Shri. K. Sarath Kakumanu & Others, CHENNAI V. JCIT, CHENNAI

ITA 992/CHNY/1999

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64248 (ITAT-CHENNAI)
• Duration Of Justice: 13 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 23-08-2012
• Assessment Year: 1996-1997
• Appeal Filed On: 29-06-1999
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR S MOHRANA
• Assessee Lawyers: N DEVANATHAN; K R ADIVARAHAN ADVOC
• Keywords: Depreciation; Wrong claim

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 1066/MDS/1999 ASSESSMENT YEAR: 1996-97 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE XV, CHENNAI - 600 034 . (APPELLANT) V. SHRI K. SARATH KAKUMANU & OTHERS, L/H OF SHRI (LATE) K. SUBBAIAH, OLD NO.125, ST. MARYS ROAD, CHENNAI - 600 018. PAN : AAGPS1783E (RESPONDENT) I.T.A. NO. 992/MDS/1999 ASSESSMENT YEAR: 1996-97 SHRI K. SARATH KAKUMANU & OTHERS, L/H OF SHRI (LATE) K. SUBBAIAH, OLD NO.125, ST. MARYS ROAD, CHENNAI - 600 018. (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE XV, CHENNAI - 600 034 . (RESPONDENT) REVENUE BY : DR. S. MOHRANA, CIT-DR ASSESSEE BY : SHRI N. DEVANATHAN, ADVOCATE & SHRI K.R. ADIVARAHAN, ADVOCATE DATE OF HEARING : 23.08.2012 DATE OF PRONOUNCEMENT : 06.09.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE CROSS APPEALS OF THE REVENUE AND ASSESSE E RESPECTIVELY, AGAINST AN ORDER DATED 30.4.1999 OF C OMMISSIONER OF INCOME TAX (APPEALS)-IV, CHENNAI, FOR IMPUGNED ASSE SSMENT YEAR. 2 I.T.A. NO. 1066/MDS/99 I.T.A. NO. 992/MDS/99 EARLIER, THIS TRIBUNAL HAD DISPOSED OF ASSESSEES A PPEAL INDEPENDENTLY VIDE ITS ORDER DATED 7 TH JUNE, 201. AT THAT POINT OF TIME, BOTH THE PARTIE S HAD NOT POINTED OUT THAT REVENUE HAD ALSO FILED AN APPEAL FOR IMPUGNED ASSESSMENT YEAR. THEREAFTER, ON 31 ST AUGUST, 2005, BASED ON A MISCELLANEOUS PETITION FILED BY THE REVENUE, WHEREI N IT WAS POINTED OUT THAT ITS APPEAL WAS NOT CONSIDERED, THE TRIBUNAL OR DER DATED 7 TH JUNE, 2001 IN ASSESSEES APPEAL, WAS RECALLED AND BOTH TH E APPEALS FIXED TOGETHER FOR HEARING AGAIN. ACCORDINGLY, THESE APP EALS HAVE COME UP BEFORE US. 2. REVENUE HAS TAKEN TWO EFFECTIVE GROUNDS. FIRST ONE IS A GRIEVANCE ON AN ADDITION OF ` 37,58,843/- MADE BY THE ASSESSING OFFICER AGAINST WORK-IN-PROGRESS, WHICH WAS DELETED BY THE CIT(APPE ALS). SECOND GRIEVANCE IS WITH REGARD TO DELETION OF A PORTION O F DISALLOWED SERVICE CHARGES. 3. ASSESSEES APPEAL FOR THE IMPUGNED ASSESSMENT YE AR IS ALSO ON THE SAME ISSUE REGARDING SERVICE CHARGES. HIS GRIE VANCE IS THAT THE CLAIM OF SERVICE CHARGES WAS NOT ALLOWED IN FULL. 4. REVENUES APPEAL IS TAKEN UP FOR DISPOSAL FIRST. WE ARE TAKING UP THE FIRST ISSUE REGARDING ADDITION MADE TO THE WORK -IN-PROGRESS, DELETED BY THE CIT(APPEALS). 3 I.T.A. NO. 1066/MDS/99 I.T.A. NO. 992/MDS/99 5. FACTS APROPOS ARE THAT ASSESSEE, ENGAGED IN THE BUSINESS OF CIVIL AND STRUCTURAL CONTRACTS, HAD FILED HIS RETURN FOR THE IMPUGNED ASSESSMENT YEAR DECLARING AN INCOME OF ` 7,18,720/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE ASSE SSING OFFICER THAT ASSESSEE WAS HAVING CONTRACT WORK IN THE CITIES LIK E CHENNAI, NAGAPATTINAM AND COIMBATORE. ASSESSEE WAS FOLLOWIN G COMPLETED CONTRACT METHOD FOR DECLARING INCOME ON THE CONTRAC T WORK. CLOSING STOCK OF INCOMPLETE PART OF THE CONTRACT WAS VALUED AT COST. 6. ASSESSING OFFICER, DURING THE COURSE OF ASSESSME NT PROCEEDINGS, NOTED THAT ASSESSEE HAD PAID INTEREST TOTALLING TO ` 37,58,843/- TO THE FOLLOWING PARTIES:- ALWARPET BENEFIT FUND : 27,66,757 / - B. KALYANI : 9,42,640/ - C.R. MURUGESAN : ___ 49,446/ - 37,58,843/ - AS PER THE A.O., SUCH INTERESTS WERE PAID MAINLY FO R DELAY IN EFFECTING PAYMENTS FOR LAND PURCHASED FOR THE CONSTRUCTION AT COIMBATORE AND NUNGAMBAKKAM AND SUCH INTEREST AMOUNTS WERE CHARGED BY THE ASSESSEE TO THE HEAD OFFICE ACCOUNT, BUT NOT ALLOCA TED TO THE RESPECTIVE PROJECTS. NOTICE WAS ISSUED TO THE ASSESSEE WHY AL LOCATION OF INTEREST SHOULD NOT BE DONE TO THE RESPECTIVE PROJECTS, WHIL E VALUING THE CLOSING WORK-IN-PROGRESS. AS PER THE A.O., ASSESSEE DID NO T DISPUTE THE 4 I.T.A. NO. 1066/MDS/99 I.T.A. NO. 992/MDS/99 ATTRIBUTION OF INTERESTS TOWARDS INCOMPLETE PROJECT S. HE, THEREFORE, MADE AN ADDITION OF ` 37,58,843/- TO THE CLOSING WORK-IN-PROGRESS AND TH IS RESULTED IN A LIKE INCREASE IN TOTAL INCOME. 7. IN HIS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF T HE ASSESSEE WAS THAT THE LOANS WERE TAKEN IN THE HEAD OFFICE ACCOUN T AND INTERESTS PAID WERE ADJUSTED AGAINST THE INCOME EARNED BY THE HEAD OFFICE. AS PER THE ASSESSEE, SUCH INTERESTS ON LOANS WERE ALWAYS C HARGED TO HEAD OFFICE EVEN FOR EARLIER YEARS AND THIS WAS A METHOD CONSISTENTLY ADOPTED BY THE ASSESSEE. INTEREST WAS ACCOUNTED ON CASH B ASIS. QUESTION OF ALLOCATION OF INTERESTS TO THE PROJECTS DID NOT ARI SE. CIT(APPEALS) WAS APPRECIATIVE OF THESE CONTENTIONS. ACCORDING TO HI M, ASSESSING OFFICER HAD NOT BROUGHT ON RECORD ANY EVIDENCE OR MATERIAL SUGGESTING THAT LOANS WERE OBTAINED SEPARATELY FOR THE PROJECTS NOR COULD SHOW THAT SUCH PROJECTS REMAINED INCOMPLETE. CIT(APPEALS) NOTED T HAT ASSESSEE WAS CONSISTENTLY CHARGING INTEREST AMOUNTS IN THE HEAD OFFICE ACCOUNT AND THEREFORE, THIS METHODOLOGY COULD NOT BE DISTURBED. AS PER CIT(APPEALS), ASSESSEE WAS HAVING INCOME FROM HEAD OFFICE OPERATION ALSO AND SUCH INCOME AFTER SETTING OFF OF THE INTER EST PAYMENTS WERE OFFERED FOR TAX. THEREFORE, ACCORDING TO HIM, THER E WAS NO DIFFERENCE IN THE ULTIMATE ANALYSIS FOR THE REVENUE. IN THIS VIE W OF THE MATTER, HE DELETED THE ADDITION MADE TO THE WORK-IN-PROGRESS. 5 I.T.A. NO. 1066/MDS/99 I.T.A. NO. 992/MDS/99 8. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT ASSESSEE HIMSELF HAD A DMITTED THAT THE INTEREST PAYMENTS COULD BE ATTRIBUTED TO HIS PROJEC TS. ASSESSEE HAD CLOSING WORK-IN-PROGRESS FOR EACH OF HIS PROJECTS A T COIMBATORE, CHENNAI, ETC. THEREFORE, INTEREST PAID WAS REQUIRE D TO BE INCLUDED IN THE CLOSING WORK-IN-PROGRESS OF THE RESPECTIVE PROJECTS . ASSESSEE COULD NOT BE ALLOWED TO ADOPT DIFFERENT METHOD FOR INTEREST A LONE. JUST BECAUSE IN THE EARLIER YEARS, SIMILAR TREATMENT OF INTEREST FO LLOWED BY THE ASSESSEE WAS NOT DISTURBED BY THE ASSESSING OFFICER, WOULD N OT BE A REASON TO CONTINUE WITH AN ERRONEOUS METHOD FOR THE IMPUGNED ASSESSMENT YEAR ALSO. THERE IS NO QUESTION OF RES JUDICATA IN INCO ME-TAX PROCEEDINGS, ESPECIALLY, WHEN A WRONG CLAIM WAS ALLOWED BY THE C IT(APPEALS). LEARNED D.R. RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT V. BRITISH PAINTS INDIA LTD. (188 ITR 44). 9. PER CONTRA, LEARNED A.R., SUPPORTING THE ORDER O F CIT(APPEALS), SUBMITTED THAT THE BREAK-UP OF INTERESTS CLEARLY SH OWED THAT SUCH SUMS WERE PAID TO THREE PARTIES, NAMELY, ALWARPET BENEFI T FUND, B. KALYANI AND C.R. MURUGESAN. ACCORDING TO HIM, PAYMENT OF I NTEREST OF ` 9,42,640/- TO B. KALYANI WAS FOR A DELAYED PAYMENT OF LAND COST TO THE SAID PARTY FROM WHOM ASSESSEE HAD PURCHASED LAND FO R HIS NUNGAMBAKKAM (CHENNAI) PROJECT. HE HAD ADMITTED A CONTRACT RECEIPT OF ` 4,36,09,445/- IN THE NUNGAMBAKKAM PROJECT DURING T HE RELEVANT 6 I.T.A. NO. 1066/MDS/99 I.T.A. NO. 992/MDS/99 PREVIOUS YEAR. INTEREST PAID FOR DELAY IN GIVING T HE SALE CONSIDERATION TO THE VENDOR OF THE PROPERTY COULD NOT BE CONSIDERED AS A PART OF WORK-IN- PROGRESS. AS FOR THE PAYMENT OF ` 27,66,757/- MADE TO M/S ALWARPET BENEFIT FUND, LEARNED A.R. SUBMITTED THAT AN AMOUNT OF ` 2,10,00,000/- WAS BORROWED FROM THE SAID FUND AND INVESTED IN PUR CHASING SHARES OF ONE PAN RESORTS LIMITED. SUCH INTEREST PAYMENT HAD NO RELEVANCE TO THE CONSTRUCTION PROJECTS AND HENCE COULD NOT BE TH E PART OF CLOSING WORK-IN-PROGRESS. AS FOR THE PAYMENT OF INTEREST O F ` 49,446/- MADE TO C.R. MURUGESAN, LEARNED A.R. SUBMITTED THAT THIS WA S AGAIN FOR A DELAYED PAYMENT TO THE OWNER OF THE LAND AT COIMBAT ORE SITE. THE CONTRACT RECEIPT ADMITTED FOR COIMBATORE PROJECT CA ME TO ` 2,42,31,738/-. PROJECTS AT COIMBATORE WERE SUBSTAN TIALLY COMPLETED. INTEREST WAS A LEGITIMATE EXPENDITURE INCURRED AND NEVER FORMED A PART OF CLOSING WORK-IN-PROGRESS. 10. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. DETAILS OF THE INTEREST AMOUNT THAT WAS ADDED TO TH E WORK-IN-PROGRESS HAS BEEN REPRODUCED BY US AT PARA SIX ABOVE. THOUG H THE ASSESSING OFFICER JUST MADE AN ADDITION TO THE WORK-IN-PROGRE SS, THE EFFECT WAS THAT THE INCOME OF THE ASSESSEE GOT ENHANCED BY SUCH AMO UNT. IT IS MORE OR LESS EQUIVALENT TO THE DISALLOWANCE OF CLAIM OF INT EREST TO THAT EXTENT. AS FOR THE INTEREST PAID TO M/S ALWARPET BENEFIT FUND OF ` 27,66,757/-, 7 I.T.A. NO. 1066/MDS/99 I.T.A. NO. 992/MDS/99 ARGUMENT OF THE ASSESSEE IS THAT THE MONEY BORROWED FROM THE SAID FUND WAS UTILIZED IN PURCHASING SHARES IN PAN RESOR TS LTD. AND CERTAIN OTHER COMPANIES. THIS EXPLANATION OF THE ASSESSEE STANDS UNREBUTTED. OBVIOUSLY, THEREFORE, INTEREST PAYMENT ON SUCH BORR OWAL HAD NO NEXUS WHATSOEVER TO THE CONTRACT BUSINESS CARRIED ON BY T HE ASSESSEE. IT ALSO COULD NOT BE CONSIDERED A PART OF WORK-IN-PROGRESS IN THE SAID BUSINESS. A LOOK AT THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE FOR THE RELEVANT PREVIOUS YEAR PLACED AT PAPER-BOOK PAGE 5 OF THE AS SESSEE WOULD SHOW THAT ITS INCOME COMPRISED OF THE FOLLOWING ITEMS:- INCOME 31.03.1996 ` 31.03.1995 ` CONTRACT RECEIPTS 84434371 21841905 INTEREST RECEIPTS 3060 76173 LEASE RENT RECEIPTS 13126560 1623700 RENT RECEIPTS 60000 60000 MISCELLANEOUS INCOME 63095 20350 INCOME FROM DIVIDEND 55448 -- CLOSING STOCK 24437022 27350435 122179556 50972563 THUS, RECEIPTS OF THE ASSESSEE, IN ADDITION TO CONT RACT INCOME, INCLUDED LEASE RENTALS AND CERTAIN OTHER MISCELLANEOUS ITEMS ALSO. WHEN THE ADMITTED POSITION IS THAT THE INTEREST PAID TO ALWA RPET BENEFIT FUND WAS NOT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, BU T FOR PURCHASE OF SHARES IN COMPANIES, IN OUR OPINION, THERE WAS NO Q UESTION OF INTEREST ON SUCH AMOUNTS BEING ALLOWED AS A CLAIM AGAINST BUSIN ESS INCOME. OF COURSE, TREATMENT DONE BY THE ASSESSING OFFICER BY MAKING AN ADDITION 8 I.T.A. NO. 1066/MDS/99 I.T.A. NO. 992/MDS/99 OF SUCH INTEREST AMOUNT TO WORK-IN-PROGRESS MIGHT N OT HAVE BEEN CORRECT. NEVERTHELESS, AS ALREADY MENTIONED BY US, THE ADDIT ION MADE TO WORK-IN- PROGRESS ONLY HAD THE EFFECT OF DISALLOWING THE CLA IM OF INTEREST. IF WE VIEW FROM THIS ANGLE, THE DISALLOWANCE OF INTEREST MADE TO ALWARPET BENEFIT FUND WAS RIGHTLY DONE. HOWEVER, INSOFAR AS THE INTEREST PAID TO B. KALYANI FOR THE NUNGAMBAKKAM PROJECT IS CONCERNE D, WITHOUT DOUBT, ASSESSEE HAD SHOWN CLOSING STOCK OF WORK-IN-PROGRES S AS ` 1,55,29,500/- AS IT APPEARS FROM PAGE NO.2 OF ITS P APER-BOOK. SO, IT CANNOT BE SAID THAT WHOLE OF THE RIGHTS IN THE LAND FOR THE NUNGAMBAKKAM SITE STOOD SOLD AS AT THE END OF THE R ELEVANT PREVIOUS YEAR. WORK-IN-PROGRESS WILL ALWAYS INCLUDE THE COS T OF THAT PART OF LAND WHERE THE UNFINISHED PART OF THE BUILDING PROJECT W AS THERE. ONCE THE COST OF LAND IS CONSIDERED AS A PART OF PROJECT COS T, THEN THE INTEREST ON DELAYED PAYMENT FOR PURCHASE OF LAND WOULD ALSO FOR M PART OF SUCH COST. THE TOTAL CONTRACT RECEIPT FOR NUNGAMBAKKAM PROJECT WAS ` 4.36 CRORES AND CLOSING WORK-IN-PROGRESS SHOWN BY THE ASSESSEE WAS ` 1.55 CRORES. IF WE TAKE THIS PROPORTION, A SUM OF ` 2,47,224/- HAS TO BE CONSIDERED AS INTEREST ATTRIBUTABLE TO THE NUNGAMBAKKAM PROJECT F ORMING A PART OF WORK-IN-PROGRESS. THEREFORE, IN OUR OPINION, OUT O F THE INTEREST OF ` 9,42,640/- PAID TO B. KALYANI, AN ADDITION OF ` 2,47,224/- TO CLOSING WORK- IN-PROGRESS HAS TO BE SUSTAINED. COMING TO THE LAS T OF THE ITEM, WHICH IS A SUM OF ` 49,446/- PAID TO C.R. MURUGESAN FOR THE COIMBATORE SITE, 9 I.T.A. NO. 1066/MDS/99 I.T.A. NO. 992/MDS/99 THERE ALSO A CLOSING WORK-IN-PROGRESS OF ` 76,57,522/- HAS BEEN SHOWN BY THE ASSESSEE AGAINST CONTRACT INCOME OF ` 2,42,31,738/-. FOR THE SAME REASON AS WE HAVE MENTIONED FOR NUNGAMBAKKAM P ROJECT, WE ARE OF THE OPINION THAT A PROPORTIONATE AMOUNT OF INTER EST PAYMENT HAS TO GO INTO THE CLOSING WORK-IN-PROGRESS. ACCORDINGLY, A SUM OF ` 11,940/- ALONE COULD HAVE BEEN CONSIDERED AS PART OF WORK-IN -PROGRESS ATTRIBUTABLE TO THE INTEREST PAID TO C.R. MURUGESAN . WE ARE, THEREFORE, OF THE OPINION THAT AN ADDITION OF ` 11,940/- TOWARDS WORK-IN-PROGRESS FOR INTEREST PAYMENT TO C.R. MURUGESAN WAS JUSTIFIED. CIT(APPEALS), IN OUR OPINION, FELL IN ERROR IN DELETING THE ADDITION IN TOTAL. WE, THEREFORE, SUSTAIN THE ADDITION MADE BY THE A.O. FOR THE INTER EST PAID TO ALWARPET BENEFIT FUND THOUGH FOR DIFFERENT REASONS, AND FOR OTHER INTERESTS PAID TO B. KALYANI AND C.R. MURUGESAN TO THE EXTENT MENTION ED ABOVE. ORDERED ACCORDINGLY. GROUND NO.1 OF THE REVENUES APPEAL IS PARTLY ALLOWED. 11. THIS LEAVES US WITH THE ONLY OTHER ISSUE ON WHI CH BOTH PARTIES ARE AGGRIEVED, WITH REGARD TO DISALLOWANCE OF SERVICE C HARGES. AS ALREADY MENTIONED BY US, DISALLOWANCE OF SERVICE CHARGES WA S AN ISSUE WHICH HAD COME UP BEFORE THIS TRIBUNAL IN ASSESSEES APPE AL EARLIER, DISPOSED OF ON 7 TH JUNE, 2001. NO DOUBT, THIS ORDER WAS RECALLED FOR A REASON THAT REVENUES APPEAL FOR THE SAME YEAR WAS NOT CONSIDER ED ALONG WITH 10 I.T.A. NO. 1066/MDS/99 I.T.A. NO. 992/MDS/99 ASSESSEES APPEAL. HOWEVER, THE ISSUE WITH REGARD TO DISALLOWANCE OF ` 69,72,885/- CLAIMED BY THE ASSESSEE AS SERVICE CHAR GES FOR ARRANGING LEASE TRANSACTIONS FACILITATING THE CLAIM OF DEPREC IATION OF 100%, HAS BEEN DEALT WITH BY THE TRIBUNAL AT PARAS 2 TO 4 OF ITS ORDER. THESE PARAS ARE REPRODUCED HEREUNDER:- 2. THE ASSESSEE IN THIS CASE CARRYS ON BUSINESS IN C IVIL AND STRUCTURAL CONTRACT AS ALSO LEASING OF ASSETS. IN THE ASSESSMENT YEARS 1995-96 & 1996-97 THE ASSESSEE COMPANY PURCHASED 20,834 GAS CYLINDERS FROM ECONOMIC MARKETERS PVT. LTD., SISTER CONCERN OF FEENA PETRO PRODUCTS LTD. AND OTHER MACHINERIES ELIGIBLE FOR 100% DEPRECIATION. THESE MACHINERIES WERE LEASED OUT TO PARTIES, ON WHAT ARE KNOWN AS BUY & LEASE BACK TRANSACTIONS TO THE F OLLOWING PARTIES: ELGI AUTO PARTS LIMITED : RS. 2,03,35,000/ - JANZEN CASTMETAL LTD. : RS. 2,06,85, 000/ - ECONOMIC MARKETERS PVT. LTD. : RS. 1,65,17,200/ - TOTAL : RS. 5,75,37,200/ - AGAINST THESE PURCHASES AS ALREADY STATED PAYMENT O F ` 69,72,885/- HAVE SHOWN TO HAVE BEEN MADE IN THE BOOKS OF ACCOUN T AND INTEREST PAYMENT OF ` 55,23,301/- AS MENTIONED IN PAGE 3 OF THE ASSESSMENT ORDER WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT AN D A LEASE RENT OF ` 1,77,27,045/- WAS ALSO SHOWN AS RECEIPTS IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE FILED A DECLARATION UNDER VO LUNTARY DISCLOSURE SCHEME OF 1997 WITHDRAWING THE DEPRECIATION CLAIMED OF ` 4,83,60,176/- AND PAID TAX OF ` 1,53,78,550/- AS PER CERTIFICATE ISSUED BY THE CIT AT PAGE 8 OF THE PAPER-BOOK. THE ASSESSEE HAS ALSO FILED BEFORE US A COPY OF THE DECLARATION FILED AT PAGE 13 OF THE PAPER-BOOK. IN OTHER WORDS, THE WHOLE TRANSACTION WAS GIVEN UP AND TAX IMPLICATION WERE MADE GOOD BY THE ASSESSEE. CON NECTED WITH THESE TRANSACTIONS WAS THE PAYMENT OF ` 69,72,885/-. THE COMMISSIONER (A) APPRECIATED THE TRANSACTION IN THE FOLLOWING MANNER: AFTER CAREFUL CONSIDERATION OF THE RIVAL STAND POI NTS, I HOLD THAT THERE IS SOME MERIT IN THE APPELLANTS REPRESENTATI VES ARGUMENTS. IT IS TRUE THAT THE PURCHASE BILLS IN QUESTION ARE BOG US, THE INTENTION OF THE APPELLANT IS EXPLICIT FROM THE COURSE OF THE TRA NSACTIONS WAS TO 11 I.T.A. NO. 1066/MDS/99 I.T.A. NO. 992/MDS/99 MAXIMIZE CLAIM OF DEPRECIATION PURCHASE OF TH E ASSETS DID NOT TAKE PLACE AND THE SUPPLIERS ALSO DID NOT DEMAND TH E PAYMENT BUT UNDER THE V.D.I. SCHEME 1997, WRITE BACK OF DEPRECIATI ON UNDER THE ABOVE CIRCUMSTANCES WAS AVAILABLE TO TAX PAYERS AND IT WAS EXACTLY SUCH FACILITY AVAILABLE THAT THE APPELLANT UTILISED UNDER THE SCHEME. THE ASSESSING OFFICER IS NOT JUSTIFIED IN LOOKING B ACKWARD AT THE NATURE AND CHARACTER OF THE TRANSACTIONS INVOLVED T O HOLD THAT THE TRANSACTIONS WERE SHADY AND FISHY. THEREFORE, I AG REE WITH THE APPELLANTS COUNSEL THAT THE COURSE OF TRANSACTIONS IN QUESTION UPTO THE WRITE BACK OF 100% CLAIM OF DEPRECIATION UNDER T HE V.D.I. SCHEME 1997 HAVE TO BE CONSIDERED AS ONE COMPOSITE. I DO NOT AGREE WITH THEM THAT THERE IS ANY JUSTIFICATION FOR PAYMENT OF SERVICE CHARGES AT SUCH WHOPPING FIGURE OF ` 69,72,885/- AGAINST THE TAX SAVING OF ` 1,13,70,494/-, THE PERCENTAGE OF THE PAYMENTS VIS--VIS T HE TAX IS NOT WORKED OUT TO MORE THAN 50%. IN THE ABSENCE OF ANY C ONFIRMATION FROM THE PAYEES IN THE ABSENCE OF ANY AGREEMENT BET WEEN THE APPELLANT AND THE PAYEES REGARDING THE PAYMENT OF T HE SERVICE CHARGES CLAIMEDBEING EXHORBITANT, I HOLD THAT HAVING REGARD TO THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE NOT MORE THAN 10% OF THE TAX SAVED COULD BE CONSIDERED ELIGIBLE AS SERVICE CH ARGES AND ACCORDINGLY I DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION OF 10% ON ` 1,13,70,494/- I.E. 11,37,494/- TOWARDS SERVICE CHARGES AS DEDUCTION. 3. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED T HE STAND HE HAD TAKEN BEFORE THE TWO REVENUE AUTHORITIES AND PL EADED FOR COMPLETE ALLOWANCE OF THE CLAIM. THE LEARNED COUNS EL SPECIFICALLY POINTED OUT THAT THE ASSESSEE DID NOT WANT TO GET I NVOLVED IN LONG- DRAWN BATTLE AND WANTED TO PURCHASE PEACE WITH THE DEPARTMENT AND ACCORDINGLY WITHDREW THE ENTIRE DEPRECIATION CLAIME D OVER TWO YEARS BY FILING DECLARATIONS UNDER V.D.I. SCHEME. THE PA YMENTS MADE TO THESE PARTIES SHOULD THEREFORE BE CONSIDERED AS SER VICE CHARGES AND IN FACT THE COMMISSIONER (A) APPRECIATED THESE FACT S THAT ALL THE TRANSACTIONS SHOULD BE CONSIDERED AS ONE COMPOSITE DEAL AND RESTRICTED THE CLAIM AT 10% OF THE TAX SAVED ON THIS TRANSACTION. THE LEARNED COUNSEL POINTED OUT THAT THERE ARE INACCURA CIES IN THE COMPUTATION OF THE FIGURES MADE BY THE COMMISSIONER (A). HE HAS MADE HIS OWN COMPUTATION AT PAGE 7. THE DIFFERENCE IN THESE IS MAINLY BECAUSE THE COMMISSIONER (A) ERRED IN OMITTING TO C ONSIDER THE DEPRECIATION AND THE LEASE RENT PAYMENT FOR THE YEA R ENDING 31.3.1995. EVEN HIS FIGURE OF TAX SAVED ON THE BUSINESS LOSS AT 40% AT ` 1,13,70,494/- IS ITSELF WRONG AND THAT SHOULD BE A FIGUR E OF ` 12 I.T.A. NO. 1066/MDS/99 I.T.A. NO. 992/MDS/99 1,73,06,750/- AND ACCORDINGLY ALL HIS WORKING SHOULD CHANG E. THE LEARNED COUNSEL PLEADED THAT IF THE TRIBUNAL FOR AN Y REASON IS NOT CONVINCED WITH 100% DEDUCTION, ALTERNATIVELY, A REASO NABLE FIGURE OF 25% SHOULD BE ALLOWED. THE DEPARTMENTAL REPRESENTATI VE ON THE OTHER HAND STRONGLY SUPPORTED THE ORDER OF THE COMM ISSIONER (A). 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORDS IN DETAIL. THE DEPARTMENT HAS NOT COME UP IN ANY APPEAL AGAINST THE ORDER OF THE COMMISSIONER (A). IMPLYIN G THEREBY THAT THE FINDINGS OF THE COMMISSIONER (A) SO FAR THEY ARE IN FAVOUR OF THE ASSESSEE ARE ACCEPTED BY THE DEPARTMENT. IN OTHER WORDS, THE COMMISSIONER (A) WAS RIGHT IN HOLDING THAT THE ENTI RE TRANSACTION SHOULD BE TREATED AS ONE COMPOSITE TRANSACTION AND THEY WERE ALL DONE WITH A VIEW TO SAVE TAX ON THE BUSINESS LOSS. THE C OMMISSIONER (A) IN OUR CONSIDERED OPINION HAS CORRECTLY APPRECIATED TH E FACTS AND THE QUESTION OF THE ASSESSEE GETTING 100% DEDUCTION IN RE SPECT OF THE TRANSACTION THEREFORE IS NOT CORRECT IN THE LIGHT O F THE DISCUSSION WHICH THE COMMISSIONER (A) HAS MADE IN HIS ORDER. FURTHER WHILE DEALING WITH THE COMPUTATION PART OF IT, THE COMMIS SIONER (A) OMITTED TO CONSIDER THE TRANSACTIONS OF THE EARLIER YEAR WH ICH WERE PART OF THE DECLARATION FILED UNDER THE V.D.I. SCHEME. SO ACCORDINGLY WE ALSO FEEL THAT ALLOWANCE OF 10% OF THE TAX SAVED WHICH COU LD BE CONSIDERED AS SERVICE CHARGES IS TOO LOW A FIGURE AND WE ACCOR DINGLY MAKE IT TO 20% OF THE TAX SAVED. THE WORKING IS AS UNDER:- DEPRECIATION CLAIMED FOR THE ACCOUNTING YEAR ENDED 31.03 .1995 : RS. 10000320 DEPRECIATION CLAIMED FOR THE ACCOUNTING YEAR ENDED 31.03 .1996 : 50993600 60993920 LESS: LEASE RENT ADJUSTED : 17727045 NET BUSINESS LOSS : 43266875 TAX SAVED ON THE BUSINESS LOSS : 17306750 THE ASSESSING OFFICER IN THE LIGHT OF THE ABOVE IS DIRECTED TO ALLOW DEDUCTION AT 20% AS AGAINST 10% ALLOWED BY THE COMMISS IONER (A) ON THE TAX SAVED OF ` 1,73,06,750/- TOWARDS SERVICE CHARGES I.E. ` 34,61,350/-. 12. LEARNED D.R. HAS STRONGLY ARGUED THAT CIT(APPEA LS) WAS NOT JUSTIFIED IN CONSIDERING THE LEASE TRANSACTION TO B E GENUINE AND ALLOWING 13 I.T.A. NO. 1066/MDS/99 I.T.A. NO. 992/MDS/99 A PART OF CLAIM OF SERVICE CHARGES WHICH, AS PER TH E REVENUE, WAS FOR MAKING A BOGUS CLAIM. WE ARE OF THE OPINION THAT T HE TRIBUNAL HAD CORRECTLY CONSIDERED THE ISSUE EARLIER IN THE ABOVE RE-PRODUCED PARAS. ARGUMENT OF THE ASSESSEE THAT ORDER OF THE CIT(APPE ALS) DIRECTING 10% ALLOWANCE ON THE TAX SAVED AMOUNT AS REASONABLE SER VICE CHARGES, OUT OF ITS TOTAL CLAIM OF ` 69,72,885/- WAS UNJUSTIFIED, IS ALSO NOT, IN OUR OPINION, ACCEPTABLE. THOUGH RELIANCE WAS PLACED BY THE LEARNED A.R. ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT V. M/S HIGH ENERGY BATTERIES (INDIA) LTD., CHENNAI IN T.C. (APPEAL) NOS. 579 TO 581 OF 2005 DATED 17.4.2012, THERE THE CIT(APPEALS) HAD NOT TREATED THE TRANSACTION AS SHAM, AND THUS HELD THE DISALLOWANCE OF THE CLAIM BY THE A.O. TO BE INCORRECT. THUS THE FACTS ARE AT VARIAN CE WITH ASSESSEES CASES. IN THE CIRCUMSTANCES, THE EARLIER OPINION O F THE TRIBUNAL REPRODUCED ABOVE, WHICH HAS TAKEN INTO ACCOUNT THE FACTS AND CIRCUMSTANCES OF THE CASE AND DIRECTED THE ASSESSIN G OFFICER TO ALLOW DEDUCTION AT 25% AGAINST 10% ALLOWED BY THE CIT(APP EALS) ON TAX SAVED OF ` 1,73,06,750/- IS REASONABLE. SAME DIRECTIONS ARE GIVEN NOW ALSO. 13. IN THE RESULT, GROUND NO.2 OF THE REVENUE STAND S DISMISSED, WHEREAS, THE SOLE GROUND TAKEN BY THE ASSESSEE IS P ARTLY ALLOWED. 14 I.T.A. NO. 1066/MDS/99 I.T.A. NO. 992/MDS/99 14. TO SUMMARIZE THE RESULT, APPEAL OF THE REVENUE AS WELL AS APPEAL OF THE ASSESSEE ARE PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE SIXTH OF SEPTEMBER, 2012, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 6 TH SEPTEMBER, 2012. KRI. COPY TO: ASSESSEE/ASSESSING OFFICER/CIT(A)-IV, CHE NNAI/ CIT, TAMILNADU-IV, CHENNAI/D.R./GUARD FILE