Tristar Container Services (Asia) Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 891/CHNY/2014

• Counselvise Citation: 89121714 RSA 2014
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 08-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: V S JAYAKUMAR
• Keywords: Revision of order; Depreciation; Rectification of order; Assessment record; Capital receipt; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 32; 37; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . , . . , ! ' [BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMB ER AND SHRI S. S. GODARA, JUDICIAL MEMBER] ./ I.T.A.NO.891/MDS/2014 / ASSESSMENT YEAR : 2009-10 M/S TRISTAR CONTAINER SERVICES (ASIA) PVT. LTD NO.18, SWAMY SIVANANDA SALAI CHEPAUK, CHENNAI 600 005 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE III(2) CHENNAI [PAN AAACT 4043 K] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) / APPELLANT BY : SHRI V.S.JAYAKUMAR, ADVOCATE /RESPONDENT BY : SHRI ANIRUDH RAI, CIT / DATE OF HEARING : 11-09-2014 ! / DATE OF PRONOUNCEMENT : 25-09-2014 ' / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 20 09-10, IS DIRECTED AGAINST ORDER OF THE COMMISSIONER OF INCO ME-TAX-III CHENNAI, DATED 19.3.2014, PASSED IN C.NO.3033(24)/C IT-III/263/2013- 14 IN PROCEEDINGS UNDER SECTION 263 OF THE INCOME-T AX ACT, 1961 (IN SHORT THE ACT). I.T.A.NO. 891/14 :- 2 -: 2. FACTS OF THE CASE ARE IN A VERY NARROW COMPASS. TH E ASSESSEE/A COMPANY LEASES MARINE CONTAINERS. IT HAD FILED ITS RETURN ON 28.9.2009 ADMITTING LOSS OF ` 10,91,31,079/-. THE SAME WAS SUMMARILY PROCESSED. THEREAFTER, THE ASSESSING O FFICER FRAMED A REGULAR ASSESSMENT ON 23.12.2011 COMPUTING TOTAL INCOME OF ` 3,50,01,140/-. THE ASSESSEE ALSO MOVED A RECTIFI CATION PETITION DATED 31.2.2012 SEEKING SET OFF OF BROUGHT FORWARD UNABSO RBED BUSINESS LOSS AND UNABSORBED DEPRECIATION OF ` 1,84,23,035/-. THE ASSESSING OFFICER IN RECTIFICATION ORDER DATED 18.4.2012 ACC EPTED THE SAID PRAYER AND REVISED TOTAL INCOME (ROUNDED OFF) TO ` 1,65,78,110/- IN PLACE OF TO ` 3,50,01,140/- ALREADY COMPUTED. THUS, THE ASSESSM ENT IN ASSESSEES CASE ATTAINED FINALITY. 3. SUBSEQUENTLY, THE CIT FORMED AN OPINION THAT THE AF ORESAID ASSESSMENT FRAMED IN THE ASSESSEES CASE WAS ERRONE OUS AND CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE. HE ISSUE D SECTION 263 NOTICE DATED 27.1.2014 TO THE ASSESSEE AS UNDER: 2. ON PERUSAL OF THE ASSESSMENT RECORDS, IT IS FO UND THAT THE ASSESSEE COMPANY, IN THE MEMO OF COMPUTATION OF INC OME, HAS DEDUCTED THE FOLLOWING FROM THE PROFIT (LOSS) AS P ER PROFIT AND LOSS ACCOUNT. 'CONTAINER LEASE RENTAL NOT CONSIDERED IN P&L ACCOU NT IN VIEW OF ACCOUNTING OF LEASES UNDER ACCOUNTING STANDARD-19 BUT ALLOWED UNDER THE INCOME-TAX ACT - RS. 13,93,33,114/- . I.T.A.NO. 891/14 :- 3 -: 3. THE ABOVE CONTAINER LEASE RENTAL PAYMENTS RELATE TO THE FINANCIAL LEASE OF THE CONTAINERS BY THE ASSESSEE COMPANY. TH E FINANCIAL LEASE RENTAL PAYMENT CONSISTS OF PRINCIPAL AND INTEREST P AYMENT. THE FINANCIAL LEASE IS THE LEASE THAT SUBSTANTIALLY TRA NSFERS ALL THE RISKS AND REWARDS INCIDENT TO THE OWNERSHIP OF AN ASSET. HENCE, THE LESSEE IS ENTITLED TO CLAIM DEPRECIATION, INTEREST PAYMENT S AND RELATED REVENUE EXPENDITURE ALONE. THE PRINCIPAL PORTION IN CLUDED IN THE LEASE RENTAL PAYMENTS, BEING CAPITAL EXPENDITURE IS NOT DEDUCTIBLE AS PER THE PROVISIONS OF SEC. 37(1) OF THE INCOME-TAX ACT. HENCE, THE ASSESSEE'S CLAIM OF DEDUCTION OF THE ENTIRE LEASE R ENTAL PAYMENT OF RS.13,93,33,114/- DOES NOT APPEAR TO BE IN ORDER. THOUGH THE ASSESSING OFFICER HAS COLLECTED THE DETAILS REGARDI NG LEASE PAYMENTS AND NATURE OF LEASE ETC., THE ASSESSING OFFICER HAS ERRED BY NOT CONSIDERING THEM AND ALLOWING THE ENTIRE LEASE RENT AL PAYMENTS AS DEDUCTION. 4. AS THE ASSESSING OFFICER HAS NOT CONSIDERED TH E ABOVE POINT IN THE ASSESSMENT ORDER U/S 143(3) DATED 23/12/2011, THE ORDER PRIMA FACIE APPEARS TO BE NOT ONLY ERRONEOUS, BUT ALSO PR EJUDICIAL TO THE INTEREST OF THE REVENUE. YOU ARE, THEREFORE, REQUES TED TO SHOW CAUSE AS TO WHY THE ASSESSMENT U/S 143 (3) DT. 23/12/2011 OF THE ACT SHOULD NOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND REVISED U/S 263 AS THE CASE DEEMS IT FIT. IN THIS CONNECTION, YOU ARE REQUESTED TO APPEAR BEFORE THE UNDERSIGNED ON 07/02/2014 AT 3.30 P.M. AT MY OFFICE IN THE ABOVE MENTIONED ADDRE SS EITHER IN PERSON OR THROUGH A DULY AUTHORIZED REPRESENTATIVE ALONG WITH THE WRITTEN SUBMISSIONS, IF ANY, IN THE ABOVE MATTER AN D ON FAILURE TO DO SO, IT WILL BE PRESUMED THAT YOU HAVE NO OBJECTION TO THE PROPOSAL FOR REVISION, AND PROCEEDINGS WILL BE FINALISED ACCORDI NGLY. 4. IN RESPONSE, THE ASSESSEE INTER ALIA, PLEADED ITS RIGHT OF CLAIMING DEPRECIATION U/S 32 AND ALSO ALLOWABILI TY OF LEASE RENTALS U/S 37 OF THE ACT. THE CIT HAS DECLINED TO ACCEP T THE SAME AND DIRECTED THE ASSESSING OFFICER TO EXAMINE ALLOWABIL ITY OF LEASE RENTALS REPRESENTING PRINCIPAL REPAYMENT AS FOLLOWS: 5. I HAVE CAREFULLY CONSIDERED THE ASSESSEE'S SUBM ISSION ALONG WITH ASSESSMENT RECORDS FOR THE ASST.YEAR 2009-10. THE ASSESSEE HAS DEBITED DEPRECIATION AND FINANCE CHARGES IN RES PECT OF FINANCIAL LEASE TO THE PROFIT AND LOSS ACCOUNT AND PRINCIPAL PAYMENT TOWARDS REDUCTION IN THE OUTSTANDING LIABIL ITIES IN THE I.T.A.NO. 891/14 :- 4 -: BOOKS OF ACCOUNTS (AS PER AS 19) BUT FOR INCOME TAX PURPOSE, THE SAME HAS BEEN ADDED BACK AND THE ENTIRE LEASE RENTA L PAYMENT IS CLAIMED AS DEDUCTION. 5.1 THE ASSESSEE RELIES ON THE DECISION OF THE HO N'BLE HIGH COURT IN THE CASE OF RAJSHREE ROADWAYS VS.UNION OF INDIA AND OTHERS(263 ITR 106). THE ABOVE CASE HAS BEEN DECIDE D BY THE TERMS OF LEASE AGREEMENT. BASED ON THE TERMS OF LEA SE AGREEMENT, THE RENTAL PAYMENTS WERE ALLOWED AS REVE NUE EXPENDITURE IN THE HANDS OF LESSEE SINCE THE BENEFI T OF DEPRECIATION WAS AVAILED BY THE LESSOR DURING THE LEASE PERIOD. IN THE ASSESSEE'S CASE, TH E ASSESSING OFFICER HAS NOT CALLED FOR THE LEASE AGREEMENT AND EXAMINED THE TERMS AND CONDITIONS. THIS IS TANTAMOUNT TO NON-EXAMINATION/T OTAL LACK OF ENQUIRY INTO THE ISSUE. THE ASSESSEE HIMSELF ADMITT ED IN HIS SUBMISSIONS DATED 11/08/ 2011 MADE DURING THE COURSE OF SCRUTINY PROCEEDINGS THAT THEY ARE MAKING LEASE RENTAL PAYME NTS TOWARDS BOTH OPERATING LEASE AND FINANCIAL LEASE. 5.2 THE CIRCULAR NO:2 OF 2001 , ON WHICH THE ASSESS EE SEEKS REMEDY, DOES NOT COME TO ASSESSEE'S RESCUE SINCE IT DEALS WITH THE BENEFIT OF DEPRECIATION, THAT TOO BASED ON TERM S OF THE CONTRACT BETWEEN THE LESSOR ANCL THE LESSEE. FAQ NO:82 OF CI RCULAR NO:8 OF 2005 IS RELATED TO FRINGE BENEFIT TAX. 5.3 THE ASSESSEE CLAIMED THAT THE INCOME-TAX ACT,19 61 DOES NOT DIFFERENTIATE FINANCIAL LEASE AND OPERATING LEASE. BUT AS PER SEC 37 OF THE INCOMETAX ACT,1961, ANY EXPENDITURE NOT B EING THE CAPITAL EXPENDITURE SHALL BE ALLOWED AS DEDUCTION. IN THE CASE OF FINANCIAL LEASE, RENTAL PAYMENT CONSISTS OF TWO COM PONENTS PRINCIPAL AND INTEREST. IN THE HANDS OF LESSEE, THE INTEREST PORTION REPRESENTS EXPENDITURE UNDER THE REVENUE HEAD AND THE PRINCIPAL REPAYMENT OF THE LOAN UNDER CAPITAL ACCOUNT. SINCE THE PRINCIPAL REPAYMENT IS IN THE NATURE OF CAPITAL EXPENDITURE, THE PORTION OF THE PRINCIPAL IN THE LEASE RENTAL PAYMEN T IS NOT ALLOWABLE EXPENDITURE UNDER SEC.37. THE HON'BLE SUP REME COURT, IN THE CASE OF ASSOCIATION OF LEASING & FINA NCIAL SERVICE COMPANIES, (2010) 29 STT 316(SC) HELD AS FOLLOWS: 'AS FAR AS THE TAXABLE VALUE IN CASE OF FINANC IAL LEASING INCLUDING EQUIPMENT LEASING AND HIRE PURCHASE IS CO NCERNED, THE AMOUNT RECEIVED AS PRINCIPAL IS NOT THE CONSIDE RATION FOR SERVICE RENDERED. SUCH AMOUNT IS CREDITED TO THE CA PITAL ACCOUNT OF THE LESSOR/ HIRE-PURCHASE SERVICE PROVID ER. IT IS THE INTEREST/ FINANCE CHARGE WHICH IS TREATED AS INCOME OR REVENUE AND WHICH IS CREDITED TO THE REVENUE ACCOUNT. SUCH INTEREST OR FINANCE CHARGES TOGETHER WITH THE LEASE MANAGEMENT FEE/ PROCESSING FEE/DOCUMENTATION CHARGES ARE TREATED AS I.T.A.NO. 891/14 :- 5 -: CONSIDERATIONS FOR THE SERVICES RENDERED AND ACCORD INGLY THEY CONSTITUTE THE VALUE OF TAXABLE SERVICES ON WHICH S ERVICE TAX IS MADE PAYABLE' THOUGH THE ABOVE CASE LAW RELATES TO THE ISSUE OF SERVICE TAX, THE RATIO OF THE ABOVE DECISION MAY BE APPLIED IN DETERMINING THE NATURE OF EXPENDITURE WHETHER CAPITAL OR REVENUE. SINCE THE APEX COURT HELD THAT THE AMOUNT RECEIVED AS PRINCIPAL IS CAPITAL RECEIPT IN THE HANDS OF THE LESSOR, NATURALLY THE PRINCIPAL PAYMENT IS THE CAPITAL EXPENDITURE ONLY IN THE HANDS OF LESSEE. HE NCE, SUCH EXPENDITURE IS NOT ALLOWABLE U/S37. 6. IN VIEW OF THE REASONS STATED IN PARA 5.1 TO 5.3, THE ORDER PASSED UNDER SEC.143(3) DATED 23/12/2011 IS ERRONEO US AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. I THEREFORE SET ASIDE THE ASST.ORDER DATED 23/12/2011 FOR THE LIMITED PURPOSE OF EXAMINING THE ALLOWABILITY OF LEASE RENTAL PAYMENT REPRESENTING PRINCIPAL REPAYMENT AND COMPLETE A FRE SH ASSESSMENT IN ACCORDANCE WITH LAW AFTER PROVIDING S UFFICIENT OPPORTUNITY TO THE ASSESSEE TO PUT FORTH ITS CASE. . THEREFORE, THE ASSESSEE IS IN APPEAL. 5. WE HAVE HEARD BOTH PARTIES AND PERUSED THE CASE FIL E. THE CIT HAS INVOKED SECTION 263 JURISDICTION ON THE GRO UND THAT THOUGH THE ASSESSING OFFICER HAD COLLECTED DETAILS REGARDING L EASE RENTAL PAYMENTS AND NATURE THEREOF, HE DID NOT CONSIDER IN ASSESSM ENT FRAMED AND ALLOWED THE ENTIRE PAYMENTS AS DEDUCTION. THE BENC H PUT A SPECIFIC QUERY TO THE ASSESSEE FOR REBUTTING THIS FACTUAL PO SITION. THE ASSESSEE HAS FAILED TO CONTROVERT THE CITS RELEVANT FINDING S. THIS LEADS US TO A CONCLUSION THAT THE ASSESSING OFFICER HAD FAILED T O CONDUCT ANY ENQUIRY QUA THE ISSUE RAISED IN THE PRESENT APPEAL. THIS FAILURE PROMPTED THE CIT TO INVOKE REVISION PROCEEDINGS U/ S 263 OF THE ACT. THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER IN CONSEQUENTIAL I.T.A.NO. 891/14 :- 6 -: PROCEEDINGS BE DIRECTED TO CONSIDER ITS CLAIM OF DE PRECIATION AND OTHER BENEFITS AS PER LAW. THE REVENUE DOES NOT OPPOSE T HIS PRAYER VERY SERIOUSLY. IN THESE CIRCUMSTANCES, WE AFFIRM THE C ITS ORDER AND DIRECT THE LEARNED ASSESSING OFFICER TO CONSIDER THE ASSES SEES CLAIM OF DEPRECIATION AND OTHER BENEFITS ALONGWITH THE ISSUE OF LEASE RENTALS IN QUESTION IN ACCORDANCE WITH LAW. THE ASSESSEE WOU LD BE AFFORDED ADEQUATE OPPORTUNITY OF HEARING. IT WOULD ALSO BE ENTITLED TO PLACE ON RECORD NECESSARY EVIDENCE RELEVANT TO THE ISSUES IN VOLVED. 6. THE ASSESSEES APPEAL CHALLENGING THE CITS ORDER IN SECTION 263 PROCEEDINGS IS DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 25 TH OF SEPTEMBER, 2014, AT CHENNAI. SD/- SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER ( . . ) (S. S. GODARA) ! / JUDICIAL MEMBER '# / CHENNAI $% / DATED: 25 TH SEPTEMBER, 2014 RD %& '()( / COPY TO: 1 . / APPELLANT 4. * / CIT 2. / RESPONDENT 5. (+, - / DR 3. *./ / CIT(A) 6. ,01 / GF