SICOM LTD, MUMBAI V. DCIT RG 3(3), MUMBAI

ITA 8055/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75398 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 19-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 23-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Assessee Lawyers: R R VORA NIKHIL TIWARI
• Keywords: Business income; Depreciation; Rule of consistency; Earning of tax free income; Bad and doubtful debts; Reason to believe
• Section: 14A; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E , MUMBAI BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 8040/M/ 20 10 ASSESSMENT YEAR: 2007 - 08 D.C.I.T, CIRCLE - 3(3), ROOM NO.609, 6 TH FLOOR, AAYAKAR BH AVAN, M.K. ROAD, MUMBAI 20 VS. M/S. SICOM L IMITED, SOLITAIRE CORPORATE PARK, BUILDING NO.4, GURU HARGOVINDJI ROAD (ANDHERI GHATKOPAR LINK ROAD), CHAKALA, ANDHERI (EAST), MUMBAI 400 0 93 PAN: ABPB3511G (APPELLANT) (RESPONDENT) ITA NO. 8055/M/10 ASSESSMENT YEAR: 2007 - 08 M/S. SICOM LIMITED, SOLITAIRE CORPORATE PARK, BUILDING NO.4, GURU HARGOVINDJI ROAD (ANDHERI GHATKOPAR LINK ROAD), CHAKALA, ANDHERI (EAST), MUMBAI 400 093 PAN: ABPB3511G VS. D.C.I .T, CIRCLE - 3(3), ROOM NO.609, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 20 (APPELLANT) (RESPONDENT) ASSESSEE BY : S/ SHRI R.R. VORA , NIKHIL TIWARI REVENUE BY : SHRI GIRIJA DAYAL, D.R. DATE OF HEARING : 19.11 .201 3 DATE OF PRONOUNCEMENT : 15.01.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: T HESE CROSS APPEALS, ONE FILED BY THE ASSESSEE AND THE OTHER BY THE REVENUE , HAVE BEEN PREFERRED AGAINST THE ORDER OF THE CIT(A) DATED 07.09.10 ITA NO .8040/M/10 & 8055/M/10 M/S. SICOM LTD. 2 RE LEVANT TO ASSESSMENT YEAR 2007 - 08. SINCE THE APPEALS ARE RELATED TO THE SAME ASSESSEE INVOLVING SAME/IDENTICAL ISSUES, HENCE, BOTH ARE TAKEN TOGETHER FOR DISPOSAL WITH THIS COMMON ORDER. FIRST, WE TAKE UP THE ASSESSEES APPEAL I.E. ITA NO. 80 55 /M/2010. ITA NO.80 55 /M/2010 2. THE ASSESSEE ALONG WITH THE MAIN GROUND OF APPEAL ALSO FILED CERTAIN ADDITIONAL GROUNDS OF APPEAL. HOWEVER, VIDE LETTER DATED 19.10.13, THE ASSESSEE FILED SUMMARIZED AND MODIFIED GROUNDS OF APPEAL WHICH READ AS UNDER: ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE, THE COMMISSIONER OF INCOME TAX (A) 7, [CIT(A)] - ; 1 . RENTAL INCOME WHETHER BUSINESS INCOME OR INCOME FROM HOUSE PROPERTY E R RED IN SUSTA I NING THE ACTION OF AO I N ASSESS I NG RENT INCOME OF RS . 4.12 C R ORES F R OM T E MPORARY LE TTING OF ASSESSEE'S COMMERC I AL ESTAB L ISHMENT AT SOLITAIRE CORPORATE PARK, ANDHER I AS HOUSE PROPERTY INCOME AS AGA I NST BUSINESS INCOME RETU R NED BY THE ASSESSEE AN D C ON S EQUENTLY DENYING DEPRECIAT I ON ALLOWANCE OF RS. 2.39 CRORES IN THE BUSINESS INCOME COMPUTAT I ON ; 2 . INCOME ON ACCOUNT OF ADVISORY FEES OF RS. 28.321ACS WRONGLY BOOKED TWICE ERR ED I N NOT ALLOWING REVERSAL OF INCOME ON ACCOUNT OF ADVISORY FEES OF RS. 28 . 32 LACS, WHIC H I S WRONGLY BOOKED TWICE I N THE ACCOUNTS OF THE ASSESSEE; S HO U LD HAVE APPRECIATED THAT TA X CAN ONLY BE CHA R GED ON LEGITIMATE I NCOME AND THE SAME I N C OME CANNOT BE CHARGED TO TA X TWICE; 3. MUNICIPAL TAXES OF RS. 57.52 LACS E R R ED I N NOT ALLOWING DEDUCTION OF RS. 57.5 2 LACS PAID TOWARDS ADDITIONAL MUNICIPAL T A X DU R ING THE YEA R TO THE LANDLORD; S HOULD HAVE APPRECIATED THAT THE ADDITIONAL MUNICIPAL TA X ES WERE CRYSTALLIZED DUR I NG TH E Y E A R , AS THERE WAS ONGOING L I TIGATION BETWEEN ITA NO .8040/M/10 & 8055/M/10 M/S. SICOM LTD. 3 LANDLORD AND MUNICIPAL AUTHORITY ON THE BAS I S OF WHICH DEMAND WAS RAISED BY LANDLORD DU R ING THE YEAR.; S HOUL D HAVE APPREC I ATED THAT A LEGITIMATE CLAIM I S ALLOWABLE AS BUSINESS E X PENDITURE EVEN I F I T IS NOT C L AIMED BY THE ASSESSEE IN ITS RETURN OF INCOME AND NOT ALLOWING THE SAME AGAINST B USINESS INCOME I S NOT TENABLE IN T H E EYES OF LAW, 4. DISALLOWANCE UND ER SECTION 14A OF THE ACT E RRED IN CONFIRM I NG THE ACTION OF THE AO ON DISALLOWANCE UNDER S E CTION 14A OF THE ACT TO THE EX T E NT OF RS . 26,84,000/ - I.E. 0.5 % OF THE AVERAGE VALUE OF INVESTMENTS OF THE ASSESSEE . THE ASSESSEE CRAVES LEAVE TO CONSIDER EACH OF T HE ABOVE GROUNDS OF APPEAL WITHOUT PREJUDICE TO EACH OTHER AND CRAVE LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. GROUND NO.1 : RENTAL INCOME WHETHER BUSINESS INCOME OR INCOME FROM HOUSE PROPERTY 3 . THE ISSUE RAISED VIDE GROUND NO.1 IS WHETHER THE INCOME EARNED BY THE ASSESSEE BY WAY OF RENT ON LEASING THE PROPERTY AS DETAILED IN GROUND NO.1 ABOVE, TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY OR INCOM E FROM BUSINESS. AT THE OUTSET, LD. REPRESENTATIVE OF THE ASSESSEE HAS BEEN FAIR ENOUGH TO ADMIT THAT THE FIRST GROUND OF APPEAL IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL DATED 30.11.11 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR S 2005 - 06 AND 2006 - 07 IN ITA NO.3720/M/09 AND ITA NO.2965/M/10 RESPECTIVELY. THE CO - ORDINATE BENCH OF THE TRIBUNAL WHILE ADJUDICATING THE SAID ISSUE IN PARA 6 OF THE SAID JUDGMENT HAS OBSERVED AS UNDER: 6. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE FACTS OF THE CASE, THE ASSESSEE HAS LET OUT TH E PROPERTY BY THE LEAVE AND LICENSE AGREEMENT DATED 31.07.2006 PLACED ON RECORD IN PAPER - BOOK AT PAGE NOS. 14 TO 35 FOR A FURTHER PERIOD OF 33 MONTHS UPTO 31.01.2009. BEFORE THIS AGREEMENT WHICH IS PLACED ON RECORD ABOVE, IT REFERS TO ANOTHER LEAVE AND LIC ENSE AGREEMENT DATED 21.07.2003 AND 08.09.2003. THIS INDICATES THAT THE ASSESSEE HAS ENTERED INTO LEAVE AND LICENSE AGREEMENT WITH THE LICENSEE FOR A LONGER PERIOD. PRESENT AGREEMENT PLACED ON RECORD DOES INDICATE THAT THE LICENSEE WAS REQUIRED TO PAY ANY REVISION OF MUNICIPAL TAX EVEN FOR AN EARLIER PERIOD I.E. W.E.F. 21.07.2002. THIS AGREEMENT WAS UPTO 31.01.2009. THIS INDICATES ITA NO .8040/M/10 & 8055/M/10 M/S. SICOM LTD. 4 THAT FOR A PERIOD OF 7 YEARS OR MORE, THE PROPERTY WAS ON LEAVE AND LICENSE BASIS. HENCE IT CANNOT BE SAID THAT THE PROPERTY WAS GIVEN ON TEMPORARY BASIS. AS SEEN FROM THE ORDER OF THE CONCERNED DECREE BETWEEN THE PARTIES VIDE THE ORDER DATED 3RD DAY OF DECEMBER, 2002, THE ASSESSEE ADMITTED TO VACATE THE NARIMAN POINT OFFICE BY MARCH 2010 ONLY. THE DATE OF LEASE FROM 21.07.02 ALSO INDICATE THAT PROPERTY WAS LEASED PRIOR TO THE DATE OF DECREE ( 03 - 12 - 02), SO THE REASONS STATED BY ASSESSEE FOR NON - OCCUPATION FOR OWN USE IS NOT EMPLOYEES RESISTANCE AS SUBMITTED. NOT ONLY THAT, AGREEMENT DO INDICATE THAT THE ASSESSEE WAS NOT INVOLVED I N DAY TO DAY MANAGEMENT OR MAINTENANCE OF THE PREMISES AND EXCEPT GIVING THE PROPERTY ON LEAVE AND LICENSE BASIS, THERE ARE NO COMPLEX COMMERCIAL ACTIVITIES INVOLVED IN THIS AGREEMENT. THE AGREEMENT WAS ALSO REGISTERED BY VIRTUE OF MAHARASHTRA RENT CONTROL ACT AND THERE ARE NO OTHER PLANT AND MACHINERY SO AS TO CONSIDER THAT THE ASSESSEE IS EXPLOITING IT ON COMMERCIAL BASIS. THEREFORE, WE ARE OF THE OPINION THAT THE CIT (A) HAS COME TO CORRECT CONCLUSION THAT THE RENTAL INCOME HAS TO BE TREATED AS INCOME FR OM HOUSE PROPERTY. SO RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL PASSED IN THE OWN CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 , THIS ISSUE , FOR THE ASSESS MENT YEAR UNDER CONSIDERATION ALSO, IS ACCORDIN GLY DECIDED AGAINST THE ASSESSEE. GROUND NO.2 : INCOME ON ACCOUNT OF ADVISORY FEES OF RS. 28.32 1ACS WRONGLY BOOKED TWICE 4 . VIDE GROUND NO.2 , THE ASSESSEE HAS CLAIMED THAT A SUM OF RS.28.32 LAKHS HAD BEEN WRONGLY BOOKED TWICE IN THE ACCOUNTS OF THE AS SESSEE. HE HAS CONTENDED THAT THE ASSESSEE HAS BEEN DOUBLY TAXED ON THIS AMOUNT. IT IS THE SETTLED POSITION OF LAW THAT THE TAX CANNOT BE CHARGED TWICE ON THE SAME INCOME , SO IF , THERE HAS CREPT ANY MISTAKE IN THE ACCOUNTS IN BOOKING THE INCOME ON ACCOUN T OF ADVISORY FEES OF RS.28.32 LAKHS TWICE, THE ASSESSEE IS NOT LIABLE BE DOUBLY TAXED FOR THE SAME. ACCORDINGLY, THIS ISSUE IS RESTORED TO THE FILE OF THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AND IF FOUND GENUINE TO ALLOW THE SAME ACCORDINGLY. GROUN D NO.3 : MUNICIPAL TAXES OF RS. 57.52 LA KH S 5 . VIDE GROUND NO.3 , AS REPRODUCED ABOVE, THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.57.52 LAKHS PAID TOWARDS ADDITIONAL MUNICIPAL TAX TO THE LAND LORD DURING THE YEAR UNDER CONSIDERATION. THE CONTENTION OF THE AS SESSEE HAS ITA NO .8040/M/10 & 8055/M/10 M/S. SICOM LTD. 5 BEEN THAT THE ADDITIONAL MUNICIPAL TAXES WERE CRYSTALLIZED DURING THE A.Y. UNDER CONSIDERATION . HOWEVER, THE SAME WERE PAID DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2008 - 09. HIS CLAIM FOR THE ALLOWABILITY OF THE SAID EXPENDITURE WAS REJECTED FOR THE ASSESSMENT YEAR 2008 - 09 AS THE SAID EXPENDITURE WAS HELD TO BE PRIOR PERIOD EXPENDITURE I.E. RELATING TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THUS , THE ASSESSEE HAS TAKEN THIS ADDITIONAL GROUND IN THE PRESENT APPEAL CONTENDING THA T IF THE SAID EXPENDITURE WAS NOT ALLOWABLE FOR ASSESSMENT YEAR 2008 - 09 , THEN THE BENEFIT SHOULD BE GIVEN TO THE ASSESSEE FOR THIS YEAR. IN VIEW OF THE SUBMISSIONS MADE BY THE ASSESSEE , IT IS HELD THAT IF THE EXPENDITURE INCURRED TOWARDS ADDITIONAL MUNICI PAL TAXES AND ACTUALLY PAID BY THE ASSESSEE HAS BEEN DISALLOWED FOR THE SUBSEQUENT ASSESSMENT YEAR ON THE REASON THAT THE SAME WERE PRIOR PERIOD EXPENSES , THEN THE CLAIM MUST BE CONSIDERED FOR THIS YEAR I.E. PREVIOUS YEAR. ACCORDINGLY, THIS ISSUE IS ALSO RESTORED TO T HE FILE OF THE AO TO VERIFY AND CONSIDER THE CLAIM OF THE ASSESSEE AND DECIDE THE ISSUE AFRESH. GROUND NO.4 DISALLOWANCE UNDER SECTION 14A OF THE ACT 6 . VIDE GROUND NO.4 , THE ASSESSEE HAS CONTESTED THE ACTION OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 26,84,000/ - UNDER SECTION 14A OF THE ACT AT THE RATE OF 0.5% OF THE AVERAGE VALUE OF INVESTMENT OF THE ASSESSEE. WHILE CONFIRMING THE SAID DISALLOWANCE , THE CIT(A) HAS OBSERVED THAT IN THE EARLIER YEARS I.E. FOR ASSESSMENT YEAR 2006 - 07 , THE DISALLOWANCE UNDER THIS HEAD WAS UPHELD AT THE RATE OF 0.5% OF THE AVERAGE VALUE OF INVESTMENT BY HIS PREDECESSOR. SO , FOLLOWING THE DECISION OF THE CIT(A) ON THE ISSUE IN PRECEDING YEAR , CIT(A) CONFIRMED THE DISALLOWANCE AT THE RATE OF 0.5% OF T HE AVERAGE VALUE OF INVESTMENT AT RS.26,84,000/ - . 7 . THE LD. REPRESENTATIVE OF THE ASSESSEE HAS BROUGHT OUR ATTENTION TO THE JUDGMENT OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 1997 - 98 TO 2002 - 03 (ITA NO.7901/M/2003 & ORS.) , WH EREIN, WHILE DEALING ITA NO .8040/M/10 & 8055/M/10 M/S. SICOM LTD. 6 WITH THE IDENTICAL ISSUE AND TAKING INTO THE CONSIDERATION THE RELEVANT FACT AND CIRCUMSTANCES , THE TRIBUNAL CONSIDERED THAT IN THE CASE OF THE ASSESSEE , THE DISALLOWANCE OF 1% OF TOTAL ADMINISTRATIVE EXPENSES AS REASONABLE ALLOCATION TOWARDS ADMINISTRATIVE EXPENSES FOR THE PURPOSE OF EARNING EXEMPT INCOME. FOLLOWING THE RULE OF CONSISTENCY AND ALSO IN VIEW OF THE OBSERVATIONS MADE BY THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR THE PRECEDING YEARS , FOR THIS YEAR ALSO THE DISALL OWANCE IS RESTRICTED ON THIS ISSUE TO 1% OF THE ADMINISTRATIVE EXPENSES. THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. ITA NO. 8040 /M/2010 THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCES, OUT OF INTEREST EXPENDITURE AMOUNTING TO RS.3.32 CRORES MADE U/S. 14A OF THE INCOME - TAX ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CI T(A) ERRED IN ALLOWING THE CLAIM OF WRITE - OFF OF RS.5.10 CRORES CONSISTING OF PREFERENCE SHARES OF ATCOM TECHNOLOGIES LTD. (RS.5 CRORE) AND EQUITY SHARES OF MAHAKALI FLYOVERS LTD. (RS.0.10 CRORES) AS BAD DEBTS WITHOUT APPRECIATING THE FACT THAT THE PROVISI ONS OF SECTION 36(1)(VII) OF THE INCOME - TAX ACT FOR CLAIMING WRITE - OFF ARE NOT SATISFIED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO REDUCE THE TOTAL INCOME BY THE AMOUNT REPRESENTING THE PRINCIPAL RECOVERY PORTION OF LEASE RENTALS ON THE LEASE TRANSACTIONS WITH KONKAN RAILWAY CORPORATION, ANDHRA PRADESH STATE ELECTRICITY BOARD I & II. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ITA NO .8040/M/10 & 8055/M/10 M/S. SICOM LTD. 7 GROUND NO.1 8 . THE REVENUE THROUGH GROUND NO.1, AS REPRODUCED ABOVE, HAS CONTESTED THE ACTION OF THE CIT(A) IN D ELETING THE DISALLOWANCE AMOUNTING TO RS.3.32 CRORES ON ACCOUNT OF INTEREST EXPENDITURE MADE UNDER SECTION 14A OF THE INCOME TAX ACT. 9 . AO NOTICED THAT THE ASSESSEE COMPANY HAD SHOWN DIVIDEND INCOME OF RS.2 , 14 , 8 8 , 805/ - AS EXEMPT UNDER SECTION 10(34) OF THE ACT AND HAD SUO MOTTO TREATED RS.2,14,888/ - BEING 1% OF GROSS DIVIDEND INCOME AS EXPENSES FOR EARNING EXEMPT INCOME. THE ASSESSEE HAD CLAIMED THAT IT HAD NOT INCURRED ANY DIRECT EXPENSES ATTRIBUTABLE TO EARNING THE EXEMPT INCOME. HOWEVER, THE AO DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE. HE OBSERVED THAT THE ASSESSEE COMPANY BORROWED FUNDS TO THE EXTENT OF RS.1509.47 CRORES WHICH RESULTED IN INTEREST OUT GO EXPENDITURE OF RS.123 CRORES AND SUCH BORROWED FUNDS WERE UTILIZED FOR INVESTMENTS ALS O. HE THEREFORE MADE THE DISALLOWANCE UNDER SECTION 14A AS PER THE PROVISIONS OF RULE 8D. 10 . THE LD. CIT(A) , FOLLOWING THE OBSERVATIONS OF HIS PREDECESSORS FOR THE PRECEDING YEARS, HELD THAT NO INTEREST EXPENDITURE WAS TO BE DISALLOWED. HOWEVER, AS O BSERVED ABOVE HE HAD CONFIRMED THE DISALLOWANCE AT THE RATE OF 0.5% OF THE AVERAGE VALUE OF INVESTMENT TOWARDS ADMINISTRATIVE EXPENDITURE. 1 1 . AS PER OUR FINDINGS MADE ABOVE, THE SAID DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENDITURE HAS BEEN RESTRI CTED BY US AT THE RATE OF 1% OF THE ADMINISTRATIVE EXPENSES FOLLOWING THE FINDINGS OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR EARLIER ASSESSMENT YEARS I.E. A.Y.S 1997 - 98 TO 2002 - 03 (ITA NO.7901/M/2003 & ORS.) . 12 . IT MAY BE OBSERVED THAT THE IS SUE RELATING TO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE HAD ALSO COME INTO CONSIDERATION IN THE SAID JUDGMENT OF ITA NO .8040/M/10 & 8055/M/10 M/S. SICOM LTD. 8 THE TRIBUNAL AND THE TRIBUNAL WHILE DECIDING THE REVENUES APPEAL NO.5152/M/05 RELEVANT TO ASSESSMENT YEAR 2000 - 01 , UPHELD THE FINDING OF THE LD. CIT(A) IN DELETING THE INTEREST EXPENDITURE. AS THE FACTS FOR THIS YEAR ARE ALSO IDENTICAL, HENCE, RESPECTFULLY FOLLOWING THE OBSERVATIONS AND FINDINGS OF THE TRIBUNAL MADE IN THE CASE OF ASSESSEE FOR EARLIER YEARS, THIS GROUND OF THE REVENUES APPEAL IS HEREBY DISMISSED. GROUND NO.2 1 3 . VIDE GROUND NO.2, AS REPRODUCE ABOVE, THE REVENUE HAS CONTESTED THE ALLOWING OF THE CLAIM OF WRITE OFF OF RS.5.10 CRORES CONSISTING OF PREFERENCE SHARES OF ATCOM TECHNOLOGIES LTD. (RS.5 CRORES) AND EQUITY SHARE S OF MAHAKALI FLYOVERS LTD. ( 0.10 CRORES) AS BAD DEBTS. THE AO , WHILE DISALLOWING THE SAID CLAIM , HAD OBSERVED THAT THE ABOVE SAID BOTH THE ENTITIES WERE NOT LISTED AT ANY RECOGNIZE D STOCK EXCHANGE. THE SHARES HAD NOT BEEN SOLD BY THE ASSESSEE AS ON THE DATE I.E. 31.03.07 ; UNTIL THE SHARES WERE ACTUALLY SOLD THE QUANTUM OF LOSS COULD NOT BE DETERMINED. THE ASSESSEE WAS FOLLOWING LOWER OF COST OR MARKET VALUE AS THE VALUE OF THE CLOSING STOCK. IN THE CASE OF THE ASSESSEE WHILE THE COST WAS ASCERTAINED , T HE MARKET VALUE WAS UN AS CERTAIN ED . THE DECREASE IN THE VALUE OF INVESTMENT WAS THEREFORE NOTHING BUT PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT /STOCK. HE THEREFORE OBSERVED THAT SUCH PROVISION IN THE ABOVE TWO CASES WAS UN AS CERTAIN ED AND THEREFO RE NOT ALLOWABLE. 1 4 . THE LD. CIT(A) , HOWEVER, WHILE DELETING THE SAID DISALLOWANCE IN PARA 5.2 OF THE IMPUGNED ORDER , HAS OBSERVED AS UNDER: 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE APPELLANT. I DO NOT AGREE WITH TH E ASSESSING OFFICER THAT THE LOSS IS NOT ALLOWABLE BECAUSE THE SHARES ARE NOT SOLD AND THE WRITE OFF MERELY REPRESENTS A PROVISION. THE A.O. HAS ACCEPTED THAT THE ASSESSEE IS FOLLOWING LOWER OF COST OR MARKET VALUE AS VALUE OF CLOSING STOCK. ACCORDING TO HIM, WHILE COST IS ASCERTAINED, MARKET VALUE IS UNASCERTAINED. THEREFORE, ACCORDING TO HIM, THE DECREASE IN VALUE OF ITA NO .8040/M/10 & 8055/M/10 M/S. SICOM LTD. 9 INVESTMENT IS THEREFORE NOTHING BUT A PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT/STOCK AND HE IS OF THE VIEW THAT SUCH PROVISION WHICH IS UNCERTAIN IS NOT ALLOWABLE. THIS OBSERVATION/CONCLUSION HAS NOT TAKEN INTO ACCOUNT THE FACTS OF THE CASE IN ITS ENTIRETY. IT IS EVIDENT THAT WHOLE OF THE INVESTMENT HAS TURNED BAD AND IT DOES NOT/CANNOT HAVE ANY MARKET VALUE OR INTANGIBLE VALUE . THE APPELLANT HAS TAKEN ITS MARKET VALUE AS NIL IN ITS BOOKS OF ACCOUNTS. IF THE A.O. HAS ANY REASON TO BELIEVE OR CONCLUDE THAT IT HAS DIFFERENT MARKET VALUE, ONLY THEN THERE IS ANY REASON OR JUSTIFICATION FOR DENYING THE CLAIM. I, THEREFORE, HOLD TH AT IN VIEW OF THE FACTS AND CIRCUMSTANCES, DISALLOWANCE MADE BY THE A.O. IS NOT JUSTIFIED. IT IS CANCELLED. 1 5 . THE LD. REPRESENTATIVE OF THE ASSESSEE HAS BROUGHT OUR ATTENTION TO THE FACT THAT THE IDENTICAL ISSUE WAS RAISED IN TH E OWN CASE OF THE ASSE SSEE FOR ASSESSMENT YEAR 1981 - 1982 AND ASSESSMENT YEAR 1983 - 84 , WHEREIN IT HAD BEEN HELD BY THE TRIBUNAL VIDE ORDER DATED 07.08.91 THAT THE ASSESSEE HAD BEEN ENGAGED IN BUYING AND SELLING THE SHARES AND SECURITIES AND THE INCOME OF THE ASSESSEE ON SUCH TR ANSACTIONS WOULD BE IN THE NATURE OF BUSINESS. THE TRIBUNAL , VIDE SAID ORDER HAD UPHELD THE ORDER OF THE CIT(A) FOR BRINGING TO TAX THE PROFIT OR GAIN ON THE SALE OF SHARES AND SECURITIES DEALT IN DIRECTLY AS BUSINESS INCOME. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ALSO RELIED UPON AN ANOTHER AUTHORITY OF THE TRIBUNAL IN THE CASE OF I - VEN INTERACTIVE LTD. (ITA NO.3256/M/09) DATED 27.10.10 WHEREIN THE CO - ORDINATE BENCH OF THE TRIBUNAL HAS HELD THAT IF THE NATURE OF THE ACTIVITIES OF THE ASSESSEE OF IN VESTMENT IN SHARES IS A BUSINESS ACTIVITY , THE CLAIM OF EXPENDITURE IS AN ALLOWABLE DEDUCTION. 1 6 . THE CONTENTION OF THE LD. REPRESENTATIVE OF THE ASSESSEE HAS BEEN THAT THE IMPUGNED LOSS WAS INCURRED BY THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS O F FINANCIAL INDUSTRIAL ENTERPRISES ON ACCOUNT OF THE RESPECTIVE INDUSTRIAL UNITS BECOMING SICK AND NON FUNCTIONAL AND THUS THE SAME WAS INCIDENTAL TO THE CORE FINANCIAL ACTIVITY OF THE ASSESSEE. THE LOSS THUS WAS ALLOWABLE. THE CIT(A), AS ITA NO .8040/M/10 & 8055/M/10 M/S. SICOM LTD. 10 OBSERVED ABOVE, HAS DELETED THE ADDITION OBSERVING THAT THE WHOLE OF THE INVESTMENT MADE BY THE ASSESSEE HAS TURNED BAD AND ITS MARKET VALUE THUS WAS NIL. 1 7 . AS OBSERVED ABOVE, IT HAS ALREADY BEEN HELD IN THE OWN CASE OF THE ASSESSEE THAT THE ASSESSEE HAS BEEN ENGAGE D IN THE BUSINESS OF SALE AND PURCHASE OF SHARES. T HE LD. CIT(A) , WHILE DELETING THE DISALLOWANCE , HAS CATEGORICALLY OBSERVED THAT THE SAME WAS A BUSINESS LOSS. WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE DISALLOWANCE SO MADE BY THE AO. THIS GROUND OF THE REVENUES APPEAL IS THUS ALSO DISMISSED. GROUND NO.3 1 8 . VIDE GROUND NO.3, AS REPRODUCED ABOVE, THE REVENUE HAS CO NTESTED THE ACTION OF THE CIT(A) IN DIRECTING THE AO TO REDUCE THE TOTAL INCOME OF THE ASSESSEE BY THE AMOUNT REPRESENTING THE PRINCIPAL RECOVERY PORTION OF LEASE RENTALS ON THE LEASE TRANSACTIONS WITH KONKAN RAILWAY CORPORATION & ANDHRA PRADESH STATE ELECTRICITY BOARD I & II . THE ISSUE BEFORE THE CIT(A) WAS WHETHER THE ABOVE SAID TRANSACTIONS WITH KO NKAN RAILWAY CORPORATION & ANDHRA PRADESH STATE ELECTRICITY BOARD I & II WERE IN FACT LEASE TRANSACTIONS OR THE FINANCE LOAN TRANSACTIONS. 1 9 . IT WAS BROUGHT INTO THE KNOWLEDGE OF THE CIT(A) THAT THE ISSUE WAS PENDING BEFORE THE ITAT. THE CIT(A) THUS D IRECTED THE AO TO REDUCE THE TOTAL INCOME OF THE ASSESSEE BY THE AMOUNT REPRESENTING THE PRINCIPAL RECOVERY PORTION OF LEASE RENTALS TILL THE RESOLUTION OF DISPUTE BEFORE THE HIGHER AUTHORITIES. 20 . THE LD. REPRESENTATIVE OF THE ASSESSEE HAS BROUGHT OUR ATTENTION TO THE ORDER OF THE CO - ORDINATE BENCH OF THE TRIBUNAL DATED 22.05.13 IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1997 - 98 TO 2002 - 03 ( SUPRA ) . W HILE DEALING ITA NO .8040/M/10 & 8055/M/10 M/S. SICOM LTD. 11 WITH THE SIMILAR ISSUE , THE CO - ORDINATE BENCH OF THE TRIBUNAL , IN PARA 21 OF THE SAID JUD GMENT , HAS HELD AS UNDER : 21. COMING TO THE SALE AND LEASEBACK TRANSACTIONS, THE LEARNED COMMISSIONER (APPEALS) HAS CONFIRMED THE DISALLOWANCE OF DEPRECIATION IN MAHARASHTRA ESTERS & KEYTONES PVT. LTD. (SUPRA) AND KONKAN RAILWAY CORP. LTD. (SUPRA), MAINLY ON THE GROUND THAT THERE WAS NO PHYSICAL DELIVERY OF THE ASSETS AS IT ALREADY BELONG TO THEM AND THEREFORE THE TRANSACTIONS ITSELF WAS NOT GENUINE. IN CASE OF THE OTHER TWO PARTIES, NAMELY FUJITSU ICIM LTD. (SUPRA) AND DATAR SWITCHGEAR LTD., HE HAS ALLOWED THE SAME MAINLY ON THE GROUND THAT SALE TRANSACTIONS AND LEASEBACK AFTER THE PURCHASE IS A GENUINE TRANSACTIONS. IN CASE OF MAHARASHTRA ESTERS & KEYTONES PVT. LTD. (SUPRA), IT IS SEEN THAT THIS TRANSACTION OF SALE AND LEASEBACK TOOK PLACE IN THE EA RLIER PREVIOUS YEAR AND THE DEPRECIATION HAS BEEN ALLOWED IN RESPECT OF SUCH LEASED ASSETS. THUS, THE DISALLOWANCE OF DEPRECIATION IN CASE OF MAHARASHTRA ESTERS & KEYTONES PVT. LTD. (SUPRA) CANNOT BE UPHELD MAINLY ON THE GROUND THAT THE DEPRECIATION HAS AL READY BEEN ALLOWED IN THE EARLIER YEARS AND FORMS PART OF THE BLOCK OF ASSETS. COMING TO THE TRANSACTIONS WITH KONKAN RAILWAY CORP. LTD. (SUPRA) AND OTHER TWO PARTIES, IT IS SEEN THAT THE LEARNED COMMISSIONER (APPEALS) HAS GONE ON A WRONG FOOTING OF JUDGIN G THE GENUINENESS OF THE SALE TRANSACTIONS WITHOUT ANY ADVERSE MATERIAL ON RECORD BROUGHT BY THE ASSESSING OFFICER. UNDER THE SALE AND LEASE AGREEMENT, THE ASSET IS PURCHASED AND THE SAME IS LEASED BACK TO THE SICOM LIMITED PARTY AND THE ASSETS SO PURCHASE D BELONGS TO THE ASSESSEE AS IT RETAINS THE TITLE AND OWNERSHIP OF THE SAID ASSET AND ALSO THE RIGHT OF REVERSION OF POSSESSION AT THE END OF LEASE PERIOD. IN OUR CONSIDERED OPINION, THIS ISSUE HAS NOT BEEN PROPERLY DEALT WITH EITHER BY THE LEARNED COMMISS IONER (APPEALS) OR BY THE AO WHO HAS GONE BY THE REASONING IT IS A COLOURABLE DEVICE EITHER IN THE CASE OF KONKAN RAILWAY CORP. LTD. (SUPRA) EVEN IN THE CASE OF FUJITSU ICIM LTD. (SUPRA) AND DATAR SWITCHGEAR LTD. (SUPRA) THE ISSUE HAS NOT BEEN EXAMINED PRO PERLY. IN THE ABSENCE OF ANY PROPER MATERIAL AND RECORD TO COME TO SUCH A FINDING, WE ARE OF THE OPINION THAT THIS MATTER NEEDS TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE IT AFRESH. CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PAS SED BY THE LEARNED COMMISSIONER (APPEALS) ON THESE THREE TRANSACTIONS AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL EXAMINE THE ISSUE OF SALE AND LEASEBACK AGREEMENT AFRESH AND ALSO IN THE LIGHT OF THE JUDGMENT OF DELHI HIGH CO URT IN COSMO FILMS LTD. (SUPRA), AS HAVE BEEN REFERRED TO BY THE LEARNED COUNSEL, THE DECISION OF SPECIAL BENCH DECISION OF THE TRIBUNAL IN INDUSIND BANK (SUPRA) AND OTHER DECISION ON THIS ISSUE. THUS, THE CLAIM OF DEPRECIATION ON THE ASSETS PERTAINING TO AFORESAID THREE SALE AND LEASEBACK TRANSACTIONS WHICH HAVE BEEN ENTERED INTO THIS YEAR IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH. THUS, GROUND NO.2, RAISED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURP OSES. 2 1 . IT MAY BE OBSERVED THAT WHILE RESTORING THE ISSUE BACK TO THE FILE OF THE AO , THE TRIBUNAL HAS DIRECTED THE AO TO EXAMINE THE ISSUE OF SALE AND LEASE AGREEMENT AFRESH AND ALSO IN THE LIGHT OF JUDGMENT OF HONBLE DELHI HIGH ITA NO .8040/M/10 & 8055/M/10 M/S. SICOM LTD. 12 COURT IN COSMO FILM S LTD AND THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF INDUSIND BANK AND OTHER RELEVANT DECISIONS ON THE ISSUE. 2 2 . THE LD. D.R. BEFORE US HAS RELIED UPON TWO ANOTHER JUDGMENTS OF THE TRIBUNAL PASSED IN THE CASE OF STATE BANK OF INDI A IN ITA NO. 5470/M/02 DATED 26.07.13 AND ALSO IN THE CASE OF HATHWAY INVESTMENTS PVT. LTD IN ITA NO. 4069/MUM/2001 & ORS. D ATED 07.08.2013 . H ENCE, FOR THE YEAR UNDER CONSIDERATION AND IN VIEW OF THE DIRECTIONS OF THE TRIBUNAL GIVEN ON THE ISSUE RELATING TO EARLIER ASSESSMENT YEARS , THIS ISSUE IS RESTORED BACK TO THE FILE OF THE AO TO DECIDE THE SAME AFRESH TAKING INTO CONSIDERATION THE ABOVE SAID JUDGMENTS AS RELIED UPON BY THE ASSESSEE AS WELL AS BY THE REVENUE AND ALSO ANY OTHER RELEVANT LAW WHICH MAY B E BROUGHT INTO THE NOTICE OF THE AO AT THE TIME OF DECIDING THE ISSUE. THIS GROUND OF THE REVENUES APPEAL IS THUS ALLOWED FOR STATISTICAL PURPOSES. GROUND NOS.4 & 5 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. 23 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15.01. 201 4 . SD/ - SD/ - ( D. KARUNAKARA RAO) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 15.01. 201 4 . * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUM BAI ITA NO .8040/M/10 & 8055/M/10 M/S. SICOM LTD. 13 THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.