DCIT CIR. - 3(1), MUMBAI V. M/s. EVONIK DEGUSSA INDIA P. LTD., MUMBAI

ITA 973/MUM/2008

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8194 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-07-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 08-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHITAL BANDEKAR; FARIDA KATTAK
• Keywords: Depreciation; Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, AM & SHRI AMIT SHUKLA, JM I.T.A. NO.973/MUM/2008 . (ASSESSMENT YEAR: 2004-2005 ) DCIT, CIR.-3 (1), MUMBAI VS. EVONIK DEGUSSA INDIA P. LTD.(FORMERLY KNOWN AS DEGUSSA INDIA PVT. LTD.), 1 ST FLOOR, KRISLON HOUSE, SAKI VIHAR ROAD, SAKI NAKA, ANDHERI (E), MUMBAI. PAN NO. AAACH 3690 Q ( APPELLANT-REVENUE ) : ( RESPONDENT-ASSESSEE ) AND C.O. NO.140/MUM/2012 . (ASSESSMENT YEAR: 2004-2005 ) EVONIK DEGUSSA INDIA P. LTD. (FORMERLY KNOWN AS DEGUSSA I.P.LTD.), 1 ST FLOOR, KRISLON HOUSE, SAKI VIHAR ROAD, SAKI NAKA, ANDHERI (E), MUMBAI. VS. DCIT, CIR.-3 (1), MUMBAI PAN NO. AAACH 3690 Q ( CROSS OBJECTOR- ASSESSEE ) : ( RESPONDENT- REVENUE ) APPELLANT/REVENUE BY : MR. RITESH MISRA RESPONDENT-ASSESSEE BY : MS. FARIDA KATTAK & MS.SHITAL BANDEKAR DATE OF HEARING : 25 TH JULY 2012 DATE OF PRONOUNCEMENT : 1 ST AUGUST, 2012 O R D E R PER AMIT SHUKLA (J.M.) : ITA NO.973/MUM/2008 (AY 2004-2005) (BY THE DEPARTMENT) :- THIS APPEAL HAS BEEN FILED BY THE DEPARTMENT AGAINST ORDER DATED 13-11-2007, PASSED BY THE CIT(A)-XXVIII, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2004-2005 ON THE FOLLOWING GROUNDS OF APPEAL :- ITA NO. :973/10 & CO.NO.140/12 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN LAW IN DELETI NG THE DISALLOWANCE OF THE AMOUNT OF ` .11,62,937/- BEING THE CAPITAL COST OF THE LEASED ASSET WITHOUT APPRECIATING THE FACT THAT THE LEASE TRANSACTION WAS IN FACT IN THE NATURE OF FINANCE TRANSACTION AND THAT CIT(A) HIMSELF HAD DISALLOWED THE DEPRECIATION TO THE ASSESSEE ON THE LEASED ASSET. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED.. 2 . THE RELEVANT FACTS FOR THE ADJUDI CATION OF THE ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING SUPPORT SERVICES TO VARIOUS BUSINESS ENTITIES SITUATED IN AND OUTSIDE INDIA. DURING THE COURSE OF THE ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER NOTED THAT IN THE COMPUTATION OF INCOME F ILED ALONG WITH THE RETURN OF INCOME, THE ASSESSEE HAS CLAIMED DEDUCTION OF CAR LEASE RENTALS AND REGISTRATION CHARGES PAID DURING THE YEAR AMOUNTING TO ` .11,62,937/-. THE ASSESSEE WAS REQUIRED FURNISH THE DETAILS AND WAS SHOW CAUSED AS TO WHY THE SAME SHOULD NOT BE DISALLOWED. IN RESPONSE, THE ASSESSEE SUBMITTED THAT IT HAD TA KEN CERTAIN VEHICLES ON LEASE DURING THE YEAR RELEVANT TO ASSESSM ENT YEAR 2004-2005 AND THESE ASSETS HAVE BEEN CAPITALIZED IN THE BOOKS OF ACCOUNTS AS PER THE ACCOUNTING STANDARD 19 ISSUED BY THE ICAI AND FO R THE TAX PURPOSES THE INTEREST ON LEASE VEHICLES CHARGED TO THE PROFIT AND LOSS ACCOUNT HAS BEEN ADDED BACK AND THE LEASE RENTALS INCLUDING REGISTRATION CHARGES HAVE BEEN CLAIMED AS DEDUCTION. THE DEPRECIATION ON LEASED VEHICLES ITA NO. :973/10 & CO.NO.140/12 3 CHARGED IN THE BOOKS HAVE ALSO BEEN ADDED BACK AND NO DEPRECIATION ON LEASED VEHICLES HAS BEEN CLAIMED AS A DEDUCTION IN THE COMPUTATION OF INCOME. IN SUPPORT OF THIS CLAIM OF DEDUCTION, THE ASSESSEE HAD RELIED UPON THE DECIS ION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF RAJSHREE ROADWAYS, REPORTED IN 263 ITR 206 . AS PER THE SHOW CAUSE NOTICE AS TO WHY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ABB LIMITED VS. IFCI, REPORTED IN 56 SCL 21 , SHOULD NOT BE APPLIED, IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE SAID DECISION IS NOT APPLICABLE TO ITS FACTS AS IN THAT CASE THE CARS WERE TO BE TRANSFERRED TO T HE LESSEE AT THE END OF THE LEASE PERIOD, WHEREAS IN THE CASE OF THE ASSESSEE, THE VEHICLES HAVE TO BE RETURNED BACK TO THE LESSOR AFTER THE END OF THE LEASE PERIOD. FURTHER, IT WAS SUBMITTED THAT LEASE IS NOT IN THE NATURE OF A FINANCE ARRANGEMENT AND IT IS IN THE NATURE OF AN OPERAT ING LEASE AND, THEREFORE, EXPENSES INCURRED TOWARDS CAR LEASE RENTALS ARE IN THE NORMAL COURSE OF ITS BUSINESS OPERATIONS AND ARE AL LOWABLE UNDER SECTION 37(1). ALTERNATIVELY, IT WAS PLEADED THAT INTEREST ON LEASED VEHICLES AND DEPRECIATION SHOULD BE ALLOWED AS DEDUCTION. 3 . THE ASSESSING OFFICER REJECTED THE SAID CONTENTION AND HELD THAT THE LEASE AGREEMENT IS A FINANCIAL L EASE, WHEREIN THE LESSEE USES THE ASSETS SUBSTANTIALLY FOR THE WHOLE OF ITS USEFUL LIFE AND THE LEASE PAYMENTS ARE CALCULATED TO COVER THE FULL COST TOGETHER WITH THE HELP OF A LOAN. THEREFORE, THE DECISION OF THE HONBLE SUPREME COURT IN THE ITA NO. :973/10 & CO.NO.140/12 4 CASE OF ABB LIMITED VS. IFCI (SUPR A), WILL SQUARELY GET APPLICABLE. HE THUS, DISALLOWED THE CLAIM OF DEDUCTION OF LEASE RENTALS OF ` .11,62,937/-. 4. BEFORE THE CIT(A), THE SAME S UBMISSIONS WERE REITERATED BEFORE HIM. FURTHER, IT WAS SUBMITTED T HAT THE ASSESSEE HAS NOT CLAIMED DEPRECIATION ON THE LEASED ASSETS FOLLOWING CBDT CIRCULAR NO.2 OF 2001, DATED 9 TH FEBRUARY, 2001. THE ASSESSEE HAS ALSO DISTINGUISHED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ABB VS. IFCI (SUPRA) STATING THAT THE SAID JUDGM ENT WAS AN OUTCOME OF A CIVIL SUIT, WHEREIN ON THE FACTS OF THE CASE IT WAS HELD THAT SINCE THE LESSEE HAS MADE PAYMENT OF FULL AMOUNT AND NOTHI NG MORE WAS TO BE DONE TO VEST THE LESSEE WITH OWNERSHIP, THE TRANSACTION BETWEEN THE LESSOR AND LESSEE IS ONE OF THE LEASE FINANCE AND NOT OF A LEASE ONLY. HERE IN THIS CASE, THE ASSESSEE HAD TO RETURN BACK THE ASSET TO THE LESSOR WHICH IN FACT HAS BEEN DONE BY THE ASSESSEE . THE DETAILS SUBMISSION ON DISTINGUISHING THE JUDGMENT OF THE HONBLE SUPREME COURT WAS PLACED BEFORE THE CIT(A), WHICH HAS BEEN INCORPORATED FROM PAGES 8 TO 10 OF THE APPELLATE ORDER. 5. THE LD. CIT(A) AFTER CAREFULLY CONSIDERING THE CONTENTION OF THE ASSESSEE AND THE FINDING OF THE ASSESS ING OFFICER HELD THAT IT IS NOT A CASE OF FINANCE LEASE BUT OPERATING LEASE AS THE LEASE ASSET HAS NOT BEEN REMITTED BACK. IN THE CASE OF ASSESSEE COMPANY, AS PER THE ITA NO. :973/10 & CO.NO.140/12 5 TERMS OF THE LEASE ASSETS HAS GONE BA CK TO THE LESSOR, THEREFORE, THE LESSEE IS NOT THE OWNER OF THE ASSE TS AND THE ENTIRE PAYMENT ON LEASED ASSETS IS ALLOWABLE AS BUSINESS EX PENDITURE. HE FURTHER HELD THAT THE DECISION OF THE HONBLE RAJAST HAN HIGH COURT IN THE CASE OF RAJSHREE ROADWAY (SUPRA), SQUARELY COVERS THE CASE OF THE ASSESSEE AND IN THE EARLIER YEARS, SIMILAR LEASE R ENT HAS BEEN ALLOWED AS BUSINESS EXPENDITURE. EVEN THOUGH PRINCIPLE OF RES JUDICATA DOES NOT APPLY IN THE INCOME-TAX PROCEEDINGS, BUT RULE OF CONSTITUENCY IS TO BE SEEN AS THE SAME FACTS ARE CONTINUING FROM THE EARLIER YEARS. HE HAS ALSO ANALYZED THE JUDGMENT OF THE HONBL E SUPREME COURT AS RELIED UPON BY THE ASSESSING OFFICER AND GAVE A CA TEGORICAL FINDING THAT THE SAME IS NOT APPLICABLE. 6 . LEARNED DR SUBMITTED THAT IT IS A CASE OF FINANCE LEASE AS HELD BY THE ASSESSING OFFICER BECAUSE IT IS A CONTRACT INVOLVING PAYMENT OVER AN OBLIGATORY PERIOD OF SPECIF IED SUM, PAYABLE ON THE CAPITAL OUTLAY OF THE LESSOR AND GIVEN ON SOME PROFIT. IT IS A KIND OF LOAN ONLY. THEREFORE, THE CLAIM OF DEDUCTION ON LEASE RENTAL UNDER SECTION 37(1), CANNOT BE ALLOWED. IN SHORT, HE HAS RELIED UPON THE FINDINGS GIVEN BY THE ASSESSING OFFICER. 7 . ON THE OTHER HAND, LEARNED COUNS EL OF THE ASSESSEE RELYING UPON THE DECISION OF T HE CIT(A), ALSO MADE DETAIL SUBMISSIONS, REFERRING TO VARIOUS TERMS OF AGREEMENT AND SUBMITTED THAT IT IS PURELY ITA NO. :973/10 & CO.NO.140/12 6 AN OPERATING LEASE AND NOT A FINANCIAL L EASE. IT WAS ALSO POINTED OUT BY HER THAT SIMILAR DEDUCTION ON PAYMENT OF LEASE RENT HAS BEEN ALLOWED AS EXPENDITURE IN THE EARLIER YEARS BY THE DEPARTMENT AND, THEREFORE, SAME PAYMENT CANNOT BE DISALLOWED. ALTERNATIVELY, SHE REITERATED THE CLAIM MADE BEFORE THE CIT(A) THAT IF IT IS TREATED TO BE FINANCE LEASE THEN DEPRECIATION ON INTEREST SHOULD BE ALLOWED. 8 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL ON RECORD AND THE FINDINGS GIVEN BY THE CIT(A) AS WELL AS BY THE ASSESSING OFFICER. IN THIS CASE, IT IS AN UNDISPUTED FACT WHICH IS EVIDENT FROM THE FINDING OF THE CIT(A), THAT THE LEASED ASSETS FOR WHICH THE ASSESSEE HAS CLAIMED LEASE RENTALS, THE ASSET DOES NOT REVERT BACK TO THE ASSESSEE COMPANY. THIS IS ALSO IN ACCORDANCE WITH THE TERMS OF THE LEASE AGREEMENT THAT THE LEASED ASSET WILL GO BACK TO THE LESSOR. FURTHER, THE LEASE AGREEM ENT ENTRED BY THE ASSESSEE WITH THE 'LEASE PLAN INDIA AND AS PER T HE TERMS AND CONDITIONS OF THE LEASE AGREEMENT, THE ASSESSEE HAS TO PAY T HE LEASE RENT TO THE LESSOR AND THE OWNERSHIP OF THE ASSETS VESTS IN THE LESSOR I.E. L.P. INDIA LIMITED AND THE LESSEE HAS TO DELIVER THE ASSE T BACK TO THE LESSOR AT THE END OF THE LEASE PERIOD WITHOUT ANY OPTION TO BUY THE SAME FROM THE LESSOR. THE ASSET AT THE END OF THE LEASE PERIOD SOLELY BELONGS TO THE LESSOR. FROM THESE FACTS, IT CANNOT BE HELD T HAT IT IS A CASE OF FINANCIAL LEASE BUT THAT OF OPERATING LEASE AND, THEREFORE, THE PAYMENT OF LEASE RENTAL IS ALLOWABLE AS BUSINESS EXPENDITURE. FURTHER AS DISCUSSED IN DETAIL BY ITA NO. :973/10 & CO.NO.140/12 7 THE CIT(A), THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF ABB VS. IFCI (SUPRA), DOES NOT APPLY AT ALL IN THE CASE OF THE ASSESSEE. THUS, WE UPHOLD THE FINDINGS AND THE REASONING GIVEN BY THE CIT(A) AND ACCORDINGLY THE GROUNDS TAKEN BY THE DEPARTMENT ARE DISMISSED. CO.NO.140/MUM/2012 (AY 2004-2005) (BY THE ASSESSEE) :- 9 . THE CROSS OBJECTION FILED BY THE ASSESSEE IS NOT ONLY BARRED BY LIMITATION BY 1572 DAYS, BUT ALSO HAS BECOME ACADEMIC IN VIEW OF THE DECISION GIVEN IN THE DEPARTMENTS APPEAL IE IN ITA NO.973/MUM/2008. ACCORDINGLY, THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALSO DISMISSED. 10 . IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALSO DISMISSED.. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST AUGUST, 2012 . SD/- SD/- ( B. RAMAKOTAIAH) ( AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 1 ST / AUGUST/2012 PKM. COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI