER OF ASSESSING OFFICER IS RESTORED, THEN, THE DEMAND RAI SED ON THE BASIS OF ORIGINAL ASSESSMENT ORDER WILL GET REVIVED AND THE ASSESSEE IS LIABLE TO PAY INTEREST ON THAT DEMAND FROM THE DATE OF ORIGINAL O RDER. OBVIOUSLY, THE CASE IS NOT APPLICABLE TO THE PRESENT SITUATION AS THE ASSESSMENT ORDER IN THIS CASE HAS NOT BEEN RESTORED BY THE TRIBUNAL BUT THE MATTER HAS BEEN SENT BACK TO THE ASSESSING OFFICER FOR FRESH ASSESS MENT AND THEREFORE THE DEMAND IN TERMS OF THE CIRCULAR OF CBDT HAS TO BE L EVIED FROM THE DATE OF THE FRESH ASSESSMENT ORDER. SIMILARLY, IN THE CASE OF SUPER SPINNING (SUPRA), THE ADDITION MADE BY ASSESSING OFFICER IN ASSESSMENT HAD BEEN DELETED BY CIT(A) BUT ON FURTHER APPEAL, THE TRIBUN AL SET SIDE THE ORDER OF CIT(A) WHICH MEANT THAT THE ORDER OF ASSESSING OFFI CER WAS RESTORED. IT WAS THEREFORE HELD BY THE HON'BLE HIGH COURT OF MAD RAS THAT THE ORIGINAL 13 ASSESSMENT GOT REVIVED DUE TO THE ORDER OF TRIBUNAL AND THE INTEREST UNDER SECTION 220(2) WOULD BE LEVIED FROM THE DATE OF ORI GINAL ASSESSMENT ORDER. THIS IS THE POSITION AS PER THE CBDT CIRCULAR ALSO ON WHICH THE ASSESSEE HAS RELIED. SIMILARLY, THE JUDGMENT OF HON'BLE HIGH COURT OF DELHI IN CASE OF BHARAT COMMERCE & INDUSTRIES LTD. (SUPRA) IS ALSO D ISTINGUISHABLE. IN THAT CASE, AS PER THE ORIGINAL ASSESSMENT UNDER SECTION 143(3), THERE WAS NO DEMAND RAISED AND SUBSEQUENTLY ORDER UNDER SECTION 154 WAS PASSED RAISING DEMAND OF RS.1,24,56,311 WHICH INCLUDED INT EREST UNDER SECTION 220(2) OF RS.11,83, 631 CHARGED FROM THE DATE OF DE FAULT AS PER THE ORIGINAL ASSESSMENT ORDER. THE DEMAND HAD ARISEN VIDE ORDER UNDER SECTION 154 AND THEREFORE IT WAS HELD BY THE HON'BLE HIGH COURT THAT INTEREST UNDER SECTION 220(2) WILL BE CHARGED FROM DATE OF DEFAULT AS PER THE DEMAND NOTICE ISSUED PURSUANT TO SECTION 154 ORDER. THE SA ID JUDGMENT IS THEREFORE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE IN WHICH THE ORIGINAL ASSESSMENT ORDER HAS BEEN SET ASIDE BY THE TRIBUNAL AND MATTER RESTORED TO THE ASSESSING OFFICER FOR FRESH ASSESSMENT AND T HEREFORE IN VIEW OF THE CIRCULAR OF CBDT (SUPRA), THE INTEREST CAN BE LEVIE D ONLY FROM THE DATE OF DEFAULT OF THE DEMAND NOTICE ISSUED IN PURSUANCE OF THE FRESH ASSESSMENT ORDER. THE ORDER OF CIT(A) HOLDING THAT INTEREST UN DER SECTION 220(2) HAS TO BE LEVIED FROM THE DATE OF DEFAULT AS PER THE ORIGI NAL ASSESSMENT ORDER THEREFORE CANNOT BE SUSTAINED. THE SAME IS SET ASID E AND THE CLAIM OF THE ASSESSEE IS ALLOWED. 8.3 RESPECTFULLY, FOLLOWING SINCE THE FACTS ARE SIM ILAR, WE DIRECT THE AO TO LEVY INTEREST FROM THE DATE OF RE-ASSESSMENT ORD ER ONLY. TO THAT EXTENT AO & CIT(A) ORDER STANDS MODIFIED. GROUND NO. 3 IS ALLOWED. 9. IN THE RESULT, ASSESSEE APPEAL IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2013. SD/- SD/- (DR. S.T.M. PAVALAN ) JUDICIAL MEMBER (B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 28/08/2013. JV. 14 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR F BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.